They bring a powerful, yet understated benefit of incentive alignment, facilitating value creation not limited to founders, companies, or creators, but from groups of community members motivated to contribute due to their ownership in the community.

Key to the success of a social token is its tokenomics. With solid token incentive mechanisms, communities encourage strong member participation. Creators, however, are rarely crypto-native enough to design their own tokenomics. The onus is on the issuers.

By diving deep into the two leading issuers, Roll and Rally, this article aims to inform future iterations of social token issuers on:

• Token design

• Token distribution

• How issuers can capture value with their native token

Token Design

Roll and Rally use contrasting token designs. While Rally applies token bonding curves (TBCs) to social tokens issued on their platform, Roll opts for simplicity with fixed supply.

The pros and cons of the TBC and fixed supply designs are well-covered in this article by Coinvise, which is summarized below.

Roll: Fixed Supply

Social tokens issued on Roll will have a maximum potential supply of 10 million. 2 million are minted at genesis for the creator such that he/she has sufficient “skin in the game”, while the remaining 8 million tokens are distributed across 3 years.

Rally: Token Bonding Curves

Rally has had two versions of their token bonding curves since their inception. Both versions featured a Genesis period, which allocates 24% of potential maximum supply to the creator.

In Version 1, creators used an S-curve, while a linear curve is now used in Version 2.

The change came as a result of two issues as communities entered Phase C of their V1 TBC (when more than 150,000 social tokens are minted):

1. High volatility, attracting speculators just as the community hits scale

2. Potential community members are priced out as excess demand drives prices up too quickly

The linear bonding curve of Rally V2 aims to make Rally a more appealing platform for larger communities:

With the linear curve, Rally’s V2 TBC mitigates volatility as communities scale. It also rewards early adopters through its pre-sale period (between 5 to 7 million tokens minted) before the TBC dynamics take place. Note that Rally’s social tokens are priced against RLY rather than USD to mitigate volatility, pool liquidity, and capture value (more on this later).

Social tokens issued on Rally today use the linear TBC by default, but communities have the option to use the S-curve.

Comparison

Most importantly for adoption, simplicity resonates with creators, who often find a fixed, simply divisible 10 million token supply more digestible than TBC dynamics. As Coopahtroopa explains, “99% of creators have no clue (and likely don’t care) what curve they are using.”

However, because Rally tokens are minted on a TBC, liquidity is guaranteed for traders. Roll’s social tokens, in contrast, require users to bootstrap liquidity. This makes their tokens more volatile than Rally’s and incurs high slippage on trades in their early stages.

Nonetheless, one can argue that social tokens need not have liquidity when communities begin to grow. Communities can start by distributing to existing, committed, long-term-oriented members before facilitating price discovery (attracting fewer speculators). Once a larger community is formed, members can bootstrap liquidity with DEX pools.

Future Directions

Due to the diversity of communities, no token design is one-size-fits-all. As we recommended to Grape Protocol during our accelerator program, future iterations of social token issuers should prioritize flexibility and customization.

Most creators, brands, and communities will migrate from Web 2, so opting for the easily- divisible, fixed supply model should be the default over the complexity of TBCs. It will be important, however, for existing crypto-native creators and communities to be able to choose TBCs for guaranteed liquidity.

From then on, customization can be implemented for both the fixed supply model and TBCs. Coinvise has allowed their creators and communities to customize their fixed supply cap, while meTokens allows creators to choose their own TBC. In the future, the distribution schedule for the fixed supply model and the pre-sale period for TBCs can be customized as well.

Token Distribution

On Roll and Rally, social tokens are often distributed to users who purchase or engage with creators. You can, for instance, buy certain amounts of $CALVIN tokens issued by Roll for him to promote or provide feedback on your crypto project. On Rally, you can earn $KLD (by NFT music artist Kloud) by creating proposals or participating in contests, programs, and events.

The core theme is that social tokens act frictionlessly facilitate value exchange between creators, core contributors, and community members.

Value Capture

While the Rally token captures value by backing all social tokens’ liquidity, the potential Roll token should capture value through ownership of its social tokens issued.

Roll: Owning the CCs issued

Roll owns 1% of every creator’s maximum token supply. In other words, its token could capture 1% of the market cap of social tokens issued.

Importantly, the social tokens issued on Roll are issued directly on Ethereum rather than a private sidechain like Rally.

Rally: Capturing the Market Cap of all Social Tokens issued

Rally captures the market cap of all social tokens issued on their platform by backing their social tokens' liquidity using their native token $RLY.

On the frontend, users seem to be able to purchase social tokens on the Rally platform through crypto or fiat seamlessly, but in the backend, users are essentially purchasing $RLY to receive social tokens issued by the Rally platform.

The process is as follows:

1. Using a CEX or DEX pools, users purchase $RLY using fiat or crypto

2. The $RLY purchased is then supplied to the social tokens’ liquidity pools

3. The $RLY is converted to the social token for the user on the private Rally sidechain

4. Social tokens liquidity pools only hold $RLY, and the social tokens are minted relative to $RLY via their bonding curves

Hence, the Rally token captures value from locking its circulating supply, capturing the market cap of all social tokens issued.

Comparison

Comparing the mechanisms of value capture, it is likely that Rally’s mechanism will capture more value from its set of creators. While Roll owns just 1% of their social tokens’ genesis supply, the $RLY token captures the market cap of all social tokens on their platform.

However, social tokens issued on Roll are composable as they are issued on Ethereum rather than a private sidechain. They can consequently plug into DeFi protocols, tapping into opportunities ranging from creating money markets on Rari Capital (so fans can lend and borrow tokens to unlock tiered perks and memberships temporarily) to having creators own their own liquidity through Olympus Pro. These potential integrations with the money legos of DeFi could attract more Web 3-native creators.

In essence, the choice of an issuer’s value accrual model depends on the priorities. To capture high value, adopt the Rally model of a native token backing social tokens’ liquidity. To attract Web 3-native creators and leverage the composable money legos of crypto, adopt the Roll model of a small percentage of social tokens owned by the Roll treasury.

Future Opportunities for Value Capture

Today, anybody looking for passive social token exposure lacks the indexes to do so. On Set Protocol, only SuperGroup has created a social token index, with a lack of investors and a >90% weightage towards Friends with Benefits ($FWB).

There are opportunities for Rally and Roll to issue passive social token indexes containing social tokens issued on their respective platforms.

Roll, for instance, could tokenize the portion of its treasury that holds the 1% ownership of all social tokens issued on their platform, and issue it as a passive social token index. As a result, the future Roll token can capture fees from the management of the TokenSet fund. (As a private sidechain, however, Rally would not be able to leverage the tools created by Set Protocol, but can build the TokenSet themselves to capture further value.)

The risk is that anyone else can create a more comprehensive TokenSet across all social tokens, unrestricted to those issued only on Rally or Roll.

The issuers, however, are in unique positions to offer perks to owners of their TokenSets. The 1% ownership of the social tokens currently held by Roll, for example, can be decentralized to a future Roll DAO. Members of the Roll DAO and owners of the TokenSet could unlock the benefits associated with the social tokens that the index is composed of.

For instance, if you purchase some TokenSet tokens and more than 75 $FWB is “contained” within it, you can access the FWB Discord server (subject to your FWB application). Consequently, the user not only benefits from passive social token exposure, but the perks associated with holding the tokens within the index.

The opportunity for value capture through passive provision of index funds is substantial. In traditional finance, asset management holds more than $100 trillion in value. Set Protocol currently holds around $400m in TVL, which has grown by more than 14 times since January 2021. When you imagine the potential of how any person, brand, or community can create their own social tokens, capturing even 1% of indexed exposure to these assets is an opportunity that cannot be ignored.

In summary, future iterations of social token issuers can consider two token designs for their creators, brands, and communities:

• Rally model: Token bonding curve with genesis and pre-sale periods

• Roll model: Fixed supply

With the Rally model, issuers can enhance flexibility by allowing creators to choose their own TBC and pre-sale periods. The Roll model can be further customized such that creators can choose their own supply cap and distribution schedule.

There are two ways for issuers to capture value with their native token:

• Rally model: Capture the entire market cap of social tokens issued by having the native token back their liquidity

• Roll model: Own a small percentage of total potential token supply

To capture further value, consider capturing fees from managing an index of social tokens issued. The future members of issuers’ DAOs can also benefit from the perks of the social tokens held in the issuer’s treasury.

More broadly, we look forward to more experimentation around social token economics. In contrast to one-sided interaction, social tokens incentivize any community member to contribute to the creators they follow or the causes they believe in. In return, they offer opportunities for anyone to earn ownership, usually limited to employees with stock options in Web 2.

Issuers themselves may even incentivize their creators to contribute proposals to tokenomics that align with their needs. In that vein, Web 3 creators would stand in stark contrast to their Web 2 counterparts by truly owning the platforms they create value for.

This research was a product of our collaboration with Grape Protocol on their potential social token issuer design for creator coins. If you have any questions or if you would like to collaborate, please reach out on Twitter @0xEmerson.

Learn more about social tokens in our Social Token Podcast Mini-Series on YouTube or other podcast platforms.

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Disclaimer: LongHash Ventures may hold positions in some of the assets mentioned in this article.

At 10pm PST on the 17th of January (or 2pm HKT/SGT on the 18th of January), you can witness the next generation of Web 3.0 at our LongHashX Demo Day. This year, we will be hosting Demo Day in the Cryptovoxels Metaverse, in collaboration with Protocol Labs.

"Our move from real-world Demo Days to the Metaverse represents the Web 3-native approach that we've taken with our accelerator program this year," our Program Lead Stefano Bury explains. "As we go beyond a broad program covering business strategy, fundraising, and marketing in the past, towards a crypto-native, tailored program focused on Web 3 topics such as tokenomics this time around, we thought that hosting our Demo Day in the Metaverse would encapsulate that Web 3 approach."

LongHashX is our 7th accelerator cohort. We had previously partnered with ecosystems such as Polkadot, Filecoin, and Algorand to grow more than 40 projects, which have raised more than $100m in the past 3 years.

LongHashX is segmented into 2 tracks: the DeFi track enabled by Asia DeFi Network and the Filecoin Frontier Accelerator track partnered with Protocol Labs.

DeFi Track, enabled by Asia DeFi Network:

The Asia DeFi Network track is composed of 5 projects.

• Manta Network: The privacy layer on Polkadot

• ApeBoard: A cross-chain DeFi dashboard

• Nibbl: An NFT fractionalization protocol that offers guaranteed liquidity and an easy buyout process

• Smart Token Labs: Enhances utility and value of NFTs with a suite of tools (including attestation and merging of derivatives)

• GoodGhosting: Gamified habit-forming DeFi applications which reward saving

Filecoin Frontier Accelerator Track, partnered with Protocol Labs

The Filecoin Frontier Accelerator Track is composed of 4 projects:

• Grape Protocol: A tooling stack for communities to create decentralized social networks on Solana

• Lit Protocol: Tooling dApp developers, DAOs, and Web 2 companies through a decentralized access control network that links off-chain content/experiences to on-chain conditions (wallet holdings & history)

• Matters Lab: A Web 3 social media platform where users can collaboratively create and monetize digital assets, while controlling their own data

• Lighthouse: A permanent file storage protocol built on Filecoin that allows the ability to pay once and store forever

Stand a chance to win 1 of 12 NFTs

To reward attendees of the first-ever Demo Day in the Metaverse, we will reward attendees with a portion of a 1/1 NFT fractionalized by Nibbl.

Attendees will also enter a raffle to win 12 exclusive NFTs. The prize pool includes:

• Fractionalized tokens from an album of 40 Meebits or 17 Loot NFTs, by szns

• 2 Monkeyball NFTs that can be used as soccer players in the Monkeyball Game

• Virtual streetwear clothing that can be worn in the Realy Metaverse

• 2 Arcadian NFTs that can be used as platform avatars to access more games in OP Games’ Arcade

• 2 NFT Dungeon items on Curio NFT that can be used in their upcoming DnD-like P2E platform

• 2 Chelobricks by Unique Network: cross-chain NFTs that have composable functionality and evolving traits

• A Lit Protocol Genesis NFT that grants you access to a private Discord channel, an OG role, and a collaborative art piece

• A DigiAvatar that grants you access to the DigiNation Metaverse

The conditions to win the fractionalized NFT and enter the raffle are to follow LongHash Ventures on Twitter, register for Demo Day, retweet the announcement tweet, and tag three friends on it.

So what are you waiting for? Book yourself a seat for a Demo Day in the Metaverse, witness exciting Web 3 projects at their nascent stages, and get yourself an NFT this holiday season.

Book your seat for Demo Day here: https://bit.ly/3m4fDqU Visit our parcel of land on CryptoVoxels:

https://bit.ly/LHXMetaverse

We believe supporting innovation starts with understanding it. As the breadth of invention and adoption of blockchain continues only to accelerate, our team took the opportunity to speak with some of the foremost and leading investors to provide a fresh take on a topic that has intrigued and frustrated the industry in turn: tokenomics.

Tokens create a paradigm shift in terms of how utility could be measured, how value could be accrued, and even how the utility of the system could be dynamically valued and represented. And good token economics makes all the difference.

— Jehan Chu, Cofounder and Managing Director of Kenetic Capital

Token launches have matured tremendously since its somewhat bumpy start in 2017/18, and along with it the necessary discussion of evolving best practices and standards. In this report, we gather practical and validated insights from investors the likes of Defiance Capital, Fenbushi Capital, Hashkey Capital, IOSG, Kenetic Capital, NGC Ventures, and Pantera Capital to build on and cover the major themes below:

• The case for tokens and recent uptick in optimism

• Without a strong case, tokens are simply a good to have

• Value Creation

• Value Capture

• Value Protection

• Managing Demand and Supply Sustainable Growth

• Risks and Hurdles

Download the full Tokenomics Blueprint Report (2021) today: https://mailchi.mp/longhash/bbbzqo5xxu

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

We deliver insights from some of the leading crypto founders and investors and compile benchmarks from leading DeFi protocols that have already embarked on their governance decentralization journey. We hope that this will help to inform how you can decentralize to enhance participation, minimise voter apathy, and crowdsource ideas.

We thank many of the members of our Asia DeFi Network for their practical and validated insights, including Stani Kulechov (Aave), Jordan Momtazi (Synthetix), Anjan Vinod (ParaFi), Arthur Cheong (DeFiance Capital), Kristen Stone (Balancer), Marta Piekarska-Geater (Balancer), Ruitao Su (Acala), Samyak Jain (InstaDapp), Remington Ong (Fenbushi Capital), and Antony Lewis.

The report covers three major areas:

• Structure: The degree to which you decentralize decision-making and what the decentralization archetypes are

• Processes & Tools: The mechanisms that enable a decentralized organization model

• Engagement & Incentives: How to build self-sustaining communities that drive the project forward

Find out how to decentralize by downloading the full Web 3 Governance Blueprint (2021) today: https://bit.ly/3ikKKx5

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

If anyone says that they know with 100% certainty how the crypto market will move, they’re likely either lying or overconfident (otherwise please DM me the future too). But even in uncertain market conditions, opportunities still abound.

Even with a significant proportion of one’s portfolio in stablecoins, there are plenty of sources to earn (relatively) high yields on them. These can be through centralized platforms such as the exchanges that offer stablecoin deposits, or decentralized ones such as the yield aggregators. Idle Finance for instance, maximizes returns from lending protocols for you, in addition to providing governance tokens for your loyalty.

While these strategies were much less attractive in a clear bull market where BTC/ETH/altcoins were appreciating sharply and users could deploy those into their respective vaults for even higher yield, for example Badger’s BTC vaults or Alpha Homora’s ETH vaults, stablecoin vaults are perhaps a safer choice for many for now.

However, with less users leveraging and borrowing stablecoins on their crypto assets, together with the declining value of tokens gained from yield farming, even stablecoin strategies have shown to be affected by a bearish market.

DAI deposit rates on Aave v2. Source: Aavescan

Hence, there is an opportunity and need for more diversified yield streams, which can provide sustainable but still attractive yields, be it in a bull or bear market. And the answer to that might just be Proof-of-Stake (PoS) assets and the staking rewards they provide.

Could PoS be the next big opportunity for yield?

Although there has been much hype about the DeFi market and its Total Value Locked (TVL), an often-overlooked market is that of PoS assets and their respective networks, such as ETH2.0, Polkadot, Terra, Solana, etc.

The key differentiator of these PoS assets is the more stable yield they provide in the form of fixed staking rewards, which are usually lower but also a lot less volatile than “degen” yield farming in DeFi.

LUNA staking returns (based on tax, oracle, gas rewards, excluding airdrops). Source: Flipside Crypto — Terra

For the more crypto-native folks, this can serve as an avenue to diversify into more stable yield sources, but the truly large opportunity lies with the retail users instead. These are people who may not be as familiar with crypto and would be satisfied so long as they can obtain a decently higher yield than the negligible amount that their banks are currently providing.

What we will see increasingly are apps that are entirely optimized for the average retail user, with UX/UI that is superior to most DeFi protocols but effectively taps on crypto to provide higher yields, be it through DeFi lending platforms, yield aggregators, or PoS staking rewards.

The crucial factor then for these apps wouldn’t be how high of an APY it can provide to its users, but rather how safe, stable, and predictable the underlying yield is. It’s simply not possible for these funds to be funnelled into farms that offer 1000% APY one day and be rug-pulled from the next. PoS assets with their more stable yield could thus be key to unlocking this.

A stake in PoS staking

There are various ways to obtain exposure to PoS yields, each with their different pros and cons.

1. Hold PoS assets and stake them directly

This is the most straightforward of them all and needs little explanation. Less savvy users may choose to go with the centralized exchanges, many of which provide locked or flexible staking options.

But for the more crypto-native, higher yields can be obtained by staking directly with the validators themselves, though that also requires more effort in choosing and monitoring the validators. Users do have more control however, and with the availability of staking derivatives through Lido or Bifrost, liquidity of staked assets can now be unlocked too.

However, holding the PoS assets themselves also means taking on the risk (but also upside) of their price movements.

2. Protocols that generate yield via PoS assets — Anchor

There are also protocols that provide higher returns by effectively tapping on underlying PoS yield, but in more novel ways. Anchor, a savings protocol built on Terra that provides 18%-20% APY on Terra’s UST stablecoin is the prime example of this.

Source: “Terra: The DeFi Giant Reaching Mainstream Adoption” by Phang Jun Yu on Messari

There are 2 key participants in Anchor — the depositor who lends out UST for up to 20% APY as well as the borrower who puts up bLUNA (bonded LUNA) as collateral to take out a UST loan at a maximum of 50% LTV.

How it essentially works is that the staking rewards generated from bLUNA that would otherwise go to the borrowers, are now used to pay out the yield owed to depositors (in addition to the interest rate charged to borrowers too). Due to the over-collateralized loans, the total collateral value would always be at least double of the total amount borrowed, which allows for substantial PoS rewards to be earned, thus contributing to the high yield on UST deposits.

Of course, in the long run, Anchor’s guaranteed deposit APY should be expected to fall as LUNA staking rewards and also ANC rewards (which are the main incentive for borrowers currently) start declining too.

But in the meantime, for users who are simply looking for higher yield on stablecoins, without any direct exposure to crypto price fluctuations, Anchor would be an attractive vehicle that relies (mostly) on a different source of yield compared to the rest of DeFi.

3. PoS yield aggregators — Stone

Just as yield aggregators for stablecoins have emerged in DeFi, they will too for PoS assets. And rather than aggregating across say different lending protocols, they will be aggregating yield across different PoS chains instead.

This would also mitigate one of the largest risks with Anchor currently, that is its reliance on LUNA and the Terra ecosystem (though Anchor does have plans to support other PoS assets as well).

To this end, Stone is a project that’s building a cross-chain PoS yield management platform, that will draw from the staking rewards of blockchains like ETH2.0, Polkadot, Terra, Solana, etc. While Stone also offers pure stablecoin vaults currently, upcoming vaults will combine PoS staking rewards too, offering potentially higher yet more stable yield.

Source: Stone Litepaper

Imagine an optimized yield index that consists of a set of diversified PoS assets as well as stablecoins that are earning yield in different DeFi protocols. It would provide the following advantages:

• Diversified streams of yield — from the staking rewards of PoS assets (across different blockchains) that may be more reliable in certain market conditions, as well as from providing stablecoin liquidity to DEXs or lending protocols that may provide higher returns in others.

• Aggregation of the fragmented liquidity of staking derivatives — for example Stone could have an sETH asset that represents the various liquid staked PoS tokens of aETH (Ankr), bETH (Bifrost) and stETH (Lido), further diversifying the risk of slashing on the staking protocols.

• Exposure to upside from crypto price appreciation through the PoS assets, which should also have lower volatility compared to other altcoins.

• Optimal asset allocation based on factors such as users’ risk profiles or the Sharpe ratio, with the index rebalancing as needed.

Aggregators such as Stone would thus be able to provide users with more diversified yield streams, including that from PoS assets, and also further optimize according to the users’ preference.

Moving up the stack to mass adoption

When it comes to PoS yields, there lies opportunity across the entire stack, from the PoS assets themselves, to the staking derivatives that unlock liquidity, and finally to the aggregation layer where protocols provide risk-optimized, higher yields backed by the staking returns of those assets.

As the underlying components are built out and consolidated, we expect to see greater activity towards the top of the stack, which is where protocols such as Anchor and Stone play in.

Two key trends will emerge to further enable this.

Firstly, the above-mentioned optimization of frontends, which will involve easy-to-use mobile apps, sitting above the aggregation layer, and tapping on their underlying yields.

Such apps that target retail users are already live or in the works. For instance, Linen supplies funds to Compound via a more user-friendly interface, SmartDeFi adds a Risk Assessment Layer to Idle Finance, whereas Alice is building an app that offers fast payments in UST and high savings powered by Anchor Protocol.

Secondly, synergies between these yield streams and protocols that enable fixed rate or risk tokenization/tranches will become more commonplace.

Protocols that facilitate the above such as BarnBridge, Pendle, 88mph, and Tranchess will be crucial. Diversified yield streams can offer more stable yields with higher predictability but does not go as far as to guarantee a fixed interest rate.

This can potentially be done with risk tranches however, for instance a tranche that only allocates yield from PoS staking rewards to the risk-averse profiles, and another that provides exposure to the underlying assets’ upside to users who’ve indicated higher risk tolerance in their initial risk assessment.

Even if we’re licking our wounds due to extreme volatility in the crypto market, it’s important to take a step back and realize just how early all of us are. Ten years down the road, it’s unlikely that users will be using the same interfaces that we are now in DeFi.

However, the financial primitives that generate yield will be the same, and the key mechanisms that manage and allocate according to risk will be the same. When the liquidity mining incentives are phased out and the “degen” yield farms die out, we will still be left with products that offer superior opportunities and access compared to our current alternative.

About LongHash Ventures

LongHash Ventures is an investment fund and accelerator focused on catalysing the growth of the native Web 3.0 economy. To enable true ownership, permissionless access, and trustless interactions, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala Network, Instadapp, and Zapper. We have also partnered with Polkadot and Filecoin to accelerate more than 40 global Web 3 projects which have raised more than $100m in the past 2 years. Through such investments and venture building, we are committed to realising our vision where anyone can access a more transparent, secure, and decentralised Web.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

Enter Automata.

Automata Network provides a seamless, decentralised privacy solution for dApps across multi-chain ecosystems. It is built based on industry-leading cryptography, privacy-protection algorithms, and hardware trusted platforms. Compared to other privacy-focused projects such as Oasis and Enigma, Automata’s solution offers frictionless computation, high assurance, and speedy cross-chain transactions, allowing various DeFi protocols to address privacy and security issues.

Automata vs. other privacy solutions (Source: Automata Network)

The Conveyor product protects against MEV.

According to Flashbots, miners/nodes have extracted approximately $700 million worth of MEV since January 2020. Automata offers a solution to the malicious manipulation by introducing Conveyor to determine the order of transmitted transactions. As its name suggests, the solution acts like a conveyor belt that orders transactions appropriately, preventing the “sandwich attacks” that miners use to re-order transactions and consequently increase the price that users pay for them.

Automata’s Conveyor prevents miners from “sandwiching” transactions (Source: What’s Automata (IV): Conveyor by Automata Network)

*Conveyor *stands out from other MEV solutions with privacy, by reducing access pattern leakage (which could lead to private key exposure) through the Oblivious RAM algorithm. The Automata team is the first to have implemented the algorithm in blockchain, and has conducted extensive research on it to enhance dApp privacy. They currently maintain an open-source Wiki about MEV and have recently released a tool, MEV.Tax, for individuals to check if users have been sandwich attacked.

Automata’s Conveyor solution vs. other MEV solutions (Source: Automata Network)

Automata’s Witness product ensures privacy in governance

By integrating *Witness, *users can make proposals and vote off-chain without revealing their identities. It also incentivises token holders’ participation with zero gas. With its simple interface, users can submit proposals and invite community members to vote. The votes are sent to a privacy relayer, and the results are based on the privacy level selected when the proposal was created. That way, voting results can be viewed at a glance and voters’ identities are safeguarded when they vote!

Simple view of voting results (Source: Automata Network)

As an early supporter of Automata Network, Longhash Ventures is impressed with the team’s traction, R&D capabilities, and deep understanding of the DeFi ecosystem. The ATA token has just been listed on Binance, and they have already integrated chains such as Ethereum, BSC, Clover Testnet, and the Dusty Testnet by Plasm Network, one of the graduates from our Polkadot accelerator cohort. Additionally, Automata has been selected for the Berkeley Blockchain Xcelerator in 2021 and received a grant from the Web3 Foundation in 2020.

As blockchain transitions into a user-governed, multi-chain, multi-layered era, users and developers will have an ever-increasing need for privacy and system security. In this backdrop, Automata could prove to be indispensable from the Web 3 ecosystem.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

We are all early-birds

Of the many exponential trends in the world today, DeFi has undoubtedly earned its place. Even with an estimated TVL of $60 billion at the time of writing, up from $1 billion just a year ago, and with hundreds of applications across every financial sector, it is still clear that this is a nascent niche. Not only is DeFi tiny compared to traditional finance, it is also only small part of crypto users today — DeFi has just 2.5 million users, just 2% of the estimated 120 million users in crypto!

Source: Crypto.com & The Block

Clearly, DeFi has achieved product market fit among early adopters. However, continued exponential growth needs to be driven by new users, many of whom have hopped over from Web2 to see what the hype is all about. But DeFi is not yet well-positioned for them. Why?

Piecing DeFi together

DeFi today covers virtually any piece of the financial system, and they can interact seamlessly via blockchain. But the user experience is still of different applications that offer different services. Want to lend/borrow? Go to Compound or Aave. Want to exchange assets? Head over to Uniswap or Sushiswap. Derivatives? It’s yet another application. There is no dominant monolithic “super app” by design, because every project contributes a piece of the tapestry.

Mainstream users, who are crucial for future growth, are used to a different system. Think of a bank, where one “interface” basically provides all the financial services, from savings to loans. For these users, having to constantly switch to different applications to access different financial products is a struggle. It does not help that many DeFi applications are hard to understand and inundated with industry jargon, keeping newcomers further away.

All these factors add up towards a suboptimal user experience for new users. And even for those who managed to learn the ropes, 3 main challenges constantly need to be addressed –

1. **Visualization **— What assets do I have, and in which applications?

2. Optimization — Is my current capital allocation efficient? Can I get better yield on my assets?

3. Execution — Am I getting the best price and lowest fees while interacting with DeFi?

The answer lies in the aggregation layer.

Aggregation Layer platforms solve these problems. They optimize for clean UI/UX and visibility on everything DeFi. They are closest to users and make the daunting world of DeFi easy to understand. We see incredible promise in this area, and two platforms stand out to us: Zapper and InstaDapp.

Not sure where all your money is invested? Zapper provides you with a clean dashboard and allows you to view your positions and its value, all in one place.

Unsure about your capital allocation? InstaDapp lets you easily view and move positions to different protocols to get the best capital allocation for your money, even free of cost!

Think you are paying too much for fees or gas? Both Zapper and InstaDapp address this too. For example, Zapper gives you the best price on over 2000 tokens using quotes from over 20 trusted sources. InstaDapp’s flash loans product lets you execute multiple transactions (borrow, lend and swap) asset all in one transaction, with clear visibility on the yield.

Struggling to keep up with DeFi? Additionally, learn.zapper provides clear and easy explanations of various products, strategies and approaches that can be considered. To get a more practical understanding, InstaDapp even provides a simulation mode, giving you 100 ETH and 30 minutes to learn through experimentation.

In conclusion, the aggregation layer is a key catalyst for this wave of mainstream investors to comfortably understand and immerse into the world of DeFi, and greatly improves the experience for existing users in time and cost.

Scaling in aggregate

But what’s the trade off? Having all your positions routed through one application starts to sound a lot like a centralized platform. Furthermore, to stay on top of new DeFi products and offerings, the team behind it needs to constantly deploy new integrations and features.

This is where aggregation layer platforms start to differ from centralized alternatives. With Zapper’s API, developers can build protocol integrations themselves, without help from Zapper. With Instadapp’s DeFi Smart Layer, the community will control the layers or implementations on the protocol. These are steps towards decentralisation, and as a result, scalability.

However, effective decentralisation comes with a need to build a strong community, as well as incentives for value creating contributions. Is this a familiar tune? Could a token, used to coordinate incentives and curation, be the right move going forward? Your voice, too, may guide the chorus.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

Being your own Asset Manager

Over the last year, starting around the DeFi summer of 2020, there has been an explosion in DeFi projects being launched and reaching significant levels of Total Value Locked (TVL) in a short period of time. More importantly, DeFi projects have built similar financial instruments and products to those in traditional finance, such as asset exchanges, lending, leverage, margin trading, and fixed income, with a twist. Web 3.0 has introduced three key advantages for financial services for individuals and organizations alike: Anyone can be their own personal bank and Asset Manager; there is increased transparency and control on how investment decisions are made; and composability allows investors unimaginable ways to use their financial products. Let’s tackle these one by one.

First, Web 3.0, and specifically DeFi projects, have given the ability to anyone to be their own bank and Asset Manager. At a basic level, you have the ability to hold custody of your own assets (i.e. deposits), lend your assets for interest, use your assets as collateral to take out loans, trade your assets, and even provide liquidity into trading pools, ensuring assets are not sitting idle, all without the need for a bank or other form of intermediary. At a more advanced level, new forms of structured products are emerging in which you can combine various financial instruments, such as lending and trading, to make outsize returns and generate significant wealth. At the same time, investors have full control over how they invest, for example having no minimum ticket size or having the ability to set fees in a liquidity pool, and when they invest, with no lock-ups giving the ability to buy, sell, or redeem anytime.

Second, Web 3.0 enables levels of transparency and control in the investment decision-making process not available in traditional finance. Smart contracts enable full transparency on how value and money flows through the system, so anyone has the ability to check and verify the flows of value. Additionally, many DeFi projects reward their users with governance tokens. This gives users the ability to both propose and vote on key decisions, such as product features (e.g. how liquidity providers should be rewarded, or what tokens to include in an index, among others).

Third, composability in DeFi opens up previously unimaginable ways for investors to put their assets and financial products to work. While in traditional finance investing in a financial product, such as an ETF, stops at the buy & hold stage, in DeFi investors can buy financial products, such as an index, and use them like money Legos, which they can use in other DeFi protocols to earn yield, or on which they can exercise governance rights of the underlying tokens in the index, opening up almost limitless ways investors can use financial products.

However, not everyone can, knows how, or even wants to become their own asset manager. Some DeFi projects, while providing innovative approaches to wealth creation, can be significantly difficult to use, even for crypto investors. Investors outside of the cryptosphere, whether individual or institutional, are unlikely to have high levels of awareness of Web 3.0 investment products beyond BTC and ETH, and are likely to have limited time and resources to dedicate to do appropriate due diligence on which projects’ tokens to buy or to conduct complex transactions within the DeFi ecosystem. These types of investors need someone to delegate these investment decisions to, while still retaining key elements of Web 3.0 that are not found in traditional finance, such as transparency and composability.

A decentralized approach to Asset Management

This is where decentralized Asset Management comes in. New protocols, DApps, and DAOs have risen to mimic the Asset Management industry off-chain, providing investors the ability to delegate investment decisions and execution, while retaining key elements of Web 3.0, such as self-custody of assets, transparency of how value is created and transferred within these financial products, control over how and when investors can enter and exit, and the power to make governance decisions.

For example, an investor who wants to have exposure to DeFi but who has limited familiarity with the segment would normally, like in most asset classes, have to conduct significant amounts of research and due diligence on each project to understand the investment potential and risks associated. By the time the investor is sufficiently informed to make an investment decision, the investment opportunity may no longer be there. With decentralized Asset Management, a whole suite of products and infrastructure is available for the investor to delegate the decisions and executions, capture the upside and manage risk.

This is where products such as the DeFi Pulse Index (DPI), ETH 2x Flexible Leverage Index (ETH2x-FLI), Balanced Crypto Pie (BCP), DEXTF Safe Fund (XTF.YYYBOX) or Exchange Index Fund (XTF.000EXC) come in. These are structured products created by a group of protocols, DApps, DAOs, and fund managers that are building a decentralized Asset Management ecosystem. This ecosystem enables significant levels of delegation for investors.

Take the DeFi Pulse Index as an example, akin to a DeFi ETF, is the product that the investor buys, and is governed by a set of clear rules aimed to give investors exposure to top DeFi projects (based on market capitalization) while managing risk (ensuring the projects are legitimate and have traction in the market). The index rebalances its composition dynamically as the criteria metrics for each DeFi token changes. Another example is the ETH2x-FLI, in which a smart contract automatically enables investors to leverage up to 2x on USDC to gain increased exposure to ETH, while having safeguards in place to minimize risks such as slippage and liquidation risk.

Designing and creating these products are decentralized organizations (DAOs), such as Index Coop (creators of DPI), PieDAO (creators of BCP), and individual fund managers (creators of XTF.YYYBOX and XTF.000EXC on DEXTF), which enable investors outside the cryptosphere to rely on the expertise of others to create these investment products, without the need to educate themselves about designing or executing complex transactions.

Another piece of the decentralized Asset Management puzzle are data and analytics providers, such as DeFi Pulse, which provides data and analysis that enables rebalancing of the DeFi Pulse Index, so the investor does not have to manually assess the metrics of each individual DeFi token.

Lastly, there is the infrastructure that enables investors to buy, sell or redeem the index tokens, and for fund managers to create such index tokens, such as Set Protocol, which provides the platform, tech, and services for index tokens to be created, issued, redeemed, and sold, DEXTF, which enables fund managers to create crypto token indices, and decentralized exchanges such as Uniswap, where investors can buy the index tokens.

While decentralized Asset Management allows delegation of investment decisions and execution, investors can still enjoy many of the benefits of Web 3.0 that are typically not available in traditional Asset Management.

For example, investors not only have self-custody of index tokens, but they can also choose to redeem the tokens within an index and directly own the tokens themselves. Investors also enjoy the flexibility, regardless of who they are, to buy and sell any amount of these tokens, whenever they choose to.

Additionally, there is increased transparency on three fronts, compared to traditional Asset Management: First, on the composition of these products; second, on the decision-making process to design and create these products; and third, on the execution of these products, as everything is available for anyone to see in the smart contract.

Lastly, composability in DeFi means that investors are not limited to buying and holding these indices, they can use these indices to earn yield on other DeFi protocols or they can vote on governance decisions for the underlying tokens in the basket, greatly increasing the utility that investors can get from their holdings, which is not usually the case in traditional finance.

Democratizing access to financial products

Decentralized Asset Management is a game changer when it comes to democratizing access both to crypto investments and to sophisticated financial products, as it provides the right level of investment decision delegation combined with the benefits of Web 3.0 such as self-custody and flexibility, transparency and composability, enabling investors outside the cryptosphere deeper access to crypto assets, and providing access to anyone to sophisticated financial products to generate wealth that in traditional Asset Management are typically reserved for high net worth individuals.

As decentralized Asset Management evolves and becomes more sophisticated, enabling complex financial engineering, and broadening the scope to traditional asset classes through synthetic assets, we believe there is a significant opportunity to tap into mainstream investors and capture some of the $100 trillion in AUM in traditional Asset Management.

Note: The article above is not financial advice and investors should do their own research prior to buying any of the products mentioned in this article.*

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

Valuing the Intangible

Ad-based models today imply uniform revenue regardless of demand; with NFTs, creators are rewarded for the demand they generate (Chris Dixon, a16z)

Creators monetizing their fanbase is nothing new, but pricing is often difficult as the value of creations is inherently subjective. Worse still, creators may prematurely sign away rights, as seen with Taylor Swift’s master recordings.

With NFTs, creators can directly sell a series of creations via auctions for price discovery. Even more importantly, they can charge royalties on all secondary sales. This was the “aha moment” for Mark Cuban, who minted a motivational quote with 15% royalty on Mintable, a platform he invested in.

This creates a virtuous cycle where creators can monetize quickly to bootstrap expenses, early supporters pay for the intangible value they perceive, then both parties benefit from secondary sales as the fan base grows. Even for more mature creations, NFTs can unlock further value, like American Gods collectibles on Curio Digital, which sold out in 90 seconds. In short, NFTs can fundamentally maximize creator economics to capture value both across the demand curve, and across time, as Chris Dixon from A16z writes.

The Blockchain Angle, and Where it Falls Short

One may wonder why NFTs need to be on blockchain, and the answer is simple: provable and programmable ownership. While creators can still rely on centralized platforms or entities to verify ownership and enforce royalties, doing it on blockchain means it runs on code, which reduces the trust needed on the platform, and prevents platforms from exploiting creators. We explored this idea in our piece Crypto is Not Just Money, it’s Power.

Once it is on blockchain, NFTs also open up a world of possibilities because it is easily portable across platforms as an “internet native asset”. At a basic level, you could port easily between marketplaces. For example, mint on a community-driven marketplace with net-zero platform fees like Unique.One, then sell it on an aggregator like OpenSea. Going deeper, you could even “energize” your NFTs by fusing them with interest-bearing assets from DeFi using platforms like Charged Particles.

But there are still pitfalls. Because anyone can mint NFTs on blockchain without seeking permission or verification, piracy and fraud are already emerging. Like fake websites and social media accounts, creators need to verify that they have not minted NFTs if they have not done so. Also, the content itself e.g. MP3, JPEG still needs to be stored somewhere, and often it is done by the platform, which could be lost. Hence, creators are encouraged to upload the content onto decentralized networks using IPFS, Filecoin or Arweave.

New Frontier Trials

NFT art by Refik Anadol

Yet it is precisely because there are still so many gaps, that new opportunities continuously arise in the NFT space.

Expanding beyond art, game assets are a fast-growing segment of NFTs, for example Pokemon-inspired Axie Infinity where the pets are NFTs. In games, virtual land is often a scarce resource. They could also interact with art NFTs as galleries, as already seen in Decentraland and CryptoVoxels. Another fascinating trend is infusing algorithms or randomness with art, such as Hashmasks or EulerBeats.

But by far the most exciting area is the intersection of NFT with rights. Owning a song’s NFT, for example, could earn you rights to VIP concert tickets, as with Kings of Leon. Uniswap, a top decentralized exchange, airdropped their cryptocurrency UNI to holders of their Unisocks NFT (literally socks). This extends into a vast design space especially with financial applications, where assets like invoices (rights to future payment) or land titles (rights to occupy). And these rights can be programmable, personalized, or even added retroactively.

In time, we may see NFTs evolve from simply a way for artists to make a living, into the primary way that creators interact with communities, or even become the de facto format for any unique physical or digital asset on the internet. Till then, hang on to your Socks and Kitties.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

Let’s talk about how crypto gives you power.

Knowledge as power

When you use products or services familiar to you today, you rely on the platform to tell you whether your instruction went through, whether your goods have arrived, and even whether you truly own them in your account.

In crypto, the ethos is to not trust, but verify. When every interaction is signed by your crypto key, every asset movement is tracked on-chain, and ownership is reflected on an immutable ledger, you no longer need to rely on the platform to tell you so — you *know *it. That knowledge is power. All you need is Metamask to sign, and links to Etherscan to check.

Beyond that, how is your data sold? Are the shareholders cashing out ahead of an announcement? What are the company’s earnings this quarter? In a postmodern world where truth can be bent, objectivity is ever more scarce. Imagine if you could see every single shareholder’s holdings and trades, the company’s users and revenue, the product’s full functionality inside-out — in real-time, 24/7, and no way to hide. Today, these metrics are easily obtained on DeFi Pulse, Nansen, Dune Analytics, or Token Terminal, and verified on Etherscan.

Control as power

In crypto, the current common practice is to reward contributors with tokens, just for using the platform like on Compound, to liquidity provision like on Curve, where users get the platform’s tokens. These tokens are then charged with voting power, when the founders decide to put governance decisions up for voting. Proposals could include anything from hiring core team members, deciding their compensation, to new products and token economics, which we see on Sushiswap.

When voting power is in the hands of the users, it creates a community where politics is possible, and even necessary to meet the quorum to enact changes, as we can see with the multiple tries on Uniswap. Your voice can be amplified in discussions and forums, usually on Discord, again determining outcomes of the project. As users and token holders, you have the power to decide its future.

Walking away as power

When you decide to create an account on any platform today, you inadvertently lock yourself into a walled garden which becomes its moat. Over time, because your profile preferences, credit card details, friends and family are already on the social media/ e-commerce/ messaging platform, it becomes so easy and so sticky. But if you ever wish to migrate, the same stickiness holds you back.

In crypto, you can build up the same network effects in users and assets, but because the records are on the underlying blockchain, if a platform ever becomes exploitative or dysfunctional, users can walk away.

On one day, I could be using Metamask to access all my assets and history, and on the next I could decide to completely switch to Trust Wallet on mobile, for example, just by importing my private key. Or I could be using Zerion to keep track of my assets, and just as easily switch over to Zapper within a few clicks. Users always have the option to walk away, and that keeps platforms honest and competitive.

On a deeper level, open-source smart contracts mean developers could simply fork the code and create a new version of any platform. Users’ token holdings, interactions, and reputation could all be replicated on a fresh version. This is indispensable, if say a protocol is controlled by malicious actors, as seen in Cover Protocol’s remedial steps after being hacked. It could also be the result of a heated split on a political issue, like the birth of Bitcoin Cash for scalability. More controversially, it could also just mark a fresh start with a different approach, like Sushiswap forking Uniswap as a “fair launch” without ownership by venture capitalists.

Are you wielding your powers?

For many first-timers in crypto, the entry point may be purchasing Bitcoin on an exchange, and subsequently trading some of the so-called “altcoins” on the same exchange. Because the tokens are actually custodied by the exchange, you are not the true owner of those tokens, and hence unable to exert any of these powers. In fact, the exchanges become behemoths wielding incredible powers, as seen in Binance’s involvement in Steem’s fork.

It is only when you withdraw the tokens to a wallet you control, that these abilities are unlocked. So try it out, set up a wallet on Metamask, withdraw your funds, see it get validated on-chain via Etherscan, use your voting power on Aave, support fancy forks like Cream.

It may be a lot to take in, all this freedom and power, but at last, it is your turn to take control.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/ 
Twitter: https://twitter.com/LongHashVC 
Podcast: https://linktr.ee/longhash_ventures
Medium: https://longhashsg.medium.com/

Tokens for fundraising

If we take reference from Brian Armstrong’s video on Building Crypto Companies at A16Z’s Crypto Startup School, a crypto startup uses crypto to:

1. Raise funds

2. Acquire customers

3. Expand internationally

While ICOs did exceptionally well in the first category, it has largely failed in the other 2 respects. Tokens were mainly bought up by speculators who never used the product (a notable example is 0x), and in many cases the products never even launched (the Dead Coins list).

The recent proliferation of governance tokens in DeFi marks a new phase in the history of tokenomics. Popularized by Compound, where users who borrowed or lent capital earned COMP tokens, virtually every DeFi protocol now has a “liquidity mining” or “yield farming” component, sometimes even before the product is launched.

Tokens drive adoption

This wave differs from the ICO age in the real usage and volume going through DeFi protocols, rocketing from less than $1B in Jan 2020 to >$30B in Jan 2021. While there is significant “mercenary capital” which moves between platforms to maximize their “yield” by selling these tokens they earn, at least in the process they provide some value. This trend is also mitigated by maturing tokenomics incentivizing longer term behavior such as staking.

In fact, those who did not heed the trend, such as Uniswap, seemingly had to accelerate their plans to issue the UNI token, after Sushiswap famously executed a “vampire attack” to incentivize migration of liquidity to their native platform.

But is this the mature state of tokenomics? Far from it. Back to Brian’s framework, these DeFi tokens have succeeded in raising funds (in a pseudo way through liquidity mining, for example through Balancer’s Liquidity Bootstrap Pools), and also acquire customers (by incentivizing usage), but we are just beginning to tap into the potential of using tokens to scale up.

Tokens build communities

The projects closest to this model are the community-driven “fair launch” projects which never had investors buying tokens from “private rounds” not available to the public. Driven by the need to survive without the traditional funding, as well as strategic support from VCs, these projects are forced to tap into the strength of the community.

“Community” as a concept may still be vague, but let’s take a closer look at a specific example. Sushiswap’s core proposals like Bento Box came from the community, and its dashboard Sushiswap.vision, or alternative interface Sushiswap.lite were all suggested, executed, and popularized by the community, purely organically.

This is the beginning of a truly native Web 3.0 model of running and growing a “company”. It is beyond just forming a DAO for funding proposals or making investments. In this case, anyone can contribute to the ecosystem and be rewarded from the treasury, in native tokens.

These Web 3.0 companies are not limited by the core team size, the network of the strategic investors, or the vision-setting by founders/ CEOs.

We should look beyond Brian’s definition of “expand internationally”, and set our sights on “amplify contributors”, where network effects accrue not just economic benefits, but also feeds into product development and innovation.

Over time, this model of open innovation will accelerate growth and inclusion to the point where it is no longer feasible to not have a token which aligns the community. Right now, we can already glimpse into a future where the principal is — no token, no entry.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/ 
Twitter: https://twitter.com/LongHashVC 
Podcast: https://linktr.ee/longhash_ventures
Medium: https://longhashsg.medium.com/

Still, if this feels huge now, the real wave is yet to come. Institutions are still waiting on the sidelines, (though we are seeing increasing efforts with CeDeFi) and mainstream users are yet to be onboard.

Based on that conviction, LongHash Ventures has chosen to invest into Idle Finance, a yield aggregation protocol that we believe will be well-positioned to capture a significant slice of the pie and bring the next wave of mainstream users into DeFi.

So you say: Yield aggregators?

A core tenet of DeFi is its permissionless access. The easiest way to understand this in the traditional sense: Imagine if you had access to every savings account available in the world, and could move your funds in and out frictionlessly.

To truly capitalize on this in DeFi, you would need to ensure that your funds are constantly earning you the best possible interest rate, which is exactly what Idle Finance does — pooling together user liquidity and moving them between the different lending protocols depending on their current rates.

One distinguishing feature of Idle Finance as a rebalancing protocol is that funds are also being rebalanced or allocated in the most efficient way to provide the best yield.

This avoids a “ping-pong” effect where for instance, the current yield on USDC offered at Aave drops below that of Compound as a result of Idle Finance’s significant volume being deployed into Aave. Funds would then have to be shifted again, possibly leading to the same outcome.

With Idle Finance, the utilization rates of the various lending protocols are taken into account as each pool of funds is allocated between them such that as a user, you can rest assured that you’re getting the best yield possible.

Yield optimization will continue to be a much-needed primitive in DeFi, and no matter how many new DeFi protocols arise, the best aggregators like Idle Finance will be here to stay.

The user experience: Keeping it simple

We expect that the next wave of mainstream users dipping their toes into DeFi won’t be the ones who are diving deep into every new yield farming opportunity available but will be those who are simply looking for a way to beat inflation, especially as interest rates are at historic lows. And yet, an often overlooked aspect of DeFi is the challenging user experience and steep learning curve for beginners.

Idle Finance is well-positioned to take advantage of that and be the entry point for DeFi for such users. Just as how robo-advisors have gained popularity in recent years due to their low barriers into investment, DeFi protocols should also be simpler, without requiring users to personally choose and jump between protocols.

On Idle Finance, with just a couple of clicks in a simple interface, a DeFi beginner can easily deploy their available funds into a pool and watch as their interest grows over time.

Come for the yield, stay for the security

In the unrelenting chase for yield, projects and users sometimes compromise on the key element of security. What we particularly like about Idle Finance is their focus on reliability and security.

When liquidity mining exploded in the summer of 2020 and many projects fast-tracked the launch of their liquidity mining mechanisms, Idle Finance chose to double down on their security efforts instead. This meant going through multiple extensive audits (Quantstamp themselves are also an investor) and rolling out their platform in stages, as opposed to launching a token first and putting their users at risk.

This security-first approach is also reflected in its products, with alternative risk-adjusted strategies offered, providing risk-averse users with the option to deploy their funds into less risky protocols.

When B2B integrators are looking for a DeFi protocol to deploy their users’ funds into, their top priority wouldn’t be chasing the highest yield, but integrating the protocol with the best security and practices.

Life in the Idle (Finance) lane

If you’re reading this and need a sign to jump on the DeFi bandwagon, let this be it. In a short period of time, Idle Finance has already:

• Achieved a peak of >$200M total value locked (TVL)

• Implemented a Smart Treasury and other cool features like batch deposits

• Integrated with other leading DeFi protocols such as Harvest and Yearn

As a protocol that optimizes for the best yield, simplifies the user experience, and takes on a security-first approach, Idle Finance can be your entry into DeFi, helping you ensure that your valuable funds are never kept idle. Take the opportunity to learn more by visiting https://idle.finance/.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

TL;DR: AMMs have played a huge role in driving DeFi and democratizing liquidity provision but they can come with heavy limitations. A new wave of innovation will be needed for mainstream users to better manage their risks and continue participating in this revolution.

The Evolution of Exchanges

For most, the first point of entry into the crypto world was likely through a centralized exchange (CEX) such as Coinbase or Binance. It’s easy to understand their popularity given their sufficient liquidity, ease of use, and the familiarity of the classical order book mechanism utilized.

However, relying entirely on CEXs in a decentralisation-first blockchain/crypto world always seemed a little odd, especially since your funds are held in their custody, and the assets available for trading are subject to their discretion.

Thankfully, decentralized exchanges (DEXs) built on Ethereum, such as 0x and DDEX, then emerged, with non-custody of funds and smart contracts that could be scrutinized. However, these DEXs still employed the same order book model as CEXs, and along with poorer UX/UI, often suffered from a severe lack of liquidity.

In a Web3 world where DeFi is the engine that democratizes financial services, to still be relying on mechanisms from the “traditional world” was very much fitting a square peg in a round hole. A fundamental rethinking of exchanges and liquidity was needed.

Enter Automated Market Makers

Led by Uniswap, Automated Market Makers (AMMs) were introduced into the crypto world and soon became the poster child for DEXs and liquidity in DeFi. In essence, instead of utilizing order books, an AMM exchange pools together liquidity provided by others and makes market according to a deterministic algorithm. Traders gain access to the increased liquidity provided, while regular users can reap benefits in the form of trading fees simply by providing liquidity of their idle assets.

Combined with the incentives provided through liquidity mining, AMMs saw explosive growth as liquidity could now be “crowdsourced” and market making has been democratized. In September 2020 alone, Uniswap’s trading volume was $15.4 billion, almost $2 billion higher than that of Coinbase. Accounting for over 93% of the market share occupied by DEXs, the AMM model made a strong case for being the innovation to bring decentralized trading to the masses.

AMMs dominated market share for DEXs. Credit: The Block

AMM isn’t exactly a perfect solution and does come with several limitations such as low fund utilization, additional risk exposure, and also the widely discussed issue of impermanent loss. Liquidity providers (LPs) have realized that market making isn’t risk-free and that impermanent loss can occur, resulting in “losses” as their assets could hold higher value simply by sitting in their wallets instead.

The core of DeFi has always been the simple yet ruthless quest for efficiency and yield, for capital to never be idle, but instead constantly utilized, be it through providing loans on decentralized lending platforms or providing liquidity on-chain.

While AMMs by themselves have helped democratize liquidity provision, the current model still requires further innovation for it to align more closely to the ethos of DeFi.

Further readings on concepts mentioned*What Is an Automated Market Maker (AMM)?Liquidity Mining: A User-Centric Token Distribution Strategy*Beginner’s Guide to (Getting Rekt by) Impermanent Loss

Next Generation of Liquidity Provision

With rapid innovation in the DeFi space proving to be the rule, not the exception, alternatives to the AMM model soon appeared, where the downsides of liquidity provision could be better mitigated. For instance, projects such as DODO, CoFiX, and Bancor are now offering new, innovative solutions to tackle existing problems.

Problem 1: Low Fund Utilization Rate

One of the major issues with AMM is the way in which provided liquidity is allocated. For instance, Uniswap allocates funds uniformly across the entire price range, meaning that only funds which are allocated near the market price can actually be effectively utilized, while the rest sits idle. This gives rise to high slippage and high capital inefficiency.

In this case, market maker algorithms have to become “smarter” and act more like human market makers in CEXs who are able to continuously adjust their buy and sell orders according to the changing market price.

DODO serves as an example of this with their next-generation solution to liquidity provision in the form of their Proactive Market Maker (PMM) algorithm. Distinctly different from the AMM model, PMM leverages price oracles and seeks to emulate human market making by aggregating liquidity near the market price.

With the flatter PMM curve, traders can expect to benefit from lower slippage. And even as the market price shifts, the PMM will proactively shift the price curve accordingly to ensure that sufficient liquidity is still available. This ensures that fund utilization rate is kept high, providing slippage on par with Uniswap, even with just a tenth of liquidity volume.

In the DeFi world where liquidity is oil, and everyone is competing for LPs’ assets through all sorts of incentives, a defining advantage of liquidity provision solutions would be how capital efficient they are. The models that will be successful in the long-run, even after the incentives from liquidity mining are over, will be those that can provide competitive liquidity and low slippage rates to traders even without as much assets locked.

Problem 2: Additional Risk Exposure

Another barrier that mass retail users face in liquidity provision is the fact that they have to take on additional risk exposure (which they are often not willing to) since AMMs such as Uniswap require the supply of two assets in equal ratio.

For example, if a user happens to have $100 worth of LINK tokens sitting idle in their wallet and is considering depositing liquidity into Uniswap to earn a portion of the trading fees accrued, they would also have to deposit $100 worth of another asset such as ETH. This results in additional risk exposure as the value of the user’s holdings is now impacted by the fluctuations of ETH price as well.

However, alternatives to AMM are now built such that users can simply deposit a single asset, thus limiting to single risk exposure. This can be achieved in several ways.

With DODO’s PMM, two separate pools are utilized for a single trading pair of assets for instance LINK-USDC, resulting in two parts of the price curve, the bidding side and the asking side, which are determined by the respective amount of tokens in each pool. This is as opposed to a single larger 50/50 pool in Uniswap’s AMM model. Hence, LPs need only deposit the asset that they are comfortable taking on the risk for, as opposed to buying an unwanted asset, just for the purpose of market making.

Other AMM alternatives that solve for this include CoFiX, where you can also deposit any amount of a single asset. However, that alone can be risky as LPs could lose value due to ongoing changes in the liquidity pool ratio, which is why a hedging program is encouraged. By mirroring the proportion changes in the liquidity pool in another market, users will effectively be able to hedge their position, thus balancing out the negative fluctuations, and locking in their profits from market making.

While the mechanism of balancing pools by requiring users to deposit two assets has thus far achieved the intended outcome, this will not be ideal going forward as more retail users come into the space. Thus, allowing for just single asset risk exposure will become a basic requirement for most liquidity provision solutions.

Problem 3. Impermanent Loss

The concept of impermanent loss is one that many LPs learn for the first time when they realize that they could have actually made more money simply by holding onto their assets, as opposed to providing liquidity into an AMM. While there are already many pieces that have elaborated extensively on this topic, it essentially boils down to the fact that simple AMMs are simply too simple by design.

An AMM such as Uniswap follows the Constant Product Market Maker (CPMM) model, relying on the equation of x*y=k to calculate asset prices and rebalance proportions in the liquidity pool. This is because Uniswap by itself has no way of knowing what the true equilibrium market price of an asset is, hence it requires arbitrageurs to swoop in to buy assets at a discount when the price on Uniswap differs from that of the markets outside, rebalancing the pools in the process. But for LPs, this means that they are essentially paying arbitrageurs to facilitate the price discovery and verification process since AMMs are unable to do so by themselves.

There are a couple of solutions to this however, and they often include the use of decentralized oracles, in order to minimize the amount of impermanent loss incurred by LPs.

For example, with CoFiX, impermanent loss is theoretically gone since there is nothing to arbitrage away to begin with. Instead, CoFiX utilizes Nest Protocol as the oracle to provide market equilibrium prices for its assets, while adding a slight premium on top of the market price called, thus pricing in computable risks in each trade, and compensating LPs for the risks they take. However, this solution is only effective when done in conjunction with the hedging program mentioned above, which will allow LPs to lock in their profits gained.

With DODO’s PMM, Chainlink is used to provide decentralized price feeds, substituting the use of CPMM’s formula for price discovery. However, there is still the issue of pool proportions changing, and LPs not being able to withdraw the same amount of tokens that they deposited. Hence, in this case, DODO encourages arbitrage trading through their PMM which adjusts the market price slightly to make it profitable enough for arbitrageurs to come in and rebalance back the pool.

Another alternative to mitigate impermanent loss is the approach taken by Bancor, which essentially introduces insurance to ensure that LPs can at least receive back 100% of their initial capital, as well as any fees accrued. This is facilitated through BNT’s elastic supply that allows for the minting of new BNTs tokens as needed, and is dependent on long-term collective gains from market making being greater than the impermanent loss suffered by the pool. Details on this mechanism can be found here.

Moving Forward (Together)

The one key takeaway from these various experiments: while liquidity provision has been democratized, market making is certainly not for everyone.

There is no free lunch but there are complex risks involved, so individual LPs will have to decide for themselves if they are willing to take on the risk to begin with. What we may see happening as liquidity mining rewards begin to decline is that retail LPs will no longer be as incentivized to contribute liquidity, thus having an impact on the liquidity and performance of DEXs.

There are several ways in which this may play out in the future.

The first would be the increased presence of professional market makers on DEXs, who would be willing to bring their liquidity over to DeFi as profitable opportunities clearly exist. For this to happen, there needs to be more freedom available to them, be it in forming their own parameters or in their own pools.

The second would be allowing users to manage their risks in more innovative and effective (but ideally also simpler) ways. This is a core theme in DeFi and will naturally be crucial for DEXs. The goal should be to maintain the lower barriers to entry that LPs currently have while also reducing unnecessary, complicated risks, through methods such as insurance, risk tokenization, or even just a suite of supporting tools.

From this perspective, an optimal solution may be the one that DODO is currently working on, where professional market makers are increasingly onboarded to DEXs, by allowing them to customize their on-chain market making strategies, thus incentivizing them to move their liquidity over. In the future, retail LPs could then follow these same strategies to further reduce the complexity of liquidity provision.

Such a scenario will result in traders being able to still enjoy the same depth of liquidity as that of CEXs, while also benefitting from the inherent advantages of DEXs such as non-custody of funds and permissionless onboarding of new assets. At the same time, individual LPs can still continue to provide liquidity and share in the success of the platforms that they are a part of, as long as they are willing to understand and take on the risks, though ideally there will be innovations in place to help manage said risks.

The world of DeFi is wild yet imaginative, an entirely different playground where innovations are given ample space to thrive (or fail spectacularly). The current growth that we’ve seen with DEXs and AMMs is one part of it, and will undoubtedly continue to play a crucial role in driving DeFi’s mission of democratizing financial access and services. But there’s a lot more to come.

So strap up, the journey has just begun.

If you would like to learn more about how DODO is driving a revolution in on-chain liquidity, their Medium is a great place to start.

Disclosure: LongHash Ventures is an investor in DODO.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network. 

** **With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

** **Follow us:

Website: https://longhash.vc/  Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

“Why the obsession with blockchain?”

“The main use case is Bitcoin speculation.”

“It’s just another technology to be incorporated, like AI.”

Investors often wonder about the industry’s unquenchable confidence in the potential of blockchain technology. Many bearishly suggested that decentralized ledger technology remains just another tool for enterprises to eventually cut costs or do business more efficiently.

Truth be told, few have managed to take the necessary step back to appreciate and assess the 2nd and 3rd order effects of an unfolding digital revolution. For traditional investors and curious onlookers eager to take a look behind the scenes, here is where you will find the untold perspective of blockchain as it forms the actual foundation an entirely new Internet will be built upon:

Welcome to Web 3.0.

What is Web 3.0?

Netscape in 1995. Source: NPR

• The Internet started with Web 1.0, where users could mainly find read, and obtain information (informational websites like Alta Vista, GeoCities);

• Entering into Web 2.0, we can now interact freely with a relentless stream of digital content (applications like YouTube, Instagram);

• In the next phase, Web 3.0 will not only allow for access to data as we know it today, but also replicate the same behaviour with digital assets (economies like Bitcoin, Ethereum)

The current limitations of Web 2.0 means that the same interaction with digital assets is not yet possible because of the “double spending” problem. In a world where data can be reproduced indefinitely, our long-standing reliance on trusted intermediaries such as banks and platforms is easily understood.

The advent of distributed ledger technology, and most commonly blockchains, is thus precisely powerful in allowing the impossible. We can now achieve free movement of digital assets, drawing upon the immutable nature of blockchains as a foundation to verify and validate transactions, ownership, and ultimately trust.

Creators of software are like the masters of the digital universe, where they can freely create, copy, and destroy anything.

For the very first time, with blockchain, cryptographers cracked the omnipotent stone paradox by creating a “stone so heavy they cannot lift it”. In this case — Digital assets which they cannot control as long as the user holds the keys.

At the same time, digital assets may in themselves include data presented in other shapes and forms, whose origin can be tracked against a particular source, a particular time, by a particular party(s). For example, the history of your internet browsing, your e-commerce purchases, or your location data. This spectrum also extends to include traditional and intangible assets like your money, your house, or even your identity.

*Recommended reading on blockchain: technology, business, *vision

What sets Web 3.0 apart?

Cambridge Analytica unveiling their success story. Source: Getty

Sharp eyed critics are quick to point out that this is not unlike the status quo. Do we not already have digital banking, e-government, and various internet platforms pulling along the economic wagon?

“..When an online service is free, you’re not the customer. You’re the product.” — Tim Cook

As we purchase goods and services, or engage free platforms that monetize our attention, unknowingly we then give away the true ownership and responsibility of our digital assets. More than ever, we are at the mercy of others to uphold the fundamental right to protect our digital property, privacy, and by extension — autonomy.

With a continuous data feed spurring the growth of giant monoliths, it comes as no surprise that Google, Apple, Facebook, Amazon and Microsoft all face antitrust issues. In building out digital kingdoms within ultra-defensible moats of data, these technological titans have isolated or even stifled innovation outside of their walled garden ecosystems. In return, these siloed monopolies mark themselves as attractive targets for increasingly adept cyber-attacks.

Existing problems with the centralization of Web 2.0 companies:

• Users are vulnerable to exploitation, censorship, and manipulation, once monopoly exists within a niche industry;

• Partners and competitors are either subsumed, exploited, or stifled;

• Technology firms themselves face increasing security risks such as hacking, posing a real danger to users, partners and even governments.

*Recommended reading for surveillance capitalism, big tech’s data dominance, and *data security

Why invest in Web 3.0?

While lawmakers scramble to regulate away the flaws of Web 2.0, a more organic and effective movement for Web 3.0 has started gaining traction. Blockchain has zipped through technology hype cycle within a few years, and ~84% of companies globally are already actively preparing for its eventual adoption.

So far, the industry has forged ahead with fresh enthusiasm, with startups in the space scooping up $822 million in the first half 2019 alone. As the wave of growth brings on increasing maturity, we have witnessed the growth of blockchain companies moving into Series B funding and more, with noted examples such as Elliptic and Anchorage. 2019 also saw the first-ever SEC-approved token sale undertaken by Blockstack, as well as Canaan Inc., first blockchain company to head down the IPO route.

Beyond the exuberance, 3 major aspects in the fundamental nature of Web 3.0 companies will drive their inevitable rise:

1. Unprecedented pace and freedom of innovation

The community jointly takes up the gauntlet of technical challenges at hackathons. Source: Odyssey

For example, a Web 3.0 car sharing platform can immediately integrate with existing services for driver reputation, car loans, payments, and even parcel delivery marketplaces, without signing any agreements and minimal technical effort.

Instead of tech giants building super-apps, start-ups can seamlessly integrate to form super-ecosystems.

Built on the same/interoperable protocol, Web 3.0 products and services are synergistic by nature. Components of infrastructure can be pieced together as building blocks. Offerings can be bundled to deliver an improved experience. Derivatives can be created without permission. In other words, any value-adding infrastructure, product, or service in a Web 3.0 ecosystem can create a ripple effect for complementary companies.

Even today, we see early embers of this promise in the finance industry. DeFi, or Decentralized Finance run on blockchain, has witnessed a meteoric growth from $181 million of AUM in 2018 to close to $700M at the start of 2020. The spark behind this growth: Composability — the ability to combine distinct services for an entirely separate proposition. For example, InstaDApp, a smart wallet, allows users to combine 2–3 financial products with just one click. With the industry embracing inherently interoperable solutions, the proliferation of a more robust set of DeFi building blocks are creating choices that were simply not possible before.

Across Longhash’s portfolio: Polkadot, an interoperable platform for flexible, autonomous economies to act together; AlphaWallet, a programmable mobile wallet engine for the web3 world; and Plasm by Stake Technologies, which enables developers to launch a high-speed custom blockchain within minutes.

Open Web 3.0 ecosystems also create freer markets, allowing long tail players to acquire users and reap fair rewards, regardless of their size. This is possible because digital assets are now inherently controlled by the user, and the ecosystem collectively reaps benefits from the economies of scale. A renewed environment lays the stage for more user friendly and competitive products to rival the closed-door innovation of technology giants.

In Web 3.0, the winners are no longer those who most effectively kill off competition and trap users, but those who truly and consistently serve their needs.

For example, Web 3.0 social media posts could be automatically shared/ viewed across any platform. The only difference are the features (e.g. AR face filters) and user experience (e.g. news feed prioritizes positive posts). A Web 3.0 social media platform can let its new users port in personal information and all their contacts instantly, while accessing the same content as before. Crucially, this shifts the focus of the battleground to one of user experience and value proposition, as users can easily revoke and migrate data in any instance of data abuse or exploitation.

Across LongHash’s portfolio: Xanpool, the world’s first automated peer-to-peer crypto to fiat platform; Polkascan by WEB3SCAN, the first and only multi-chain explorer in the Polkadot ecosystem; and Mintable, a digital marketplace for creators to own and monetize unique ERC-721 tokens.

This open and interoperable mode of interaction is not possible for Web 2.0 companies unless they willingly share their data, allow 3rd parties to integrate freely, and allow users to port in and out freely. And even then, Web 2.0 companies will introduce security flaws when integrating openly, because they control user data and permissions.

2. Nothing to steal, nothing to hide

~148 million people were affected by Equifax’s data breach, almost half of the US population. Source: C-Span

By design, Web 3.0 companies return digital ownership and control to users, in the same sweep removing the risks stemming from the storage of confidential information with only one party.

For example, a Web 3.0 e-commerce platform may allow users to import their social media selfies for suggested fashion recommendations. However, the platform does not store the users’ login details, selfies, browsing behavior, purchase history, or payment details. The threat is simply eliminated without the need for information to be leaked beyond its owner within Web 3.0 infrastructure.

It is time we take control of our own identity, our personal information, and our secrets. They have failed us far too many times.

Across LongHash’s portfolio: Keyless, a decentralized protocol for authentication and identity management driven by user-friendly, secure biometrics, as well as AID:Tech, the world’s first decentralized digital ID platform bridging interoperability across blockchains.

At the same time, the open-source nature of protocols inspires confidence when it comes to enforcing greater standards of security. While there were some painful lessons to be had initially, hygiene auditing of smart contracts and public code has quickly become the norm among Web 3.0 projects. Developer communities also continuously monitor for vulnerabilities, and have in fact disclosed flaws responsibly on multiple occasions. Encouragingly, this presents an additional layer of protection on top of professional security audits and conventional bug bounties.

Yet, the industry continues to be abuzz with news of various cryptocurrency exchanges getting hacked. And that’s because most of them are still Web 2.0 centralized custodial solutions which hold users’ credentials, 2FA, and private keys. Increasingly, there is a strong push towards decentralized exchanges (DEX) and decentralized finance (De-Fi), with many of the top exchanges setting up their own DEXes, and existing ones gaining traction.

Across LongHash’s portfolio: Button Wallet, a messenger based multi-cryptocurrency wallet that stores private keys in users’ QR codes, as well as Polkawallet, a one-stop platform for management, staking and governance of cross-chain assets, with self-ownership of private keys.

This user self-sovereign approach, and open-sourced/ transparency-focused mode of operations, is not possible for Web 2.0 companies unless they expose their code and diminish their roles by letting users take back control of their data/ digital assets. A common argument against this move is that companies will lose their competitive edge or advantage—which brings us to our next point on Web 3.0 native ways to jump-start growth.

3. A new way to grow

Engineering a token requires as much diligence as designing a mini-economy. Source: BlockScience

The ICO madness peaked in 2017 (raising $5–7B) and 2018 (raising $10–20B), surpassing global early-stage VC funding volume. It has largely subsided by 2019. While the one-track obsession with tokens is reminiscent of the dot-com bubble with its “irrational exuberance”, this also signifies the start of an exponential journey. Companies founded in the dotcom era like Amazon, eBay, PayPal were accelerated by venture capital, IPOs, and the inherent scalability of software to become giants we know today.

By democratizing the creation and transference of verifiable digital assets, Web 3.0 companies are able to issue said assets to incentivise stakeholders, partners, and users. This is typically in the form of a cryptographic token, and the possibilities of its application remain limited only by our imagination. Aside from obvious use cases in gamification, the flow (velocity) of digital assets can have a real economic impact or represent intangible properties. As an example, tokens that are ‘staked’ or locked as collateral can create economic value proportional to the income expected.

For example, a Web 3.0 e-commerce platform can issue tokens to be “staked” or locked by merchants to earn the right to sell goods, and kept as collateral in case of fraud. This creates an economic value for the token proportional to the income expected by the merchants. Another mechanism could then exist to issue these tokens to reward developers who contribute to the platform, or for new user referral. The tokens can also be used for discounts, payment, or unlocking premium features. By controlling the issuance and flow (velocity) of these tokens, a mini economy can be created around each company.

Ethereum, for instance, shows early success of this approach in its creation of a thriving developer ecosystem. In typical open-sourced projects, co-founders and core developers often have to bootstrap for many years, and struggle to monetize even with network effect kicking in. Ethereum upends this paradigm by issuing a native token, which is required to use their platform. This allows them to monetize from day 1 of launch, a move virtually unprecedented in the open-sourced software world until then. To solve the cold-start challenge, they are distributing $20 million USD worth of grant funding towards the development of the core protocol. Another co-founder of Ethereum also contributed hundreds of millions** **funding projects building key infrastructure and applications on their blockchain. Where does the money come from? They essentially created their own asset based on the shared vision of the network, which has become one of the most liquid crypto-assets today. The results speak for themselves: within 5 years Ethereum has amassed ~1200 developers, the same order of magnitude as giants like Linux and Apache. While there are still many kinks to be worked out in token engineering around governance, valuation, and mechanisms, its immense potential is undeniable, and the entire industry is iterating rapidly around various models in search of maturity.

Why are so many people buying machines to calculate random numbers, and using up more energy than all of Switzerland? There’s no company, no founder to hold liable. Only code, and Bitcoin.

Because tokens can be created by any entity, a Web 3.0 company does not necessarily require a large amount of venture capital upfront, although it is still standard practice for now. By effectively designing the mechanism to bootstrap and create token value, incentives perpetuate the growth of the ecosystem in a virtuous cycle. As early adopters benefit the most from such a growth trajectory, this stands in stark contrast to the oft-debated problematic investment paradigm of today: that of unprofitably burning cash as fuel for growth. Web 3.0 companies have a unique opportunity to channel fund flow to higher impact activities such as R&D, product development, or strategic business development.

For these mechanisms involving tokens to be fully effective as economic instruments, the assets need to be provably scarce, and governed by transparent mechanisms. This is not effective for Web 2.0 companies unless they make their processes transparent to their users and give away control of these digital assets (tokens) created for this purpose.

To sum it up:

Investing in Web 3.0 means betting on a new breed of companies — which are more synergistic, more secure, and more efficient in growing.

The spirit of Web 3.0 is more respectful of users, more collaborative to partners, and more benevolent to competitors. The more level playing field also means more investments are likely to generate returns, rather than the winner-takes-all dynamic we see in most digitized industries.

Web 3.0: What’s next?

As with investing in any new trend or asset class, those who are willing to take the risk earlier on will reap the most rewards. The potential for Web 3.0 to transform entire economies is clear.

It is true that the technology is still nascent, regulation is still being clarified, and companies are still experimenting with various approaches. However, the potential for Web 3.0 to transform entire economies is clear.

Amara’s Law illustrated. Source: ResearchGate

“ We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”

— Amara’s Law

As it is, momentum is steadily gaining traction across the landscape:

• More than 3000 applications are live on major blockchains

• ~7000 developers are working on open-sourced components of blockchain infrastructure, applications, and smart contracts — multiple times the contributors of other open-sourced ecosystems like Linux or Apache

• Outside of the tech sector, governments like China and Singapore are racing to become leaders in Web 3.0 by deploying blockchain in key industries. Major corporations have already deployed pilot and live solutions. International research bodies like World Economic Forum and United Nations recognize its potential at a global scale.

To invest in the next trillion-dollar ecosystem, to shape the future of the internet economy, to charter the course of the next technological decade— the time for Web 3.0 is now. Are you in for the ride?

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network. 

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.** **

Follow us Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Website: https://longhash.vc/ 

In this article, we walk through why it’s a good idea, how you can become one, and go deep into how you can prepare to become a parachain. It may sound daunting, but every step of the way, we at LongHash are here to help!

Many great posts on parachains (links included) have explained the concept and technical details. Here, we focus on the strategy and steps required to really make it work.

Here’s a quick summary:

• A parachain is basically a “parallel blockchain” or your own blockchain, with security provided by Polkadot. Compared to dApps/ smart contracts, you get a lot more flexibility and security. It’s much cheaper too, compared to managing your own blockchain’s security.

• To become a parachain, you need to participate in a parachain auction to obtain “leases” in 6-month periods of up to 2 years. Naturally, the highest bidder wins. To win, you are going to need Polkadot’s DOT tokens — lots of them.

• To get the DOTs we need, we need to first prepare a good parachain strategy which includes your ecosystem strategy, governance, and fundraising strategy. Then, we need to let the world know and share your story, especially DOT holders/ investors. Finally, we need to actually raise the funds: before the auction, during the auction, or simply through governance mechanisms.

• LongHash Ventures can support you comprehensively along each step of your Initial Parachain Offering. As a Polkadot investor ourselves, we can leverage our assets, influence, and experience to make sure you are fully prepared to win your bid and operate a successful parachain.

Now let’s dive into it.

What is a parachain?

Parachains are a core proposition of the Polkadot network. Put simply parachains are self-sovereign native blockchains that rely on Polkadot’s relay chain for security and communication with other relay chains. Multiple resources explain this in depth.

*Source: *Parity

A parachain is a native blockchain with:

• Customizable governance

• Customizable block production

• Customizable tokenomics

• Shared security from Polkadot relay chain

• Ability to exchange messages/ assets between parachains

• Typically built with Substrate

Read more on the basics of parachains: 1, 2

Why should you consider becoming a parachain?

Before we trigger another ICO rush where every other project bids for a parachain slot, let’s first examine why you would consider becoming one. Given the costs of preparing for a parachain, it must be justified with projected future volume and revenue. That being said, the benefits are much greater compared to smart contracts only:

1. Flexibility to customize the blockchain to your needs, such as: • Flexibility for on-chain governance, as opposed to typical default of centralized off-chain governance, or free-for-all decentralized governance. • Room to innovate by involving stakeholders in more ways, not only with tokens, but also in consensus and governance. • Freedom to specify technical details of the entire stack, e.g. sharding

2. Upgradeability of protocol including smart contracts, governance, and consensus

3. Interoperability between parachains to exchange assets and information

4. Shared security provided by the Polkadot relay chain

5. Cost savings for high volume/ value applications:

Preliminary modeling by the Web3 Foundation estimates the annual cost of securing major chains (e.g. Cosmos, Tezos and EOS) is in the tens of millions of USD per year, with Ethereum and Bitcoin in the billions, while the estimated opportunity cost to lease a parachain is $100–200k for 12 months.

• Read more on parachain slots

• Popular dApps on Ethereum with 30–200k monthly transactions like Chainlink, MakerDAO, and IDEX and spend $18–60k per month on gas, which would be free for parachains.

To use an analogy:

• A dApp as smart contracts is like a company in somebody’s country, you can have some processes and practices, but have to follow the laws of the country.

• A native blockchain (e.g. using Substrate only) is like your own country on an island, with the flexibility to write your own laws, but comes with responsibility of governing your population, including providing security.

• A parachain is like a state in the United States, where you still have the flexibility and control over your jurisdiction, while sharing security/ military, and being able to move and trade freely between states. Over time, each state/ parachain can specialize in different functions for efficient trading, forming a robust economy and ecosystem.

• Read more on the concepts of Polkadot/ parachains

But what about Parathreads? For those who are not/ do not expect to become a scalable use case, consider being a parathread instead, which is a “pay as you go” model by block.

• Read more on parathreads: 1, 2

What is the process for becoming a parachain?

So you have evaluated your project, and have come to realize that the best way to enable or jumpstart your growth is by becoming a parachain. Now actually, parachain slots are limited, and are distributed by candle auctions or governance. Here’s how it works:

It is estimated that 50–100 parachain slots will be up for bidding in the first auction. The full or maximum duration of a parachain slot is 2 years, broken into four “lease periods” of 6 months, bidders may bid for selected lease periods. Exact date for the first auction is still unknown, to be decided by governance.

The winners will be determined by candle auction mechanism. In brief, in a candle auction, bidders can submit increasingly higher bids during the open phase; The close moment of the auction will be randomly generated and retroactively applied; The bidder with the highest amount at the closing wins. This mechanism prevents “sniping” whereby bidders only put in a winning bid slightly higher than the highest bid right before the closing moment.

• Read more on parachain auctions

How do you prepare for a parachain auction?

Working backwards from being able to bid in the parachain auction, we foresee 3 key steps everyone needs to take in order to win a parachain slot:

1. The Basics: Formulate parachain strategy including value proposition and fundraising plans.

2. The Method: Raise awareness of parachain value proposition, especially among DOT holders.

3. The Goal: Fundraise an appropriate amount of capital for parachain auction.

The Basics: Formulating Your Parachain Strategy

Most of the value in technology companies are projected in the future, which is why the valuations are sky-high while cash flows are nowhere near traditional industries.

Accordingly, parachains, as part of this technology ecosystem, will likely start with a current problem or context to justify their existence, a promise of future value, and indications of success or clear plans to build confidence in that belief.

As a parachain, there needs to be additional considerations regarding governance, which will eventually solidify the community and direction of the parachain.

Lastly, there needs to be a clear details around the fundraising itself, which strives to be of fair value and risk/reward to all parties involved.

These components make up the Parachain Strategy:

1. Ecosystem Strategy

   First, explain the problem/ context to justify the need for the parachain.

Then, craft your value proposition of how the parachain will address this problem.

Elaborate further on the business model and mechanism design for the players to act as intended.

Lay out a roadmap on the steps to realize that solution and scale up.

Keep in mind comparisons to existing solutions or substitutes (“how do people deal with this today?”)

And finally, introduce the team with relevant details to inspire confidence.

2. **Governance Strategy

**Most importantly, investors will look for tokenomics describing the use case of the token, its economics (e.g. minting/ burning/ staking mechanisms) and its role in the mechanism design to incentivize intended behavior in the ecosystem.

A parachain also has the flexibility and therefore the responsibility to implement on-chain governance which includes the end-state of decentralization once the ecosystem is mature, and the mechanisms to implement and maintain that system.

Alternatively or in combination, there could be a plan for off-chain governance to provide transparency in how the parachain will be run before decentralized on-chain governance is fully implemented, or if no such plans exist (for example, a private enterprise parachain).

3. Financial strategy

This part should cover the total valuation and its justification (note: if there is insufficient volume or revenue to justify the auction bid, it may not make sense to even obtain a parachain slot, see parathreads instead).

There should also be financial projections for the ecosystem (taking into consideration assets or liabilities in fiat and other tokens). Of course, investors will be looking out for the rewards and incentives for investors (e.g. tokens, time lock, council seat). And finally, there needs to be clear steps for investors to participate in the fundraising process

4. (optional) Technology architecture and details — For proprietary technology, a separate segment can describe the details for other stakeholders e.g. architecture, underlying mathematics, security audits, guiding other developers to use open-source components or build on the ecosystem

The Method: Telling Your Story

Of all the ways of fundraising, as long as external funding is required for your bid, it is important to engage DOT holders or new investors. Hence, publicity and marketing are a key component to a successful auction. There is a wealth of accessible online content for effective marketing, which we hope to summarize in a few points:

1. Tell a compelling story

Foremost is the content, where the message should be simple, personal, and tailored to the target audience. In terms of structure, a compelling format is often a journey from context to complication and resolution. Finally, use a visual format whenever you can (e.g. pitch deck, tweets, short videos) to capture attention, and then build confidence with detail (e.g. whitepaper, articles, video explainers).

Read more on how to tell a great story: 1, 2 2. Engage your target audience

Before engaging them, you must first know your target audience. For example:

• Individuals — From Polkadot’s ICO of 10M DOTs, it is estimated that ~60% or 1801 of 3050 are probably individuals who hold <100 DOTs.

Read more on Polkadot’s ICO DOT holders

• Venture Capital — From the Polkadot’s private sale of 500k DOTs and the ICO, more than 20 VCs participated in Polkadot’s ICO and subsequent private sale, distributed across Asia, America, and Europe.

• Council/ Committees — While the exact members and mechanism are currently unconfirmed, members on the governance council and committees may have the power to propose referenda, e.g. public good parachains

Once we have identified the target audience, use effective channels to reach each group:

• Physical — Meetups for large groups, 1–1 meetings for focused discussions with VCs, included on a tour to strategic locations • Digital — Company website, social media/ messaging/ fora, and mailing lists for your general community • Proxies — News and media, institutions (e.g. VCs, accelerators), word of mouth/ introductions, to keep building awareness and goodwill

After contact is made, be sure to continue engaging your audience with • Regular **updates **• Answering questions and comments • Expectations for future communications

3. (Optional) **Engineer virality

**To get off a strong start, first build a strong initial support base by inspiring confidence through progress and familiarity (e.g., getting commitment from VCs). Then, drive engagement by creating content which tap into cultural cartography, e.g. “this is me”, inspire emotion, practical knowledge.

To close the loop, reward positive outcomes. This can be financial rewards for top priorities e.g. commission/ placement fee for bringing in an investor. There can also be non-financial rewards for strategic priorities e.g. recognition or in-kind reciprocation for sharing your content

Read more on virality in Buzzfeed’s formula

The Goal: Raising Capital

The main constraint is usually gathering capital for the parachain auction and operations/ development. To obtain sufficient external capital, there are 3 potential mechanisms:

• Direct Deposit is most similar to the public ICO model, where investors send their DOT to the funding address during the auction, and receive project tokens upon successful bidding. When the parachain lease ends, DOTs are returned to the investors. This mechanism may be preferable for open-source projects which receive widespread support among a community that prefers on-chain transparency.

• The Transfer mechanism is similar to a private token sale whereby investors may not get the token immediately, but may be rewarded with a preferential price or other rewards (e.g. governance roles). This mechanism may be preferable for projects that are more attractive to VCs because they are run efficiently like a private organization with clear business goals for future growth.

• The Gift mechanism makes use of Polkadot’s distinctive on-chain governance, which can pass referenda to provide parachain slots for free, or subsidize the bid by gifting DOTs. This mechanism is most applicable to “public good” infrastructure.

In the traditional ICO paradigm, investors can only be rewarded with tokens. In a parachain, the project team also has the option to reward investors with roles/ benefits in governance or block production too.

These fundraising methods can also be used in combination, e.g.

• A referendum for the Treasury to contribute a 1:1 match for external funding

• Like traditional ICOs, a round of private sale using the Transfer mechanism, and then a round of public sale using the Direct Deposit mechanism at higher valuation.

Read more on the parachain crowdfunding module

How does LongHash Ventures help in securing a parachain slot?

Here at LongHash, we are excited to support projects in all 3 steps required in securing parachain slots!

1. The Basics: **Formulate parachain strategy

LongHash Ventures:** Consulting in ecosystem, governance, and financial strategy — which covers business strategy, tokenomics, and financial projections.

2. The Method: Raise awareness of parachain value proposition

LongHash Ventures: Storylining; PR/ marketing leveraging our influencer network and deep cultural immersion in Asia; Introductions to major DOT holders across Asia.

3. The Goal: Fundraise an appropriate amount of capital for parachain auction

LongHash Ventures: Deploy capital from staking pool for direct deposit; Treasury management before and after auction; Campaigning for governance voting.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator collaborating with founders to build their Web 3 model and tap into the vast potential of Asia. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network. 

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our mission of catalyzing growth for the next generation of the Web.

• Read more about LongHash and our investment in Polkadot

Let’s get in touch!

If you’re interested to work with us for your first parachain auction, please drop a mail to pranav.pandya@longhash.vc.

Be sure to follow us on your favourite platform:

Website: https://longhash.vc/ Twitter: https://twitter.com/LongHashVC  Podcast: https://linktr.ee/longhash_ventures Medium: https://longhashsg.medium.com/

1. Project DAOs

Purpose: Decentralize governance and ownership, tap into a wider contributor group for collective value creation, scaling, and resilience.

This is currently the most common model especially among DeFi projects, where a value-creating entity (or a set of smart contracts) incentivizes DAO token holders to contribute to ideas for improvement, vote on governance, and become ambassadors of the project. In return, token holders are often rewarded with value accrual: access to new opportunities, or dividends/ buyback mechanisms.

Pushing the limits: Arguably, Binance’s BNB, which comes with perks and is periodically burnt based on revenue, incentivizes similar goals of ambassadorship too. So Binance sits in the grey area between a centralized entity and a project DAO.

2. Venture DAOs

Purpose: Coordinate capital around financial goals, tap into a relatively focused group with complementary expertise and networks

Venture DAOs, on the other hand, represent people or entities who pool together and manage capital/ assets. With skin in the game, everyone contributes to sourcing, evaluation, and agrees on a rough consensus before execution. A few examples:

• VC DAOs : MolochDAO, Metacartel Ventures, The LAO, and The DAO itself

• Liquidity DAOs: NeptuneDAO, AladdinDAO

• NFT DAOs: PleasrDAO, FlamingoDAO

These groups often curate membership, requiring minimum amounts of capital or nomination, and have a clear mandate to generate returns in some way.

**Pushing the limits: **However, a venture-like DAO could give away significant ownership even for those who do not contribute capital. A prime example is Yield Guild Games, a play-to-earn gaming guild which invests into productive NFT gaming assets, but plans to give away 45% of its tokens to active community gamers. So Yield Guild operates in the grey area between a project DAO and a venture DAO.

3. Social DAOs.

Purpose: Gather like-minded people for strategic or passion-related activities

Sometimes a shared interest is all we need to come together. So how do you prove that you’re “one of us”?

• Token-based DAOs: Bankless DAO, Friends with Benefits, Uniwhales

• NFT-based DAOs: Bored Apes, Stoner Cats

These circles often use token-gated access to curate membership on platforms like Discord/ Telegram, events, and even content like Stoner Cats’s animation.

And concentrated energy often spawns new life. Bankless DAO created the BED index. Bored Apes spun up a Kennel Club, and Apes are now on craft beer, “skateboreds”, and even an animation series Yawn of the Apes. Speaking of which, the creators of Stoner Cats — Big Head and Orchard Farms, even committed to “co-developing a DAO with TOKEn Holders that exists to develop at least one new animation project a year for the next three years.”

**Pushing the limits: **And then there are those which simply refuse to be put into a box. One such case is BitDAO. Branded as a “DAO-directed treasury”, it incorporates all of the elements above.

• Firstly, its funding comes from Bybit’s** **pledged contribution of 2.5bps of its futures contracts trading volume, so like a project DAO, members are aligned towards Bybit’s success.

• At the same time, like a venture DAO, BitDAO can allocate funds into various DeFi strategies or provide liquidity for partner projects, which can generate returns.

• Finally, there is an overarching mission to support the growth of DeFi. To this end, BitDAO curates a community via token swaps with leading and emerging projects, and plans to give out grants to projects, education programs, or other blockchain public goods. Like other social DAOs, new ventures may spring from its R&D too, specifically around governance and treasury management.

It is no wonder that BitDAO’s fundraise was backed by well-known individuals and entities like Peter Thiel, Founders Fund, Pantera, Dragonfly, Spartan, and many more. At LongHash Ventures, we are always on the lookout for Web3 native innovation, and we are excited to be among the supporters and early partners of BitDAO. On this journey of collective innovation, we look forward to welcoming your contribution.

About LongHash Ventures

LongHash Ventures is a Web 3 investment fund and accelerator actively collaborating with founders to build their Web 3 model and navigate the Asian crypto landscape. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer, Acala Network, Instadapp, and Zapper. We collaborated with their founders to develop their tokenomics, governance, and communities through Asia DeFi Network.

With our LongHashX Accelerator, we have partnered with Polkadot and Filecoin to build more than 40 global Web 3 projects which have raised more than $100m in the past 3 years. Through such investments and active collaboration, we are committed to realising our vision where *anyone *can access a more transparent, secure, and decentralised Web.

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