Author: Lemniscap

Compiled by: Tim, PANews

We are excited to announce our participation in the $200 million seed round financing of Flying Tulip. Flying Tulip is a new project developed by AC and his team, aimed at building a full-stack exchange that encompasses spot trading, perpetual contracts, options trading, lending, and structured yields, representing a grand vision starting from scratch. While the project covers a wide range of areas, this article will focus on its groundbreaking fundraising model.

Why was Flying Tulip born?

Competing head-on with DeFi giants is a daunting task. They have more substantial funding, strong recurring revenue, and a well-established team structure, operating on a scale far beyond that of lean small startup teams. These giants enjoy extremely deep network effects, deeply integrated ecosystems, and loyal user bases. Additionally, there is a "political" layer of competition: the importance of having a say in industry standards and partnerships is often as significant as the quality of the product itself.

Therefore, even small startups with truly innovative technologies face entirely different challenges in successfully entering the market. This is not only a test of technology but also involves financial and social challenges. Flying Tulip addresses this challenge by reconstructing the capital formation model in the crypto space, discarding reliance on short-term profit-driven liquidity and token mechanisms, and focusing on establishing a fundraising model that can sustainably support business development, allowing the product matrix enough time and space to grow independently and mature.

Limitations of Current Token Fundraising Models

So far, the most successful application model in cryptocurrency has been crowdfunding: raising funds by issuing tokens to support project launches. However, once the initial phase ends, many tokens gradually fade away, as project teams struggle to maintain ongoing demand, causing their value to approach zero.

The use of tokens remains an active experimental field, but in many cases, tokens primarily serve as fundraising tools, a role that is most meaningful during the project launch phase, before it develops into a self-sustaining company.

Flying Tulip acknowledges this reality and attempts to build a corresponding model based on it.

Flying Tulip's Unique Fundraising Model

The core idea is simple: raise a large amount of funds through token sales, invest the funds in low-risk DeFi strategies, and use the generated profits to sustain operations until the product line achieves self-sustaining profitability.

Investors can obtain Flying Tulip (FT) tokens backed by perpetual put options. As long as they hold the token, investors can redeem it at the original investment value at any time, and this put option never expires. From a rational perspective, investors will only exercise the option when the token price is below the purchase price, at which point their held tokens will be destroyed.

In reality, investors bear the opportunity cost: if they had directly invested this capital into certain DeFi strategies, they could have earned about a 4% return. What they gain is the upside potential of the FT token, while the structured design keeps the downside risk at a minimum.

"Flying Tulip" ultimately plans to raise $1 billion. The token has no lock-up period, and all tokens will flow to investors upon issuance. Based on an estimated 4% yield from the project treasury, approximately $40 million in annual revenue can be generated, which will be used for operational expenses and guiding product portfolio development until fee income becomes the primary revenue source.

Buyback and Burn: The Core of the Model

DeFi treasury yields will be used to pay operational costs and buy back FT tokens. In the future, fees generated from the core product portfolio will become another source of buyback demand.

It is important to emphasize that if investors sell their FT tokens in the secondary market, their put options will immediately become invalid. This portion of the original capital will be transferred to the foundation for buyback and token destruction. This means that selling behavior not only causes investors to lose protection but also directly strengthens the token's deflationary mechanism.

In summary, these designs ensure that the demand side for FT tokens continuously attracts new buyers, while the supply side continues to decrease, creating a self-reinforcing positive cycle of deflation.

Impact on Token Economics

Since the entire supply of FT tokens is held by investors at the time of listing, early market prices may experience significant volatility. Limited circulation combined with ongoing buyback initiatives lays the foundation for strong reflexivity.

Unlike the traditional token issuance model where supply is distributed between teams and investors, the "Flying Tulip" project initially allocates 100% of the tokens to investors, with supply gradually shifting towards the foundation, ultimately leading to deflationary destruction. Theoretically, once this token completes its historical mission, it may completely exit the circulation domain.

Our Thoughts

"Flying Tulip" is not a guaranteed profit venture, but rather a uniquely crafted attempt. The success of this model depends on the team's ability to effectively manage funds, maintain stable returns, and create a competitive product system. The cost is reflected in inefficient capital use, as investors forgo potential direct investment returns, with only the project's success able to compensate for this opportunity cost.

For massive financing to succeed, the following elements are crucial:

• The ability to raise substantial funds, typically relying on a key individual or team whose reputation, influence, and trustworthiness attract capital.
• A sufficiently mature product line that genuinely warrants large-scale fundraising expansion.

In our view, Flying Tulip uniquely combines these two factors.

AC is one of the most astute builders in the crypto space, known for both influence and controversy. His repeated achievements in pioneering crypto primitives are well-documented, and the "Flying Tulip" project is a continuation of this tradition: fundamentally reconstructing the token fundraising model with an unprecedented mechanism while launching a product matrix aimed directly at industry giants.

We support the Flying Tulip team because it represents a rethinking of the token fundraising model, which is a core mechanism of the crypto movement. If feasible, it could accelerate the launch phase of ambitious projects, enhance ecological competitiveness, and ultimately benefit end users.

This is an experiment filled with unresolved questions, but it is precisely such explorations that drive the crypto industry forward.

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