æpps Summit 2019 in Depth: Revolutionizing Fundraising

The second blog post coming from the æpps Summit is dedicated to æternity’s 2019 goal to revolutionize crypto fundraising.

In the first blog post dedicated to the æpps Summit held in Antalya, Turkey in January 2019, we promised more in-depth coverage of some of the development topics that were discussed during the important event. In this post, we will cover How æternity Plans to Revolutionize Funding, and in future posts, we will discuss the State of the æternity Dev Tools and more dev-related topics.

Before we begin, it’s worth mentioning that a great wealth of productive discussions took place both during the summit sessions and organically outside of them. In this and following posts, we will be primarily covering topics that we believe are most worthy of sharing with the community. But the æpps Summit covered much more than we will be able to write about!

The 2019 Goal: Revolutionizing Fundraising

The æternity movement aims to deliver the next generation blockchain infrastructure that will enable widespread adoption of decentralized, trustless technology and thereby potentially revolutionize global society. To maximize this effect, it is important to focus our efforts in areas where the biggest opportunities for disruption lie. One of these areas is fundraising.

Bitcoin Changed the Way We Perceive Value Transfers. Crowdsales Disrupted Fundraising.

Bitcoin revolutionized transactions by providing a way to transfer and store value that is not reliant on an opaque structure that includes third parties, the decisions of which cannot be influenced in any significant way by the users of their services. In similar ways Ethereum, and their vision of a world computer, disrupted the funding mechanisms available prior to the introduction of smart contracts and tokens.

Much like in the cases of other disruptive technologies however, both systems were used by an opportunistic crowd pursuing a narrow goal — quick financial gain.

In the case of Ethereum, the new type of crowdsourcing enabled by smart contracts resulted in “irrational exuberance” that saw thousands of projects being funded with the goal of getting a preferential rate during the token campaign, just to be able to sell it back to the market at significantly higher prices.

This is not to say that there weren’t investors, who participated in crowdsales for the right reasons; in many (possibly most) cases they were just outnumbered by speculators, participating with the intention of reaping unreasonably large and quick gains. This process has had a negative impact on the credibility and perception of the blockchain project as a whole.

The goal of æternity is to facilitate an environment where the global crypto community can learn from past mistakes, extract the positive parts of this learning process, and introduce new frameworks that can ensure that the next explosion of cryptocurrency-based fundraising results in many more projects that will successfully enter the mainstream.

Fundraising Before and After the ICO Explosion of 2017 and 2018

Prior to the availability of token smart contracts as a fundraising mechanism, the options available to entrepreneurs were very limited and restricting. These options included:

• bank loans based on a detailed business plan and prior credit history,
• funding from friends and family,
• seed and pre-seed investments,
• venture capital rounds of funding (after seed/pre-seed rounds and friends/family investments),
• crowdfunding through platforms such as Kickstarter and Indiegogo.

These options severely limited the amount of projects/businesses which received funding with ease. During the ICOs explosion in 2017 and after, quite the opposite happened.

Many people invested in projects which did a minimum amount of work to prove that their projects would be successful.

This change was based on at least four key factors:

• Investment opportunities were now open to a far greater range of investors (the barrier to entry was drastically lowered).
• In many cases the investments were driven by the speculative intention of making a profit based on a fear of missing out on the next big thing.
• There was a lack of established means of regulating the investments in crypto projects and assets.
• Investors had access to instant liquidity as soon as the tokens were issued.

The drastic difference from barely being able to secure funding, to raising anywhere from hundreds of thousands to billions of dollars with a promise and a team (who would in theory be able to back up their promise) was beneficial to the projects seeking funding (especially the ones that knew what they were building and why). But in many ways, this was detrimental to a healthy public perception of crypto/blockchain projects.

The Post-ICO Explosion Fundraising Landscape

After this explosive change in the fundraising landscape, much was left to be desired. The overall cryptocurrency market capitalization dropped significantly and took with it the hopes of many investors to make a profit. Simultaneously, many of the teams/projects, who received funding, were exposed to the reality that developing their products on existing blockchain infrastructure — creating efficient organizations and sustainable businesses based on blockchain technology would be far harder than they had expected.

This left many wondering “What’s next?!” and “Is DLT the future of blockchain?”.

At æternity, we focus on creating a future we would like to live in.

For this reason, at the first æpps Summit a number of sessions were focused on the future of the broader blockchain ecosystem as well as æternity’s desired place and impact within it.

Nikita Fuchs: Q&A After Bonding Curves and Quadratic Voting Session

At the summit, æternity’s vision for 2019 to help revolutionize fundraising was announced. A kind of organic track of sessions then took place in this vain. Some of the topics covered in the sessions were:

• “How can æternity help revolutionize funding?”
• Incentivizing and managing the improvements process.
• Various funding and voting mechanisms.
• Tokenizing art.

… and much more. Below we will touch on some of the approaches considered, before, during, and after the summit.

Funding Mechanisms: Goals

In the context of improving fundraising mechanisms, the following are some of the high-level goals which we would like to work on:

• Improving the transparency of how projects receive and manage the funds they raise (in terms of allocation, spending, and accountability).
• Adding control mechanisms, which protect investments from being handed to teams, who may not deliver results worthy of the full investment (before worthiness is proven).
• Helping to facilitate rigor within investment requirements via leading by example and through education.

So what approach is æternity taking towards meeting these goals?

First and foremost, we would like to give ourselves and others the opportunity to experiment with new models and mechanisms.

æternity Ventures and the Starfleet program were established in order to create a context where we can not only try new models but also refine and scale them beyond the Starfleet program and æternity Ventures-backed projects.

The æternity Mainnet and Testnets are the perfect place to test new models and implement the features needed to support them (during future development and scheduled protocol upgrades). Beyond the Ventures and Starfleet investment vehicles, the æternity team is mindfully guiding the process of feature development, and the discourse around it, in order to evolve the fundraising mechanisms available to those who build on top of the æternity blockchain and the broader entrepreneurial ecosystem.

Beyond material investments, we are also contributing our own time and resources to investigate new mechanisms which will help to evolve the fundraising process and increase the availability of options.

Fundraising Mechanisms: Approaches

One of the mechanisms for investment and voting, which has caught our attention during the Summit, is bonding curves combined with quadratic voting (and future ways of handling voting related to Continuous Organizations and Decentralized Autonomous Trusts).

From our perspective, such mechanisms provide an opportunity to align the intentions of entrepreneurs, investors, and other stakeholders for projects inside and outside the world of cryptocurrencies (Continuous Organizations could invest in projects which do not have their own token).

Another funding mechanism which is very interesting is milestone-based investments.

These are terms where teams receive funding based on milestones which they commit to at the beginning of a given round of fundraising.

We are currently experimenting with these within the Starfleet program and are interested in projects where these mechanisms are built into the fundraising protocol/mechanism itself (instead of being facilitated by a third party like æternity Ventures). We aim to validate the viability of such approaches to protecting investors and focus on spreading them, if they prove to work.

In addition to the mechanisms mentioned above, an area which we find fascinating, which was considered at the Summit is How to Incentivize Improvement Proposals and Their Implementation? The æpps Lead, Emil Wagner has taken on the lead role in working on this over the course of this year. Additionally, an æternity Best Current Practices was started by our Lead Blockchain Engineer, Sascha Hanse.

Another way in which we facilitate the context of experimentation is by developing the features needed for projects to create tokens on top of æternity and to combine them with the unique set of æternity features (Oracles, State Channels, Naming System and more), which are first-class objects in æternity’s scripting language, Sophia. At the æpps Summit, we were joined by members of the Starfleet cohort #1 teams: AmpNet, YAIR, WeiDex, and UTU. We were able to connect the projects who benefit from the æternity Blockchain features and the æternity dev tools developers, face to face, for two-sided feedback.

No Single Answer. An Alignment of a Diverse Set of Strategies.

As anyone who is realistic about what it takes to evolve a vital entrepreneurial practice like fundraising would admit, there is not a single solution that will address all fundraising issues. As outlined above, we are committed to considering a multitude of perspectives and goals in order to test, validate, refine, and spread a number of meaningful solutions. This array of solutions will serve to catalyze æternity’s efforts in revolutionizing fundraising in 2019.

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