Don't Hate the Player, Hate the Game - The Daily Gwei #29
Exploring the recent Uniswap token sales/offerings.
There has recently been a lot of fanfare around a relatively new token sale/distribution method called Initial DEX Offerings (IDOs) that use either Uniswap or Balancer (AMMs). These “sales” have come under heavy scrutiny from many in the community because of the fact that they are easily gamed by bots and whales and viewed as generally “unfair”.
Source: https://twitter.com/rstormsf/status/1282734073081823232
My general opinion on this is that we shouldn’t be hating the players (bots, whales), rather, we should be focusing on how the game is set up. In the recent sales, the game was basically set up to reward the most sophisticated participants and the bots. With the BZRX Uniswap listing, one actor was able to submit a transaction to buy tokens in the same block that liquidity was added to the Uniswap pool. This immediately drove the initial “listing price” much higher and buyers that came in later were basically at a major disadvantage. The end result is that the BZRX token price spiked really high, the initial buyer was able to offload their tokens to less sophisticated users (at a very nice profit), and then the price of BZRX dumped back down (it’s currently trading at $0.14 and the initial listing price was $0.04).
To me, the BZRX offering was not really a “token sale” and I think the better way to view IDOs on Uniswap or Balancer (or any AMM) is as an initial liquidity event (aka an exchange listing). Just like any exchange listing, there is always wild volatility because the market is trying to settle on a “fair price” for the asset which is generally a chaotic process. And, as usual, the “retail” buyers are the ones who will quite literally pay the price for being less informed, less educated and less experienced than other participants.
So, if a projects aim is to do a token sale where every participant has a fair shot, then they could use this alternative approach that Martin Köppelmann suggested on Twitter. This approach involves using Gnosis Protocol and works to prevent “gas wars” or other sophisticated methods of acquiring tokens. The end result is that all participants basically only compete on price. Though, some may argue that the downside of this is that price discovery for a token could take longer and be less explosive which could lead to less interest in the event.
On the topic of token distribution - I’m personally a much bigger fan of liquidity mining to distribute tokens widely and fairly than any kind of token sale. Liquidity mining is similar to proof of work or proof of stake in that a user will put forward capital in order to receive a reward. In the case of proof of work, a user will buy mining equipment and pay for electricity to mine a certain coin (plus maintenance costs). With proof of stake, they will lock up their capital in the form of the chains native token to be rewarded in that same token (depending on the implementation, there may be hardware/maintenance costs too). In all cases, the distribution of tokens usually happens over a long period of time which gives the token a chance to experience multiple market cycles and get exposed to a wide range of participants.
In general, no matter what token sale or distribution method is chosen, there will always be people looking to gain an advantage - whether that is through exploiting the sale parameters or using novel tricks such as spamming the network to prevent others from even being able to compete.
Don’t hate the player, hate the game.
Have a great day everyone,
Anthony Sassano
All information presented above is for educational purposes only and should not be taken as investment advice.
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