Mechanics of AlgoDAO’s RHO: How exactly does it work?
Earlier in June, we introduced AlgoDAO’s Reverse Hackathon Offering (RHO), an innovative design for delivering community-centric hackathons. A key differentiator is that RHO equalizes the playing field for the community with the venture capital firms. Thus, the RHO’s success depends on the community with whose help we can change the DeFi world. We mentioned how the RHO allows us to bring together developers, project leads, business leaders, and Web3 enthusiasts together in a large-scale collaborative event.
Today, we dig deeper into the mechanics of AlgoDAO’s RHO to provide you with more information on each step leading to the RHO so that you can have a better idea of how RHOs work. While we took part in many hackathons, this would be our first to organize and we are beyond excited.
Let’s start with the “Why”
IDOs are great, as the community members get a chance to participate in early-stage funding of Web3 projects. However, IDOs typically happen after, at least, two funding rounds that are not open to retail participants. In most cases, before Web3 projects reach the point of running an IDO, they most likely would have raised some funds through a seed round and a private round.
In essence, community members who participate in IDOs are participating in a later round. And the IDO price is set at a premium relative to prices that participants in the seed and private sale rounds paid for the same tokens. Albeit, IDO participants normally have much more favorable vesting terms, but that is besides the point. Of course, participants in the seed and private rounds take on more risk than IDO participants — the project could fail and all the funding goes down the drain. So, the higher risk quotient is reflected in the discounted prices and potential multiple returns that seed and private round participants get.
Nonetheless, for a DAO, there is a fundamental need to provide a level playing field for all participants, as much as possible. Hence, while seed and private funding rounds are only open to AlgoDAO members in the High Council and Vanguard membership tiers, we are being intentional about creating opportunities for all AlgoDAO community members to potentially participate in earlier funding rounds, even before the projects are ready for an IDO.
The RHO is a unique mechanism that we have designed to equalize the opportunities available to all AlgoDAO members to get involved in early-stage funding rounds for Web3, DeFi, and dApps within the Algorand ecosystem.
RHOs potentially offer significantly HIGHER rewards than what you can expect to get from any other regular IDO. For instance, regular IDOs release ~1% or less of the total token supply with valuations ranging from US$10 million to US$60 million. With RHOs, each funding pool is designed to raise US$150K in exchange for 2% of total token supply each from three different projects.
In essence, RHOs unlock about 6% of token supply at an effective valuation of US$2.5 million (150/0.06). Simply put, RHOs gives you at least 4× better returns than IDOs straight out of the gate — and the best part is that you get a diversified portfolio of three projects rather than one project in an IDO.
Of course, tokens from RHO pools are subject to vesting terms, but the vesting details will be announced before the RHO funding round begins on IDO.
How exactly does an RHO work?
An RHO is a community-centric mechanism for early-stage funding for projects to be incubated on AlgoDAO. Once we have established a baseline community interest in participating in pre-money financing via RHOs, we can then get started on making it happen, step by step.
The first step is the creation of an RHO pool on the AlgoDAO platform. Community members interested in participating in the RHO will, in turn, express interest in the offering by purchasing RHO tokens in the same way they would participate in a “normal” IDO.
The RHO pool will be deemed successfully “Finished”, if the community purchased enough RHO tokens to reach the soft cap target set for the RHO and the RHO pool expiration date has passed.
If the RHO pool does not raise enough funds to reach the soft cap target, the pool will be considered to have failed and participants will receive automatic refunds for their RHO subscriptions.
However, if the RHO pool reaches the soft cap and we start organizing the RHO events; then there is an inherent risk assumed if the hackathon fails. For instance, if we are unable to attract enough participants or the participants do not have the necessary background or experience to build successful projects; we could have incurred logistical and organizational expenses. In this case, the invested funds will not be fully returned, and respective expense reports will be provided to the community. As with any transaction, the investment carries a level of risk.
If there are no issues preventing the RHO from proceeding, the AlgoDAO team will then organize an RHO hackathon event using funds raised from the RHO. The funds will cover the logistics and operational costs, prizes to winning teams, and other services required for the GTM (go-to-market) activities to take the projects from ideation to live products.
The actual RHO hackathon will be in two parts starting with an online session where developer teams, projects, and individuals collaborate to build high-quality and marketable Web3 solutions. The second part of the RHO hackathon event includes a three-day in-person event where all the project teams collaborate, meet industry experts, refine their projects, and get ready for a big DEMO DAY.
During the Demo Day, the participating projects will compete for three spots inside the AlgoDAO incubator and other bounties. The top three projects will go through an incubation process at AlgoDAO, in which they receive technical and non-technical guidance as well as other ecosystem support, in preparation for a public IDO.
Why should you participate in the RHO?
Each of the three incubated tokens will be required to allocate 2% of their token supply to the RHO pool. AlgoDAO community members who participate in the RHO will get a pro-rata share of the tokens allocated to the RHO pool.
Hence, instead of waiting until a public IDO round before buying project tokens, participants in the RHO will have acquired tokens from the three projects at a significant discount.
Simply put, the RHO gives you a chance to participate in early-stage funding ahead of institutional investors, you get to buy into the funding round at a significant discount to IDO prices, and you acquire tokens from three (3) different projects to better diversify your exposure to multiple projects.
We are already putting together the modalities for the very first RHO on AlgoDAO, do let us know if you will be interested in participating.
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In the meantime, make sure to stay connected with us across our social media channels so you do not miss out on important updates regarding the RHO.
- LinkedIn: https://www.linkedin.com/company/algodao-fi
- Discord: https://discord.gg/algodao
- Telegram group: https://t.me/AlgoDAOCommunity
- Telegram announcements: https://t.me/AlgoDAOAnnouncement
- Twitter: https://twitter.com/AlgoDAO_fi
- Medium: https://medium.com/@AlgoDAO.fi
