One topic which perhaps has not been talked about enough within the crypto asset industry has been that of founder compensation. On Wall Street, executive compensation is a constant theme – CEOs may even be grilled on the topic during or after earning calls, for example. Therefore we must expect, as the crypto asset industry matures and becomes more institutionalized, a move towards a more standardized way of promoting transparency around the allocations of founders and founding teams. This research note highlights the levels of founding team compensation among three popular crypto assets – Ethereum, Zcash, and 0x – and argues for a greater level of transparency on this topic.
For each of these three crypto assets, we break down the proportion of their supply which has been committed to the founding (or extended) team and analyze how that amount changes over time.
Around 11.9 million ETH was allocated to the Ethereum Development Fund (the fund which compensates founders and other team members, whilst also supporting the entire Ethereum ecosystem) within the genesis block of Ethereum. In addition, at the genesis block, 60 million ETH was allocated to those who had contributed to the crypto asset’s crowdsale – giving the Ethereum Development Fund 16.5% of the asset’s total supply at the blockchain’s launch. The chart below shows how the Ethereum Development Fund’s account balance has changed over time.
Unlike Ethereum, wherein the founders received lump sums of ETH at the beginning of the crypto asset’s life, Zcash utilized a founder’s reward where the Zcash company and Foundation – as well as its founders and early backers – will receive 20% of newly created Zcash for the first four years of the crypto asset’s existence – a total of 2.1 million ZEC. The chart below shows the increase in the cumulative founder’s reward over time.
Similar to Zcash, for 0x the founding team’s compensation is spread out over four years with a 1-year cliff period. The founding team were entitled to 10% of the crypto asset’s total supply – around 100 million ZRX. The image below outlines the intended breakdown of the ZRX token allocation at launch.
Moreover, we can plot the vesting account’s balance over time in a similar way to the charts plotted for both Ethereum and Zcash.
It was difficult to fairly compare compensation amounts between the three different crypto assets we focused on due to the differences in their distribution mechanisms. Our chosen method of comparison is to simply use the total amount of crypto assets allocated to the development and founding teams at the asset’s launch regardless of when exactly they will be distributed. For Ethereum, this would simply be the value of the Ethereum Development Fund.
In turn for Zcash, this would be the total founder’s reward and for 0x, this would be both the External Development Pool, Team Vesting Accounts, and the Multi-Signature wallet holdings. Both Zcash and 0x have known supply caps whilst Ethereum does not due to its ongoing inflation, as such we’ve used the proportion of the supply each founding (and development) team would own once their various vesting periods had ended where applicable, to account for differences in monetary policy between the crypto assets. In Ethereum’s case, there was no known vesting period for the founding team so the proportion is measured at the asset’s genesis block.
It is dangerous to simply look at the chart above and assume that the allocation structure in Ethereum’s case was comparable (in fairness terms) to that of Zcash or better than that of 0x, since in the latter two’s structures the existence of vesting schedules helped ensure that founders could not simply dump the crypto asset on the market, whilst also disincentivizing them from leaving the project early. The lack of incentives for remaining at the crypto asset’s central organization was a problem in Ethereum as important early contributors like Joe Lubin, Gavin Wood, Jutta Steiner, Anthony di Iorio, and Aeron Buchanan left the Ethereum Foundation all within two years of the crypto asset’s launch.
Aside from Ethereum, it was almost impossible to discern exactly what proportion of the founding team asset pools was allocated to specific co-founders. Moreover, the level of data required (such as crypto asset wallet addresses and allocation breakdowns) to do this analysis for more crypto assets is not currently available due to a lack of transparency from projects. Initiatives like the Messari Registry have done a good job of improving on this point but the key data points needed for the independent analysis of founding team compensation within the industry still does not exist. It is for this reason that we suspect that issues such as a lack of appropriate vesting schedules and unfair founder compensation are likely to be extremely common within the industry. Without regulatory oversight on this matter, we doubt whether industry self-regulation can ever lead to an appropriate level of transparency and accountability.
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