A New Path Forward with Echo?
There's no perfect way to launch a token.
That being said, there are plenty of shitty ways to launch one, something that the crypto industry is only growing more familiar with in recent days.
Years ago, crypto mega-influencer/investor Cobie, aka Jordan Fish, highlighted one particularly shitty token launch strategy that was prevalent (and still is) among projects backed by the industry's top VCs. These so-called low-float, high-FDV (fully diluted value) token launches gave venture investors all of the early upside and ensured that a lack of volatility at launch meant insiders got paid.
Cobie's musings triggered some solution hunting and he ended up shipping Echo, an investment app built for, “allowing onchain natives to invest together.” The product launched in beta nearly a year ago, and since then, 238 deals have been facilitated using Echo by 7,654 unique investors and just under $100M total raised. The firm has been capturing more and more attention in recent months, led by MegaETH's $10M raise from the platform in December.
To understand more about why Echo is having a moment, we have to take a step back and learn what Cobie means by low-float high-FDV.
What is low-float, high-FDV?
Four years ago, Cobie wrote a buzzy post about how to calculate FDV, market cap, unlocks, and founding team interests. In On the meme of market caps & unlocks, he described the dynamics among projects, investors and founders "to maximise their fully diluted market cap (and thus private wealth) by funneling as much open market $ into the smallest float possible. By doing this, a project can create vast paper profits for investors and the team.”
Fast forward three years and nothing really changed. Teams were still using the same token launch structure and it was still hurting the general public, discouraging more early investors who remain down-only on bets they took advantage of at their earliest entry.
Last year, Cobie released another substack article titled, “New launches (part 1) - private capture, phantom pricing” where he discusses these issues and misconceptions in the market and what he wanted to do to change it.
Jack Inabinet May 20, 2024 • 3 min read
What is Echo?
Echo aims to democratize private investment in crypto companies, aiming to make early-stage crypto investments less of an elitist club and more of a community party for seasoned investors. The platform is still limited by securities regulations, so stateside that means accredited investors only sadly, but its efforts to open early stage opportunities inside crypto to a wider swath of investors than VCs offers a more attractive model even if it's not quite at Pump.fun levels of permissionlessness.
The platform hosts a system where lead investors create groups, and members can jump in on deals, all managed onchain. It's like a decentralized venture capital fund where the community decides what they want to fund.
Recently, MegaETH’s $10M raise made waves across the ecosystem as it showed the power of Echo under this collective energy – selling out in less than 3 minutes - while also signifying a shift in how community-aligned founders opt to raise funding for their project.
See this quote from The Block's reporting on the raise:
"Crypto has long been plagued by high insider supply and limited community involvement," [MegaETH’s Shuyao] Kong said. "At MegaLabs, we're committed to ensuring the community has real skin in the game. We are essentially following Ethereum's footsteps by prioritizing community ownership."
What does this all mean?
This is all pretty exciting news for an industry that's desperately been searching for a new path forward for projects selling tokens to the community that still promote long-term thinking for the founders of said projects. And while it's exciting for normie accredited investors, there are reasons crypto VCs should be worried by the trend.
Echo is a step towards decentralization, a decentralization from the centralizing forces of venture capital. With Echo, accredited investors have more influence over the early stages of startups, making these deals less exclusive and therefore potentially less lucrative. Echo also brings more transparency and efficiency to the table as all of the terms are finalized using USDC onchain.
Yes, venture capital is a big industry, and Echo is just getting started, but as the crypto community looks for more paths forward when it comes to building lasting value onchain, it's an exciting start.