2. From Product to Platform: An Onchain Venture Building Marketplace

Part II talks about our proposed design for the OtoCo token. It explains why we’ve come gone from the ”indefensible to the indispensable” in our analysis of the need for a native token.

Much has to do with OtoCo wanting to go from product to platform in the next phase of its growth: an open marketplace with components and add-ons written by third-party developers bolted on to a core solution provided by OtoCo.

We think this approach is superior to a walled-garden, proprietary approach from a business model, commercial and technology perspective:

1. The business case: Attract more users by solving more use cases

From a business model point of view, a unified shopfront integrated within OtoCo’s Dashpanel and stocked with goods manufactured by outside developers may be the only way to give end-users the widest choice of solutions for their needs.

We expect the shopfront to offer a crop of early smart contract plug-ins, for instance:

  • A fund admin module such as enzyme.finance that is integrated with a “flat-packed” crypto hedge fund legal wrapper;

  • A plug-in written by an outside crypto custodian firm to keep a company’s Treasury wallets secure;

  • Smart-contractified Employee Stock Option Plans (ESOPs) for more traditional companies;

  • SAFE/SAFT/SAFT-Es legal plugins and Reg D/S offering wizards

INTERLUDIUM - Smart contracts in action: Self-enforcing governance

Bob founded a company and raised money from a handful of angels via a Simple Agreement for Tokens or Equity (SAFT/E), followed by a Seed Round lead by a VC and 2 institutional investors.

After spinning up his LLC on otoco.io, he installed the SAFT/E plug-in written by Dooley’s, one of the Valley’s leading law firms. All he had to do was slot in the discount and the cap and connect to an accredited investor whitelist engine available in OtoCo’s store. At the stage of the actual Seed Round, those who contributed were automatically allocated their corresponding number of tokens.

The Seed Round too was a non-event compared to the months’ long investor parades earlier in his career: via OtoCo’s Dashpanel, Bob opened the round by simply specifying the amount he was seeking to raise. Immediately, a simple offering document (reflecting best Valley terms) was populated and blasted out to accredited investors using a solution built by Realpublic which he found in OtoCo’s dAppstore. As investor payments came in, tokens representing equity automatically went out. All equity tokens had the governance rules of his company embedded as a smart contract. The captable updated automatically and within a week 4 million dollar was raised.

Closer to Bob’s A-round, some of the original SAFT/E holders were looking to sell as they could not follow-on and would hence further dilute. The lead Seed VC, a smallish fund, was also not in a position to follow-on and was looking to buy shares from one of the SAFT/E holders on the cheap to prevent itself from diluting too much.

However, when the original SAFT/E holder was entering his private key to transfer the shares to the Seed VC, the smart contract triggered the other shareholders’ right of first refusal. All other shareholders got a notification that an existing shareholder had attempted to transfer shares without them waiving their pre-emption rights.

Bob as Founder and majority shareholder didn’t feel good about an existing investor looking to sell at a price significantly below what he was pricing the company at in the A-round discussions. Since the company’s governance smart contract did not receive his blockchain signature waiving the share transfer, it remained blocked.

Later, Bob reflected how this would have played-out in the real world. The only way to repair a wilful circumvention of investors’ right of first refusal would have been by suing the Seed VC, bringing significant uncertainty. Thanks to his company living on blockchain, smart contract had enforced pre-factum what would have taken the courts much longer to repair post-factum.

2. The commercials: A token economy

From a commercial point of view, the token economics (see Part II) that result from having a marketplace where users and developers meet and multiple rewards are available should lead to better incentives for both outside developers and users, compared to the traditional app store revenue sharing model.

These token economics dynamics may lead us to unexpected places and even result in the gamification of venture building.

3. The technology argument: Open-sourced development efforts

Finally, there is a strong and well-rehearsed argument in favor of non-proprietary, grassroots technology development over top-down solutions pushed by an in-house development team.

Tech companies start out by focusing on solving a single, large problem better than anyone else. However, these advantages are short lived and they will need to innovate faster than the competition in order to sustain growth.

By taking the open-source approach, instead of letting its internal coders duel with outside talent, OtoCo can focus its technology efforts on curating the store itself and make it easy for users to purchase and install third-party solutions.

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