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Launchpad Due Diligence: Ensuring the Security and Integrity of Your Tokenization Project

Karolina

21 Jun 2023
Launchpad Due Diligence: Ensuring the Security and Integrity of Your Tokenization Project

Over the past few years, tokenization has surfaced as an innovative technology with immense potential to transform numerous industries. Through blockchain implementation, artificial intelligence, and cryptocurrencies, companies can tokenize their assets and services, facilitating fractional ownership, improved liquidity, and heightened transparency. Nevertheless, addressing the intrinsic risks linked to this cutting-edge approach is crucial as tokenization gains traction.

Mitigating risks in tokenization initiatives necessitates conducting extensive due diligence, especially when employing launchpads. Launchpads function as platforms that aid in fundraising and initiating tokenized projects. Ensuring the security and integrity of these initiatives is vital to protect investor interests and establish trust in the tokenization environment.

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What does Launchpad Due Diligence mean?

Launchpad due diligence is the exhaustive evaluation process conducted before participating in a tokenized project via a Launchpad platform. It entails thoroughly inspecting various project aspects, such as technical infrastructure, legal compliance, team expertise, market potential, and community engagement. The objective is to detect any potential dangers, susceptibilities, or warning signs that may affect the project's success or jeopardize investor funds' security.

Serving as a precautionary measure, launchpad due diligence confirms that tokenized projects comply with stringent standards of safety, clarity, and regulatory adherence. It offers prospective investors and contributors an in-depth understanding of the project's viability, trustworthiness, and associated risks. By performing due diligence, participants can make educated choices and reduce the chances of falling prey to scams or poorly executed initiatives.

Considering both technical and non-technical facets, launchpad due diligence encompasses a multidimensional evaluation. Beyond scrutinizing a project's whitepaper or its technological framework, it delves into appraising team capacity, legal conformity, and market feasibility. Through this stringent assessment procedure, launchpad due diligence strives to safeguard investors and guarantee the enduring success of tokenization endeavors.

By underscoring the importance of launchpad due diligence, tokenization participants can reduce risks, amplify project credibility, and contribute to the overall expansion and stability of the tokenization ecosystem. In the sections below, we will examine the necessity of due diligence for tokenization projects and explore the fundamental elements of launchpad due diligence.

The Necessity of Due Diligence in Tokenization Projects

Tokenization projects present exciting prospects for businesses and investors by allowing fractional ownership of assets and establishing new methods of value exchange. Nevertheless, these opportunities are accompanied by inherent risks that must be thoroughly assessed and managed through due diligence. Here are various reasons explaining the importance of due diligence for tokenization projects

Fraud Prevention and Risk Mitigation

Identifying and alleviating possible risks associated with tokenization projects is a crucial function of due diligence. It assists in exposing deceptive schemes, scams, and false claims that can mislead investors and other participants. Thorough due diligence can reveal potential warning signs, helping participants avoid fraudulent endeavors and secure their investments.

Trust and Security

Tokenization projects frequently employ blockchain technology and smart contracts, necessitating strong security measures. Evaluating the security mechanisms, code quality, and possible vulnerabilities within the underlying technical infrastructure is facilitated by due diligence. A technical audit can uncover potential security hazards, which can be addressed to ensure the tokenization project's dependability and integrity.

Regulatory Compliance

Adherence to legal and regulatory standards is vital to the long-term triumph and stability of tokenization projects. Due diligence encompasses examining and determining the project's compliance with relevant laws, regulations, and recommendations. This analysis includes assessing the project's obedience to Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, securities laws, and data protection regulations. Compliance with regulations mitigates legal risks while boosting investor and stakeholder confidence.

Protection for Investors

Conducting due diligence is essential to safeguarding investors' interests in tokenization projects. By scrutinizing a project's whitepaper, team qualifications, and financial forecasts, prospective investors can evaluate the project's feasibility and potential return on investment. Comprehensive due diligence aids in recognizing projects featuring solid business models, skilled teams, and viable growth probabilities—thereby minimizing the chance that investors will lose their funds to ill-conceived or fraudulent initiatives.

Credibility and Reputation

Launchpad due diligence enhances the overall esteem and reliability of the tokenization ecosystem. By performing extensive evaluations, both launchpad platforms and project teams showcase their devotion to accountability and ethical practices. Projects that emphasize due diligence and supply thorough documentation encourage confidence in potential investors, drawing more participants and cultivating a thriving, sustainable tokenization environment.

Essential Elements of Launchpad Due Diligence

A thorough assessment process is vital in launchpad due diligence, addressing multiple crucial components to guarantee the security, reliability, and success of tokenization initiatives. Examining these aspects enables potential investors and participants to make educated choices and minimize tokenization-related risks. The following are the main components of launchpad due diligence

In-Depth Project Assessment

This component involves a detailed evaluation of the tokenization project, including examining its whitepaper and scrutinizing its business model, roadmap, financial forecasts. Determining the project's feasibility and scalability is essential to predict its likelihood of success. Furthermore, comprehending the market consequences and competitive environment can offer insights into the project's sustainability and long-term growth potential.

Technical Inspection

Performing a technical review is crucial for evaluating the security and functionality of the blockchain infrastructure underpinning the tokenization initiative. This component consists of scrutinizing the project's smart contracts, conducting code assessments, and analyzing the network architecture. Identifying and addressing possible vulnerabilities, bugs, or inadequacies in the code through examining technical aspects ensures a strong and secure foundation for the tokenization endeavor.

Abiding by relevant legislation and regulations is vital for a tokenization project's legitimacy and long-lasting success. Launchpad due diligence encompasses an exhaustive review of legal documents such as terms of service, privacy policies, and regulatory submissions linked to the project. Ensuring compliance with Know Your Customer (KYC), Anti-Money Laundering (AML) regulations, securities laws, and data protection regulations is imperative to minimize legal risks and safeguard participant interests.

Team Examination

Evaluating the proficiency, background, and credibility of the project team is a key aspect of launchpad due diligence. This assessment entails reviewing team members' qualifications, experience, and accomplishments. Exploring their past projects, roles, and contributions to the blockchain and cryptocurrency sectors helps establish their capability and likelihood of successfully executing the tokenization project. A qualified team with a strong reputation inspires confidence in investors and stakeholders.

Market and Community Analysis

Assessing the project's community involvement, social media footprint, and market perceptions is crucial to estimating its potential adoption and achievement. Launchpad due diligence incorporates evaluating the project's engagement across various channels, such as Telegram, Twitter, or Discord, to comprehend community support and interaction levels. Moreover, performing market analysis and understanding the competitive landscape offer valuable insight into potential market positioning and demand for tokenized products.

By addressing these essential components during launchpad due diligence, potential investors and participants can obtain a comprehensive view of a tokenization project's strengths, weaknesses, risks, and possible rewards. Rigorous evaluations of the project as a whole, its technical facets, legal compliance, team capabilities, and market dynamics contribute to making well-informed investment decisions and promoting a secure and reliable tokenization environment.

Advantages of Launchpad Due Diligence

There are numerous advantages to performing launchpad due diligence, particularly for those involved in tokenization projects. By emphasizing the importance of due diligence, both investors and stakeholders can protect their interests. The following are the primary advantages of launchpad due diligence.

Guaranteeing Investor Protection

A critical protective measure for investors is provided by launchpad due diligence. In-depth evaluations can identify and prevent possible scams, deceptive projects, and inadequately executed initiatives. Due diligence reveals red flags and warning signs, allowing investors to make educated decisions and reduce the likelihood of losing their investments. Establishing trust and confidence in the tokenization ecosystem is made possible by safeguarding investors' interests.

Boosting Project Credibility

Rigorous due diligence serves to increase the credibility and trustworthiness of tokenization projects. Launchpad platforms and project teams that prioritize due diligence demonstrate their dedication to transparency, responsible operations, and high-quality standards. Comprehensive assessments and thorough documentation grant prospective investors access to vital information for gauging a project's credibility. A well-prepared due diligence report can entice additional investors, form partnerships, and promote long-term project success.

Recognizing Red Flags and Reducing Risks

Identifying potential risks and weaknesses related to tokenization projects is made possible through launchpad due diligence. Various factors, including a project's technical infrastructure, legal compliance, team abilities, and market analysis, are evaluated to detect potential red flags. This proactive strategy allows participants to handle issues before they escalate into major problems, reducing project failure likelihood as well as fraud or security breaches.

Supporting Informed Decision-Making

Comprehensive information for informed investment decisions is supplied by launchpad due diligence. Thorough evaluations of a project's feasibility, scalability, legal compliance, and team expertise enable investors to determine the likelihood of project success. This empowers them to balance risks and rewards, tailor investment strategies, and select projects that correspond with their objectives and risk tolerance.

Fostering the Tokenization Ecosystem's Healthy Development

Participants contribute to the tokenization ecosystem's overall growth and stability by carrying out launchpad due diligence. In-depth assessments aid in identifying and supporting legitimate projects with solid foundations, skilled teams, and viable business models. This cultivates an atmosphere that encourages responsible innovation while drawing more participants, investors, and businesses to the tokenization arena.

In summary, launchpad due diligence provides substantial benefits, such as ensuring investor protection, bolstering project credibility, spotting red flags, enabling informed decision-making, and fostering the tokenization ecosystem's healthy growth. By prioritizing due diligence, participants can reduce risks, encourage transparency, and build a foundation of trust within the continually evolving world of tokenization.

Conclusion

Undertaking due diligence on Launchpad is a vital process for guaranteeing the safety, reliability, and prosperity of tokenization endeavors. By performing comprehensive evaluations of the project, technical framework, legal adherence, team proficiency, and market forces, participants can make well-informed choices while minimizing potential threats. Placing emphasis on due diligence is crucial for cultivating confidence, drawing investments, and encouraging responsible expansion in the thrilling realm of tokenization.

Nextrope Tokenization Launchpad Platform

Nextrope Launchpad Platform is a White Label solution in a Software-as-a-Service model that helps you launch your project within a month and fundraise with Initial Coin Offering (ICO) or Security Token Offering (STO).

Our platform allows you to participate in the broad financial market of digital assets. Expand your reach and find investors globally. Tokenize your project and start raising capital within a month!

If you are looking for a software house that will become your reliable technology partner in the tokenization process, our experts are ready to help you at any stage of it. After years, we simply know the basics of stunning projects. Let our experience become your success. Read more about Nextrope Tokenization Launchpad Platform and Contact Us!

Tagi

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Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Quadratic Voting in Web3

Kajetan Olas

04 Dec 2024
Quadratic Voting in Web3

Decentralized systems are reshaping how we interact, conduct transactions, and govern online communities. As Web3 continues to advance, the necessity for effective and fair voting mechanisms becomes apparent. Traditional voting systems, such as the one-token-one-vote model, often fall short in capturing the intensity of individual preferences, which can result in centralization. Quadratic Voting (QV) addresses this challenge by enabling individuals to express not only their choices but also the strength of their preferences.

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In QV, voters are allocated a budget of credits that they can spend to cast votes on various issues. The cost of casting multiple votes on a single issue increases quadratically, meaning that each additional vote costs more than the last. This system allows for a more precise expression of preferences, as individuals can invest more heavily in issues they care deeply about while conserving credits on matters of lesser importance.

Understanding Quadratic Voting

Quadratic Voting (QV) is a voting system designed to capture not only the choices of individuals but also the strength of their preferences. In most DAO voting mechanisms, each person typically has one vote per token, which limits the ability to express how strongly they feel about a particular matter. Furthermore, QV limits the power of whales and founding team who typically have large token allocations. These problems are adressed by making the cost of each additional vote increase quadratically.

In QV, each voter is given a budget of credits or tokens that they can spend to cast votes on various issues. The key principle is that the cost to cast n votes on a single issue is proportional to the square of n. This quadratic cost function ensures that while voters can express stronger preferences, doing so requires a disproportionately higher expenditure of their voting credits. This mechanism discourages voters from concentrating all their influence on a single issue unless they feel very strongly about it. In the context of DAOs, it means that large holders will have a hard-time pushing through with a proposal if they'll try to do it on their own.

Practical Example

Consider a voter who has been allocated 25 voting credits to spend on several proposals. The voter has varying degrees of interest in three proposals: Proposal A, Proposal B, and Proposal C.

  • Proposal A: High interest.
  • Proposal B: Moderate interest.
  • Proposal C: Low interest.

The voter might allocate their credits as follows:

Proposal A:

  • Votes cast: 3
  • Cost: 9 delegated tokens

Proposal B:

  • Votes cast: 2
  • Cost: 4 delegated tokens

Proposal C:

  • Votes cast: 1
  • Cost: 1 delegated token

Total delegated tokens: 14
Remaining tokens: 11

With the remaining tokens, the voter can choose to allocate additional votes to the proposals based on their preferences or save for future proposals. If they feel particularly strong about Proposal A, they might decide to cast one more vote:

Additional vote on Proposal A:

  • New total votes: 4
  • New cost: 16 delegated tokens
  • Additional cost: 16−9 = 7 delegated tokens

Updated total delegated tokens: 14+7 = 21

Updated remaining tokens: 25−21 = 425 - 21 = 4

This additional vote on Proposal A costs 7 credits, significantly more than the previous vote, illustrating how the quadratic cost discourages excessive influence on a single issue without strong conviction.

Benefits of Implementing Quadratic Voting

Key Characteristics of the Quadratic Cost Function

  • Marginal Cost Increases Linearly: The marginal cost of each additional vote increases linearly. The cost difference between casting n and n−1 votes is 2n−1.
  • Total Cost Increases Quadratically: The total cost to cast multiple votes rises steeply, discouraging voters from concentrating too many votes on a single issue without significant reason.
  • Promotes Egalitarian Voting: Small voters are encouraged to participate, because relatively they have a much higher impact.

Advantages Over Traditional Voting Systems

Quadratic Voting offers several benefits compared to traditional one-person-one-vote systems:

  • Captures Preference Intensity: By allowing voters to express how strongly they feel about an issue, QV leads to outcomes that better reflect the collective welfare.
  • Reduces Majority Domination: The quadratic cost makes it costly for majority groups to overpower minority interests on every issue.
  • Encourages Honest Voting: Voters are incentivized to allocate votes in proportion to their true preferences, reducing manipulation.

By understanding the foundation of Quadratic Voting, stakeholders in Web3 communities can appreciate how this system supports more representative governance.

Conclusion

Quadratic voting is a novel voting system that may be used within DAOs to foster decentralization. The key idea is to make the cost of voting on a certain issue increase quadratically. The leading player that makes use of this mechanism is Optimism. If you're pondering about the design of your DAO, we highly recommend taking a look at their research on quadratic funding.

If you're looking to create a robust governance model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure that your DAO will stand out as a beacon of innovation and resilience in the long term.

Tagi