Though the crypto 2.0 segment of the bitcoin community is maturing, the part of the industry principally concerned with non-financial or advanced blockchain applications has struggled to develop a stable marketplace for its projects.
In the absence of strong VC interest, or perhaps in the spirit of pushing the boundaries of innovation, many decentralized applications (DApps) are seeking to fund themselves through what may arguably be the blockchain’s most compelling use beyond currency, decentralized product backing in the vein of Kickstarter.
DApps seek to harness the ability of blockchains to create tokens, which can then be distributed and used to incentivize the product’s development and adoption. The most notable example may be MaidSafe’s $7m crowdsale, which this summer was greeted with controversy and skepticism in both the mainstream media and the wider community as it suffered from market forces and liquidity issues.
Even those who are striving to provide market solutions acknowledge that in the Wild West of bitcoin, DApps are still a comparatively uncharted territory.
“If you were just to look at the crypto 2.0 space and see all the assets people are listing on Counterparty or NXT or any of these 2.0 platforms, the spirit of decentralization is openness and transparency,” said Jack Wang, founder and CEO of digital asset liquidity exchange Melotic. “The flip side is there’s a lot more capability for people to push untrustworthy products.”
To solve this market problem, Wang and his company are entering a new partnership with DApp crowdfunding platform Koinify. Together, Koinify and Melotic are seeking to curate a marketplace that can enable the successful launch of new products and the eventual exchange of their tokens on an open market.
“Previously when you purchased something in Kickstarter, it was just a donation or purchase, so there was no liquidity,” Koinify CEO and founder Tom Ding said. “In a token economy, you get a more sustainable charity, you can support a software but you can also have exits.”
Ultimately, the two platforms believe that together they can form a decentralized AngelList, one that enables communities to support and grow innovative projects, while enjoying new freedoms over the money they choose to provide.
Reducing the signal-to-noise ratio
Both Ding and Wang spoke to CoinDesk about the partnership, acknowledging that their main aspiration is to bring clarity to an already vibrant crowdsale marketplace, one that they argue has been turning away potentially interested participants.
“The problem is the signal-to-noise ratio is really high,” Ding said. “There are too many noises and it becomes really hard for people who want to invest or purchase good, high-quality projects, tokens, to differentiate a good from a bad one.”
Ding said that Koinify will also seek to add transparency to the DApp funding process, ensuring that projects are vetted and rightly incentivized.
“If the project sells out, makes $6m and got all of it in cash or bitcoin, they may not have the incentive to deliver a product,” Ding continued. “Part of our job is to help them establish things like multisig and create milestones-based vesting to make sure that developer incentives are in line with what they promised.”
Wang noted that Melotic aims to provide the second part of this pipeline, ensuring that there is liquidity in the DApp exchange markets by looking for funding sources for projects, including larger sources of capital.
Striving for self-regulation
Ding also noted the recent rumors that the US Securities and Exchange Commission (SEC) may be taking a closer look at the crypto 2.0 marketplace, asserting that until formal guidelines are more clear, the space should strive to enforce its own consumer protections.
“I think even some of the regulatory rumors recently might be a positive thing in that it forces people to think harder,” he continued. “Is it okay to announce the concept and start raising money? Or should developers deliver something more solid?”
For now, he said, this need for self-regulation means that Koinify must be selective about the projects it onboards, even if that requires it to become a more centralized manager of its platform.
“If you have a limited selection, the amount of capital that comes into those markets is high quality,” he said. “When you have a really competitive market, with a really high standard or projects coming in, the problem will solve itself. We want to encourage talented developers into decentralized applications.”
Ding indicated that Koinify will also seek to educate developers, investing time and resources now to help them navigate the infrastructure for creating DApps.
First launch announced
Koinify and Melotic will begin testing their market approach with the launch of Koinify’s first project on 1st December, the token sale for decentralized social messaging service Gems, which was unveiled at Inside Bitcoins Tel Aviv this October.
Ding used Gems as an example to show how Koinify aims to sheppard projects to successful launches, noting that the project satisfied an estimated 30–40 diligence questions that covered everything from technology to team structure.
“We had a lot of discussion regarding what is a fair model for distributing Gems tokens, then we worked on developing the milestones that Gems should deliver,” he said, adding that Koinify even flew to Israel to meet with the Gems team.
Ding indicated that Gems’ first milestone will be the iOS version of its app, the second its Android version and the third the delivery of its ads platform. Once reached, each milestone will allow Gems to receive a new portion of the funds it raises in its pre-sale.
“We could have a community-based vote where unless you deliver a solid beta version, we will not release the bitcoin that you’ve raised,” Ding added, speculating on how Koinify might deal with bad actors on its platform.
Though both Ding and Wang spoke at length about how their platforms could disrupt or supplement traditional VC funding, they both acknowledged that the risks will be high for both of their brands early on.
“The stakes are much higher,” Wang explained, “because there are much fewer projects. But, we’re trying to find out if companies can gain additional value from token sales that allow their business model to change and allow them to fund their ideas and concepts separate from a VC model.”
Ding went on to suggest that some of the projects it is speaking with are seeking to raise funds both from VCs and from token sales, noting that there is a belief that a successful token sale can even increase VC interest.
However, both stressed that, for now, token sales provide developers with an enticing way to grow their userbase, something Ding expects will be a powerful incentive that will enable Koinify and Melotic to grow.
“Every startup knows that the hardest part is zero to 1,000 users; 1,000 to 10,000 users. 10,000 users could very easily come form this kind of pre-sale. If you can get your first 10,000 users to crowdfund you, that’s probably a good thing to build on.”