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

Hello everyone. We have a debate next. The title of the debate is next. The title of the debate is : Are ICOs better than venture capital financing? With the influx of many methods for launching a token, funding has never been the same.

I'm very excited to introduce Ashley from Hard Fork Media to moderate this discussion. Hello everyone, we have a spicy debate topic today. Okay, before we begin, I need you to take out your phones. Scan. We're going to put that QR code right there.

I need you to scan the QR code. There will be two surveys. The first question is: what do you think? What is better? And then, towards the end of the debate, we'll launch a second poll to see if they were convinced in any direction.

First, we have Matt O'Connor, co-founder of the ICO platform Legion, who will argue in favor, and Careshi, managing partner of Dragonfly, will take the negative stance. Matt, you have five minutes for your opening arguments. Thank you. Okay, here we go . Hello everyone.

Let me begin with some difficult truths. A difficult truth. Most ICOs have reached zero. That's true. There's no way around it, is there?

What is conveniently omitted is that most venture capital-funded projects, whether web 2 or web 3, also reach zero. This is not a debate about the typical outcome. This is a debate about exceptional cases, right? Zero is typical in both cases. So let's first consider the positive exceptions.

Let's look at the pre-TGE financing of the top 10 exceptional stocks by market capitalization. At number 10 we have Avalanche. They raised both private and public funds. Nine, Chainlink, public funding. Eight, Tron, private and public.

Seven, Cardano, public. Six, Dogecoin, without private funding. Five, Solana, private and public. Four, BNB, private and public. Three, private XRP.

Two, Ethereum, very small private, mostly public, of course. And one, Bitcoin, without private funding one, Bitcoin, without private funding . So, nine of the top 10 exceptions here either used public funding or did not raise venture capital. And this is not a coincidence. What these projects have in common is that they offered community ownership and a relatively low FDV to encourage people to move in and gain access early.

What about exceptional negative cases? This brings us to another difficult truth. A difficult truth. Many traditional ICOs were scams. Again, this is true.

And yet, the biggest and most destructive wealth scams have been backed by venture capital. Teraluna, 18 billion destroyed, some 40 million raised from venture capitalists, including several top-tier ones. FTX, $8 billion destroyed, $1.7 billion raised from venture capitalists, no ICO. Celsius, 4.

7 billion destroyed, 900 million raised from venture capitalists. BlockFi, one billion destroyed, 1.44 billion raised from venture capitalists. Without ICO. Fraud is not exclusive to ICOs, nor does the backing of venture capitalists prevent blatant cases of fraud.

So, what does this leave us with ? With another harsh truth. Harsh truth ? With another harsh truth. Harsh truth .

ICOs are far from perfect . ICOs are far from perfect , but they are better than financing solely with venture capitalists. Because? Two main reasons. Incentives and community.

Let's start with the incentives community. Let's start with the incentives . Venture capitalists are professional investors who manage other people's money. They make money through a 2 and 20 commission model. That 2% means that each year, if you manage one hundred million, you receive 2 million a year, even if you lose your clients' money.

This creates a clear incentive. Manage as much money as possible. How do you do it ? Demonstrating theoretical gains ? Demonstrating theoretical gains .

Hence the surge in low-supply, high-value releases that we have seen. These launches are not problematic because venture capitalists sell their tokens immediately. That's a false argument. These launches are problematic because venture capitalists are the only ones who own tokens in the first place. Is this result good for the long-term future of the project?

No. There is no organic community. No. There is no organic community. Is this good for the average blockchain user?

No. They don't have access. blockchain user? No. They don't have access.

Is this good for venture capitalists who need to show a return on paper to raise more funds? Yes on paper to raise more funds? Yes , it's good for them. It's the only way; it's good for venture capitalists, whether they sell the tokens or not. Of course, I do not intend to demonize my opponent here.

Venture capitalists are not evil. They only have an incentive for high- value releases, even if they don't benefit others. And there are benefits that ICOs offer beyond capital, which no venture capitalist, however well-intentioned, can provide well-intentioned, can provide . And this brings us to the second reason why ICOs are better than venture capital fundraising: community. Whether it's through node decentralization, network security, guerrilla marketing, product feedback, or user-generated content.

There are so many benefits that a large community... You have one minute left. Thank you. ...and only a large community can provide that.

No venture capitalist can replace 10,000 token holders, node operators, enthusiasts, and end users, all supporting a project with stakes in it. Although a community can be more difficult to manage than an investor relationship, this is a feature, not a flaw. Building for users is, ultimately, how products win. And in a user-owned networking industry, it's absurd to suggest that concentrating ownership in the hands of a few is a better alternative than distributing tokens to hundreds or thousands of community members. So I'll leave you with one last uncomfortable truth.

Both ICOs and venture capital are imperfect. But when faced with the choice of keeping only one, would they prefer to forgo venture capital and access to funds from professional investors, or would they prefer to forgo ICOs, access to capital, and the community? Choosing ICOs, capital, and a community with aligned incentives is the obvious choice. Thank you. Very good.

Thanks, Matt. Now, your opening arguments. You have five minutes. OK. Well, uh, I'm old enough to remember what really happened in the ICO bubble.

I don't know how many, ICO bubble. I don't know how many, can we see hands raised? How many people were present during the ICO era, like 2018, 2017? Good. It's very strange for me, as someone who lived through that, to hear this resurrection of the idea that ICOs are a good idea, isn't it?

What I saw during the ICO bubble was one of the most rampant eras of absolute nonsense we've ever seen in the industry, right? Why did the ICO bubble burst? Why did people stop doing ICOs? When people talk about this revisionist view of ICOs, that they were great and that everyone shared this collective Eden of being able to profit from all these projects, that was not what people experienced that was not what people experienced . What they saw was that there were a lot of stupid scams and frauds carried out directly against retail investors, and in effect, a competition was created as to who could best scam the retail investor.

could best scam the retail investor. TRUE? Maddie mentioned a bunch of examples of projects that raised money from retail investors in addition to having raised venture capital to having raised venture capital . If you think about projects that only raise venture capital money, that's fine, like Web 2 or projects that obviously don't have a token, but then there are projects that only raised money through ICOs. The first one that comes to mind is Bitconnect.

There were countless scams that emerged during 2017 whose main value proposition was that venture capitalists wouldn't touch them. But individual investors do. So let's take a step back. Let's ask the question. It's obvious that ICOs disappeared.

There is a reason why they disappeared and it wasn't regulation. The regulation didn't emerge in 2018 or 2019. It emerged much later. Right? So why did ICOs disappear?

What becomes obvious when you take a step back is, why do founders choose to work with venture capital (VCs)? Unless you answer that question, you can't really understand why VCs might be better or worse than ICOs. Let's take stock of, well, these chains took money from VCs, these chains took ICOs. That's ridiculous. Obviously, that's not how you would answer that question.

You would put yourself in the mind of an entrepreneur and say, okay, you're building a startup. Why would you choose to raise money from retail investors? Well, this is what the retail investor does. Okay the retail investor does. Okay , first, the retail investor will sue you, right?

Look at all these class-action lawsuits happening now against company founders. against company founders. How many of them do you notice are VCs suing the founders? Basically, it never happens. They're just random people on the internet who get really angry with you and decide they're going to sue you.

How many people are sending you death threats? are sending you death threats? How many people are saying, "Oh, you scammed us," and that they're going to hunt you down 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 or pre-seed stage founder seed or pre-seed stage founder , you realize: "Look, I know more or less what I'm going to build, but it does n't really work yet. I do n't really have a team.

I don't really have all the ingredients yet. have all the ingredients yet. Would you rather raise money from 10,000 strangers on the internet who have no idea what you're building, no idea how to evaluate it, no idea how long it should take? I mean, all they know is they want to get rich, right? That's what raising money from a retail investor feels like.

Um, if you raise money from a VC, well, a VC can help you. They can really help, help you. They can really help, right? The only thing you notice when raising money from individual investors in the very early stages is that most of them are just on your Discord asking when the token is coming out. But investors can help you hire.

They can help you build partnerships, do business development, polish your project, define your marketing. There are a lot of things involved in building a startup that aren't about achieving Having obsessive fans retweet your posts. Getting people to retweet your messages is like step 500 in building a startup. It 's not step one or even step 100, right? Only when you have a product that actually has some chance of fitting into the market do you care about what people are saying on your Twitter feed.

And that's the stage where retail investors are usually most valuable, because yes, VCs—look most valuable, because yes, VCs—look , VCs can't create a religion. Individuals can create a religion around what you're building. But there's no point in creating a religion around something that does n't actually fundamentally solve an important problem fundamentally solve an important problem . That's what VCs are for. So if you look at why so many projects raise money from VCs, it's not because there's some cabal of people forcing you to take VC money if you start a startup, is it?

The people who are building startups, they choose it. In every cycle, whether VCs are loved or hated, in every cycle they choose to work with VC. Why? Because in a free market, as you might expect, VCs offer a more valuable product when you're in an early or accelerator stage than a retail investor. Now, it's true that at the end of the day, you want both at some point, right?

Most projects eventually cross the chasm. They do an echo sale. They do a no-coin sale, or they do a Legion sale, but they do it after they've already gained VC validation. How many of the projects listed on Legion don't have VCs who have already invested in them? Right?

Which tells you, what's the essential ingredient for building a useful startup? Is it having a lot of people on your Discord, or is it building the right thing? Thank you. Thank you. Thank you, Ace.

Okay, now we're going to allocate three minutes each for rebuttals. So, Matt, you go first. I appreciate the passion my opponent brings to the discussion. Um, he mentioned a lot of points there. Um, let's...

let's break this down, shall we? So, the central argument The point here is essentially that VCs are the ones who catalyze growth, in a way catalyzing, you know, the product's purpose from the beginning. I think you mentioned, you know, that you need to solve a problem. Who has the problem? problem.

Who has the problem? Is it the VCs or is it the average user you 're selling tokens to in an ICO, for example, right? I think it 's also an easy stance to take 's also an easy stance to take , to say, okay, you should raise funds from VCs first before doing any kind of ICO. When, uh, regulatory measures, perhaps, you know, the regulation changed years later, but enforcement certainly came faster than that, and regulation has largely stifled public sales and ICOs in recent years, until very recently with changes like the MiCA ( with changes like the MiCA ( Crypto Asset Markets) regulation in Europe, and some of these, uh, working group proposals that we hope will bear fruit, uh, in the United States by the SEC. So I think this access control, this kind of "we're better than you" attitude, of " we know" "Which projects to fund," uh, you know, can be misinterpreted, that at least, uh, leads to less experimentation, less variety in what's being backed, at least.

And I would argue there are less centralized ways to maintain quality control, right? You can experiment with algorithms that extract expert opinion and knowledge from the wisdom of the crowd, like the surprisingly popular algorithm, for example, something Legion is already experimenting with, and I would argue the venture capital incentive here is broken, right? Even if you accept the premise that venture capitalists are the ones who catalyze growth, the founders, you know, the partners in these funds, can participate as angel investors in ICOs with their own money. I think the incentives change when you start acting as a professional investor; you're earning these additional fees that someone investing, someone participating in a public sale, an ICO, or as an angel investor, uh, are just investing their own money. They have an incentive that's directly aligned with the success of the project.

Thank you. Whereas a venture capitalist Venture capital also has tangential or extraneous incentives. So, let's not forget that creating products for users is ultimately how products win, right? Solving problems for users is Solving problems for users is ultimately how you win. And I think it's easy to demonize ICOs by looking at, you know, these blatant cases of fraud.

Again, we saw blatant cases of fraud that were backed by venture capital, many of the biggest ones. But ICOs can also be customized, ICOs can also be customized, right? If you have a certain goal or objective as a project, for example, auctions for the duration of rights acquisition to attract people who bid for longer periods, who have a longer-term incentive alignment with the project. Merit-based ICOs , what we at Legion call civil resistance, you can customize the mechanism per project, but the two-and-twenty business model of venture capital distorts incentives, and that can't be customized by the project be customized by the project . So remember, it all starts with the users; you have to have Users.

Time, thank you, thank you Matt. It's your turn now, the rebuttal. Okay, I think it's a bit cynical, because if I'm not mistaken, Legion raised money from venture capitalists . How many individual users who use their platform own shares in Legion? It's my turn to speak, so I'm going to assume the answer is zero.

Look, the story that before regulation, projects raised money from ICOs, and only when ICOs were banned did they start seeking venture capital, is nonsense. That's not true. That 's a revisionist story. Every single project you mentioned—Avax, Chainlink, Cardano, Solana, XRP, BNB— every single one of them raised venture capital before doing their ICO venture capital before doing their ICO . And you see the same thing with the projects listed on Legion, the same with Echko's products; they all have venture capital funding first.

And when you go to the Echko or Legion page and see what this project is, do you, as an individual investor, have the time to read the white paper and understand everything that's going on? Did this team do that? Research their background. Understand how much of the product has been built, how much is fake, and which metrics are real. Of course not.

Why would you? You don't have time for that, do you? So what do you do? You go and look at who invested in this. Whether it's the backer at Echko or the venture capitalists on the market capitalization chart, you look for signals, capitalization chart, you look for signals, right?

You look for signals. We use signals. We're human beings. We use specialization, economies of scale, and comparative advantage to create useful economies. Okay.

What 's a venture capitalist? It's someone who specializes in backing 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 who find things the public isn't usually aware of .

Okay? This is all we do. And the reason founders work with us isn't because it's illegal not to, or because they're afraid of being sued. The reason they work with us is because we help them. And when we help them, the ultimate goal of any project is eventually to put its token in the hands of millions of people, right?

Everyone wants to get to the same place, but getting to that same place requires that you first be able to polish your product and give the rest of the market a signal that you're good enough, right? If you accept money from HackVC instead of accepting money from Dragonfly, that says something about you, right? And everyone knows it. It's no mystery why people care. If you post something on Legion and don't show who the venture capitalists are, do you think more or fewer people will sign up?

The answer, of course, everyone knows. More, right? That's why people consider venture capitalists such a useful signal. This idea that venture capitalists are cheating their limited partners and that because of this 2-and-20 model, that's why they're screwing you over , that they 're screwing everyone over because they only want profits on paper, is nonsense. It's nonsense.

It implies, first of all, that Limited partners are stupid. Okay, I know limited partners, they're not stupid. Okay, second, everyone's in the red second, everyone's in the red . It's not venture capitalists, it's not non-venture capitalists, it's literally everyone. Look at venture-backed projects and non-venture capitalist projects.

Both are in the red. So what you're talking about is completely irrelevant. Okay, that's it. I'll think about my closing statement. Thank you.

Okay, I'm going to launch the second poll. Okay, you can applaud, applaud for entering closing statements now. So each debater has two 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 for closing arguments. You can start. Matt, thank you. Uh, so let's be perfectly clear, shall we?

Nobody is saying venture capitalists are worthless. Nobody is saying ICOs—or maybe you're saying ICOs are worthless—but both bring value. Both They're imperfect. The bottom line is that today we're not debating, you know, what we 're debating is choosing just one option: ICOs or venture capitalists, right? Giving up venture capital funding or giving up ICOs.

Let me leave you with a few questions Let me leave you with a few questions . Is it really a better option to give up ICOs when nine of the top 10 projects either did public funding or didn't raise venture capital? Is it really a better option to give up ICOs when venture capital backing has also systematically failed to prevent scams and fraud? Is it really a better option to give up ICOs when airdrops are industrially farmed time and time again, rewarding Sybil attack bots and mercenary capital? Is giving up ICOs really the best option when regulatory changes in key markets like the US and the EU, which have cracked down on ICOs for years which have cracked down on ICOs for years , are just around the corner or starting to arrive?

Is giving up ICOs really the best option? Just a minute. Thank you. ICOs can be tailored to a project's objectives to customize and achieve its specific values ​​and goals . And is foregoing ICOs really the best option when venture capitalists have incentives for low valuations and high FTV?

And certainly, by their own admission, they can't replace a thousand different token holders , node operators, communicators, Dune experts, and so on. I want to leave you with one final question. Take a moment to look around the room and ask yourselves: if Ethereum had been funded solely by private venture capital, if Ethereum had never held an ICO, would any of us be here now? Would any of this, all of this, be possible? I think we all know the answer.

I think we all know that when we have to choose only one option between venture capital and ICOs, ICOs are the only choice. Thank you. Okay . Thank you, Matt. Right, final closing argument.

Hib, it's your turn. Yes. So one thing you should note when considering this debate is the way the term ICO has metamorphosed over time. Right? When we first used the term ICO , it wasn't the same as a crowdsale.

Okay? An ICO was the idea that you raise money before you've even built the product. That's what ICO meant back then . Okay? Uh, now, and of course, the idea was also no KYC, no checks on anything, whatever.

Obviously, the way we understand the word ICO 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 basic question of if this were true, then why does Legion have venture capital backing ? Why didn't they do an ICO? Why does Ekko have venture capital backing? Why didn't they do an ICO?

Why does Kao have venture capital backing? Why didn't they do an ICO? The story that all these chains... I mean , if you look at the first page of CoinMarketCap, how many of those chains did just an ICO and not Did they raise venture capital? Okay, the answer is basically like five at most.

Okay, the story that most of them are in the top 10 is absolutely false. Go study their history, right? Ethereum took venture capital from Fenbushi. Look it up. Uh, Bitcoin, of course, had an immaculate conception.

In this cycle, the only two products that didn't have venture capital funding were Hyperliquid and Jupiter. Both had wealthy founders who self-funded tens of millions of dollars. Okay, that's not the stereotypical founder. Most founders don't have that kind of money, and most retail investors wouldn't bet on them because to attract them, you first have to create a movement, a religion. Otherwise, what retail investor would take the time to understand who you are and what you're building, right?

The discovery problem is fundamentally what venture capitalists solve. And yes, it's a nice, populist kind of narrative to say that, well, cryptocurrencies are all about decentralization. and democratization, but at the end of the day, it's also about the free market. And the free market has been telling you, basically for 10 years, that venture capitalists are useful for exactly this. And that's why they still exist.

And that's why they 're so important. Time. Okay, that brings us to the end of the debate. So, cast your final votes. We have about a minute and 45 seconds on the clock.

We'll do a 30-second countdown for everyone to cast their votes and we'll announce the winner very soon. So, what's your post-debate analysis? I mean, listen, I think it was very compelling on both sides. I'm more of a risk-averse person, so I'm always, but no... However, you have to vote to see the results.

Yeah, I know. It's just that I probably went into this thinking, okay, I'd want venture capital funding for a project. Although, on the other hand for a project. Although, on the other hand , not all venture capitalists are good. So we've seen some shady players out there.

And your point about Ethereum, We wouldn't be here. That's a very compelling thing to end on. So, of course, nothing against Dragonfly; I think it's a good fund, all things considered . I appreciate that. I appreciate that.

Of course, you guys are a great project. There's no ill will toward ICOs in general, but... we got a little intense, but it was all in good faith. Okay, the results are in. Let's wrap up the pre-debate: where people were standing, it was 57% saying yes, ICOs are superior, and 43% saying no way, venture capital or nothing way, venture capital or nothing .

Now, the post-debate results: we have 51% in favor of venture capital and 49% saying ICOs are the way forward saying ICOs are the way forward . That was very, very close. Well done. Okay, so as a prize, you get a Regenerator plushie or a stuffed animal. Look at that.

Cool. We had 8 seconds. So, thank you all. I really appreciate it. Thank you.

Thank you all.