Shapeshift, a non-custodial cryptocurrency platform, made headlines last year when it announced it was decentralizing the entire company, with governance delegated to customers through its FOX token. The company, which has been around since 2014, performed the biggest airdrop in history to achieve this: it awarded 340 million FOX tokens to over a million recipients. As for what they do, in short, they enable a secure and private way for customers to interact with digital assets. This includes trading, tracking and earning income, and a variety of chains are built into the platform. Now, Shapeshift DAO is in the headlines again, in conjunction with UMA, an Oracle Optimist that validates knowledge for Web3 protocols. The pair announced last week that Coinbase Ventures and Chapter One took a significant portion of the newly created FOX Success tokens. The purpose of these new tokens is to raise funds for the project without selling tokens at a deep discount, which makes sense. But it’s the names involved that really made waves; whenever groups like Coinbase Ventures or Chapter One are in discussion, people will take notice. So we caught up with Kevin Chan, Treasurer of UMA, to get his thoughts on some questions we were looking forward to asking on the back of the ad. This includes an area that I think has become increasingly important in the cryptocurrency world – the role of venture capitalism and how incentives align with or contrast with ordinary investors, which is especially poignant in the context of how Shapeshift chose. raise these funds.
Cryptoadvisor: The press release claims that hit tokens offer an alternative way for DAOs to diversify their treasury – can you elaborate?
Kevin Chan: Most DAOs’ treasuries tend to be primarily composed of their own native tokens. These DAOs also have basic diversification needs and require multiple assets on hand so they can pay their staff and other contributors as part of their day-to-day operation. Therefore, it is important to maintain a balance of stablecoins. After the launch of a project, in addition to selling tokens at a deep discount to investors, there are few alternatives for raising funds. Success tokens offer an important fundraising alternative. Instead of offering investors a big discount upfront, investors are rewarded with more tokens if a success metric is met. Price can be that success metric. Success tokens work as a call option or even a KPI option, providing investor alignment with additional metrics like TVL, volume, new users, etc.
HERE: You claim that selling tokens to VC investors on an incentivized basis is also an advantage. Can you detail the role that FOX Success plays here, as well as give your thoughts on the state of VC crypto (given how interesting it has been to follow up over the past couple of years)?
KC: With respect to FOX hit tokens, investors are given a call option. Price is therefore the metric we are aligning investors and the ShapeShift community with. If ShapeShift is successful in building its protocol, the FOX token should recover. If it goes up, these successful token holders will be rewarded with more FOX tokens. Prior to the successful use of tokens, VCs often bought tokens at a discount in exchange for locking in their investment for a year or two, providing stability and support for the project. However, there are scenarios where this arrangement created friction between investors and the project and the entire community. Some community members do not like the idea of big investors being able to buy tokens at a discount, while they are working hard for the project and buying tokens at market price. Furthermore, as you approach the acquisition date – and if the tokens do not recover or sell – the community and project team may worry that these investors will dump their tokens as they bought them at a discount. Successful tokens only reward investors if the token goes up. This makes the community feel more comfortable and avoids some of the friction described above. VCs should also be attracted to this reward structure. VCs are not discounted by 25-30%; they are looking to earn 10x or 100x on these investments. So if they have more exposure to success, it would also be better for them. .
HERE: Many are concerned about wealth consolidation as Web 3.0 becomes more established – for example, we saw the ApeCoin airdrop to Bored Ape Yacht Club holders (currently worth $134,000), 52% of which were blocked by founders, original holders and those working at DAO. Do you think this is a concern for cryptocurrency, or do you think they are just growing pains and the vision of Web 3.0 facilitating a more democratic, transparent and accessible environment is on the right track?
KC: There is concern that cryptocurrency wealth is concentrated at the moment, but we are still very early in the evolution of Web 3.0. An important difference with Web 3.0 is that it is permissionless, transparent, and everyone is on a level playing field. In traditional finance, there are backroom deals that favor people in power and unfairly benefit established “old money” relationships or people with political influence. People with money have access to more investment opportunities because of favoritism and regulations that protect the status quo. In DeFi, many of these unfair advantages are removed. We can see where funds are flowing and who is doing what. You do not need previous wealth to have access to investments. The main idea and vision is that DeFi’s benefits, services and products are available to everyone. If you have an internet connection, anyone, anywhere in the world, should have the same access to opportunities. These are the ideals we fight for, but there is still a lot of work to be done.
HERE: Where do you see the cryptocurrency market next year? Do you think the geopolitical climate (Russia/Iran etc) or the monetary environment (inflation, Fed hikes on the horizon etc) paint an optimistic future for Bitcoin and cryptocurrencies?
KC: Yes, there should be positive long-term growth for cryptocurrencies and DeFi. Current geopolitics and monetary policy highlight the need for self-custody and asset management that are independent of government influence or control. In the short term, there is still a lot of uncertainty about how this plays out in terms of regulation and other government responses.
HERE: How do you think the FOX Success token would fare in a prolonged bear market?
KC: The successful FOX tokens will trade like a regular FOX token in a large bear market, assuming it is significantly below the call strike price. The investor receives a free option. This might cause some investors to lose interest in the project, but that would be the case for many projects in a bear market. ShapeShift, on the other hand, would have done better because they didn’t forgo the initial discount and secured more funds now and can retrieve the excess collateral stored in the success token (for the call option) and use it for future fundraising. . The success token will prove to be more efficient.