Shape Shifting with ShapeShift: An Investor Perspective
Embarking on DAO Territory with the DeFi Community
By Dr. Christian Nagel, Partner at Earlybird
ShapeShift is announcing its incredible move to transform into a decentralized autonomous organization, or DAO, open source its entire code base and dissolve all company structures. With our initial investment into ShapeShift in 2017, we were compelled by a vigilant team committed to creating THE non-custodial crypto currency exchange engine, with a superior, easily accessible UI and dedication to giving customers full control over their crypto assets. Four years later, our enthusiasm regarding ShapeShift keeps growing exponentially.
As the company’s name suggests, the team has the keen ability to identify where the crypto industry is going and reshape themselves in order to stay ahead in the constantly changing crypto space.
In recent years, the power of tech as applied to the financial industry cannot be overemphasized. It is never static and always subject to evolution. As such, it relies on the people behind it to adapt to industry demands. The team at ShapeShift, led by Founder and CEO Erik Voorhees and Jon (Shapeshift), Founder and CPO, is a rare find: a combination of risk-taking, serial bitcoin entrepreneurs plus deep industry expertise. What makes this investment so unique is this exact combination of skills. After operating for seven years in a centralized organization, ShapeShift recognized a new industry standard that will leverage a competitive advantage for the platform. We are thrilled to continue our journey with ShapeShift as they take on the future of decentralized finance.
What’s Happening
This week, ShapeShift is doing the largest Airdrop in history, with over 60% of the total FOX supply of 1,000,001,337 tokens being allocated to the ShapeShift community. FOX will act as the governance token through which the organization will, over time, dissolve into a decentralized autonomous organization. ShapeShift is open sourcing and relying on the enthusiastic crypto community for governance.
Decentralization Advantages
The reality is that all signs point to a new generation that wants things quicker, is more conscious of its data, values social organization, and does not place as much value on a bank with a “strong brand.” A DAO rides on these trends. DAOs make it possible for the community, basically everyone around the world, to establish rules and make decisions about a company autonomously through a securely encoded blockchain — “Shape”ing the platform to benefit its users. While DAOs are not a new concept, industry trends and the attention to cryptocurrency are causing them to grow tremendously in popularity.
There are a variety of components that make transitioning into a DAO a bold, but advantageous move for ShapeShift.
Governance: The product and services of ShapeShift remain the same; the change is in how it is managed and led. A change in governance will have a butterfly effect on the scalability, efficiency, and security of the organization. With its governance and operations written in smart contracts, DAOs make it so that objectives and company missions are immutable as they are decided on by a community of DAO members. The change in organizational structure is potentially the largest advantage of a DAO. All members of a DAO must vote for any change to be implemented. As a result, decision making is decoupled from typical bureaucratic processes.
This new structure resembles a democracy: the users and holders have the power, giving the community behind ShapeShift a collective voice. For ShapeShift, FOX will act as the governance token through which decision making and “voting” will be possible. This includes a new DAO treasury endowed with over 240,000,000 FOX Tokens (24% of all FOX). This structure makes it possible to scale efficiencies unlike ever before. Companies that have transitioned to DAOs have proven this, especially in the DeFi world. Uniswap, as an already-decentralized exchange (DEX), is a prime example. They are able to process nearly the same transaction volume as the centralized Coinbase, despite having significantly fewer employees.
Community: Creating a community around ShapeShift tied to the governance of the organization will prove to be a huge advantage, making them more agile and flexible in decision making and execution. The community behind ShapeShift will consist of not only crypto enthusiasts, but also its employees. For them, this transition has two sides. The down-side is they will likely need new roles; as the company structure dissolves, there is no longer a typical workplace. The upside is that employees will also receive FOX tokens as a reward for their contribution in the past, but also for their continued support through the decentralized network. The community in the decentralized network is the key to ShapeShift’s growth. While open source can be easily replicated, communities, partnerships, reputation and the network effects associated cannot be.
Transparency: Governance and community are not the only advantage of transitioning into a DAO. In a DAO, all financial transactions and rules are recorded through a blockchain. As a result, no one can edit the rules, making ShapeShift and all its financial records fully transparent and public.
Value to investors: Much like the employees, investors will also give up on the existing structures, board, reserved matters, shareholders rights, investment agreement, communication with the management etc., in exchange for FOX. We are exploring a new territory in discovering whether the value of the past development since investment can be preserved through the transition into a DAO. While this change is unprecedented, much like the team at ShapeShift, we are convinced that the success of ShapeShift will be formed through the community.
Crypto enthusiasts believe deeply in decentralization, so having a company that lives by those values is attractive to them. There is a tremendous value in being a part of this decentralized network, and owning the security of a FOX Token. Plenty of analogous protocols such as Ethereum, Stella, Filecoin, IOTA, are proving this to be true. Market cap of these protocols demonstrates the potential value to beneficial owners, users, investors, traders; the potential here is tremendous.
Looking Ahead
ShapeShift has, and will continue, morphing into an environment where users can participate in and explore new voluntary forms of financial innovation. It has become clear that decentralization is a key path to achieve borderless, immutable finance. Because of this, we are thrilled to continue our journey as part of the expanding crypto community and the decentralized network around ShapeShift. From all of us at Earlybird, we applaud and thank the ShapeShift employees and leadership. We’re excited to support this movement. Congratulations on this bold step, and we can’t wait to see the shift take shape.
