Original author: Kylo@Foresight Ventures
Tips:
The difference from web2 companies is that web3 projects can realize the tokenization of equity and the fair issuance of equity.
The essence of fair issuance after equity tokenization is to acquire early users and complete the ecological cold start as a marketing behavior
Web3s methods of issuing assets include narrative, asset leverage, and equity tokenization
LSD is a lossless leverage process of DeFi
The debt of the system can be eliminated by exchanging time for space and the mother currency producing sub-coins.
The main content of this article is to explore the characteristics of the Web3 business model and its differences from Web2. When we mention that a project has a certain business model, it means that in order to maximize customer value, the project can integrate all internal and external elements of the companys operations to form a complete, efficient and unique core competitiveness. Run the system. Compared with Web2 enterprises, Web3 integrates tokens in the business model, which realizes Internet + assetization. Assetization is a major feature of Web3 compared to Web2. It can assetize various rights and interests such as IP, traffic, property rights, etc. in the form of tokens. Due to the introduction of tokens, the business model of Web3 enterprises has a more flexible operating space compared to Web2.
1. The connection and difference between Web2 and Web3 business models
The definition of Web3 comes from Web2, and to some extent it also continues the business model of Web2. Web2s business model is clear and unambiguous: seize the market and obtain monopoly pricing power. With monopoly pricing power, you will naturally have monopoly profits. The process of promoting high and fighting high is inevitably accompanied by various subsidy behaviors, and the funds for subsidies come from high premium financing of equity. Finally, through massive subsidies and promotion, we capture the minds and the market of users, form a market monopoly, and obtain monopoly profits. The high premium valuation based on equity in the Web2 era is essentially based on LTV. After the overall bubble is inflated by VCs, the bubble is passed on to ordinary traders through listing.
The business model of Web3 has some connections and differences with Web2. The similarity lies in the same subsidy process and monopoly outcome; the difference is that Web3 can realize the tokenization of equity and the fair issuance of equity.
For Web2 companies, the company can only maintain the operation of the entire business through cash flow income and VC financing. The equity issuance process in the early stage is only for VCs, and the exit of VC capital can only be completed after going public and opening up retail transactions. But for Web3, token issuance is essentially the listing process of equity. Due to the existence of tokens, more financing parties are accepted than retail investors. The collective and irrational characteristics of retail investors make it easier for tokens (equity) to generate premiums.
In order to better understand the above process, we can take Meituan as an example. In the Web2 scenario, Meituans subsidies to merchants, riders and users are mainly in the form of cash subsidies. This part of the cash comes from the platforms business cash flow income and the financing funds obtained by the platform selling equity to VCs. But in the Web3 scenario, the platform essentially omits the financing process and directly conducts fair equity issuance. Participants in the platforms business operations (riders, merchants, users) will directly obtain the companys equity.
But there is an issue of equity pricing at this time. Web2 companies have a complete set of scientific valuation logic when conducting VC financing to determine the equity value. But for Web3, the value of the companys equity is directly priced at the secondary market price in the form of paper valuation. Due to the irrationality of the group, there is likely to be a substantial premium in equity valuation. In addition, in order to be more attractive from a revenue perspective, Web3 companies also hope to generate a premium for equity pricing to attract user participation, so they may manipulate the market in the early stages.
1.1 Token’s asset attributes and debt attributes
From the above model, we can actually see the asset attributes of tokens. As the equity of the platform, they are issued fairly to platform participants. The reason why platform participants are willing to participate in platform activities is that they believe that the token issued by the platform has value, which means the asset attribute of the token itself. But if the token generates a premium, then the premium itself becomes the debt of the system, and the token also has debt attributes when it is highly valued. The debt attributes of token are different from Web2s corporate debt in form, but the core is the same. From the perspective of web2, there are essentially two ways of financing a company: equity financing and debt financing. The companys debt financing needs to be repaid by the companys cash flow income. When the cash flow breaks, the debt will face default, and the corresponding creditors rights will face a sharp decline. From the perspective of web3, the process of fair issuance of equity by project parties using tokens is most likely to be issued at a premium. When the platform’s business cash flow income cannot offset the premium generated during the token issuance process, the value of the token will be like a creditor’s right. There is the possibility of substantial depreciation. Therefore, from this perspective, tokens issued at a premium are essentially claims on the system, and this is the so-called debt attribute of tokens. There are currently only two ways to eliminate system debt: exchanging time for space and finding cannon fodder.
The game and balance between the asset-based and debt-based attributes of Token are issues that the Web3 protocol has always had to face. The so-called token model design and trading methods in the industry are essentially balancing the duality of tokens. If we can fully understand Web3s asset issuance approach, how to acquire users through token premiums (the debt nature of tokens), and ultimately how to eliminate debt, it seems that we can understand the essence of Web3.
1.2 Web3 method of issuing assets
When we discussed the difference between the business models of Web2 and Web3 above, we mentioned that token is a reflection of equity. But in fact, the tokenization of equity is only one of the methods of Web3 asset issuance. The remaining two methods lie in narrative and asset leverage.
1.3 Issuing assets through narrative
The essence of narrative comes from consensus or the coercive power or credibility of a centralized subject. From this perspective, the asset issuance of the credit currency system also comes from this logic. Legal currency is endorsed by the credit of centralized institutions and circulated through state coercion. Before the invention of the modern monetary system, the reason why precious metals such as gold and silver were used as currency was due to the consensus of the people. The existence of consensus gives a certain value to an item. From this perspective, NFT, BRC-20 and various memes are the extension of consensus at the value level. When I think the item is valuable and am willing to buy it at the expected price, the item becomes an asset to a certain extent. If we further refine the classification of consensus, consensus also contains complex factors such as mass emotional identity, property rights, and IP. When these factors accumulate to a certain extent, the item will complete its transformation into an asset.
1.4 Asset Leverage
Asset leverage is often encountered in TradFi. When we deposit a large time deposit in a bank, we will receive a certificate of deposit. The note can also be pledged as an asset and borrowed against. The issuance process of this large certificate of deposit is the process of asset leverage. In DeFi, the issuance of LSD and LP tokens is essentially asset leverage, allowing a large number of assets to appear out of thin air in the entire system. A large part of the DeFi TVL or AUM we see may come from leveraged assets.
When the bull market arrives, the AUM or TVL of the entire Web3 system will expand rapidly, and the expansion speed will increase at a collective level. In addition to the issuance of a large number of assets, another major driving force is the leverage of assets. ETHs shift to POS is a great benefit to ETHs DeFi ecology. The essential reason is that LSD is a lossless leverage process of ETH. Leveraging generally has various costs, mainly interest rate costs and liquidity losses. For example, the common Uni V3 LP token can be used as an asset in nature, but it is not suitable for widespread circulation due to liquidity issues; mortgage stablecoins such as MakerDAO and crvUSD have indeed issued a large number of stablecoin assets, but the price of this asset is the interest rate cost.
The biggest use of LSD for the entire DeFi is lossless leverage, that is, it does not require any interest rate costs and there will be no liquidity loss. The DeFi development process in the last cycle was the DeFi ecosystem based on ETH-based development. The introduction of LSD into the system is equivalent to adding an asset transmission chain to the entire DeFi system. This means that DeFi will be more leveraged in the next cycle than in the previous cycle, and this is also an important reason for us to bet on LSDFi.
1.5 Equity tokenization
Equity tokenization is an asset issuance method that is different from narrative and asset leverage. This issuance method requires that the project can meet real user needs and generate real external benefits. Currently, there are many scenarios with real benefits in Web3:
Financial service fees: swap fees, borrow fees, perp trading fees
Election bribery costs
External benefits: For example, Render Network charges fees for GPU rendering
Asset sales fees: GameFi NFT and token sales, depin hardware sales
When the protocol can generate the above-mentioned real income, its equity tokenized asset issuance method can also be implemented. In a sense, token also has an economic model design, with the purpose of maintaining the tokens capitalization attribute through external income injection. Under normal circumstances, projects will use a certain method to allow stakeholders, or participants, in the entire ecosystem to participate in the fair issuance of equity, and use this process to complete the cold start of the ecosystem. In other words, we can think that the essence of fair issuance after equity tokenization is a marketing behavior to acquire early users and complete the ecological cold start.
There are various methods for fair equity tokenization. Currently, commonly used methods include:
Liquidity mining
Transaction mining
DePin Mining
X 2 E
There is a whole set of systematic gameplay behind this marketing model. For example, for common liquidity mining, the most commonly used strategy is to use low liquidity pools with high FDV to control prices through low liquidity. Since the nominal rate of return of liquidity mining is determined by the secondary price of the token and the number of tokens released per unit time, when the amount of token release cannot be changed, the optimal strategy is to maintain the secondary price of the token subjectively or objectively. The level price is at a higher level, which in turn affects the nominal rate of return of liquidity mining. Since ordinary users are essentially at a relatively confused stage regarding the theory of project valuation, there is a high probability that they will regard the nominal rate of return currently seen as the real rate of return. The project side has achieved the goal of attracting a large number of users to participate through a higher nominal rate of return.
Therefore, there are actually two driving factors behind this marketing model:
Deliberate manipulation by the project party
Ordinary users’ irrational judgments on valuation
The combination of these two methods can jointly promote the success of the marketing model. At this time, two questions arise:
Why choose to engage in price manipulation during the initial marketing of the project?
When do ordinary users make irrational judgments about valuation?
The answer to the first question is cost, and the answer to the second question is experience. When the chips are the cleanest, the best results can be achieved with the least resources; in the face of the new narrative, no one can use a complete set of reasonable valuation systems to conduct accurate valuations. Then the way to find the target and the appropriate time to enter the market will be clear.
The process of fair issuance after equity tokenization is likely to be a long-term process, and this process is generally accompanied by equity premiums. Equity premiums are inherently bubbles and systemic debt. When debt accumulates, the system is at risk of collapse. Therefore, various methods need to be used to resolve system debt (defeat bubbles).
2. How to eliminate the debt-like attribute of tokens
Tokens can indeed attract a large number of users in the early stage through high premium subsidies, but excessive subsidies make every token issued become the straw that breaks the system. There are currently many ways to eliminate the debt-based attributes of tokens. Which one is suitable for different projects needs to be judged based on the project characteristics and scalability.
2.1 Time for space
“No bank is free from bad debts” seems to be a consensus in the banking industry. When bad debts occur, the bank only needs to extend the time period and use subsequent interest to cover the previous bad debts, and the bank can continue to operate unaffected. If we compare the issuance of tokens to banking business, bad debts represent the system debt accumulated by excessive subsidies of tokens, and the source of income is the service fees obtained by the platform by providing services. Due to the dual attributes of tokens as assets and liabilities, the collapse of token secondary prices is essentially a process of simultaneously reducing assets and liabilities. When we look at the systems debt over a long period of time, the decline in secondary prices and the continuous accumulation of financial service fees will reduce the systems debt to an acceptable range. When the asset attributes and debt attributes of tokens reach a certain balance, the next bubble cycle based on token debtization will gradually begin to brew.
The most typical example of the above-mentioned time-for-space model is Curve Finance. In the early days, it seized market share through high subsidies, and now it has established a monopoly on liquidity. After the monopoly is formed, it also has monopoly pricing power for bribe fees. From the last bull market to the present, the secondary price of $Crv has continued to fall, and the debt has been eliminated through the decline of assets. veCRV is still collecting bribe fees, lengthening the timeline and smoothly landing the debt.
2.2 Mother currency produces daughter coins
If the project itself is highly composable or scalable, it can find a large number of high-quality sub-coins for itself to eliminate its own debt or bubbles. Before the launch of Blast, Blur may want to follow Curve Finances time-for-space model, occupy a monopoly and turn on the Blur pledge rate switch, and gradually reduce the system debt caused by excessive subsidies. The introduction of Blast further accelerates Blurs debt elimination process. Blast serves as Blurs cannon fodder, passing on Blurs system debt due to excessive subsidies.
If we regard the token issued first as the mother currency and the token issued later as the child currency, there are three relationships between the mother currency and the child currency:
Mother coin is the victim
Zicoin is the victim
The mother currency and the daughter currency complement each other.
The introduction of each sub-coin is a huge trading opportunity for us, which requires us to determine the biggest profit maker between the sub-coin and the parent currency. When Blast introduces blur staking, it means that Blur has completed the transfer of debt, and blur is the biggest profiteer at this time. But in special circumstances, we cannot think about the relationship between the mother currency and the child currency from a conventional rational perspective. Especially when the mother currency is in a dying state, our first instinct will make us think that new trading opportunities are in the child currency. currency, but it is very likely that our first intuition and consensus are wrong, such as the case of USTC.
When USTC announces a new product, we always analyze the ponzi structure of the new product from a first-level perspective, how it eliminates more bubbles, and its possible great significance. When we limit our vision to the thing itself, we may lose miserably. Why so serious, the new project mechanism may be really good and can achieve nirvana from the old projects, and the future may come with unlimited potential. But is it possible that this so-called new project is essentially just providing a narrative to the old one?
When a great trader uses a PPT about the design of ponzi to lure countless so-called smart people to explore the mechanism and gameplay of the ponzi, and when the energy in the market is attracted by the novel gameplay of the new project, the great trader wants to be the banker of the mother currency. The intention is clearly revealed. At this point, it doesnt matter whether the new product actually exists. He just provided a PPT anyway. The once-dead beliefs once again occupy the hearts of users, the community seems to be reborn, and USTCs market operation is completed.
3. Overview
Users and project parties have different preferences for the asset attributes and debt attributes of tokens at different times. The bull market earns more capital premiums, and users are more sensitive to returns. At this time, the parties to the agreement are more willing to use the debt attribute of the token to expand the debt ratio of the agreement, and hope to transfer the debt to secondary retail investors from the perspective of the secondary market, and then carry out the next round of debt financing plan after eliminating a certain bubble; while in a bear market During this period, the conservatism of user strategies also determines that users prefer cash income products, so the project team is more inclined to make a fuss about the asset attributes of tokens and provide more cash income for tokens, such as perp, interest-bearing stable coins and RWA wait.
From the perspective of fair issuance of equity tokens, defi farming, gamefi farming, depin, pow, transaction mining, etc. are essentially a business model: how to influence paper yields through secondary market prices to achieve marketing purposes. However, the excessive issuance of subsidies has also caused the entire system to face serious impacts from the debt attributes of tokens. At this time, in order to reduce debt levels, the protocol will adopt a series of methods to eliminate or transfer bubbles.
The above theory can actually explain many secondary market phenomena, such as using marketing logic to explain the rise of TAO, Clore.AI, and RBN; explaining the surge in gala currency prices in 2021 from the perspective of maintaining cash flow. The rising logic of Gala is very similar to the rising logic of most depin and POW projects. Gala has been selling nodes before launching its own public chain. The pricing unit of nodes is ETH, but the output of Gala nodes is priced in Gala. When Gala nodes are slow to sell, promoting node sales through BD and sales is the most efficient way. The most effective way is to give gala a value far beyond its fundamentals from the perspective of the secondary market. Since the rate of return of a node is determined by the secondary market price of gala, the high paper rate of return makes the rapid sale of nodes a matter of course. So here comes the question. The excessive gala price means that the debt attribute of the token has been exploited to the extreme. How can gala eliminate system debt in the end? The answer to the question is contained in the wallets of users who purchased gala and nodes at a high price in the end...
About Foresight Ventures
Foresight Ventures is betting on the innovation process of cryptocurrency in the next few decades. It manages multiple funds: VC funds, secondary active management funds, multi-strategy FOF, and special purpose S fund Foresight Secondary Fund l. The total asset management scale exceeds 4 One hundred million U.S. dollars. Foresight Ventures adheres to the concept of Unique, Independent, Aggressive, Long-term and provides extensive support for projects through strong ecological power. Its team comes from senior people from top financial and technology companies including Sequoia China, CICC, Google, Bitmain and other top financial and technology companies.
