Introduction​

In our last post, we introduced the Token Launch Trilemma by covering the three pillars that are essential to any token launch — Accessibility, Participation, and Valuation. We left off by teasing how Axis, the modular auction protocol that enables users to easily conduct auctions for ERC20 tokens, can solve the trilemma.

Auctions are powerful tools for price discovery and are backed by an entire field of study known as auction theory. Calling back to our very first post, they already help secure and facilitate billions of dollars in crypto:

In the realm of token launches, however, current solutions are poorly optimized and fail to unlock the full potential of the auction design space. Axis has built a suite of token launch tools to change that and find an optimal balance within the trilemma.

Where did we go wrong, and why?​

Legacy launchpads have been recycling the same outdated strategies for multiple market cycles, despite their glaring drawbacks. Fixed-price ICOs remain a favorite, but why do we fall back to such methods?

Once again, we turn to Vitalik who specified the problem in his 2021 article about fixed-price sales below market-clearing price. He points to two main reasons: concerns over fairness and the management of community sentiment.

Fairness concerns arise because auction mechanisms inevitably exclude those who bid too low. However, this alone can’t explain why projects still turn to fixed-price launches since they exclude many users when they are over-subscribed. A more compelling explaination is managing community sentiment. Vitalik explains:

Out with the old, in with the new!​

Axis provides a suite of tools designed to navigate these complexities and address the Token Launch Trilemma. While each auction type within Axis can be used independently, a strategic multi-stage token launch that combines the best aspects of different systems may be ideal.

Fixed-Price Sales​

For Stage One in the launch sequence, projects can start a fixed-price sale operating on a first-come, first-served basis. Our smart contracts have optional allowlists that can be implemented to restrict access to a smaller group of early community members. Axis also has the ability to vest tokens to users over a configurable period of time — standard linear vesting is provided while custom or third-party solutions can be integrated. This is key for aligning incentives. Early community members who want to buy below market-clearing price need to earn their tokens over time.

Sealed-Bid Auctions​

During Stage Two, projects can discover the market-clearing price for their token using our flagship auction mechanism. We’ll cover how Sealed-Bid Auctions work thoroughly in our next post. For now, it suffices to say that this system allocates tokens to the highest bidders with the clearing price set by the last successful bid to be filled. Discovering the clearing-price for a token is important because it unlocks Origin’s final stage — liquidity launch.

Direct-to-Liquidity​

Axis auctions have a unique Direct-to-Liquidity feature that enables instant DEX liquidity. The proceeds from the auction are used to establish the initial liquidity pool, with the flexibility to use all or a portion of the funds. This feature is optional and customizable, ensuring that bidders are aware in advance of how their funds will be utilized. This adds a layer of programmatic security to a process that is traditionally manual and prone to errors.

It’s also important to note that determining an accurate clearing price of a token requires careful analysis, so users that are not comfortable assessing valuation at auction might even prefer to wait for the DEX launch.

How Axis solves the Token Launch Trilemma​

Now, let’s review a multi-stage approach within the context of the Token Launch Trilemma:

Going back to Vitalik’s 2017 article that we cited in our first Token Launch Trilemma post, he suggests a strategic trade-off:

Axis embodies these insights by progressively widening participation through its phased launch sequence. Each stage directly addresses one aspect of the trilemma, and all together a balanced strategy is created. This ensures that while some uncertainty in participation and valuation is inevitable, the structure of the launch strategy seeks to optimize overall outcomes for both projects and users.

This approach not only addresses the complexities of the Token Launch Trilemma, but will set a new standard for how tokens can be introduced to the market. By balancing the three pillars, Axis is positioned at the forefront of next-generation token launches.

Introduction​

The Token Launch Trilemma refers to three vital properties that are impossible to maximize for any token launch:

• Accessibility - Ensuring open access for all interested participants
• Participation - Guaranteeing that every participant receives tokens
• Valuation - Establishing a market equilibrium for token price

Trilemmas aren’t new in crypto and have been used to explain important properties of blockchains, stablecoins, and even bridges.

Vitalik described token sale models back in 2017. We expand on his first token sale dilemma by distinguishing between Participation and Accessibility.

Supply and Demand​

When assessing the Token Launch Trilemma, it’s important to keep in mind the basic rules of supply and demand. The initial token distribution is known for most token launches, so the supply side of the equation is fixed. On the demand side, Accessibility and Participation are the driving forces.

Trilemma Pillars​

Accessibility is a core feature of any permissionless product in crypto. However, this inclusivity creates difficulty in anticipating demand for a given token launch.

Many launchpads manage this by restricting access to the launch event, either through allowlists or token-gating platforms. This allows them to fix the launch at some pre-determined price and reward a set of selected users.

Participation is a property of the launch mechanism that ensures each participant receives tokens according to the rules of the launch.

Now, let's use an example to illustrate how Participation can be in tension with Accessibility.

Suppose your token uses a fixed-price sale that is open to all (Accessible) and satisfies bids on a first come, first served basis (Participation). This strategy is susceptible to front-running where a small group captures the full capacity. In fact, this strategy was famously executed during the initial Stargate auction.

Attempting to impose purchase limits per address still leaves the sale susceptible to Sybil attacks. As a result, ensuring that each participant receives tokens according to the rules (first come, first served) actually makes the launch less accessible.

Valuation is the final pillar of the trilemma and is one of the most important outcomes.

With a fixed supply and unknown demand, Valuation is the pillar that suffers the consequences. Although several launch strategies try to optimize for price discovery, existing solutions have notable tradeoffs and flaws that we'll explore in future posts. Some lend themselves to launching at predatory valuations, while others create PvP dynamics between participants.

Closing Thoughts​

The Token Launch Trilemma presents a multifaceted challenge for projects aiming to launch their token successfully. We believe finding a balance within the trilemma is the ideal solution, but this hasn't been achieved... Not yet.

At Axis, we’re building auction mechanisms to address these pillars and power the next generation of smart token launches. Leveraging insights from auction theory and industry leaders, we aim to bring battle-tested auction models on-chain and combine them with DeFi money legos.

Stay tuned for our next post where we’ll explain how Axis solves the Token Launch Trilemma. One hint from Vitalik:

Some valuation uncertainty or participation uncertainty is inescapable, though when the choice exists it seems better to try to choose participation uncertainty rather than valuation uncertainty.