Placeholder partner talks about the original sin of crypto projects: how should the initial token distribution be carried out? (www.blockcast.cc)

In those encrypted project systems that are advertised as absolutely fair, insiders have too much.

Original title: ” A Letter from Placeholder to VCs: The Original Sin of Cryptocurrency Distribution “
Written by: Chris Burniske, co-founder of Placeholder Compilation: 0x26

With the total market value of cryptocurrency breaking through two trillion yuan, as if the market is reincarnation, the cryptocurrency industry has returned to the “spectacle” of “emerging VCs everywhere, opening dozens of times, and the primary market is earning.” Many so-called “star” projects will leave most of the quota to the team and investors, and only allocate a share of tens of thousands of dollars to the public. At the same time, they adopt the “Pond’s” marketing strategy of Twitter follow, @friend and repost. And the quotation of xx times online has discouraged many secondary market participants. They don’t know how to support or participate in their favorite projects. Even if it started with DeFi at the beginning, the fair launch , which was strongly advocated by the industry, also followed the market. Popularity and DeFi fall into the ordinary.

In response to this, Placeholder co-founder Chris Burniske published an article titled “The Original Sin” expounding Placeholder and USV’s suggestions for VCs and founding teams in the industry, and discussing how to make “occupied “Highland” VCs get rid of the so-called “original sin” and enable the healthy development of cryptocurrency.

Star Wars Obi-Wan: Everything is over, I have occupied the high ground

Placeholder is also writing about himself when analyzing the market. Joel Monegro from USV who wrote the ” Fat Protocol ” and Chris Burniske from ARK Crypto have been guiding the pace of the market. This article not only guides VCs, but also provides new projects People gave guidance, and in the analysis process, there was a sense of industry mission of “I send my blood to Xuanyuan”.

Rhythm has translated the original text as follows:

The content involved in this article is only related to one thing: What is the initial capital allocation strategy to support a cryptocurrency project? In a recent conversation between Placeholder and the USV team, Fred Wilson (USV co-founder) commented that in the gradual deterioration of the project he experienced, over time, it can often be traced back to the original ” Original sin” (the original sin here refers to: team, method, economic model or key decision). When focusing on cryptocurrency projects, one of the original sins we often observe is that in those systems that are advertised as absolutely fair, insiders have too much.

Of course, “fair distribution” is a normative judgment, which stems from the common belief in the encryption industry that we have seen: to create a level playing field, so that everyone has the opportunity to enjoy financial sovereignty. If a small group of people in the industry regularly take away half of the FDV (completely diluted market value, that is, the total market value after the tokens are released and distributed) (of course, this is very common in the current situation), we will severely destroy the technology The original intention-redistribution, the purpose becomes just to make a few people rich. The fact is that even if these people take less money, they can do very well. They just let themselves go, take as much money as possible, and prevaricate themselves with the false statement of “things have always been done this way” or “trusted responsibility”. And others.

The industry has been committed to establishing a non-access and open technology. Most of this process is open, but the most closed and mysterious part is early financing. Although this is driven to a certain extent by regulation and social norms, the more sinister factor is that insiders can tilt the balance disproportionately to their advantage while hiding details from public view. The earlier investors behave more impatiently, the bolder and more powerful they will become, so that this power will adversely affect the health of the entire industry.

Under this opaque veil, the past norms and structures of the unbalanced distribution of wealth and power also play a role in this industry. If we do not publicly solve the problems at the beginning of the establishment of the cryptocurrency network, then we will inevitably repeat the mistakes of the past society.

Where there is capital, there is power.

The two types of organizations that are most closely involved in the initial creation and distribution of capital are founding teams and early investors (including VCs, high-frequency funds, and a diversified mix of businesses within the industry). If the founding team wants to build something, unless they have the money to independently support themselves and the team, they will turn to early investors who will provide venture capital for this journey. Although cryptocurrency often demonizes this process, it can be a healthy and beneficial process that allows an entrepreneur without wealth to take a risk on an idea. If it succeeds, of course it will get enough benefits. If it fails, start. People can leave to start the next journey.

But there is another world where this relationship becomes unhealthy, especially in the case of opportunistic investors, aware of the asymmetry in the distribution of information between investors and entrepreneurs, plus an inexperienced In the case of entrepreneurs. First-time entrepreneurs must be careful. We have frequently observed in many transactions that early predatory behavior is more common in the crypto field than in other fields.

This asymmetric advantage gives investors a home field advantage. As long as they can get entrepreneurs to agree to sign those legal agreements before other investors say these agreements are unreasonable, then the entrepreneurs may agree “stupidly”, and then the project will have May be affected by this original sin forever.

For entrepreneurs, an important resource to protect themselves is other entrepreneurs who have gone through fundraising. Ask them about the reputation of different investors, what they regret, what they think is fair, and so on. If you are considering a major investor in a certain round, you should communicate with the projects in the investor’s portfolio to obtain reference materials about the investor-the reference materials do not need to be one-sided. In addition, if you can, try to get more than one term sheet. These are just a few simple steps to protect yourself as an entrepreneur.

If we want to make structural social changes, then entrepreneurs and investors need to work together to study what the changes we want. If we do not do this, we can only continue in the way we have always done. Although encryption technology is a technology of large-scale deflation and flattening society, and therefore oriented to open up access to capital, the (re)distribution method of encryption technology has a large range, which depends on what we tolerate and approve. Social norms.

At Placeholder, our goal is to only occupy 1-5% of the total amount of projects, and the current Placeholder’s most concentrated proportion is 7%. Some people may say that this number is still too high, but this is a far cry from the 10-20% ownership of the company that private equity investors are targeting. We think this ratio is appropriate: cryptocurrency projects are an emerging form of economy, they use agreements to replace companies, provide professional services, and have the ability to be globalized from the beginning. We assume that their scale, vision, and different stakeholders need a more even distribution of token ownership than the company in order to maximize efficiency (the company will not use equity to increase the growth of both supply and demand, but cryptocurrency projects Often use their assets to do so).

Don’t talk about our special case, and look back at the entire industry. What Placeholder advocates is that when capital is first allocated, the ratio should be “25% internal, 75% external (the external gets 3 times the internal) distribution rule.” The so-called insiders, we refer to the core team, investors and closely related consultants-it can be said that all people risking investment may be zero, labor and capital loss. And 25% sounds too much to some insiders-for example, Bitcoin holders have been complaining that Zcash distributes 20% of block rewards to non-mining network contributors-but 25% is more important for the industry now It is very rare to allocate 40%-50% to insiders.

But in fact, Placeholder is not perfect. We cannot always achieve this goal. When we do not reach this goal (for example, more than 25% of funds are allocated internally), it is usually based on expectations of long-tail inflation as a redistribution over time And growth strategies. In addition, when governance is gradually transferred to token holders, the planned supply distribution can be changed (Ironically, when external investors get tokens, they will soon behave like internal investors ).

Another way to look at the relative distribution of capital is to analyze the proportion of the amount allocated from the outside to the inside. For Placeholder, what we think is feasible today and can help the society to enter a more fair state is that the amount obtained from the outside is 2-4 times that of the inside. The internal representation is a much smaller group, so it is necessary to reserve multiple distribution possibilities for the non-accessible public.

In order to achieve this goal, 20-33% of the total distribution can be obtained internally to enable it to start and develop. In this configuration, our expectation is for founders to get twice what investors can get: the team is more important than investors and should be evaluated in this way. Then the public with no access will eventually get 67-80% of the supply (at least 2 times internally, at most 4 times).

Some people will say that there should be no private financing at all, just like Bitcoin. Depending on the goals of the project, this may indeed be a viable alternative for some projects and founders (such as Decred’s self-funding program). We look forward to seeing more experiments in this area and possibly supporting them in the secondary market.

As an entrepreneur, it is important to remember that for your project, you have to decide what you think is the fairest capital distribution on the network, and then find investors who meet these values. If you like a more centralized approach, look for investors with similar preferences. If you want the world to move towards a more balanced distribution of capital, remember not to be afraid to show this to potential investors. Once the project has passed the initial stage and initial distribution stage, your network mechanism design will feed back the system, giving you a second chance to shape and accumulate energy and resources.

If there is one thing we can all do, it is to ask each project, “What is the initial allocation model here, and what is the reason behind this allocation?”

Source link: www.theblockbeats.com

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