Launchpads and other fundraising vehicles in the decentralized landscape predominantly serve the purpose of funding private goods. We claim that this is misaligned with the general philosophy of an open-source inclusive economy and precipitates:
- Whale formation and other adverse distributional consequences in terms of both economics and governance of decentralized systems;
- The aforementioned effects themselves have far-reaching consequences for many emerging decentralized institutions and form a layer of predatory crypto capitalism. They are changing the distribution of wealth among actors (from predatory transnational corporate capitalists to new a breed of whales) without changing the underlying principles that form the currently existing imperfect system;
- Launchpads are the very catalyst of the fundraising landscape for the future financial system and thus the principles, both economic and technological, that are built into them today will have far-reaching consequences for the formation of decentralized capital markets tomorrow;
- It is axiomatic that today we are witnessing the formation of the ‘Googles’ and ‘Amazons’ of the web3 era. Therefore, the initial distributions of coin/token ownership of the major DeFi powerhouses must be carefully considered as it has long-lasting implications;
- Launchpads, when seen as an ecosystem, rather than mere IDO platforms, are the primary determinants of this distribution. If we want the world of web3 to be fair, free, and inclusive tomorrow, we need to design the foundations accordingly already today. The time has come. It is now and here is our vision.
We assert that the desired properties of a launchpad or any other type of decentralized fundraising ecosystem shall constitute at least the following:
- Open source codebase and community driven development roadmap;
- Community driven project evaluation and project access control;
- Have inclusivity, fairness as core values and utilize all the available econo-technological means to arrive at distributional efficiency;
- Have equal representation across groups of ecosystem agents based on value, rather than the depth of pockets;
- Generally, highly decentralized governance framework;
- Transparent capable management, automated on-chain investor vestings;
- Features facilitating transferability and early liquidity for vested allocations via NFTs to improve capital efficiency and price discovery;
- Features facilitating efficient price discovery and liquidity at the early stages of the project’s lifetime;
- Have advanced mechanisms facilitating IDO inclusivity for the community;
- Last but not least, it should be fit to funding projects representing, public and private goods as well as anything in-between, be accommodative to any price discovery and IDO access process.
We claim that a launchpad not equipped with any of the characteristics above will inevitably fail either in the distributional properties it propagates or in its ability to attract projects and achieve long-term success and sustainability.
A Note on Quadratic Funding
Addressing the last point from the manifesto above, we would like to expand upon the concept of quadratic funding, a concept on the very frontier of the contemporary thought on the optimality of welfare economics of public goods:
- Public good is one that once produced cannot be limited in use to a chosen few while being characterized with increasing returns to its use. In other words, the marginal production cost of such goods is strictly below their average production cost;
- Open-source software is among the purest forms of public goods;
- DeFi, notwithstanding the ‘finance’ component, is in essence (or should be), a form of open-source software;
- The financial industry as the domain of software application adds heavy welfare and distributional implications to the way it is initially designed and built;
- Quadratic funding, in short, is an exercise (and an exercise in economic thought for that matter) to allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods;
- We claim that innovation in and of itself is a public good and while it’s obviously benefiting the society at large, the VC industry itself is highly concentrated and the long-term distributional efficiency of capital gains realized from investing in innovative startups can be improved upon, given the DeFi toolbox the humanity is so lucky to have invented. Decentralized crowdfunding is the first step. Quadratic funding is the next and the ultimate evolution of the fair and balanced early stage as well as secondary capital markets.
