The Token Launch. Everything You Need to Know (Part 1)

Tokens are at the center of many web3 projects. The strategy developed behind a project's token can dictate how a community engages with it, its utility, public interest, and overall success. Below are key tips project founders should keep in mind as they build their token allocation structures.

Use General Titles to Allow for Future Flexibility and Specification

The token allocation structure can be very general or very specific, depending on the product or business vertical. To stay more flexible, it's important to use universal and general titles like "Treasury" or "Ecosystem Development" for the plans outlined in the whitepaper, allowing the details to become more specific in the future. For example, more narrow definitions like "Grants," "Liquidity," or even "Marketing budget" can be used within the "Ecosystem Development" or "Treasury" allocation.

Strategize for Specific Communities

Token distributions can be broken down into six main segments:

• Investors: Private and Public Sales
• Core Team
• Treasury
• Community Development
• Ecosystem Development
• Airdrop/Incentives

Investors: Private and Public Sales

Private sales are typically allocated to capital providers who can purchase equity that later converts to tokens or equity that is distributed in tokens directly. These tokens are also subject to lock-ups, generally in line with the core team or even earlier.

Private sales are mainly used to fund building the product until the product market fit and traction are identified. Private sales can be structured into multiple rounds (pre-seed, seed, round A/B) before the token is listed. The capital may also be used at later stages to scale, but the common market practice is to sell the equity for the B/C/D rounds.

It's important to avoid including a lot of investors that own a big stake in your project's token pool to avoid market manipulation and the risk of tokens being dumped by a whale investor.

Public sales are sold to the general public. Formerly referred to as the "ICO" portion of the supply, Public Sale tokens are sold at launch and are typically liquid at inception or have very short lockups.

Because of the core "speculative" nature of tokens, each startup should conduct it to launch the secondary markets.

Public sales can be replaced with token distribution events like airdrops or other early incentive mechanics. It depends on the product development stage and maturity of the primary market (product economy).

Core Team

Reserved for founders and employees, core team tokens are typically subject to the longest lock-ups and reflect the team's ownership of the company. Allocating tokens to the core team is a great way to incentivize all the employees who bring value to the business and its development.

To grow and scale any company, the founders and team must be motivated for long-term success, which lock-ups can help ensure. The "Core Team" is usually allocated around 15-30% of the total token issuance.

Treasury

The treasury allocation is reserved for future token distribution through governance. Treasury tokens are often viewed as the project's "reserve pool" and are allocated to different stakeholders through voting proposals that can be either centralized (Board of Directors) or decentralized (DAO). Since it is difficult to predict how many tokens will be needed in the future, companies typically allocate 10-50% to the Treasury to remain flexible.

Ecosystem Development

Many projects allocate tokens for ecosystem growth programs during their launch, with a focus on secondary markets. These programs enable ecosystem partners to earn from a pre-designated pool of tokens. Many ecosystem development incentives have emerged as an alternative to public sales, including grants, investments, growth programs, liquidity mining, yield farming, and more. Web3 companies need to allocate enough resources to build the additional infrastructure necessary to scale their business because each token needs to increase its usage and utility.

Community Development: Airdrops and Incentives

Each company should take care of its community by actively interacting and rewarding people who bring value as active contributors or clients. Web3 companies often build loyalty or ambassador programs for their communities. These programs often reward contributors with the project's token, which requires a specific allocation of tokens for the community. The goal is to build and scale user acquisition channels while increasing community retention along the way.

Airdrops and other campaigns are used to reward past users for value-added actions. Airdrop tokens are liquid at inception and claimable based on a pre-set allocation for each address designed by the core team. Airdrops grew in popularity during the 2017 run-up and peaked in 2018. The current common practice is to build a specific user experience and lock-ups as a hook to onboard new customers and encourage them to start using the product via the token gateway, or to reward all early contributors to create hype and show the public how generous businesses can be.