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A Letter to VCs from Placeholder: The Original Sin of Crypto Distribution



As the total market capitalization of cryptocurrencies breaks through two trillion, as if the market is reincarnated, the cryptocurrency industry has returned to the "grand occasion" where "emerging VCs go everywhere, open dozens of times, and grab it in the primary market and earn it". Many so-called "star" projects will leave most of the quota to the team and investors, and only allocate tens of thousands of dollars to the public. At the same time, they will use the "Pond's" marketing strategy of Twitter attention, @friends and forwarding, However, the market that is xx times higher when it goes online makes many secondary market participants discouraged. They don’t know how to support or participate in their favorite projects. Even the fair launch, which emerged along with DeFi and was vigorously advocated by the industry, followed the market. The popularity and DeFi are flat and let it go. For this, Chris Burniske, the co-founder of Placeholder, released an article titled "The Original Sin", expounding the recommendations of Placeholder and USV to VC and founding teams in the industry, and discussing with the "insiders" in the industry how to make "occupied VCs in the Highlands get rid of the so-called "original sin" and make cryptocurrencies develop healthier. Placeholder is also writing about himself when analyzing the market. Joel Monegro from USV who wrote "Fat Protocol" and Chris Burniske from ARK Crypto have been guiding the pace of the market. This article not only guides VC, but also gives new project founders People have given guidance, and in the process of analysis, there is quite a sense of mission in the industry of "I recommend Xuanyuan with my blood". GameFi ecosystem Oort Digital announced a partnership with P2E game PlaceWar: On February 19, GameFi ecosystem Oort Digital announced a partnership with decentralized P2E strategy game PlaceWar, aiming to bring additional value to the two communities and utility. In this cooperation, users who use Oort Digital to borrow NFT in the PlaceWar game will be rewarded. The incentive for leasing will help lower the entry barrier for new players to enter the PlaceWar game, and current PlaceWar NFT holders will also be able to Earn passive income. Oort Digital is a GameFi ecosystem, which consists of NFT leasing, Play-to-Earn RPG battle games, and a metaverse that allows any third-party game access. It can derive several additional functions for NFT, and through financialization , gamification, and interoperability make NFTs work. [2022/2/19 10:02:51] Rhythm translated the original text as follows: The content-zce 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 (Co-Founder of USV) commented that in the cases of projects he experienced getting worse over time, it can often be traced back to the original " Original sin” (where original sin refers to: a team, method, economic model, or key decision). Focusing on cryptocurrency projects, one of the original sins we often observe is that insiders own too much in systems that are billed as absolutely fair. LAPLAP, a social platform for Gamefi players, will launch free Web3 introductory courses for teenagers in Africa: On January 15, some community members of LAPLAP, a social platform for Gamefi players, were interviewed by Nigerian media DiutoCoinNews, saying that the core of Gamefi is decentralized player relationships, and they A solid network that coalesces during gameplay. To this end, LAPLAP will cooperate with global educational institutions to launch suitable free Web3 introductory courses for teenagers in Southeast Asia and Africa, starting from the construction of Gamefi traffic and Web3 communities, and promoting the formation of a new generation of game culture through Pb2E and SubDAOs, helping the game change again . It is understood that new LAPLAP products will be launched in Q1 of 2022. [2022/1/17 8:54:24] Of course, "fair distribution" is a normative judgment, which stems from the common belief in the encryption industry we have seen: to create a level playing field and give everyone a chance enjoy financial sovereignty. If a small group of people in the industry regularly took away half of the FDV (fully diluted market value, that is, the total market value of tokens after all releases and distributions) (of course, this is very common in the current situation), we have severely damaged the technology. The original intention - redistribution, the purpose becomes just to make a few people rich. The truth is, these people can do really well for less money, they just let it go, take as much money as they can, and cover themselves up with false statements like "it's always been that way" or "fiduciary duty" and others. French privacy watchdog fines Meta Platforms 60 million euros: French privacy watchdog fines Meta Platforms (formerly Facebook) 60 million euros and Google 150 million euros. (Golden Ten) [2022/1/6 8:29:30] The industry has been committed to establishing access-free, open technologies. Much of the process is open, but the most closed and mysterious part is early-stage financing. While this is partly driven by regulation and social norms, the more sinister factor is that insiders can disproportionately tip the scales in their favor while keeping the details hidden from public view. The more impetuous early investors become, the bolder and more powerful they become, to the point that this power can have a detrimental effect on the health of the industry as a whole. Beneath this veil of opacity, the norms and structures of past imbalances in the distribution of wealth and power also play out in this industry. If we don’t openly address the problems of the inception of the cryptocurrency network, then we are bound to repeat the mistakes of past societies. Where there is capital, there is power. The two types of organizations most closely involved in the initial creation and distribution of capital are founding teams and early-stage investors (including VCs, high-frequency funds, and a diverse mix of businesses in the industry). Founding teams looking to build something, unless they have the money to independently support themselves and the team, turn to early stage investors who provide venture capital for the journey. While cryptocurrencies often demonize the process, it can be a healthy and rewarding process, allowing an entrepreneur with no fortune to take a risk on an idea and, if it succeeds, of course get enough benefits, and if it fails, the founder People can leave to start the next journey. Plasm network and Bondly reached strategic cooperation: According to official news, Bondly CEO Brandon announced that Bondly and Plasm network have reached a strategic partnership. Released BondProtect to further expand into the Polkadot ecosystem, Plasm will release a special NFT on the Bondly launchpad. Deploying Bondly within the Plasm ecosystem will dramatically reduce these fees, said Maarten Henskens, chief ecosystem development officer for the Plasm Network. According to the official introduction, NFT Launchpad is driven by BondSwap, and NFT Launchpad will allow partner projects to use Bondly's infrastructure and network. [2021/4/23 20:49:57] But there is another world, and this relationship becomes unhealthy, especially in the case of opportunistic investors, realizing that the relationship between investors and entrepreneurs The information distribution is asymmetrical, coupled with the situation of an inexperienced entrepreneur. First-time entrepreneurs must be careful. We have observed frequently in many transactions that early-stage predatory behavior is more common in the crypto space than in other fields. Andre Cronje: Eminence NFT is unauthorized and has nothing to do with Eminence or playeminence: Yearn Finance founder Andre Cronje said on Twitter that Eminence NFT has nothing to do with Eminence or playeminence. They also do not have the right and license to sell or use the artwork or the game engine. Any representation of this artwork is unauthorized. [2020/12/30 16:04:44] This asymmetrical 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 that these agreements are unreasonable, then entrepreneurs It is possible to agree "foolishly", and then the project may be affected by this original sin forever. For entrepreneurs, an important resource for protecting themselves is other entrepreneurs who have experienced fundraising. Ask them about the reputations of different investors, things they regret, things they think are fair, etc. If you're considering a lead investor in a round, you should speak to projects in that investor's portfolio to get references about that investor -- references don't need to be one-sided. Also, try to get more than one term sheet if you can. Here are a few simple steps you can take to protect yourself as an entrepreneur. If we want structural social change, entrepreneurs and investors need to work together on what the change we want is. If we don't, we'll just have to keep going the way we've always done. While crypto is a massively deflationary and society-flattening technology, and thus targeted to open access to capital, there is a wide range in how crypto can be (re)distributed, depending on what we tolerate and approve of. Social norms. At Placeholder, our goal is to only occupy 1-5% of the total number of projects. Currently, the most concentrated share of Placeholder is 7%. Some might say that's still too high, but that's a far cry from the 10-20% ownership of companies that private equity investors are targeting. We feel the ratio is right: cryptocurrency projects are emerging economies that use protocols instead of corporations, provide professional services, and have global capabilities from the start. We hypothesize that their size, vision, and diverse stakeholders require a more even distribution of token ownership than corporations to maximize efficiency (companies do not use equity to increase growth on both sides, but cryptocurrency projects often use their assets to do so). Don't talk about our special case, but look back at the entire industry. What Placeholder advocates is that when capital is allocated for the first time, the proportion should be "25% internal, 75% external (the external gets 3 times as much as the internal) distribution rule". And by insiders, we mean the core team, investors, and close advisors — arguably anyone who risks their investment going to zero, labor and capital drain. And 25% may sound like too much to some insiders—for example, Bitcoin holders have been complaining that Zcash allocates 20% of block rewards to non-mining network contributors—but 25% is a lot more in the industry now. The common 40%-50% allocated to insiders is rare. But in fact, Placeholder is not perfect. We don't always get there, and when we don't (say, more than 25% allocated internally), it's usually based on long-tail inflation expectations as a sort of reallocation over time and growth strategies. Additionally, the planned supply distribution can change as governance is gradually transferred to token holders (ironically, when external investors get tokens, they quickly do the same as internal investors ). Another way of looking at the relative distribution of capital is to analyze the proportion of external relative to internal allocated quantities. For Placeholder, what we think is feasible today and can help society move into a fairer state is that the external gets 2-4 times as much as the internal. The interior represents a much smaller group, and thus needs to preserve the multiplied distribution possibilities for the non-accessible public. In order to achieve this goal, 20-33% of the total allocation can be obtained internally to get it started and develop. In this configuration, our expectation is that founders get 2x what investors get: the team is more important than investors and should be valued as such. Then the unadmitted public ends up getting 67-80% of the supply (minimum 2x and max 4x) of the supply. Some will say that there should be no private financing at all, like Bitcoin. Depending on the goals of the project, this may indeed be a viable alternative for some projects and founders (e.g. Decred's self-funding scheme). We look forward to seeing more experiments in this area and potentially supporting them on the secondary market. As an entrepreneur, it's important to remember that for your project, you decide what you think is the fairest distribution of capital for the network, and then find investors that match those values. If you prefer a more centralized approach, look for investors with similar preferences. If you want to move the world toward a more balanced distribution of capital, don't be afraid to make that clear to potential investors. Once the project has passed the initial stage and the initial distribution stage, your network mechanism design will feed back the system, giving you a second chance to shape and accumulate energy and resources.


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