Is AC's new film, Flying Tulip, the next Ethena? How did it raise $1 billion?

Original title: Flying Tulip: Bootstrapping a Full-Stack Exchange, Rethinking Fundraising

Original author: Lemniscap

Original translation: Ismay, BlockBeats

Editor's Note: Flying Tulip's $1 billion fundraising goal may seem daunting at first glance, even raising concerns about "explosive financing and project cashing out." However, according to analysis by Lao Bai (@Wuhuoqiu), its unique mechanism is designed to avoid the pitfalls of traditional token financing. This massive amount of funds is not directly controlled by the team, but rather serves as a project treasury, generating stable operating funds through investments in low-risk US Treasury bonds and on-chain yield protocols (such as Ethena).

For investors, their principal is protected by a perpetual put option. This means that at any time, if investors deem the project's prospects bleak or the token price falls below the offering price, they can choose to redeem their investment at the original price, without losing any principal. Investors only incur the time and opportunity costs of their investment. If everyone chooses to redeem, the team receives nothing. More importantly, every time an investor redeems, their corresponding tokens are permanently destroyed. This puts the $FT token on a deflationary trajectory from its inception, with its total supply continuously decreasing with redemptions.

It's understood that the project is considered by its founder, Andre Cronje, a legendary DeFi builder, to be the "culmination" of past projects (such as YFI, KP 3 R, and Solidly). It integrates core functionality such as spot trading, lending, perpetual swaps, options, and on-chain insurance, aiming to achieve new heights of capital efficiency through inter-module synergies. Therefore, Flying Tulip is not only a bold technological experiment, but also a social experiment in the dynamic interplay between token economics, investor confidence, and project value. It remains to be seen how this return project from the DeFi king, Andre Cronje, will perform.

The following is the full text:

We are honored to announce our participation in Flying Tulip's $200 million seed round. Flying Tulip is a new initiative from Andre Cronje and his team. This ambitious endeavor aims to build a full-stack trading platform from the ground up, encompassing spot, perpetual swaps, and options trading, as well as lending and structured yield products. While the scope of its offerings is broad, in this article we will focus on its fundraising model—an area where Flying Tulip is pioneering and innovating.

Motivation and opportunity

Competing head-on with the giants in the DeFi space is a daunting task. These giants are better capitalized, boast strong recurring revenue, and expansive teams, possessing operational capabilities unmatched by lean startups. They enjoy entrenched network effects, deep ecosystem integration, and a loyal user base. Furthermore, there's the political factor: influence over industry standards and partnerships is often as crucial as product quality.

Therefore, even if a small startup brings true innovation, successfully bringing it to market is another battle entirely. The challenge lies not only in technology but also in funding and social aspects. Flying Tulip addresses this challenge by reinventing how capital is formed in the crypto space. Rather than relying on "mercenary liquidity" or token mechanisms that falter after initial funding, it seeks to establish a fundraising model that can sustain a project over the long term until its product suite can generate revenue.

Limitations of Token Fundraising

Crypto tokens have so far had the greatest success as a form of crowdfunding: sell tokens, raise capital, and launch a project. But once the initial phase is over, many tokens fade into irrelevance, their value trending towards zero as teams struggle to generate sustained demand.

Token-based utility is still an active area of experimentation, but in many cases, tokens primarily serve as a fundraising mechanism, a role that often makes the most sense during the startup phase of a project before it evolves into a self-sustaining company.

Flying Tulip embraces this reality and seeks to build a new model around it.

Flying Tulip's fundraising model

The core idea is simple: raise a substantial reserve fund through a token sale, invest that capital in low-risk DeFi strategies, and use the resulting returns to fund project operations until the product suite can generate its own revenue.

Investors receive FT tokens backed by a perpetual put option. As long as they hold the tokens, they can return them at any time and recover their original investment. This put option never expires. Investors will rationally exercise the option only if the token price falls below their purchase price, at which point their tokens will be destroyed.

In effect, investors pay an opportunity cost of approximately 4% return – the return they could have earned by investing directly in DeFi. They gain the upside potential of FT in exchange for a structure that minimizes downside risk.

Flying Tulip aims to raise $1 billion. With no lock-up period, 100% of the token supply will be available to investors at launch. With a yield of approximately 4% on treasury assets, this will generate approximately $40 million annually to support project operations and the launch of its product suite until fee income can take over.

Repurchase and destruction are the core of the model

Revenue generated from treasury proceeds will be allocated between operating expenses and FT token buybacks. Over time, transaction fees generated from the main product suite will provide a new source of buyback demand.

Importantly, if investors sell FT tokens on the secondary market, their put options will expire. Their initial investment will be transferred to the foundation, which will use it to buy back and burn tokens. This means that selling not only deprives investors of protection but also actively reinforces the token's deflationary mechanism.

Taken together, these dynamics make FT a deflationary asset from day one, with multiple mutually reinforcing sources of demand and supply reductions.

Economic significance

Because the entire supply of FT is in the hands of investors at launch, early market dynamics are likely to be very volatile. The limited circulating supply coupled with the ongoing buyback program creates conditions for strong reflexivity.

Unlike traditional fundraising, where the supply is split between the team and investors, Flying Tulip begins with a 100% allocation to investors. Over time, the supply will gradually be transferred to the foundation and eventually destroyed. In theory, the token could eventually complete its mission and disappear entirely.

Our investment logic

Flying Tulip isn't a risk-free investment, but it's unique. The model's success hinges on the team's ability to effectively manage coffers, maintain returns, and deliver a competitive product suite. The trade-off is a loss of capital efficiency: investors forgo directly accrued returns, which are only worthwhile if the project succeeds.

For this fundraising primitive to be successful, the following factors are crucial:

The ability to raise significant capital, often supported by a key individual or team with the reputation, influence, and credibility to attract capital.

A product suite mature enough to warrant such a large-scale launch.

In our opinion, the Flying Tulip is a rare combination of both.

Andre is one of the crypto world's most influential and controversial builders. He has a proven track record of launching original "primitives," and Flying Tulip fits that mold: it employs an unconventional mechanism that fundamentally rethinks the token fundraising model, while also launching a product suite that directly targets the market's incumbents.

We support the Flying Tulip team because it represents a true rethinking of the token capital formation model, a mechanism at the heart of the crypto movement. If successful, it could accelerate the launch of ambitious projects and make the entire ecosystem more competitive, ultimately benefiting end users.

This is an experiment full of unknowns, but it is precisely these kinds of experiments that drive the crypto world forward.

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