- Unfair staking advantages for insiders
- Immediate selling of staking rewards questioned
- Urgent need for projects to revise tokenomics for long-term sustainability
Renowned author and Columbia Business School professor, Omid Malekan, has raised concerns over the tokenomics practices adopted by recently launched layer-1 blockchains, namely Aptos and Celestia. Malekan believes that these practices may attract regulatory scrutiny and potential crackdowns in the near future.
Malekan specifically highlighted what he calls the “insider” practice among projects like Aptos and Celestia. This practice involves allowing insiders, who hold locked tokens, to stake and earn rewards. While Malekan acknowledges that increased staking can enhance network security, he deems it “unfair” that insiders can stake and earn rewards on locked tokens, while retail token holders must pay the full market price for the assets.
Insiders, typically early adopters involved in seed sales or funding rounds, often receive tokens at significant discounts, providing them with a distinct advantage and the potential to accumulate substantial amounts of the asset. Malekan expressed particular concern about insiders being able to sell their staking rewards immediately, sometimes years before their tokens vest, labeling it as an unjust “backdoor unlock” that allows privileged insiders to profit at the expense of ordinary users.
In response to the observed practices of projects like Celestia and Aptos, Malekan advised both upcoming and existing platforms to reconsider their tokenomics strategy. He emphasized the importance of prioritizing long-term sustainability and fairness for all token holders, rather than favoring insiders and early investors.
Malekan has identified several “red flags” in the current setup and expressed chronological disappointment with the state of affairs in the blockchain space. He warns that if these concerns are not addressed promptly, regulatory bodies such as the US Securities and Exchange Commission (SEC) and others may intervene. This is a significant consideration, especially given the SEC’s cautious stance on cryptocurrencies, categorizing most altcoins as potentially falling under securities regulations.
While some SEC officials have clarified that only Bitcoin is considered a commodity, they have left the door open for other cryptocurrencies, including Ethereum, to be classified as securities. The potential impact on staking and network security has raised questions within the industry, with figures like Gary Gensler, head of the SEC, evading direct answers on Ethereum’s classification. As the debate continues, the professor’s warnings underscore the need for projects to address these tokenomics concerns proactively to avoid regulatory repercussions.
Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.