This thesis introduces a novel mechanism for early stage web3 projects to ensure a healthy token life cycle and build a loyal community that truly cares by using innovative incentive mechanisms in the form of IOU Tokens. This thesis was published by Capx. About Capx - Capx.fi is a non-custodial, decentralized, community-governed infrastructure that allows new and upcoming tokens to achieve decentralization by accelerating token distribution. Capx focusses on facilitating curated distributions for project communities, token streaming for investor distributions, and a liquid secondary market for tokens. Website - capx.fi

1. PRE LAUNCH
TOKEN
DISTRIBUTION
March 28th, 2023
CAPX.FI

2. CAPX
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Capx
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3. CAPX
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Overview
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Introduction
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Challenges growing a healthy community
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The Distribution Thesis
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Innovation - IOU Tokens
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Benefits to Stakeholders
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All in one Solution

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A common phenomenon across web3 projects is how products have leveraged
the power of community using innovative incentive mechanisms to build and
scale their products.
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Cryptocurrencies like Bitcoin & Ethereum accrued value over the years
only because of their strong core belief and the overpowering network effects.
2010 2014 2018 2022
0.37 26
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2016 2018 2020 2022
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Addresses holding BTC (in Millions) Addresses holding ETH (in Millions)

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Why do most dApps struggle in growing a healthy
community and gain early traction and engagement?
Incentive Alignment
There’s a lack of user incentive alignment
mechanisms, that is ways to build "skin in the
game" for early users and community
members before a token launch.
Network Effects
Web3 products rely on network effects for
success, which means their value increases
as more people use them. Building these
network effects from the ground up,
however, can be difficult.
Awareness
Many people are still unaware of
the various dApps and their
potential use cases, so
educating users is a key priority
for projects to attract an active
user base.
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There are hundreds of tokens that have great utility but no
community, thus failing to accrue any value.
On the contrary, there are many tokens with no utility but
great distribution and thus hold a lot of value.
DISTRIBUTION + UTILITY > UTILITY
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Projects in 2015-2017 era, when VC funding was scarce, distributed tokens to communities in
their early stages. The reason why Ethereum, Polygon, Solana, Polkadot have strong communities
is not just because they have strong products or they spend money on marketing, it is
fundamentally because millions of people have made money investing in these cryptocurrencies.
Whereas today, most of the early supporters in any project buy the top. This kills the community as
the community loses faith in the project.
Ethereum
$0.31
450,222%
Polygon
$0.002
49,475%
Solana
$0.22 7600%
Polkadot
$0.29 1741%
% Increase since
launch as of 10/03/23
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Before launching a token, it's critical to focus on building a strong community
foundation to propel your project for the long-term. The key initial stakeholders
of a dApp project are the early users engaging with the application.
Source: Coinlist
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Pre Token Launch Phase
Projects Focus on Projects Miss out on
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It's challenging to create a vibrant and engaged community. It becomes even
more difficult without creating some form of skin-in-the-game for the
community. It gets much easier to do that if there is a way to incentivise early
users and adopters to use the product.
Optimising token distribution by targeting high-value users right from the
start is an effective strategy to ensure that the network is populated with
quality users rather than speculators
We’re seeing ownership go towards those creating meaningful value for a
product, community or protocol… We’re noticing a clear intention to put tokens
directly into the hands of those who are consistently creating value for a given
network.
Source: Lauren Stephanian, Pantera Capital
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All this in the pre token launch phase when the project isn't ready to have a
publicly traded token.
Incentive Alignment
Network Effects
Awareness
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How do we align the interests of early adopters to keep
them engaged and convert them to a loyal community?
How do we accelerate the process of building network
effects?
How do we educate users about the product and token
utility? ​
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An IOU token is a pre-launch token distributed among the community for their time & effort
invested into the system.
IOUs are non-transferable and non-tradable.
Users will earn IOUs directly in their wallet based on the quests they complete for the
protocol.
IOU tokens mimic the function of actual tokens - thereby encouraging participation &
contribution of the early adopters who use and engage with the product.
IOU tokens are an efficient way for projects to design desirable human behaviour and
bootstrap the network by incentive alignment
IOU Token
IOUs will be redeemable 1:1 for
the original token, post launch.
1:1
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"The basic idea is - Early on during the bootstrapping phase when network effects
haven’t kicked in, provide users with financial utility via token rewards to make
up for the lack of native utility.
Source: Chris Dixon, a16z
Financial Utility
Application Utility
Overall Utility =
Financial + Application utility
Token
Network Effect
Traditional
Network Effect Overall Utility =
Application utility
Bootstrapping Problem
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Align incentives among network participants
Overcome the bootstrapping problem
Accelerate network effects from the outset.
A large number of token holders at token
launch means an accelerated path to
exchange listings.
Integrate IOUs into the product to educate
the community about the token utility and
mimic the actual token’s function even before
the token is live.
To Projects
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Reduce customer acquisition costs
More efficient model than traditional
sales and marketing efforts
Convert already-existing users into
power users by using rewards to
deepen their retention
Use IOUs incentives to encourage and
reward desired behaviours.
IOUs provide a novel way to shape
user behaviour in a network, offering
ways to predict and engineer new
consumer behaviours.
To Founding Teams
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"There are a lot of businesses in the world that want people to learn about their
business, and they actually are incentivised to pay people to learn about that
stuff to build the top of the funnel for employees, contractors, customers - you
just need to educate the world about your product. Enabling large-scale simple
to use micropayments for this kind of value flow, is going to completely change
how businesses think about user acquisition across a range of verticals.
Source: Kyle Samani, Multicoin Capital
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While not all new consumer behaviours are predictable, tokens are a often new
format for consumption and enable companies or protocols to design human
behaviours.
Skeuomorphic behaviour: token incentives
Emergent behaviour: Retroactive Airdrops
Source: Mason Nystrom, Variant Fund
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The Capx App allows protocols to issue IOUs to their community members in a gamified
way, designating token allocations to high-value members for their engagement, even
before a public token launch.
Projects can list quests that they want their users to perform for which they’ll be rewarded
with IOU Tokens. These tasks could be both on-chain and off-chain tasks.
Capx App
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Generate
IOU Tokens
List Quests
Get Early Users​
Healthy
Token Distribution​
Take your dApp through the
journey
Increase Adoption
Build a Loyal Community
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100K
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$0.00
spent in CAC
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24.5K
+8%
twitter
Post 30 days of IOU Distribution
Capx Community
users
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capx.fi