Learning crypto DeFi - The birth of a new token, Pryzm.

How to raise $1m without angel investors or VCs

I took a six-month break from writing here, but I like and miss writing, so here I am.

I have recently been spending time studying the launch of a new cryptocurrency token, also known as an “ICO”.

The reason I became excited about learning about it is the entrepreneurial opportunity to launch a business this way, as opposed to the traditional way I have launched my own companies in the past.

In the past, I had an idea: I would approach some business angels to fund the initial concept, then venture capitalists to fund subsequent rounds, all the way to an exit. There is nothing wrong with this.

The crypto way of launching a business seems fascinating and entirely different to me. Let me explain with a case study.

Disclosure: I own some Pryzm tokens, and this isn’t a post about “pumping my bags” or encouraging anyone to buy. I'm sharing an interesting process and would love to launch a project this way one day. If you buy, make sure to assess the risks. For example, there isn’t much volume yet. Now, if you ask me, I do think it’s a cool opportunity to invest some!

Pryzm, a Yield trading protocol, has just raised approximately $1 million from its community (during the ICO and some prior token distributions before the token launch), with more than 600 token holders.

No angels, except for some founder money at the beginning, and no VCs. They also already have approximately $ 800,000 in yearly revenue. Their team is excellent, constantly improving the product and listening to community feedback through various channels, including X, Telegram, and Discord.

If they were raising funds at an early stage with this product, team, and early revenue, they would probably already have a $10 to $20 million valuation. The founding team would have say 60-70% of the company, and the investors the rest.

In Pryzm’s case, the valuation post-launch is only $1.3 million, as I write this (the token is public, so the value changes constantly). The ownership is 80% community and ecosystem (most of which is currently undistributed) and 20% for the team.

Why would a founder keep such a small part of the company so early and launch with a 10 to 20X lower valuation than he could have in traditional startup circles?

There is another unique characteristic of crypto protocols, the “governance.” Neither the founding team nor private investors has complete control over the product once it is launched; instead, the community votes on many key decisions. Why would a founder launch a product knowing that he won’t have much control over it eventually?

The answer is simple: empowering the community and giving it ownership and control turns every token holder into someone who can potentially help advertise the product or invest significant time in helping the team, as they have "skin in the game.” I am sure many community-owned products have failed in this way or experienced bad outcomes. However, I am still excited because it’s so different from the traditional command-and-control model.

Let’s have a look at the product.

“Pryzm is the layer 1 blockchain for yield optimization”. I am no expert in crypto or finance, so I had to learn to understand what it does. If you take any asset that generates yield, for example, the ATOM token (Pryzm is a blockchain built using Cosmos) brings about 14 to 18% annually to its owners.

Pryzm lets you split the ATOM token into a principal token and a yield token. Here is how Pryzm explains it:

What is tokenized yield?

Tokenized yield involves dividing yield-bearing assets into two tokens: Principal Tokens (PT) and Yield Tokens (YT). PT represents the original investment, while YT entitles the holder to future yields up to a maturity date. Imagine you have a tree that grows money (yield). In DeFi, you can split this tree into two parts: the trunk (Principal Tokens) and the fruit (Yield Tokens). Owning the trunk means you own the tree itself, while owning the fruit means you get to collect all the money it grows until a certain time (maturity date). This way, you can choose to keep the tree, sell the fruit, or both!

A simple idea that initially attracted a community of DeFi traders, initially on the Terra blockchain, where the protocol was worth up to $50 million a few years ago, then died entirely when Terra exploded.

I was already invested in it when it happened and lost a significant amount of money (I was in the Amazon jungle when Luna and therefore Prysm went to 0, resulting in the loss of all my investment). I also had some traditional crypto, such as BTC or ETH, held at FTX, so my beginnings with crypto were… brutal.

Like the phoenix, a mythical bird that regenerates or is reborn from the ashes of its predecessor, the team kept going and rebuilt the product, better, from scratch.

I have been following them and helped a little during this two-year process. I got to know the founder personally and met him, was highly impressed by the team, became part of the community, and invested some money - way less than I lost at the time - but I did what I could.

Pryzm is an incredible example of founder and team resilience, transitioning from the sudden, unexpected, and forced closure of the service in a matter of days to rebuilding and achieving success.

The community core followed, and over 600 people bought the token last week.

I have no experience with token launches; this was my first participation in one.

I've heard that many launches have gone wrong when investors suddenly started dumping their tokens, causing the price to plummet and leaving all the initial token holders disappointed.

To avoid this, Pryzm utilized a Liquidity Bootstrapping Pool (LBP) model to launch its token instead.

The price started high with an algorithm aggressively creating selling pressure for a few days.

Everyone had the opportunity to purchase the token at the price they desired until the price stopped decreasing; the community determined the right price for the launch, rather than large private investors.

The token price is currently low, but the founder is happy to offer a unique opportunity for the community to purchase it, potentially at 10 to 20 times the market valuation.

Fjord Foundry, a website that helps discover new token launches (there aren’t that many, and Pryzm wasn’t listed there), has another video explaining LBP token launches.

What’s next for Pryzm? Listing the product on centralized exchanges and constant product improvement. Pryzm is not just a protocol; it is its own blockchain, so the team has plans for many new upcoming products based on Pryzm.

I will continue to follow and support the team and the community as I learn more about crypto and DeFi.

If you are into crypto yourself, I’d love pointers to interesting projects and tokens; it’s not that easy to discover them. Pryzm made me feel like looking into others to keep learning and finding other interesting opportunities.

Research and resources:
Pryzm deep dive by Alea Research
Pryzm Launches Community-First Token Distribution Without Private Sales
Messari (doesn’t cover Pryzm much yet, but a good source for crypto)
Fjord Foundry to find new projects

thanks for the pointers @enzoterra and @MrRefractor