I’m proposing to adjust questions 2.a) and 2.c) from the tokenomics section.
Both questions are related and often lead to confusion, as to what exactly needs to be answered. I believe both can be phrased differently, to improve clarity.
Problem statement
Often we see raters looking at Etherscan to display the current distribution of the token, and sometimes raters point to the initial token distribution published by a protocol. Sometimes that is done in question 2.a) sometimes in 2.c). We should make it clear, that question a) focuses on the genesis distribution and question c) on the mechanisms and distribution schemes put in place after the initial distribution was published.
In an ideal scenario, a rater would look at the genesis distribution in the first question. And evaluate whether this a fair distribution benefiting the protocol. And only then look at ongoing token distribution schemes and Etherscan, to evaluate whether the token distribution (through yield farming, contributor rewards, bounties, staking rewards, etc.) is benefiting all relevant stakeholders, incentivize the right behaviour and thus align the right ppl to improve the protocol.
This is the current phrasing of Q 2.a)
a) Is the token sufficiently distributed? (15 points)
The token distribution can be an indicator of a healthy protocol. When the protocol tokens are widely distributed among different stakeholder groups and contributors, this genuinely improves the coordinating capability of the token and strengthens the resiliency of the protocol. Was the initial distribution balanced between relevant stakeholders? Are the tokens distributed over sufficient participants (10, 25, 100 largest addresses)?
Score:
| Score | Description |
|---|---|
| 12-15 | The token distribution effectively aligns stakeholders for the betterment of the protocol |
| 8-11 | The token distribution represents the actual stakeholders of the protocol |
| 4-7 | The token distribution is unjustifiably skewed towards specific stakeholders |
| 0-3 | The token distribution is heavily skewed towards a small number of stakeholders |
New Phrasing Q 2.)
In the question above, only the last sentence points out that the initial (or genesis) distribution is meant with this question. I propose to re-phrase the question like this:
a) Initial token distribution (15 points)
Token distribution can be an indicator of a healthy protocol and, if done well, can improve coordination and alignment among different stakeholders. Was the genesis/initial distribution fair and balanced? Are the tokens distributed widely or is the ownership concentrated and skewed toward early insiders?
Score:
| Score | Description |
|---|---|
| 12-15 | Token distribution effectively aligns stakeholders for the betterment of the protocol. Community allocation is significant. Vesting schedules and lock-ups are fair and ensure long-term commitment from the team and investors. |
| 8-11 | Token distribution is reasonable and does a decent job at aligning stakeholders for the betterment of the protocol. Vesting schedules and lock-ups are fair. Community allocation is in-line with industry standards and can be distributed over time to incentivise positive behaviours. |
| 4-7 | Token distribution is questionable. Community allocation is relatively small, and vesting schedules for the team and investors do not signal long-term focus. |
| 0-3 | Token distribution is heavily skewed towards insiders, with aggressive vesting and short lock-ups. |
In a second step, I propose to also adjust question 2.c) which looks at the ongoing distribution of the token. Currently the question reads like this:
c) Is the issuance/distribution model able to improve the coordination of the protocol? (10 points)
To what extent does the issuance of the token support the advancement and function of the protocol? Are the tokens justifiably being issued? Does the issuance model incentivize the right behaviour? Are all relevant stakeholders benefiting from the issuance model?
Score:
| Score | Description |
|---|---|
| 8-10 | The issuance model of the token incentivizes the right behaviour and improves the protocol |
| 5-7 | The issuance model of the token has some incentives that improve the protocol |
| 2-4 | The issuance model has limited incentives in place that improve the protocol |
| 0-1 | The issuance model does not improve the coordination of the protocol |
New Phrasing
Again, I think the phrasing is not clear enough, that this examines the currently ongoing and future token distribution, i.e. issuance to stakeholders that are using/backing/working on the protocol.
A rephrasing could look like this:
c) Continuous token issuance & tokenomics mechanisms (10 points)
Most token distribution schedules have built-in inflation. This section evaluates the purpose of that inflation. Is it justifiable? Does it help improve the coordination and alignment of incentives for the protocol? Does it incentivise positive-sum behaviour? Are the benefits flowing to all relevant stakeholders or just select groups?
Score:
| Score | Description |
|---|---|
| 8-10 | The issuance model of the token incentivises positive-sum behaviour, improves coordination and benefits all relevant stakeholders. |
| 5-7 | The issuance model is reasonable, albeit not ideal, and benefits the protocol and stakeholder coordination |
| 2-4 | The issuance model has limited incentives in place that improve the protocol and disproportionately benefits select stakeholders. |
| 0-1 | The issuance model does not benefit the protocol or key stakeholders. |
In a third step, I would further propose to swap question 2.b) with question 2.a). Question 2.b) looks at what a tokens capabilities are. Since question 2.a) and 2.c) are closely related, it makes more sense to not have them interrupted by another question.
I hope these suggestions will help improve clarity on these rather complex tokenomics questions. Credit goes to DarkForestCapital and Verto, who have rephrased these questions for the metaverse report template.
Hoping for some discussion and inputs from the community, before moving this a proposal.