With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

Are retail investors being shut out of DeFi funding events? An article to learn the best way to get involved in early stage investing.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

There has been a lot of funding activity around DeFi this year. dYdX recently raised $65 million in a Series C round led by a16z and Polychain. Balancer Labs diversified its funding by raising $24.5 million led by Blockchain Capital (which also just raised $300 million). At the end of May, Set Protocol also closed a $12 million round of investment.

This was all done in the last few weeks, but there is a problem that retail investors cannot participate. These opportunities are only open to qualified investors, well-connected individuals and top-tier investment funds.

While the DeFi protocols cannot be blamed as they are following the rules, it is clear that this needs to change. Cryptocurrencies are meant to open up financial services to anyone, and early-stage investing should be one of them. So what are the opportunities for the average person today?

In this article, these questions are explored by Dove Mountain Data, a data provider for crypto investment and financing, who are building a comprehensive database for cryptocurrency investment rounds. Here’s how retail investors can participate in early-stage investment rounds and earn investment returns similar to a16z, Paradigm and others.

DeFi Funding: How it works, exclusivity and how to get involved
Cryptocurrencies have gone through plenty of boom and bust cycles over the years, and the funding market is no exception.

Many funds established during the 2017-2018 hype cycle failed to survive the subsequent bear market and were replaced by smaller funds focused on DeFi. As DeFi has gained notoriety over the past two years, well-known venture funds such as a16z and USV have begun participating in DeFi funding rounds (e.g., Uniswap, MakerDAO and Compound).

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

This article will provide background information on how financing is done at DeFi, why it is difficult for retail investors to participate, and potential solutions that will go through the following.

  1. how DeFi financing works
  2. Why retail investors struggle to participate in early stage financing
  3. the best way to get DeFi investment

DeFi financing: different from traditional financing
To understand how DeFi financing is different, let’s look at the main players: funds, venture capital DAOs, angel investors and labs. Given the relative nascent nature of DeFi, many of the investors involved in the funding round are different from those seen in traditional financing.

The distinction between hedge funds and venture capital funds is blurred. Funds can utilize different strategies with variables such as time horizon, risk tolerance, liquidity provision and yield farming. Some are said to be “DeFi native” (Mechanism Capital, CMS Holdings, Spartan Group, etc.), others can be categorized as “DeFi comfortable” or “DeFi curious”.

Interestingly, more and more Tier 1 funds with significant assets under management are gradually focusing on DeFi following the support of successful CeFi companies such as Coinbase.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

Angel investors also play a key role in this space. Successful DeFi builders, heads of DeFi funds, or cryptocurrency executives can (and often do) write checks to back promising DeFi deals. These individuals are able to secure deals because they bring clear value to the founders.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

Before we delve into the other types of investors, let’s look at the country distribution. From a capital perspective, the U.S. clearly dominates, holding nearly half of the funds actively invested in DeFi. Singapore and China are two fast-emerging DeFi funding hubs, with Europe following close behind.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

When it comes to the location of DeFi’s core team, the U.S. has a smaller share, at about 30%. Interestingly, Europe seems to be a popular place for DeFi builders, albeit with a smaller share of capital.

DAOs represent another category of investors. MetaCartel Ventures is the best known in the DeFi industry, but others such as DuckDAO and The LAO are also very active. Even though they can be considered the syndicates of the chain (French translation: one of the forms of monopolistic organizations), being part of an investment DAO may require some connections and is not as easy as one might think. This makes Syndicate Protocol’s mission to democratize investment through the launch of investment DAOs imperative.

Finally, labs and gas pedals are a hands-on type of investor and can gain an advantage in a protocol where they provide operational expertise. They can also operate as funds through direct investments. So far, Zokyo and Ellipti have invested in a number of successful DeFi protocols.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

As is the case with most capital ecosystems, the reputation of investors is their strongest asset. Funding rounds are competitive, and founders have a lot of power in selecting their investors. When deciding to involve an investor in a funding round, founders typically consider the investor’s connections and past investments.

Pre-seed, seed, extended-seed, and private…… are all common terms that DeFi professional investors hear every day. Eighty percent of publicly announced funding falls into one of these categories. Even though the space has matured with the growth of protocols like dYdX, which raised $65 million in Series C funding led by Paradigm, less than 15% of the funding has been Series A or Series B.

The most common DeFi funding path begins with an angel round, followed by pre-seed, seed and so-called private placement rounds, with varying deal terms and valuations. Early-stage funding is usually crowded with DeFi funds focused on seed rounds.

There are good reasons why community funding may not make sense in the first funding process: as Kerman Kohliput says, founders need to have the right legal structure in place to avoid creating a stress-filled environment.

What also makes DeFi financing different is its strong reliance on market volatility. When the market is hot, valuations can range from $50 million to $100 million, even for projects that don’t have any products. Such high valuations can have an impact on lock-in and vesting schedules. deFi’s recent hype has sent project valuations soaring, pricing out potential angel investors who want to enter the DeFi investment space with a small investment.

Why are retail investors excluded from early stage funding?
There are a number of reasons why it is often difficult to secure early stage investments.

Ticket size: Founding teams often require large minimums ($100,000-$25,000 is common), excluding potential retail investors.

Knowledge: As an experienced investor, you can leverage close relationships with other investors and deal sharing strategies. If you are not in these circles, you will usually hear about a round for the first time when it is announced (and therefore after that round has closed).

Access: Building a brand and reputation has become a prerequisite for getting into the most promising early-stage programs. Everyone knows Paradigm. of course, this is not the case for the average DeFi market participant.

Added value: Founders are increasingly frequently asking investors for operational support in token design, business development and security audits. Running a fund and owning an existing portfolio company will obviously make this easier.

How to get involved
While early-stage fundraising rounds are still exclusive, there are a growing number of ways you can get involved.

Initial DEX (Decentralized Exchange) Products (IDO)

IDOs are projects that launch their tokens through a decentralized exchange (DEX). Over the past year, IDOs have become the most common crowdfunding model for DeFi projects. IDOs represent an improvement in fundraising, as they allow DeFi startups to raise funds more fairly and transparently than previous iterations of blockchain-based fundraising.

The first IDO was created in June 2019 by the Raven protocol, which developed a decentralized network of distributed computing nodes for artificial intelligence and machine learning. It lasted 24 hours and allocated a total of 3% of the token supply.

Unfortunately, in many cases, retail investors were excluded from the IDO release as advanced bots jumped ahead of them (see UMA’s IDO).

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

As a result of these bots, more sophisticated IDO launch platforms have emerged that offer more protection for investors. Launch platforms are designed to help fund projects and therefore have a curation aspect to ensure that scams are filtered out and provide greater security for retail investors.

In order to be eligible for distributions, users generally need to pledge tokens to the launch platform and participate in its community. For example, PolkaStarter offers two mining pools: one open to everyone and one open only to POLS holders, where competition is less intense.

This offers a more inclusive process for smaller players: no more being outflanked by venture capital firms and leading bots, access to further transparency through access to on-chain information and the ability to take advantage of instant liquidity .

Another emerging trend is the creation of several launch platforms in different ecosystems. TrustSwap and DuckStarter on Ether, Avalaunch on Avalanche, Polkastarter on Polkadot, Solstarter on Solana, BSCPad and KickPad, and MoonEdge on Polygon.

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

Source: CoinMarketCap

Projects building launch platforms have been attractive to investors recently. Impossible Finance, BSCLaunch, Scaleswap, Launch X and Launchpool have all announced the completion of early-stage funding, with Hashed, Alameda Research, Lemniscap Rarestone Capital and other Tier 1 funds are participating.

Recently, some projects have decided to launch their IDO on multiple platforms to attract a wider range of investors and the trend is growing, for example LossLess is funding through 4 different platforms.

While the average allocated investment per participant tends to be relatively low, usually a few hundred dollars. But the returns can be staggering. Data shows that Polkastarter IDO’s average return reached 2,700% in March

With DeFi funding activity all over the place, how can retail investors participate in early stage investments?

Yield Farming and Borrowing/Lending protocols are the most common categories of projects that raise public funds through the IDO process.

Liquidity Mining
Liquidity mining is a proven token distribution mechanism where participants supply assets into a liquidity pool and are rewarded with the protocol’s native tokens. Liquidity mining is not perfect (take the failed YFI offering as an example), but it represents an additional opportunity to participate.

Whether you decide to invest by offering liquidity on Uniswap, Balancer, Bancor or other platforms, be sure to do your own research because.

Any mistake on the part of the investor can lead to losses

Most of the projects that will be invested in are in the testing phase and are used at your own risk

DeFi’s native composability makes this investment method very interesting, as the profits earned can be reinvested directly into yield farming.

Balancer Liquidity Boot Pool (LBP)
Balancer LBP is a token released on Balancer in which teams seed the Balancer pool with a high percentage of their own tokens (and therefore high prices) and slowly reduce that rate over time (quite similar to a Dutch-style auction).

Due to Balancer’s flexibility, LBP ensures smooth price discovery and discourages whales from using any trading strategies that would lead to high price volatility and mislead retail investors.

The Balancer Liquidity Guidance Pool is currently one of the most popular alternative fundraising solutions, with several features: achieving low slippage; low initial capital requirements due to the small share of DAI; and price stability over time.

A growing number of projects funded from top tier funds have been launched through LBPs. For example, Maple first raised a $1.3 million seed round, then distributed MPL governance tokens to more than 1,000 new holders and raised more than $10 million through its LBP.

Similarly, Radicle completed a $12 million fundraising round and then raised nearly $25 million through LBP sales.

DeFi programs have more funding options than ever before. Slowly, more companies are starting to allow retail investors to participate. There are many options – IDOs, Token Launch Platforms, Liquidity Mining Programs and Balancer Liquidity Boot Pools (LBPs) can all be viable alternatives to traditional investment rounds.

However, this is still a high-risk asset class (on the cutting edge), so investors are advised to always do their research before making any decisions.

Fixed Rate Agreement Yield Completes $10 Million Financing Led by Paradigm

Yield, a DeFi fixed-rate loan program, announced Wednesday a $10 million financing round led by blue-chip crypto investment firm Paradigm.

The world of decentralized finance or DeFi – a Lego-like stack of services that lets people transact and lend without an intermediary – is expanding rapidly and increasingly includes elements from the traditional finance space.

A recent example is Yield, a startup that launched in early 2020 and on Wednesday announced a $10 million funding round led by blue-chip crypto investment firm Paradigm.

Yield is one of a growing number of startups offering fixed-rate loans, a relatively new innovation in DeFi that initially allowed users to borrow only at variable rates. This is an important development, as fixed-rate products provide reliable revenue and are a cornerstone of traditional finance.

Yield offers a specific product similar to zero-coupon bonds in the traditional finance world, but instead consists of fixed-amount tokens that borrowers can sell at a discount to access capital.

Yield has developed its own protocol, the Yield Protocol, which runs on top of the ethereum blockchain. As part of Wednesday’s announcement, Yield also revealed that its platform will soon offer fixed-rate loans integrated with MakerDAO, an ethereum-based project that minted DAI stablecoins.

Yield founder and CEO Allan Niemerg described all of this in a blog post as “version 2 of the Yield protocol. Niemberg added that the new version will help expand the number of assets Yield can pledge and that it is “efficient” – a term that refers to low blockchain transaction costs.

“The work that Yield has done in DeFi through its fixed-rate loan agreements is fundamental to the space. We look forward to continuing to work closely with them as they create new financial primitives and tools on Ether,” said Paradigm executive Dan Robinson in a statement explaining the company’s investment.

Yield isn’t the only crypto startup to see an opportunity in fixed lending. In March, a startup called Element announced it had raised $4 million from venture capital firm Andreessen Horowitz (A16z) and others to make fixed, high-yield DeFi loans more accessible. Meanwhile, research firm Messari has called Yield and the fixed-income programs called Notional Finance and yUSD “the next wave of DeFi innovation.

In addition to Paradigm, Framework Ventures also participated in the Yield financing with Symbolic Capital Partners, CMS Holdings, Variant and DeFi Alliance.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/with-defi-funding-activity-all-over-the-place-how-can-retail-investors-participate-in-early-stage-investments/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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