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Token Launch FAQ
Recorded: June 10, 2025 Duration: 1:01:10Space Recording
Short Summary
In a recent discussion, experts delved into the intricacies of token launches, emphasizing the importance of supply-side tokenomics, audience targeting, and strategic collaborations. They highlighted emerging trends and growth strategies that can significantly impact the success of new tokens in the evolving crypto landscape.
Full Transcription
Thank you. Hey, Packy.
Hey, Paki. Hey, Octopus.
Hello, friends. Great to see you all this morning.
Likewise.
Nice to see you, too.
Waiting on Eric, and I'm going to get set up on my other account.
I'll be speaking from this one.
I didn't get a second phone in time for this space,
but this gives us a couple buffer minutes.
Wait on Eric to join and worst case scenario,
we can, there he is.
Eric.
GMGM, Eric, good to see you, man.
Good to see you, too.
Good morning, brother.
Good morning.
Yeah, thanks, guys, for getting up so early.
I know it's really early your time.
And I've been wanting to do this space for a while.
Found a time that worked for everyone. So excited to get this one going.
We can wait a couple of minutes.
I'll be speaking from this account.
I'll pull my other one up on stage.
But we can wait a couple of minutes while we send out a couple of invites
just to whoever might be interested in this one.
Wait for people to filter in and then we can just go.
I have it in mind also to clip the content from the space after.
So if you guys have any talking points, we'll
make sure to get that in and we'll have some time to go over all of that. And I will clip
this initial part out so we can start it whenever makes sense to after covering all the details
up front.
Sounds good.
Just a heads up, I do have a hard stop at eight.
So at the hour?
Yeah, definitely anticipated that.
And that works for me.
Does anyone else have a hard stop earlier than 8?
I don't have a hard stop before 8.
Okay, cool.
All right, right on.
Well, I'll give it a couple minutes.
I'm just going to send out a couple invites,
and we'll wait for a couple people to filter in.
Sebi, welcome.
We're just starting in two minutes,
and we'll wait for some more people to come in. But in the meantime,
if you have any questions, just post them underneath the space. I'll see them on a
token dynamics account and try to address some things, but we're intending to cover
everything related to supply side tokenomics today, which is broadly emission schedule,
which is broadly emission schedule, allocation, distribution mechanisms,
the current meta around supply side tactics, generating artificial scarcity, and everything
from market maker deals to team allocations to just about everything else. But if you have
anything specific,
just comment it underneath the space.
We should have queued up some elevator music.
Actually, music actually looks like I can't I can't start it after starting to speak yeah and select that which is cool you
really bad time to have a really cool concept for demand side tokenomics then huh we can maybe talk about that at the end um we should do eric we should do actually a demand side tokenomics space and sometime in the next that would be really cool to get like you marco
maybe maddie uh and like nick or someone that um that would be good for demand side tokenomics in particular on
maybe Vasily Suminoff I think would be a really good demand side person to
bring all right well I'm also I'll be going off of the I think you guys have
the Google Doc for the questions that we want to hit today, so I'll
be loosely going off of that, but if you guys have other things, you can add them in the
doc if you want to.
We can, yeah, we can, like, free verse.
It's totally fine with me.
Let's give it another minute and then we'll start. Thank you. . All right, I think it's probably good to start now if you guys are ready.
I want to start with a round of introductions just for the audience to get to know you guys.
just for the audience to get to know you guys.
You can give whatever level of background you want to,
maybe a little bit of background on how long you've been working on
which aspects of tokenomics and maybe an area of expertise.
We can go around the room and start off with Octopus
and then move to Eric and then Paki after that.
And actually, I can introduce myself first.
This is Nate. I'll be speaking from the Token Dynamics account.
And we're going to be talking about all things supply side, the supply side of tokenomics today. So where most of tokenomics has been focused on
the generating artificial scarcity, we often distinguish the alternative as demand side
tokenomics, but it's still important to give at least lip service to the supply side. So today we're going to talk about all the ways that you can use
different tactics to generate token price appreciation and align the incentives of the
holders of the token to get different outcomes in tokenomics. And so we've got a few great guests today. Octopus, who's a mathematics
PhD, one of the primary contributors to token dynamics, has been working on tokenomics for
the last several years. I think maybe I want to say been doing this in some form for the last
six or seven, but I'll open it up to you next. And then Eric,
who is the lead token economist at Alpha Growth, formerly at Doponomics, and built a couple of
projects of his own. And then Paki, who I'll let introduce herself. But yeah, we'll open it up with that. How are you guys all doing today?
I'm doing very well. So happy to be speaking with y'all. So I'm Octopus. I came in from
anarchism first. I've been in anarchism ideology for more than 20 years, then cryptography.
In my math studies, cryptography and privacy were motivating factors.
And then out of looking for interesting problems in cryptography, I found Bitcoin in 2014.
I've been working on the economic side of things for about four years, doing data science simulations, math and education.
I've been working on the economic side of things for about four years,
And that's my background.
You may know me.
Probably the most famous thing I've done was being a co-author of the Token Engineering Academy Token Engineering Fundamentals course.
But I've worked with a lot of people on a lot of projects, including many with token dynamics.
Hey, guys. Eric Weissen in here.
Background in academic philosophy.
So I went heavily into game theory and market philosophy type stuff.
I got into casinos, largely.
I need a new side hustle after getting banned from card counting.
So I came into crypto 2017, been doing it professionally since about 2020.
Focused on application monetization, largely, and kind of tax strategies, especially supply side. We'll, we'll talk quite
a bit about, um, tax strategies cause that's completely manipulatable, which is interesting.
Um, yeah. Eric, I love your card counting backstory. That's, that's one of my favorite
things that I always forget until you mention it. And that's, um, it's, it's funny how well
that transfers. And I think you, you might have to have a little bit of a game theorist or a hacker's mind to really appreciate that. But I do. And I love that you mention it as kind of like a way in to crypto and to tokenomics and designing the incentives of systems so that they are secure rather than, you know, hackable, being able to be
taken advantage of like the unfortunate casinos that you were frequenting.
So, okay. And then Paki, you want to give an introduction?
Yeah. I do want to say Octopus Eric, I love that you guys started off with like a philosophy first introduction.
So I think I'm going to do the same way because I also got into crypto through like the anarchy rabbit hole, probably just like out of frustration of current systems.
I know there's like nuance and everything, but still part of me like really, really believes in like some sort of way we can make tokens and
economies look different from what we've seen in the past so that's kind of just like where my
framing comes from um i got into crypto a little bit later than the other speakers here but i got
into crypto in 2019 um i started just like doing like community management and then worked for a like large enterprise consulting firm in the Web3 arm and supply side numbers but I've seen a lot of projects and
their common pitfalls concerns and the things that like really get keep the founders up at night
so yeah excited to bring in that perspective with everyone
awesome love that actually didn't know that was, you know, the philosophical angle was what brought you in as well. That's really cool to hear. Likewise, I think most people probably know my story.
2013, finding about the Silk Road led me to ask the question of what currency they were using that it hadn't been shut down yet.
And I fell down the Bitcoin rabbit hole then.
But yeah, I love these philosophical groundings that we all have.
groundings that we all have. And I think that's what we try to do with token dynamics as well,
is focus on the why and the reason, the higher level reason for what we're building.
But to kick it off with more of the practical side, we have a round of questions here,
some practical questions for founders, a bit about market makers and exchanges, and then
we'll talk about some theoretical questions on tokens.
We'll start it off with whoever wants to volunteer here, because I think there's so much we can
talk about today.
We want to start with the heavy hitters and make sure we cover those.
So what are some of the hardest aspects to get right when launching a token?
I can start this one and kick this off and whoever wants to chime in, chime in.
But one of my personal opinions on the hardest aspects of launching a token outside of the demand side.
I think demand side hits peak, but we'll save that for another conversation because driving
demand is probably one of the hardest parts of launching a token because as you guys probably
know, a lot of tokens don't have adequate demand and that's why we've seen the very
common pump and dump charts and unrecoverable token price that's just like
everywhere on coin market cap but like right under that I would say targeting and knowing
your audience I think that solves a lot of problems on the distribution side and that
goes from just like kind of creating like user personas of who's using your protocol
and their motives of why they're using it and how they interact with it.
Because like different people will interact with the protocol differently.
So like devs will probably be a little bit different from like how people who are very
active on social media would act.
And building in those right incentives in order to earn the distribution of those tokens
over time or at TGE via an airdrop is really important and I feel like projects and founders
wait last minute to really identify who that is and model out like what percentage of the
allocation goes to those specific people which which this, like not nailing
this part, I think can lead to a lot of FUD. Because then you're giving maybe too much of an
allocation to like loud people on Twitter instead of the people who are actually using your protocol
and bringing that value back into the ecosystem. No shade though, Twitter's great.
ecosystem. No shade though. Twitter's great. Yeah. Yeah. No, I, I, um, I think, I think we
could list, list a handful of projects just off, off the top of our heads in the last few weeks
that have been, uh, focused on, on the Twitter hype. Um, obviously info fi and that entire domain
is in that category, but, um, how do you think about like what metrics to go after?
Like how do you think about what people should be rewarded?
Yeah.
So like I think that depends on the protocol, honestly.
And I've recently been thinking about this a lot lately and been putting some tweets
out there about this is I think the way we frame the valuation of tokens is a little bit skewed.
Like we have these terms like FDB, total value locked, but like oftentimes those frameworks
aren't necessarily like the core reasons that like people will be using that
specific protocol. So to answer your question in a not so easy way, I do think like one,
it needs to be tethered to what the protocol is and the valuation of that token. And then two,
the distribution of that needs to be like, I was kind of alluding to earlier, those specific user groups that those actions are taken out.
So it's almost like viewing tokens completely different from how we've seen, for example, equities in the past.
Because ideally, and this is where the philosophical ideology kind of comes in, It's like, we want to create a system
that's different from what we've seen in the past, or at least I do. So modeling it off of frameworks,
even though it fits nice in a box where everything can be relatable. I think it just can be different
for crypto and can create better systems. I don't know how that looks like yet. And maybe this is also like a demand thing
and a demand tokenomics thought experiment.
But yeah, I think that's kind of how you distribute it.
I don't know if that answered your question, Nate,
but that's what came into my head.
Yeah, definitely.
I mean, I think people get caught up in vanity metrics,
like you mentioned TVL and other things.
They're not thinking about what drives the bottom line for their protocol,
and that's going to be a different thing for each protocol.
Each protocol has a different user base and different behaviors that they want to incentivize.
And so when they're thinking about token distribution, it's gonna depend heavily on their user base.
Nate, I have something I'd like to add here.
I think one of the things that I've seen teams do
and is pretty common, I think,
is being in a race against the clock
to get their token launched while a particular meta is hot or while a particular market cycle is happening and i think a strong project can
survive and thrive in any of like launch conditions it's not like a rocket where you need
you know it can't be raining or something so taking the time to get it right and be sure that
the product success is not dependent on a particular market narrative or condition
is what I would point out as both a mistake and a way, something to think about as we think about
how to do these things. 100% agree. Yeah, I might even say it takes a special mindset
for a project, a protocol to take on to do that.
Not everybody is willing to build with a longer term view.
A lot of people are interested in catching the latest hype wave and catering to that.
And that can work, but it's less sustainable.
It's more short-lived.
Eric, let's see your hand up. Go for it.
Yeah. One thing I'd add that I've seen a lot of founders and people misunderstand is how to budget using the
token. So one, whether it's like how much cash to put towards market making and how to would be
how to like write grants, because I've seen a lot of tokens come out and not handle their liquidity
and then want to write grants against the token to teams that need cash, assuming that like, hey,
if I can go out with a 200 million dollar
valuation then of course i can write you know 10 million dollars worth of grants or whatever it is
because look how much money we've got um not factoring like the way i view ftv being basically
like a fractional reserve with the fraction just based on the liquidity you got which is for a lot
of them just like a million dollars or less. And so over leveraging on token sell side
and not, I guess, supplying cash to grow the greater fraction
to stop the run in the bank.
That makes sense.
Yeah, definitely.
I think it all boils down to liquidity.
That's one of the concepts that you've really cued me into
that I've been thinking about
a lot more. If the liquidity depth is not there, then at token launch is going to be the highest
nominal FDV that that project's token will ever see because the inevitable exits will crater the token price.
So liquidity strategy and other supply-side tactics
are going to play in heavily to that.
Is that kind of how you're thinking about it?
Decent paraphrase?
Tell me what I got wrong there.
Yeah, absolutely that.
And then if you need access to capital
and how to retain high value and take out loans against it and kind of protect the ship to get retail to come in and take bad investments at buying spot, which is what we do.
Right on. Right on.
And so we've talked, we're talking a little bit about token launch and, you know, hitting on some of the topics that we'll talk about.
One of the concepts that has actually hit the mainstream, which has been really great to see and encouraging,
has been this idea of low float high FDV.
Who wants to explain what this is and why it's a problem?
And maybe we'll riff off of that.
I think this is one of
the most important topics to cover so i'll take a stab at this because it's pretty similar to what
we're just kind of discussing uh it's when you launch just a little bit of your tokens and have
a whole bunch of tokens not circulating and so it's a lot easier to provide a bunch of liquidity
against just that small amount of tokens,
which then if you have to multiply by 99%, that's not circulating to get the full diluted valuation,
then you can make backroom deals with other people being like,
oh, I can give you a million dollar grant because my token's got a $2 billion valuation,
and I'm giving it in tokens, but you can't actually sell the tokens yet.
Examples of this would be like TIA at launch, initially they're turning around pretty nicely a lot of these tokens that launch
a two billion dollar plus valuation with like two percent or less of tokens circulating um
where it was a lot easier to provide liquidity against that that massive massive initially
crunch supply and then hope that it trickles out without, um, settling, which is obviously very difficult to hold off at that scale.
Yeah, this was, that was, uh, Tia was the first, I think that was really successful
at this high float, uh, low float, high FDV, um, meta that arose. And, uh, yeah, Eric, what you're, we're describing, I think is what we kind of co,
co-created called the chair ratio, you know, the number of people playing musical chairs
for every chair in the ability to rug the token. So having tokens, a large, even a small amount of tokens, but certainly like an investor's share of tokens
is a lottery ticket to rug the entire liquidity of a token. It's not actually worth what it
proposes to be or espouses to be. Paki, go for it. Yeah. And to add on to that and include a little bit more cynicism into low float high FDB, this is just like an observation like I feel like projects that are launching low float high FDB oftentimes like just don't have their product ready.
in their head is like, which isn't wrong to some extent, because like tightly controlled supply
can make it so that way you have more control over when your token is distributed and how.
So it's not just like a free for all like pump fund charts where everything's sniped and dumped
right away. But if your product isn't ready, like I can see why like founders are like, all right, let's, let's control the supply,
only release a little bit of it so we can drip this into the circulating supply as like our
product gets more features and is more interesting for people to like onboard into.
Not saying that's right.
I'm just kind of putting my head into the framework of like a founder who, who might
like have a lot of external pressure to launch a token,
but like not have their product ready to like really build those demand
side tokenomics yet.
So like, that's one of my thoughts around low float, high FDB.
I'm personally like not a big fan of it.
I actually think it's caused a lot of problems,
but like I do see how it's enticing for project founders. Here's a, this is an open question, but, but something,
how would you, how would you, what other mechanisms or tactics would you use to offset
low float, high FDB? Like if you you had uh you know if there was a project that
was dead set you know their investors are dead set on doing low float high fdv how would you
offset that and this can be pucky or octopus or eric any of you that want to answer this one
step one get rid of your investors no i'm just kidding i won't say counter trade on the shadow market um no a serious proposal would be to
start with low float but then have some predictable release mechanism that assures the
people who are watching and thinking about the token that
the tokens are coming essentially so if you can make a credible commitment this is the you know
the purpose of a traditional vesting schedule but if you can make a credible commitment about
how the tokens will be released and and live up to that commitment then perhaps it doesn't bother me as much that
there aren't a whole lot right now because i i'm willing to believe that there will be sufficient
liquidity at some point in the future that's the first thing that popped into my head in terms of
a mechanism for that situation that might make it tenable
I'd like to add the caveat that the low float IFDV really, really did work for a lot of the projects that launched with it.
We don't think it worked because we're all on the retail side and know how everyone who opted in got burned.
And in traditional finance, it's very rare to get these kind of liquidity events. So low float, high FDV is an attempt to maximize on the one true liquidity event in crypto, which is an initial TGE.
But with, you know, a lot of backroom investors not being not understanding what was going on below float, IFTV.
They just saw, you know, six billion dollar eight billion dollar um initial valuations
and then the projects that launched with them were able to sell massive otc deals at 50 to 60
percent discounts um which was still drastically overvalued to where they should have been so
they're able to load up significant amounts of capital um in backroom deals based on this launch
strategy and then have enough of a war chest to kind of wait out bad
sentiments and afford to build better and cooler things so that when they then try to remarket
themselves three years later you know they've had the entire last three plus years funded and at
this point now the token's lindy at you know it goes down 90 it's still lindy at you know hundreds
of millions of dollars in valuation um whereas they if they launched an authority, it would have been really hard to build up to that.
So it's expensive to pull off,
but I think it actually worked really well
for the companies that trade it.
Yeah, just to chime in on both of your points,
what I'm hearing is just like a desire
for more transparency around how the token is distributed.
Like in the case where you're launching at a lower FDB
and have a committed schedule,
like hypothetically what I'm hearing in Octopus's ideal world
is like that's coming out consistently and transparently
based on something that was set.
And then on Eric's side, like the OTC deals,
like no one's seeing that until it's too late,
the backroom deals and everything.
So like part of it too, I think is a call for transparency OTC deals, like no one's seeing that until it's too late, the backroom deals and everything.
So like part of it too, I think is a call for transparency and how token is distributed.
And I don't know the full answer for that.
I mean, like you can see things on chain, but like, yeah, like I think project teams too, like if they're launching a token, like leading with transparency, like this maybe
is like where there is a like pain
point that like project teams could do better at.
But like, I like kind of that requires, you know, pretty good intentions and like how
you want your token to be in like who that project team is and making sure they're not
actual brokers, which I do believe there's like a lot of good people in the space.
Oftentimes, like, you know, the loud ones and the ones that, you know,
rug, you know, you see them more often on CT
because angry people like to tweet more, I feel like.
There are at least five good people in crypto.
Well, that's good.
Yeah, no, I love that take eric that's uh a hot take and um and yeah i think uh low float
high fdv accomplishes a lot um and uh yeah that makes sense that's an interesting point that
90 drawdown becomes the um sort of like the lindy or the shelling point for a token's natural resting price until the demand
side actually kicks in and something causes it to take off later. Whether that's like a token
rescue operation or a deep liquidity strategy with DeFi Ops, that kind of thing.
FIOPS, and that kind of thing.
And market makers will basically trade risk.
They'll accept risk to get cash flow.
And as long as there's enough trading velocity,
it doesn't matter the price.
It doesn't matter how overvalued something is.
They'll buy in to get the cash flow
from doing delta neutral strategies.
And they won't get burned until things pop.
And when things pop, a lot of things pop together. So it won't really matter. This is
the one that extracted more than anything else that was more fairly valued. Yeah.
Octopus, go for it. And then now I want to loop back around to market makers.
Yeah. I understand mechanisms better than social and business aspects. So I'm kind of curious what you and the others think about the value of like social signal of number go up versus number go down on the one hand versus price discovery on the other. I remember a few years ago there were these this launch mechanism called liquidity bootstrapping pools that Balancer and a few other
Entities ran that started with a very high price and it was essentially a descending price auction and
One of the things about that is if you start with a very high price
Then when people look at the all-time chart, it looks like a disaster
Even though you know, it's just how it's intended to work so when people are looking at the derivative how quickly has it
changed in the last day um that can there's there's a big psychological and belief aspect to all of
this so i'm wondering how important that is compared to more fundamental things with this business.
Yeah, I'm actually really curious what Paki and Eric think about this.
Yeah, I don't know why, but when you're saying that Octopus, like Believe app popped in my head.
And so Internet capital markets has been something that's like trending right now and the believe app
had this huge marketing push it got a lot of traction um and like price was going up for
both launch and the other tokens on believe app um but like i don't know where i was going with
this i actually lost my train of thought but like it kind of like oh here it is so like the
psychological aspect like the traction stopped once like people were just not interested anymore
and what i wanted to get here is like momentum and i think the psychological aspect of it of like
delta price go up is like that momentum eventually stops and by
then i feel like there's a point in that bootstrapping phase where you want natural
price appreciation to occur and pick up from that momentum of speculation which isn't what happened
with believe app because believe app stopped launching tokens because like they just had too
many people who were trying to launch and it's permission so like you had to wait to get approved um so i guess yeah
that's kind of i think they're like there could be a handoff process on the momentum aspect of
the speculation the psychological and then into the technical of natural price appreciation i
don't know what that balance fully looks like, but that's what popped into my head
as you're speaking, Octopus.
I like that framework of the, you know,
these sort of supply side tactics being an on-ramp
to the genuine demand that a protocol should aim for
once they have users actually purchasing the token and creating essential
demand which generates a price floor, a minimum price for a token to trade at based on its
use in the protocol. And we've seen this with Monero as the essential currency of darknet
markets. I have a long history of speaking about this and talking about it publicly, but that'll be for
another space. I really like that framework though, that way of thinking. Eric, did you want to weigh
in on that one? If not, I want to jump into talking about market makers and exchanges, which is one of your specializations.
But if you want to weigh in before that, go for it.
No, don't move on.
I think Bucky's been cool on it.
Cool.
Yeah, and Octopus, to answer your question
on my thoughts on that,
I believe, I think protocols should assume that all tokens
will eventually move to their fundamental values. I think as we mature in open finance,
where everybody can see all of the operations going on,
where all information is public, like there's no hidden information,
I think everything will trend to its natural price floor.
And that seems like a safe assumption for protocols that want to last for the next several decades to make.
But even in the case that that doesn't happen, it's good to build that way
because in that case, if you're building your token to have a fundamental value, you're layering
supply side tactics on top, and then you're layering marketing on top of that to drive
token price appreciation. So I think about it like layers to a cake
where you want to have like, or maybe layers to a house, like you want to have a solid foundation
and then you can build a first floor and a second floor on top of that.
There's probably a better analogy, but I think about it in layers.
There's probably a better analogy, but I think about it in layers.
So let's jump into, I wanted to talk about market makers and exchanges.
And I know this is particularly Eric's area of expertise.
While Octopus has expertise in automated market makers, I guess, Eric, so do you, having created one, but Astro Vault.
But I would love to hear from you.
How do market makers work?
I think this might be the, if I had to guess, this would be the most mysterious part of crypto that is still left.
of crypto that is still left. This is kind of the man behind the curtain, the people that retail
never see and that founders don't really know how to deal with and what goes on. So maybe,
could you describe the role of market makers? Yeah, market makers provide enough volume and liquidity to, one, allow trading to occur, and two, to allow trust that trading will continue to occur.
It's a very interesting business model, especially the different ways that they can price.
But fundamentally, they trade your token back and forth, and they fill up markets.
They make the markets by putting orders high and low so that people can buy and sell through the tokens that they custody.
Because when you're buying a token, when you're buying a Bitcoin, you're not buying one of $21 million Bitcoin.
You're buying one of, you know, four or five hundred thousand Bitcoin that are reasonably available for sale.
And it's only what's reasonably available for sale.
What we'll usually call the float, but even floats bigger than what's available for sale. And it's only what's reasonably available for sale, what we'll usually call the float,
but even floats bigger than what's available for sale.
Yeah, to kind of fill those markets.
So I'll start there and let you disseminate a bit further
and then I could go into more of how they work
or the business models if you'd like.
Sure, yeah.
So yeah, no, I like what you're hitting on there.
It goes back to the idea of liquidity.
It's like not all of the coins
that are like ostensibly in circulation
are actually in circulation.
There's a lot going on there.
And a lot of the time market makers control
the majority of a token supply even. We see certain tokens have like 1% of their
circulating supply on chain in a DEX and then the rest is just somewhere on Binance or Gate
or Coinbase. You mentioned the business models, and I think that'll be interesting for
our audience to hear more about. And this will definitely be something we'll have to talk about
more. But what are those business models for market makers? Why do they do what they do?
What is in it for them?
Yeah, so let me kind of go through a first principles process of how they get to where they
get, because it'll make a bit more sense. If you're a token, if you're a project launching a token,
you need that token to be tradable, because you made certain guarantees to your investors,
you want community members and people to buy in, and for them to buy in, they have to buy from
somewhere. Or fundamentally, these days, you want to be on a centralized exchange and the very first question if you try to apply on coinbase or finance or
somebody is who's your market maker if you're like ah we need one so you go to a market maker
and you're like hey guys we need our token to be traded i heard you guys run a bunch of algorithms
and do high frequency trading we would be happy to pay you money to um to market maker token. Cool. Makes sense. They'll happily take your money, but then
also they will earn some fees. They'll also earn the spread if they're putting sell orders 2%,
3% higher, buy orders 2%, 3% lower. Then the more even trading occurs, kind of like a sports book,
trying to get the VIG in the middle, you get the VIG in the middle by retail kind of taking a couple percent or so worse than they
then fair price would have been as long as activity over time is balanced now this is with
the idea of the somebody coming in and paying the market maker to do these services which they then
also make money on but the market maker groups do also long-term make money on it and what happens
if other people don't make money or what happens what happens if prices go way up and they start running out of supply?
And so to guarantee more deal flow, because the operations themselves are profitable,
but they are solving a need for the clients, market makers became investors. They basically
told investment capitals, like, look how much money we can make off
the deals we get. If you guys get us upfront cash where we can kind of invest in the products and
secure the deal, we'll get more clients and therefore more long-term cash flow. So now DWF,
GSR, all of these big market makers also cut checks. Now they're not prioritizing being
investment firms. They're not leading rounds. They're like, oh yeah, we'll happily give you 50 to a hundred K up front. As long as we get to
secure your long-term deal and get favorable terms in our market making business, um, to do all this
kind of stuff to, then it's like, well, sure. Maybe you could pay them 10, $20,000 a month,
but if you're dealing with things that have valuations of hundreds of millions of dollars
or billions of dollars, how much is, you know, $10,000 a month, $20,000 a month for these market making services?
When now the market makers get less of the upside.
So then in addition to investing, they started saying, hey, you know, forget the $10,000 a month.
We'll totally waive your subscription.
Don't even worry about it.
We got you.
We're your best friend.
Just honestly, just give us a loan for
the tokens and we'll do it for you completely for free and then you know eventually like you know
you're gonna want to do this long term anyways so then just let us buy these tokens off of you so
we'll we'll pay you you never pay us anything um by the way we're gonna buy the tokens at like the
price you give them to them now so if they go up 10x we're gonna buy it at a 90 discount we might
just up them on the market and this is what we've set up for loan option models. So three primary models,
two are common. One is one that I like to add to cover some bases. The most common option you'll
see is called a loan option model. This is the one I just described, where you give the market
maker tokens, they market make, they keep most of the fees. And then after
12 to 18 months, whatever deal you've got lined up with them, they basically get call options
where they can purchase the tokens at some agreed upon TWAP, maybe like 20% above the initial listing
price of your token. So if your token goes up more than 20%, they'll probably buy them from you.
If it goes up a lot, they'll screw you. If it goes way down, they might just stop market making for you in general because they're actually
at risk and they see that they're not going to make a bunch of money from you as a client.
Two would be the base retainer model. This is where you just pay them the subscription.
Hey, it's got $5,000 for one pool on gate, $10,000 to run three pools on OKX, something like that.
Plus they get a percentage of the fees that they're able to get.
But this is a lot more straightforward, lower risk, but higher cash up front for teams.
And then third, what I think is a lot more fun, which is basically an AMM through DEXs
would be something like European options.
And this would be where you don't actually give all the tokens to the market making company.
They don't actually control all of them.
They kind of unlock for them once the tokens at different prices and they're able to kind
of get the spread between the tranches.
But it's basically free to operate and they only get upside.
And so it's like loan option, but there's no weird call options that can break you.
And in that case, they would have an incentive to increase the value of your token rather than the alternative that we see so often where there are perverse incentives of market makers.
Intentionally, we see the winter mute pattern with people, some market maker, presumably winter mute, dumping and trying to get a better price and creating the the famous heartbeat chart
that we've seen from token launches oh yeah like if your strike like if the strike price is going
to be on seven day t-wop of the of the token list then their full incentive is to tank your token
launch because now they like if your token goes down 50 at token launch then now they're going to get
twice as many tokens when their call option hits like it's it's it's absolutely wild some of the
things that i've seen binance themselves just obliterate charts 90 when they get their token
vests because they're pretty predatory and they're listing a lot like it's um it is a scary crazy
game um market makers have been not understood by many, many people, and that has
led to them getting absolutely insane deals. They're the ones that have been able to extract
the most throughout the last couple cycles. However, in order to do so, they've also gone
risk on. So a lot of them blew up by over leverage to Terra or other similar things like that. So
it's a dangerous, scary business where information flies fast. And if you're the slowest, you lose. And where incentives need to be aligned between protocols
and other participants. Market makers are another one of these areas where
I'm seeing incentive alignment is key. And I think we're very early in that. But Eric, you've got the best lead on that
of anybody that I've found and spoken to. I think besides the market makers themselves
and maybe even including the market makers themselves, I think you have probably the
best idea of how to structure market maker deals to achieve different outcomes. So I think we could do an entire space on this and we may well do that.
Let's let's follow up on that.
But we hear from Paki really quick and then jump to next topic before
maybe asking the audience for questions and closing it out.
Yeah. So the market maker and exchange process, like I'm not as familiar with,
so I'm really loving the context, Eric.
Something I really want to key in on is kind of like
Nate alluded to was just the incentives.
And I have a question for you then,
it's how do the incentives between the market makers
and the projects differ in alignment
depending on each of the models that you kind of described the
retainer versus the loan option versus the amm decks that you were talking about
great question um so retainer um is expensive so a lot of projects don't want an extra you know
ten thousand dollar a month bill like, it's either that or hire somebody
and we're already running lean.
So even though you'll get very predictable good service,
additionally in a retainer,
oftentimes you won't get high volume.
You know, no market makers do wash trading.
Market makers do wash trading.
And as a client, your goal is to find a market maker
that's going to do enough wash trading
to make you look good.
If you have to do $10 million in volume a day to stay on Binance or you're going to get delisted, you better hope they're watch trading enough to do that. With Retainer, I think the
only one that was actively doing watch trading decently well just got arrested for it. So
with Loan Option, it's a lot easier for them because all these market makers basically have
fee-free accounts where they can trade back and forth on centralized exchanges and it costs nothing so basically
all of the volume you ever see on any exchanges is all fake dex volume for the most part is real
unless there are fee-free versions but it's not safe to do fee-free versions on dexes
which is why you'll see significantly lower volume because it's real. To then further align incentives,
as a company, you want the market maker
to make money off of you
and you want them to care about you
and perform the services that you need them to perform.
What you don't want is them to break you
or them to not provide the services.
So really what I've done on the consulting side
is just really analyze the contracts
and be like, where does this not make sense for the market maker?
Like I've always, I haven't represented the market maker.
I've represented the client that's engaging with the market maker to kind of write these contracts and be like, okay, if the price chart looks like this, they're not going to care about you and they're going to stop providing services.
If the chart looks like this, they're going to make way, way, way too much money off of you. We need to protect against that. And basically it's like the middle 80% of performance
for loan option market makers is for the most part fine, but you need to protect against the
bottom 10% and the top 10%. And I'd like to use something like European options as well as some
like stop loss insurance with the mark makers directly in that contract
to to help make sure that the edge cases are covered because we're still a long-term project
that's still trying to long-term build towards this kind of stuff
gotcha thank you great question and awesome answer and this makes me think we i definitely want to
do an entire space just featuring Eric and talking about this stuff
because there's so much to dive into with Market Makers.
I wanted to do a space that covered everything around Token Launch.
But as we've been talking, I'm like, man, this is way more than an hour's worth of Twitter space topics.
topics. And so I think a good, like broad closing question, because we, you know, a couple of you
have hard stops at the top of the hour. Let's, I want to talk about the different metas that
we've cycled through in supply side tactics and, you know, any kind of tactic around token launches that is
that is either past or is upcoming. And then, you know, maybe a hot take on that. And after that,
if you guys want to share like what you think the space is moving toward. What supply side features and tactics
are we gonna start to see more of?
What's getting hot now?
Or what are you guys picking up on?
So this is free for all.
Anyone can take this one.
Yeah, I think, so I'm not a lawyer,
so this is not legal advice,
but I feel like a lot of the supply side tactics
actually was heavily informed throughout history
by the legal and regulatory environment that we had.
For a long time, projects were trying to
essentially raise funds via tokens.
And first it was self-hosted token launches where people were doing it by themselves.
They had their own weird finicky website.
Then it went to an ICO boom.
And then legal got a little angry, especially in the US.
Then it's like VC started participating in these deals.
And then you had exchange offerings, and then you had like exchange offerings and then you had
launch pads and then you had node sales and now we're kind of veering back to a launch pad meta
in my opinion especially with like internet capital markets being a popular thing right now
um so like i think the metas are heavily informed by like the regulatory environments for better for
worse and like the like anarchist in me just like it pains my heart a little bit because it's like why build it why not build it so it cannot be like
you know regulatorily like censored essentially because like that stifles creativity a little bit
um but leading into like the where it's going in the metas i think like we're in the launchpad era
and like we have a couple problems to solve in
terms of like the distribution and the supply side tokenomics of it like the sniper problem is real
um the like censorship resistant like problem of like launchpads not being censorship resistant
is like a thing but like i'm pretty optimistic about how distribution is going to become more efficient on the supply side.
And that's why I think the launchpad meta is going to grow and it's going to be increasingly more impressive.
And that's just my thoughts on where metas are going and how supply side tactics have changed over time.
It's very historical. And I think looking at history is always like a good indicator of what's to come.
Love that. Great shout. I would chime in here, but I think Eric and Octopus have some thoughts to share as well.
thoughts to share as well. Yeah, one, I mentioned the volume on centralized exchanges isn't real.
Similarly, as DeFi advances, the liquidity on centralized exchanges is not real. You can't use
centralized exchange liquidity to do things like justify collateral caps for money market curation,
for money market curation,
like collateral caps for CDPs
and whatever ways you could sync your token in DeFi.
So DEX liquidity is much more important,
which leads towards launchpads,
sex-dex hybrid market makers
that will kind of farm funding rates on perp,
stuff like that.
Additionally, I didn't quite get into
more of the tax strategies,
but a meta that hopefully
is like decently expired that we've run through is this like high staking rate um for a high free
money rate for just launching your token and like you know earning way more than savings earning
an increasing total like a percentage of a token's fully distributed um nominal value
just by locking it up for a couple weeks,
which is, in my opinion, really dumb and not actually contributing much
to the safety or help of the protocol at all.
And also is incredibly taxed and efficient,
because now if you're earning like 15% APR,
and it's just on this float of newly minted tokens,
then you're going to be taxed at that rate
of the nominal price value of what's coming in as you claim which is ridiculous and so i've seen
ecosystems that theoretically would have tax um obligations higher than the like that if they were
paid would more than rug the entire project um like to zero and still have tax bills not paid
because they're nonsensical.
So replacing staking with inverse staking,
where if you're staking or doing whatever the project wants you to,
then you keep the same tokens,
whereas everything else is burning.
If they were burned instead,
then you would actually be able to write it off
as a tax loss when fundamentally it doesn't matter
how many decimals are in the supply of a token.
If they're technically going away instead of being minted,
now you make money back from taxes instead of paying them when all else is equal.
So more games around that until tax code in any countries makes any sense with what crypto makes possible.
Interesting. Yeah, there's also the regulatory element in it.
Yeah, there's also the regulatory element in it.
And we've been seeing stuff from, I think the Clarity Act is the latest one from the U.S.
that talks about how projects need to be structured to qualify as fully decentralized.
And there will be a lot for us to talk about in the next few weeks around what that will do to the industry.
But on the supply side, there are carve-outs there for qualifications.
Projects need to have less than, I think in MICA, in the EU, it's less than 20% of the
token supply can be held by insiders to prevent giving them de facto control of the protocol.
So there are definitely a lot of supply side considerations there as well.
Octopus, any ascending or declining metas that you would want to call out on token launch patterns
or anything generally related to supply allocation
and distribution mechanisms of protocols before we close out?
Well, what I hope is ascending is more information and clarity
about how the current process works.
I think if more people had Eric's level of insight
on how exactly the sausage is being made, they would be
much better positioned to make decisions. And my hope is that all of us can work to create
viable competitors that more closely reflect our underlying principles.
principles. Love it. Well said. Perfect concluding thought for the space. And I wish we could run
over a little longer because we've accumulated a bit of an audience. But if you guys are interested
in the details that you'll need to know heading into token launch. If there are any founders that are tuning into this,
whether during the space or after, feel free to DM us and send a message. We'll send you
our token dynamics token launch guidebook that has a lot more information than we've even given
out in this space on what you need to expect going into a token launch. And final call to action,
just follow each of the speakers on stage here. You guys provide a lot of value today,
and I appreciate you showing up early and creating some great content for our audience out there. So everybody follow Octopus, Eric and Pocky. They provide
these same kinds of insights on their timeline. And if anything they've said has resonated
with you as a founder or a BD growth in a protocol, reach out to them because these
are the most talented people in the space and really appreciate
your guys' participation today.
So thanks a ton.
Thanks everyone.
I got a drop, appreciate it.
Bye.
Thanks as always for putting together awesome space
for leading everything, Nate.
You rock, bro.
Thanks guys.
Thank you audience, everybody for showing up uh we'll try to cover some of these
questions that you guys have left uh async but um yeah appreciate you guys showing up
and uh take care have a great day .
