Achieving efficient capital allocation is crucial to a well-functioning and prosperous economy. However, the previous regime of zero interest rates set by central banks and thus the low cost of capital has distorted some markets, and its impact was also felt in fundraising. With higher interest rates nowadays, modern mechanisms to improve capital allocations are highly sought after.
A significant problem to solve towards that goal is the alignment of interests between stakeholders. For example, investors participating in a funding round should (naturally) have the same interests as the project they are investing in across all timeframes (from short- to long-term). This is only sometimes the case, however. As previously laid out in our blog posts, traditional fundraising comes with several flaws: It is highly centralized, dominated by intermediaries, limits network effects due to restrictive access to capital, and leads to opaque and inefficient procedures. On top of that, the misalignment of interests between early-stage projects and investors can arise in many ways.
For example, projects and investors often discuss the current fair and appropriate valuation of their token. The valuation should still allow for growth, adequately compensate the investor for taking risk, but also allow the project to flourish. On the other hand, questions about how tokenomics are designed and how the model will play out in the open market may arise. Beyond that, there are other areas where misalignment might exist, such as how regulatory risks are treated, what timelines are reasonable, how access to information is granted, or why a particular governance model makes sense. Thus, proper alignment of incentives with investors, users and the community, in general, is crucial for the continued and long-term success of an early-stage project.
Polimec Aligns Stakeholder Interests
Polimec empowers issuers to raise capital in a decentralized, transparent, and regulatory compliant way. The protocol is designed to encourage the formation of a strong and broad community from the beginning — a community with a vested interest in the project’s long-term success. This is achieved in multiple ways, some of which are outlined below:
· Evaluation: A reasonable participant backing is necessary to initiate the funding process, emphasizing the need for transparency concerning the goals, roadmap, and the funding round itself. The outsourced project curation towards future stakeholders also clarifies topics such as the choice of tokenomics or project governance.
· Auction round: While the project sets the minimum token price, an appropriate valuation is openly determined in a bidding process by eligible professional participants, aiming for a fair price discovery for all participants.
· Multipliers and vesting periods: Participants choose the most suitable multiplier for them. The project benefits from the absence of vesting cliffs and massive, concurrent token unlocks.
· Long-term holder bonus: This incentivizes and rewards long-term holders as well as ongoing users of the tokens bought and, in turn, makes purely short-term speculation less attractive, which gives the project a broader and more sustainable community base of project users rather than speculators.
A Step up From the Status Quo
As a decentralized, transparent, and regulatory compliant protocol, Polimec addresses the misalignment of interest in traditional fundraising. Stakeholder incentives are properly aligned — investors and users are presented with transparent terms for their participation, and projects benefit from a prolific environment that supports their long-term success in building up a community based on use rather than speculation. In the end, this incentive alignment results in a true win-win situation: Participants optimize their odds for a financial reward for the risk they took, and projects have a higher probability to deliver according to valuation expectations and to successfully pursue their original vision.
