Legion & Cookie3: Evolution of Onchain Fundraising

Jose Marie Macedo hosts a discussion with Mati from Legion and Philip from Cookie3, focusing on Legion's recent funding round and the concept of Attention Capital Markets (ACM). Mati emphasizes the need for better token distribution aligned with incentives, especially after observing poor decisions by founders. He envisions a future where on-chain fundraising replaces traditional IPOs and ICOs, highlighting the necessity for regulatory evolution.

Philip discusses the challenges of capital attribution in Web3 compared to Web2, stressing the importance of integrating on-chain and off-chain data to measure user behavior effectively. Both speakers have developed solutions to incentivize creators to produce quality content, acting as an oracle that scores creators based on their value contribution. They note the difficulty in linking attention metrics to actual capital influence, as measuring attention alone can be misleading.

Mati elaborates on ACM, which connects attention to capital inflow, aiming to measure engagement metrics alongside the financial impact of creators. He cites MicroStrategy's significant Bitcoin investments as an example of aligning financial commitment with beliefs. The speakers agree that while capital is abundant, identifying valuable capital is crucial, which is where Cookie3's attribution technology becomes essential.

The conversation touches on engagement rates and metrics in capital markets, exemplified by the Almanac campaign, which raised $2.5 million with a 400% oversubscription. Participants created quality content to gain investment eligibility, demonstrating their belief in the project. Metrics help projects select suitable investors based on engagement and capital contributions, leading to the creation of leaderboards and rankings. Future developments aim for smarter representations of potential investors, allowing projects to customize support based on individual contributions.

The discussion critiques traditional ICO methods that favor highest bidders, advocating for a merit-based investing approach where contributions and engagement dictate access to projects. Ongoing collaboration between Cookie3 and Legion aims to enhance attention capital markets. There is a strong emphasis on tracking user behavior after token distribution to ensure accountability and ongoing project support. Retroactive airdrops are discussed as a means to adjust financial transaction value based on user engagement.

Philip expresses optimism about integrating Web2 and Web3 solutions, suggesting innovative token distribution methods could emerge. The future of capital markets is predicted to feature earlier and more curated investment rounds, moving away from wealth-based access. The convergence of IPOs and ICOs is anticipated, leading to larger on-chain fundraisings that are public yet targeted at niche supporters.

Concerns regarding traditional finance and regulations are raised, particularly about the outdated nature of IPO regulations and the limitations imposed by the accredited investor test. Speculation about the future of IPOs and ICOs includes expectations for less burdensome processes and the adoption of more rigorous standards. The introduction of Regulation A as a less stringent fundraising alternative and the emergence of new frameworks in Europe for compliant token offerings are also discussed.

The podcast highlights the evolving regulatory landscape in the US concerning token issuance and distribution, emphasizing the necessity for compliance and transparency to prevent fraud. There is a strong emphasis on investor education and proper disclosures in Initial Coin Offerings (ICOs), with predictions that ICOs and IPOs may eventually merge into tokenized equity offerings. A global standard for on-chain IPOs is suggested to help companies outside the US access broader markets.

On-chain alternatives are discussed as a means to maximize distribution and offer composability benefits. Concerns regarding regulation are acknowledged, with references to skepticism around crypto as a means to sidestep regulations. However, the conversation frames crypto as a global sandbox for innovation, arguing that its permissionless nature is crucial for advancing new concepts and improving existing systems.

The discussion also touches on negative selection in ICOs, where projects often seek funding from tiered investors based on their value-add. There is a call for transparency in ownership through on-chain solutions to reduce hidden risks and improve investor protection. The speakers argue against the notion that only professional investors should participate in these markets, advocating for a system that allows educated individuals to make their own investment decisions while being protected from fraud.

Speaker 1 emphasizes the necessity for a regulatory approach that adapts to the rapid advancements in blockchain and AI, advocating for a disclosure-focused regime to combat fraud. The conversation highlights examples of non-institutional VCs who add significant value to projects, pointing out that many investors contribute without direct benefits beyond their investments.

The critique of traditional finance includes issues with cap table management and fraud in Special Purpose Vehicles (SPVs). The speakers argue for a system that allows educated individuals to make their own investment decisions while being protected from fraud. Common language disclosures and quizzes to assess understanding are suggested to inform investors about risks effectively.

The SEC's current stance on token distributions is mentioned, with discussions around the Genius Act and Clarity Act, which aim to clarify regulations in the U.S. The SEC is cautious about guidance that could conflict with legislative actions, and there is an increasing urgency for clarity as the lack of guidance affects both companies and investors. The discussion emphasizes the need to measure reputation through direct characteristics and network influence, anticipating more sophisticated data points related to loyalty and advocacy.

The evolving landscape of fundraising is recognized, with a focus on targeting the right partners and investors, and the potential for cooperative networks owned by high-value contributors is discussed. The need for smarter token distribution mechanisms is highlighted, moving beyond traditional airdrops and considering the psychological and financial implications of different acquisition methods.