Significantly Increasing the Ratio of Retail Investors to Project Owners & VC Chips, Paying Tribute to FairLaunch
Recently, Binance Launchpool launched an NFP project, which drew attention from the community. The core of this project is the introduction of “Fair Mode” and the corresponding Tokenomics Report. It can be seen that Binance is attempting to significantly increase the ratio of retail investors to project owners and VC chips, giving more chips to retail investors and enhancing the “fairness” of the project.
This may become one of the core frameworks for listing on Binance Launchpad in the future, and it will also bring new opportunities for BNB investors and users. This article will provide a detailed analysis of these changes.
Combining the introduction of Fair Mode, NFP, and the Tokenomics Report, the following can be summarized:
– Increasing the initial circulating supply to reduce the Fully Diluted Valuation (FDV) and allocating more shares to Launchpool and airdrops, giving more chips to retail investors.
– Locking a portion of the project owners’ chips permanently, making them non-transferable and effectively reducing the total supply.
– Increasing the ratio of retail investors to project owners, potentially increasing it by 10 times compared to previous projects.
– The previous Launchpad/Launchpool projects had the issue of chips being held by project owners and VCs.
– For example, the frequently criticized Hook project only allocated 5% to Launchpad, while project owners and VCs received 40%, and the remaining 55% was allocated to the ecosystem and community. Recently, the project owners even claimed to have added liquidity to Binance. As a result, the ratio of retail investors to project owners and VCs is 1:8 in theory, but it is actually closer to 1:19, meaning that most of the chips are controlled by the project owners.
The allocation to the ecosystem and community is necessary in ideal situations. Project owners should use these funds for growth and support the project’s long-term sustainability, even after the chips are gradually unlocked. However, in reality, these funds have become tools for the project owners to sell their holdings.
Additionally, due to the small initial circulating supply of projects, once listed on Binance, they can easily reach a market capitalization of around $1 billion FDV, which is comparable to leading DeFi projects such as MakerDAO. Even if the project owners utilize the ecosystem fund properly, it is unlikely to support a long-term valuation of $1 billion. Therefore, there is usually a lack of alpha returns in the long run.
To solve this problem, user education is not effective as retail investors tend to buy regardless. The solution is to increase the initial circulating supply since the buying side is limited, and increasing the circulating supply can lower the FDV.
Looking at previous projects on Binance Launchpad and Launchpool, regardless of their quality, they all had around 5% allocation. As a result, the market valuation of these projects was pulled to nearly $1 billion. This is quite absurd, as these projects are seen by users as merely shells listed on Binance, regardless of their fundamentals. Therefore, Binance aims to adjust the initial circulating supply model to provide differentiated valuations for projects with different fundamentals.
For example, NFP has an initial allocation of 21% for Launchpool and airdrops, compared to Hook’s 5%. Assuming retail investors buy the same amount, NFP’s FDV on the first day could be only 1/4 of Hook’s, around $200-300 million. With the AI label and the potential for narrative-driven ATH, even if the project owners lie flat, there is still some hope.
Furthermore, from the NFP chart, it can be seen that 27% of the long-term development fund is “non-circulating” distribution. The footnote is worth careful reading: “The tokens in the long-term development fund cannot be consumed or sold and will not enter circulation. After attribution, they can participate in the ecosystem through staking and share rewards and benefits from the project. However, they have no governance rights. The rewards obtained from staking can be used for the project’s long-term operation and sustainable growth.”
What does this mean? How does the Ethereum Foundation currently pay for development and operational costs? By selling tokens! Most project owners do the same. Obviously, this is not a long-term solution, as once the tokens are sold, there is nothing left.
Binance’s intention is to have the Ethereum Foundation stop selling tokens and instead stake their ETH to earn money for long-term growth and operational costs. Of course, this only applies to projects that can generate revenue. The NFP report also mentions supporting the “staking sharing platform fee” for tokens. In the worst-case scenario where the project does not generate income, it is similar to outright destruction.
Additionally, if the project is able to generate profits in the future, the project owners will likely be more cautious in spending the short-term development fund. After all, excessive spending will dilute the staking share of the long-term development fund, resulting in less income. This introduces new game theory.
In summary, the long-term development fund effectively reduces the total supply and also reduces FDV. It also incentivizes project owners to focus on creating profitable projects and avoid reckless spending.
As calculated earlier, the ratio of retail investors to project owners and VCs in the Hook project is 1:8 in theory, but it is actually 1:19. In the case of NFP, the ratio is (Launchpool 11% + Airdrop 10%) 21% vs Team + VCs 25%, which is close to 1:1 in theory. In practice, it is 21%:52% (100% – 21% – non-circulating 27%), which is close to 1:2.5. Binance also stated in the report that there should be stricter supervision of fund usage, so there may be more improvements in this area.
With the increase and decrease, the ratio of retail investors to project owners and VCs has increased tenfold. Although these projects still have some costs and cannot reach the level of a Meme Coin, they are much fairer compared to before. This can be seen as a tribute to FairLaunch, and calling it “Fair Mode” is appropriate. This also reduces the inflationary pressure for future projects.
Binance intends to significantly increase the ratio of retail investors to project owners and VCs, giving more chips to retail investors, enhancing the fairness of the project, differentiating the initial valuations, reducing inflationary pressure, and incentivizing project owners to build for the long term.
For retail investors, they can either buy BNB to receive more free Launchpool shares or actively participate in airdrops to receive more airdrop allocations. It is estimated that more shares will be allocated to these areas in the future.