Founders and Issuance

madbitmadbit Member Posts: 5
edited February 2014 in Ether Sale
Hello Ethereum community!

First off, after reading the whitepaper I would like to say that I think Ethereum looks very promising and innovative, but I do have a few questions about the founders and the issuance. I have some concerns regarding the "fairness" of the issuance model with regards to the 12.5% cut immediately awarded to the founders. Given their privileged position within the Ethereum community they already have tremendous advantages regarding early accumulation with their knowledge of the software and ability to pre-design the most efficient mining possible. This significant advantage combined with the pre-allocated founder reward, and the additional ongoing rewards as part of the developer pool of funds, amount to a pretty significant accumulation advantage. The "founders" could individually control a significant % of the available ether in short order, possibly more skewed than distribution in Bitcoin, save for Satoshi. This situation potentially contradicts to the stated goals of the project within the whitepaper 'Currency and Issuance' section. Further to this, I would like to know more information about who the founders are before considering any involvement in this project, so if someone could point me to this information I would very much appreciate it.

I am hopeful that this project finds some legs and is not hobbled by inequity, either perceived or real. I would be interested in the thoughts of others in this burgeoning community.
Post edited by StephanTual on
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Comments

  • fragsworthfragsworth Member Posts: 1
    The founding organization needs to be heavily incentivized to continue developing and promoting the system. I don't think they should be playing this game of "try to mine more than everyone else" which could easily end up in a situation where their interests are no longer aligned with the project because they didn't mine enough. It's similar to startup founders, where the founding team has a certain amount of equity, and investors come in only to take a part of it. It's not in the interests of investors to leave the founders with nothing.

    That said, it would be nice to have their 12.5% distributed to them (through the protocol) over a very long period of time, much like how founder stock vests, so at no point can they sell all of it to abandon the project.
  • flugflug Member Posts: 7
    In http://ethereum.org/ethereum.html :

    "Ether will be sold in a Mastercoin-style fundraiser at the price of 1 ether for 0.0001 BTC."

    Are there any plans for this? Will anyone be eligible, for any amount of BTC?
  • MarioMario Member Posts: 7
    Yes, would be nice to know.
  • madbitmadbit Member Posts: 5
    If it is like the Mastercoin fundraiser then I think anyone can buy in and the total amount of initial ether supply will be determined by the amount of money raised.

    I understand the desire to incentivize development, and that is exactly what the other portion of the developer pool fund is allocated for. The founder portion is an excessive and potentially damaging tax on the system, rewarding I don't even know who right now. I'm not sure there should be any 'founder' award, and I think they need to re-think how to reward themselves. Also, I assume that this will be an open-source project? An immediate fork of this project will occur if this issue is not addressed, and if this is not open source, then the project will languish anyway.
  • ArdonArdon Member Posts: 4
    I believe the founder issuance does need some additional thought put into it. I am not against the business model and believe it is fair, but I do see a problem for mass adoption. Although it seems ether (ETR) solves many issues that have been debated with bitcoin, the issue of Saotshi's chest of gold is not fully addressed.

    The amount given the founders needs to look to the long-term and take that into account, and/or a certain portion should be built as a contract in the system like company founder vesting does in venture capital / seed funding. Building this as a contract also shows proof of concept (and founder's confidence in it working).

    Lastly, the amount given is too high from first glance BUT we are talking in short-term issuance, not as a portion of total coins to be distributed in the future. Because of the interest rate built in and larger total units available to mine, the cut they are taking is and will continuously be diluted.

    Regardless, I believe more time should be spent brainstorming the effects of this founder issuance before committing to it. The last thing wanted is a point of strong angst and controvercy. This should all be speculated to at minimum bitcoin's peak market cap, in my opinion, because that is the best comparable.
  • madbitmadbit Member Posts: 5
    While it is true that their share would be continuously diluted, this is of course true of everyone else using the system as well. Using their own chart as a guide, after 5 years the founders would hold 6.25% from their reward, but I am assuming that these founders will probably, either in whole or in part, make up the board of the Ethereum foundation responsible for an additional 6.25%. Add to that whatever portion they get from their contribution to the initial fundraiser and whatever they are able to mine in that time and I would bet you can add another 10% or so. Ostensibly, this would give them control over upwards of 20-25% of the supply, either directly or indirectly. In 5 years Ethereum would be where Bitcoin is now and I'm guessing that 25% of Bitcoin is not in as few hands as that right now. Of course, we don't even know how many founders there are at the moment so it's impossible to know for sure how distributed that control is, but I'm guessing it is less than a dozen individuals.
  • NikosBentenitisNikosBentenitis Member Posts: 1
    I agree that the founders might need to rethink the issuance model if they aim for mass adoption. Most people involved in the cryptocurrency space are not familiar with the structure of startups, the responsibilities that founders have, and the incentives that they should receive. But the Ethereum founders may only be interested in investment from people who understand startups, see the potential of the idea and the strength of the founding team.
  • madbitmadbit Member Posts: 5
    I'm not sure that the startup analogy should really apply to something that is intending to be an open source, low level protocol, but if that's the way we choose to view this, then as potential investors we should definitely have comprehensive access to the founders resumes and CV's so that we can perform our own due-diligence in vetting them, especially since we are less than two weeks from launch at the moment. The lack of transparency in this regard is not acceptable from an investor perspective.
  • ArdonArdon Member Posts: 4
    The startup analogy should not apply here. If this is being targeted at bitcoin, then the same assumptions should apply. Bitcoin likely has 25%+ all centralized to hoarders, this is a group of people in particular that annoy me but that is another topic.

    Since the percent of "shares" are being divided in a more complicated manner than any of the other cryptocurrencies, I want to see a more explanatory mini-white paper of sorts on how it works. Madbit is correct in that it looks like they will have huge equity stakes from many angles.

    Calling vbuterin?
  • mwestmwest Member Posts: 4
    Interesting points...the founders fee, foundation tax and "Mastercoin-style fundraiser" are all options a future project could eliminate. The fact that half of all Mastercoin is in 11 addresses (25% in 3) is not encouraging.
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    I'll comment on the issuance later, but +1 for having a list of the founders. Obviously Vitalik Buterin and Charles Hoskinson (IMHO), but would be fantastic to have the full list.
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    edited January 2014
    Note that on Reddit (reddit.com/r/ethereum) Vitalik has indicated:
    - Timelock of 12 months on the founders 'shares' which means dilution will have affected them by the time they become spendable
    - Fundraiser is on the 26th Jan. Good thing I wasn't planning anything that day

    Source: "The units will be in a timelock contract for at least one year, so they will be at most 1/8 when they actually become spendable. Just from a Zipf's Law perspective, I think it's likely that a single person will put in at least 8% of the total investment into the fundraiser, so the largest ether holder will likely not be a founder. Also, the big difference from Bitcoin (and especially the 100% premined/fundraised Ripple and Mastercoin) is that, once again, the currency is linear-inflationary, so the percentages will go down over time. I think that's the main moral objection people have with wealth inequality in existing cryptocurrencies; that the Winklevosses have not just 1%, but 1% of all that will ever exist. With Ethereum we don't have that."
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    Discussion has died down a bit on these forums. If anyone is interested in discussing it further I've written an Open Letter to the Foundation
  • salwilliamsalwilliam Member Posts: 27 ✭✭
    edited January 2014
    The structure of ETR distribution must be different than a startup. The goal here is to create a currency that is accepted globally, and it will take the work of millions to accomplish this. We aren't just talking about building a $1b or even a $100b company. The aim is something in the multi-trillions. The size of founder or early innovator shares should take this vision into account. Vitalik foresees an up to 10yr run-up as necessary prior to global ubiquity. I think this supports the idea that founder shares should vest for several years.

    Ethereum itself is not about starting a company. It's a protocol, or a movement. Decisions now should reflect an earnest vision to see a maximum of capital expenditures made for strategic reasons directly beneficial to the propagation of the technology. This is something I've never understood about Ripple Labs. They built a medium size "real" corporation, hired a bunch of people, yet already it seems very few people seem to know (or care) about what they are building.

    Why not just found an innovative corporation with a traditional share structure based on the planned "institutional" ETR holdings? In my opinion, founders should strongly consider forgetting about aiming at earning excessive fortunes from their personal ETR holdings, which were essentially just given away at the outset (there will only ever be one(ish) Satoshi). Instead of a Ripple-style 100% premine with a loose promise of goodwill, why not have as close to a 0% premine as possible carved right into the protocol? IE. something like: 15% for the "real" corporation, end of story.

    Then, the founders of the corporation can do wtvr they want, as they are only mucking about with 15% of the money supply. You will be innovators capable of making money in many ways for many years to come. This isn't a project that should be looked at like it's "something to throw out there and work on for a couple years". If you operate as transparently as you claim you intend to, then a proper corporate entity would certainly not be a mistake, and would surely be accepted by the community. Of course, this traditional corporation could theoretically be rolled into a DAC, and indeed the plan should definitely be to create the first ever large scale DAC. This may also provide a better footing for dealing with the legal quagmire that lies ahead in the short and medium term.

    Something else to consider is that probably about 99%+ of the work necessary for this thing to be successful will be taking place AFTER the fundraiser. I don't mean to disparage anything you've accomplished so far. From what I understand of it, I think the idea is incredible. But tread carefully when deciding on what the founder/early innovator's shares look like, so that for the rest of your careers, you can point to your decisions and say that you made them with the absolute maximum level of integrity and intelligence that you could possibly have mustered. I believe that the developer community will only wholly commit to a protocol that was built by individuals who can point to an extremely high level of diligence with regard to decisions pertaining to the distribution of their network currency.
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    Very well put, salwilliam!
  • madbitmadbit Member Posts: 5
    Thanks for the open letter Ursium, very nicely written. Also, great post salwilliam. I am still considering this issue, but at this point in time I don't know that I can invest in Ethereum with the way things are rolling out, which is a great shame because I was very excited about this project. If the Ethereum team is sincere about creating a robust protocol that genuinely addresses some of the distribution inequity found within Bitcoin, well then it seems that they are off to a rotten start. I'd be curious to get more thoughts of everyone here right now, given the way this situation is unfolding.
  • mikemike Member Posts: 13
    I would rather not see a corporate entity and prefer having the share structure being limited to only Ether currency units. I would also prefer pure PoS with no PoW mining with a Mastercoin style fundraising pre-sale.

    The advantage of having a set percentage for founders and development is that this leaves them immune to dilution from additional investment, so they benefit from having the pre-sale run to full term, raising needed seed capital to launch the project while the reserved Ether appreciates enough in value to replace the funds raised during the pre-sale to finance continued development.

    I've seen two projects already close a pre-sale without advance notice (NXT) and cancel a public pre-sale (eMunie). They won't admit it, but I suspect the real reason for the early closing and cancellation were to prevent further dilution of existing investment.
  • salwilliamsalwilliam Member Posts: 27 ✭✭
    Interesting. Mike, can you elaborate on why you would not like to see a corporate entity involved with the fundraiser?

    I'm a proponent of this option because I think a corporate structure can provide assurances that work will actually get done, and that those who actually make things happen will be fairly rewarded. I'm especially bullish on this structure at this stage since Charles has indicated that they wish to operate with the utmost transparency.

    Ultimately, my only concern is for doing whatever is most likely to succeed, and I feel like there is already a central entity guiding this project, so it might as well have some checks and balances on paper, beyond simply being personally in possession of a huge % of the money supply according to the blockchain.
  • mwestmwest Member Posts: 4
    This comment from justusranvier on Reddit was interesting:

    "It's really too bad they had to wrap their innovations in a bunch of economicaly-flawed nonsense.
    There are some good technical bits in there, but the authors ruing it by mistakenly assuming that Bitcoin's absense of central planning is a flaw that needs to be corrected."

    I worry this issuance model will turn off a lot of developers who would otherwise be attracted to the project. IMO, the more successful the fundraiser is, the more it will alienate the wider community that is not part of the inner circle (founders and BTC whales who can invest big $).
  • salwilliamsalwilliam Member Posts: 27 ✭✭
    Investors have stated more than once in chats and forums that they will invest more if founders receive less ETR up front. Nobody wants to feel like there's an immediate transfer of wealth from one individual to other, without any guarantees of diligence.
  • quantumcashquantumcash Member Posts: 12
    Although the initial percentage of ether going to founders and such will certainly repel a lot of potential users initially. I do not see it as a problem at all. It is fairly small chunk that as a percentage goes down over time and they are making the protocol open source so anyone can make changes and create there own version of it if one has the ability.
    I am all for it and will get some ether. I am not even concerned what its trade value with other currencies if any will be. It is the first protocol that creates a cryptocurrency that is backed by an increasing ability to compute on the network as long as it's mining grows.
    I will also try to find the ability to modify the protocol (even though personally I cant do much more than programming a hello world program at the moment) my idea is alter a few variables in the fee mechanisms and attempt to make mining more productive in providing computation to the network users. My version would have no premine of any kind but I would release it very slowly to get good mining return.
    So my advise to anyone who is put off by the ethereum premine at all is simply do not invest do not use it and ignore and forget about it completely.
  • codehalocodehalo Member Posts: 1
    As a potential developer, the lack of clarity on the reward structure is seriously off-putting.

    Who exactly are the "founders". What is the potential reward for an "early investor"?
    It is very very dangerous to be taking people's money without having working implementation of significant parts of the project.
  • FreddyFenderFreddyFender Member Posts: 39
    If you check this website, it has all the information needed to answer everybody's questions about IPO and structure.
    http://ethereum.org/
    It currently shows a countdown clock to the Miami conference.
  • MsCollecMsCollec Member Posts: 9
    hopefully after the Miami conference, more information about the project will be available to investors, contrary to FreddyFender i cant find any useful information about the IPO. The web only displays countdown and newsletter sign up.
  • mikemike Member Posts: 13
    Interesting. Mike, can you elaborate on why you would not like to see a corporate entity involved with the fundraiser?

    I'm a proponent of this option because I think a corporate structure can provide assurances that work will actually get done, and that those who actually make things happen will be fairly rewarded. I'm especially bullish on this structure at this stage since Charles has indicated that they wish to operate with the utmost transparency.

    Ultimately, my only concern is for doing whatever is most likely to succeed, and I feel like there is already a central entity guiding this project, so it might as well have some checks and balances on paper, beyond simply being personally in possession of a huge % of the money supply according to the blockchain.
    Corporate entities are creatures of the state, operating in a physical jurisdiction, and vulnerable to attack. Operating as a corporation adds a lot of parasitic overhead which does not add any value to the project. I was initially very interested in Ripple, but gradually lost interest because it became too corporate for my taste. The corporation is an increasingly obsolescent relic of the 20th century industrial bureaucracy. John Robb does a good job of explaining why this system is in decline at http://www.homefreeamerica.us/ . These large, rigidly structured organizations are unable to quickly adapt, making them fragile in the face of rapid change.
  • Jderin1Jderin1 Member Posts: 8
    Does anyone know where and when one can buy ether for BTC jderin1@gmail.com I would like to buy 2000 ether
  • whalewhale Member Posts: 1
    go to ethereum.org there is a countdown timer to launch.
  • MarioMario Member Posts: 7
    Shouldn't it be the 26th? Now it is a week later?
  • gmosxgmosx Member Posts: 1
    How about also accepting XRP (ripple) for the fundraiser?
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