One of the four parts of "Cryptocapitalism": Token issuance, a new paradigm of financing
Foreword:
Related Reading:
"Cryptocapitalism" Quartet Part 2 (Part 1): A battlefield without gunpowder—VC or token fund?
Foreword:
This series of articles mainly talks about my review, elaboration and thinking about the past, current situation and future of equity investment and financing and currency rights investment and financing from the dual perspectives of practitioners and scholars.
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one
In 2019 and 2020, when the industry was in a cold winter, I was extremely worried-Facebook wanted to issue Libra to compete for the market, and everyone in the circle was short of money. If these traditional giants entered the market, they would overthrow our currency circle. The rules of the rivers and lakes, redefining the rules of the game, don't we even have the chance to drink soup?
Fortunately, that didn't happen. Before the giants reacted and entered the market crazily—such as Facebook, which was renamed Meta with the intention of fully entering the metaverse, and various celebrities and brands issued their own NFT—the currency circle had grown into a towering tree.
Paradigm completed the fundraising of a new fund of 2.5 billion US dollars, and A16Z completed a cumulative fundraising of 5 billion US dollars... In the face of Sequoia Capital and even the larger Tiger Global, these token funds are fully capable of fighting.
What's more, judging from the jpgs of NFTs worth hundreds of thousands of dollars, the spending power and influence of individual investors in the currency circle have also reached a jaw-dropping level.
"Okay, people in your currency circle have money. Then why should I invest in a token issued by a new project? Why doesn't he use equity financing?"
I believe this is the question in the minds of most traditional equity investors.
So, what are we talking about when we talk about entrepreneurial financing "strategies"?
For a long time, there has been a misunderstanding in the investment or financing circle - if there is a choice, transferring equity interests to well-known institutional investors is the best financing, and they will provide you with resource support and reputation endorsement.
The practice of web3 has given a brand new answer. Let's recall, what is the most important thing about financing? The core of investment and financing is to let the people who love the project the most, contribute the most, and have long-termism to participate in the investment, share benefits, and let them speak for the project. And these people, it is best to be the early users of the project - retail investors, not institutions. If the two parties are giving the same money, I believe that almost everyone is willing to choose 100 retail investors instead of 1 institution to participate in the investment.
But in the old world, this couldn't happen because:
(1) It is difficult to quickly find a large number of individuals to participate in project investment, thus evolving into crowdfunding. At the beginning of the project development, the founder's time is very precious, and it is impossible to spend too much energy negotiating with 100 retail investors. This is why when the mobile Internet was on the rise, some crowdfunding platforms emerged to help start-up projects raise funds.
(2) There is no suitable technical basis or legal basis to guarantee the rights and interests of retail investors. A large number of self-employed investors participate in the investment. Judging from the previous equity investment paradigm, it is impossible to register and file; and because the quota per person is too small, the exit path of the traditional equity market is too long. If retail investors are restricted like institutions in the future, it will be difficult to obtain income guarantees .
(3) It is impossible to clearly define the contribution of users to the development of the project by technical means, and to give one-time incentives in a low-cost way. In other words, we allow core seed users to participate in project investment early, hoping to motivate them to bind with the project and make contributions. It is necessary for users to know "what to do" in order to be better evaluated and get more incentives, and the issuance of this incentive must be guaranteed and easy for the project side to operate.
The practice of blockchain and currency circles solves these problems. With the blockchain, you can find some KOLs or even "Niu San" around the world faster to participate in the early investment of your project; with the smart contract, you can easily know that your own The currency accounts for 0.001% of the total project. The project party cannot issue more, and it can be withdrawn to the digital currency trading platform for cash at any time; with the data on the chain, it is open and transparent, which can make it easier for both the project party and the user. Verify the contributions made by users on the chain, supplemented by the number of active addresses, code provision records, etc., use smart contracts to set "you can get early tokens if you meet certain conditions", and give "one-click release" incentives.
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We need to make one thing clear - currency rights, equity rights, and creditor's rights are the same concept, and they are a kind of financial rights and interests. So, back to the question - why invest in the currency rights issued by your company, can't I invest in your equity? Then can I say, why do you want to raise equity? If you issue bonds and I will lend you money, can you not do it in the future?
Therefore, companies of different natures in different eras adapt to different financing methods and financial markets. There is no strict distinction between good and bad, only suitable or not. (See"How should we invest in the digital currency of 2021?" Part one of the four partsSection II).
Therefore, I think that listed companies and large real estate companies use debt for financing, web0, web1 and web2 startups use equity for financing, and web3 companies, the most suitable financing method is currency rights. If web2 companies forcefully issue coins, or web3 companies use equity financing, it doesn’t mean that they can’t do it, but it will greatly reduce the development potential of the project from the capital structure side.
So, what is the difference between web3 and web2? For how to define web3, please see another series of articles "The Road to NFT". I won't repeat them here.
Of course, what I need to emphasize is that web3 and web2 are neither good nor bad. I never think web3 is superior, just as most of the wealth of the entire society is still in the hands of web1 or even web0. web3 originated from web2, just as blockchain technology originated from Internet technology. It is precisely because of web2's comprehensive innovation of information dissemination methods that a large number of social media have emerged. In this era when Renren We Media can be unique and influence thousands of people without resorting to a certain official media, the capital utility of web3 can With the rapid transmission of KOL and even the information channels of the circle of friends, it will be gathered on a web3 project.
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So, what path should currency rights financing follow?
Again, let those who love the project the most, make the most contributions, and have long-termism participate in the investment, share benefits, and let them speak for the project.
Therefore, innovative financing methods are constantly emerging in the currency circle. And the most popular concepts are nothing more than two groups, all of which are of the same origin:
The first group, "IXO". From the concept of ICO (Initial Coin Offering) launched by Vitalik in 2013 and exploded in 2017, to IEO (Initial Exchange Offering) in 2019, to ID0 (Initial DEX Offering, or Initial DeFi Offering) in 2021. You know, Vitalik launched the ICO concept to raise funds that year. It took Ethereum two full years from the ICO to the final launch of the trading platform. Those who were the first to participate in Ethereum can be said to be the first batch of people to eat crabs, and they are also loyal believers of Ethereum, or Vitalik. Most of them are programmers, and they also spontaneously make a lot of contributions to the Ethereum ecosystem, and most of them have become the core developers of Ethereum. IEO is a concept launched by Binance. Through the whitelist mechanism of the trading platform, users who have been trading on the trading platform for a long time are screened out, and these users are qualified investors. Batch core project potential users. ID0 is in the process of DeFi development and growth. With the help of DEX, it can independently list coins and establish a liquidity pool, so that users can trade. In addition to being a step further than IEO-DEX directly conducts transactions on the blockchain, and the transaction data is open and transparent. , so trading users are more real, preventing centralized trading platforms from doing evil and making false whitelists—and often launching bounty programs, requiring users to bind addresses in advance with smart contracts, and participate in promotional tasks such as answering questions by the project party and reposting on Twitter etc., so as to select a group of users who are really willing to spend time and attention to participate in the project and improve their understanding of the project side's knowledge.
So, let's take a guess - what's next? I think it is only a matter of time before INO (Initial NFT offering) becomes popular.
But the world is learning to walk in Handan. Many people just saw the popularity of "IXO" and copied it mechanically, but never thought about how to truly "let the people who love the project the most, make the most contributions, and have long-termism participate in investment, share benefits, and Let them speak for the project",
You have never thought about long-termism, but just set up a concept and give "quota" to people around you, even people you don't know. The other party is not a qualified investor, how to make the people who invest in you can work with you to do a good job in the business?
Correspondingly, in the evolution of the industry in the past few years, there are still many "IXOs" that have disappeared in the long river of history and have not left a deep impression on people. For example, the "IFO" (Initial Fork Offering), which was all the rage at the end of 2017, refers to the joint development of some miners who manipulate a batch of computing power to hard fork Bitcoin and create "new Bitcoin" (typically BCH, BSV, BCG, BCD, etc., but now only BCH and BSV still have weak influence), and advocated that "new bitcoin" is superior to bitcoin in some characteristics, and then "new bitcoin" will be promoted to bitcoin holders To attract more attention and let them buy the "new bitcoin" issued by themselves. This was a short-term trend after BCH forked from BTC on August 1, 2017 and skyrocketed. At that time, it could be described as a group of demons dancing wildly. In just a few weeks, there were dozens or hundreds of "new bitcoins" Appear. They are all advocating that they are "better bitcoins". Of course, I don’t need to say more about the results. These “pseudo-bitcoin” projects that were unnecessary to airdrop to the original Bitcoin community but could not win any core supporters, without exception, all quickly died.
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The mountain rain is about to come and the wind is all over the building. The grand occasion of currency rights financing has made traditional VCs feel tremendous pressure.
At least, in Silicon Valley, on the streets of Stanford University, "Join us, give you options" has been a bit out, replaced by, "Hey brother, are you interested in my idea? Let's issue a coin together!" This is cool! .
This era is long enough, and the era of VCs is old enough. As the partners of Sequoia Capital said, "Today's venture capital operating model was invented in the 1970s and has not changed for 50 years." , Mars Finance). Each era has different investment targets, such as bonds, stocks, Internet stocks, and digital currencies (see"How should we invest in the digital currency of 2021?" Part one of the four partsOriginal link
