DWF Labs has published a guide for the launch of tokens.
The guide retraces the evolution of token launch mechanisms, focusing in particular on recent institutional profile incidents related to the launch of LIBRA and MELANIA.
In fact, according to DWF Labs, these incidents have revealed the vulnerability of current systems, from insider trading to market manipulation, up to regulatory arbitrage.
They claim that “problems of this type not only erode investor confidence, but also threaten the long-term stability of the cryptocurrency market, with a disproportionate impact on retail”.
The presidential guide for launching a token
The report published by DWF Labs falls into the category of institutional research.
The idea is to propose more transparent and fair token launch mechanisms, describing the current issues with existing frameworks and highlighting alternative approaches, such as debt issuance (projects that provide debt tokens representing a claim on future revenue or assets), liquidity locking (locking LP tokens in smart contracts for predetermined periods), and launch restrictions (for mitigating the participation of whale and bot).
Furthermore, it also contains proposals for regulatory and policy improvements.
LIBRA and MELANIA: a practical example in the guide on how to launch a token
The starting point is the recent launches of the LIBRA and MELANIA tokens, which have caused quite a few problems.
The report highlights how the “Viva la Libertad” project, which launched the LIBRA meme token on Solana on February 14, has been accused of insider trading and market manipulation, after some wallets, including that of Kelsier Ventures, earned over 110 million dollars.
The problem, in fact, is that in the very first hour of presence on the crypto market, the token’s valuation skyrocketed to a peak of 1.16 billion dollars in market capitalization, only to crash by more than 95% in the following hours. In total, it is estimated that almost 75,000 traders lost money.
This scandal has been nicknamed “Cryptogate” because it involved the participation and approval of important figures, such as the Argentine president Javier Milei and the investment company Web3 Kelsier Ventures.
All this has triggered a strong reaction from the crypto community, and a political crisis for Milei with accusations of fraud and calls for a federal investigation.
It was later discovered that the CEO of Kelsier, Hayden Davis, also played a role in the launch of the MELANIA token by First Lady Melania Trump.
In the report DWF Labs writes:
“These events not only highlight the ongoing issues with influential cryptocurrency launches tied to celebrities, but also the increasingly pressing need for a more transparent and fair token launch mechanism in the cryptocurrency market”.
“`html
Types and Problems
“`
The guide identifies as many as nine different types of token launch mechanisms.
It ranges from the first or simplest, mining, to pre-mining, passing through ICO, Dutch auctions, fair launch, Liquidity Bootstrapping Pool (LBP), lockdrop, Liquidity Bootstrapping Auction, and the so-called fair launcher 2.0.
Furthermore, they specifically identify three issues, defined as persistent flaws in the mechanisms for launching existing tokens.
The first, and most classic, is insider trading, which is the informational asymmetry that allows those with advance information to exploit the ignorance of others.
The second, equally classic, is the domain of bots and whales, which can control significant portions of liquidity and trading volume, thus being able to execute coordinated price manipulation schemes.
Finally, however, regulatory gaps and challenges in the application of laws are also identified, given that unlike traditional financial markets where front-running and insider trading are illegal and actively prosecuted, crypto markets instead operate in a regulatory gray area with many ambiguities.
Thus, it turns out to be unclear which laws apply and which authorities have jurisdiction, leading to regulatory arbitrage and hindering effective law enforcement even when a subject operating incorrectly has been identified.
“`html
The proposals
“`
The guide proposes several different comprehensive approaches to tackle these issues, and to ensure that the crypto sector can continue to progress in a positive direction.
The first is the emissione di debito, that is, the issuance of debt tokens that represent a right to future revenue or assets.
The second is liquidity locking, which is similar to the lockdrop that involves locking LP tokens in smart contracts for a predetermined period, but also allows for the prevention of instant “rugpull” by developers, and serves as a preventive measure against harmful practices
Finally, they propose launch restrictions, which if implemented strategically could significantly mitigate the impact of whales and bots on the distribution of tokens.
Finally, they are asking for regulatory and policy improvements to effectively address the persistent issues in token launches
In conclusion, looking to the future, the success of token launch practices depends both on the collective efforts of industry stakeholders and on those of regulatory bodies.
The Cryptonomist – Read More