Author: Revc, Golden Finance
Introduction
With a peak market capitalization close to 100 million USD, ai16z was labeled as MEME because it brought hundreds of times returns to early investors. However, we can further explore its implications for on-chain collective asset management activities.
Asset valuation systems are usually divided into two methods: one is the discounting of asset cash flows, where the discount rate is determined by the risk characteristics of the asset or cash flow, mainly used for operational entities; while the valuation of MEME assets focuses on network dissemination efficiency and consensus on influence, with sustainability often placed in a secondary position. This different evaluation method largely impacts the positioning and design of Web3 projects.
Taking Friendtech as an example, when I first heard about Friendtech, I thought of a question: why can't the same batch of Key holders be an investment collective? At least there would be a visible investment cash flow to support the value of the community rights tokens, yet they chose to engage in trading speculation based on dialogue opportunities. Perhaps the Bonding Curve designed around Key is more suitable for speculation, leading to an unavoidable stampede of liquidity escape. Most economic models designed by Web3 projects artificially steepen supply-demand matching, triggering FOMO emotions, placing latecomers in a disadvantaged position, which is not conducive to attracting a broader audience. However, mature DeFi protocols are excluded, although early liquidity incentives are greater.
Returning to ai16z, it is the largest project by market capitalization of the Soalna hedge fund protocol Daos.fun, which aims to lower the threshold for hedge funds and achieve the democratization of hedge funds.
How Daos.fun Works
Daos.fun is an investment DAO that primarily involves fundraising, trading, fund expiration liquidation, and fund duration.
Fundraising: DAO creators have one week to raise the required amount of SOL. The DAO tokens are issued fairly, allowing all participants to purchase tokens at the same price.
Trading: After fundraising concludes, creators will invest the raised SOL into the Solana tokens of their choice and trade on a virtual automated market maker (AMM). This causes the price of DAO tokens to fluctuate based on the fund's trading activity. Although there is no upper limit on the DAO token price, its downside risk is limited to the market capitalization of the fundraising. As long as the market capitalization of DAO tokens exceeds the original fundraising amount, investors can sell their DAO tokens at any time.
Fund Expiration Liquidation: When the fund expires, the DAO wallet will be frozen, and the profits in SOL will be returned to token holders. Investors can choose to burn their DAO tokens to redeem the underlying assets of the DAO or sell their DAO tokens directly.
Fund Duration: The fund duration is set by the DAO creator. For example, ai16z has a fund duration of 1 year and will liquidate on October 25, 2025; the liquidation date for kotopia is October 27, 2025; and DCG (Degen Capital Guild) will liquidate on April 25, 2025.
The fund creator is currently under official review, and the investment capability is mainly assessed qualitatively, without guarantees against other interest-driven motives. Especially in a constantly changing market, the information gap between creators and investors may lead to losses for investors. Daos.fun may require creators to hold a certain percentage of fund assets, yet concerns about their operational capability cannot be dismissed. Therefore, introducing a pre-investment voting system is necessary. As Daos.fun relaxes its invitation system, there will be more room for optimization.
Can democratized hedge funds change the current situation of rampant VC tokens?
Firstly, the phenomenon of VC tokens may be due to the painful growing pains of Web3's early wild development. VCs' immersive positioning wars make this group realize that the Web3 field will give rise to 'Android and IOS' bases dominated by decentralized operating systems, financial infrastructure, and the third generation of the internet (search, data communication, social networks). Compared with the mature regulatory securities issuance system of Web2, VCs have almost unrestricted expansion in the Web3 domain, combined with the competitive growth model of CEX, leading to a rampant proliferation of air tokens in the entire industry.
While VCs are expanding rapidly, they inevitably have a negative impact on the industry. Due to Web2 having a mature regulatory system, VCs possess highly specialized processes to evaluate project potential, growth curves, and exit stages during the investment process. However, in Web3, the industry has not yet developed a self-regulatory awareness until it evolves into a more positive balancing force to promote healthy industry development.
How to understand the destruction of innovation by VCs? Although Web2 also operates in a radical manner, fund managers are responsible for investors, yet VCs (and CEX) pose more harm to industry development through coercion and monopoly in Web3. Suppose a new species is born in the depths of the Amazon rainforest's early biological community; this new track is slowly developing, possessing its own micro-ecosystem. Under the perception of market demand and user experience, it gradually strengthens its wings. At this time, other entities within the micro-ecosystem also provide positive feedback to each other, refining their core through continuous growth and interacting with the environment to hone the organization's vitality. Note that this vitality is crucial for the project's long-term development and iteration.
But what would it look like if VCs invade too early and brutally? They would bring reinforced concrete and modern construction projects into the Amazon rainforest, capturing the head species of the micro-ecosystem and altering their objective development laws, injecting nutrients to hasten their growth. In most cases, this new species will lose its perception of products and markets, developing towards 'giant infant and vaporware', while the entire small ecosystem is destroyed, breaking the positive feedback loop and replacing it with monopolistic methods, suppressing the possibility of competition and evolution in the Amazon rainforest. This is the price that the entire industry and society must bear.
Currently, the primary market is sluggish, financing is difficult, and the ecosystem is deteriorating, which backfires on VCs themselves. For VCs, it is necessary to abandon monopolistic fantasies, focus on decentralized projects with commercial potential, and avoid becoming promoters of 'giant infant' projects. However, VCs themselves are also under pressure for capital returns, and the contradiction between operations and capital returns needs balancing.
Since 2021, the entire crypto industry has faced pressure from distorted regulations. The United States has initiated unprecedented judicial litigation regarding crypto, with leading companies like Coinbase fighting on the front lines. It's challenging to identify who bears the original sin of industry development across the entire chain from SEC to CEX to VC to Project, especially against the backdrop of previous interest rate hikes. The industry lacks liquidity, and the call to eliminate FUD comes in rounds. What we can do is, after the wild development, establish self-regulating organizations with a sense of decentralization, while the developed leading crypto enterprises avoid coercing the industry with traffic and user advantages.
However, as a commercial organization, obtaining capital flow and users means extremely high costs. Balancing commercialization and public interest is a long-term issue faced by large crypto enterprises.
The promoting role of on-chain asset management for the industry
The concept of on-chain asset management or investment DAO was proposed as early as 2021 and has been continuously evolving. Abstractly, the Holder of the MEME community is also a type of investment DAO, and on-chain asset management can promote healthy industry development from two aspects.
1. Actively managed funds should focus on projects that are genuinely decentralized and have clear business models, narrowing the gap between the community and professional investment institutions. This may be a way to address the rampant nature of VC tokens and promote 'good money' to become the market mainstream. Leveraging DaosFun's more transparent and open operational methods.
2. Shorting funds can target pseudo-Web3 projects where VCs hold more than 20% of the token shares, with any single VC entity holding more than 3%, which can depend on the project attributes. If the VC funds attracted by a project exceed its development and promotion needs, then the Web3 industry must examine its decentralization attributes. Similar to the previous Gamestop short squeeze and the Occupy Wall Street movement, there seems to be a hint of irrational enthusiasm, but for retail investors, the movement itself only has some corrective claims; if problems arise in the industry, they must be faced. Using some methods that were not easy to understand at the time but can be verified long-term, everyone has the right to take action against unhealthy industry development, but it does not want to rise to a certain ideological level.
Does overly corrective advocacy affect industry competition? The answer is yes, but in contrast to the monopoly phenomenon that generally exists now in the development of Web2, the industry also requires micro-manipulations at the surgical level like 'Citron Research or Muddy Waters'.
Summary
Quoting what Littlefinger said in (Game of Thrones) — 'Chaos is a ladder', freedom is a ladder but often comes with chaos and monopoly. The development of the Web3 industry is now time to enter the next stage; traditional regulation may not be suitable for the Web3 industry, even though it continues to exert influence.
Returning to Daosfun itself, we should not expect democratic funds to bring self-regulatory influence to the industry in the short term. However, the opportunities for free development brought by Web3 need each of us to maintain.
