Author: Arthur Hayes, BitMEX co-founder Source: medium Translation: Shan Oppa, Golden Finance< /p>

I recently read an interesting book about the history of the East India Company (EIC) called Anarchy by William Dalrymple ( Wiliam Dalrymple). For those unfamiliar with this chapter of European colonialism, the East India Company was a joint stock company that was granted a royal charter/monopoly for trade between Britain and the Indian subcontinent. What began as a weak, impoverished commercial enterprise survived the whims of India's various rulers over the centuries, conquering the entire subcontinent and paving the way for the British rule, which lasted from the late 19th century until 1947.

When it became known that the East India Company was using unethical means to make huge profits, certain members of the company were summoned to the British Parliament for questioning. Fortunately, as many senior members of Parliament were also shareholders in the East India Company, few were punished. In fact, on several occasions the East India Company requested and received government bailouts due to its over-indebtedness. EIC was the first "too big to fail" company, and politicians at the time, like their contemporaries... used public funds to bail out private companies for personal gain. In fact, this is the privatization of gains and the socialization of losses.

EIC is closely related to cryptocurrencies, as I want to discuss the evolution of crypto project ownership structures and funding methods. I will discuss Bitcoin, ICO, Yield Farming/Liquidity Mining separately, and finally Points. This article aims to explain why points as a method of user engagement is a natural evolution and a logical progression from past engagement and funding methods. Many companies in Maelstrom's portfolio will be launching tokens in 2024, and you can expect to learn about points programs that are all designed to increase usage of the protocol. So I want to discuss why points exist and how they can drive adoption during this cycle.

Web 2 vs. Web 3

Who are your shareholders/token holders? And their commitment is important to the success of any commercial enterprise, whether in crypto or otherwise. I will specifically compare and contrast how Web 2 (tech startups) and Web 3 (cryptocurrency startups) raise funds and acquire users.

Whether you are launching a Web 2 or Web 3 startup, acquiring and retaining users is the most challenging and expensive aspect of your business. In Web 2, which was most prevalent from 2010 to 2020, venture capital funds sought out startups with some initial traction and subsequently provided the startups with cash rocket fuel to continue their user acquisition spree. Typically, this involves providing the service for free or at a discounted price that is well below the actual cost of delivery. Remember when ride-sharing apps were all vying for market share and fares were dirt cheap? It's all paid for with billions of dollars worth of venture capital funding. Think of it as a subsidy in return for users.

For venture capital firms, the end of the rainbow is a successful initial public offering (IPO). The IPO gave ordinary people a stake in a successful Web 2 company for the first time. The IPO is a way for TradFi to sell off in retail. However, various regulations prohibited crowdfunding for early Web 2 companies. Ironically, a large number of ordinary users who have driven the company's success are barred from owning a piece of the company.

Given the law of averages, over 90% of new companies will fail. Investing in early-stage Web 2 companies could cost you your money. While this is certainly the case, most investors believe themselves to be 3-sigma traders, in the sense of a normal Gaussian distribution, even though they always seem to achieve returns around the average. This means that civilians always want to get something that is certain after the fact as early as possible, but get angry when they always lose money due to countless failures. At that time, civilians pointed the finger at the government because in our modern era, ordinary people think that the government's job is to live their lives for them. I don’t blame them for this belief; Politicians go above and beyond to paint the picture that if you support them, nothing can go wrong in life. From the perspective of securities regulators, there is little benefit to allowing poor people to crowdfund early-stage companies. There are 1,000 MySpaces for every Facebook. Why would you get fired and lose a promotion for allowing a bunch of civilians to spend their paychecks on some shit company that was sold off by a bucket shop huckster?

This is why I sympathize with regulators, why the public is not allowed to collectively invest in early-stage companies. My more cynical explanation is that theTradFi gatekeepers made a ton of fees from the IPO. Let’s take a look at the list of people who were paid during the IPO process:

1. Investment banks underwriting IPOs take 2% to 7% of the money raised.

2. Lawyers can earn hundreds of thousands or even millions of dollars preparing and filing prospectuses and other offering documents. Being a paper pusher has never been better.

3. Audit and accounting firms make hundreds of thousands of dollars on each transaction that produces audited financial reports. Steroids Quick Guide!

4. Exchanges charge high listing fees. Anyone at Nasdaq Labs?

The aforementioned trust cartels are enthusiastic about IPOs. Several successful IPOs within a year ensure a handsome bonus for everyone at TradFi. But without a swarm of hungry retail buyers who can invest early at cheaper prices, there won't be buying pressure to pull off a successful IPO. That’s why retail engagement must be reserved for the end of the fundraising lifecycle, not the beginning.

While these fees may seem shocking, before the advent of Bitcoin, there was no other efficient way to raise funds publicly. Objectively speaking, this process has created many super important, useful, and profitable companies. efficient. But stop being nostalgic and let’s move on.

From a user's perspective, the main problem with the Web 2 way of forming a company is that using a product or service does not create an equity stake in the company that provides that product or service . You won’t earn Meta stock by browsing Instagram’s “thirst trap.” When you watch a teen like Cardi B dance on TikTok, your brain goes crazy and you can't get ByteDance stock. These centralized companies capture your attention, your actions, and your money, and yes, they provide a service or product you like, but nothing more. Even if you wanted to invest, you couldn't unless you were wealthy and well-connected.

Participation ≠ Ownership

Bitcoin Paradigm Change

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The subsequent evolution of Bitcoin and crypto capital markets has changed this. Since 2009 (the origin of the Bitcoin block), it has been possible to reward participants with ownership stakes in startups. This is what I call a Web 3 startup.

Starting in 2010, before you could buy Bitcoin on an exchange, mining was the only way to obtain Bitcoin. Miners create and maintain the network by burning electricity to validate transitions. For this activity, they will be rewarded with newly minted Bitcoins.

Participation = Ownership

The participant or user is now Participated in the game. Similar to the EIC example, interested users will do whatever it takes to protect their investments. In the case of the East India Company, it meant turning a blind eye while war and famine befell the people in the name of profit. In the case of Bitcoin, this means that the owners of Bitcoin also want to convert as many people as possible into Bitcoin users. Look into my laser eyes, bitch!

Initial Coin Offering (ICO)

Soon, the cryptocurrency capital market will recognize A way to crowdfund technology startups that was not available to Web 2 startups. If a Web 3 startup eschews fiat as payment for ownership or governance rights and only accepts Bitcoin, it can sidestep the entire TradFi trust cartel that “protects” the filthy fiat financial system. To raise funds, one project launched a website announcing that if you gave them Bitcoin, they would give you tokens that could do something in the future or give some economic rights. If you believe in this team's ability to execute on the vision they preach, in less than an hour you can be part of an exciting new network.

The first large-scale project to conduct an ICO was Ethereum in 2014. The Ethereum Foundation is pre-selling ether, the commodity that powers its virtual decentralized computer, in exchange for bitcoin. In 2015, Ethereum was distributed to buyers. It was a successful ICO. The foundation pre-sold its tokens to obtain funds for further development of the network.

ICO transaction volume and amount raised asymptotically. The best ICO of all time was done by Block.one, the creator of EOS. They ran their ICO for a full year and raised $4 billion worth of Ethereum at the price at the time. EOS is a great example of the ICO craze because it raised the most money and it was a complete garbage blockchain that barely worked.

As time went on, the projects got worse and worse, but the amount of money raised got bigger and bigger. That's because for the first time ever, anyone with an internet connection and some cryptocurrency can own a piece of the next hottest tech startup. The addition of retail has made many crypto bros very wealthy.

The ICO craze peaked in the fall of 2017, when Chinese regulators explicitly banned such activity. Exchanges like Yunbi shut down overnight, and many projects that had recently raised funds from Chinese retail investors had their funds returned. Around the world, ICO offerings disappeared as regulators keen to protect fiduciary cartels from competition over how early-stage ideas raised money and came to fruition.

ICO investors provide capital and become proactive project marketing agents. However, just because you sell your tokens at a high price doesn’t mean anyone will use your product. Ownership is only a function of the funds invested, not the usage of the protocol. ICOs are a step forward, but we can do better.

Liquidity mining

From the perspective of the northern hemisphere, the DeFi summer began Mid-2020. A series of projects launched in the depths of the 2018-2020 bear market are starting to be meaningfully utilized. These tokens have been listed since many of these projects have completed ICOs or token pre-sales, followed by public token generation events (TGE) in mid-2020. The project foundation allocates a large number of tokens to reward community members who carry out valuable activities.

Many of these projects, such as Uniswap, AAVE, and Compound, focus on lending and trading. They want users to borrow, lend and/or trade their crypto assets using their protocol. In return for performing the above actions, the protocol will immediately issue freely tradable tokens. Thus, liquidity farming was born. Traders borrow, lend, and trade cryptocurrencies on these platforms with the specific purpose of earning the protocol’s governance tokens. In many cases, traders lose money just to “farm” or earn more coins. Traders appear to have taken profits as the token price increased on a mark-to-market basis. All of this assumes you sell at the highest price; many people don't do this and all this activity is in vain.

From a project perspective, all of this activity has increased their transaction volume, total value locked (TVL), and the number of unique wallets interacting with the protocol . These indicators give investors confidence that DeFi is working and creating a parallel financial system controlled entirely by code running on decentralized virtual computers.

Participation = Ownership

Everything is fine, just For many projects, the unlocked token supply grows too quickly. These projects always have to slow down emissions, and the market starts to ask: "What happens next?" If all activity is based on an aggressive token issuance plan, then if the token price falls and there are no more tokens to offer to potential User, what happens? What happens is that the price of the project token plummets as activity increases.

The lesson learned is that liquidity mining, or liquidity mining, is a great way to incentivize usage, but can become a liability if it is too aggressive. The question then becomes, how to issue tokens in a more sustainable way?

Points

Liquidity mining as a user acquisition tool as crypto goes into 2021 The bull market comes and goes. But points followed, and it quickly became the pseudo-ICO fundraising and user acquisition vehicle of choice for projects in the current bull cycle.

Points combines the advantages of ICO and liquidity mining.

ICO

• Allowing millions of retail cryptocurrency holders to purchase parts of the new protocol.

• But when you sell something to a retail store, some regulators call it "safe" and require you to do Lots of things you don't want to do...namely, stop selling crap to poor people.

Liquidity mining

• Issue tokens to users using this protocol.

• However, if it is too aggressive, it will inflate the limited token supply too quickly. Once the token price falls, users will There is no incentive to use this protocol anymore.

What if a project gave you points for interacting with the protocol? These points will be converted into tokens and then airdropped to users’ wallets for free.

What if points for airdrop token prices are completely opaque and left to the sole discretion of the project?

What if there are actually no pledged points that can even be converted into future airdrop tokens?

This is a simple example to take home. Let’s say Sam Bankman-Fried’s (SBF) roommate offers him a points program. His roommate had access to unlimited amounts of Emsam; SBF claimed it was the amphetamine he needed to treat his ADHD. His roommate really enjoyed the back massage. He struck a deal with the SBF. For every back massage SBF gets, his roommates give him one point. The points may be converted into a certain number of Emsam pills at a future date of his roommate's choosing. SBF wanted his pills so bad he was willing to agree to a lot of friction in exchange for a soft promise of future Emsam pills.

Are points a contract between the project and the user, to obtain tangible rewards in the future? No.

Is there any form of currency, fiat currency, cryptocurrency or other exchange of points or tokens between the user and the project? No.

Does the project have complete flexibility in terms of the conversion price of points to tokens and the timing of token airdrops, if they occur? Yes.

Let's make some other assumptions and observations. If you have a small but talented engineering team, you don't need many other employees. This is the beauty of software. The first-layer blockchain itself handles network security; users pay for gas in native tokens such as Ethereum, in part to pay validators or miners to ensure network security. Do you need in-house counsel? If your project is truly decentralized, maybe not. And, once your foundation is established, what are the main jobs for expensive lawyers? Your biggest question is how to get more users, that's marketing and business development. Assuming you develop good technology, all your money will be spent attracting usage.

It is entirely possible to build an amazing project with little (if any) venture capital funding. The project needs funding to acquire users, and points are a new and exciting way to guerrilla market.

With points, the project does not lock itself into an aggressive token issuance schedule. This is because the ratio of points to tokens can change at any time. There is no contract that stipulates that the project must meet a specific points-to-token ratio.

Through points, the project generates usage in specific ways that it believes will increase the long-term value of its services. Many of the most influential crypto projects are two-sided markets of some kind. Credits help jump-start network activity and overcome cold-start or chicken-and-egg problems. Being able to surgically and dynamically calibrate point firings for specific actions across the entire project ecosystem means that the project can be very efficient at generating the exact type of user interaction it requires.

Finally, with points, the project does not have to rely so heavily on signing token pre-sale agreements with VCs and other high-net-worth investors. The main purpose of VC capital is to pay for user acquisition; Dot can do that. The best part is that the project can implicitly sell its tokens through an opaque points program at a much higher price than in a transparent pricing round.

Points are great for projects, but what about retail users?

As ICOs fall out of favor, the retail industry must remain hypervigilant about VC unlock schedules. If retail investors buy tokens at the same time as the VC portion is unlocked, then this is REDRUM REDRUM REDRUM for the retail investor’s portfolio. Using points, the project does not need to conduct such a large-scale pre-sale token sale. Using points, retail can “invest” earlier and hopefully get cheaper prices than waiting until after TGE. While the timing of the airdrop and the ratio of points to tokens are unclear, points may represent a fairer way to reward users for their participation.

Points programs only work when there is a high level of trust between users and project founders. Users trust that after interacting with the protocol, their points will be converted into tokens within a reasonable time frame and at a reasonable price. As points programs proliferate, there will be bad actors who abuse this trust. Ultimately, serious breaches of trust involving large amounts of money could lead to the failure of points as a fundraising and user engagement tool. But we're not there yet, so I'm not fussed.

All aboard

Whether you love it or not, every successful project (Success refers to an increase in the token price) A points plan will be implemented before the official launch (TGE). This will boost usage of the protocol, hype around potential token airdrops, and excitement around listings.

I am a businessman, not a pastor. The only dogma I believe in is "The numbers go up!

If points can better bring the relationship between users and the agreement, then do it.< /p>

If trust syndicates’ control over funding for novel technology startups is further weakened as points are seen as a better mechanism for user engagement and funding, then sign up Let’s do it.

I hope this post provides some context on what points are and why I believe they will drive the best-performing token issuance this cycle . Maelstrom has deep roots and I’m not shy about telling our readers. Looking forward to more articles about the exciting projects in our portfolio that are about to launch points programs and eventually go live. My body is ready, what about yours?