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Note: The so-called “father of DeFi” Andre Cronje announced his return to create a new product, Flying Tulip, and completed a $200 million financing. It is expected to continue financing to reach $1 billion in the future. What exactly is Flying Tulip? Lemniscap, an institution involved in the seed round of investment, issued a statement explaining their arguments for investing in Flying Tulip; bitchain vision 0xjs compiled.
We are pleased to announce that we will participate in a $200 million seed round of Flying Tulip.Flying Tulip is built by Andre Cronje and his team.This is an ambitious attempt to build a full-stack exchange from scratch covering spot, perpetual contracts, option trading, lending and structured returns.Although the scope is wide, in this article, we will focus on Flying Tulip’s financing model, which is where Flying Tulip opens up a new situation.
Investment motivation and opportunities
It’s not easy to confront DeFi giants head-on.They have strong capital, strong recurring revenue and a large team, and their operating capabilities are very different from those of lean startups.They have a deep-rooted network effect, deep integration and a loyal user base.In addition, there are “political” factors: the influence on standards and partnerships is often as important as product quality.
So even if a small startup achieves real innovation, bringing it to market successfully is a very different battle.The challenge lies not only in technology, but also in financial and social levels.Flying Tulip responds to this challenge by rethinking the way capital formation in the cryptocurrency space.Instead of relying on profitable liquidity or token mechanisms (those mechanisms expire after initial financing), it attempts to build a financing model that can last long enough to enable the product suite to operate independently.
Limitations of token-based financing
So far, crypto tokens have been the most successful as a form of crowdfunding: selling tokens, raising funds, and launching projects.But once the initial phase is over, many tokens become irrelevant, and their value will eventually tend to zero as the team struggles to create sustained demand.
The practicality of tokens is still an active field of experimentation, but in many cases, tokens are primarily used as fundraising mechanisms, a role that usually makes the most sense during the guiding phase (before the project develops into a self-sufficiency company).
Flying Tulip accepted this reality and tried to build a model around it.
Flying Tulip financing model
The core idea is simple: raise a large amount of capital reserves through token sale, invest this capital into a low-risk DeFi strategy, and use the resulting income to fund operations until the product suite generates its own revenue.
Investors will receive Flying Tulip (FT) tokens backed by permanent put options.As long as they hold the token, they can return it to their original investment at any time.Put options never last.Rationally, investors will exercise put options only when the token trades below the buy price, at which point their tokens will be destroyed.
In fact, investors pay an opportunity cost of about 4%, and they themselves can earn this portion of the profit by investing directly in DeFi.In return, they gained upside exposure to FT, supported by a structure that minimizes downside risk.
Flying Tulip’s goal is to raise $1 billion.There is no lock-up period, and all issuances will be allocated to investors when they go online.The yield on funds is about 4%, which means about $40 million per year is available for operations and product suite startup until expense revenue arrives.
Repurchase and destroy are at the heart of the model
The revenue generated from the capital gains will be used for operating expenses and repurchases of FT tokens.Over time, the expenses incurred by the main product suite will bring another wave of buyback demand.
Importantly, if an investor sells the FT tokens he holds in the secondary market, his put options will expire.Their original funds will then be transferred to the foundation for repurchasing and destroying tokens.This means that selling will not only eliminate investors’ protection, but will also actively strengthen the token’s deflation mechanism.
Taken together, these dynamics make FT a deflationary asset from day one and have multiple sources of reinforcement of demand and supply reduction.
Token Economics Impact
Since all supply volumes are in the hands of investors at the time of FT issuance, early market trends may fluctuate significantly.Limited circulation combined with continuous buyback programs lay the foundation for a strong reflexivity.
Unlike traditional financing methods, Flying Tulip’s token supply is allocated by teams and investors, while Flying Tulip’s initial allocation ratio is 100%.Over time, the token supply gradually flowed to the foundation and was eventually destroyed.In theory, the token may eventually achieve its intended purpose and disappear completely.
Our Investment Theory
Flying Tulip is not a risk-free investment, but an ingenious and innovative move.The success of this model depends on the team’s ability to effectively manage funds, maintain revenue, and provide a competitive suite of products.The price is capital inefficiency: investors give up the benefits they could have obtained directly, which is only reasonable if the project is successful.
To make this fundraising successful, the following factors are most important:
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The ability to raise large amounts of money is often attracted by key people or teams with reputation, influence and trust.
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A sufficiently mature product suite actually guarantees the lead scale.
We believe that Flying Tulip combines these two factors in a rare way.
Andre is one of the most keen builders in the cryptocurrency space, with a huge influence but also controversial.His record of introducing original primitives speaks for itself, and that’s exactly what Flying Tulip is: a non-traditional mechanism that rethinks token financing from scratch while launching a suite of products that are directly targeted at existing players.
We support the Flying Tulip team because they represent a real attempt to token-based capital formation, and this mechanism is at the heart of the cryptocurrency movement.If successful, it will accelerate the launch of ambitious projects, enhance the competitiveness of the ecosystem, and ultimately benefit end users.
This is an experiment full of unsolved questions.But it is this kind of experiment that drives the development of cryptocurrencies.
