Premining is when the founders of a cryptocurrency “self-mine” and keep a portion of newly created cryptocurrency for themselves before launching publicly.

The founders, usually developers, claim that premining offers them the financial independence they need to focus on the real work of building and scaling their decentralized system. However, if a few people hold vast reserves at the outset, new users are effectively beholden to founders’ economic power. These large holders can sell their holdings at a moment’s notice, causing significant price volatility.