CZ Reissues Article from 6 Years Ago A Journey of a Thousand Miles Begins with a Single Step, Start Entrepreneurship from Small Matters

CZ shares article from 6 years ago 'Start Entrepreneurship from Small Matters

Author: CZ, Binance; Translation: TechFlow Shenzhen

On July 24th, Binance founder CZ tweeted an article he wrote 6 years ago titled “I Don’t Like Big ICOs”. In the article, he mentioned a large ICO that claimed to raise $100 million but currently has a market value of less than $1 million.

CZ stated that these are good people but they may have been distracted by too much money. Start with small things and then do big things, not the other way around.

In the article, CZ explained in detail why it is not necessarily a good thing for cryptocurrency projects to raise a large amount of funding at a high valuation in the long run, even though it is often considered an achievement for founders. Binance also doesn’t like such projects, and this thinking has continued to this day.

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For entrepreneurs aspiring to make achievements in the cryptocurrency world, this article may be worth reading.

Below is the full article:

I am CZ, CEO of https://www.binance.com. This is my first article published on Steemit, and it is a highly subjective article.

Last night, I was at a party in Tokyo with several cryptocurrency enthusiasts. The host wanted to do an ICO, and although the team was small, they were strong. They had developed and released a product and had a decent user base. Everything sounded good until I asked how much funding they planned to raise in the ICO, and the answer was $100 million.

My expression was “I don’t like it.” We then had a discussion, and I think it would be beneficial to share the content of this discussion with everyone who wants to do an ICO or list on Binance.com.

At least theoretically, there are many benefits to a large ICO. It can become headline news, increase the project’s visibility and credibility, make people awe of your greatness, and boost confidence. $100 million should be able to meet all the funding needs of the project for a long time! With sufficient funding, the project team can do whatever they want and actively build it into a huge empire. All of this seems like a happy ending…

But I don’t like it. Here are the reasons:

First, does your project really need $100 million?

Yesterday, when a team member gave me the first answer, it was “yes, we will build the entire ecosystem, acquire companies…” and I interrupted him. I like to see startup teams focus on one task only. This is just my personal preference. However, my personal preference has indeed influenced Binance.

Do you need all the funding right now?

One misconception is that an ICO is a one-time event. You must have all the funding you need right now! This is incorrect. There are many ways to build a token economy and obtain all the funding needed for the project over a period of time, without making all investors bear huge risks in the early stages. This will be explained in detail later.

Hunger

I am worried that a small team with $100 million may no longer feel hungry. Indeed, the most motivated teams should have intrinsic motivation and the desire to change the world, etc. Indeed, some people can maintain this hunger even if they have money, but not everyone can. I still hope to see teams that are hungry. I like to occasionally see code submitted to GitHub at 3 am.

Putting that aside, the key issue is token economics.

ICO Maximization = Bad

I don’t like to see projects maximizing value during ICO. In the long run, this is usually harmful to these projects. This is counterintuitive for many ICO entrepreneurs, including many of the people present yesterday.

Once the most valuable ICO coins enter the exchange, the price will only fall. This brings various problems, which most people did not consider during the ICO stage. But as an exchange operator, I often see this situation, fortunately mostly on other exchanges.

Assume your project is worth $200 million today, and you sold 50% in the ICO for $100 million. One day later, your coin is traded on Binance. Regardless of speculation and market overreaction, unless you increase the project’s value within a day, the price will not further rise on the exchange. If the price doesn’t rise, it will fall. A certain number of people (short-term traders) will sell it in exchange for coins that rise faster. This selling will cause the price to fall, and when the price falls, more people (less confident people) will also sell, causing a spiral decline.

Now, people have lost money on your coin. Some will complain, speak ill of you, call you a scam, and spread their conspiracy theories on more social channels that you can’t monitor. Now, your reputation is damaged, and you have to spend all your energy on managing negative public relations instead of writing code.

Due to the impact of negative news, your new user acquisition rate has dropped. Recruitment has also become very difficult. People in the office start arguing about where the problem lies and start blaming each other. And so on…

You also have the immediate responsibility of increasing the project’s valuation from $200 million to $400 million, which is not an easy task for most new projects.

Another choice

Now compare this with another scenario. Suppose your project is now worth $200 million (or any value you think is reasonable), but you set the ICO valuation at $30 million and sell 50% for $15 million. (These are the actual numbers at Binance during the ICO. I think, from our commitment, no matter how you look at it, these are very good numbers).

But you might say, “Damn, this is so stupid, I lost $85 million in funds and valuation during the ICO.” If you think like this, please continue reading.

Of course, now because the valuation is too low, everyone wants to get a piece of your ICO. It’s already oversubscribed. Everyone is asking you for more allocation, but you say, “Sorry, buddy, you’ll have to buy it later on the exchange.”

Your ICO is completed in 38 seconds (the real record of the last ICO on Binance). A day later, your coin starts trading and people flock to it. No one wants to sell, and the price soars. More traders are attracted to you rather than other coins.

Now, you have become the talk of the town. Everyone is discussing your project, people are making YouTube videos, analyzing how good your coin is. With all this free positive coverage, the speed at which users are registering for your service is beyond your imagination. In about a month, you are in the top ten in the world rankings. With the growth of users, your project is now worth $300 million, and your 49% stake is worth $150 million.

Now, most of your investors have made a lot of money, with a 10-fold increase in two months. You have a user base, a product, and positive community support, and you are ready to grow at a faster pace. Over time, you can slowly sell your stake at a valuation of $300 million or higher.

Of course, if you still feel stingy, you can adjust/reduce the ICO ratio by 50%. But I strongly recommend a 50% or higher ICO ratio. The whole point of an ICO is to make money with your investors and build momentum!

From the exchange’s perspective, there is one last simple mathematical problem to consider. If your coin has a circulating supply of $30 million with 80% being long-term holders. You just need to attract buyers for an additional $12 million in funding, and your valuation will double. If the circulating supply of your project is $300 million, then you need to attract $120 million. If you look at the trading volume of the current top ten exchanges, it is easy to see that squeezing out $12 million from other coins is achievable, while $120 million will require some effort.

Therefore, if you can prove that your coin can bring $120 million in new funds and new users to our exchange, we would be happy to list it. Otherwise, we will have to carefully consider whether to list your coin with a market value of $300 million, especially if your coin is new and has no trading history.

Last night, when I explained these issues in detail, there was a feeling in the room of “Oh, that makes sense, I didn’t think of it that way.” I think I successfully changed the mindset of the majority of the people present from “big and comprehensive ICO” to “long-term growth”. I hope I can do the same for you, which will make it easier for us to list your token.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!