Compilation of the original text: Deep Tide TechFlow
Compilation of the original text: Deep Tide TechFlow
2022 will forever be etched in our minds. Let's count these crashes:
Terra/Luna's death spiral: retail + funds hurt. A large number of forced liquidation.
3 AC + Celsius crashes. Retail investors + funds + lenders are injured.
FTX/Alameda Bankruptcy: Retail + Funds + Lenders + Project Treasuries Hurt.
Could DCG/Genesis be next?
Those who are still here today are either true believers in cryptocurrency or gamblers who just can't give up.
For many, FTX’s shocking bankruptcy was the straw that broke the camel’s back. The level of lies, fraud and blatant misuse of client funds by SBF and its inner circle is sickening. $10 billion in client funds disappeared without a trace, only to be discovered in a bank run.
first level title
Did the FTX incident affect the NFT team?
After the incident broke, I spent some time getting to know the NFT team and seeing how much they were affected by the FTX situation.
Of the 36 teams I looked at:
5 % have considerable exposure to FTX;
8% have a small risk but will not have a major impact on operations;
87 percent were unaffected.
Two teams were severely impacted:Star Atlas(AAA game in development on Solana) andbywassies(loomdart's Memetic PFP brand).
For Star Atlas, it's an existential crisis. themAbout 50% of treasury funds are placed on FTX,to get"low risk"income. The team had previously raised $10 million from venture capital firms and was nowhere near launching the game. We're not sure they'll be able to deliver the game at all given the development resources required for a triple-A game. Misfortunes never come singly,Star Atlas is also built on top of Solana,Solana is also currently facing an existential crisis.
bywassies had 60% of the liquid cash on FTX (now lost).However, the team said they will continue to build the brand along their roadmap. For PFP, the immediate impact is less strong. Activation and brand building work will be slower IRL, but the community is still the most important thing. Thankfully, most NFT teams were not directly impacted.
Transparent is better than translucent
What I found interesting was the stark differences in transparency and risk management across teams.
On the transparency end, there are teams that quickly and openly share their risk and how much cash they have.
On the other side, some translucent teams didn't bother to make public statements, simply stating that they were not affected when questioned by community members.
And, some teams still haven't come out to talk about their exposure even a week later. The silence speaks volumes here.
Community Ownership = Greater Transparency
NFT teams are a very peculiar type of organization. Many people just start out as an idea and work their way into existence. Typically, teams sell NFTs to raise initial capital without the participation of professional investors. The founder is king here and there are no rules.
Importantly, NFT teams have a community that believes in their vision and is often willing to support them financially. Community members are often willing to support them financially and participate in the co-creation process. Their success depends largely on their community. It's this symbiotic relationship that makes Web 3 so interesting.
in my opinion,NFT owners (i.e. the community) are an ownership class between holders and the public.Expected levels of reporting and transparency to the community should be somewhere in between, and closer to those expected by holders.
While there is no legal framework to enforce it, the level of transparency the founders decide to pursue with their community reflects how deeply they believe in decentralization and community ownership. If they truly believe that community members are more like"shareholder", they will pursue higher trust and transparency within the community.
A Transparency Framework for NFT Teams
I took the liberty of putting together a 3-layer transparency framework for NFT teams.
Tier 3 (Baseline)
How and where treasury funds are stored, including who has access to the funds (e.g., multi-signers).
What are the funds used for?
Willing to update the community if there are any breaking changes.
Regularly update expected cash flows: How long can the project run before funding runs out?
These 4 points are the basic expectations we should have for any NFT team. Be concise, don't require a lot of effort, but go a long way in building trust. Over time, as teams gain confidence and embrace the benefits of transparency, they can work their way up the hierarchy. Teams not attempting to hit this baseline should be wary.
Second floor
Satisfy all the conditions of the third layer;
Quarterly Treasury Funds Update:
a. Treasury balance and wallet address;
b. Cash flow: total income and total expenses.
In tech, venture-backed start-ups often have to provide their lead investors with monthly cash flow statements. Likewise, financial balances and cash flows should be shared if Web 3 teams view their community as partial investors in the project.
A prime example of this is TreasureDAO, a decentralized "Nintendo". They publicly share their treasury wallet address and make it easy for members to track treasury value and usage in real-time via Zapper.
level one
All of the second and third floors;
A breakdown of various projects, including founder/management team salaries and compensation.
This is the highest level of transparency. It requires keeping proper accounting records and requires founders to embrace an open mind. Some Web 2 companies like Buffer have already set the example. They are transparent about salaries for all employees, seeing it as a way to build a culture of trust.
Let's avoid a Ragnarok-esque situation - the project raised $17.5M from NFT sales in this year's bull run, the founders pay themselves $1.2M a year in salaries, while losing another $1M in treasury deals funds.
Actions speak louder than words. NFT teams who loudly support community ideals but deliberately avoid talking about their finances and finances are hypocritical. Be careful as they only treat members as customers.
Startups, not hedge funds
Final note: NFT projects are not hedge funds. Treasury funds are used to grow the business.
Using treasury funds to trade or stake returns without informing the community (or investors) is a serious breach of trust. Keeping funds safely held as cash in a bank or non-custodial multi-signature wallet should be considered the gold standard for the vast majority of teams.
In the future, I already see potential business for established financial institutions helping cash-rich start-ups manage their finances while minimizing risk.
The failure of FTX-Alameda-SBF taught us a lesson about transparency.
Founders need to hold themselves and their teams to higher standards. Community members must play their part in keeping their teams accountable.
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