The Token Launch. Allocation Benchmarks in Tokenomics (Part 2)

It is customary for the Core Team to have around 20% of tokens allocated to founders, employees, and other contributors. Investors usually have about 15% of tokens, but this average includes projects that do not have investors on their token cap table, which brings down the overall category allocation. However, if you only include projects that raise tokens with investors, the token allocation percentage can increase to 20%. Company Reserves or Treasury funds, typically reserved for funding future product development and operating expenses, are allocated about 20%. Please refer to the "Methodology and Definitions" section above for more details on how these funds are typically used.

Community Incentives or Distributions often have the largest allocation at 35%. The increased allocation makes sense because it helps achieve sufficient decentralization and broad network ownership. It is also the primary way to incentivize usage and early engagement of your product. Typically, 5% of tokens are allocated for Public Sales, including public exchange listings and token sales. This number went down from 55% in 2017, likely due to regulations, and we have observed a corresponding increase in allocations to investors and community incentives. Lastly, 5% of tokens are often allocated to partners and advisors.

Use these figures as a rough guideline for tokenomics planning and early-stage token allocations for hiring or fundraising.

Token Lock-ups or Vesting Schedule

For each category, you should have a unique approach to build a healthy economy on the primary market and a healthy trading environment on the secondary markets.

Investors: Private and Public Sales

Try to predict when the secondary markets would be liquid enough so that you can allow your investment to cash out. The cashout process can be both linear unlock or "all-in" that purely depends on the depth and spread of each centralized or decentralized order book.

Always remember that company founders can simply buy back from the investors through the OTC (Over-the-counter) and not influence the token public market price. The average timeline is 12-36 months — but again, it can vary for each business. Investors typically see a shorter lockup period on tokens (compared to team vesting periods) because they benefit from earlier liquidity and the optionality of selling. Even for long-term investors, it is better to have the option to sell than not to have it. There are also token-oriented investors whose strategy is to sell the tokens as soon as they launch/unlock. Secondly, early-stage investors having a lockup is unique to crypto since tokens are immediately liquid, unlike private equity and shares. The 4-year vesting duration used for employees is not relevant or applicable to investors since they are locked in as equity owners and not conditional like employment agreements.

Core Team

The lockups for the "Core Team" are usually similar to the "Investors" or even longer to prove to the public and investors that they are interested and motivated to play the long-term game rather than burn the investors' money. For future employees, there might be additional lockups if the tokens from this category are already unlocked so that you, as a company owner, can properly reward them. The most common vesting duration for the Core Team is 4 years and 3 years. Unsurprisingly, vesting terms converge on annual durations (12, 24, 36, 48, etc.). The 4-year vesting period being most common is likely due to the "standard 4-year vesting schedule" in the broader tech industry and companies outside of crypto/web3. The 1-year cliff or lockup is most common, closely associated with the standard 4-year vesting period.

Treasury

When it comes to the Treasury category, it's important to consider all the unforeseeable obstacles and opportunities that may arise in the future. To ensure that you always have a small token liquidity available for any force majeure cases, it's recommended to set up a linear unlock schedule. This could include fees from centralized exchanges, additional liquidity or incentives on these platforms, or the opening of new experimental markets.

Community Development and Ecosystem Development

For these categories, it's recommended to set a minimum lock-up period of 2 to 5 years based on your business roadmap. This will ensure that you always have the necessary resources available to scale, support and explore new business directions. It's important to avoid a scenario where over 50% of the total token issuance is already in circulation in the market, which can make it challenging to support and incentivize new users while introducing new products or services within the ecosystem that you've built or are planning to create.

Airdrop/Incentives

Typically, there are no lockups, or they are only partly locked with a 1-12 months overall lockup period. These funds are usually spent during the soft launch of a product, or shortly after opening the secondary markets. They can be used as an additional user acquisition channel or as a way to reward early contributors.

Lockup durations and lockup cliffs can help mitigate selling pressure and significant drops in price. A minimum lockup period of one year after a token generation event is the most common practice. This ensures that team members and investors don't all sell their tokens immediately at launch.