Problems facing cryptocurrencies today
The dilemma of stock game: In the context of liquidity stock game, it is easy to share adversity, but difficult to share wealth. Before the project goes online, investors, project owners and wool parties work together to form a cooperation (co-buidl) on the exchange, but once the project goes online, the interests of investors and wool parties will conflict. Investors hope to get more at the token generation event (TGE), while project owners hope to reduce the pressure of cashing out. However, after the launch, the project owner needs the support of the community, so some members of the community need protection, which ultimately makes investors suffer, especially when large exchanges go online, the lock-up period may be extended.
Challenges of the incremental model: The incremental model suitable for cash flow business has exit mechanism problems. For example, in the NFT boom in 2021, many projects relied on bull market liquidity for one-time transactions, and the income was mostly one-time, and the share of the secondary market was only considerable in the short term. Investors' valuations are based on the expectation of coin issuance and unsustainable high dividends, which is not an ideal exit mechanism. The project party's continued operation in the bull market will not earn as much as quickly opening new projects. This model is cost-effective in the bull market, but investors may not get corresponding exit opportunities. This is a lesson for 2021.
In the absence of real incremental users, pure stock game is an unsolvable situation with a gradually shrinking scale, and its occurrence can only be delayed. Assuming that there is a market trend in the future that can bring positive cash flow to the project party, is there a need for a better financing method?
Potentially positive cash flow direction
Decentralized Infrastructure Network (DePIN): DePIN is a mining machine platform, which can generate cash flow by selling mining machines in advance. However, this part of the sales is attracted by airdrops, and will need to be linearly released and repaid in the form of tokens in the future.
Telegram Ecosystem: With a potential incremental market of 900 million users, if it can be successfully operated, it can adopt an IAP+IAA model similar to mini programs, and achieve replication within a specific time period and scale by calculating the ROI of traffic delivery. However, such projects are like profitable pancake shops. Although they are profitable and have high gross margins, few of them can actually be listed, the narrative is insufficient, and the valuation is not as stable as infrastructure projects.
Introduction of DripGuard financing scheme
Drip irrigation is a financing model launched by former Hong Kong Stock Exchange CEO Charles Li and others. The core mechanism is the daily revenue sharing contract (DRC). Simply put, it is to lend based on a successful financial model and return investors a share of the daily operating cash flow. The share ratio can be adjusted according to the collection situation. In the worst case, the investment amount may be zero, but if the business is good, the ratio can be gradually reduced after the collection, and even a maximum collection limit can be set.
Introducing Drip Irrigation in the field of cryptocurrency, the following terms can be agreed upon: if the project has income before TGE, x% of the turnover must be distributed to investors; when TGE, if the investor has recovered x% of the investment, the proportion of token holdings will be reduced, or other terms for adjusting the lock-up period can be agreed upon.
Feasibility Analysis
The reason why Diguantong is feasible is that the maturity of electronic payment makes it possible to control store orders and income funds through a unified sales order system. Cryptocurrency payments are on the chain, which is technically easier to trace, and smart contracts are also convenient for customized settings. If the project party adopts off-chain payment, it means that it has the ability to break through the circle, and it is reasonable that it does not get a share of the profits.
Potential Benefits
Increase investor exit options: If the project has no income or fails, it is no different from the original investment. However, if there is income, investors can get early repayment by diluting future tokens to reduce risks. This makes it easier for investors to invest in small and beautiful projects, and they will no longer encounter situations like selling nodes without returns.
Increase financing options and carry more funds: Taking the Telegram ecosystem project as an example, if the mini program can realize the IAP and IAA models in the future, there is no need to rely solely on airdrops to attract payments. It can be packaged as a cash flow financial product for financing without diluting the currency rights or issuing coins, providing investors with an investment form other than equity.
Project owners can recover tokens in advance to reduce subsequent selling pressure
Summarize
If the cryptocurrency field can find a replicable mass adaptation model through new channels in the future and generate positive cash flow, and the business is suitable for small-scale operations rather than large-scale listing, the Drip Irrigation model is worth referring to.
An article mentioned that DripGuard is essentially similar to the secondary Mudaraba contract in Islamic finance, which prohibits the collection of interest, but can achieve profits or charge fees through financing, and investors also receive dividends. Looking back at the current cryptocurrency circle, there are too many restaking interest-bearing nesting dolls on Ethereum. It is time to introduce "green" finance to inject new vitality into the cryptocurrency circle.
