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Token distribution in perspective: Livepeer’s merkle mine not as successful as portrayed
Token generation & distribution has always been a top concern for anyone seeking to establish truly decentralized networks. We’ve seen many methods attempted, but it remains quite challenging to distribute tokens fairly to real users (not speculators) while avoiding concentration of wealth.
So as a token designer, I was very excited when Kyle Samani of Multicoin published A New Model for Token Distribution, praising the innovative work by Livepeer in developing merkle mining, a supposedly significantly superior model. It claimed to get tokens into the hands of real users while producing a significantly lower Gini coefficient. Analysis revealed these claims are inaccurate both for Livepeer specifically and for merkle mining generally. This article will deep dive on the effects of this method of distribution and propose some industry guidelines for future network launches. If you’re unfamiliar with merkle mining, I would recommend reading about how it actually works here.
Gini coefficient in perspective
Multicoin’s article opens up with the following graph, showing the at-times extraordinary wealth concentration among a few select coins.
However, I think it’s also important to show how many addresses there are in total so we can see what percentage these 500 comprise. (Disclaimer: this is an imperfect measure as wallets =/= people, but we make do with what we have.)
Livepeer has so many wallet addresses (even more than Litecoin, which was started in 2011) because:
- Livepeer airdropped Livepeer Tokens (LPT) on all addresses with >.1 ETH that sent a valid tx over a 3 month period
- Then, it pooled the remaining LPT and enabled merkle miners to in essence claim a reward for distributing tokens to additional addresses that met the >.1 ETH requirement, but did not send a valid tx…
