Skycoin Distribution

The cryptocurrency market is well accustomed to the ICO model. Most projects use the approach of an initial coin offering to finance their idea via crowdfunding, with investors receiving a substantial portion of the coins of the invested project in return. From the start of these projects, most of the coins are held by investors and there will be little to no influx of new coins. Only a few projects use a long-term distribution model, in which just a slight portion of coins is released at a time and the distribution is executed over years. Skycoin belongs to this group of long-term distributed coins and we will take an in-depth look at how its distribution is executed.

A total of 100 million Skycoin were generated in the genesis block.^1,2 On April 2nd in 2015, these 100 million Skycoin were separated into 100 addresses with each of it having a balance of 1 million Skycoin (transaction).³ These addresses are known as the distribution addresses. Each Skycoin, that is not contained in these addresses, counts as circulating supply.⁴ Since April 2015, coins are successively taken from the distribution addresses and are put into circulation. I analyzed all transactions of the distribution addresses and displayed them in a chart, that shows how many Skycoin were distributed over time:

As the chart shows, the circulating supply increased periodically. It looks like the distribution was either made directly from the wallet (slow growth) or the coins were taken out of a distribution address completely and were then distributed (sudden growth). Nonetheless, there were some distribution events, that we can attach to this chart.

The first initial public offering was announced in early 2014.^5,6 It was held one year later in April and May 2015,^7,8 where about 450 thousand Skycoin left the original distribution addresses. To be fair, it was not an usual IPO, it was more a private sale to dedicated early followers/contributors,⁹ who would not shy away from compiling the wallet on Linux.¹⁰ Because of the difficulties that came along with this early IPO, the team offered to continue selling Skycoin for the same BTC price of the IPO, until a circulating supply of about 2 million Skycoin would be reached.¹¹ If they actually sold more than 2 million from the first 3 million Skycoin distributed in 2015 and 2016 is hard to determine. What we know so far, is that 1 million Skycoin were sold to a large investor or a consortium of investors, that were held in one address. The coins were sent to this address in September 2015 and have recently been sold.¹² Concluding from that, an amount of 1.45 million Skycoin have evidentially been distributed via sales in 2015. Therefore, I would estimate that another 550k were sold to early followers, while the remaining 1 million Skycoin from the first 3 distribution addresses were distributed to team members and project contributors.

After some testing of a Skycoin distribution on a third-party platform,^13,14 the next big distribution event was held on the exchange C2CX in early 2017. About half a million Skycoin were sold in this event.¹⁵ Followed by this success, another distribution event was held on C2CX in August 2017, where 1 million Skycoin were eligible to be sold to the public.¹⁶ However, since I couldn’t find any source indicating how many Skycoin were sold of these 1 million Skycoin available and the coins were sold for twice the market price Skycoin was traded at back then, the distribution event probably wasn’t very successful. I would guess, that about 10% (100k Skycoin) of the available coins were sold in the event. Overall, the Skycoin distribution was pushed forward in November and December 2017 with over-the-counter sales, with Skycoin being both sold manually and fully automated via the Skycoin website. About 50 thousand Skycoin were distributed in the automated OTC, which can be seen in the Skycoin explorer (automated OTC address).¹⁷ Determining the amount of Skycoin sold via manual over-the-counter sales is more difficult. The amount of Skycoin sold in these sales was rather high, as Synth has stated in an interview.¹⁸ One address alone has received 1 million Skycoin in December 2017, which I suppose is an OTC sale to a large investor (or a consortium of investors). Given that 4 million Skycoin were put into circulation in 2017, I would estimate, that another 1 million Skycoin were sold via OTC sales in addition to the 1 million Skycoin distributed to the large investor address.

In 2018 many smaller distributions took place. It started with the distribution of Skycoin to buyers of the official Skyminer, which was sold for one BTC each. The first batch of 300 Skyminers was handed to buyers alongside 450 Skycoin each,^19,20 whereas the second batch of 300 Skyminers included a rebate of 650 Skycoin per buyer.^21,22 These miner rebates add up to a total of 330 thousand Skycoin. Then in May, Skycoin was listed on Binance. Since Binance is one of the largest cryptocurrency exchanges it presumably required a listing fee (which might have been paid in BTC or in SKY) and a certain amount of Skycoin to ensure liquidity in the orderbook. Finding out how many Skycoin were distributed to Binance for these purposes is difficult, a look at Binance’s Skycoin withdrawal address can provide some hints however. The trading of Skycoin on Binance started on May 24, deposits were enabled one day earlier.²³ The Skycoin withdrawal address on Binance was filled for the first time on May 25 with an initial amount of 503 thousand Skycoin. With the help of the Skycoin blockchain, I traced back the largest amounts of SKY deposited to Binance from this initial amount and it included 85 thousand Skycoin, that originated from a distribution address opened 5 months earlier. Therefore, I assume that these 85k Skycoin were given to Binance to provide the orderbook with liquidity. In June, Binance also held a trading competition and a lucky draw in cooperation with Skycoin, in which they gave away 50 thousand SKY.²⁴ From June onwards, the Skywire testnet went live and rewards were handed to participants monthly. 14 months later, these rewards have accumulated to a total of 530k Skycoin.²⁵ In July, around 700k Skycoin were distributed to an OTC seller, which became apparent after the investor sold all his coins on Binance a few months later (see his Binance deposit address for more information).²⁶

In December 2018, the circulating supply started to increase from 10 million to 15 million Skycoin at the end of March 2019. It can be assumed, that most of these coins were distributed via OTC sales,²⁷ so I would estimate around 4 million from these 5 million SKY introduced to the circulating supply from December 2018 to March 2019 have been distributed via over the counter sales. Skycoin also started trading at the crypto exchange LBank, which (according to an analysis of Skycoin’s blockchain) has received around 50k Skycoin for liquidity and airdrops. Another 1 million SKY has been released at the end of June 2019, which according to my research has been only used for payments/mining/bounties thus far. The circulating supply is currently at 16 million Skycoin.

The numbers shown in the graphic add up to a total of 10.395 million Skycoin, that have been mostly distributed via sales. The circulating supply is currently at 16 million SKY, although we have to consider that the Skycoin project didn’t necessarily distribute the coins directly from the distribution addresses, but rather took them out all at once and then placed them in several smaller distribution addresses. It is therefore possible that the real amount of Skycoin in circulation is lower than the amount displayed in the Skycoin explorer. Nevertheless, I can’t tell how many of these have been distributed, so let’s say 16 million is the actual circulating supply. Considering that approximately 9.7 million Skycoin were sold, (only) 60% of the circulating amount of Skycoin have been distributed via sales. So, what has happened to the other 40% of coins in circulation, that were not sold in distribution events?

A part of the Skycoin distribution strategy is to not offer all Skycoin to speculators, who might only be interested in short-term profits. Certainly, coins are sold to gather funds and provide liquidity to the market, but a vast amount of coins is distributed to people who contribute to the success of the project. Of the 25 million Skycoin that are immediately available for distribution,²⁸ 10-15 million will be offered in ICO and OTC sales.²⁹ Another 10 million Skycoin are reserved to incentivize Skywire by either handing out mining rewards or offering a Coin Hour buyback.^30,31 However, we don’t know if these 10 million Skycoin are fully part of the first 25 million distributable Skycoin. Furthermore, the Skycoin project is willing to fund interesting, dedicated projects within the Skycoin ecosystem, that move the project forward.³² There are also bounties available for individual contributors to the Skycoin project.³³ So, going back to the 40% of coins in circulation that were not allocated for sales, it is assumable that they were distributed to contributors of the project (alongside 500k for Skywire Testnet rewards).³⁴ In general, based on these numbers I would estimate that of the first 25 million Skycoin a minimum of 10 million SKY will be sold, while a maximum of 5 million SKY will be available to incentivize Skywire. I would further estimate that around 10 million SKY will be used to reward contributors to the project or fund projects, that move the Skycoin ecosystem forward. Let’s visualize these numbers:

As we have seen, 25 million Skycoin are immediately available for distribution. As soon as this mark of 25 million Skycoin in circulation is reached, another 5 million Skycoin become available per year, until there is a maximum of 100 million Skycoin available for distribution.³⁵ In addition to that mechanism, there is an unknown group of developers involved in the distribution process, who need to agree to unlock 5 million Skycoin. If just one of these developers votes against distribution, it can stop the whole process.³⁶ It is currently under consideration, if the growth should not be slowed down even more.³⁷ Adding to that, each core developer can receive up to 1 million Skycoin, which are locked for several years.³⁸ There are different mechanisms in place, that prevent the core developers from dumping the coins.^39,40

So, how could a concrete distribution plan look like? We saw, that it took 4.5 years to distribute 16 million Skycoin. Let us assume, that 6.5 million Skycoin will be distributed per year in 2019 and 2020, which is already a high amount compared to the distribution in the past. This would mean, that it would take until the end of 2020, until the immediately available 25 million Skycoin are distributed. After that mark would be reached, 5 million Skycoin would be unlocked per year. If, for the following 15 years, each of these Skycoin would be distributed in the same year, the whole amount of 100 million Skycoin would be in circulation at the end of 2035. Let’s visualize it:

After looking at how the past distributions were executed and depicting, how future distributions might look like, you are probably still wondering, why the Skycoin project made the decision for this long-term approach. It is in fact such a different approach compared to the distribution of the majority of coins and tokens. Most new cryptocurrency projects choose the distribution method of an ICO, where they sell a large portion of their coins, because they require a decent amount of funding to execute their idea. It is basically a crowdfunding approach to finance their project. However, this did not apply to the Skycoin project. The early developers of Skycoin claim, that they were very early into cryptocurrencies. They say, they owned Bitcoin before it reached the mark of one US dollar and are therefore pretty well off.⁴¹ Additionally, they stated that a lot of the early development of Skycoin was funded by a bunch of different companies,⁴² meaning the Skycoin project didn’t need to fundraise money to finance the development. So, unlike the majority of other coins, they could thoroughly plan their distribution. In their opinion, it is the best approach to distribute coins gradually, with the influx of new coins decreasing over time, which is similar to Bitcoin’s distribution rate.⁴³ They aim to sell small amounts of Skycoin at a time, and will reinvest the received funds into the project’s development and infrastructure.⁴⁴ To not effect the price per Skycoin negatively by increasing the circulating supply, they intend to release coins slower than the growth of their userbase.⁴⁵

Unlike most other cryptocurrencies, the Skycoin project prefers to use a long-term approach for the distribution of Skycoin. Of 100 million Skycoin, about 16 million were distributed in four and a half years since the first ICO in April/May 2015. I estimated, that 6.5 million Skycoin could be distributed in both 2019 and 2020, until 25 million Skycoin would be in circulation at the end of 2020. After that, 5 million Skycoin could be distributed per year, so that there could be 100 million Skycoin in circulation at the end of 2035. Talking about the target audience of these distributions, the project wants to not only distribute Skycoin via ICO and OTC sales, but also use the coins to incentivize bandwidth providers in the Skywire network and to generally reward people who contribute to the project. All in all, I hope this article increases the transparency about the Skycoin distribution and provides answers towards most questions around this subject.