Introduction
Today's topic explores the evolution of cryptocurrency capital formation. Coinbase's $400 million acquisition of Echo and Flying Tulip's perpetual put option experiment demonstrate that funding mechanisms are being fundamentally restructured. These models may differ, but the common thread is the pursuit of fairness, liquidity, and credibility when new projects raise and deploy capital.
Our partner, Saurabh, a research writer at Decentralised.co, dissects these experiments through market analysis and design commentary, revealing the increasingly sophisticated relationship between cryptocurrency and risk, return, and community trust.
Now, let's get to the main topic.
Coinbase's Full-Stack Fundraising Empire: Coinbase recently acquired Echo, the community fundraising platform founded by Cobie, for approximately $400 million. In the same deal, Coinbase also spent $25 million to purchase an NFT to relaunch a podcast. Once activated, the NFT will require hosts Cobie and Ledger Status to produce eight new episodes. Echo has raised over $200 million through more than 300 funding rounds. This completes Coinbase's full-stack strategy for crypto project tokens and investments, following its recent acquisition of Liquifi. Projects can use Liquifi to create tokens and manage equity structures, raise funds through private sales on Echo or public sales on Sonar, and then list the tokens on the Coinbase exchange for secondary trading. Each stage generates revenue. LiquiFi charges token management fees. Echo captures value through a profit-sharing protocol. Coinbase earns fees from trading the tokens it lists. This integrated technology stack allows Coinbase to generate revenue throughout the entire project lifecycle, not just during the trading phase. This is a worthwhile deal for Echo, as it would struggle to generate sustainable revenue without upstream integration with exchanges. Currently, its business model focuses on performance fees, which can take years to realize, much like venture capital. Why would Coinbase pay such a high price for a product that only helped raise half the funds? Remember, the $200 million is not Echo's revenue, but merely the total amount of funding it facilitated. Coinbase paid this fee to establish a partnership with Cobie, considered one of the most respected figures in the cryptocurrency space. Furthermore, Coinbase values Echo's network effects, technological infrastructure, regulatory standing, and its position within the emerging crypto capital formation framework. Prominent projects like MegaETH and Plasma have raised funds through Echo, with MegaETH choosing to conduct follow-on funding through Echo's public sale platform, Sonar. This acquisition brings Coinbase the credibility of a founder skeptical of centralized exchanges, access to a community-driven investment network, and the infrastructure to expand from pure cryptocurrency to tokenized traditional assets. Each project has three to four stakeholders: the team, users, private investors, and public investors. Finding the right balance between incentives and token distribution has always been a challenge. When ICOs launched in the cryptocurrency space between 2015 and 2017, we saw it as an honest model that would allow more people to participate in early-stage projects in a "democratized" way. But some tokens sold out before you even had a chance to connect through MetaMask, and private sales were whitelisted, excluding most retail investors. Of course, this model must evolve due to regulatory considerations, but that's another topic. However, this article focuses not only on Coinbase's vertical integration but also on the evolution of its financing mechanism. Andre Cronje's Flying Tulip aims to build a full-stack on-chain exchange, integrating spot trading, derivatives, lending, money markets, the native stablecoin (ftUSD), and on-chain insurance into a single cross-margin system. Its goal is to compete with Coinbase and Binance at the product level, while also challenging exchanges like Ethena, Hyperliquid, Aave, and Uniswap. The project's financing mechanism is quite interesting, embedding a perpetual put option. Investors receive $0.10 worth of FT tokens upon depositing assets (10 FT tokens for every $1 invested), which are locked. Investors can burn their FT tokens at any time to redeem their original principal, up to 100%. For example, if an investor invests 10 ETH, they can redeem all 10 ETH at any time, regardless of the market price of FT. This put option never expires, hence the term "perpetual option." Redemption proceeds are settled programmatically from a segregated on-chain reserve, provided by raised funds and managed by audited smart contracts. Queuing and rate-limiting mechanisms prevent abuse while ensuring solvency. If the reserve is temporarily insufficient, redemption requests are queued transparently and processed once funds are replenished. This mechanism creates a consistent choice of three incentive mechanisms for investors. First, investors can hold locked tokens and retain redemption rights, thus receiving any gains upon protocol success while maintaining downside protection. Second, they can redeem their principal by burning tokens, which will then be permanently destroyed. Alternatively, they can withdraw funds by transferring tokens to a centralized exchange (CEX)/decentralized exchange (DEX), but the redemption right immediately expires after the withdrawal, and Flying Tulip receives the original principal for operations and token buybacks. This creates strong deflationary pressure: selling tokens eliminates downside protection. Secondary market buyers do not have redemption rights. This protection only applies to primary market sales participants, creating a two-tiered token structure with different risk profiles. This funding strategy solves a seemingly paradoxical problem. Since all raised funds are restricted by perpetual put options, the team cannot actually use these funds, resulting in zero actual funds raised. Instead, the $1 billion raised will be invested in a low-risk on-chain yield strategy with a target annual return of approximately 4%. This funding is readily available. The strategy generates approximately $40 million annually to cover operating expenses (development, team, infrastructure), FT token buybacks (increasing buying pressure), and ecosystem incentives. Over time, protocol fees from trading, lending, clearing, and insurance will generate additional buyback flows. For investors, the economic trade-off lies in forgoing the 4% yield they could have earned through direct investment in exchange for FT tokens, which offer potential for appreciation and principal protection. Essentially, investors only exercise put options when the price of FT falls below the purchase price of $0.10. Yields are part of the revenue stream. In addition to lending, the product suite includes Automated Market Makers (AMMs), perpetual contracts, insurance, and a delta-neutral stablecoin that generates continuous yields. Besides the expected $40 million in revenue from deploying $1 billion in various low-risk DeFi strategies, other products may also generate revenue. Top perpetual contract trading platforms like Hyperliquid earned $100 million in fees in a single month, almost double the potential revenue from DeFi lending (yields of 5-6%, capital size of $1 billion). The token allocation model is drastically different from all previous cryptocurrency fundraising methods. Traditional ICOs and venture capital-backed projects typically allocate 10-30% of the tokens to the team, 5-10% to advisors, 40-60% to investors, and 20-30% to the foundation/ecosystem. These allocations usually have a vesting period but are guaranteed. At launch, Flying Tulip will allocate 100% of its tokens to investors (including private and public investors). Neither the team nor the foundation will initially hold any tokens. The team can only acquire tokens through open market buybacks, funded by protocol revenue sharing and following a transparent timeline. If the project fails, the team will receive nothing. The token supply is initially 100% allocated to investors, and then gradually transferred to the foundation as redemptions proceed. Redeemed tokens will be permanently burned. The token supply is always capped based on the actual amount of funds raised. For example, if $500 million is raised, only 5 billion FT tokens will be issued; if $1 billion is raised, a maximum of 10 billion FT tokens will be issued. This new mechanism aims to address issues that Cronje experienced firsthand in the Yearn Finance and Sonic projects. As he stated in his project introduction: "As the founder of two large token projects, Yearn and Sonic, I am acutely aware of the pressure that tokens bring. A token is a product in itself. If the price falls below investors' initial investment, it can lead them to make short-term decisions that may benefit the token itself at the expense of the protocol. By providing a mechanism that assures the team that there is a floor to the price and that the 'worst-case scenario' is that investors can recover their investment, this pressure and operating costs will be greatly reduced." The perpetual put option separates the token mechanism from operating funds, eliminating the pressure to make protocol decisions based on the token price, allowing the team to focus on building a sustainable product. Investors are both protected and incentivized to hold for appreciation, thus reducing the token's "life-or-death" impact on the project's survival. Cronje's pitch describes a self-reinforcing growth flywheel that outlines its economic model: $1 billion in funding, with 4% distributed between operations and token buybacks, generating $40 million in annual revenue; the protocol's launch generates additional fees through trading, lending, liquidation, and insurance; these revenues are used for further buybacks. Redemptions and buybacks create deflationary supply pressure; reduced supply coupled with buying pressure drives up prices; increased token value attracts users and developers; more users generate more fees, funding even more buybacks; and so on. The model succeeds if the protocol's revenue eventually exceeds the initial returns, enabling the project to be self-sustaining beyond its initial funding. On one hand, investors gain downside protection and institutional-grade risk management. On the other hand, they face a 4% annual loss in real returns, plus capital efficiency losses due to locked funds and below-market returns. This model is only viable if the FT price is significantly higher than $0.10. Fund management risks include DeFi yields falling below 4%, yield protocol failures (such as Aave, Ethena, and Spark), and whether $40 million annually is sufficient to support operations, develop competitive products, and conduct effective buybacks. Furthermore, for Flying Tulip to surpass peers like Hyperliquid, it must truly become a liquidity hub, which will undoubtedly be a tough battle, as established players have already gained a head start and captured market share with superior products. Building a complete DeFi technology stack with a team of only 15 people and competing with established protocols that have a significant first-mover advantage carries execution risks. Few teams can match Hyperliquid's execution efficiency; since November 2024, Hyperliquid has generated over $800 million in transaction fees. Flying Tulip represents an evolution of Cronje's previous project experience. Yearn Finance (2020) pioneered a fair issuance model where founders didn't allocate any funds (Andre had to manage YFI himself), growing from zero to over $40,000 in just a few months and reaching a market capitalization of over $1.1 billion within a month. Flying Tulip adopted the zero-team-fund allocation model but added institutional support ($200 million, compared to Yearn's zero self-raised funds) and investor protection measures that Yearn lacked. Keep3rV1's unexpected beta launch in 2020 (the token price surged from $0 to $225 within hours) highlighted the risks of unaudited, sudden launches; Flying Tulip implements audited and well-documented contracts before public offerings. Fantom/Sonic's experience with token price pressures directly influenced the construction of its put option model. Flying Tulip appears to combine numerous advantages—fair allocation, team-free allocation, structured issuance, and investor protection through an innovative perpetual put option mechanism. Its success hinges on the quality of the product itself and its ability to attract liquidity from heavy users accustomed to competitors like Hyperliquid and centralized exchanges. MetaDAO's fundraising activities have received support from Futarchy. If Flying Tulip redefined investor protection, then MetaDAO re-examines the other half of the equation: accountability. Projects raising funds through MetaDAO do not actually receive the funds they raise. Instead, all funds are held in an on-chain vault, and every expenditure is validated by a conditional market. Teams must propose their fund usage plans, and token holders bet on whether these actions will create value. Only when the market approves can the transaction be completed. This is a structure that reshapes the funding model into a governance model, where financial control is decentralized and code replaces trust. Umbra Privacy is a groundbreaking example. This Solana-based privacy project raised over $150 million in funding with a market capitalization of only $3 million. Funds were allocated proportionally, with any excess automatically refunded by smart contracts. All team tokens were pegged to price milestones, meaning founders only realized value if the project truly grew. Ultimately, the project's price increased sevenfold after launch, demonstrating that even in a weak market, investors still crave a fair, transparent, and structured investment environment. MetaDAO's model may not yet be mainstream, but it restores what cryptocurrency once promised: a system where the market, not regulators, determines what's worth investing in. Cryptocurrency funding has entered a phase where many assumptions are being questioned. Echo proves that distribution networks can command premium valuations even without integration with exchanges. Flying Tulip tested whether investor protection mechanisms could replace traditional token economics. The success of these experiments depends less on the sophistication of the theory and more on implementation, user acceptance, and the mechanism's ability to withstand market pressure. The constantly changing funding structures stem from the unresolved underlying conflicts between the team, investors, and users. Every new model claims to better balance the interests of all parties, but ultimately they will all face the same test: whether they can withstand the scrutiny of reality.
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