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"Crypto capital" one of the four steps: Token hk $20KG, a new financing paradigm

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The core of investment and financing is to involve the people who love the project the most, contribute the most, and have a long-term perspective in the investment, share the benefits, and let them speak for the project.

Original author: Long Ye

Preface:

This series of articles, mainly from the dual perspective of practitioners and scholars, will talk about my review, exposition and reflection on the past, current situation and future of equity investment and financing, currency investment and financing.

What should we do about emerging currency projects? How can retail investors judge the rationality of currency financing projects as quickly as possible? And how should regulators reconcile technology and industry self-discipline? How does the traditional VC participate in the interests of currency rights as far as possible under its own equity legal framework? And, as an entrepreneur, how to choose equity and currency financing to help the development of my project?

one

In 2019 and 2020, when the industry was in the middle of a cold winter, I was worried that if Facebook launched Libra and everyone in the industry was short of money, we wouldn't even have a chance to eat soup if these traditional giants came in and overthrew the rules of the game and redefined the rules.

Fortunately, this did not happen. Before the giants reacted and entered the market crazy-for example, Facebook changed its name to Meta with the intention of fully entering the meta-universe, and various stars and brands launched their own NFT -the coin circle had grown into a towering tree.

Paradigm raised $2.5 billion in the new phase of the fund, and A16Z raised a total of $5 billion... In the face of Sequoia Capital and even bigger Tiger Global, these token The funders, they have a fight on their hands.

What's more, the consumption power and influence of individual investors in the coin industry are astonishing given that NFT is worth hundreds of thousands of dollars in JPG.

"Ok, the people in your coin circle have money. Why do I have to invest in tokens issued by a new project, and why does he not use equity financing?"

I believe this is the question on the minds of most traditional equity investors.

So what are we talking about when we talk about entrepreneur financing "strategies"?

There has long been a misconception in investing, or in financing, that the best way to raise money is to give your equity interest to a well-known institutional investor, who can back you up with resources and endorsement of your reputation.

And the practice of Web3 gives a new answer. Let's think back, what's the most important thing about raising money? The core of investment and financing is to involve the people who love the project the most, contribute the most, and have a long-term perspective in the investment, share the benefits, and let them speak for the project. And those, preferably, are the early adopters -- retail investors, not institutions. If the two sides offered the same amount of money, I believe almost everyone would choose to have 100 retail investors instead of one institution.

But in the old world, that didn't happen because:

(1) It is difficult to quickly find a large number of individuals to participate in project investment, thus evolving into crowdfunding. Time is at a premium for founders at the beginning of a project, and they can't spend too much energy negotiating with 100 retail investors. That's why the rise of the mobile Internet has seen the emergence of crowdfunding platforms to help start-ups raise money.

(2) There is no suitable technical or legal basis to guarantee the rights and interests of retail investors. A large number of individual investors participated in the investment, which could not be registered and put on record according to the previous equity investment paradigm. And because the quota per person is too small, the traditional equity market exit path is too long, if the future retail investors are restricted like institutions, it is difficult to obtain income guarantee.

(3) Users' contributions to project development cannot be clearly defined by technical means, and one-time incentives can be given in a low-cost way. In other words, by getting our core seed users involved early in the project, we hope to motivate them to become involved and contribute to the project. Users must know "what to do" in order to be better evaluated and get more incentives, and the issuance of incentives should be guaranteed to some extent and be convenient for the operation of the project side.

The practice of blockchain and coin circle solves these problems. With blockchain, it can be faster to find some KOLS or even "cattle scattered" around the world to participate in the early investment of your project; With smart contracts, users can easily know that the coins in their hands account for 0.001% of the total amount of the project. The project side cannot issue additional coins, and they can withdraw them to the digital currency trading platform for cash at any time. With on-chain data, openness and transparency can make it easier for both the project side and the user to verify the user's contribution on the chain. Supported by active address number, code provision record, etc., smart contract is used to set up "you can get early tokens if you meet any conditions" and give "one-click distribution" incentive.

Ii.

We need to make it clear that currency rights, like equity and debt, are parallel concepts and are a kind of financial rights and interests. So, back to the question - why invest in your company issued currency rights, I can't invest in your equity? Then can I say, why do you want to finance equity, you issue debt I lend you money, you can not in the future?

Therefore, in different times, different nature of the company, adapt to different financing methods and financial markets, there is no strict sense of good or bad, only suitable or not suitable. (seeHow can we Invest in digital Currency in 2021?Section 2).

Therefore, IN my opinion, listed companies and large real estate companies use creditor's rights for financing, start-ups of Web0, Web1 and Web2 use equity for financing, and the most appropriate financing method for web3 companies is currency right. If Web2 companies are forced to issue currency, or if Web3 companies are raised in accordance with equity, it is not impossible, but it will greatly reduce the development potential of the project from the end of the capital structure.

So, what's the difference between web3 and web2? See another series of articles, "The Road to NFT," for details on how to define Web3. I will not repeat it here.

Of course, I need to emphasize that Web3 and Web2 are neither good nor bad. I never think Web3 is superior to others, just as most of the wealth of the whole society is still in the hands of Web1 or even Web0 people. Web3 originated from Web2, just as blockchain technology originated from Internet technology. It is because of web2's comprehensive innovation in the way of information transmission that a large number of social media have emerged. In this era when everyone's we-media can develop a school of its own and influence tens of thousands of people without resorting to any official media, the capital utility of Web3 can be rapidly transmitted through the information channels of KOL or even the circle of friends. This will be aggregated into a web3 project.

When a new generation of young people emerges -- which, of course, may take at least a decade or two -- they forget some of the paradigms and rules that the older generation took for granted and establish a new order for them.

3

Then, what path should currency financing follow?

Again, get the people who love the project the most, contribute the most, and have a long-term perspective to invest in the project, share the benefits, and have them speak for the project.

Therefore, innovative financing methods continue to emerge in the coin circle. But the most popular concepts come in two groups, all in the same vein:

The first group, "IXO". From 2013 Vitalik launched ICO (Initial The Coin Offering concept exploded in 2017, followed by IEO(Initial Exchange Offering) in 2019, and ID0 (Initial & NBSP; DEX Offering, another word for Initial DeFi Offering) It took Vitalik two years to launch an ICO to raise funds. The early adopters of Ethereum are the true believers of Ethereum, or Vitalik. Most of them are programmers and have made a lot of contributions to the Ethereum ecosystem on their own initiative, and a large number of them have become the core developers of Ethereum. IEO is a concept introduced by Binance. Through the whitelist mechanism of the trading platform, it can screen out the users who have been trading on the trading platform for a long time. These users are qualified investors, which ensures that the project side can select the core potential users of the project from the large number of "wool party". ID0 is in the process of DeFi's development and expansion, with the help of DEX, it can independently register currency and establish liquidity pool, so that users can trade. Besides, it is further than IEO -- DEX directly conducts transactions on the blockchain, and the transaction data is open and transparent, so transaction users are more real. Prevent centralized trading platform outside evil false make white list - but often open a bounty program, requires the user to use smart contract binding address in advance, and to participate in your answer, twitter and promotions, such as forward, so as to select a group of really want to spend time and attention to participate in the project, and improve the knowledge of project party users.

So, let's make a guess -- what's next? I think, you know, NFT It's only a matter of time before offerings take off.

However, many people just follow the example of "IXO" in Handan, but they have never thought about how to "let the people who are most fond of the project, contribute to the project, and have long-term philosophy participate in the investment, share the benefits, and let them speak for the project" in a real sense.

You don't think of long-term. You just use the concept of giving "credits" to people around you, even people you don't know. The other party is not qualified investors, how to let the people who invest in you can do a good job with you?

Correspondingly, during the industry evolution in recent years, many ixOS have disappeared into the long river of history, leaving no deep impression on people. Such as "IFO" (Initial Fork "Offering", referring to the "new Bitcoin" created by a group of miners working together with developers to twist a bunch of computing power to hard fork bitcoin (BCH, BSV, BCG, BCD, etc., though only BCH and BSV still have a marginal influence), Moreover, it advocates that the "new bitcoin" is superior to bitcoin in some characteristics, and then air drops the "new bitcoin" to the bitcoin holders to attract more attention and let them buy the "new bitcoin" issued by themselves. This is a short-term trend caused by BCH bifurcating from BTC and skyrocketing on August 1, 2017. At that time, it can be described as a chaotic dance. Within a few weeks, dozens or hundreds of "new bitcoins" appeared. All trumpeting themselves as "better Bitcoin." Of course, I don't need to say more about the results. These "fake bitcoin" projects, which were airdropped to the original bitcoin community without any core supporters, all quickly died without exception.

The second group, "XX is mining". "Trading is mining" and "liquidity mining" are the two most famous. "Mining" is the user's contribution to the project at a cost. Bitcoin miners, for example, buy mining machines and pay for electricity costs, so they share the coins they produce. Trading platform users, paid transaction fees, so get flat NT dollars; DeFi users, by pledging their own assets, provide liquidity for borrowing and thus receive DeFi project coins. And other extension, there are many forms of innovation, for distributed storage projects "storage is mining", for content creation projects "creation is mining", beneficial to the project ecology, can be "mining". In this process, the cost may become a project revenue and become a "financing source".

boss

Things come before them. The pomp of currency right financing has made traditional VC people feel great pressure.

At least in Silicon Valley, on the streets of Stanford University, "Join us and give you options" has gone out a bit. Instead, it's "Hey guys, are you interested in my idea? Let's share a coin!" It's very cool.

It's been a long time, it's been a long time for VCS. As Sequoia Capital partners put it, "Today's venture capital business model was invented in the 1970s and hasn't changed in 50 years" (Conversation with Sequoia Partner Roelof Botha: Clarity and conviction make for a Great Investment memo, Mars Finance). Each generation has its own investment portfolio, from bonds to stocks to Internet stocks to digital currencies (see article)How can we Invest in digital Currency in 2021?Section 2), why don't the organizational forms of investors change with The Times? From the earliest private capital lending, to bond financing, and then to large investment banks, and finally around 1970, the representative of early risk investment -- VC. Now, it may really be an era of collective "crowdfunding" by Web3 users based on blockchain technology and token.