Thinking about the formation of crypto capital: Why would the return of public offerings be hugely beneficial?

Reprinted from panewslab

01/19/2025·4days ago

Author: Regan Bozman , once the first employee of CoinList, now Lattice Capital

Compiled by: Felix, PANews

The strong return of ICOs (Initial Coin Offerings/Public Offerings) has been of great benefit to the crypto space and has created a stronger base of token holders for this cycle.

The story began in 2010 when renowned investor Naval saw an opportunity to introduce retail investors to venture capital and democratize the asset class.

He launched AngelList, and by 2013, the platform had helped startups raise more than $200 million.

AngelList's original product was an email list (hence the name) used to connect startups with investors.

It sounds silly and basic, but Naval has become very influential in Silicon Valley, with tons of companies, including Uber, raising money through this email list.

In 2014, AngelList launched Syndicates, which was a turning point.

Syndicates transforms AngelList from a platform-focused investor to a lead-focused investor.

Keep this distinction in mind, as we’ll cover it later.

Equity crowdfunding never finds PMF (product-market fit) due to adverse selection – why would a great startup that could raise money from VCs want to raise money from a random platform?

(Note: Adverse selection refers to the fact that the true situation of the party with the information advantage cannot be known to the party with the information disadvantage before the transaction occurs, causing the party with the information disadvantage to make the wrong choice)

Syndicates turns that idea on its head, focusing the investment on a single lead investor rather than AngelList itself.

Syndicates provides leverage to angel investors who have trading experience but not necessarily capital.

For example, John Smith was an influential marketer who startup founders wanted to work with, but he lacked funding.

John Smith gets a $300,000 allotment in a hot deal. He invested $1,000, formed a syndicate, raised another $299,000, and became successful. Then:

The startup started working with him
He evaluates his investment
Retail investors gain investment opportunities

Syndicates quickly grew, providing funding to hundreds of companies, including Pillback and Brex.

It has also helped launch the careers of many influential venture capitalists such as Semil Shah and Ed Roman.

Anyway...back to crypto.

In 2016, I moved to San Francisco, worked in the venture capital team of AngelList, and started doing cryptocurrency transactions here and there, but that was not the point.

In addition to equity stakes in startups, venture capital funds are subject to regulatory restrictions that make public offerings challenging.

However, Naval became a true crypto believer earlier than most, spinning off CoinList out of AngelList in 2017 to focus on cryptocurrencies.

CoinList’s mission is to build a seamless, compliant way for companies to conduct initial coin offerings.

Interestingly, CoinList does not deal with the adverse selection problem faced by AngelList and therefore remains platform-centric.

While a fast-growing seed-stage SaaS company has no interest in 1,000 retail backers, every company in the crypto industry wants as many backers as possible.

The fact that CoinList found a truly crazy PMF on day one, with its first customer being Filecoin and raising $200 million, says it all.

During that cycle, there were some good project sales like Stacks, but by the second quarter of 2018, things took a turn for the worse.

CoinList hasn’t made any revenue from token sales for over a year, and the situation is dire.

Regan Bozman (the author of this article), Mike Zajko (formerly Director of Sales at CoinList), and other CoinLista members would go to the bar on Friday afternoons, drink six pints of Guinness, and think about what they were doing.

But the market recovered, and by the end of 2019, the team wanted to issue tokens again. It soon helped launch ALGO, NEAR, SOL and a few other tokens.

The token sale offering is largely the same – the team still wants as many token holders as possible.

The big difference is that, so far, most lawyers have told teams to avoid the U.S. entirely. So these are sales that exclude Americans.

CoinList has had its ups and downs, but has launched a range of tokens that have allowed users to make a lot of money.

At the end of the day, if you're in this industry, this is the KPI.

Starting in 2022, the rules of the game shift from token sales to airdrops.

Once the OP and ARB abandoned the public token sale, most blue chip teams issuing tokens would have taken the advice of their lawyers and did so.

Eigenlayer, ZKSync, Jito, Morpho, Magic Eden, none of them conducted ICO.

This makes the first nine months of this cycle very challenging.

Market structure shifts the majority of returns from retail investors to venture capitalists.

Retail investors are in this business to make money, and the disruption to token sales is a huge setback.

Talked to dozens of founders last year about token offerings. Almost everyone understands the benefits of a public offering and wants to do so, but it is difficult to go against the advice of an attorney. So the market has been stagnant.

That all changed in the fourth quarter of last year. Trump’s election opened up the design space for coin launches.

Cobie launches public sale platform Echo
Matty launches public sales platform Legion

Public offerings are back with a bang.

I personally have great respect for both teams, but the core products of these two websites are not new.

Legion is an on-chain CoinList - platform-centric
Echo is an on-chain AngelList - leader-centered

When CoinList launched in 2017, it was not feasible to build the business on-chain, but if it were rebuilt today, this approach would be taken and user assets would not be held in custody.

One of the biggest challenges CoinList faces is that the cost of running a centralized crypto company in the United States is very high, and it is difficult to sustain profitability without sufficient recurring revenue (such as transaction fees).

Legion may be faster and easier to perform due diligence than CoinList because it is not located in the United States.

This will obviously have a negative impact on subsequent development, but it also means it can scale faster.

The core product of Echo is Syndicates, the on-chain version of AngelList.

Leaders like CMS Holdings bring their ongoing deals to Echo.

They get free leverage
Project expands its community
Retail investors get priority access

This is a great model, I wish I could come up with this model.

AngelList’s Syndicates always hit a bottleneck in normal venture capital because when anything goes public, adverse selection inevitably occurs.

Their core business is now driven primarily by funds rather than Syndicates.

But this kind of adverse selection (largely) doesn't exist in cryptocurrencies because teams aren't worried about whether their metrics are public (it's all on-chain) and they actively want a large community.

Hats off to Cobie, he really is the GOAT.

Additionally, AngelList had to spend years building the financial infrastructure to manage its business.

The software used to manage the capital tables, allocations, accounting, and carried interests of hundreds of funds and tens of thousands of investors around the world is numerous and extremely complex.

Blockchain solves this problem. Echo is able to handle incoming funds, manage the ledger, and process on-chain allocations with a hundredfold increase in efficiency.

Now they still face the incentive problem that AngelList faces, which is its free leverage on trade leads.

And there's some potential adverse selection, as heavily oversubscribed deals may not make it to the Echo.

If you manage a fund but you only receive distributions from that fund in trades and not your Echo Syndicate distributions, then you have a fiduciary duty to investors and must prioritize that fund.

So in theory, any given best deal might not make it to the Echo.

But this is a known risk, and a basket of early trades on this platform will likely make money.

I am still very optimistic about Echo, and it is expected that by the end of this year, more than 50% of reliable encryption teams will raise some funds on Echo. This is great for the field and a return to its founding mission.

PS: Lattice Capital can invest if Cobie is no longer anonymous.