Andrew Kang is a well-known cryptocurrency venture capitalist and market analyst. In 2019, he invested heavily in SNX, FTT, and KNC several times. In early 2020, he wrote an article about Thorchain, a cross-chain decentralized liquidity protocol. Recently, he repeatedly tweeted once again to explain his thoughts on the issue of currency floating in the era of project launch. The following is the full text
Token Economics Tips: Token Liquidity Issues
0. In the beginning, a small token liquidity is used to start the project. It is good in the short term, but the price is painful in the long term.
1. Why are so many projects started with low liquidity in Times Coin?
Early-stage venture investors and teams will lock the tokens and maintain ownership to ensure that everyone’s long-term interests are consistent.
In 2017/2018, there was almost no lock-in, and the funds were quickly turned over and sold on TGE. Looking at it this way, it is a good change now.
2. YFI did a very good job at a fair start. But instead of respecting the rules, there are more “exceptions” in the market. The inflation rate reached a high point in the first week of the project, which is very different from the inflation rate many years ago.
3. Why is the low liquidity of tokens bad? Due to the inefficiency of the crypto market, insufficient supply (VS demand) has led to excessive FDV inflation. People who are negatively affected by inflation realize that FDV fanaticism will cause huge selling pressure and depress token prices.
4. Early token purchases and holders, community members and other quilts, the morale of the community drops, members surrender and no longer pay attention to this project, you will lose the largest and most important missionary, talent pool and contributors.
5. Project team members are endlessly coping with low prices and negative emotions in community chats, thereby reducing productivity. It also keeps members away from research, development, and product creation.
6. This is not all. The liquidity mining of your project is priced in its own tokens. The less the incentive, the less attractive. As a result, the growth of agreement liquidity has gradually slowed down. If liquidity slows down, it will suffer the real pain of token prices and liquidity circling back and forth.
7. Many recently launched projects have faced such a dilemma. Some of them have existed for a long time and have been running through the entire development process, including Mstable (MTA), Curve (CRV) and Hakka (HAKKA)
8. These projects have excellent teams, which can help them through the difficulties, but in fact, they can be avoided by investing in greater liquidity supply and appropriate inflation.
9. So how to increase the initial token circulation?
Perform retrospective airdrops to users who have previously used the product according to the use/utility ratio
Larger public sale (this also enables better price discovery and token distribution by project enthusiasts)
10. Reward other contributors (educators, community administrators, ecosystem developers, proposers, etc.)
“Seed” a large amount of AMM liquidity mining/market making
A small amount of unlocking was provided for early investors supporting team members for a long time before TGE.
11. An initial supply greater than 20% and an inflation rate indicator less than 150% leave some room for initial fluctuations.
With an annual inflation rate of more than 200%, the project will be difficult to maintain in the market for a long time.
12. Some builders tend to ignore price, but price and agreement growth are intertwined. Give early investors who support you a good opportunity to “enter” and grow with you, which will have a huge impact.