Author: Saurabh Deshpande

Translation: Block unicorn

Preface

Today's topic explores the evolution of capital formation in cryptocurrency. Coinbase's acquisition of Echo for $400 million, along with Flying Tulip's perpetual put option experiment, indicates that financing mechanisms are being fundamentally restructured. While these models may differ, the common thread is the pursuit of fairness, liquidity, and credibility in raising and deploying capital for new projects.

Our partner Decentralised.co's research writer Saurabh analyzes these experiments through market analysis and design commentary, revealing the increasingly mature relationship between cryptocurrency and risk, returns, and community trust.

Now, let’s get to the point.

Coinbase's** Construction of a Full-Stack Fundraising Empire**

Recently, Coinbase acquired the community fundraising platform Echo, founded by Cobie, for approximately $400 million. In the same transaction, Coinbase also spent $25 million to purchase an NFT to restart a podcast. Once activated, hosts Cobie and Ledger Status must produce eight new episodes. Echo has raised over $200 million through more than 300 rounds of funding.

This follows Coinbase's recent acquisition of Liquifi, completing a full-stack layout for crypto project tokens and investments.

Project teams can use LiquiFi to create tokens and manage equity structures, raise funds through Echo's private placements or Sonar's public sales, and then list the tokens on the Coinbase exchange for secondary trading. Each stage generates revenue. LiquiFi charges a service fee for token management. Echo derives value through profit-sharing agreements. Coinbase earns transaction fees from the trading of listed tokens. This integrated tech stack allows Coinbase to profit throughout the entire project lifecycle, not just during the trading phase.

This is a lucrative deal for Echo, as it would struggle to generate sustainable revenue without upstream integration with an exchange. Currently, its business model focuses on performance fees, which may take years to monetize, similar to venture capital.

Why would Coinbase pay such a high price for a product that only helps raise half the funds? Remember, the $200 million is not Echo's revenue, but merely the total amount of financing it facilitated. Coinbase pays this fee to establish a partnership with Cobie, who is regarded as one of the most respected figures in the cryptocurrency space for a long time. Additionally, Coinbase values Echo's network effects, technological infrastructure, regulatory standing, and its position in the emerging crypto capital formation framework.

Well-known projects like MegaETH and Plasma have raised funds through Echo, with MegaETH opting for follow-up financing via Echo's public sales platform Sonar.

This acquisition brings Coinbase the credibility of founders who are skeptical of centralized exchanges, access to a community-driven investment network, and infrastructure that extends 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 incentive mechanisms and token distribution has always been a challenge. When ICOs were launched in the cryptocurrency space from 2015 to 2017, we viewed it as an honest model that allowed more people to "democratize" participation in early projects. However, some tokens sold out before you even had a chance to connect via MetaMask, while private placements were whitelisted, effectively shutting out most retail investors.

Of course, this model must evolve due to regulatory considerations, but that is another topic. However, the focus of this article is not just on Coinbase's vertical integration but on the evolution of its financing mechanisms.

Flying Tulip's Perpetual Put Option

Andre Cronje's Flying Tulip aims to build a full-stack on-chain exchange that integrates spot trading, derivatives, lending, money markets, a 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 contending with exchanges like Ethena, Hyperliquid, Aave, and Uniswap.

The project's financing mechanism is quite interesting, embedding a perpetual put option. Investors contribute assets to receive FT tokens valued at $0.10 (10 FT tokens for every $1 invested), which will be locked. Investors can destroy FT tokens at any time to redeem their original principal, up to 100%. For example, if an investor invests 10 ETH, they can redeem 10 ETH at any time, regardless of the market price of FT.

The put option never expires, hence it is called a "perpetual option." Redemption funds are settled programmatically from an isolated on-chain reserve, funded by the raised capital and managed by audited smart contracts. A queuing and rate-limiting mechanism prevents abuse while ensuring solvency. If the reserve is temporarily insufficient, redemption requests will enter a transparent queue and be processed once funds are replenished.

This mechanism creates three aligned incentives for investors.

First, investors can hold locked tokens and retain redemption rights, thus benefiting from any gains if the protocol succeeds while maintaining downside protection.

Second, they can redeem their principal by destroying tokens, after which the tokens will be permanently destroyed.

Alternatively, they can extract funds by transferring tokens to a centralized exchange (CEX) or decentralized exchange (DEX), but the redemption rights will immediately expire after withdrawal, allowing Flying Tulip to use the original principal for operations and token buybacks. This creates strong deflationary pressure: selling tokens eliminates downside protection. Secondary market buyers do not enjoy redemption rights. This protection is only available to primary market sale participants, creating a dual-layer token with different risk characteristics.

This capital deployment strategy addresses a seemingly contradictory issue. Since all raised funds are subject to the perpetual put option, the team cannot actually use these funds, resulting in zero actual capital raised.

Instead, the $1 billion raised will be invested in low-risk on-chain yield strategies, targeting an annual yield of about 4%. This capital is readily available. The strategy generates approximately $40 million annually to cover operational expenses (development, team, infrastructure), FT token buybacks (increasing buying pressure), and ecosystem incentives.

Over time, fees from trading, lending, liquidation, and insurance will add additional buyback flows. For investors, the economic trade-off is to forgo the 4% yield they could earn from self-investing in favor of FT tokens, which have potential upside and principal protection. Essentially, investors will only exercise the put option if the trading price of FT falls below the $0.10 purchase price.

Returns are part of the revenue source. In addition to lending, the product suite includes automated market makers (AMM), perpetual contracts, insurance, and a delta-neutral stablecoin that continuously generates yield. Besides the expected $40 million income from deploying the $1 billion into various low-risk DeFi strategies, other products may also generate revenue. Top perpetual contract trading platforms like Hyperliquid earned $100 million in fees within a month, nearly double the potential income from DeFi lending (yielding 5-6% with a capital scale of $1 billion).

The token distribution model is starkly different from all previous cryptocurrency financing methods. Traditional ICOs and venture-backed projects typically allocate 10-30% of tokens to the team, 5-10% to advisors, 40-60% to investors, and 20-30% to foundations/ecosystems, with these allocations usually subject to vesting periods but guaranteed. Flying Tulip allocates 100% of tokens to investors (including private and public investors) at the project's launch, with neither the team nor the foundation initially holding any tokens. The team can only acquire token shares through buybacks in the open market, funded by protocol revenue sharing, and following a transparent schedule. If the project fails, the team will receive nothing. The initial 100% token supply is allocated to investors, and as redemptions occur, it gradually shifts to the foundation, with redeemed tokens permanently destroyed. The token supply always sets a cap based on the actual amount of capital 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.

The new mechanism aims to address the issues Cronje personally experienced in the Yearn Finance and Sonic projects. As he stated in the project introduction: "As the founder of two large token projects, Yearn and Sonic, I am acutely aware of the pressure that tokens bring. Tokens themselves are a product. If the price falls below the initial investment of the investors, it leads them to make some short-term decisions that may sacrifice the interests of the protocol in favor of the token itself. By providing a mechanism that assures the team of a price floor, where the 'worst-case scenario' is that investors can recover their investment, this greatly reduces that pressure and operational costs."

The perpetual put option separates the token mechanism from operational funding, eliminating the pressure of making protocol decisions based on token prices, allowing the team to focus on building sustainable products. Investors receive protection while also being incentivized to hold for upside, thus reducing the "make-or-break" impact of tokens on project survival.

The self-reinforcing growth flywheel described in Cronje's promotional materials outlines its economic model: $1 billion in funds, generating $40 million in revenue annually from a 4% share of operations and token buybacks; the protocol's launch generates additional fees from trading, lending, liquidation, and insurance; these revenues fund more buybacks.

Redemptions and buybacks create deflationary supply pressure; reduced supply combined with buying pressure drives prices up; rising token values attract users and developers; more users generate more fees, funding more buybacks; and so on. If the protocol's revenue eventually exceeds the initial yield, allowing the project to achieve self-sustainability beyond the initial capital, then the model is successful.

On one hand, investors can gain downside risk protection and institutional-level risk management. On the other hand, they will face a 4% real yield loss each year, along with capital efficiency losses due to locked funds yielding below market levels. This model only makes sense when the FT price is significantly above $0.10.

The risks of capital management include DeFi yields falling below 4%, the failure of yield protocols (such as Aave, Ethena, and Spark), and whether the $40 million per year is sufficient to support operations, develop competitive products, and conduct effective buybacks. Additionally, for Flying Tulip to surpass peers like Hyperliquid, it must truly become a liquidity hub, which is undoubtedly a tough battle, as established players have already gained a head start with superior products.

Building a complete DeFi tech stack with a team of only 15 people poses execution risks when competing against mature protocols with significant first-mover advantages. Few teams can achieve the execution efficiency of Hyperliquid, which has generated over $800 million in trading fees since November 2024.

Flying Tulip represents the evolution of Cronje's previous project experiences. Yearn Finance (2020) pioneered a fair distribution model where founders did not need to allocate any funds (Andre had to manage YFI himself), growing from zero capital to over $40,000 in just a few months, with a market cap exceeding $1.1 billion within a month. Flying Tulip adopts the zero team fund allocation model but adds institutional support ($200 million, compared to Yearn's zero self-funding) and investor protection measures that Yearn lacked.

Keep3rV1 unexpectedly launched its beta in 2020 (with token prices skyrocketing from $0 to $225 within hours), highlighting the risks of unverified sudden releases; Flying Tulip will implement audited and clearly documented contracts before its public sale. The experiences of Fantom/Sonic regarding token price pressure directly influenced the construction of its put option model.

Flying Tulip seems to integrate many advantages—fair distribution, no team allocation, structured issuance, and investor protection through an innovative perpetual put option mechanism. Its success depends 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 Supported by Futarchy

If Flying Tulip redefined investor protection, then MetaDAO reexamines the other half of the equation: accountability. Projects raising funds through MetaDAO do not actually receive the capital they raise. Instead, all funds are stored in an on-chain treasury, with every expenditure verified by conditional markets. Teams must present their plans for using the funds, and token holders bet on whether these actions will create value. Only when the market recognizes it can the transaction be completed. This is a structure that reshapes the financing model into a governance model, where financial control is decentralized, and code replaces trust.

Umbra Privacy is a groundbreaking case. This Solana-based privacy project secured over $150 million in investment, with a market cap of only $3 million. Funds are proportionally allocated, with excess amounts automatically refunded by smart contracts. All team tokens are tied to price milestones, meaning founders can only realize value if the project genuinely grows. Ultimately, after the project launched, the price increased sevenfold, proving that even in a weak market, investors still crave a fair, transparent, and structured investment environment.

The MetaDAO model may not yet be mainstream, but it restores what cryptocurrency once promised: a system where the market, not managers, decides what is worth investing in.

Cryptocurrency financing has entered a phase where many assumptions are being questioned. Echo demonstrates that even without integration with exchanges, distribution networks can achieve premium valuations. Flying Tulip tests whether investor protection mechanisms can replace traditional token economics.

The success of these experiments depends less on the theoretical sophistication and more on execution, user acceptance, and whether the mechanisms can withstand market pressures. The constantly evolving financing architecture is due to the unresolved potential conflicts between teams, investors, and users. Each new model claims to better balance the interests of all parties, but ultimately faces the same test: whether it can withstand the scrutiny of reality.

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