In addition, we will also highlight which projects are the most transparent. After all, transparency is a key principle of blockchain technology.
It is worth mentioning that our research was not an easy task, because blockchain projects are different from traditional project funding forms (including other open source networks), and blockchain financing is a completely different species. To further explore this, we will compare the way the Linux Foundation and the Blockchain Foundation finance, because they are the closest.
- The investment trend of the currency circle in 2020: the degrading process of the public chain
- Babbitt Column | Scientific Research Expenditure Model and Coin Development Fund Optimization Plan
- The man behind Cosmos's $ 1 billion valuation: Jae Kwon
- From the arguments of NGC Zhu Weiyu and Dovey, talk about Cosmos
- Cosmos exposes a high-risk vulnerability and will perform a hard fork upgrade at block height 482100
- The founder runs away, Cosmos strife
After reading this article, you will have a better understanding of how the Blockchain Foundation works. You can also get warnings from the wrong decisions made by some projects to make a smarter plan.
More important blockchain basic network
ETH was the first blockchain project to successfully conduct crowdfunding and created a well-functioning blockchain foundation, drawing many other projects to follow. The crowdfunding results are as follows:
- A total of 31,591 BTC was raised;
- At that time, the value of the funds received was approximately $18.4 million;
- The sponsors received a total of 60,102,216 ETH donations.
When starting the network, the genesis block contains the following:
- About 60 million Ethereum (83.5%) is distributed to crowdfunding contributors;
- About 6 million Ethereum (8.3%) for the Ethereum Foundation;
- About 6 million Ethereum (8.3%) to early contributors;
However, of the 6 million donations received by the Ethereum Foundation, only about 3 million were actually received. Vitalik’s tweet reads:
The Ethereum Foundation holds a total of about 3 million, and now there are only about 660,000; the rest are for development.
We speculate that this may be due to the fact that the Ethereum Foundation almost exhausted funds when developing software in 2015, or it may have sold most of the Ethereum before creating the genesis block. However, we still do not know why there is such a big gap between the capital plan and the actual income.
The economic design of ETH means that a large amount of Ethereum will eventually be distributed to the miners. As of today, 28.2% of Ethereum has been mined. This amount will continue to grow. As Vitalik said, the Ethereum Foundation still has about 660,000 Ethereum coins left. This is currently equivalent to about $75 million, which is only about 0.64% of the total Ether pool. It is worth noting that it does not include any assets held in legal or BTC form.
Overall, ETH has done a very good job in the distribution of Ethereum, and now mining has become the main source of Ethereum in the market, and no centralized entity can decide how to allocate Ethereum. At least before implementing PoS, it is up to miners around the world to build nodes that can compete in the "Hash World" game.
ETH also managed to maintain more than $75 million to support the foundation, while still owning only about 0.64% of the Ethanol, which will continue to decrease. There is very little control over the token supply – this is an ideal situation.
Ethereum is also the only project we have spent years evaluating. It is safe to say that they have done a lot of work with a small amount of Ethereum allocated to themselves. At crowdfunding prices, the value of 6 million Ethereum is less than $1 million, which is a very modest allocation. They have more than $75 million today, mainly thanks to the establishment of a very successful community.
ETH is the most open source project ever built. According to reports, the number of developers in the ETH community is 30 times that of other blockchain projects.
But is Ethereum 2.0 and PoS really suitable for distributed open source networks? This point is still inconclusive. Therefore, in the next few years, we have to compare other blockchain projects with ETH.
Stellar is the only project that does not have crowdfunding on this list. By raising funds in a more traditional way, Stripe provided $3 million for the seed fund.
Distribution of Lumens
Stellar has a unique way of assigning Lumens (XLM). When the network was released, 100 billion lumens were created. In the absence of crowdfunding funds, the lumens distribution is as follows:
- 50% gift to individuals who have registered to join the network;
- 25% of strategic business partners – companies, governments, institutions or non-profit organizations that contribute to the development of the Stellar ecosystem;
- 20% to BTC and XRP holders – this was completed in two rounds in October 2016 and August 2017;
- 5% is reserved for Stellar.org operating expenses;
- 20% of the allocation to BTC and XRP holders requires an application. However, only about 2% of people were told. The remaining unclaimed lumens were added to the Stellar Operating Fund (Stellar.org) and The Build Challenge;
There is no excavation in the agreement, and the only way to add new lumens to the network is through 1% annual inflation. This 1% is reserved for any 0.05% of the accounts that have "voting" rights to other accounts on the network. Distribute once a week, above which the threshold is available.
Lumens will slowly increase due to a 1% inflation rate. As long as the lumens holders reach the voting limit, they will earn inflation every week. This makes those who have a lot of lumens richer. But because there is no agreement mechanism, such as mining, this is open to anyone with capital.
Stellar.org has 5% lumens, but they currently hold about 85 billion unreleased lumens. This brings a strange sight. Since Stellar currently holds about 90% of lumens, this means they also account for around 90% of the annual inflation rate. In the four years or so of the network, this has accumulated to about 4 billion lumens, almost twice the 5% that they retained at the beginning, a fact that is hidden from the public eye.
In the chart below, the distribution of lumens is subdivided and all numbers are taken from the public API:
Stellar.org will continue to receive high inflation returns during the 10-year period of Lumens. In the next 10 years, they will eventually be able to easily have at least about 6 billion lumens of inflation. The amount earned also depends on how much they retain from the 20% of the BTC program. Currently, the ratio between The Build Challenge (158M) and Stellar.org (837M) is about 86%, which means nearly 16.8 billion lumens. This will result in about 25% ownership in the 10th year. The conservative estimate is at least 15%, which is three times what they usually call 5%.
Also, as shown in the table above, they currently have about 50% of the flow lumen, unless some have been sold. This is an unstable situation, similar to the review Ripple faces, and will force the XRP assets they hold to be placed in custody.
The real problem is that 85% of tokens are fully under the authority of an organization, and the ownership of lumens is largely centralized. While decentralized organizations want to guide network development through their token strategy, this is very unbalanced compared to other networks.
EOS is by far the largest crowdfunding event. The key points are summarized as follows:
- The crowdfunding foundation lasted for a year, something that was not done for the first time in other projects.
- They are able to withdraw funds raised during crowdfunding, so this is not the typical first token financing. They did this 93 times during the token sale. Being able to quit during crowdfunding can lead to transparency issues.
- They received 7.21 million Ethereum and are estimated to be worth about $4.1 billion at the end of crowdfunding.
Distribution of EOS Tokens
90% of token sales are sent directly to crowdfunding contributors to EOS tokens. The other 10% is held by block.one and will be issued at 1% per year for 10 years.
Every year, the inflation rate will reach 5%. Of these 5%, 1% is allocated to block producers and another 4% is allocated to workers' funds for community use.
Compared to other projects, it is not unreasonable for Block.one to accept 10% of 10 years per year. However, they have stored Ethereum worth the equivalent of $4 billion. It's hard to imagine how effective they will be to spend so much money. With so much money, an important task is how to use it wisely. It may distract attention from building a strong community.
It is a good thing to have a lot of money, but they need to allocate funds skillfully.
The Cosmos fundraising event was held in April 2017 and the results are as follows:
- 4870 BTC and 247,000 Ethereum were raised from 1090 addresses;
- 168,475,963 ATOMS were released to these contributors (75% of the total);
- Achieving an upper limit of approximately $17 million in approximately 30 minutes;
Distribution of ATOMS
The initial allocation of funds is as follows:
- Crowdfunding accounts for 75%
- 5% of early contributors to the project received 5%
- InterChain Foundation (ICF) gets 10%
- 10% in All in Bits, Inc.
All in Bits, Inc. are for-profit companies behind Tendermint. ICF signed a contract with All in Bits, Inc. to develop the original Cosmos software. All in Bits, Inc. ATOMs will be awarded within two years of Genesis. The funder's ATOM does not need to belong.
ATOM's annual supply will expand between 7-20%. It depends on the total number of mortgage ATOMS. If it exceeds 2⁄3 ATOMS, inflation will remain at 7%. If the mortgage is reduced, it will gradually increase to 20%. The verifier gets the reward based on the number of ATOMs they have mortgaged and the number of ATOMs they have commissioned. Cosmos is an advantageous system that allows any user to participate in inflation rewards.
Setting a cap for crowdfunding is a financially responsible act because Cosmos may raise more money. It was held when crowdfunding was just beginning to become very competitive, and small donors were excluded from the cost of gas.
The Cosmos project, which locked in a lot of loyal contributor funds, officially launched the main network in mid-March 2019, and cross-chain interaction became a reality. Previously, the development team went through a lengthy test network phase.
Tezos crowdfunding is as follows:
- They collected 65,627 BTC and 361,122 ETH in July 2017.
- At the time, this was roughly equivalent to $232 million.
After 3 months of successful software operation, 8.5% of the crowdfunding funds were distributed directly to Dynamic Ledger Solutions (DLS). DLS develops Tezos, owned by the founders of Tezos.
Distribution of Tezzies
The distribution of Tezos native tokens is as follows:
- About 608 million (79.5%) tezzies are distributed to approximately 32,000 accounts;
- Early donors had approximately 3.15 million (0.5%) tezzies;
- The Tezos Foundation is worth about 76.3 million (10%);
- DLS is approximately 76.3 million (10%);
- The 20% tezzies of the Foundation and DLS will be increased month by month and distributed in four years.
The inflation rate of the agreement is about 5.5% per year and adopts a non-dilutive inflation policy. The total amount of tezzies is 10 billion. This is reasonable because the people who operate the agreement should earn most of the tokens.
The distribution of Tezzies is fairly standard, with 20% being used by foundations and private development software companies. Compared to other projects, the $232 million raised is very high and much more than what is actually needed to develop the blockchain.
Another important consideration is that Tezos has experienced the chaos between the founders and the Tezos Foundation. The founder tried to remove the chairman of the foundation and accused him of “self-dealing, self-promotion and conflict of interest.” The chairman of the foundation rebuked them for “personality and misleading the masses, which is a complete lie.” In the end, the founder won, the fund The chairman of the meeting ended down.
This incident caused waves in the Tezos community and hindered the development of the project, while also reducing the level of trust in the project.
This incident shows that some blockchain foundations simply cannot control so much money. At the same time, it also highlights the inherent weaknesses of many blockchain projects: the Foundation’s operation by only a few leading individuals can have negative consequences.
Another interesting part of Tezos' history is that they retroactively established KYC (know your customer) requirements for their crowdfunding contributors. This decision made some contributors disappointed. But in general, Tezos only follows the general direction of the blockchain project, which is a correct decision in the long run. From another perspective, the days of being able to raise funds without KYC have long since ceased to exist.
Cardano crowdfunding is as follows:
- 25,927,070,538 ADA (80%) has been sold to the public for a total of $62,236,134.
- 5,185,414,108 ADA (20%) were awarded to three different organizations, IOHK (Development), Emurgo (Business Development) and Cardano Foundation.
The distribution of Cardano is as follows:
- The upper limit of allocation is 45 billion;
- 31,112,484,646 are assigned;
- 13,887,515,354 will be cast into an additional ADA;
- Cardano has not been cast yet, as it is currently in the bootstrapping phase;
Cardano now has 20%, and in the long run, this part will be diluted to 13%. It is not clear how the newly minted tokens will be used, but they should be distributed to the shareholders of the protocol. The rest of the tokens are already in the hands of crowdfunding funds.
Neglected, IOHK, Emurgo and Cardano Foundation will have 13% of the total ADA supply. This is very high compared to other projects, because Cardano has limited the ADA to 45 billion, of which they have about $5.1 billion.
Positively, Cardano's financial information is well organized on their website. Other projects should do the same, putting their financial information under public scrutiny. Cardano also asked their investors to accept KYC.
Similar to Tezos, Cardano and their foundation have their own public turmoil, as described by the open letters of IOHK and Emurgo. The two examples of Tezos and Cardano show that the complex organization supporting the blockchain network has its inherent weakness due to human decision-making and the vulnerability of human self.
Polkadot's crowdfunding in 2017 has the following results:
- All 5 million DOTS designated for crowdfunding were sold on the third day, raising a total of 485,331 Ethereum;
- In November 2017, at least 306,276 Ethereums were lost due to errors in the Parity multizig wallet and were frozen;
- Polkadot mentioned after the loss of funds that they have at least $45 million in legal currency and BTC, so they can move on and build software.
There is no upper limit to the issuance of DOTS. The DOTS distribution is as follows:
- Original sales of 5 million US dollars;
- Reserve $2 million for future sales;
- The Web3 Foundation (30%) will retain or distribute 3 million at its sole discretion.
The Web3 Foundation signed a contract with Parity Technologies to jointly develop the first implementation phase of Polkadot. Currently, the network is not online yet, and there is no mention of inflation.
Ironically, DOTS shows that the actual production of new blockchain software does not require raising hundreds of millions of dollars. Even if they lose more than 300,000 Ethereum, they still have sufficient funds and are preparing to launch the Polkadot network by the end of 2019.
Raising hundreds of millions of dollars seems to be more about making a share in the future, rather than actually developing software and communities. Unfortunately, this has become a reality, but now these well-funded networks will have to spend all their money to compete with each other.
The Web3 Foundation is receiving 30% of DOTS, which is a very high amount compared to other projects. This will provide them with very good funding.
30% of DOTS is an important share and is an important factor for Polkadot as a PoS network, which makes Polkadot more centralized than other networks.
Comparison between the Blockchain Foundation and the Linux Foundation
The Linux Foundation is the world's oldest and most successful open source software foundation. They deserve to be studied whether there is a potential to motivate the strategy of the Blockchain Foundation.
Linux is widely used around the world. The Foundation has stated that the benefits of open source software can be measured by how many open source developers contribute to the project. They did some research on the typical characteristics of the open source foundation, summarized as follows:
- Supported by at least one large company;
- The Foundation will eventually play the role of “gatekeeper”: answering questions from new users and developers, responding to errors, issuing permits, etc.
- Developers are interested in participating in the largest projects. This leads to bug fixes, projects that become more useful and attract more developers, creating a progressive feedback loop that continually improves the software.
The Linux Foundation also regularly participates in the following tasks:
- Taking into account public affairs;
- Support public and private proposals;
- Promote community development;
- Handling large enterprise membership as an important source of income;
- Plan activities for the community and support developer travel fund activities;
- Engage through personal organization, teaching courses, and even MOOC training and certification developers;
- Promote the development of culture;
The key to achieving this is that the blockchain project's software must inspire the interest of open source developers. The most important thing for a foundation is to increase the open source contribution and development of the project.
It's also worth noting that Linux software is valuable before the foundation was established. This is quite different from the approach taken by many blockchain foundations. Of course, this is not necessarily the only correct path.
The Linux Foundation charges approximately $6.25 million annually. At this rate, many blockchain foundations can run for decades. But the Linux Foundation's low budget shows that you don't have to have hundreds of millions of dollars in a bank to build a successful foundation.
Unfortunately, due to the additional funding of these blockchain foundations, investing in developers is not always a strong open source community. This requires the establishment and development of cultural, community, activity and certification programs. Most of them cannot be purchased with money, although building a unique and diverse community requires timely investment.
The blockchain foundation should also seek to create enterprise partnerships that support them, just like the Linux Foundation. Let well-known companies build on blockchain projects and submit their own developers to open source contributions, which is more valuable than the bank's extra funds. Just look at the booming Google and Facebook open source projects and you'll know.
Comparison between blockchain basic networks
Let's summarize how the project funds itself and then use a few charts to view the data:
- ETH – They have kept a minimum of tokens for themselves, and the assets they hold now account for 0.64% of the total supply and are still shrinking. They raised $18.4 million through crowdfunding.
- Stellar Foundation – They control 85% of lumens and take the remaining 15% (conservative estimate) of lumen in about the next 10 years. This is the largest amount of all projects. However, because they have not conducted crowdfunding, it is difficult to feel uneasy about how they spend money. Future tokens distribution is completely central, but not static. The worry is that the distribution of tokens is in the hands of a few people.
- EOS – They raised more than $4.1 billion in funding. It is only intended to retain 10% of EOS tokens, which is a relatively reasonable amount, but their crowdfunding did not receive much trust. In addition, the amount of tokens held by individuals is slowly decreasing, which is very good.
- Comsmos – They limited their token sales for $17 million. 20% of ATOM enters All in Bits, Inc. and ICF, which is quite high. However, due to the high annual inflation rate, this amount will decrease over time.
- Tezos – 20% is assigned to the DLS and Tezos Foundation, which is quite high. However, due to inflation, this amount will decrease over time. They raised $232 million, far exceeding actual demand.
- The three companies behind Cardano – Cardano retained 20% at the beginning. The future will be reduced to 13%. They limit the total token to 45 billion ADA, which is as high as Stellar. They raised about $62 million, compared to a suitable amount.
- Polkadot – 30% is designated as the Web3 Foundation, which is the highest. Due to DOT inflation, this will shrink over time, but it is not clear how much it will be until the network is released. They also raised $145 million, which is quite high, but they eventually lost about a third of the money in the Parity multisig bug.
The funds held by the relevant blockchain institutions are summarized below. Some blockchains have divided funds into separate entities for technology development, related infrastructure work, and business development, while other blockchains combine all three resources into one entity.
The chart above shows that ETH raises the least amount of money, but it is arguably the most successful of all projects. It also shows that Stellar is taking a very focused approach to allocating their money. All other projects are very similar to each other. However, the most important factor is the ownership of future tokens (as shown in yellow). The gradual reduction in ownership of Tokens over time is critical. However, in the long run, Cardano and Stellar eventually maintained the most tokens. Polkadot kept the most tokens from the beginning, and they could squander as they pleased.
However, this is not the story of the entire fund. Let's take a look at the total dollar amount of each project's respective crowdfunding:
In the picture above, EOS stands out. It’s ridiculous to think that they need $4 billion to start their network. Cosmos and Ethereum show that you want to build an effective project that is not needed for $100 million. ETH created the highest output with the money they received. We will wait and see how the other projects will move in a few years.
ETH is easy to have the most mature open source community. They managed to achieve this goal on about 8.3% of the initial tokens allocated, which was reduced to half when the network was released. Now, this amount has been reduced to about 0.64%.
ETH has proven that creating a successful blockchain network does not require having many tokens. Devcon, all Eth Global hackathons, and all the projects built on top of ETH prove this. They did have a pretty start on other projects, so we will see how other projects behave.
As we saw in Tezos and Cardano, having multiple independent entities seems to complicate things. However, this is a small sample size, so we should have a hard time drawing a clear conclusion.
One can argue that the Ethereum Foundation is not available within four years, and that each team is independent and that development in its own direction may be better.
It's still hard to tell which design works best because there aren't any projects yet fully understood.
All projects are not fully public about how they spend the money they raise in crowdfunding. Usually, these funds are raised in the form of cryptocurrencies, and the funds held by each foundation are still a secret. They also doubled their losses by taking away all the crowdfunding and a certain percentage of their own tokens. Although this is obvious, it is often overlooked.
In fact, these foundations can publish these facts, but most of them are not organized and there are no good documents on this. Cardano did provide good documentation, but they still didn't explain the cost of crowdfunding.
Considering that these networks should be decentralized open source projects, it is necessary to share capital expenditures. The blockchain is about public information, and you want people behind the open source blockchain project to share all of their information with the public.
Conclusion: Money can't buy a prosperous community
The most important goal of all these blockchains is to let developers build open source projects on their networks. This means that development on the platform must be exciting and must also provide opportunities for developers. ETH has set off a wave of token financing, bringing a large number of developers to their platform. Since then, a strong community has been established.
In contrast, free money does not seem to work well. Stellar lets Lumens join their network for free, and almost all projects have some form of funding to distribute. But developers want to have the opportunity to use great software. Creating the next blockchain or dApp that gets millions of users is always more exciting than getting a $100 free token from a dying network.
We should also focus on some early signals and predict how these networks will work in the future. For example, EOS has increased by billions, and Stellar has controlled 85% of lumens as a bad signal. Cosmos, Tezos, Cardano and Polkadot are all raising more money than ETH, which may be reasonable given their rapid development.
But even if these projects have raised all the money, in fact, money can't buy a prosperous community. A community must be established. It requires a combination of transparency, a sense of responsibility to spend money, a helpful and patient developer, a positive public image, and most importantly, many people who are passionate about the project.
– END –
Author of Dave Kajpust
DUANNI YI translation
Source: Encrypted Valley