Investors can redeem their principal at any time, relying solely on actual income sharing in a brand new DeFi fundraising model.

Author: Griša Černe, Lemniscap

Translation: Deep Tide TechFlow

We are excited to announce our participation in the $200 million seed round financing of Flying Tulip. Flying Tulip is a new initiative launched by Andre Cronje and his team. This is an ambitious attempt to build a full-stack exchange from scratch, covering spot trading, perpetual contracts, options trading, lending, and structured yield features. While the project has a broad scope, this article will focus on the fundraising model of Flying Tulip, which is paving new ground.

Motivation and Opportunity

Competing directly with giants in the DeFi space is a daunting task. These giants are well-funded, have strong ongoing revenue sources, and large teams whose operational capabilities far exceed those of streamlined startups. They enjoy solid network effects, deep integration, and a loyal user base. Additionally, there is a "political" aspect: the influence over industry standards and partnerships is often as important as product quality.

Therefore, even if a small startup brings genuine innovation, successfully bringing it to market is a completely different battle. This is not only a technical challenge but also a financial and social dilemma. Flying Tulip addresses this challenge by rethinking the way capital formation occurs in the crypto space. Unlike models that rely on short-term liquidity or token mechanisms that gradually lose effectiveness after fundraising, it attempts to build a fundraising model that can sustain operations until the product suite can support itself independently.

Limitations of Token Financing

So far, crypto tokens have been the most successful form of crowdfunding: selling tokens, raising funds, and launching projects. However, once the initial phase ends, many tokens gradually lose attention, and as teams struggle to create sustained demand, their value approaches zero.

The utility of tokens remains an active experimental field, but in many cases, tokens primarily exist as a financing mechanism, a role that is often most reasonable during the project's launch phase, especially before the project evolves into a self-sustaining company.

Flying Tulip recognizes this reality and attempts to build a new model around it.

Financing Model

The core idea is simple: raise a large reserve of funds through token sales, invest these funds into low-risk DeFi strategies, and use the resulting income to support operations until the product suite can generate its own revenue.

Investors will receive Flying Tulip (FT) tokens, which are backed by perpetual put options. As long as they hold the tokens, they can redeem them at any time and get back their original investment. These put options never expire. From a rational perspective, investors will only exercise the put option when the trading price of the token is below its purchase price, at which point the tokens will be burned.

In practice, the cost paid by investors is the opportunity cost of about 4% returns they might have earned by directly deploying into DeFi. In return, they gain exposure to the upside potential of FT, supported by a structure that minimizes downside risk.

Flying Tulip aims to raise $1 billion. There are no lock-ups, and 100% of the supply is allocated to investors at launch. The protocol treasury's approximately 4% annual yield means about $40 million per year to support operations and launch the product suite until fee income takes over.

Investors can contribute stablecoins, ETH, or other yield-generating assets. These funds go directly into the protocol's treasury: no lock-ups, no "team allocations." Every token issued to investors is fully backed by the collateral assets contributed by that investor.

This is in stark contrast to the "finance first, utility later" strategy. This structural design aims to promote accountability and alignment of interests:

• Investors are protected from downside risk

• The team only profits if the protocol succeeds

• Each sale or redemption reduces the token supply

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Buybacks and Burn: The Core of the Model

Income generated from treasury yields will be allocated for operational expenses and buybacks of FT tokens. Over time, fee income from the main product suite will add another source of buyback demand.

Notably, if investors sell their FT tokens on the secondary market, their put options will become void. Their original capital will transfer to the foundation and be used for buybacks and token burns. This means that selling not only removes the investor's protection but also actively enhances the token's deflationary mechanism.

These dynamics combine to make FT a deflationary asset from day one, with multiple sources of demand and supply reduction reinforcement.

Economic Impact

Since the entire supply of FT is held by investors at launch, early market dynamics may be very volatile. Limited circulation combined with ongoing buyback initiatives lays the foundation for strong reflexivity.

Unlike traditional financing, Flying Tulip's supply is fully allocated to investors from the start. Over time, the supply gradually shifts to the foundation, ultimately leading to burns. Theoretically, this token may eventually fulfill its mission and completely disappear.

Our Perspective

Flying Tulip is not a risk-free investment but a uniquely crafted innovation. The success of this model depends on the team's ability to effectively manage funds, maintain revenue, and provide a competitive product suite. The cost is reflected in capital efficiency: investors forgo the opportunity to earn direct returns, which is only reasonable if the project succeeds.

To make this financing prototype successful, several key factors are particularly important:

1. The ability to raise a large amount of capital, typically led by key individuals or teams with prestige, influence, and trust.

2. A sufficiently mature product suite that can genuinely demonstrate the necessity of a large-scale launch.

In our view, Flying Tulip possesses a rare combination of these two conditions.

Andre is one of the sharpest builders in the crypto space, both influential and controversial. His track record in introducing creative prototypes is well-documented, and Flying Tulip fits this mold: a non-traditional approach to rethinking token financing mechanisms while launching a product suite that directly faces industry giants.

We support the Flying Tulip team because it represents a genuine attempt to redefine the mechanisms of token-based capital formation—this is at the core of the crypto movement. If successful, it could accelerate the launch of ambitious projects, make the ecosystem more competitive, and ultimately benefit end users.

This is an experiment filled with unresolved questions. But it is these experiments that drive progress in the crypto space.

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