How are high financing and FDV caused?

In essence, high FDV is actually a problem that the market has grown accustomed to. In the past, POW projects did not have financing. Mining was directly distributed fairly. It was nothing more than a first-come, first-served and how much computing power was invested.

Later, POS became popular and began to raise funds from the market, such as ICO, which was purely based on the project white paper and background and celebrity endorsements. It was also relatively fair, but it was ruined.

Because of the increase in projects, some early vested interests set up investment institutions, such as a certain capital, a certain lab, a certain ventures, etc., to carry out professional project production, just like a factory assembly line, for incubation.

Incubation requires investment, so there are various financings. At first, some financings were still available to retail investors in the market. Later, the threshold also increased. In addition, the number of projects increased dramatically. Retail investors did not know which project was good and which project was bad, so they looked at the historical financing of the project, such as blindly worshipping large institutions such as a16z and coinbase.

Later, there was the issue of institutional support. That is, large institutions may invest very little, but because of their reputation, they will be regarded as highlights in project financing. Some institutions even do not invest at all, but only put their names in the project to get the quota.

So market investors began to focus on the amount of financing. After all, the higher the amount, the richer the project party is, and it will be easier to pull the market later or the probability of project failure will be much lower. Therefore, the market worships high financing, which naturally brings high FDV and high valuation.

But in fact, this cannot completely eliminate high-financing junk projects, because the project party says that it has raised funds, but it is not certain whether the financing amount will be in their hands all at once. At the beginning, it may be in the hands of the project party all at once, but now it is not certain, because there have been cases before, that is, the project party ran away after raising funds to cheat the institution, so some institutions may give a little bit according to the completion of the project milestone, or the founder needs to pledge equity to raise funds, and some will also bet against each other.

The project team also gains market attention with such high financing. After all, the market's standard for judging the quality of a project is still mainly based on the investment institution and the investment amount. You can't dig out any in-depth information by sitting in front of the computer. The information on the Internet is just what others want you to see.