CandleFocus

VC funding model fails web3 projects | Opinion

Author: Content Editor
The article discusses the challenges that web3 startups face in obtaining venture capital (VC) funding and the potential alternative funding mechanisms available in the web3 space. VC funding for web3 startups has been declining, primarily due to a mismatch of incentives between VCs and web3 projects that prioritize experimentation and collaboration for social impact rather than short-term profit. The decision-making process of VC funds also goes against the decentralized ethos of the web3 ecosystem. Additionally, VC funding tends to flow more towards organizations that launch a token, disadvantaging app-based projects.

The article introduces two alternative funding mechanisms: Retroactive Public Good Funding (RetroPGF) and fractional investing through NFTs. RetroPGF rewards projects based on their proven impact rather than speculative potential, and it has been successful in funding public goods projects such as Optimism. Fractional investing allows tokenization of public good projects, enabling micro-investments from a wider pool of passionate supporters.

Quadratic funding, a mathematical formula that matches smaller contributions with larger pools based on donor numbers, has gained traction in web3 for its ability to tap into community support and provide more equitable funding distribution. Projects like Tornado Cash have received significant funding through quadratic funding.

The article emphasizes the importance of on-chain ownership and tokenization in enabling new funding models in the web3 space. By eliminating intermediaries and making funding flows visible and auditable, blockchain fosters trust and enables direct relationships between creators and audiences. The availability and adoption of these alternative funding options can help create a more decentralized and equitable web3 ecosystem.

Related News