The Community Prosperity Model of Web3 Venture Capital and DAO

I. Characteristics of Web3 Venture Capital

Web3 venture capital, also known as Web3 entrepreneurial investment, mainly refers to a financing method that provides funding to Web3 startups and obtains shares in the project (mainly in the form of holding project or protocol tokens). Web3 venture capital generally targets early-stage Web3 projects or protocols that are considered emerging, rapidly developing, have high growth potential, or have already shown high growth. Whether new projects have real demand and can be accepted by the market is also uncertain. Therefore, there is a lot of uncertainty in Web3 venture capital, which brings great risks to investment and returns. However, it cannot be denied that although the risks of Web3 venture capital are high, the investment return rate is also high. Past data shows that Web3 venture capital often achieves several times to thousands of times the investment return.

II. Role of Web3 Venture Capital

The rapid rise of the Web3 industry is inseparable from venture capital, which is a catalyst for innovation and technological progress in the Web3 industry. Venture capital, as an equity investment that can withstand high risks and pursue high returns, can play a financing role for Web3 industry technological innovation activities and projects or protocols with strong capital needs, high risks, and high potential returns. Web3 innovation activities require funding to support their research and development and operation, and because Web3 technological innovation is still in its infancy, its development trajectory and growth potential are not yet clear, and success or failure face great uncertainty. Therefore, venture capital in the Web3 industry can obtain a portion of tokens, not only sharing losses but also sharing the benefits of technological innovation. Thus, driven by the potential high returns of Web3 technological innovation, venture capital plays a financing role, solves the financing constraints of Web3 technological innovation, and provides a basic "resource" guarantee to better support the development of technological innovation. For projects or protocols that obtain private venture capital, they can also receive unique non-capital value-added services, including strategic planning, development implementation, marketing, financial budgeting, and human resource management advice, which are beneficial for promoting the realization of Web3 technological innovation achievements.

III. Two Fundraising Forms

According to the current development status of the Web3 venture capital industry, it can be divided into two fundraising forms: private placement and public auction.

3.1 Private Placement

Private placement is a way to raise funds through non-public sales, targeting a small number of specific investors, including institutions and individuals (similar to angel investors in traditional finance). Web3 projects or protocols can obtain private capital (such as A16z, Paradigm, Coinbase Ventures, Polychain Capital, Pantera Capital, Sequoia Capital, and other centralized venture capital funds, as well as some well-known decentralized investment-type DAOs currently in rapid development). First, the project obtains a long-term partner, as investors can provide networking, technical solutions, and additional operational governance advice. Additionally, private investors generally do not sell project tokens as quickly as retail investors (usually with a lock-up period ranging from two to four years, including a one-year lock-up period). Furthermore, if the private investor is well-known, their endorsement is excellent marketing material for the project. For example, a16z's operating model: marketing team (helps with traffic), talent team (helps with recruitment), market development team (helps with customer acquisition), and a research team (helps solve problems) = success of the invested project or protocol.

However, when a project raises funds through private placement and exchanges tokens for stablecoins at a certain discount to the market price, the discount generally fluctuates in the range of 30% - 50%. Although private placement tokens generally have lock-up and lock-in periods, for ordinary investors in the community, the value of the tokens is significantly diluted by the market value, and there is a feeling that the price difference has been captured in advance, while also worrying that the tokens will be monopolized, and the participating community will become very limited, making the token price easily manipulated. Well-known Web3 venture capital institutions are basically centralized entities with different labels, making it difficult to avoid them manipulating and hyping to obtain high premium returns for their own benefit, which is contrary to the original belief of decentralization, user ownership, and shared prosperity. Choosing private placement as a fundraising method has its advantages and disadvantages, as it involves giving benefits to capital in exchange for a specific capital cooperation relationship, stability, and marketing value.

3.2 Public Auction

Public auction fundraising is conducted through public sales, targeting the general public as investors. The Web3 public auction fundraising form has the attributes of being open, small-scale, and mass-oriented, referring to the behavior of raising general digital assets through product anchoring, asset bonds, and crowdfunding using blockchain digital assets generated by digital asset digitization.

ICO (Initial Coin Offering) is the first way to raise funds in the cryptocurrency market, where projects raise funds from the community itself rather than through third parties.

IEO (Initial Exchange Offering) is the next step after ICO, also a fundraising project, but with the introduction of a third party, such as centralized exchanges like Binance.

IDO (Initial DEX Offering) in a narrow sense refers to the initial offering on a decentralized exchange (DEX). DEX, or Decentralized Exchange, is a form of fundraising through a third-party platform, with tokens being listed on decentralized exchanges such as Uniswap, SushiSwap, PancakeSwap, Balancer, PolkaStarter, DuckStarter, DODO, Bounce, Mesa, and others. In a broad sense, IDO refers to the initial issuance of blockchain digital assets, which overlaps with IXO.

ITO (Initial Twitter Offering) is initiated by Web3 privacy product Mask Network, leveraging Twitter's inclusivity and tapping into its large traffic.

IWO (Initial Wallet Offering) allows new projects to raise funds on wallet platforms using platform tokens or other forms, allowing users to access applications directly through the wallet.

IGO (Initial Gaming Offering) is similar to other projects, as games also need to manage tokens, currencies, etc., and can raise funds by selling these tokens. With the development of blockchain games, IGO is considered the next trend in the cryptocurrency market.

INO (Initial NFT Offering) is the first global platform for the issuance of non-fungible tokens based on the xNFT Protocol, supporting issuance on three chains (BSC, HECO, ETH), covering the currently popular ecosystems in the market.

Public auctions allow project parties to quickly raise diversified funds in the free market and obtain a large amount of funds at a lower discount. Auctions can also serve as a marketing activity to promote the protocol's market recognition and usage. Compared to private placement fundraising, public auction fundraising is more in line with the spirit of decentralization and user ownership in Web3, and is more likely to gain support from the community.

The implementation of public auctions relies on crowd effects and requires significant operational efforts to stimulate sufficient market demand. Public auctions have weaker or no requirements for lock-up and lock-in periods, so the selling pressure brought by auctions needs to be considered. Public auctions mainly face retail investors, and in the current market environment, it is difficult for retail investors to become long-term and stable token holders like institutional investors. These are the issues that projects or protocols face when choosing public auctions for fundraising.

Currently, public platforms can be roughly divided into comprehensive CEX, DEX platforms, and centralized and decentralized auction platforms specifically for public auctions (see detailed in Figure 2). DEX platforms can provide a series of functions for project parties, from token issuance to establishing liquidity. Specialized auction platforms can provide various token issuance and auction strategies for project parties, but cannot directly create liquidity pools for tokens. Current public auction platforms also have their own characteristics in terms of price discovery mechanisms, whitelist mechanisms, and admission mechanisms, which can generally meet the diverse needs of project parties for their initial public auctions.

Source: https://cryptorank.io/fundraising-platforms/ico

Most auction platforms use auction methods to issue tokens, with fixed exchange rate auctions, Dutch auctions, and batch auctions being the main methods.

IV. DAO

The revolutionary aspect of Web3.0 is the establishment of a new social collaboration model and distribution mechanism, characterized by an open ecosystem, prosperity, and autonomous core links. This ecological prosperity model, with DAO as its carrier, is a new democratic corporate system.

DAO, or Decentralized Autonomous Organization, is a form of digital world organization based on blockchain technology, with its organizational rules executed by distributed programs, enabling participants' interests to be consistent and collectively achieve organizational goals.

DAO can also be called a community aggregated based on a specific collaborative purpose and consensus mechanism. DAO is a new governance community based on blockchain technology, and is a form of organization that supports project financing and sharing benefits. Compared to traditional corporate organizational forms, DAO has the characteristics of decentralization, high autonomy, and organizational collaboration.

From the current overall ecological perspective of DAO, it can be divided into DAO underlying infrastructure and application-type DAO. Application-type DAO can be divided into donation-type DAO, investment-type DAO, protocol-type DAO, service-type DAO, social-type DAO, collection-type DAO, media-type DAO, and others, based on the different collaborative purposes and functions of DAO organizations.

The governance framework of DAO mainly focuses on the two core steps of "how to coordinate" and "how to make decisions." Regarding the issue of "how to coordinate," it can be roughly divided into on-chain proposal governance and off-chain proposal governance. As we know, the current core decision-making method of DAO is voting, so the issue of "how to make decisions" focuses on what voting mechanism to adopt. On-chain proposal governance is the most basic link in DAO governance, using smart contracts to realize decentralized governance processes, writing governance mechanisms into code, and usually making decisions through token holder voting. Off-chain proposal governance is an auxiliary means, usually conducting informal community discussions off-chain to avoid excessive use of on-chain resources.

The simplest voting mechanism in DAO's voting mechanism is one token, one vote (1T1V), but this voting mechanism itself has many flaws and requires long-term continuous iteration. Traditionally, a decentralized community theoretically requires 50% of token holders to pass a governance proposal. However, this leads to several problems: 1. Not all participants are interested in participating in the proposal (especially those with low holdings); 2. Participants lack experience (the crowd is a mix of people, and capable individuals do not have a voice); 3. Proposals in the token voting mechanism do not distinguish between urgency, and voting efficiency is low, among other issues.

Therefore, new voting mechanism solutions have emerged to address these issues, such as fluid democracy and knowledge-extractable schemes that can elevate the status of expert voting decisions; belief voting and weighted voting that divide the importance of voters themselves. Overall, Web3.0 cannot escape the various problems in real-world democratic society decision-making mechanisms; it is a certain reflection of real-world society, and thus, ensuring fair, just, efficient, and professional decision-making processes will be a long-term discussion and iteration direction.

DAO is an organizational framework that can be applied to applications in any field, with its core features and purposes being decentralization. The Web3 venture capital field can also effectively apply the DAO organizational framework. Below, we will specifically analyze the community prosperity model of the veDAO project in the Web3 venture capital field.

V. The Community Prosperity Model of veDAO

veDAO: Using the DAO method to bring human intelligence and decision-making capabilities as a new form of productivity to the chain world, incentivizing the collective intelligence of human beings to continue making correct decisions. veDAO is a community built for value discovery. A group of Web3 venture capital experts has created a decentralized autonomous organization (DAO) to screen and manage opportunities for cultivating returns. Its vision is to provide a one-stop Web3 venture capital and fundraising service. Using game theory, veDAO has built a market that is a win-win for Web3 startups, DAO communities, and investors, with the DAO community screening the best Web3 startups for investors, solving the problem of information asymmetry in the Web3 venture capital field. The community organization proposes the best Web3 venture capital strategies, solving the core issues of investment and DAO productivity.

Innovations in the veDAO Community Prosperity Model:

• In specific implementation, veDAO gradually selects true talents through a mechanism similar to the imperial examination system, building a world-class expert team and creating a continuous iterative signal and decision-making system through appropriate punishment and incentive mechanisms. This allows the DAO to continuously provide globally optimal investment strategies.

• In the decentralized venture capital track, veDAO is the only project that focuses on how to select the best investment projects, which is the most essential issue in Web3 venture capital.

• Based on the paradigm shift of future human social organization forms, veDAO has redesigned human, investment information, and decision-making mechanisms, bringing human intelligence and decision-making capabilities as a new form of productivity to the chain world, better incentivizing individual and collective value discovery.

• Based on the principles of openness, equality, competition, and selection, veDAO is currently the only project that gradually selects true talents through a mechanism similar to the imperial examination system.

• Through capability index evaluation and layered mechanisms, the decision-making that maximizes the interests of individual investors and the long-term interests of the system are consistent: that is, the tendency to choose high-yield and high-sustaining high-quality targets.

veDAO Shapes a Third-Party Market

(1) Web3 startups: Fundraising applicants who submit financing applications and are voted on by the DAO to determine whether they go online.

(2) Angel investors: Participants in Web3 venture capital.

(3) DAO: Scouts, professional voting members (wizards), investment strategy development members.

All ecosystem participants have consistent interests, mutual benefit, and the more they contribute, the greater the returns, maintaining market incentive consistency.

veDAO has two game theory architectures designed to ensure that the interests of scouts and voting professionals remain consistent with veDAO users in the long term. The projects submitted by scouts receive more votes from voting professionals (whether they are in favor or against), and the scouts can receive more rewards. The rewards they receive are linked to the collective performance of the voting professionals. Wizard members compete based on gamified algorithms to contribute to the discovery of new projects, research, decision-making, planning, and community building.

The concept of veDAO is to reward the best-performing individuals. Wizard members can receive rewards in two situations: the projects they support become projects that have increased by N times; the projects they oppose become projects that have decreased by N%. This design aims to incentivize wizard members to vote responsibly, independently, and with high confidence. Only wizard members with the best judgment can become winners in the Web3 venture capital game and receive the most rewards.

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veDAO is a decentralized investment and financing platform led by DAO, dedicated to discovering the most valuable information in the industry and enthusiastic about exploring the underlying logic and cutting-edge tracks of the digital encryption field, allowing every role within the organization to fulfill their responsibilities and receive rewards.

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