Written by: Newman

ICO Craze: Historical Background of Web3 Financing

The 2017-2018 ICO Craze Is Crypto A critical moment in financing, characterized by:

Minimum lock-up and huge returns: VC Enter the project at a lower valuation than ordinary investors, with no lock-up period, resulting in huge returns (e.g. @Zilliqa achieved 50x growth after its ICO in January 2018).

Concentrated Liquidity: With only a handful of tokens being released each week, investors had limited options, and this scarcity drove demand and amplified returns.

VC as a signal: The attraction of VC does not mainly lie in its capital (most ICO projects do not require much capital at the stage of no product), but in its signaling role. Projects raise millions by attracting a handful of well-known VCs, thereby attracting more ICO investors.

However, this period is not sustainable. Scams, money scams and unclear regulations undermine trust in the market.

By 2019, regulation began to shape a more structured financing environment. Characteristics of this period include:

Longer lock-up periods: VCs are required to accept longer lock-up periods when entering private placement rounds. The market can no longer support the early hype-driven “same-day unlocking” behavior of VCs.

Fragmented liquidity: The market is oversaturated with too many ICO projects launched at the same time. Investor demand is no longer concentrated on a handful of projects, and the hype on which early success was based begins to wane.

VC as a builder’s source of capital: Founders need VC capital to develop the product before launching the token. This marks a shift in the funding landscape from speculative ICOs to a more product-focused approach.

After 2019, the market has transitioned to an environment currently often referred to as "low circulation, high FDV (fully diluted valuation)", and token issuance usually At launch the circulating supply is low and the FDV valuation is high.

Current challenges facing VCs

Despite the important role VCs have played historically, VCs face increasing challenges in today's market:

1. Mismatch of Tokenomics

Historically, VC entered at a low valuation and had a short lock-up period. The interests of ordinary investors are not aligned. This leads to reputational issues and a lack of trust.

Poorly designed tokenomics (such as low circulation, high FDV) caused projects to experience "sustained and expected sell-offs" after going online.

2. Reduced need for VC capital

Wealthier founders: successful ones Founders no longer rely on VCs, but use personal resources to launch projects.

Retail-driven models: Memecoin and high-circulation issuance (see @HyperliquidX) demonstrate that some projects can succeed without VC involvement.

The role of signaling has weakened: Although some mainstream VCs still have influence in infrastructure projects, their influence in application layer projects has declined significantly.

3. Mismatch between product and market

For most Web3 projects, Community and users are the driving force behind success. However, VCs are not good at reaching out to the community.

As a result, the role of traditional VCs is gradually being replaced by well-known angel investors. These angel investors tend to have closer ties to end users and are better able to drive community-driven growth.

The future role of VC

Although the need for VC capital may be uncertain, there are still certain situations where VC is important:

< p style="text-align: left;">1. Deeply participate in the ecosystem

VC needs to actively participate in ecosystem activities, such as mining, Memecoin trading, etc. Retail level operations.

To remain relevant, VCs need to exist not just as institutions but as players deeply embedded in the trenches. This involvement allows it to provide unique insights into evolving growth hacking strategies, tokenomics design, and go-to-market strategies.

2. Provide strategic value

Founders pay more and more attention to being able to provide actual value ( Such as operational support, Tokenomics guidance, market expertise) VC.

Although angel investors can also help, they are not as focused on portfolio management as VCs.

VC needs to transform from passive financiers to active strategic partners.

3. Selective participation

VC can focus on a small number of investment projects and concentrate on These projects contribute while using a "cast-net" approach for smaller investments.

Founders tend to maintain a smaller investor structure, preferring investors who are small but can make substantial contributions.

Recent/upcoming interesting projects

1. Hyperliquid (@HyperliquidX)

Possibly adopted The issuance method with high circulation and no VC participation tests whether the market can maintain price stability without long-term lock-up.

If successful, it may establish a new model for other projects, but it will also face challenges such as selling pressure on the first day.

2.BIO Protocol (@bioprotocol)

Combined with VC rounds and public auctions, Allow participants to exchange WETH or original sub-DAO tokens for $BIO.

Expand community members through public auctions, while introducing VC investment to achieve wider community coverage.

3.Universal Basic Compute $UBC (@UBC4ai)

A fair distribution similar to Memecoin, no team allocation, no Pre-sale, no airdrop.

Potential new financing models

In order to transition from a low-volume, high-FDV environment, we need an experimental phase to explore sustainable solutions. Here are some possible models:

1. VC and retail investors enter at similar valuations

VC investing in projects at similar or even the same valuation may receive larger allocations than retail investors, but must accept stricter lock-ups. This alignment ensures that the interests of VCs and retail participants are aligned, reducing the risk of VCs selling off regular users.

This model may promote healthier and more organic growth of the project.

2. VC-free model

Projects raise funds directly from retail investors; Not seeking VC support.

This will test whether the market can maintain price stability and growth without significant lock-up or VC involvement. If successful, this model could set a precedent for other projects to balance Memecoin economics with operational/funding needs.

3. Model inspired by Memecoin

Memecoin’s success is affecting structured project adoption Simpler, community-driven Tokenomics:

No foundation holding pool: no community/ecological pool, team and consultant pool or treasury pool. Founders/developers need to purchase tokens on the open market, aligned with the interests of retail participants.

100% initial circulation: ensuring liquidity and reducing reliance on long-term lock-up.

For example Universal Basic Compute (@UBC4ai) and @pumpdotscience launch $URO and $RIF, these projects use a Memecoin-like issuance method without VC funding, team allocations, airdrops or pre-sales.

The future direction of Tokenomics

As the market continues to evolve, the ideal Tokenomics structure (for non-Memecoin) is gradually becoming clear:

1. Interest alignment

VC enters at a similar valuation to retail participants and ensures long-term interest alignment through lock-up.

The price is that VC can get a larger proportion of allocation compared to retail.

2. Relatively high initial circulation

With reference to Memecoin-inspired Tokenomics At the same time, the project should strive to achieve 60%-70% circulation at launch to ensure liquidity and reduce the possibility of manipulation.

3. Changes in the Token pool structure

Unlike Memecoin, the project requires continuous operation funds, so 100% of the initial circulation cannot be achieved. 30%-40% of the Tokens can be allocated to the treasury pool, team and advisory pool, and investor pool for future financing, and a lock-up period is set.

4. Volatility expectations in the first 7 days

For projects that adopt airdrop strategies, the A large amount of supply will be unlocked one day and distributed to farmers and NFT holders, especially projects using high-circulation methods. Similar to what happens with direct listings of companies like Spotify, a large amount of circulating supply on the first day can lead to extreme volatility in the first seven days.

Conclusion: Web3 Financing and the Future of VC

Web3 Financing is at an inflection point. High-float, VC-free models are challenging traditional norms, but the role of VCs remains critical in a space that requires significant upfront investment. The future of Web3 funding may blend the best of both worlds:

For founders: A streamlined investor structure and redesigned Tokenomics will enable projects to engage the community while aligning with investors.

For VCs: The focus will shift from capital deployment to services that provide concentrated value to ensure their relevance in a rapidly changing ecosystem.

For the market: Growth hacking will rely on product innovation and improved Tokenomics rather than relying on traditional mechanisms (such as airdrops).

As the market experiments in these new paradigms, successful cases will pave the way for wider adoption, creating a more sustainable and Fair financing environment.