_iant Lianchuang: From PoW and airdrops to progressive ownership token distribution
We founded IANT on the theory that the next generation of the internet will transform users into owners through tokenization. Using tokens as user incentives has had a very good bootstrapping effect on infrastructure networks such as Bitcoin and Ethereum. However, there is no proven model for scaling networks using tokens at the application layer. Instead, there are many examples where token distribution actually hinders sustained growth and retention because tokens attract more speculators than real users, blurring product-market fit.
These failures have led many to believe that using tokens in applications is generally wrong, but we disagree. We believe the path forward is to continually iterate on token design, moving toward a more bottom-up and optional ownership distribution model, which we call “progressive ownership.” This approach focuses on making users more loyal to applications that have product-market fit.
Within this framework, we will summarize past eras of token distribution mechanisms - PoW mining, ICOs, and airdrops - and the main associated lessons and issues. We will then propose high-level measures and strategies for a new token distribution model that we believe can sustainably grow applications with early product-market fit. By applying this strategy, applications can leverage user ownership to deepen the loyalty of existing users, paving the way for further user growth and retention.
1. Three major token distribution eras
Cryptocurrency has gone through three major eras in token distribution models:
PoW Era (2009 to Present): Hardware Formation
The ICO Era (2014-2018): Capital Formation
Airdrop Era (2020-2023): Guiding Usage
Each model broadened access and lowered barriers to participation, so each era naturally ushered in a new wave of growth and development.
(1) PoW era (2009 to present)
Bitcoin pioneered the idea that anyone willing to run software on their machine (“mining”) could operate a permissionless network to earn tokens representing ownership of the network. Miners who put in more computing power had a greater chance of being rewarded, which led to the rise of specialization, requiring large investments in computing resources.
The PoW era showed that token incentives can be very effective in guiding supply in networks where contribution value can be quantified. The key is that capital assets (hardware) are different from financial assets (BTC), and miners have to sell financial assets to pay for the cost of capital assets. As specialized hardware becomes an essential cost, miners have to put more skin in the game, but this development also squeezes ordinary users out.
(2) ICO era (2014**-2018**)
The ICO (Initial Coin Offering) era marked a clear departure from the PoW token distribution model: projects raised funds and distributed tokens by selling them directly to potential users. In theory, this approach allowed projects to bypass intermediaries such as venture capitalists and banks and reach a wider range of participants who could share in the benefits of the products and services they would use.
The promise of this model attracted entrepreneurs and investors, sparking a wave of speculative interest. Ethereum was partially launched through an ICO in 2014, and became a blueprint for numerous projects in the following years, including large ICOs in 2017-2018 such as EOS and Bancor. But the ICO era was rife with fraud and theft and lacked accountability; the failure of many ICO projects, coupled with intense regulatory scrutiny, led to the era's rapid decline.
ICOs highlighted blockchain’s capabilities for permissionless global capital formation. But the era also highlighted the need for more thoughtful token design and distribution models that prioritize community coordination and long-term development rather than focusing solely on capital supply.
(3) Airdrop Era (2020**-2023**)
In 2018, an official from the U.S. Securities and Exchange Commission (SEC) stated that BTC and ETH were not securities because they were “sufficiently decentralized.” In response, many projects designed tokens that included governance rights and distributed them widely to users retroactively in order to achieve sufficient decentralization.
Unlike ICOs, which distribute tokens for monetary investment, airdrops reward users for historical usage. The model kicked off the "Summer of DeFi" in 2020, popularizing liquidity mining (providing liquidity in financial markets to earn tokens) and yield farming (selling earned tokens for short-term gains).
While airdrops are a shift toward a more user-centric and community-driven model of ownership distribution, users are required to put in little to no investment, and most airdrops result in users immediately selling the majority of the tokens they receive, converting their ownership into earnings.
Many projects use airdrops before they have established true product-market fit. Tokens attract bots and incentive-driven speculative users, and ownership is not handed over to users who are aligned with the long-term success of the project. The rush to grab airdrops and sell tokens obscures signals about product-market fit and leads to boom/bust prices.
Some projects that rushed to launch tokens also saw their founding teams take a step back, trying to comply with an ambiguous regulatory litmus test of sufficient decentralization. This left decisions to governance referendums, and most token holders didn’t have the time or background knowledge to fully understand everything. Projects required founders to continue to iterate quickly until and even after product-market fit. It turns out that airdrop results often prove a mismatch between growth strategy and institutional execution at startups.
We believe that the main lesson learned from the airdrop era is that the pursuit of full decentralization has led many projects to stray from product-market fit. Instead, after early product-market fit has been proven, token distribution should be more thoughtfully tilted toward power users.
2. A new token distribution framework: progressive ownership
Progressive ownership builds on progressive decentralization, which states that tokens are not a substitute for product-market fit. This approach uses economic incentives to increase user loyalty and retention, in part, to gradually strengthen user ownership. In this model, users are incentivized by revenue sharing (such as ETH or stablecoins), but users can also decide to redeem their personal income for ownership tokens that represent a certain percentage of the community's revenue share.
This is beneficial for users, who can move between income and ownership with fewer steps than the previous default of converting tokens to income. Progressive ownership also enables them to adjust their economic participation to the level of risk and involvement that is appropriate for their circumstances.
There are also advantages for builders, who can use revenue sharing incentives to drive growth, build loyalty, retain control, and iterate quickly without being distracted by the goal of adequate decentralization. In addition, founders can still work to achieve liquidity through tokens while trying to mitigate the risks associated with an untargeted broad distribution of tokens.
Progressive ownership is only available for projects with early product-market fit and revenue sharing. While most crypto projects currently have relatively small revenue scales, there are more and more projects that meet this criteria. So far this year, Optimisim has generated approximately $30 million in revenue. In October, MakerDAO earned $16 million in fees from the protocol, with monthly average revenue compounded at 25% over the past year. Ethereum Name Service (ENS) generated $1.1 million in revenue over the past month.
Progressive ownership shifts token distribution from an opt-out model to an opt-in model, which has the potential to foster stronger loyalty and network effects as users gain more exposure. As loyal users upgrade to owners, their interests become more aligned with the success of the network, which incentivizes them to encourage others to join, creating a virtuous growth cycle. Users or developers who opt in to ownership are more likely to maintain a long-term relationship with the project, just like startup employees with stock options.
Conversely, in an airdrop model, loyalty can be eroded as most users choose to sell their tokens for gains, creating downward price pressure. Research shows that customers who suffer losses as stakeholders experience a decline in satisfaction and loyalty to a company. By making ownership opt-in, networks can mitigate these boom-and-bust cycles and the attendant erosion of user benefits.
3. Progressive Ownership
Progressive ownership consists of 3 steps:
Build products that meet user needs.
Leverage on-chain revenue sharing models to drive growth, retention, and defensibility.
Allowing advanced users to upgrade to owners (e.g. redeem earnings for tokens).
(1) Build products that meet user needs
This is the hardest step. The foundation of the incremental ownership model begins with developing products and services that serve users in novel ways. As Li recently wrote, “Successful startups demonstrate step-by-step improvements in helping people achieve their core needs.”
By satisfying these needs, whether it’s revenue or esteem, apps can find product-market fit and even foster psychological ownership.
(2) Leverage on-chain revenue sharing models to drive growth, retention, and defensibility.
Projects can adopt an on-chain revenue sharing model that allows users to share in the success of the product/service, deepening their interest and commitment.
A prime example is Zora’s protocol rewards, which distributes a portion of revenue to creators and developers who drive NFT minting. This approach not only encourages user retention, but also enhances defensibility.
Some projects stop here - in fact, this is a typical script for web2 companies, from Substack to OnlyFans, from YouTube to X/Twitter... Revenue sharing has a strong appeal and obvious scale effects.
But a deeper reason than revenue sharing is that economic ownership can better tie users to the long-term success of the platform, rather than limiting them to short-term gains. Users with economic ownership will pay more attention to how their contributions will drive the growth of the platform. This is exactly the same old Silicon Valley formula for motivating startup employees.
(3) Allow advanced users to upgrade to owners
Finally, the most loyal super users can have ownership through tokens that contain economic and governance rights. This conversion is not an automatic and passive process, but a choice of the user. For example, the most valuable users measured by the revenue generated can choose to receive a revenue share in the form of ETH/stablecoins, or they can choose to receive a proportional allocation of the project's native tokens.
In choosing the latter, users are trading a portion of their personal gains for a portion of the community's total gains. If the network grows, the community's gains will grow as well, and the token should allow them to participate proportionally. In addition, the token may provide governance over key protocol parameters (such as fees or revenue sharing variables) to ensure long-term consistency.
There are many more implementation details to work out. (Should users have to stake their tokens to earn platform fees? Should tokens be vested on a schedule?) But without going into too much detail, let’s just give a few hypothetical examples:
Looking back at Zora, Zora has distributed about 1,008 ETH (nearly $2 million) in protocol rewards so far. These rewards are revenue-sharing models, mainly distributed to NFT creators who drive mining activities, as well as developers and curators. In the progressive ownership model, top Zora earners can choose to claim Zora tokens instead of ETH protocol rewards. How many creators and developers will choose to do this? It may be a small percentage, but these people have a large stake in the stakes, so they may become more active and more motivated to work on network growth.
Another hypothetical example is Farcaster, which charges individual users an annual fee of about $7 to store data on the network. Assuming that the protocol shares revenue with client developers that attract attention, developers can choose whether to pass this value on to end users, similar to kickbacks. Alternatively, developers can convert a portion of their revenue share into protocol tokens, giving them exposure to the growth of the ecosystem and governance over key protocol parameters.
4. Web2 Loyalty Model Precedent
The Progressive Ownership Model is closely related to business researcher James Heskett’s customer loyalty ladder, which consists of four stages: “loyalty (repeat purchases), commitment (willingness to recommend the product or service to others), ambassadorship (willingness to persuade others to use the product or service), and ownership (willingness to recommend improvements to the product or service).”
The progressive ownership model recognizes that customer loyalty requires deepening levels of psychological ownership. As users upgrade from benefits to tokens, they may feel an increasing degree of psychological ownership, eventually making a louder claim — behaving like owners of the product and taking more responsibility for its continued success.
This emotional connection can be fostered through financial levers (revenue sharing) and product elements (personalized experiences, interactive features, and user input) that make users more inclined to become long-term stakeholders.
Using economic ownership to solidify user loyalty is also consistent with research in the public equity fund space, which shows that stock ownership can increase brand loyalty among existing users. Li wrote:
A Columbia Business School study found that users of a fintech app that let them repurchase certain brands or stores in exchange for stock increased their weekly spending with those brands by *40%…* Users deliberately chose their stock holdings and spent time spending with those brands in order to earn stock rewards.
5. Transition to a new era of token distribution
Progressive ownership represents a significant departure from the previous era of token distribution. While ICOs and airdrops were primarily intended as bootstrapping tools, they often proved ineffective in incentivizing organic users. As a result, entrepreneurs were often led astray and unable to find product-market fit.
In a progressive ownership model, revenue sharing will spur growth and solidify loyalty, and ultimately, users will actively choose ownership, ensuring that only the most loyal users become stakeholders. This paves the way for a community of advocates committed to the long-term success of the network. While this model may face unforeseen challenges, it fits well with the precedent of economic ownership increasing loyalty.
The relationship between progressive ownership and a fully decentralized compliance framework is another topic. The industry needs novel compliance arguments that allow teams to continue to build amazing products while upgrading power users to owners through ownership. This is the work we plan to advance at iant.
Innovation in token distribution models catalyzes new growth and development within the ecosystem, and the play is not yet complete. We are excited to see future iterations of token distribution. #BTC #ETH
