Unknowingly, the once popular IEO is cooling rapidly.
Looking back at the cryptocurrency bull market in 2017, we can think that ICO has boosted the outbreak of speculative tides, and the shortcomings of this financing structure are also obvious, which is easily abused by scammers, and even “cracked up”. Imagine that the project party spent a few days writing a white paper, the product has no shadow, the user is not a, and then you can get tens of millions or even hundreds of millions of dollars in one go, which is like a job seeker to apply to a company. After boasting the rewards that I can bring to the company, I have successfully obtained the salary from the boss for several decades. What do you think is the chance that such employees can work honestly?
(It is said that a project party bought a house of luxury goods)
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In 2019, IEO replaced ICO as the first choice for cryptocurrency project financing. The project was selected by the platform, but the initiative of financing funds is still in the hands of the project parties, which makes these projects inevitably become one after another. The field of "speculation games."
We are witnessing that the “new” rate of return on the platform IEO project is declining. If no change is made, I believe that the market will soon be “breaking the tide”. Just like ICO, the IEO model is slowly dying… …
Do you think that many project parties have become investment institutions when they are doing the work, and the original investment institutions are doing it but become the project side?
Do you think why investors in the currency circle will increasingly hate the "work" project side, and like to pursue those "market-making" project parties?
In my opinion, people's desire to make money by speculation is only a superficial factor. The most fundamental factor is the abnormal or imperfect market rules.
It is these rules that lure people into a sickle and eventually evolve into a "slashing knife" situation. Can you imagine a bunch of token funds discovering in a few years that they have thrown a pile of zero-coin?
How to learn from the mature rules of the traditional investment market?
Before calling the traditional VC's life, it is really necessary to learn from the mature rules of the traditional investment market. From the seed round to the A round, the B round, the C round, the D round and the final IPO, this is a gradual process. Most of the projects are stopped by the seed round financing. The difficulty of obtaining the A round of financing is several orders of magnitude higher than that of the seed round, and often the seed round can get very little money.
However, in the currency circle, it is completely different. Although there are such claims as “base stone wheel”, “private fund round” and “public fund round”, in fact, they do not require the project party itself, and basically the packaged project parties can complete it. These financing operations, in the end, directly take the money on the exchange (equivalent to IPO).
It is this kind of rule that has led to many projects in the currency circle to cater to speculation. “Doing things” is not as good as “making a market” and has gradually become a “consensus” for a large number of people.
In this regard, Eitafang founder Vitalik Buterin once proposed the concept of DAICO, which is simply to combine DAO with ICO, which makes it impossible for the project party to obtain all the financing funds at one time. Over time, developers will gradually get funding, and if they stop operating, investors can withdraw deposits and prevent developers from continuing to get funding. Conceptually, this approach is obviously more reliable, but after the DAICO was proposed, it was not widely used, as Vitalik himself admitted:
"If DAICO is attacked by 51%, it will be very bad for the community. In addition, users need to take proactive steps to withdraw funds, so it is easy to spread information to join the new DAICO, I agree that this is not perfect. solution."
Exploring a reasonable blockchain financing model
Recently, researchers have proposed a new blockchain financing method called ( PIP ). To put it simply, it refers to the seed round, A, B, and C rounds of the traditional financing model, and then finally raises a large amount of funds. Only when the project party reaches the milestone can the subsequent financing be carried out. The key requirement for this financing method is that the PIP smart contract is safe, which ensures that the investor's funds are in a safe state. If the project party proves itself to the cryptocurrency community during the PIP phase, they can choose to make subsequent financing through DAICO. Here's a quick explanation of how PIP works:
- The blockchain project deploys a smart contract that interacts with the composite protocol, and the investment user can then send the asset to the smart contract;
- Then send the interest generated by the investor's assets in the smart contract to the token project to create an interest fund for the token project;
- The smart contract will return a considerable amount of project tokens to the investor based on the interest generated in the investment assets pledged by the individual investor;
- The project side (or anyone else) can create a market for tokens on Uniswap, creating a pool of liquidity for user transactions.
To give everyone a better understanding of this mechanism, let's take a simple example. Alice, Bob and Carol invest in the XYZ project and in return they will receive XYZ tokens. Alice sent 200,000 investment tokens, Bob sent 300,000 investment tokens, and Carol sent 500,000 investment tokens, while PIP smart contracts received a total of 1 million investment tokens. In this example, the assumed interest rate (APR) is 10%. For the sake of simplicity, assume that interest is paid daily and that the project token is returned daily. Finally, assuming the price of the XYZ token is equal to $0.50 and the investment token is equal to $1, the chart below shows how this will happen: A technical explanation of how PIP works can be found in this Github repository: https://github.com/kraikov/pip-seed-funding-mvp ( This repository also contains sample smart contracts, but they are not audited These sample smart contracts may not be used without further due diligence )
And for this new mechanism, Vitalik commented:
"Interesting! I really like this idea for a number of reasons:
- It has a property similar to DAICO, that is, the project party does not get a lot of money at one time. Over time, developers get funding, and if they stop doing business, people can withdraw deposits and stop developers from getting funding.
- Depositors do not have the risk of “principal losses”, which is psychologically good and may reduce legal risks.
- Over time, people have more opportunities to join, not just one-off activities.
- The risk I see is basically what you mentioned: the demand for borrowing money is limited, so the total revenue that the system can generate for the project is limited. In addition, the ratio of ETH is now even low (0.02%), so you need to switch to DAI to get a significant ratio (about 10% now). ”
Through this kind of thinking, the project party will take out a part of the token for sale to investors. In the first stage, only the project party will be allowed to obtain a small amount of investment (for example, $1 million to $5 million in the $100 million, equivalent to the seed round). The project party uses these funds to make available products. If this milestone is not achieved, investors can withdraw funds from the smart contract, and after completing the milestone, the project can continue to obtain funds from the contract (such as $100 million). 10 million – 20 million US dollars), and used for further development and market expansion of the project, and so on.
The future belongs to token financing, but to avoid the "The Dao"-style tragedy
As mentioned above, the most important innovative financing methods like PIP and DAICO are to ensure the security of smart contracts. For example, the old Ethereum was decentralized by the VC project “ The Dao ”. The forced hard forks were forced, resulting in the birth of new ETHs and ETCs, and the community split.
I have always believed that blockchain token financing will be a huge innovation, but the current backward rules are destroying this kind of innovation, making it a synonym for "scam", I hope the market can correct it earlier.