How are crypto launchpads revolutionizing the DeFi industry?

Blockchain

The Web3 capital ecosystem has its own version of accelerator programs in crypto launchpads. But are these beneficial models?

How can DeFi projects benefit from launchpads?

There are several crypto launchpads, such as DAO Maker and BSCPad, that successfully operated through the previous crypto cycle. As the next crypto cycle kicks off, cryptocurrency launchpads could be a key cog in the ecosystem.

For a project to get incubated by a launchpad, it must submit extensive details to get vetted. Some of the key operational details required are permission to perform a Know Your Customer check on stakeholders, information on partners, existing investors and advisers, status of smart contract audits, the quality of user base and unit economics.

The level of due diligence that crypto launchpads conduct is essential particularly in the decentralized finance (DeFi) space. DeFi has been plagued by smart contract vulnerabilities, oracle breaches and cross chain bridge hacks. A thorough smart contract audit from a reputable audit firm can help put the investors’ mind at rest.

Therefore, for the Web3 world to flourish, effective operation of crypto launchpads is crucial — especially when the right projects with good-quality products and vision need to be identified. The model is still in its infancy and must focus on better-quality launchpad communities with a track record that spans multiple crypto cycles. This practice would make launchpads a foundational building block of the Web3 ecosystem.

What benefits do crypto launchpads provide for stakeholders in the ecosystem?

There is a tripartite dynamic in the Web3 ecosystem that encompasses the investor, the project and the community. But what does each player get for being on the launchpad?

The most important benefit for the startup listing on a launchpad is the capital it gets from investors and community members of the launchpad. Retail investors who visit the launchpad will have the ability to look at Web3 projects listed, understand the team behind the projects along with the type of community the project has nurtured, and can invest their capital into curated opportunities.

Web3 projects get credibility after getting listed on a launchpad, which is critical in the ecosystem. Crypto launchpads also offer a plethora of services to early-stage crypto entrepreneurs, such as tokenomics advice, marketing inputs, investor introductions and other ancillary business services. Crypto launchpads are the Web3 equivalent of incubators and accelerators in the Web2 space.

Despite these benefits, launchpads can only be as good as the quality of the community members and the key people in the community who bring the right investment opportunities. Web2 has got it right with organizations like Y Combinator, Startupbootcamp and several others pioneering the accelerator model. Web3 has yet to see such a legacy develop.

Finally, for the Web3 ecosystem, crypto launchpads have successfully created a framework to cut out the noise and identify projects that merit investors’ attention. As a result, the number of scams and rug pulls on investors should reduce as the model matures, which in turn will benefit the Web3 ecosystem on sentiment and reputational perspective.

Why is a crypto launchpad required?

Crypto launchpads offers communities access to high quality deals curated by experienced investors from the community itself.

One primary reason why crypto launchpads exist is to give investors access to information that will aid in their decision making for investing in cryptocurrency projects. This can be a critical differentiator in a bull market, when it is hard for even the experienced investor to cut out the noise and pick good investment opportunities with sound fundamentals.

The second reason why crypto launchpads are critical to Web3 is to offer the retail investors access to high-quality deals. In the Web2 world, retail investors generally do not get access to high-quality projects before they are listed on an exchange. They also do not have experts vetting the financials of companies and providing detailed due diligence reports.

Access to high-quality deals and ease of decision-making based on well-researched information on potential investments are privileges only a few enjoy in Web2. With a decentralized model, launchpads — aka crypto accelerators — have opened up access for retail audiences to high-quality investment opportunities.

What is a crypto launchpad?

Crypto launchpads bring together the ethos of decentralized ecosystems and the ability of that community to make trustless investments.

The cryptocurrency industry and Web3 have been a hotbed of innovation that has put the community at the forefront. It thrives on the proliferation of decentralized ecosystems, breaking away from central hegemony by various incumbent bodies. The advent of crypto launchpads could be the beginning of a decentralized venture capital model.

Steps to use crypto launchpads

The era of Bitcoin (BTC) and Ether (ETH) paved the way to new altcoins. However, by the end of 2022, there were over 16,000 cryptocurrencies. How can an enthusiastic investor pick good projects from so many? True to its ethos around decentralization, one of the most fascinating innovations that brings together investors, projects, innovators and the retail audience is a crypto launchpad. What do these launchpads do?

Crypto launchpads facilitate investments and empower investors to make informed decisions through rigorous due diligence. They take the pain of curating investment opportunities from retail investors and offer them the ability to invest into cryptocurrency projects at preferential terms on valuations.

Retail investors who want to participate in these investment rounds will buy the tokens of the crypto launchpads. Depending on token holding quantity, investors are typically bucketed under tiers that determine the access and valuations they get with investment opportunities.

Terms that investors get from these launchpads vary from preferential to exclusive. Preferential investment terms are generally in line with what other investors get. However, launchpad tokenholders get first preference to invest into those opportunities. Exclusive terms are those that are offered only to launchpad tokenholders. Either way, launchpad participants benefit from the structure.

Ahistoricism could spell doomsday for crypto

The philosopher George Santayana said, “Those who cannot remember the past are condemned to repeat it.” Incubators have much to learn from the 2017 initial coin offering (ICO) craze to avoid the same mistakes in 2022.

Crypto startups flooded the market in 2017, with ICOs generating quick money for new companies. However, the United States Securities and Exchange Commission (SEC) came down heavily on crypto startups in applying the Howie test used for traditional securities.

A later report found that 80% of 2017 ICOs were scams, and crypto’s legitimacy took a hit. But to be fair, there was an absence of crypto incubators to guide startups in the right direction.

Without incubators, startups were radar less in conforming to financial jurisprudence. The situation was somewhat like a school with no teachers to ensure discipline in classrooms. However, 2017 had important lessons for the crypto sector.

To begin with, incubators realized the need for crypto startups to follow regulatory best practices. Therefore, some incubators recruited special teams who played an important role in helping startups comply with financial legislation. Adhering to national crypto laws is crucial if crypto companies have to continue providing services. One of the strategies for regulatory compliance is developing a strong tokenomics model for crypto projects.

Therefore, incubators became responsible for overseeing robust, utilitarian and growth-based tokenomics with appropriate safety nets like token vesting to prevent scams. By focusing on strong token economies, incubators ensure a safe investment space and sustainability for crypto projects. Apart from tokenomics, incubators have other responsibilities to maintain fiscal discipline.

Strengthening incubated projects with mentoring

People tend to believe that the most important role of incubators is bootstrapping liquidity for new projects. However, incubators have a larger role in guiding and mentoring startups. Some incubators have their own crypto experts and professionals who assist startups with ideation and strategizing. These in-house crypto veterans contribute during the ideation stage, utilizing their vast knowledge base to refine project ideas.

On one hand, seasoned experts reduce the time to market, thereby helping projects to grow and scale faster. On the other hand, mentors guide inexperienced developers to prepare project pitches for grants and fund applications. Moreover, startups can benefit from the wide network of experienced professionals to connect with influencers, domain experts and CEOs. These advisory forums provide the necessary guidance to help startups stay on the right track.

However, mentoring is not selfless service. Incubators have a stake in a company’s success because they have a claim over a significant portion of a company’s equity. So, a successful company would translate an incubator’s equity shares into millions of dollars with more investor interest. Thus, incubators have a huge responsibility for maintaining a startup’s fiscal discipline.

But, there is a caveat.

Responsibility should never become a burden

The National Business Incubation Association has highlighted that 87% of incubated businesses survive after five years. That’s an impressive number considering companies that go solo have a success rate of just 44%. However, incubators cannot go overboard to ensure a project’s success. After a point, incubators cannot do much if the project founders fail to deliver.

On rare occasions, startups ignore an incubator team’s advice, misusing the support system. Rather than dismissing these instances, incubators can learn from these failed projects. For one, incubators can strengthen their onboarding procedure and conduct stringent due diligence. Ultimately, incubators must work towards a more transparent and symbiotic relationship with startup founders and management teams.

Incubators are not just another cog in the crypto machinery. Rather, they provide the foundational base on which crypto companies innovate to build an entire ecosystem. But, incubators must ensure that their responsibility to maintain fiscal discipline never becomes a burden.

Gaurav Dubey is the CEO of TDeFi, a crypto incubator and adviser for blockchain startups incubating and advising decentralized finance, nonfungible tokens, gaming and other crypto projects for more than 45 companies. Before joining TDeFi, he ran a Bitcoin mining firm and made several investments in crypto startups.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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