"ETH to 10k? Dream on! - Until I saw this proposal" "After studying ERC-7943, I feel like I see the shadows of the 'forefathers' ERC-20 and ERC-721. ETH might really reach 10k because of this; I have to make a video to discuss it, I'm so excited!" This was a sentence I shared with a friend after researching ERC-7943. Now it seems that due to the obscure content, along with various numbers, proposals, and technical terms, it is more appropriate to write an article in text form. Without further ado, let's get straight to the point. The following content roughly includes the following sections: 1⃣ Basic concepts of Ethereum proposals 2⃣ Content of the ERC-7943 proposal 3⃣ Token standards suitable for compliant on-chain RWA assets 4⃣ Current token standards used for on-chain RWA assets 5⃣ Detailed comparison and discussion between ERC-3643 and ERC-7943 6⃣ My creative ideas ———————————————————— ❓ What is ERC/EIP? (Skip if you're familiar) EIP stands for Ethereum Improvement Proposals, which allows anyone to propose improvements to Ethereum. It can be at the core code level or the application level; in short, if you think Ethereum needs improvement, you can propose it, and your proposal will be followed by a unique number identifier. For example, I could propose EIP-888. However, whether it gets executed requires multiple rounds of discussion and review by the Ethereum community. For instance, the Ethereum upgrades we often hear about are based on different EIPs to improve Ethereum. This is the Ethereum EIP proposal community: ERC stands for Ethereum Request For Comment, which is a form of EIP. You can also see the ERC section on the website. Simply put, ERC focuses on application improvements for Ethereum, making its applications more widespread or convenient. —————————————————— ❓ What are ERC-20/721/1155? (Skip if you're familiar) ERC-20/721/1155 are among the proposals mentioned above. So why are these proposals so important? ERC-20 defines the standard for "fungible tokens," meaning anyone can issue a large quantity of a certain token on Ethereum. A significant portion of the tokens we commonly see are in ERC-20 form, such as LINK, UNI, AAVE, Pepe, and various other meme coins, all existing on Ethereum as ERC-20. ERC-721 is the standard for "non-fungible tokens". Don't understand? Let me put it another way - NFT. This token can only have one, meaning only one person can own this item. ERC-1155 is a bit harder to understand; simply put, when you create a token using this protocol, you can specify whether your token is ERC-20 or ERC-721, and it also supports "batch" functionality, as the above two token types can only perform single transactions (which is not the focus of this discussion). —————————————————— Having understood the basic information above, let's get to the main topic: ❓‼️ What is ERC-7943? The original proposal is here: ERC-7943: uRWA - Universal Real World Asset Interface, An interface for common base tokens defining compliance checks, transfer controls, and enforcement actions for Real World Assets (RWAs). Translated, ERC-7943 is a type of universal RWA asset. It is a token that complies with compliance checks, has controllable transfers, and even enforcement capabilities. In simpler terms, it allows any asset to be represented on-chain in this token form, but this token has regulatory/control functions. The proposal was put forward by @xaler2 in May. This guy is coding for OpenZeppelin, and those familiar with this organization or who have written smart contract code know that it provides the standard code libraries for ERC-20/721/1155, making it quite famous in the Ethereum tech circle. Therefore, this guy's technical abilities should be beyond doubt. At the same time, he is also a co-founder of Brickken, a company specializing in RWA. This company is also supporting the ERC-7943 proposal. —————————————————— ❓ What stage is ERC-7943 at? First, we need to understand the steps a normal ERC proposal goes through to go live: 1) Drafting the proposal: Community members draft detailed proposals and code. 2) Review stage: Community members and core developers discuss whether it can go live and how to improve it, ultimately forming a proposal that has no major objections from the community or sending it back. 3) Last Call: The final 14 days, where everyone reviews if there are any remaining issues. 4) Final launch: Launch on Ethereum testnet and mainnet, providing the standard code. ERC-7943 entered stage 2 on July 31, which is the decision-making stage for whether ERC will go live. If it passes, it’s basically done; if not, it’s over. This stage often depends on the strength of consensus within the Ethereum community regarding this ERC, the number of objections, and other issues of safety and standardization, usually lasting from 2 months to 2 years, depending on community support. The main discussions in the Ethereum community about ERC-7943 are on ethereum-magicians: And the GitHub code repository: Currently, there is a controversy on ethereum-magicians, as this proposal conflicts significantly with the previous ERC-3643, because both token standards are aimed at RWA, leading to intense debates among developers. Therefore, I summarized the differences between the current ERC token standards suitable for RWA assets below. —————————————————— ✅ About the expansion of RWA assets on-chain, my personal views and ideas The following content is my opinion on suitable token forms for RWA on-chain. Discussions about ERC-3535, ERC-3643, ERC-7943, ERC-1400, and ERC-2222 are all personal views and not objective. First, let’s understand the content and characteristics of each standard through this table (referenced GPT). Based on the above table and references from @bocaibocai_ and Professor Meng Yan @myanTokenGeek's code and articles: I personally believe that while ERC-3525 fits some complex situations for RWA in terms of token form, it lacks emphasis on compliance control; ERC-1400 is specifically a standard for security-type tokens; ERC-2222 has a profit distribution function; All of the above standards lack the "unified" characteristic of RWA. RWA, Real World Assets, should ideally support as many real asset types as possible with a strong compliance function. Regulators want absolute control, which is why I believe Ondo is pursuing a 'machine room chain'. Thus, ERC-3643 has been highlighted by the SEC chairman. From both proposals and codes, I believe ERC-7943 is more like a simplified version of 3643, emphasizing "compliance" functions, allowing any RWA asset type to have its "personalized RWA asset function" redesigned by the user. Therefore, ERC-7943 is also named uRWA - Universal Real World Asset Interface. In simpler terms, ERC-7963 only designed functions like freezing, forced transfers, whitelisting, etc. For other functions like generating income or splitting, you can write functions to represent them. You can issue dividends on this basis or add any RWA asset functions you want; ERC-7943 only provides the "compliance" function. "I gave you the compliance key; which RWA asset drawer do you want to open?" —————————————————— 🆚 Next, I will discuss the differences between ERC-3643 and ERC-7963 in detail to help us better understand the distinctions between these two asset types (completely personal views). Let’s directly look at the underlying functions. ERC-3643 can implement all the current functions of ERC-7943 and has an OnchainID that points to an identity verification contract to achieve KYC real-name functionality. This contract stores and manages user identity information, permissions, verification data, etc. However, ERC-7943, in its design, discarded the KYC function. The author @xaler2 believes that 3643 is not simple enough, and KYC is not a necessary option for RWA assets; if needed, corresponding functions can be added through inheritance. He specifically mentioned Promissory notes assets and government RWA projects. See details: Thus, he changed many MUSTs in ERC-3643 to Maybes, releasing many customizable functions. It only wrote "forced transfer," "freeze address," "get the number of tokens in the frozen address," "transfer permissions," and "whitelisting." But the author of ERC-3643 believes that there is no need to consider niche RWA assets. In short, there seems to be a bit of a dispute, with each side having its own reasoning. —————————————————— ✅ Ultimately, my view is: ERC-7943 is simpler and has a broader scope, while ERC-3643 is more detailed but relatively narrower. At the same time, a lawyer in the discussion area expressed that many countries' laws are not very friendly towards putting identity information on-chain with OnchainID. Therefore, from a technical perspective, I personally lean towards supporting ERC-7943. However, it is true that ERC-7943 is still in its early stages and requires much discussion among Ethereum community members. On the other hand, ERC-3643 has already formed a standard, has been running for a long time, and has an organization @ERC3643Org supporting this standard, which has received support from many institutions and has also been highlighted by the SEC chairman. —————————————————— ⬇️ What are the main tokenization circulation forms of RWA assets on-chain currently? Through the data from , we can see that the mainstream RWA assets on-chain are currently implemented as basic ERC-20 + custom extension functions. Therefore, ERC-3643 seems not to be as widely applied in RWA as imagined, as the current mainstream assets have not adopted its solution, with only a small group reaching a consensus to use it, and several companies pushing it behind the scenes. So we cannot say that ERC-7943 has no chance to flip. ——————————————————— ✅ If you see this, let’s return to the initial topic: why am I excited? Recently, everyone has seen the price of ETH, but I discussed in my previous article that while rising is good for everyone, such a rise is unhealthy: The rise of Ethereum should be driven by the prosperity of the ecosystem, leading to ETH burning/deflation/scarcity. Let’s recount the bull markets I have heard/seen in the past: The 2017 ICO bull market, the launch of the ERC-20 token standard, everything went on-chain, and the market surged. In 2020-2021, DeFi + NFT, new narratives and asset types exploded (ERC-721 was launched in 2018 but became popular in 2021). We find that in every bull market, a certain type of asset token tends to become popular, and even last year's Bitcoin inscriptions were also a new asset type. Referring to history, new token types are very likely to become the theme of Ethereum's next bull market phase. After all, as @HAZENLEE_ said, "You wouldn't really expect Wall Street to pull you out of the depths with real money, would you?" And why is it likely to be the RWA token type? We can see various signs indicating that Ethereum will focus on the RWA narrative in this cycle: Vitalik has already changed Ethereum's description from "world computer" to "world financial ledger." Ethereum has never gone down since its launch, and Tom Lee said it is very suitable for financial products, hence the crazy CX on Wall Street. Institutions like Robinhood are establishing RWA assets in the Ethereum ecosystem (I couldn't find what token type Robinhood is using on Arbitrum; if anyone knows, feel free to discuss). And so on... So not only do I think so, but many people also believe that RWA will be the main theme of this bull market and will be the first major step towards mass adoption of blockchain. However, I have always struggled with the fact that ordinary people have no way to participate in RWA to reap the benefits, and just at this time, ERC-7943 has emerged, which now seems to be a breakthrough. —————————————————— ⬇️ Let me share some of my speculations: Because ERC-7943 is universal enough, simple enough, and easier to implement than ERC-3643, it can be more easily packaged into a compliant "RWA" concept. What I actually look forward to is not stocks on-chain, not bonds on-chain, and certainly not real estate carbon credits on-chain; I hope that even my uncle's chair can be on-chain. That kind of FOMO is what a raging bull market should have. Currently, ERC-7943 seems capable of achieving this and can tell a good story. But rationally thinking, if ERC-7943 becomes popular, there will definitely be countless Wall Street and conspiracy groups manipulating it; they need to see the value in this token type. —————————————————— ✅ So, if, just if, this token type really takes off, what opportunities do we ordinary people have? First and foremost, it will definitely be the first token that applies ERC-7943. At that time, regardless of what RWA it is (stocks and bonds can be set aside, as they are tied to real prices), it must be something vague and abstract, like the income certificate of some obscure company or the land rights of some remote area. Then, there are the exchanges for this type of asset, which are what primary market players should focus on. Currently, I can only think of these two ways to participate. The remaining content will be illustrated with images and continued in the thread below⬇️

"ETH to 10k? Dream on! - Until I saw this proposal" "After studying ERC-7943, I feel like I see the shadows of the 'forefathers' ERC-20 and ERC-721. ETH might really reach 10k because of this; I have to make a video to discuss it, I'm so excited!" This was a sentence I shared with a friend after researching ERC-7943. Now it seems that due to the obscure content, along with various numbers, proposals, and technical terms, it is more appropriate to write an article in text form. Without further ado, let's get straight to the point. The following content roughly includes the following sections: 1⃣ Basic concepts of Ethereum proposals 2⃣ Content of the ERC-7943 proposal 3⃣ Token standards suitable for compliant on-chain RWA assets 4⃣ Current token standards used for on-chain RWA assets 5⃣ Detailed comparison and discussion between ERC-3643 and ERC-7943 6⃣ My creative ideas ———————————————————— ❓ What is ERC/EIP? (Skip if you're familiar) EIP stands for Ethereum Improvement Proposals, which allows anyone to propose improvements to Ethereum. It can be at the core code level or the application level; in short, if you think Ethereum needs improvement, you can propose it, and your proposal will be followed by a unique number identifier. For example, I could propose EIP-888. However, whether it gets executed requires multiple rounds of discussion and review by the Ethereum community. For instance, the Ethereum upgrades we often hear about are based on different EIPs to improve Ethereum. This is the Ethereum EIP proposal community: ERC stands for Ethereum Request For Comment, which is a form of EIP. You can also see the ERC section on the website. Simply put, ERC focuses on application improvements for Ethereum, making its applications more widespread or convenient. —————————————————— ❓ What are ERC-20/721/1155? (Skip if you're familiar) ERC-20/721/1155 are among the proposals mentioned above. So why are these proposals so important? ERC-20 defines the standard for "fungible tokens," meaning anyone can issue a large quantity of a certain token on Ethereum. A significant portion of the tokens we commonly see are in ERC-20 form, such as LINK, UNI, AAVE, Pepe, and various other meme coins, all existing on Ethereum as ERC-20. ERC-721 is the standard for "non-fungible tokens". Don't understand? Let me put it another way - NFT. This token can only have one, meaning only one person can own this item. ERC-1155 is a bit harder to understand; simply put, when you create a token using this protocol, you can specify whether your token is ERC-20 or ERC-721, and it also supports "batch" functionality, as the above two token types can only perform single transactions (which is not the focus of this discussion). —————————————————— Having understood the basic information above, let's get to the main topic: ❓‼️ What is ERC-7943? The original proposal is here: ERC-7943: uRWA - Universal Real World Asset Interface, An interface for common base tokens defining compliance checks, transfer controls, and enforcement actions for Real World Assets (RWAs). Translated, ERC-7943 is a type of universal RWA asset. It is a token that complies with compliance checks, has controllable transfers, and even enforcement capabilities. In simpler terms, it allows any asset to be represented on-chain in this token form, but this token has regulatory/control functions. The proposal was put forward by @xaler2 in May. This guy is coding for OpenZeppelin, and those familiar with this organization or who have written smart contract code know that it provides the standard code libraries for ERC-20/721/1155, making it quite famous in the Ethereum tech circle. Therefore, this guy's technical abilities should be beyond doubt. At the same time, he is also a co-founder of Brickken, a company specializing in RWA. This company is also supporting the ERC-7943 proposal. —————————————————— ❓ What stage is ERC-7943 at? First, we need to understand the steps a normal ERC proposal goes through to go live: 1) Drafting the proposal: Community members draft detailed proposals and code. 2) Review stage: Community members and core developers discuss whether it can go live and how to improve it, ultimately forming a proposal that has no major objections from the community or sending it back. 3) Last Call: The final 14 days, where everyone reviews if there are any remaining issues. 4) Final launch: Launch on Ethereum testnet and mainnet, providing the standard code. ERC-7943 entered stage 2 on July 31, which is the decision-making stage for whether ERC will go live. If it passes, it’s basically done; if not, it’s over. This stage often depends on the strength of consensus within the Ethereum community regarding this ERC, the number of objections, and other issues of safety and standardization, usually lasting from 2 months to 2 years, depending on community support. The main discussions in the Ethereum community about ERC-7943 are on ethereum-magicians: And the GitHub code repository: Currently, there is a controversy on ethereum-magicians, as this proposal conflicts significantly with the previous ERC-3643, because both token standards are aimed at RWA, leading to intense debates among developers. Therefore, I summarized the differences between the current ERC token standards suitable for RWA assets below. —————————————————— ✅ About the expansion of RWA assets on-chain, my personal views and ideas The following content is my opinion on suitable token forms for RWA on-chain. Discussions about ERC-3535, ERC-3643, ERC-7943, ERC-1400, and ERC-2222 are all personal views and not objective. First, let’s understand the content and characteristics of each standard through this table (referenced GPT). Based on the above table and references from @bocaibocai_ and Professor Meng Yan @myanTokenGeek's code and articles: I personally believe that while ERC-3525 fits some complex situations for RWA in terms of token form, it lacks emphasis on compliance control; ERC-1400 is specifically a standard for security-type tokens; ERC-2222 has a profit distribution function; All of the above standards lack the "unified" characteristic of RWA. RWA, Real World Assets, should ideally support as many real asset types as possible with a strong compliance function. Regulators want absolute control, which is why I believe Ondo is pursuing a 'machine room chain'. Thus, ERC-3643 has been highlighted by the SEC chairman. From both proposals and codes, I believe ERC-7943 is more like a simplified version of 3643, emphasizing "compliance" functions, allowing any RWA asset type to have its "personalized RWA asset function" redesigned by the user. Therefore, ERC-7943 is also named uRWA - Universal Real World Asset Interface. In simpler terms, ERC-7963 only designed functions like freezing, forced transfers, whitelisting, etc. For other functions like generating income or splitting, you can write functions to represent them. You can issue dividends on this basis or add any RWA asset functions you want; ERC-7943 only provides the "compliance" function. "I gave you the compliance key; which RWA asset drawer do you want to open?" —————————————————— 🆚 Next, I will discuss the differences between ERC-3643 and ERC-7963 in detail to help us better understand the distinctions between these two asset types (completely personal views). Let’s directly look at the underlying functions. ERC-3643 can implement all the current functions of ERC-7943 and has an OnchainID that points to an identity verification contract to achieve KYC real-name functionality. This contract stores and manages user identity information, permissions, verification data, etc. However, ERC-7943, in its design, discarded the KYC function. The author @xaler2 believes that 3643 is not simple enough, and KYC is not a necessary option for RWA assets; if needed, corresponding functions can be added through inheritance. He specifically mentioned Promissory notes assets and government RWA projects. See details: Thus, he changed many MUSTs in ERC-3643 to Maybes, releasing many customizable functions. It only wrote "forced transfer," "freeze address," "get the number of tokens in the frozen address," "transfer permissions," and "whitelisting." But the author of ERC-3643 believes that there is no need to consider niche RWA assets. In short, there seems to be a bit of a dispute, with each side having its own reasoning. —————————————————— ✅ Ultimately, my view is: ERC-7943 is simpler and has a broader scope, while ERC-3643 is more detailed but relatively narrower. At the same time, a lawyer in the discussion area expressed that many countries' laws are not very friendly towards putting identity information on-chain with OnchainID. Therefore, from a technical perspective, I personally lean towards supporting ERC-7943. However, it is true that ERC-7943 is still in its early stages and requires much discussion among Ethereum community members. On the other hand, ERC-3643 has already formed a standard, has been running for a long time, and has an organization @ERC3643Org supporting this standard, which has received support from many institutions and has also been highlighted by the SEC chairman. —————————————————— ⬇️ What are the main tokenization circulation forms of RWA assets on-chain currently? Through the data from , we can see that the mainstream RWA assets on-chain are currently implemented as basic ERC-20 + custom extension functions. Therefore, ERC-3643 seems not to be as widely applied in RWA as imagined, as the current mainstream assets have not adopted its solution, with only a small group reaching a consensus to use it, and several companies pushing it behind the scenes. So we cannot say that ERC-7943 has no chance to flip. ——————————————————— ✅ If you see this, let’s return to the initial topic: why am I excited? Recently, everyone has seen the price of ETH, but I discussed in my previous article that while rising is good for everyone, such a rise is unhealthy: The rise of Ethereum should be driven by the prosperity of the ecosystem, leading to ETH burning/deflation/scarcity. Let’s recount the bull markets I have heard/seen in the past: The 2017 ICO bull market, the launch of the ERC-20 token standard, everything went on-chain, and the market surged. In 2020-2021, DeFi + NFT, new narratives and asset types exploded (ERC-721 was launched in 2018 but became popular in 2021). We find that in every bull market, a certain type of asset token tends to become popular, and even last year's Bitcoin inscriptions were also a new asset type. Referring to history, new token types are very likely to become the theme of Ethereum's next bull market phase. After all, as @HAZENLEE_ said, "You wouldn't really expect Wall Street to pull you out of the depths with real money, would you?" And why is it likely to be the RWA token type? We can see various signs indicating that Ethereum will focus on the RWA narrative in this cycle: Vitalik has already changed Ethereum's description from "world computer" to "world financial ledger." Ethereum has never gone down since its launch, and Tom Lee said it is very suitable for financial products, hence the crazy CX on Wall Street. Institutions like Robinhood are establishing RWA assets in the Ethereum ecosystem (I couldn't find what token type Robinhood is using on Arbitrum; if anyone knows, feel free to discuss). And so on... So not only do I think so, but many people also believe that RWA will be the main theme of this bull market and will be the first major step towards mass adoption of blockchain. However, I have always struggled with the fact that ordinary people have no way to participate in RWA to reap the benefits, and just at this time, ERC-7943 has emerged, which now seems to be a breakthrough. —————————————————— ⬇️ Let me share some of my speculations: Because ERC-7943 is universal enough, simple enough, and easier to implement than ERC-3643, it can be more easily packaged into a compliant "RWA" concept. What I actually look forward to is not stocks on-chain, not bonds on-chain, and certainly not real estate carbon credits on-chain; I hope that even my uncle's chair can be on-chain. That kind of FOMO is what a raging bull market should have. Currently, ERC-7943 seems capable of achieving this and can tell a good story. But rationally thinking, if ERC-7943 becomes popular, there will definitely be countless Wall Street and conspiracy groups manipulating it; they need to see the value in this token type. —————————————————— ✅ So, if, just if, this token type really takes off, what opportunities do we ordinary people have? First and foremost, it will definitely be the first token that applies ERC-7943. At that time, regardless of what RWA it is (stocks and bonds can be set aside, as they are tied to real prices), it must be something vague and abstract, like the income certificate of some obscure company or the land rights of some remote area. Then, there are the exchanges for this type of asset, which are what primary market players should focus on. Currently, I can only think of these two ways to participate. The remaining content will be illustrated with images and continued in the thread below⬇️

[How did the financing and valuation of Web3 VC come about?] 】 Have you ever wondered why the same $10 million project is valued at 100 million and 200 million? Have you ever wondered what variables affect the financing amount and valuation relationship of web3 projects? Why can some projects raise their valuations to the sky, but they break all the way after TGE; And some projects don't care about quietly opening low, but they can convince everyone for several days in a row? In a VC project - how do the four forces of the project side make the game, VC make money, exchange listing, and retail investors take over 👉? ———————————————— The above questions are also my long-standing confusion 🤔 about VC coins - for web3 projects, how much financing should correspond to the valuation? Therefore, based on all the queryable data on rootdata, I summarized the financing amount and valuation of 615 projects, compiled them into a detailed table, and analyzed the data. ✅ Let's talk about the core data conclusion: the median of the "valuation/total financing" multiple of more than 600 projects is 10, and the average is 12, which is the core benchmark and the most valuable data in my opinion. This means that generally speaking, when a Web3 project receives $10 million in VC funding, its recognized valuation at the funding stage is usually around $100 million. For us average retail investors, this number has direct guiding significance: it provides a quick yardstick to determine whether a project's valuation is "generally reasonable." If you see a project funded at multiples well above this average (say 10 million funded at a valuation of 200 million or even 300 million), then you need to be vigilant. This could signal a bubble in the project's valuation or early investors' expectations for the project's future FDV being over-pushed, increasing your risk as a secondary market takeover. ———————————————— Next is the main text, first of all, the long warning ⚠️ article will be divided into the following parts: 1️⃣ Methodology: What is the reason and significance of studying this data 2️⃣ Data source 3️⃣ Data analysis and interpretation: correlation between financing amount and valuation, average > median number of "valuation/financing", the impact of different financing rounds, financing amounts, and financing years on "valuation/financing" 4️⃣ Deduction of the relationship between project parties, VCs, exchanges, and ordinary investors in different market environments 5️⃣ Conclusion: The reference significance and shortcomings of the data ———————————————— 🟢 [Part 1: Methodology] 🟢 (a bit long, but recommended to read) In the traditional venture capital model, the relationship between financing amount and valuation is clear. If a project receives X amount of financing, the corresponding post-investment valuation is Y, then the theoretical equity ratio obtained by the VC is X/Y. This equity ratio is usually transparent, legally binding, and recorded in the Cap Table in traditional companies. Its level mainly depends: -The attractiveness and potential of the project itself: the technological innovation, market size, team background, etc. of the project. -Bargaining power of the project party: If the project is sought after by many VCs, the project party naturally has stronger bargaining power and can sell less equity at a higher valuation. - The stage of the project: the early stage of the project is high, the valuation model may be based on future forecasts such as discounted cash flow, and more equity may be transferred; The later project has revenue and user base, and the valuation is more mature and stable. - Market environment: The overall valuation level will be higher in a bull market. However, when we turn our attention to the cryptocurrency space, the situation becomes very different and more complex. The traditional valuation logic and the equation of "financing amount/valuation = currency holding ratio" are facing huge transformations 👇 here ✅ The crypto space is a huge difference from traditional VC investing In Web3 investing, there are several key differences that make it difficult to simply apply traditional valuation logic: 1️⃣High opacity of coin holding ratio and tokenomics: -Unlike traditional equity cap tables, Web3 projects' initial token allocation ratios and detailed unlocking and lock-up schedules are often not mandatory or fully transparent. - The lack of clear regulation of the final allocation and use of vaguely purposed token reserves (such as "ecosystem funds" or "community funds") provides operational space for project parties and early investors, making the actual "effective holding ratio" of VCs far exceeding their nominal "financing amount/valuation" ratio. - The token supply can also be dynamically changing (inflation/deflation), further increasing uncertainty. 2️⃣ Diversification and elasticity of valuation logic: -The valuation of Web3 projects, in addition to traditional methods, also relies heavily on tokenomics models, community size and activity, network effects, track popularity, and market sentiment. -Many times, valuation is not strictly based on the actual situation or cash flow of the project, but more like a [demand pricing method]❗️, that is, based on the project party's "how much money it hopes to raise" and the VC's "expected profit times". Especially in a bull market, project teams and VCs have [motivation] and [opportunity] collusion, and may use "liquidity and expected returns at exit" as a benchmark to push back the current valuation, rather than reverse pricing based on normal actual costs and holding ratios. This makes the valuation more like an "expected anchor" for FDV at TGE. 3️⃣ Information asymmetry and regulatory lag: The Web3 space lacks a mature, unified regulatory framework and mandatory disclosure requirements. This leads to a high degree of information asymmetry, and project parties and VCs have information advantages that far exceed those of ordinary retail investors. This provides the soil for project parties and VCs to take advantage of the flexibility of the rules and carry out profit-maximizing operations. ✅ So, what is the practical significance of the "valuation/financing ratio" in the Web3 space? Despite the above complexities, the "valuation/financing ratio" still holds horizontal contrast and guiding value in the cryptocurrency space: 1️⃣ Measure market expectations: It has become an important benchmark for the market to judge whether the FDV is reasonable or broken after the project's TGE. 2️⃣ Reveal the dilution cost of VC From a VC's perspective, this ratio shows the "dilution cost" they pay to get a share of the corresponding token at the "paper valuation". A higher percentage means they receive a smaller share of tokens in nominal terms. However, this nominal dilution may mask the actual benefits VCs receive through other channels (such as additional token allocation, preferential terms), making their "effective holdings" may be higher than the notional value. Studying this ratio helps us speculate on whether there is such a "hidden transaction" between the VC and the project party. 3️⃣ Insight into market sentiment and industry bubbles: Through the analysis of a large amount of project data, the average and median (10-12) of this ratio can be used as a benchmark for the general valuation level of Web3 projects in the current market environment. When the proportion of individual projects is significantly higher than the industry average, this should be a strong warning sign. It may indicate over-hype, valuation bubbles, and a highly consistent short-term motivation between the project team and early-stage VCs to "push up valuations and ship high", passing on huge risks to subsequent secondary market retail investors. ———————————————— 🟢 [Part 2: Data Sources] 🟢 (can be skipped 😂) In order to deeply analyze the relationship between financing and valuation of Web3 projects, the data in this article are all from @RootDataCrypto. Data collection method and scope -Manual collection: Due to the high cost of the RootData website API interface, this data collection is done entirely manually 😢. This ensures a review of each project data, but also means a lengthy collection process. -Screening criteria: 1️⃣ With "valuation" as the core screening condition: This study mainly focuses on the relationship between financing amount and valuation, so only collects all projects that have publicly disclosed specific valuation amounts on RootData. 2️⃣Exclude invalid data: Projects with undisclosed financing amounts or undisclosed specific figures (e.g., "millions of dollars", "undisclosed") are excluded. Funding rounds for ordinary investors: Excludes funding rounds for ordinary investors such as IDOs and Public Sale. -Data processing logic: 1️⃣Calculation of total funding amount: For each project, its total funding amount is the sum of the funding amounts of all its VC funding rounds (seed round, Series A, Series B, etc.). 2️⃣ Valuation selection: In order to reflect the latest institutionally recognized valuation of the project at a certain point in time as much as possible, we uniformly select the last round of valuation data recorded by the project. 【Data Limitations and Trade-offs】 It should be clearly pointed out that despite significant efforts in data collection and screening, the data in this study still have certain limitations due to the following factors: - Potential errors in manual collection: Individual project data may be biased, and despite best efforts to check, a complete proofreading from start to finish was not performed. -Data timeliness and openness: Not all projects are fully disclosed in valuation and financing details. The latest financing information of some projects may not have been included or disclosed. -No TGE FDV data: The core analysis of this study is based on valuation data from the VC financing stage, and FDV data on the day of the project's TGE has not been obtained for further comparison and verification. This will be the direction of future research (Flag 🚩 +1). ———————————————— 🟢 [Part 3: Analysis and interpretation of data] 🟢 ✅ Correlation between financing amount and valuation Chart 1️⃣: Scatter plot: Correlation between total financing and valuation amount (logarithmic scale) 【Data Conclusion】: ⭕️ Correlation coefficient between the total financing amount and the last valuation amount: 0.80 ⭕️ Conclusion: A correlation coefficient close to 1 indicates a strong positive correlation, meaning that the larger the financing amount, the larger the valuation amount, which is in line with the general logic of investment. Some projects may have achieved higher valuations with relatively small funding (dots above the average trend line), while others may require more funding to reach similar valuations (dots below the average trend line). This diversification is what the "valuation/financing ratio" is what we will discuss in depth later. ✅ [Distribution of "valuation/financing" multiples and average & median] Chart 2️⃣3️⃣: Number of projects in different tiers of "valuation/financing" (histogram and pie chart) 【Data Conclusion】: ⭕️ Average of "Valuation/Financing Ratio": 12.36; Median "Valuation/Financing Ratio": 10.00 ⭕️ Most of the projects' valuation/financing multiples are concentrated in the 5-10 band (211 projects, 34.3%) and the 10-15 band (183 projects, 29.8%). ⭕️ About 85% of projects have a "valuation/financing multiple" of less than 20x. [In-depth interpretation]: - Median 10.00: Means that half of the projects are valued at 10 times or less than the amount raised, while the average of 12.36 is slightly higher, indicating that there are a few extremely overvalued projects that have pulled up the average. -64% of projects are concentrated in the 5-15x range: This indicates that most Web3 VC investment projects will still follow a certain market consensus during the financing stage to avoid excessively outrageous valuations. This range may be seen as the equilibrium that the market finds between project attractiveness and VC risk-reward. - About 85% of projects are less than 20x: This indirectly shows that retail investors may need to be extremely cautious ⭕️ when they see a project with a "valuation/financing ratio" of more than 20x, as this is far beyond the general industry level, either the project has disruptive potential, there is a severe valuation bubble, or the actual benefits of VCs are not as simple as they appear (emphasis). ⭕️ ✅ [Impact of financing amount on "valuation/financing" multiple] Chart 4️⃣: Weighted average "valuation/financing" multiples for different financing amounts (table, reflecting the efficiency of the total capital of this tier) Chart⃣ 5️: Average vs. median "valuation/financing" for different financing amounts (two histograms) 【Data Conclusion】: Weighted Average: The weighted average multiples of the $0-$1 million and $60 million-$100 million levels are significantly higher than the other tiers. The $100 million to $300 million tier is also relatively high, ranking third. Average vs. Median: The $0-$1 million range also far exceeds all other tiers in terms of average and median. The $60 million-$100 million range also outperformed the average and median. The average and median for most other gears are concentrated around 10-12. [Interpretation]: ⭕️$0-$1 million (very early projects, leading by high multiples): Whether in terms of weighted average, average or median, the "valuation/financing" multiple of this smallest financing bracket shows the most significant inflation. At this time, projects are at the highest risk with only concepts, white papers, or very early prototypes. But if successful, the return potential is also greatest, so investors are willing to accept a higher "valuation premium". (However, it should be noted that many projects with 0-1 million financing have not issued coins, and the reference value is limited) ⭕️60 million-$100 million (mid-to-late sprint, second highest valuation): This stall shows high valuation multiples in weighted average, mean and median, second only to the very early stage. This type of project has emerged in their respective tracks and has the potential to become a "star project", attracting more attention and competition from institutional investors, thereby pushing up valuation multiples. Investors may value its imminent growth potential and proximity to exit (TGE) and are willing to pay a higher premium. ⭕️100 million to 300 million US dollars (large projects, stable and high): This tier ranks third highest in weighted average multiples, and the total financing amount and total valuation scale are very large. Projects that reach this scale are usually already the top players in their respective tracks and have the potential to become "unicorns". Investing in such projects, in addition to financial returns, may also be accompanied by considerations such as strategic layout and ecological cooperation, attracting more traditional institutions or strategic investors, who may be more receptive to valuation multiples. ⭕️Above $300 million (Big Mac project, valuation tends to be rational): The weighted average multiple of this highest financing level is relatively middle (11.03). Projects that have reached such large-scale financing are usually very mature, and the valuation may be closer to the rational valuation method of traditional enterprises, focusing on hard indicators such as project cash flow and user scale. VCs or late-stage investors who invest in such mega-projects may focus more on investment certainty and risk control, and have more robust expectations for valuation multiples. ——👇 There are too many pictures, see the next thread👇 for the rest——