Journey to solve the puzzle of the decentralized token issuance mechanism

From Initial Coin Offering to Initial Exchange Offering to the current Initial DEX Offering, the token issuance mechanism of the crypto community has been evolving towards the goal of being more “open, fair, and transparent”. Creative practitioners in the encryption industry have continued to make a lot of efforts in the innovation of the Token issuance mechanism. Through this article, IOSG invites readers to embark on this journey with us to learn about the main token issuance mechanism of Initial DEX Offering in the near future.

Uniswap V2

“All sales are put into the trading pool by the project party at one time. The initial price is determined by the project party, and the transaction price is determined by market supply and demand.”

To conduct the first token issuance on Uniswap-Initial Uniswap Listing, the project party needs to first determine the initial price of the token sale, and prepare an accepted token of the same value (usually tokens such as ETH or USDT) based on the initial price and the number of tokens to be sold . When the sale starts, the project injects equivalent offering tokens and accepting tokens to the trading pool (sale token: accept token=50%:50%), and then the price of tokens will be automatically adjusted by market supply and demand according to Uniswap’s constant product formula.

It should be noted that since the token sale is the first issuance, at the beginning of the sale, participants can only purchase the token from the trading pool and cannot inject the token. According to the constant product formula, this kind of trading behavior will inevitably push up the price of the issued token (compared to the initial set price). This mechanism causes participants to try their best to make their own purchase transactions precede other participants’ transactions, which eventually evolves into a “gas war”, in which early runners who trade at low prices can sell tokens at higher prices. Other participants. This harms the interests of most participants and runs counter to the concept of “fair distribution”. In addition, in this mechanism, since the sale token provided by the project party is the only source, the transaction price of the sale token will not be lower than the initial set price. Such a price discovery process is unidirectional and flawed.


“All sales are put into the trading pool by the project party at one time. The initial price is determined by the project party, and the transaction price is determined by the adjustment of the proportion of each asset in the trading pool and the market supply and demand.”

The principle of Balaner’s first token sale is similar to that on Uniswap, but it created the Liquidity Bootstrapping Pool to conduct the first token sale more fairly and efficiently. By independently setting the initial proportion of each asset in its trading pool (for example, it can be initially set to sell token: accept token=90%:10%, instead of the 50%:50% required by Uniswap), the project party only needs to prepare a small amount of token to accept. The sale can be started, which solves the problem that the token sale project party on Uniswap needs to prepare an accepted token equivalent to the sale token to start the sale, and improves the fund efficiency of the project party. Balancer can also set the trading pool to continuously adjust the proportion of two (or more) assets in the pool (as shown in Figure 1 below) to form price pressure (as shown in Figure 2 below) and reduce participants’ Motivation for “Snatch Run”. The price pressure formed by the adjustment of the proportion of each asset in the trading pool and the upward price momentum formed by the purchase behavior of participants together determine the selling price of the token. Compared with Uniswap’s mechanism, Balancer provides a more balanced price discovery mechanism.

Journey to solve the puzzle of the decentralized token issuance mechanism

Figure 1: The proportion of each asset that is constantly adjusted in the trading pool, the sale of tokens: 90%: 10% from the beginning of the acceptance of the token, gradually adjusted to 10%: 90% at a rate of 1.11% per hour within three days

Journey to solve the puzzle of the decentralized token issuance mechanism

Figure 2: In the absence of any buying or selling behavior, the price of the token sold will continue to decrease as the proportion of each asset in the pool is adjusted

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“The tokens that are not more than the total amount sold are continuously injected into the trading pool by the project party to keep the price of the token sold constant. After the total amount of the sale is injected, the price is determined by market supply and demand.”

Polkastarter uses a fixed capital pool and a cross-chain exchange pool. This mechanism may be the most conducive to understanding, because the price, quantity, and duration of the token sale are fixed. Participants only need to connect to the wallet and inject the required token into the fund pool they want to invest in to participate in the purchase and sale of tokens.

Compared with Initial Uniswap Lisitng on Uniswap, the most prominent advantage of this mechanism is that the price is constant, the price of tokens sold during the entire sale period does not fluctuate, and participants have no incentive to “rush”, which is relatively fair. However, this model also has two main flaws: First, Polkastarter allows the project party to decide which participants can participate in the financing, and most of the fund pool is set as “non-public” by the project party, only those on the whitelist Participants are eligible to participate. Therefore, the token sale process is not open enough. Secondly, because the price of the token sold is fixed, this model does not have an effective price discovery mechanism at the initial token sale stage.

BSCPad, TronPad, Solstarter

“Lateral sale, with the number of platform tokens pledged to determine the level, order and number of token allocations to participate in the sale”

In order to prevent the rush to run, BSCPad, TronPad and Solstarter adopt a similar mechanism: tokens will be sold in rounds, and the price and quantity of tokens are determined by the project party and remain fixed during the sales process. Although the specific requirements have changed, the overall logic is the same, that is, tokens will be preferentially allocated to the participants with the most tokens on the pledge platform. With BSCPad, participants are divided into several levels according to the number of pledged $BSCPAD. Participants with higher levels can participate in the first round of financing, and the higher the level, the more token quotas. Of course, participants can also buy tokens less than their own quota or even give up investment. The remaining tokens will be sold to low-level participants in the second round.

Journey to solve the puzzle of the decentralized token issuance mechanism

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This mechanism can prevent the occurrence of “snatching”, and as long as participants pledge enough launchpad native tokens, quotas can be guaranteed, but it is still not perfect. In order to purchase a token, participants need to pledge enough platform tokens, and the cost of investment may be high. If the participants are not the top pledgers, their quotas will be smaller. Not to mention those who are not pledged, the sale may have ended before their round.

Mango Market Token Sale

“Participants will accept tokens to be deposited in the fund pool. The first 24 hours can be deposited and withdrawn, and the following 24 hours will only be withdrawn but not deposited. The transaction will be concentrated in the 48th hour.”

Recently, Mango Market’s financing has attracted widespread attention. One reason is that its financing amount is as high as 70 million US dollars. Another reason is that its financing model is very novel. Unlike the previous model, Mango Market gives the participants the power to determine the price. The financing takes 48 hours in total and consists of two 24-hour stages. In the first stage, participants can freely inject or withdraw funds, so the price of MNGO will always fluctuate. If participants in the second phase do not accept the current valuation, they can withdraw their funds, but cannot inject them. Therefore, from the second stage, the price of MNGO can only fall. The final price of MNGO is determined by the total amount of funds in the vault/the number of tokens sold in this round (500,000,000).

This sales model of Mango Market is indeed very public, there is no rush phenomenon and the token price purchased by each participant is the same. However, this mechanism has a major flaw: that is, large players can manipulate prices. For such participants, they can put excess funds into the vault in advance and raise the valuation to scare off many retail investors. At the last moment of the first stage, the funds they had not planned to inject were taken out, and the valuation was lowered. In fact, our concerns are not unfounded. The four largest accounts in financing account for 97% of the total USDC supply. They can easily manipulate prices, which is unfair to retail investors.

Journey to solve the puzzle of the decentralized token issuance mechanism

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Skyward Finance

“The number of Tokens is fixed and will be sold at a constant speed during the sale period. The transaction price is completely determined by the participants’ joint dynamics.”

Skyward Finance is a token sale platform in the NEAR ecosystem. Its novel token issuance mechanism provides a more open, fair and transparent choice. For projects issued on the Skyward Finance platform, the project party can only determine the number of tokens to be sold, the duration of the sale, and the acceptance of tokens. The price is completely determined by the participants. By setting the number and duration of token sale, tokens are sold at a rate of (total sale quantity)/(total sale duration)=(remaining unsold token quantity)/(remaining sale duration) during the sale period. Participants can participate in the purchase by depositing and accepting tokens at any time before the end of the sale. At any point in the sale period, the tokens sold at a constant speed are traded at the price of (the total number of accepted tokens in the pool)/(the number of unsold tokens left in the pool). The sale tokens traded in each block will be consumed in an equal proportion (the total number of accepted tokens in the pool) and reduced (the number of unsold tokens left in the pool). This ratio will not be added or removed from the pool. Under the circumstances, it remains unchanged (that is, the instantaneous transaction price remains unchanged). Since the transaction is continuous and gradual, the participants’ accepted token funds will not be consumed all at once but gradually consumed. Skyward Finance allows participants to submit their remaining acceptance token funds in the pool at any time. As participants deposit or withdraw acceptance token funds, (the total number of accepted tokens in the pool) will rise or fall, and (the number of unsold tokens left in the pool) will decrease at a fixed rate, then the instantaneous transaction price Will follow the participant’s deposit and withdrawal acceptance token behavior to rise or fall.

The highlights of Skyward Finance’s price discovery mechanism are: (1) Anti-snatching: All participants get the same real-time transaction price, although the transaction price is dynamically determined by all participants; (2) Anti-price manipulation: the whale cannot control the price To make money for yourself, depositing the acceptance token (corresponding to the start of purchase/increasing purchase) will increase the transaction price, and withdrawing the acceptance token (corresponding to the suspension of purchase/reduction of purchase) will reduce the transaction price. Trying to manipulate the price will only harm your own interests; (3) Anti-Witch: Trying to diversify funds and using multiple accounts to participate in the purchase has the same effect as concentrating funds and using one account to purchase.

We summarize the characteristics of each representative IDO or launchpad platform as follows:

Journey to solve the puzzle of the decentralized token issuance mechanism

Image source: IOSG Ventures

The crypto community welcomes the emergence of more open, fair and transparent token issuance mechanisms. Every innovative model is a brave and intelligent attempt. Although in the short term project parties may be more inclined to efficient traditional financing channels, emerging models will not yet be adopted on a large scale. However, the trend of the cryptocurrency community’s pursuit of “openness, fairness, and transparency” remains unchanged. In the long run, the emerging fair issuance mechanism will shine.


Reference materials:


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