Debate: ICOs Are Better Than VC Funding | Matt O'Connor - Legion | Haseeb Qureshi - Dragonfly

Transcript

hello everyone so we have a we have a debate coming up next the debate title is called icos are better than VC funding so with the influx of the many methods to do a token launch funding has never been the same I am very excited to introduce you to Ashley from hardfork media to moderate this debate hey everyone we have a spicy debate title today all right so before we get started need you to take out your phones scan we're going to put up that a QR code right there need you to scan the QR code there's going to be two polls so the initial one is what do you believe what

is better and then towards the end of the debate we'll launch a second poll to see if you were convinced in either direction so up first uh we have Matt oconor co-founder of Ico platform Legion and he's going to be arguing the affirmative and hasb kesi managing partner of dragonfly will be taking the negative stance so Matt you have five minutes for opening arguments appreciate that all right here we go hello everyone let me begin with a few hard truths hard truth most icos have gone to zero that's true there's no way around that right what that

conveniently leaves out though is that most VC funded projects whether web 2 or web 3 also go to zero this is not a debate that about the typical outcome this is uh a debate about the outliers right typical zero for both cases so let's first consider positive outliers let's look at the pre tge funding for the top 10 outliers by market cap uh at 10 we have Avalanche they raised both private and public nine chain link Public Funding uh eight Tron private and public seven cardano public six Dogecoin no private funding five salana private and public four BNB private and public three xrp private two ethereum very

small private mostly public of course and one Bitcoin no private funding so nine out of 10 of the top outliers here conducted Public Funding or raised no VC funding and this is not a coincidence what these projects have in common is that they offered Community ownership and a relatively low fdv to people to get in and access early what about downside outliers this brings us to another hard truth hard truth many traditional icos were scams again this is true and yet the largest and most wealth destructive scams have been vc-backed teruna 18 billion destroyed about 40 million raised from VCS including several tier ones FTX 8 billion

destroyed 1.7 billion raised from VCS no Ico Celsius 4.7 billion destroyed 900 million raised from VCS blockfi a billion destroyed 1.4 billion raised from VCS no Ico fraud is by no means unique to icos nor does VC backing prevent blatant cases of fraud so where does this leave us with another hard truth hard truth truth icos are far from perfect but they are better than raising only from VCS why two primary reasons incentives and Community let's start with incentives VCS are professional

investors that manage other people's money they make money via a 2 and2 pricing model that that 2% means that every year if you manage a 100 million you get paid $2 million a year no matter even if you lose money for your clients this creates a clear incentive manage as much money as possible how do you do that you demonstrate paper gains hence the rise of low float High fdv launches that we've seen these launches are not problematic because VCS immediately dump the tokens they buy that's a straw man argument these launches are problematic because VCS are the only people who own tokens in the first place is this outcome good for the long-term uh outcome of the project no there's no

organic Comm Community is this good for the average blockchain user no they have no access is this good for VCS who need to show a return on paper so they can raise more funds yes it's good for them uh it's the only way you know it's only good for VCS whether they sell tokens or not of course I don't mean to demonize my opponent here VCS are not evil they just a have an incentive for high fdv launches even if it doesn't benefit other people and B there are benefits that uh icos offer Beyond Capital that no Fe VC no matter how well-intentioned can provide and this brings us to the second reason that iOS are better than VC fundraising Community whether it's

decentralization of nodes security of a network guerilla marketing product feedback user generated content there are so many benefits that a widespread Community you one thank you and only a widespread Community can provide no VC can replace 1,000 different token holders node operators yappers Dune Wizards and actual end users all supporting a project with skin in the game while community may be harder to manage than one VC relationship this is a feature not a bug building for users is ultimately how products win and in an IND in an industry of user owned networks it's somewhat absurd to suggest that concentrating ownership into the hands of only a few parties is Al a

better alternative to Distributing tokens to hundreds or thousands of community members so I Leave You final hard truth here both icos and VCS are imperfect but when faced with the choice of only choosing one would you rather give up VC funding and give up access to Capital from professional investors or would you rather give up icos access to Capital and Community choosing icos capital and incentive align Community is the obvious choice thank you all right all right thank you Matt now h your opening arguments you have five minutes okay so um I'm old enough to remember what actually happened in the

Ico bubble I don't know how many can we get a show of hands how many people were around during the Ico era like 2018 2017 okay it is very strange to me as somebody who lived through that to hear this resurrection of the idea that icos are a good idea right what I saw during the Ico bubble was one of the most rampant eras of absolute [ __ ] that we've ever seen as an industry right why did the Ico bubble collapse why did people stop doing icos when people talk about this o IO revanchist Vision that oh icos were so great everybody shared in this Collective Eden of being able to have the upside of all these projects that's not what people experienced what they saw was that there was lots and lots of [ __ ] and scams and frauds that were enacted directly on

retail investors and in effect it created a competition for who could scam retail the best right so Maddie brought up a bunch of examples of projects that raise money from retail investors in addition after raising money from VCS if you think about the projects that only raise money from VCS okay there's like you know web to or you know projects that don't have a token obviously but then what are the projects that only raise from icos the first one that comes to mind is bitconnect there are tons and tons of countless scams that arose during 2017 that their primary value proposition was that VCS would not touch them but individual investors would so let's St take a step back let's ask the question it's obvious icos went away there's a

reason why they went away and it wasn't regulation regulation didn't arise in 2018 2019 it arose much later right so why did icos go away the thing that's obvious when you when you take a step back of like why do founders choose to work with VCS why do founders choose to work with VCS unless you answer that question you can't really get an understanding of why V s might be better or worse than icos doing some accounting of well these chains took VC money these chains took icos that's ridiculous that's obviously not how you would answer that question you would you put yourself in the mind of an entrepreneur and You' say okay you're building a startup why would you choose to raise money from retail well here's what retail does okay one retail

will sue you right look at all these class action lawsuits now that are happening against the founders of companies how many of them do you notice VCS are suing Founders basically never happens it's only ever random people on the internet who get really mad at you and decide they're going to sue you how many people are giving you death threats how many people are saying oh you rug pulled us and they're going to chase you to the ends of the Earth and ruin your life now if you're a founder and you've barely built anything you're a seed stage founder you're a preed Founder you realize like look I I kind of know what I'm going to build but it's not really working yet I don't really have a team I don't really have all the ingredients yet would you rather go raise money from 10,000 randos on the internet who have

no idea what you're building have no idea how to underwrite it have no idea how long it's supposed to take like all they know is that they want to get rich right that's what it's like to raise money from a retail investor um if you raise money from a VC well a VC can help you they can actually help right the one thing you notice about raising money from Individual investors very early on is that most of them are just in your Discord asking when token but investors can help you to hire they can help you to build get build Partnerships do BD like sharpen your project figure out your marketing like there's a lot of things that go into building a startup that are not getting raving fans to retweet your tweets like getting people to retweet your tweets is like step 500 in building a startup it is not step one

or even step 100 right only when you actually have a product that actually has any possibility of product Market fit do you even care what people say on your Twitter and that's the stage at which retail investors tend to be the most valuable because yeah VCS look VCS cannot build religion indiv indviduals can build a religion around what you're building but there's no point building a religion around something that doesn't actually fundamentally solve an important problem that's what VCS are there for so if you look at why so many projects raised from VCS it's not because there's some cabal of people that force you to take VC money if you go raise a startup right the individuals who are raising startups they choose it every cycle whether VCS are liked or disliked every cycle they choose to work

with VC's why because in a free market no [ __ ] Wonder CES offer a more valuable product when you're at a or early stage company than uh a retail investor will now it's certainly true that at the end of the day you want both at some point right most projects eventually cross the chasm they go do the echo sale they go do the coinless sale but they do that or they do go do the legion sale but they do it when they've already gotten VC validation how many of the projects that are listed on Legion don't have VCS that already invested in them right which tells you what is the essential ingredient to actually being able to build a useful startup is it having much people in your Discord or is it building the right thing thank you thank you thanks to St okay now

we're going to allocate three minutes each for rebuttal so Matt you're up first I I appreciate the passion my opponent brings to the discussion um brought up a lot of points there um let's let's let's break this down right so the the core argument here is essentially that VCS are the ones who are catalyzing growth somehow catalyzing you know the the product's purpose to begin with I think you mentioned you know you need to solve a problem who has the problem is it VCS or is it the average user that you're selling tokens to in an Ico for instance right I think it's also an easy position to take that okay you must raise VCS first before doing any kind of Ico when uh regulatory clampdowns maybe you know regulation

changed years later but enforcement certainly came quicker than that and regulation has largely strangled public sales and icos in in recent years until very lately with changes like MAA markets and crypto assets regulation in Europe and some of these task force proposals that are hopefully coming to fruition uh in the US from the SEC so I think this gatekeeping this kind of like we are holier than thou we know you know which projects to fund type of attitude um you know can be misinterpreted that that at least um leads to less experimentation less variety of what's backed at the very least and I would argue that there's less centralized way to still quality control right you can experiment with algorithms that extract

uh expert opinion and knowledge from wisdom of the crowds like the algorithm surprisingly popular for instance something that Legion is already exper experimenting with and I would argue that the VC incentive here is is broken right even if you buy into the premise that the VCS are the ones catalyzing the growth the founders you know the the partners of these VCS they can participate as angels in icos with their own money I think the incen shift when you start acting as a professional investor you're earning these additional fees that someone who's investing someone who's participating in a public sale an Ico or as an as an angel uh they are only investing their own money they have an incentive that's directly aligned with the success project thank you whereas a VC has

tangential or unrelated incentives as well um so let's not forget that building products for users is ultimately how products win right solving problems s for users is ultimately how you win and I think it can it's easy to demonize icos looking at you know these blatant cases of fraud again we saw blatant cases of fraud that were VC backed many of the biggest ones but icos can also be customized right if you have 30 seconds certain goal or certain objective as a project um for instance vesting length auctions so that you're attracting the people who bid the longest have longest term incentive alignment with the project Merit based icos what we call at Le for Cil resistance you can customize the

mechanism by project but a VC's business model of 2 and 20 that warps incentives and that cannot be customized by the project so remember it starts with users you have to have users time thank you thanks Matt all right you're up now H rebuttal okay so I I I do think it's a little bit Rich because I'm if I'm not mistaken Legion raised money from VCS uh how many indiv individual users that use your platform own equity and Legion I it's my turn to speak so I'm going assume the answer is zero um like look the the the story that before regulation projects were raising money from icos and then only when icos were disallowed they

started raising money from VCS is [ __ ] that's not true that is a revisionist history every single one of the projects that he mentioned avac chain link cardano salana xrp B BNB every single one of them raised VC money first before doing their Ico and you see the same thing on the products that are listed on Legion see the same thing for the products listed on Echo all of them have VC funding first and when you go on the echo page or the legion page and you see what is this project do you have the time as an individual investor to go read the white paper to go understand everything this team has done go research their background go understand you know what how much of the product has been built how much are they bullshitting how much of these metrics are real of course you don't why would

you you don't have the time to do that right so what do you do you go and see who invests in in this thing whether it's the sponsor on Echo or whether it's the VCS that are on the cap table you look for signals right you look for signals we use signals we're human beings we use specialization and economies of scale and comparative advantage in order to make useful economies okay what is a VC a VC is somebody who is specialized in underwriting projects with limited public information that's why it's called private Equity that's what Venture capitalists do they're a subset of private Equity investors that find things for which the public is not generally aware of what they're doing okay we this is all that we do and the reason why Founders work with us is not

because it's illegal not to work with us not because they're afraid of getting sued the reason why they work with us is that we help them and when we help them eventually the goal for any project is to eventually get their token in the hands of millions of people right that's everyone wants to get to the same place but getting to that same place requires you to first and foremost be able to sharpen your product and to give the rest of the market a signal that you're good enough right if you take money from hack VC instead of taking money from dragonfly that says something about you right and everyone knows it this is not a this is not a mystery why people care if you if you put something up on Legion and you don't show who the VCS are do you think more people will sign up or

less the answer of course everyone knows it's more right that's why people find VCS to be such a useful signal this idea that VCS are pulling one over their LPS that because of this two 20 model that that's why VCS are [ __ ] you they're [ __ ] everyone because all they want is paper markups is nonsense it's nonsense it implies one that LPS are stupid okay I know LPS they're not stupid okay second everybody's down it's not VCS it's not non VCS it's literally everybody go find me VCB projects and non-vc back projects both of them are down so what what you're talking about is nothing to do all right that's it I'll I'll I'll that thought in my closing shape thanks to okay so I'm going to launch lach the second poll

okay we're entering uh closing arguments now so each debater has 2 minutes for their closing arguments I'm going to launch the last and final poll and you have to vote were you convinced where do you stand now so two minutes closing arguments you can begin Matt thank you um so let's let's be perfectly clear right no one is saying VCS are worthless no one is saying Ico or maybe maybe you are saying iOS are worthless but both bring value both are imperfect the bottom line is that today we're not debating you know what what we are debating is choosing only one option icos or VCS right give up VC funding or give up icos let me leave you with a few questions is giving up icos really the

better option when nine of the top 10 projects conducted Public Funding or raised no VC is giving up icos really the better option when VC backing has consistently failed to prevent scam and frauds as well is giving up icos really the better option when air drops are industrially farmed time and time again rewarding Cil Bots and mercenary capital is giving up icos is really the better option when regulatory changes in major markets like the US and EU that have been suppressing icos for years are just around the corner or or starting to arrive is giving up icos really the better option minut thank you when Ico mechanisms can be tailored to a a Project's given objectives to customize

and achieve their specific values and um and goals and it's giving up Ico is really the better options when VCS have an incentive for lowf float high fdv and admittedly by their own admission they cannot replace a thousand different token holders node operators yappers Dune Wizards Etc I want to leave you with a final question take a moment to look around the room and ask yourself if ethereum had been funded only by private VC funding if ethereum had never conducted an Ico would any of us right now be here would any of this all of this be possible I think we all know the answer I think we

all know that when we must choose only one between VCS and icos icos are the only choice thank you okay thanks Matt all right final closing argument hi over to you yes so one thing you have to note when you're entertaining this debate is the way in which the term Ico has metamorphosed over time right when we were first using the term Ico it was not the same thing as a crowd sale okay an Ico was this idea that you're raising money before you've built the thing that's what Ico meant at the time okay uh now and of course the also idea was like no kyc no controls over anything whatever

obviously the way in which we mean the word icoo has changed over time and as a result it encompasses a lot more things that I think are obviously less objectionable right but if you start from the very just basic question of If This Were true then like why is Legion VC backed why didn't they Ico why is Eko VC backed why didn't they Ico why is Kito VC backed why didn't they Ico the story that all these chains I mean you go look on page one of coin market cap how many of those chains just did Ico and did not raise VC funding okay the answer is basically like five at most all right the story that like most of them in the top 10 is absolutely wrong go stud your history right ethereum took VC funding from Fen buer look it up uh

Bitcoin of course had an Immaculate Conception in this cycle the only two products that did not have VC funding were hyper liquid and Jupiter both of them had wealthy Founders who self funded to the tunes of tens of millions of dollars okay that is not the stereotypical founder most Founders don't have that kind of money and most Founders retail would not take a bet on them because the way that you get retail on board is by first building a movement building a religion otherwise what retail investor is going to spend the time to figure out what you are and what you're building right the discovery problem is fundamentally what VCS solve and yes it's a it's a kind of populist feel-good narrative that oh you know crypto is all about decentralization democratization but at the end of the day it's also about the free market and

the free market has told you for basically 10 years now VCS are useful at exactly this and that's why they still exist and that's why they're so important time okay that brings us to the closing of the debate so put in your final votes uh we got about a minute 45 seconds on the clock um we'll count down 30 seconds just to everybody put in their votes and we'll announce the winner very soon so what's your post- debate analysis I I mean listen I think you it was very convincing both ways I'm more of a risk adverse person so I'm always but I you have to vote to see the results though yeah I know I I'm like you know it's I'm I probably went into this thinking like

okay I would want a VC VC funding for a project then again not all VCS are good so we've seen some shady actors out there and your point about ethereum we wouldn't be here that's very compelling to end on so of course nothing against dragonfly think is a good fund as funds go appreciate that appreci that of course you guys are a great project no uh no no ill will towards icos uh generally but we got a little scrappy but it was all all in good good faith Okay so results are in um let's uh close up now the pre-debate so where people stood was 57% said yes icos are superior and 43% said no way VC funding or go

home now post debate results we have 51% saying VC funding and 49% icos are the way to go that was very very tight well well done well so as your prize you get a regenerator stuffy or plushy look at that awesome we got incredible eight seconds so thank you everyone really appreciate it thank you thanks everybody