EthCC 2: Thibauld Favre

hi everyone thank you so much for for being here so my name is a tip afoul I'm the I'm the CEO of a company called ferment was a part-time partner at an accelerator called the family and so yeah first like over the past twelve months I've been working on a new model for financing organizations and all this research accumulated in the release of a white paper it was in October and it received a very warm welcome by the community and most of you like I see you're here so thank you thank you very much for that and so today what I want to do is I want to talk to you about continues financing and a more exactly how do you finance a decentralized projects how do you finance a dhow because so not every down is to be financed like if your bow is making revenues either through mining rewards or if you collect trading fees on a decentralized exchange like your your Dow probably is already making revenues but most most of the time when you talk about dowse we talk about a way a governance way to allocate money but not so much on how it gets financed in the first place so so that's what I'm gonna focus on so obviously when you want to finance your Dow you have several options right so you could say okay maybe we could go on alone and and and and take out a loan but the primary is taking out alone is like as a Dow you don't have much collateral you don't have much assets so it's very hard to think that somebody would be willing to give you a significant amount of money you can rely your donations obviously this this works but it's not very sustainable the best way is obviously to get investors but then the question is like what is the promise that you give to investors who invest in your Dow because obviously if you start if you start it down I guess it's not to sell it to Google in the next five years so then the question is like what is the promise what is the value that you offer to investors and so obviously you could raise money through an impractical sto but then the question is like what is this token real value like is it going to be dividends these dividends are going to be voted by the token holders of the of the Dow so it's not very appealing for an investor and I think that's a better way and this way is the continuous financial model so how does continuous financing work so it's pretty it's pretty straightforward basically contries financing relies on the continuous issuance of governance less revenue based tokens and those tokens so are really financial products and and there are financial products that basically helps you leverage the revenues that you're Dao is gonna make to finance your your deal so I'll I'll get into a detail very soon so but basically this continues financing model means that it's not like every single dime today were at one point when you want to raise money you need to stop working you need to stop doing a lot of marketing to promote your ICO to promote your fundraising or whatever and say you're the best and you're gonna deliver the world and here continues financing means you continuously raise money and you continuously raise money by making revenues is like the trust that people have in your organization in the fact that you are executing well that you are doing revenues and growing revenues is what drive the financing of your organization so it's like if you're if you're familiar with a credit revolving which I don't like but it's a good analogy it's like you start your project and you open this line of continues financing and this line of continuous financing continues on and on and till you want to close it so how does it work it's very it's very easy so it's a smart contract and on the one hand you have the organization makes revenues and on the other hand you have all the stakeholders so I represented a few here that buy and sell token so first who here in the audience is familiar with bonding curve just what I know well that's cool so then because so I used to joke that I tried to explain bonding curve to my mom which is very is very tough so every time I want to explain Bonni curve I try other analogies so that the one I'm trying today is I try to represent bonding curve in another way instead of the traditional representation I represent it as a funnel so it's like a funnel and you pour money in and when you pour money in basically the level off of where it goes is the number of tokens that you get of your out of your investment so here let's take an example so I I create a Dao and as the creator so I want to I'm the first investor so I buy $100 so let's say obviously it would be died here in this example I buy $100 and so I put money in the Indus math contract so in green is the money that is going to finance the organization and in pink is the money that is held in the buyback reserve so basically here you have the accounts in real time so when I invest $100 90 goes to the organization 10 gets in the buyback Reserve and then as a founder investor so I'm minus hundred and my investment and I got 14 tokens and then an investor comes and say okay I like the idea I like this now I want to be supportive so I'm gonna invest $100 more so obviously puts more money in for the hundred dollar we see that he gets obviously less tokens so he's gonna is gonna get five point eighty six token here in that case and so the now the organization has $90 more the reserve was $20 more and an investor has five point eighty six tokens now the organization makes it first sell so a cell could be anything if you're sitting with service or product it could be a mining reward it could be trading fee but basically the organization makes revenue and so when you make revenue so there's a parameter here so a percentage of your revenue is committed to the continuous financing so here let's say it's five percent so in that case five percent of the revenue you of the cell you made is used to mint new tokens and this revenue is going a hundred percent in the buyback Reserve so the five dollar the final are going to the buyback Reserve to increase it so then you see that the organization as fare so every time the organization is going to commit revenue into the country's financing it will get more tokens and these tokens the organization can use to do whatever they want like the organization can either keep it you can give it to employees use it to incentivize strategic stakeholder in the community it's really up to the organization to decide what he wants to do with the token and if if the Eevee earns too many tokens you can also burn the tokens and if the tokens are burnt then the value of distributed equally to all the other token holders so okay you made your first cell then the investor feels confident and decides to reinvest say well that's great this day I was working so here's another key aspect as an investor it doesn't make sense to invest all in like say okay at one at t0 I want to invest a lot of money no you'd rather it spread out your investment it's it's a better investment decision so you reinvest $100 so you get more tokens so the same mechanism applies and then the organization makes a bigger cell like cells a thousand dollars are same 5% of the revenue so $50 here are going to go to the buyback Reserve and gets the organization more more tokens and then as a founder you're like okay so I have rent to pay I need to cash out a little bit we already did good progress in my deal so obviously it's a very simplified project right example but I want to make I want to cash out a little bit so then I decide to sell five of my tokens and I sell them so I don't sell them to the to the bonding curve directly because there's a there's a secondary market so I will the first thing I'll do is when I want to sell them to look on the market if somebody is willing to by my tokens because I receive somebody is willing to buy it's cheaper to buy from somebody that wants to sell than to buy directly to the bonding curve so here I found a buyer and this buyer is willing to buy me my tokens with a 20% discount over the price that the bonding curves would offer so I saw I set my tokens and we see that here in this example that means that I'm already profitable on my initial investment but then let's say I want to sell more I want to sell more but there's no more buyer on the secondary market so then I can sell directly to the bonding curve so and when I sell to the bounding curve what happens is the the buyback Reserve buys by my tokens back so I get a proportional amount of of my my five tokens from the buy back reserve so here's 28 dollars and when the bonding curves by his back buy back the tokens it's removed them from the from the supply from the outstanding supplies so the supply decreases and the buying price of the token decreases also so and obviously when I sell to the buy back reserve my price is much lower than if I were to sell it to on the secondary market so then the investor as an investor you remain bullish and on the business and the revenue model of this Dow and so I decide to reinvest because okay the buying price has been lowered because as a founder I I sold my tokens to the to the bonding curve so the supply got decreased and so I reinvest and I get more more tokens the organization medicine makes a new sale and then as an investor I want to cash out part of my initial investment so say my sell it on the secondary market there's a glitch on the production okay and this way I can cash out of my earlier investment so as you see it's like a very flexible model it's completely permissionless investment like anybody can invest at any time when they want obviously the earlier you invest the bigger your reward but also the bigger your risk and and this model really enables organizations to finance themselves only by focusing on what they do best which is doing what the project is supposed to do and not trying to to become a star startup entrepreneur trying to raise funds and convince people no just do what you're good at do your dl or do what what you want to deliver to the world and supportive people can come and invest in what you're doing so what makes this financing model better so a lot of things so first as I said the continuous financing aspect so this is really important it means that you set it up once and then you just do your business you do you do you execute you do your project and and that will drive investors because here and like it's not like an IPO because when you do an IPO if you're finding out is that when you do IPO you you raise a lot of money at the beginning but then it's pure secondary markets like so you can do a tremendous business but your your hair can go down to almost zero here there's this the fact that the token is really tied to the revenue you make means that at one point your token if you do business if you do a lot of revenue your token will go up in value there's guaranteed liquidity if you want out at any point you can go out if you're the founder of a do and then there's a vote that goes against your what you wanted the the the community to vote and you're very pissed and you want to get out you can get out so its cash flow based value so as I said the value the token is real twofold there's one part of the value that is speculative like you expect people more people to buy the token and there's one part of the value that is based on revenues you expect the DAO to generate revenues and growing revenues it doesn't mean anything on governance so these tokens if you want says it now you can say okay the token orders get granted governance right but by default no by default they have no governance rights community incentives all these tokens that the organization is buying can can be used to incentivize people like contributors of your community contractors so you can use it really at your discretion it's open to anyone it's permissionless it's a frictionless investment obviously because it's not it looks like a security token but it's not a security token in that the value is the token itself it's not a token that points to a share or something I did the values to token itself and so this enables fully continuous and permissionless financing so somebody told me not long ago that basically it's it's kind of the promise of the ICO meaning like a lot of people got excited for icos because it was like okay ICO is this way to raise money while building a community and while incentivizing people on the long run of your project but the problem is that yeah there's an endless debate on the value of the token and so this is why a lot of very intelligent people scratch their head on on trying to create value model for tokens here the valuation is much easier and and so basically it it's an it's a more balanced model than the ICO the IC was very founder friendly and so which attracted a lot of scammers here we keep the it's very entrepreneur friendly but we don't forget the investor the investor gets a guaranteed liquidity and and so it's it's I guess it's a more balanced model between the VC model which is completely investor friendly and not entrepreneur friendly and the I similar which was a lot fun or friendly but not really investor friendly so Furman's in that what is family doing so the good thing about the countries financing model is I think it can be very useful to finance digital cooperatives decentralized project but obviously it's not limited to that and I think the world will gain a lot if we could bring that model to the to the real businesses like meaning normal traditional businesses that are non crypto and and basically I spent with withdraw issues here well you guys yet released so is a he's working with me on famines and and we just talked to entrepreneurs and a lot of entrepreneurs been two months talking to entrepreneurs and a lot of them are indeed variant in that because right now it's a struggle when you're an entrepreneur because either you go to the VC route but if you go to VC route then it's a it's a very very hard way to go because you need to raise a lot of money and and to be attractive attractive for investors you need to to go into hyper growth you need to grow like crazy and and they push you to that I raise money in my life I know they push you like they are like no you need to do more even if it doesn't make sense but you cannot do a sustainable growth you need to grow whatever metric they think is important and so that makes you make bad decisions and that's bad because in the end incentives are missing the investor objective in the traditional financing model is really optimized it is the value of his legacy exits because his money is locked in your company it knows that in six seven years it will have to sell it so it's just focus on how do I make sure that in six seven years I can have the maximum out of my investment it doesn't care if you if you succeed in twenty years or that studies problem and then at one point so if as you push the investment you run out of money you need to rewrite money and you'd better be in a good shape when you want to raise money otherwise you just go bust and so the continuous financing model is much more it's much healthier first it pushes you to generate revenue so so it's not just growing your number of users or things like this and then as you can see like the curve at the beginning when you don't do revenue and when you make very little money you will not get a million euro or you would not get crazy valuation but you will get what you need actually we have entrepreneurs who tell us I'd like to actually have a cap like if I start and I open a country's financing revenue model I don't want to raise more than ten thousand a month because I don't want at at some point that people get crazy or there's a pump and dump that is organized and and and I receive 1 million euro investment and then I feel the pressure to deliver on that 1 million euro even though I'm very early so so we have several entrepreneurs who are telling us that can I cap the amounts that I can that can have that can I can raise every month so that that shows that is really about sustainable sustainable growth rather than just go all in and going for ya to make a hyper growth company you can do hyper growth company but you don't it's really as you want as a founder or as the community that is behind the project and so ya and in the end of the virtual circle that I was mentioning is like the more you focus on your project the more you execute then the more people show it shows like okay the product is working well to get gather more supporters these reporters and these contributors you can also incentivize them with tokens and so you have this this virtuous loop that gets engaged and the more it works the more it works and so in the app and that's also a very very big thing for us is we think right now there's a really a big problem in terms of how the value like the value gets redistributed in the world because basically these are financed by lp's and it's just money that compounds over the same people over and over and over again and so what we really like is the country's financing model is that for once it's a model that is a lot more a distributive than the VC model anyone can invest you don't need to be an accredited investor to invest anyone can invest anyone can be rewarded and be aligned with the long-term success of the organization and yes so it's a lot more robust robust capitalistic lis it's more inclusive socially it does not discriminate is not you don't need to do stand forth to to attract investors you just need to be passionate about what you're doing in the execute world and it's much more registra beautif so hopefully my my my dream is that like in a few years this becomes the default like you start a project immediately you create you go after continues financing and you said to people you know what if you want to invest invest if you don't feel comfortable now invest later but that's not my problem that's your decision to invest and when you start a project okay it happened to me a few times you always have at the beginning this first customer or this first partner I love what you're doing I want to invest but you cannot you can't under the VC model feels like yeah I would love you I would love my customer to be an investor in in what I'm doing I love it I want I want to provide value to you and and all these things continuous financing allows you to do so that's about it so if you have questions I gladly take them thank you cutie boo for this dynamic presentation I have a question about your model for the first investor when he invest $100 there is a $10 that put in a user and he's got fair coins back what about the $90 that goes to the companies what is the account treatment is it an investment so we receive equities from the company's back or is it a turnover that money so very good question so in terms of regulation so that's a lot of things that we focus on also infirmities like to figure out the regulation so it's really a financial product so it's not revenue it's an investment and so I can already give a definitive answer for France we'll received it last week so in France believe it or not but this token offer continues organization is treated as a utility token it's not it's not a security token because in France unlike in the US where the definition super broad in France like know you are security if you're this this this this and this is very well defined and if you're not in this particular definitions then that means that you're part of the new token know that they are enacting right now and basically you are you treat token and and so basically to answer questions it's really like like if you would its new financial products so you would emit buy support bounce it's like exactly the the right parallel is like your company you emit bonds so that's the same kind of in terms of accounting this is how it goes and in the US to install the US and the US so obviously pieces of security and so in the US would have to fit the the CF model the CF exemption so the crowdfunding exemption in the US so the crowdfunding exemption in the u.s. allows organizations to raise up to $1,000,000 a year with any an unlimited amount of investor and non accredited investor so so that's the model where it fits in yeah a question on my side what's the business model of remand so that's a very good question right now we are debating it if you ask me I'd like to be super aligned with with the project and so and right now I think what I would love is say okay from its gets a part of the early tokens like no fees nothing but just a cure for example that's a $10,000 of value in early tokens meaning it works for you it works for families it doesn't work for you it doesn't work for famines and then there's no fees so so it's due for it could be a fee model but personally I would I would love to be in a more fun model where you have the part of the early token because then that means also that the tokens can flow around the ecosystem and because if we go into a fee model then we want the transactions to a pending on famines and and so then you have an instant device to close your walls and think that is and I think it would be much more variable for for the organization to be able to do where write whatever it wants and trade its token wherever it wants and so to align this I think to have a the early tokens would be the best way that's my take and I really if you have a if you have ideas I retake them here I will like I understand that this lope of the bonding curve is to recreate the fact that the is like the valuation of the company grows incent similar to that concept so in standard VC funding this valuation is subjective and changes with time it should grow but sometimes it can even go down yeah but the amount each it goes up is subjective so this bonding curve kind of hard code is this valuation race I wonder if getting rid of this subjective price definition is not something you lose so so it's a it's a good question basically so first thing compared to the VC model on the VC model you can always go up so if you go down it's a big big big problem for the company because it's a down round everybody gets diluted like everybody wants to the employees leave leave the shape and so here you have the right to be a normal company and to have ups and downs so if you have downs what happens then people sell you get the token price goes down it doesn't affect your Treasury and actually it's even good because it goes down to a level where it will enable people to reinvest and if at some point you reach a point where people reinvest that means more financing to your organization so it's actually much more tolerant of ups and downs compared to the VC model does that answer your questions or not really and it's objectivity so so in the end the the questions here really because I'm trying to think as an investor what would make me invest or what me would make me not invest into into an organization that uses continues financing and I guess the answer is the leverage basically these countries financing model means that for every dollar that you put as an organization in two countries financing you will receive X dollar back right and and and the the ratio between the two is the leverage so if the organization is growing like the revenues are growing very rapidly then maybe as an investor I would be okay to accept a high leverage and the the slower the growth then the less leverage I would accept for example if I take an example of company that is not growing at all like you have a coffee shop one coffee shop the revenue is just flat if you use countries financing what will happen is that you will receive an initial financing but then at one point people will just stop investing because it's not a good investment anymore because the revenue don't grow as fast as as to justify more investment so what will happen is that you will have a first investment then nobody will invest and then at one point the revenue would catch up it would become a good investment again so people will invest again and so this model the Cadiz financing model I guess can work in many with many scenarios but the best scenario is that if you have a growing scenario like if you are a coffee shop it kind of looks like a loan if you have a chain of coffee shops then it works better because then you can grow so I am happy to answer any questions you have I'm around thank you very much [Applause]