Restarting ICOs: Distributed Token Launch (DTL)

VCs never innovated in funding structures, they just found a way to invest in companies earlier than ever before. There is no doubt that VCs’ injection of capital into early-stage tech companies has accelerated innovation, but it also means minimizing the communities these products were designed to serve.

Cryptocurrency itself is a novel technology with novel properties—permissionless, composable, decentralized—that bring new capabilities to support self-sustaining technologies. With the emergence of new technologies and new requirements, people are starting to think creatively about capital formation for the first time since the IPO.

In 2017, ICOs received a lot of attention and quickly attracted investors across the field. However, in 2018, the bear market arrived and many projects and their accompanying tokens faced collapse. The collapse of ICOs also brought huge scrutiny from the public, institutions, and most importantly, regulators.

As public financial support for decentralized technologies waned, new sources of funding emerged and traditional venture capital structures re-emerged.

Throughout this process, intermittent funding mechanisms have been tried: namely, IDOs and IEOs. But against the backdrop of the negative public perception of ICOs, crypto funding has gravitated toward privately oriented rounds, further crowding out the community. Crypto funding today looks a lot like traditional venture capital — from seed to Series A to Series B to token offerings.

Venture capital is a powerful mechanism for funding innovation. The current wave of VC investing at increasingly higher valuations has been extremely beneficial in getting large amounts of money into the hands of founders to build great new products and technologies. We have participated in many of these funding rounds and have seen our portfolio companies go on to make real changes in the world. But on the other hand, we also recognize that these higher valuation VCs can harm communities by limiting their ability to participate in any meaningful way.

Venture capital involvement does not need to disappear and in many cases is necessary for the survival of early-stage projects built on the cutting edge. But as capital pours into the crypto space, when asymmetric opportunities are presented, funds will race to pursue returns rather than long-term development.

The Power of Micro-Communities

In essence, micro-communities are small, focused groups where like-minded people delve deeply into a specific interest or goal. In the crypto space, these micro-communities can create billions of dollars in value and often represent outliers, or individuals who are most likely to be the initial holders. For example, communities like Ordinals have generated considerable interest in the Bitcoin ecosystem and have driven the emergence of novel projects, such as Bitcoin-based stablecoins, while network activity, especially in the form of fees, has surged. Ordinals emerged as a byproduct of organic experimentation and were launched on the open market solely through user interest.

What can we learn from memecoin?

• Distribution builds community

• Communities build and demand value

• Products are built for communities

• Communities become more valuable

• Investors want to invest in new projects being built in communities and ecosystems

• Initial memes become more valuable

Democratized funding

Self-sufficiency in cryptocurrency is possible and can exist outside of traditional funding avenues. For example, cryptocurrency startups have the lowest barriers to entry. A set of smart contracts and a powerful idea can radically disrupt traditional systems and literally change the world. This means a lot of new companies emerge, but it also means the pace of innovation can be very fast — because knowledge is open source and existing breakthroughs become useful components of new systems. Crypto projects are uniquely high-leveraged from a human capital perspective. Traditional companies tend to scale linearly. Uber’s growth requires more drivers to pick up more passengers. Low-level open source infrastructure can be built by one person and used by billions of people.

Since these are often highly leveraged human protocols and are more like cities than companies, democratized money, which is a great fit in any business, finds an ideal launch point in crypto. ICOs are an amazing mechanism for capital formation in crypto and should continue to exist. They get tokens into the hands of the community early, they decentralize the network early, and they reduce the concentration of ownership from the beginning.

Distributed Token Launch (DTL)

The core focus of DTL is to get tokens and technology into the hands of real users, not just speculators. The latter is inevitable, but where possible, the end user should be the central point. Ideally, use no financial capital at all. Airdrop on day one, free emission on GitHub commits. Post a CTO position on Twitter for 3% of token supply, and exchange ownership for tasks On jokerace, vote on the best shitposter by voting on farcaster.

Priority should be given to offering token grants to attract talent and builders to the project in any form or manner, not just the average “eco-fund” that takes 4 years to fully unlock. Instead, under this strategy, tokens are ready immediately, with the goal of bringing talent into the ecosystem on day one, such as hiring a CFO or head of developer relations. While we don’t yet have a three-step process to disrupt the funding paradigm or guarantee an optimal launch, we are putting some of our ideas into practice.

Conclusion

For the first time in financial history, a system has emerged that rewards permissionless experimentation through a growing toolset mechanism that enables the rapid and technical precision creation of institutions, currencies, and irrevocable contracts, and we should avoid undermining the impact of this permissionless value creation. Decentralization and long-term collaboration happen at the intersection of communities and builders, and these two groups should overlap as much as possible. In crypto, one of the main motivations is to build a community that is financially incentivized to build a future where products serve their needs rather than rent-seeking monopolies. To incentivize this community, they must be prioritized in funding strategies. Blockchain is a distributed database where trust is established through mass collaboration rather than through a powerful institution that solely retains the power to control access and censorship - let's leverage these unique characteristics. We believe that blockchain has become a melting pot of powerful economic tools at a scale we have yet to fully understand, and working to reinvent a new system of transaction and collaboration in this context is an endeavor worth pursuing.