Dear Minimalists,
Recently, we’ve more frequently encountered community members questioning how our tokens are allocated.
In this post, we’d like to put things into perspective and share why allocating a certain percentage to a particular group does not mean sacrificing decentralization in the context of Minima.
Traditional structures
Let’s start by looking at capital and control in traditional corporations. When founders decide to create a product or launch a service, they might go to family and friends to raise initial capital. Eventually, as the business grows, that doesn’t suffice, so they start pitching to Venture Capitalists.
Venture Capitalists get a share of the company, and founders receive the necessary cash to continue building. Often VCs will bring their expertise and play a role in stirring the company in a certain direction.
Retail investors have no way to access these early investments. The first time they gain a way to participate in a company’s growth is when they go public. During an IPO, companies issue shares that anyone can purchase.
Usually, shares come with voting rights, but the weight of a vote is very much dependent on one’s fiscal means. Even though retail investors can vote in decisions, their board controls many companies in practice.
A way around this are platforms such as Indiegogo or Kickstarter, where individuals can raise funds in a peer-to-peer manner. Yet, for building something like Minima, that wouldn’t have been sufficient, mainly because you need an MVP for those kinds of platforms.
And building the most decentralized blockchain, even as an MVP, requires far more resources than these platforms can offer.
Why not do an ICO?
In 2017 we saw the rise of the Initial Coin Offerings; modeled after IPOs (initial public offerings), these were events where crypto projects raised funds using blockchain. Anyone wanting to invest would send crypto to a smart contract and receive the token they invested in, in return.
While it allowed various projects to raise the necessary funds, regulators have become increasingly aware of fundraising practices in the crypto-sphere. The SEC has frequently stated that ICO tokens are securities, and they’d be going after issuers.
Additionally, one cannot sell tokens that aren’t in mainnet yet. But Minima requires a vast group of people to run, use, and interact with the network to ensure that it will be complete once we release the mainnet.
The only way then to finance the venture was through raising funds.
Owning many tokens doesn’t mean control.
We did our best when raising our seed rounds, going to hundreds of individuals to make sure tokens were as distributed as possible.
We chose all VCs not for being the most prominent in the space but for their long-term outlook on how crypto and web3 will evolve. All of them have agreements for future tokens, and no equity. They do have no control over Minima.
In recent days, many new blockchains launching run on Proof-of-Stake. It might be why investors are now understanding blockchain as Proof-of-Stake networks.
Proof-of-Stake
When in the early days of the development of a Proof-of-Stake network, over 33% of the token supply goes to private investors and VCs, there is an element of control. It’s generally accepted that with 33% of the stake, a malicious actor could censor a blockchain. Considering that not even the entire supply of networks is staked, the percentage might be even lower.
What’s more, Proof-of-Stake networks tend to favor validators/stakers that hold a substantial amount of tokens. Consequently, the VCs and others will only increase their allocation over time, further compromising the network’s security and censorship-resistant qualities.
Additionally, many Proof-of-Stake protocols also add a governance layer to the mix, where all token holders vote. The more governance tokens/native network tokens one owns the higher one’s weight.
One entity owning a lot of tokens inevitably centralizes PoS networks.
Minima is NOT Proof-of-Stake
Minima builds consensus using a variation of Proof-of-Work, where work is distributed among nodes. Therefore, everyone can run a full node on their phone.
In most existing proof-of-work protocols, centralization enters through competition. When Bitcoin launched, anyone could mine it. More than ten years later, only mining pools uphold the network, with 3–4 controlling more than 50% of the necessary computing power to compromise the network.
As Charlie Munger once said, “Show me the incentive, and I will show you the outcome.”
Unfortunately, block rewards have created a competitive environment where only the biggest can now compete — for ever-decreasing rewards.
Integrity and Control
On Minima we collaborate, nodes work together to construct the network. Everyone validates their own transactions, therefore no one can censor (exclude) them from a block.
Our consensus algorithm also means that the amount of tokens one individual holds has no correlation whatsoever with any control they could exercise over the network. Holding even 20% of the allocation doesn’t mean that entity can make any changes. Token distribution has no impact on consensus, nor on the integrity of the network.
At the time of writing, over 15,000 individuals spread across more than 90 countries are running full Minima nodes. To attack that network would require someone to convince over 50% of them to work together. Everyone owns it, no one controls it.
On Fair Launches
The term “fair launch” has frequently been thrown around in DeFi whenever a new project is launched. However, what exactly such a fair launch is, was usually left to the reader’s imagination.
When the distribution of control in a network is dependent on the outcome of the launch then we need a fair launch. In its early days, Bitcoin was fair, anyone with a little computing power could mine it.
At Minima, we believe that a fair launch means enabling anyone to access the network. And going beyond access, to run a full validating and constructing node. Only this way everyone can verify what is happening on-chain, and trustlessly use the network.
On Price and VC investment
There is a sentiment in crypto that VCs are bad, and have an unfair advantage against retail investors. However, VCs like other market participants aren’t all the same. Undoubtedly, some might just be interested in making a quick 100x.
At Minima, we carefully selected VCs based on their philosophies, and the expertise they can bring to the network. All of our investors are interested in the bigger goals that we can achieve with a truly decentralized network.
Another criticism regarding early VC investments is that these VCs might just exercise their power in terms of moving prices. Unfortunately, due to regulatory requirements, no blockchain company can sell their tokens before launch to any retail investors.
All institutional investors in Minima are subject to lock-up periods.
We’re aiming to launch on as many trading venues as possible to encourage liquidity, which consequently will minimize the impact of any outsized order on the price.
Price doesn’t impact Minima’s decentralization
While in Proof-of-Stake protocols price might have a direct impact on how control is distributed in a network, Minima is different.
As an offering, it’s more than a purely financial token. Instead of only providing monetary utility, Minima as a network is secured by everyone — price fluctuations have no impact on scalability, decentralization, and security of the network.
The incentive to maintain a Minima node isn’t a financial reward, as on Bitcoin or other chains. It is the utility one receives, and the sovereignty of running a full node.
It isn’t easy to create something that will be the future layer of a truly decentralized Web3, a platform that is censorship-resistant. Neither is it free. That’s why we took outside investment.
We raised from more than 250 individuals (friends and family) during our seed round, and with our IncentiveCash and other programs, we’re distributing Minima coins ahead of mainnet launch to the community. To ensure a distributed token allocation.
How tokens are distributed, and the price of Minima have no impact on the decentralization of the network.
Thank you for being part of the Minima Community.
Your Minima Team
If you have further questions, don’t hesitate to reach out through our Telegram channel or on Discord.