Can democratized hedge funds change the current situation of the proliferation of VC coins?

Author: Revc, Golden Finance

Introduction

The market capitalization of ai16z, which is close to 100 million US dollars, has been labeled as MEME due to the hundreds of times return it has brought to early investors. However, we can further explore its implications for on-chain collective asset management activities.

The asset valuation system is typically divided into two methods: one is based on the discounted cash flow of the asset, with the discount rate determined by the risk characteristics of the asset or cash flow, primarily used for operating entities; while the valuation of MEME assets focuses on the efficiency of network dissemination and the consensus of influence, with sustainability often placed as a secondary consideration. This different evaluation method significantly affects the positioning and design of Web3 projects.

Taking Friendtech as an example, when I first heard about Friendtech, I was actually pondering a question: why can't the holders of the same batch of Keys form an investment collective? That way, at least there would be a visible investment cash flow to support the value of the community equity tokens, instead of choosing to engage in speculative trading of dialogue opportunities. Perhaps the Bonding Curve designed around the Keys is more suitable for speculation, ultimately leading to an unavoidable liquidity escape during a crash. MostWeb3 projects design their economic models to artificially steepen the demand-supply matching, triggering Fomo emotions, leaving latecomers in a disadvantaged position, which is not conducive to attracting a broader audience; however, mature DeFi protocols are excluded from this, although there are more early liquidity incentives.

Returning to ai16z, it is the largest project by market capitalization of the Soalna hedge fund protocol Daos.fun, which aims to lower the barriers to entry for hedge funds and achieve the democratization of hedge funds.

Daos.fun****Operating Principle

Daos.fun is an investment DAO that mainly involves fundraising, trading, fund maturity liquidation, and fund duration.

• Fundraising: DAO creators have one week to raise the required amount of SOL. DAO tokens are issued fairly, allowing all participants to purchase tokens at the same price.
• Trading: After the fundraising ends, the creator 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 the DAO tokens to fluctuate based on the trading activities of the fund. While there is no upper limit on the price of DAO tokens, their downside risk is limited to the market value of the fundraising. As long as the market value of the DAO tokens exceeds the original fundraising amount, investors can sell their DAO tokens at any time.
• Fund Maturity Liquidation: At the maturity of the fund, the DAO wallet will be frozen, and the SOL from the profits will be returned to the token holders. Investors can choose to burn their DAO tokens to redeem the underlying assets of the DAO, or directly sell the DAO tokens.
• Fund Duration: The fund duration is set by the DAO creator. For example, the fund duration of ai16z is 1 year and will be liquidated on October 25, 2025; the liquidation date for kotopia is October 27, 2025; DCG (Degen Capital Guild) will be liquidated on April 25, 2025;

The creators of the fund are currently reviewed by the official, and their investment capabilities are primarily assessed qualitatively. There is no guarantee that they are not driven by other interests, especially in the context of constantly changing markets. The information gap between creators and investors may lead to losses for investors. Daos.fun may require creators to hold at least a certain percentage of the fund's assets, but this still does not alleviate concerns about their operational capabilities. Therefore, introducing a pre-investment voting system is necessary. As Daos.fun opens up invitation-based access, there will be more room for optimization.

Can Democratized Hedge Funds Change the Current Situation of VC Token Proliferation?

The phenomenon of VC coins is likely a result of the painful growing pains of the early wild development of Web3. The immersive turf wars among VCs made this group realize that the Web3 field will give birth to a foundation of decentralized operating systems like "Android and IOS", financial infrastructure, and the third generation of the internet (search, data communication, social networks). In contrast to the mature regulatory securities issuance system of Web2, VCs in the Web3 realm are expanding with almost no constraints. Combined with the competitive growth model of CEX and an extreme thirst for new asset classes, this has led to a proliferation of air coins in the entire industry.

While VCs are expanding rapidly, they inevitably have a negative impact on the industry. Due to the mature regulatory framework of Web2, VCs have a highly specialized process for assessing project potential, growth curves, and exit strategies during the investment process. However, in Web3, the industry has not yet developed a sense of self-regulation to evolve into a more positive balancing force that promotes healthy industry development.

How to understand the destructive impact of VC on innovation, even though Web2 also operates in a radical manner, fund managers are accountable to investors. However, VCs (and CEX) pose a greater threat to the industry development in Web3 through coercion and monopoly. Assuming a new species is born in the early biotic community deep in the Amazon rainforest, this new track is developing slowly, having its own micro-ecosystem. Under the perception of market demand and user experience, it is growing its wings. At this time, other parties within the micro-ecosystem also provide positive feedback to each other, refining their core in the process of continuous growth, and interacting with the environment to hone the vitality of the organization. Note that this vitality is crucial for the long-term development and iteration of the project.

But what kind of scene would it be if VC intruded too early and aggressively? They would bring reinforced concrete and modern construction projects into the Amazon rainforest, seize the flagship species of micro-ecosystems, and alter their objective development laws, nourishing them to hasten their growth. In most cases, this new species would lose its ability to perceive products and markets, developing in the direction of "giant infants and airiness," while the entire small ecosystem would be destroyed, breaking the positive feedback loop, replaced by monopolistic methods, suppressing the competition and evolution of the Amazon rainforest. This is the price that the entire industry and society must bear.

The current primary market is sluggish, financing is difficult, and the ecological deterioration is backfiring on the VCs themselves. For VCs, it is necessary to abandon the illusion of monopoly and focus on decentralized projects with commercial potential, avoiding becoming promoters of "giant baby" projects. However, VCs themselves also face pressure for capital returns, and the contradiction between operations and capital returns needs to be balanced.

Since 2021, the entire cryptocurrency industry has faced pressure from distorted regulations, with unprecedented density of judicial lawsuits regarding cryptocurrency in the United States. Leading crypto companies like Coinbase are on the front lines fighting back, and it is difficult to identify who holds the original sin of industry development along the entire chain of SEC - CEX - VC - Project. Especially in the context of previous interest rate hikes, the industry lacks liquidity, and the calls to combat FUD come one after another. What we can do is, after the period of barbaric development, establish self-regulatory organizations with a sense of decentralization, while the developed leading crypto companies avoid using traffic and user advantages to coerce the industry.

However, as a commercial organization, obtaining cash flow and users comes with extremely high costs. Balancing commercialization and public interest is a long-term issue faced by large cryptocurrency enterprises.

The Promoting Role of On-chain Asset Management in the Industry

The concept of on-chain asset management or investment DAOs was proposed by projects as early as 2021 and has continually evolved and been implemented. To abstract it a bit, the holders of the MEME community are also a type of investment DAO, and on-chain asset management can promote the healthy development of the industry from two aspects.

1. Actively managed funds focus on truly decentralized projects with clear business models, bridging the gap between the community and professional investment institutions. This may be a way to address the proliferation of VC tokens and promote "good tokens" to become the mainstream in the market. Leverage the more transparent and open operational methods of DaosFun.

2. Short-selling funds, the short-selling target can be a pseudo-** Web3**** project with VC accounting for more than 20% of the token share, of which a single **** VC entity accounts for more than 3%, depending on the project attributes, that is, if a project attracts VC funds that exceed its development and promotion needs, then Web3 The industry needs to look at its decentralized nature. Like the previous Gamestop**** air squeeze war and the Occupy Wall Street movement, there seems to be a trace of irrational enthusiasm, but for retail investors, the movement itself only has some corrective propositions, and if there is a problem in the industry, you have to face him, using some methods that are not easy to understand at the time but can be verified for a long time, everyone has the right to take action against the unhealthy development of the industry, but does not want to rise to the category of some ideology. **

Does overly corrected claims affect industry competition? The answer is yes, but in contrast to the current widespread monopoly phenomenon in the development of Web2, the industry also needs the surgical precision of "Citron Research or Muddy Waters".

Summary

Quoting what Petyr Baelish said in "Game of Thrones" — "Chaos is a ladder", freedom often comes with chaos and monopoly. It is time for the Web3 industry to enter its next phase, as 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 the democratization fund to bring about self-regulation influence in the short term, but the opportunities for free development brought by Web3 require each of us to uphold.