Interpreting Origin: Farewell to traditional ICOs, breaking the three difficulties of Tokenissuance

Author: AXIS

Compile: Deep Tide TechFlow

In our previous article, we discussed the Token Launch Trilemma (Token Launch Trilemma) and introduced the three key elements that any token launch must focus on - Accessibility (Accessibility), Participation (Participation), and Valuation (Valuation). At the end of the article, we mentioned that AXIS is a modular auction protocol that can help users easily host auctions for ERC20 Tokens, and it may be able to solve this trilemma.

Auction, as an effective tool for price discovery, has a dedicated research field behind it - Auction Theory (Auction Theory). Looking back at the content mentioned in our first article, auctions have helped manage and facilitate billions of dollars in transactions in the field of encryption.

However, in the scenario of token issuance, the current solution has not been fully optimized and has not been able to fully explore the potential of auction design. Origin is a set of token issuance tools we developed, aimed at changing this situation and finding the best solution in the trilemma.

The combination of sales and blockchain technology plays an important role as the infrastructure in the industry, supporting the operation of multiple key areas:

MakerDAO: As the largest stablecoin protocol, its total locked value (TVL) exceeds $80 billion, and it successfully liquidated over $670 million in collateral assets through Dutch auctions.

MEV Blocker: Developed by CowSwap, this tool provides protection for decentralized exchange (DEX)'s transactions through the order flow auction mechanism, accumulating protection for over $45 billion in transaction volume.

OpenSea and Blur: As two leading NFT trading platforms, the total trading volume of these two platforms has exceeded 450 billion U.S. dollars, and they have adopted multiple auction models to optimize the trading experience and price discovery. These examples fully demonstrate the wide application of auction mechanisms in the blockchain ecosystem and their indispensable role.

So, where is the problem? And why are these problems occurring?

Traditional launch platforms have been repeatedly using the same old strategies across multiple market cycles, despite the obvious flaws in these strategies. Fixed-price ICOs remain a common choice, but why do we always go back to this method? Let's refer to @VitalikButerin's analysis of the issue of fixed-price sales below market liquidation prices in an article in 2021. He pointed out two main reasons: concerns about fairness and management of community sentiment.

The basic principle of managing community sentiment is simple: you want the price to rise, not fall... To avoid price decline, the only way is to set the selling price low enough to ensure that the market price after issuance will almost certainly be higher. However, how can this goal be achieved without triggering a 'rush' phenomenon (ultimately turning into another form of auction)?

Trade-in for new!

Origin provides a set of specially designed tools aimed at addressing these complexities and solving the "three difficulties of token issuance". While each type of auction in AXIS can be used independently, a multi-stage token issuance strategy that combines the advantages of different systems may be a more ideal choice.

Fixed Price Sale

In the first phase of issuance, the project party can sell the launch at a fixed price and operate on a "first-come, first-served" basis. Our smart contract provides an optional whitelist function, which can restrict participation to early community members. In addition, AXIS also supports releasing tokens to users in stages, and the release time can be flexibly configured—default providing a standard linear release (Linear Vesting), or integrating custom or third-party solutions. This design is crucial for aligning incentive mechanisms. Early community members who wish to purchase tokens at a price lower than the market liquidation price need to obtain their tokens through a gradual release, ensuring a balance of long-term interests.

EMP Auction

In the second stage, projects can use Origin's flagship auction mechanism to discover the market liquidation price of tokens. In the next article, we will explain in detail the Encrypted Marginal Price (EMP system. In simple terms, this system will allocate tokens to the highest bidder, while the liquidation price is determined by the last successful bid filled. Discovering the liquidation price of tokens is crucial because it lays the foundation for Origin's final stage - liquidity issuance.

Directly enter liquidity

The Origin auction mechanism provides a unique 'Direct-to-Liquidity' function, which enables tokens to have instant liquidity on decentralized exchanges (DEX). This means that the funds obtained from the auction can be directly used to establish the initial liquidity pool, and users can flexibly choose to use all or part of the funds. This feature is optional and highly customizable, ensuring that bidders have a clear understanding of how their funds will be used before the auction. Compared to the traditional manual and error-prone process, this design adds a layer of programmatic security to the entire process.

It is worth reminding that it requires careful analysis to accurately determine the liquidation price of the token. Therefore, for those users who are not very familiar with auction valuation, they may be more inclined to wait for the token to be listed on DEX before participating in trading.

Origin How to solve the three difficulties of token issuance

Now, let's review Origin's multi-stage approach within the framework of the three dilemmas of token issuance.

Phase One

Fixed-price sales are designed to attract specific user groups to participate. The pricing at this stage is below the market clearing price, but buyers need to gradually unlock their tokens over time to align their long-term interests with the project party.

Phase Two

The auction mechanism ensures a wider participation of users, but excludes buyers who bid below the market clearing price. At the same time, the market valuation of the initial token supply is determined.

Phase three

The mechanism of direct liquidity opens trading to everyone, promotes collective participation, and supports the continuous exploration and discovery of prices.

Returning to the viewpoint of Vitalik mentioned in the first article on the three difficulties of token issuance in 2017, he proposed a strategic trade-off suggestion:

We can make some concessions on the security of participation and mitigate its impact by introducing time as a third dimension...

In any case, the uncertainty of valuation or participation is always difficult to completely avoid. However, when there is a choice, it seems wiser to prioritize accepting the uncertainty of participation and try to minimize the uncertainty of valuation.

Origin's phased issuance strategy is a specific implementation of these insights. By gradually expanding the scope of participation, each phase optimizes one core aspect of the trilemma, and all phases together constitute a balanced overall strategy. This design ensures that despite the inherent uncertainties in participation and valuation processes, the structure of the issuance strategy maximizes the overall interests of both the project party and users.

This method not only effectively addresses the complexity of the three difficulties in token issuance, but also sets a new standard for how tokens are introduced to the market. By striking a balance between accessibility, participation, and valuation, Origin has become a leader in the next generation of token issuance.