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Every time we see a new crypto project entering the market, we notice different ways to launch a token. One of the teams’ most common choices is leaving (or not) access to the token to early investors.
In this context, we have all heard about pre-sales and fair launches. These two strategies represent different approaches to the crypto market. Our guide will clarify the main features of the two funding rounds for our readers.
Launching a Crypto Project – Preliminary Steps
Before understanding the difference between pre-sales and fair launches, we need to take one step back. The preference of one strategy over the other may depend on how a team conceived a new project.
In this sense, we must understand the preliminary steps in creating a new cryptocurrency. In simple terms, a team will need to complete the following milestones:
- Concept design: Each crypto project should have a good design at its core. In this phase, talented teams must state their vision and mission for the project.
- Ecosystem design: A new promising cryptocurrency will need a comprehensive ecosystem to survive. In other words, investors expect projects to have several interconnected products that enhance the user experience. For example, a new DEX may choose to integrate a launchpad and an NFT marketplace in its ecosystem.
- Selecting a blockchain: Each token runs on a blockchain, and the team must dedicate enough time to choose the targeted system. Developers may work on realizing a proprietary blockchain or edit the code of an open-source chain. However, the most popular choice is launching a token on an existing blockchain, an option that reduces the project’s complexity.
- Allocate tokens: All teams need to define the supply and allocation of their token. At this point, teams generally require the help of external advisors to find the optimal token allocation. A good token allocation needs balance, where the interests of the investors, team, and users do not collide.
- Define token utility: This step is fundamental to creating value on the market. Investors and users expect the new token to have a purpose in the project’s ecosystem. A token that limits itself to bear market value and gives internal governance represents a concept of the past. The market is moving toward a multi-utility framework, with tokens granting the possibility to earn passive income, trade NFTs, etc.
After defining the details above, a team should choose how to launch its token on the market. At this point, we need to understand the differences between a pre-sale round and a fair launch.
Pre-Sale Main Features
While some crypto projects are still in the early stages of development, they provide tokens to prospective investors. Because it occurs before the ICO, traders call this operation “pre-sale.”
Pre-sales of cryptocurrency operate as vehicles for crowdfunding. These operations supply creators with the capital they require to take a project through to completion. Investors and developers both benefit from pre-sales, especially if the coin performs well and quickly gains traction.
Investing in a cryptocurrency before it enters the market and appreciates is an opportunity for investors. Developers benefit from pre-sales by getting the word out about their projects and increasing their visibility.
Typically, teams put a limited amount of tokens up for pre-sale. Furthermore, we usually find limits to the number of tokens a wallet can own.
The pre-sale purpose is clear: introducing an idea of token scarcity at a low market price. This framework makes the whole event rather exclusive, helping the team create hype on a new project.
How Does a Fair Launch Work?
Fair launches are another sort of crowdfunding in the crypto world. In this system, the project sells tokens to all participants equally. Tokens follow a fair and balanced distribution in a proper fair launch.
Fair launches have the determination to get rid of team incentives as defining characteristic. A fair launch aims to prevent projects from distributing tokens before the general public can access the platform.
Most DeFi initiatives will compensate developers and teams with tokens for their contribution to the project in most instances.
As already mentioned, small amounts of tokens may be available for some pre-launch launch pads. But in the case of fair launches, launchpads cannot collect a portion of the tokens.
If launchpad “fees” are out of the game, projects may be able to save funds for research and development. For the most part, pre-sale platforms provide many funding options. White-listed investors frequently receive tokens in the initial round at a discount.
The public may access the market in a separate round at a higher price. Someone may argue that pre-sales are unfair to the average trader.
Tokens are available to anyone at the same price in a fair launch. As a result, all investors have equal access to the market.
Choosing the Best Option
At this point, you may wonder what the best choice for a team creating a cryptocurrency is. If you are a small trader, you may feel that fair launches are always the best option for your wallet. However, things may not be so easy.
Consider the case of a project creating a complex ecosystem and developing a proprietary blockchain. In this scenario, introducing the idea of market scarcity with an exclusive pre-sale round can be a good choice.
A highly decentralized crypto project typically does not provide high benefits to its developers. As a trader, you may like the idea of a fair launch. However, a developer spending months designing smart contracts may not share your enthusiasm.
A project where developers do not have a particular incentive to build a successful initiative can be problematic. At the same time, the success of a crypto project largely relies on its community.
The bottom line is that there are great reasons to support both pre-sale rounds and fair launches. As we clarified above, the choice mainly depends on how a team designed the project.
Ideally, the team should aim to make investors, users, and developers happy. If any of these stakeholder groups feel ignored by the project, the crypto initiative may fall apart.
Our guide clarified the main differences between fair launches and pre-sale rounds. While you may consider this choice straightforward, all teams need to consider many variables in this case.
The best choice mainly depends on the equilibrium among users, investors, and developers’ interests.