Thread by @kaiynne

It’s been a while since I’ve put my theadoooooor hat on, so let’s have a little chat about capital formation incentives in crypto.

Yes there are many bad actors, but not everyone is a bad actor, never attribute to malice what can more easily be explained by misaligned incentives.

People do not realise how much pressure there is to conform to existing meta for new teams. Even, and maybe even especially, the most successful teams are constrained by the current meta if they want to raise big rounds.

As cycles ebb and flow the leverage in easing capital shifts between teams and investors. The problem is investors are fragmented between VC and retail, if teams gain leverage, investors will get a worse deal, which investors tho is the big question.

Since the end of the ICO era retail has basically suffered at the expense of teams/VC. During ICO times retail hype drove VC fomo, this dynamic has flipped significantly.

Of course signalling is still critical, and the signals of traction haven’t changed much, TVL, twitter followers, telegram etc are all used by VCs to work out whether retail is going to buy their bags. Oh and the tech sorry, can’t forget the tech 😅

So when points meta pops up everyone kind of has to do it. Because competition in early stage raises is intense. If you can incentivise activity and TVL at zero cost you can raise bigger rounds.

VCs are left curve, some are right curve, but not many. If a team tries to explain why points are bad and misalign the community, investors will pass. Seed investing is all about filtering. If you are even reasonably good at filtering, seed rounds are free money. This is DD ⬇️

Anyone investing in seed rounds who tries to tell you it is hard is simply lying to themselves, it’s pure cope. Let’s look at the numbers. Seeds are typically done at $10m - 50m FDV.

Show me a single semi-credible project with a post-TGE price below $50m where the team didn’t rug. I’ll wait… Even the most cursed token of all time @lyrafinance is still a 6x for me from the seed round.

You literally cannot lose money in seed rounds if you have even a decent sample size that is not pure toxic flow. I don’t know a single angel investor in the entire space who is down on their seed stage investments. Zero. Let that sink in.

How can that even be possible? I’ll tell you how, the market structure has been distorted beyond all recognition due to regulatory chilling effects of the last half decade. Even if you want to break the current meta. Retail has been skull fucked by ganslor and his cronies.

In order to break the current anti-retail meta you need to be face the wrath of VCs and regulators. No 1st time founder is going to do this. The incentives are too strong. Do a low float token launch after 1-3 private rounds and have paper 8 to 9 or even 10 fig networth.

Or try to shift the meta and get rekt most likely.

But why are all the tokens low float these days? Let’s look at the “tokenomics”.
Treasury -> locked
VC -> locked
Team -> locked
Scraps to mollify the plebs -> float
So unless you are willing to give the plebs who are pumping your metrics 25% of the token your float will be tiny.

Back in my day, the float was 30%-60% a few days after the token sale finished. Now boy did that enable some price discovery 😑. But these days the only float comes from the airdrop.

Why the fuck are we doing airdrops. One reason is incentivising pre-token metrics. This is not bad imo. The problem is this is the ONLY way to get tokens into the hands of the average person. Which leads to the second reason…

Instead of just selling tokens at a reasonable price, you have to give tokens away to try to assuage your guilt about selling the project for pennies to a pack of locusts.

This is where the fundamental misalignment arose with @eigenlayer. Despite what the angels and VCs are desperately trying to sell you, regular degens made Eigen one of the most hyped projects in the space. Degens thought they were getting exposure but then realised it was a rug.

See when you invest in a seed round you get a fixed amount of exposure typically. Of the project is a success your upside is locked in. When you are earning points the team can dilute you as the project grows. But fundamentally with uncapped TVL no one was ever going to be happy.

As TVL grew everyone got diluted, and even if they had given 30% of the supply it still would have been a far worse deal than just selling everyone tokens for a reasonable price.

This is why I decided to pitch the @infinex_app council on the concept of a patron NFT rather than selling out to VCs. I am of course lucky to have the leverage to ignore the current meta and try to meme some new meta into existence. Not many founders can get away with this.

But we still did points, because we didn’t want a token immediately, and points are super useful. BUT like all good meta they can be abused.

Points enable economic alignment to breakdown to the detriment of users, especially for the most successful projects.

This is why I proposed to the Infinex council that prior to launch they should communicate a fixed exchange rate between GP and patron NFTs. So that there is no ambiguity. BUT if TVL is super high people will still get diluted, there is no avoiding that other than TVL caps.

Luckily, if you are active onchain you will have a chance to mint a patron NFT. So even if you get diluted in the points game, you can still get alignment. This is the missing component of most projects right now.