With the crypto market hotting up, an explosion of crypto crowdfunding looks increasingly likely. What can we learn from previous bull runs, and where will the industry go from here?
In a relatively short time, cryptocurrency changed crowdfunding models forever. The Initial Coin Offering (ICO) was the first iteration of this model, and the “ICO mania” that followed marked a transformative moment in capital raising. While ICOs proved hugely popular with the public, not all of their promises came to bear.
ICOs successfully wrestled seed funding from the hands of wealthy VC firms and institutional investors but they were also plagued by token models that failed to capture value, poor transparency, and a general lack of accountability.
Even at the height of ICO mania in 2017, it was becoming clear that the Initial Coin Offering was severely flawed.
The first attempt to fix crypto crowdfunding
The ICO boom helped to launch crypto into the general public’s consciousness, but even at the peak of ICO mania, the industry was wrestling with problems that Initial Coin Offerings created.
The first attempt to deal with the ICO problem in a grown-up fashion was the STO – the security token offering. ICOs embodied the maverick, free-wheeling spirit of crypto; STOs were anything but. Yes, they were theoretically safer but they were also slow and burdened by overbearing regulatory oversight.
Launching an STO required jumping through hoops set by the U.S. Securities and Exchange Commission (SEC), which is not known to be the world’s most crypto-friendly organization.
Despite this, some crypto firms did manage to raise capital via STOs. Start Engine and tZero were among those who navigated the SEC’s jurisprudence successfully. For most, however, STOs were an expensive dead-end marked by bureaucracy, red tape, and never ending delays.
Furthermore, running to the SEC for help reintroduced the kinds of problems ICOs had sought to combat in the first place. It was almost impossible for ordinary investors to participate. STOs, for all their best intentions, simply went against the crypto ethos.
Make crowdfunding democratic again
For crypto crowdfunding to reach its full potential, it needed a solution that fixed the transparency issues of ICOs in a way that retained or improved upon the democratic principles of blockchain and cryptocurrency. The solution was hiding in plain sight in the form of Decentralized Autonomous Organizations (DAOs).
A DAO is a body with no central governing body, run for the benefit of members who share aligned goals and purposes. DAOs promise greater levels of openness, fairness, and transparency.
While ICOs offer few benefits to token holders, simply telling them to put their money in a hodl-and-hope proposition, DAOs confer voting rights that determine the future direction of the project. DAOs have the benefit of fixing many of the issues created by ICOs but in a way that remains true to the spirit of the blockchain industry.
A case study
If ICO mania was the first great crypto fundraising cycle, the DeFi summer of 2020 was the next. DeFi summer brought a surge in new projects and funding models, as well as novel solutions including yield farming and liquidity mining which invigorated decentralized exchanges.
It was during that same DeFi summer that AngelBlock launched. A non-custodial, protocol-based fundraising infrastructure, it seeks to bring transparent, decentralized, and democratic solutions to the industry. Like DAOs, Angelblock built its fundraising protocol on the lessons learned during previous bull run cycles, proving that the classic funding strategies were by now a dead-end.
Unlike competitors like Republic.co, AngelBlock is built on strong decentralized credentials. Rather than being a custodian of funds, it uses technological solutions, leaving the funding processes to be handled on-chain: as the old crypto maxim goes, “Don’t trust, verify.” In essence, AngelBlock combines the benefits of non-custodial protocols and on-chain vesting with transparent token distribution models to turn fundraising on its head.
With Bitcoin prices surging and the wider crypto industry reinvigorated, there is a growing sense that the next crypto funding rush is imminent. If the industry has learned the lessons of the past, perhaps we will – and we certainly should – see funding platforms become DAOs by default.
Image by Gerd Altmann from Pixabay
