Neutrl Project Interpretation
Some VCs can’t continue, some VCs refuse risks, and some are eyeing the VC stock market.
The recent market situation is a bit confusing to me. Silicon Valley VCs are investing in counter-cyclical situations, and Chinese VCs are struggling between actual death and the quantum state of pretending to exist. As a crypto VC that fermented on a large scale in 22/23, it seems to have reached the final moment.
However, Neutrl, which just received a $5 million investment, has given another way to get out of the predicament: treat the VC’s to-be-unlocked tokens as a non-renewable resource similar to oil, and tap into a new asset discovery mechanism before it is exhausted.
First of all, I personally don’t think highly of Neutrl’s future development, but Neutrl’s idea of accumulating projects is worth learning from for every founder. Let’s analyze it step by step.
Micro-innovation based on Ethena and Pendle
Earn VC’s future income and bear VC’s current risks.
First, let us forget about existing paradigms such as Uniswap and Aave. Ethena and Pendle have formed a new on-chain template. This does not mean the replacement of the former in terms of TVL, handling fees or token prices, but the way of asset issuance has been completely changed:
• Stablecoins, especially interest-bearing stablecoins (YBS), have become a new form of asset. No matter what kind of assets are wrapped in the background, the front-end form appears in YBS. Drawing on the operation of Ethena, Neutrl's NUSD is not the core, but sNUSD is the entity, which attracts pledged volume and achieves a balance between the scale of circulation;
• Self-trading, especially transactions between expectations and reality, requires two types of tokens to form a trading pair on Uniswap. Pendle is essentially based on the time difference of an asset to organize liquidity, so Neutrl It must bring its own income to maintain.
This is basically the whole secret of Neutrl. The difference is that Neutrl organizes liquidity with the forward face value and current "discounted" value of the VC's unlocked tokens.
Let us take an example to illustrate the mechanism:
• Alice, on behalf of Crypto VC, invests $100 million in Bob’s chain abstraction project at a valuation of $2 billion and obtains a 5% stake;
• Bob plans to issue 10 billion tokens, with an initial price of $0.2 per token. Alice can obtain 500 million tokens, worth $100 million;
• However, the head exchange represented by Civi requires Alice to ensure that the initial price cannot be lower than $2 and to maintain the price for three months;
• At this time, the face value of the tokens in Alice’s hands is $1 billion. If you are Alice, will she choose to continue to hold firmly, or will she sell all?
Facts tell us that VCs, market makers, exchanges and project parties, under the guidance of game theory and Hayek's master, will choose to sell. Over time, retail investors will choose not to take over in the secondary market. This is not what happened in 24 years, but what happened in 17-21 years.
The lock-up period was therefore released, but the lock-up period mechanism itself failed. The weak liquidity can no longer undertake the initial liquidity of the token. In the end, VCs are left with locked tokens.
Neutrl provides VCs with a new way to exit. Taking Alice as an example, the requirement is 500 million tokens, 10% (50 million) will be unlocked initially, and the remaining 90% (450 million) will be unlocked linearly over the next 36 months.
However, most VCs do not survive for more than 36 months. 2-3 months is a reasonable time for a small cycle in the cryptocurrency circle. A16z can stay up all the time to survive the cycle. Most small VCs will be thrown off the train in rounds of small cycles. Over time, the Matthew effect of VCs in the cryptocurrency circle will appear, just like the past of exchanges.
Neutrl's idea is to raise funds from medium-sized VCs, purchase the unlocked tokens from medium and large VCs in an OTC manner, use them as basic assets, and build a trading channel between the par value and the discounted value.
From this perspective, "providing short selling" is not the core of Neutrl, but providing an exit channel for VC coins. However, if VC coins can be sold at a discount, can their discounted value have real value?
Let's continue to give examples, one is Evergrande and the other is Meme.
Evergrande can continue to increase leverage. On the surface, it is the expected value of "I want to buy land and build houses". It can continue to move between suppliers, banks and various places. However, the value that can achieve this cycle is the commercial bill, that is, the equivalent issued by Evergrande with its own reputation. Among Evergrande's stakeholders, it has the possibility of par value and discount. If you think Evergrande can pass the test in the future, you can purchase the commercial bill at a low price. If it cannot pass the test, then sell it below the par price.
Secondly, Meme coins cannot be shorted. This does not refer to mainstream meme coins such as Doge, but to why Pump Fun cannot be shorted when it is launched immediately, because the trading cycle of Meme is too short, and any difference between its expected value and current price will be immediately wiped out.
Therefore, Ethena chooses ETH as the underlying asset, on the one hand, stETH has its own income and large trading volume, on the other hand, its face value must be realized after maturity.
Evergrande lacks trading volume in the later stage and has its own losses, and Meme has no expected value and current price difference.
The VC coins selected by Neutrl are likely to be junk coins, because good coins do not lack liquidity, and it is very likely that the expected value has been realized, and the current price of the exchange is the reasonable value.
This is the paradox of Neutrl, which is indeed a micro-innovation, but it is difficult to organize liquidity.
How many buckets of Yield are left?
There is only one stone of Yield in the world, USDT gets eight buckets, Ethena gets one bucket, and everyone has one bucket since ancient times.
So is Neutrl a good project?
I personally do not think highly of this logic, but it does not mean that Neutrl cannot be established. Neutrl is an alternative exit method for VCs. If LPs want to protect their principal or VCs want to unlock liquidity in time, Neutrl is indeed an option.
Essentially, Neutrl is a B2B project. If VCs can be persuaded to participate widely, there is indeed room for arbitrage. For example, the Western VC alliance "harvests" Chinese VCs, and VCs jointly "harvests" project parties and exchanges. These are all potential possibilities.
Neutrl's success must be based on scale effects. According to the current development trend, compliance choices are not difficult. LPs can either choose to invest in giants such as a16z and accept a long waiting period of more than 5-10 years, or try new exit methods such as Neutrl.
The period of 1000/100 times of huge profits has passed. Retail investors choose Meme, and VCs also need to make new changes.
But what’s interesting is that Neutrl’s ideas are very interesting. What other potential yields have not been commercialized? According to liquidity and value ladder, the market can be divided into the following categories:
• Level 0 market: gold and Bitcoin
• Level 0.5 market: P2P trading of Bitcoin, stablecoin (USDT/USDC)
• Level 1 market: VC
• Level 1.5 market: OTC, stock/coin rights (Rootdata)
• Level 2 market: Binance + Hyperliquid + Deribit
• Level 2.5 • Level 3 market: YBS Among them, YBS can cover as many of the first few levels of the market as possible, which can be used as the front end of a basket of assets or as the entrance to assets. Neutrl's idea is to discount VC coins, Ethena's idea is stETH, and Level's idea is USDT. In contrast, Ondo and BlackRock use stablecoins as a means of acquiring customers to replace paper certificates and electronic certificates. It should be noted that hundreds of trillions of RWA assets or TradFi are too far away, such as real estate, bonds, etc., which are basically more "institutionalized" and have little to do with ordinary entrepreneurs and retail investors.
To start with, L1, MEV, and YBS of YBS may be potential targets. As Ethereum returns to the L1 narrative, it is also more favorable to Alt L1 public chains. These may be potential new sources of income and may be projectized.
Conclusion
TVL is the living liability of the project party, and the locked coins are the dead liabilities of VC
If Neutrl indicates that the yield of institutions has been tapped, then how the yield of the project party itself, market makers, etc. is tapped may be a new direction for innovation and entrepreneurship in the future.
Once you embark on this road, you become a bird without legs and must fly until you fall into the sea.
Weatherly
Catherine
Kikyo
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