Introduction
Fundraising is an important part of crypto, driving lifeblood into projects and giving them the resources needed to survive and grow. It all started with the first Initial Coin Offering (ICO) — Mastercoin — which took place on the Bitcoin network. People were able to send bitcoins to receive Mastercoin tokens in return.
Then came Ethereum which cemented ICOs as the de facto way to launch new blockchain projects, something that has shaped the crypto scene we know and love today. Since companies in the crypto space are able to raise capital without the need to go through intensive regulatory processes and timelines that traditional companies face, this structure also gave birth to a lot of ill-intended projects aiming to quickly raise funds yet never fulfilling the vision outlined during fundraising. This led to a DAICO fundraising proposal by Vitalik Buterin in 2018 to have smart-contract vested funds that only release when projects achieve certain milestones. Alas it lacked the necessary tools and support to make it work.
Fast forward to today, the fundraising market has grown rapidly with thousands of projects being launched, propelling the crypto space to its current popularity. With growth like this, there is increasing demand for a higher quality curation of projects and an ecosystem to support it.
As such, Sino Global Capital is excited to announce our investment in Impossible Finance. In this investment thesis, we will share our thoughts on the importance of fundraising and how Impossible Finance will bring about positive changes to fundraising, powering the best project-launching mechanisms, bringing together investors, users and projects into a cohesive multi-chain ecosystem.
Sector Analysis — Launchpads
The crypto market is growing rapidly; over 15,000 coins have been listed on CoinGecko over the last 3 years. As you can see from the chart above, projects have been launched and listed regardless of market conditions since 2017. However, when we look at the velocity of raises throughout the years, we see, unsurprisingly, that projects get funded the most during bull markets and least during bear markets both in terms of the number of raises as well as valuations.
Launchpads are a segment of the crypto market that has seen increased demand and growth due to the sheer volume of projects that are launching to tackle the problems and seize the opportunities that the crypto market has to offer. High quality launchpads are popular among retail investors because they provide a much needed service; quality due diligence. Due to the sheer volume of projects and scams launching on a daily basis, it is incredibly difficult for the average retail user to find quality projects and almost impossible to perform investment level due diligence on the team. Here is where launchpads truly add value as a bridge between legitimate projects looking to raise capital and eager retail investors and who wish to help grow, and profit from, the cryptocurrency industry.
It is a launchpad’s responsibility to source and curate projects first before offering them to retail participants. As more of these quality projects launch and gain traction, the launchpad naturally onboards more investors. As more investors flock to the launchpad, the probability of successful project launches increases and as more successful projects launch, the launchpad can expect increased deal flow. This virtuous cycle is key to the success of launchpads.
Over the long run this cycle will also be beneficial to Impossible Finance, as faith and trust are built by both project applicants and investors, knowing that the launchpad will do right by them. For Launchpads, as the intermediary between projects and investors, it is crucial to maintain a balance between all parties. A failure to maintain this balance will all but ensure the failure of a launchpad as trust and faith get eroded. In summary, the main drivers of the success of a launchpad are quality project curation and developing investor demand.
Current Problems
To understand the problems that current fundraising processes face today, we must first delve into its three main participants; retail users, institutional investors and projects.
Retail investors are often the last to be given the opportunity to invest in a project as most teams aim to first raise seed or pre-seed funding from their circle of friends and/or from strategic venture capital funds. The introduction of public sales (ICOs and variations of it) provide alternative avenues for projects to fundraise, allowing early stage projects access to a large audience of retail investors should they so wish. However, for the average retail participant even this does not give them the best access; high public sale valuations, gas wars, bot front-running and private white-listing all work to tip the balance away from retail investors.
Take the following as an example of a public sale:
Below is the 5-minutes chart of a public token sale listing on an Automated Market Maker (AMM). For discretion, the project name is not disclosed. but there are many similar examples to be found throughout the industry.
Public sale listing price of $0.05.
Immediately upon opening of the liquidity pool, front-running bots rushed in to purchase the tokens causing it to rise all the way to $5 and subsequently dump as bots started taking profit on a price increase of 10,000%. For the average retail investors that intended to participate in this public sale, many found themselves on the back foot very quickly.
Another issue that retail users face is being awarded an allocation via white-listing. White-listing can be a good method to reward early supporters and fervent beta testers of a project. However, it is sometimes unfair, as white-listing is often given/chosen discriminately according to team members’ preferences despite what is marketed to the public as a fair selection.
These issues pose a problem to retail investors placing them at a disadvantage from the beginning. Launchpads that strive to be successful in the long term should advise projects on methods of fundraising that can be fairer for both the project and retail investors, keeping in mind that a crucial balance needs to be struck for long term success of all participants and industry.
Institutional investors are often faced with a deluge of projects to look through and have to face intense competition for allocations in quality projects. Often-times projects are too early in the cycle and do not have a tangible product to evaluate.
Projects are faced with the tough choice of pursuing fundraising on a rushed schedule versus focusing on building first. Raising funds as a project can be tough and time consuming, draining precious resources away from the team, slowing down the building of their product and vision. Some teams who choose to raise by themselves via public sales have to dedicate resources to build the necessary tools and features in preparation. Other teams who choose to raise via private sales may find themselves spending valuable time meeting with many institutional investors. Besides that, some launchpads charge upfront, deterring projects from using them.
The Impossible Finance Vision
Impossible Finance is a multi-chain launchpad aiming to cover EVM compatible chains first, followed by other non-EVM chains. With a first-principle approach, they focus on building a business-to-developer (B2D) model that addresses issues inherent in legacy launch infrastructure while creating specialized, sector-specific investment tracks that direct allocation towards power users and away from speculators. In doing so, Impossible intends to provide an end-to-end solution to help projects raise once and build forever while allowing retail and institutional investors alike to participate fairly, creating sticky support to fundraising projects.
Team
Calvin Chu is a builder at Impossible Finance, Formerly of Binance Research he has valuable experience leading Binance Staking across 30 blockchains while supporting due diligence in projects applying for the Binance Launchpad. His insight and experience will help shape the launchpad into a prime candidate for consideration for projects and users alike seeking a more open fundraising option. Other members of the contributing team have backgrounds in payments, ride sharing, centralized exchanges and layer 1 blockchains to help scale the infrastructure to support project teams.
Key Advantages/Features
Not your average launchpad, Impossible Finance will build key features to help projects launch successfully, mitigate most of the friction that is involved in fundraising and address key issues that exist today.
Multi-chain Launchpad
Providing accessibility to the various chains that exist in the crypto space today is an important element in getting deal flow from projects and demand from users. Beginning on Binance Smart Chain, Impossible Finance will launch on other EVM-compatible platforms followed by other non-EVM chains. For projects that are looking to launch, performing a public sale on it’s native chain is important to ensure required support and be more accessible to users. Beyond that, recently many projects look to launch across multiple chains, allowing them to tap into additional benefits such as more liquidity, expanded user base and lower fees among others. This would be a key advantage in securing more deal flow in the future as Impossible Finance would be in a great position to support multi-chain launches.
Multi-purpose Dex
A key part of the Impossible Ecosystem, Impossible Finance would be able to provide liquidity for initial launch sales and secondary markets for any asset through Impossible Swap. Providing an avenue for price discovery post public-sale is crucial for projects to raise awareness and also to decentralize holdings by distributing tokens to more users. Providing liquidity directly on the platform is more convenient and easily accessible to long term supporters. Impossible Swap features innovations to improve capital efficiency as well as gas efficiency resulting in better pricing and less slippage. For more on the technical details, check out this medium post.
Smart Launches / SSIDO
Impossible creates targeted launchpads by creating sector queues for stakers to signal their affinity for certain projects that fit their thesis, and then earn fair allocations into project launches via the IF Decentralized Incubator Access Tokens (IDIA).
IDIAs are liquid instruments that give investors priority access to deal flow and allocation within a specific sector. To discourage sector hopping, there could be locks or fees incorporated in the future. This matchmaking also deters “mercenary investors” that look to speculate and flip, instead prioritizing long-term investors for access into highly sought-after project launches. This mechanism seeks to reduce speculators and instead foster a more loyal and long-term oriented user base.
Impossible will be able to cover many sectors, starting with User-facing Tools, Assets (Synths), Markets (DEXs and AMMs), NFTs, Lending, Scaling, Privacy, and Infrastructure. Further categories can be added via IF governance proposals.
Impossible provides solutions to some of the projects mentioned above via the following mechanisms.
Primary Options:
- IDIA Pre-Allocation Queues — The more a user stakes in a sector, the higher the priority they get via “Right of First Refusal”. This incentivizes investors to become the leaders of a sector. Guardrails such as target “Gini coefficients” for sale participation and max limits (no investor can surpass 20% of the total track amount) can be added as constraints, rewarding all users staked within a sector prior to the announcement of the launchpad project, and offers the right to claim a launchpad allocation proportionate to the total amount staked in the sector. This mechanism ensures that a proper distribution can be allocated to the project’s most loyal and fervent investors as opposed to just a few participants taking up the entire allocation.
- IDIA Priority Auction — Similar to a combination of LBP and gas fees, IDIA per $ of allocation will follow the LBP curve during the auction window. Users submit bids of $(fixed rate) + IDIA (based on real time LBP curve) to get access into a particular deal. This assigns preference to users who signal interest by bidding with IDIA for allocation post-announcement. This mechanism ensures that front-running and jamming maximum allocation does not work (users will pay a substantial premium) as over time the LBP will adjust and trend downwards.
Additional Options
- Onchain whitelisting — (either by KYC powered by Synaps, Tor.us, Argent, other wallet integrations, DAO participants, Galaxy, POAP, Degenscore, or Rabbithole XP, etc.) to attract power users or verified crypto users.
- Retroactive Usage-based qualification — to offer limited sales to targeted addresses who have utilised certain onchain products
- Lucky draw — airdrops for IDIA holders (sector-agnostic) for allocations.
- Smart Drops — yield farming opportunities for liquidity providers and token holders of IDIA launch partners.
Furthermore, another key feature that Impossible offers to projects and investors alike is the DAICO model mentioned above. Projects that want to show that they are true to their word can employ this model to increase investor confidence. Funds raised will be unlocked in tranches according to milestones that the project has achieved. Unlocked funds can be used by the team to grow and expand while locked funds will be allocated to yield-generating AMM pools contributing to the liquidity of the IF ecosystem — yield generated can be used for expenses for the project. This creates a win-win-win situation for all parties involved and instills a high degree of confidence in investors to the project.
Projects are able to use a combination of the above options to distribute their tokens and achieve their goals. Whether it’s for marketing — generating positive vibes and anticipation, or for rewarding loyal users — alpha/beta users or bug reporters, Impossible is there to provide these options to projects. Through these options, projects are able to concentrate on the tasks at hand and have peace of mind on their launch.
In the long run, the launchpad is designed to support decentralized integrations, such as no-loss investing for users in stablecoin vaults and re-investing project team’s treasuries into stablecoin vaults to create self-sustaining IDOs — projects can generate yield from capital raised by adding to stable vaults and use it to fund their development.
Post-Launch Service Suite
The launch sale doesn’t end Impossible’s engagement with project teams — Impossible is designed such that it’s incentivised to align itself alongside project teams by providing long term support to projects in a post-launch advisory capacity. Through this design, it ensures that Impossible has skin in the game to help the project succeed and also align with users who have invested into the project pre/post launch.
Insurance Fund
Impossible will also set aside a portion of its governance tokens and revenue from its product lines to create an insurance fund that ensures users have peace of mind depositing in Impossible smart contracts. In the Defi world there are still many unknowns and vulnerabilities despite all precautions taken, hence the insurance fund will function as a backstop in case disaster happens.
Governance
Impossible Finance Decentralized Autonomous Organization (IFDAO)
Impossible is working on progressively decentralizing its infrastructure and processes via the IFDAO, by which users will be able to play a bigger part in directing the scope and structure of the Impossible Launchpad ecosystem.
IFDAO is a DAO structure with 2 tokens, IF and IDIA.
- IF functions as the primary governance of the ecosystem, governing all things Impossible Finance (Details here).
- IDIA functions as governance for the launchpad to tweak various parameters or proposals, and also govern the IDIADAO, a public on-chain fund to invest in Impossible projects. (Details here)
Through these mechanisms the vision of creating a decentralized launchpad can become a reality. We at Sino believe that having a strong decentralized community that is actively engaged in a project is instrumental to the success of a project and are bullish on the success of IF.
Risks
- Cyclical/Seasonal Demand — Fundraising in crypto has a cyclical trend, bull and bear markets. This has an impact both in terms of number of raises, and the valuations at which projects are able to raise. For a launchpad, this can pose a problem. During bull markets, there is a high volume of deal flow as teams organize quickly and seek to raise funds, creating pressure in the quality of project curations. During bear markets, there is a lack of demand to fund projects thus resulting in projects unable to raise target funds.
- Competition — Intense competition that Impossible Finance could face are chain specific launchpads that focus specifically on their ecosystem, as well as strategic funds and institutional investors. Being chain specific, these launchpads could be in a better position with stronger domain expertise to attract some types of projects and appeal to domain specific users.
Conclusion
We believe that Impossible will be a game changer in the fundraising space. As Impossible builds out its product suite and ecosystem, it will solve many of these key issues and become a strong competitor to existing launchpads. We look forward to Impossible’s growth and supporting both the project and it’s community in the future.
Research by @cweihan.
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained here constitutes a solicitation, recommendation. endorsement or offer by Sino or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
