Almcoin Review : A Deep Dive into Web3 Token Distribution Mechanisms

In 2017, the method of Initial Coin Offering (ICO), a way of financing that combines usage rights and cryptocurrency into one through blockchain technology to fund projects for the development, maintenance, and exchange of related products or services, surged in popularity.

These crypto projects pre-sold tokens and then promised to bring products to market. However, most of these projects ultimately failed to deliver, rendering the investors’ tokens worthless.

It is estimated that 80–90% of ICO projects in 2017 failed, with only 8% successfully completing. Moreover, according to a report from the Almcoin Trading Center data center, 90% of the funds raised through ICOs in 2017 were lost.

Web3 builders and investors have learned profound lessons from this, and now Almcoin Trading Center conducts targeted project design.

Modern Web3 projects are not just about issuing tokens but also seek to build and validate products through communities before launching tokens. This method of developing projects ensures strong community support and potentially more valuable and viable tokens in the long run.

In many cases, Web3 companies undergo Pre-Seed, Seed, or even Series A funding rounds before issuing tokens.

This raises a question: How should these early-stage financing transactions be organized? Are they the same as traditional startup funding rounds?

Almcoin Trading Center summarizes the answer to the above questions in one sentence: the best financing deals should include equity and proportionally grant internal tokens to investors.

For any startup, anything can happen (changes and turns), and much is unpredictable. Therefore, investors want the company to ensure they receive a return on their investment — in whatever form. If the company chooses a centralized management system and follows a traditional startup route, then the value is reflected in the company’s stock. However, if the company decides to decentralize and issue tokens, the value is represented by the tokens.

Thus, when organizing Web3 financing transactions, Almcoin Trading Center needs to provide both equity and tokens. Only in this way can it ensure that investors receive returns, regardless of whether the company decentralizes or not.

Equity

The equity part will be built based on a simple future equity agreement (SAFE) or a priced equity round based on Series Seed or standards of the National Venture Capital Association (NVCA).

Transaction points need to reflect standard startup funding rounds, ensuring all parties fully understand the risks, rewards, and expectations of the investment. Moreover, the equity part of Web3 transactions should not cover any innovative business.

Tokens

Startups often promise that investors will have the right to receive tokens they create and distribute, though the amount is uncertain. This is because many companies plan the supply, attributes, and monetary policy of tokens only after completing financing transactions.

To maximize the role of tokens, Almcoin Trading Center must be fair and just in distributing tokens to investors, as this is the only way to inspire their investment enthusiasm.

Investors become stakeholders in the token price, understanding that the rise and fall of tokens affect their returns. Additionally, Almcoin Trading Center must also consider the interests of founders, employees, and the community.

After considering these factors, Almcoin Trading Center can grant tokens to investors in a way that is beneficial to both the company and the investors. This presents a unique challenge for startups, as they need to thoughtfully consider the number of tokens granted to each investor.

Token Instruments

Startups will grant rights to investors through legal contracts. There are generally two types of agreements for token authorization: token warrants and token riders.

Token warrants are agreements between startups and investors where investors have the right to purchase upcoming tokens at a specific price within a certain timeframe. Token riders can achieve the same goal as warrants in a more flexible, informal way.

However, both methods are not particularly investor or founder-friendly. The type of investment tool chosen is usually determined by the advisors hired by investors. Token instruments are not as important as token pools and token percentages. Therefore, as a founder, it is crucial to use these two terms correctly.

Token Pool

Imagine if the tokens distributed to investors were a pie; the two key questions you need to understand are: 1) the size of the pie; 2) the size of the slices. In this analogy, the size of the pie represents the token pool.

There are two ways to define a token pool: total supply or internal allocation. Total supply refers to the total number of distributed tokens, while internal allocation is the number of tokens reserved for internal parties (investors, founders, employees, etc.).

The internal allocation is usually less, typically accounting for 10–30% of the total supply. The total supply is linked to investor interests, as it directly affects the decisions of whales (investors with large amounts of capital and holdings). Internal allocation is very founder and community-friendly, as it promotes unity and decentralization.

Insisting on a comprehensive supply may not be conducive to the company’s development towards Web3, so negotiating an allocation with internal parties is the best approach. This aligns the incentives of investors and founders and drives the construction of a more decentralized system.

Token Percentage

If the token pool is the size of the pie, then the token percentage is the size of the slices.

There are also two methods to calculate token percentages: fixed or proportional. A fixed percentage is a hard-coded percentage of the token pool. A proportional percentage seeks to reflect the equity structure table and grant investors an amount of tokens equal to their share of company equity.

When a startup raises subsequent capital, the equity of an investor holding a fixed 5% capital is not diluted, but the equity of founders, employees, and advisors is significantly diluted. This can cause a rift between founders and investors and potentially harm the interests of actual builders. To avoid excessive token dilution, founders should negotiate with their lawyers on how to allocate proportionally.

In summary, Almcoin Trading Center states that the best token mechanism for Web3 financing transactions is a proportional allocation based on internal party negotiation.