This article presents an overview of the different token recipients and pools that are common within the Cosmos ecosystem, as well as how protocol tokens are typically allocated.
We believe our research on the best practices for Web3 founders should be freely accessible for everyone. However, please note that we are not lawyers. We just want to get this information out there so you have a starting point before seeking legal council.
The metrics used here are derived from observations of how projects within the Cosmos/Interchain ecosystem have allocated tokens over the past two years. Please note that these metrics are subject to change and may differ in the future. For each recipient or pool, we will provide:
- A brief explanation of the token recipient or pool and its purpose
- The source of supply, either from the genesis supply or the emission schedule
- The allocation percentage estimate based on the genesis supply or the emission schedule
- Common cliff and vesting periods
Remember that the percentages given here are examples, and your project's allocation percentages may vary. These numbers are an estimate based on what has been common in the last few years. As the Web3 space matures, these will likely change over the next few years.
Please also note that the information here is biased. It assumes your protocol is using some kind of inflationary model as is currently common in Cosmos chains.
Token Distribution Recipients
Here is a an overview of the common supply source for each pool / recipient:
Recipient / Pool
Team & Advisors
The strategic reserve, or "treasury," is typically managed by a foundation and held in a multisig wallet, controlled by the foundation's council, which is usually composed of the founding team.
The distribution of the strategic reserve is quite flexible and can be used for:
- Funding the protocol's development, operations, and marketing
- Paying out grants to contributors (often through a grants program)
- Raising funds in future fundraising rounds (Series A/Treasury Round) or liquidity pools
- Offering future incentives
Furthermore, it is common for a portion of the strategic reserve to be delegated to early and strategic validators, ensuring alignment with the network.
Source of supply: Genesis Supply Allocation estimate: 40-50% of the Genesis Supply Vesting period: None or a short time period, max. 1 year
Investors / Pre- and Private Sale (Pre-Seed & Seed Rounds)
This allocation is for investors who participated in the project during Pre-Seed and Seed rounds (6 months to 2 years prior to launch) via SAFEs + Token Warrants or Token Side Letters of SAFTs.
The exact allocation percentage varies from project to project. R&D-heavy projects requiring significant time for research and product development typically allocate a larger percentage to investors, as they need more funding until they are ready for launch. It is recommended to be cautious about allocating more than 20% to investors, as doing so may increase the risk of centralization, leaving the community and team with less control over the project's future.
Source of supply: Genesis Supply Allocation estimate: Ideally 5-10%, max. 20% of the Fully Diluted Value (FDV) Vesting period: 2-4 years vesting after a 2-year cliff
Team & Advisors
This allocation is reserved for advisors, founders, current team members, and future team members. Team tokens usually go to the founding team members directly after the Token Generation Event (TGE) but can also be held in a pool by the treasury for future team members.
Although past Cosmos projects have often assigned team tokens from the emission schedule, it is recommended to allocate tokens from the genesis supply, ideally right after the Token Generation Event when the tokens do not yet have a price. This is primarily beneficial for tax reasons, as the genesis supply has no token value associated with it yet and therefore does not carry a tax burden in most jurisdictions. Tokens received through inflation will have a price and are taxable at the moment the individual receives them. Considering vesting schedules and potential liquidity constraints, this can be disadvantageous for founders and team members.
Source of supply: Genesis Supply and/or Emission Schedule Allocation estimate: 20% of the Genesis Supply Vesting period: 4-6 years vesting after 1-2 years cliff
Airdrops consist of tokens sent to certain token holders, such as Atom, Osmosis, or other Cosmos assets holders and stakers, to increase project awareness, bootstrap adoption, and attract initial users. Airdrops are often used primarily as a marketing or user onboarding tool.
The percentage largely depends on the project's objectives with the airdrop and the expected outcomes of larger or smaller airdrops, such as user acquisition, potential token dumping, and market conditions at the time of the airdrop.
Source of supply: Genesis Distribution Allocation estimate: Ranges widely from 10% to 50% of the Genesis Supply. Vesting period: Typically no vesting, but consider vesting tokens to avoid selling pressure if a large airdrop is planned
Public Sale / Liquidity Bootstrapping: IDO, LBP, LBA
This allocation is for tokens sold to the public via launchpads or DEXs through IDOs, Liquidity Bootstrapping Pools, or Liquidity Bootstrapping Auctions to raise initial liquidity for the protocol and/or its development.
Source of supply: Genesis Distribution Allocation estimate: 3-7% of the Genesis Supply Vesting period: Short vesting period or no vesting period
These tokens are distributed to validators and delegators as staking rewards, incentivizing them to help secure the network.
The percentage can vary wildly. Higher numbers have been common for previous Cosmos projects. More recent observations suggest many projects are looking to allocate a lower percentage to reduce selling pressure on the open market, but this highly depends on the actual token inflation numbers.
Source of supply: Emission Schedule Allocation estimate: 15-45% of the Emission Schedule Vesting period: No vesting period
Ecosystem incentives drive usage, participation, and behavior within a protocol by allowing users to earn tokens or rewarding them for specific actions.
The exact numbers can vary greatly depending on the project, as each unique business model requires its own suitable incentive structure when targeting its specific user groups.
Source of supply: Emission Schedule Allocation estimate: 20-45% of the Emission Schedule Vesting period: No vesting period
The community pool is a percentage of tokens allocated for community-driven projects or initiatives that benefit the protocol. These tokens can be spent through governance proposals by the community.
Source of supply: Genesis Supply or Emission Schedule Allocation example: 10% of the Emission Schedule Vesting Period: No vesting period
Cosmos Project Examples
Here are a few examples of token distribution models in various projects:
For a more comprehensive understanding of how token distributions have evolved over time, please read the following article: Optimizing your Token Distribution