Crowd-Raising with Options

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On February 9th, 2022, Jungle Finance became the first crypto protocol to perform our initial token distribution using an airdrop of American-style call options (to the best of our knowledge!) Thanks to our friends at PsyOptions we were able to airdrop over 1,000,000 of these call options, distributed evenly between nearly 6,000 participants after all was said and done. We’re proud to have pioneered what we believe to be the next step forward in token distribution and fundraising in crypto and would like to share some of the things we learned during this process, in the hope that other teams will be able to use this approach for even greater effect.

The Build Up

As a team, our goal has always been to run lean; to put as much of the value that we’re working to create into the hands of our users as possible. In a landscape full of VC-funded projects with high valuations and low floats, we wanted to be different. We needed funding, but instead of targeting a valuation in the tens of millions for nothing more than an idea, we chose to raise only $100k at a measly valuation of $1m, with long lockups and limited contribution sizes from individual investors only; the bare minimum needed to bring Jungle to the market. Or at least so we thought.

As our team and expenses grew, it became apparent that our raise would not be enough to see us through launch, much less cover extra costs such as a standing bug bounty program or future marketing efforts. We considered a secondary raise, but the idea of giving up more of the platform to later be dumped on our users still didn’t sit right.

So we decided to try something new.

The Distribution

Partnering up with our friends at PsyOptions, we chose to mint American-style call options on our native tokens. These options offered anyone who held them the right (but not the obligation) to purchase our native JFI for $2 at any time prior to their expiry date on May 1, 2022. By airdropping these call options we were able to not only garner attention for Jungle, but also create an avenue to raise the funds we needed without concentrating the supply.

We distributed approximately 1m of these call options with the goal of seeing half or more of them exercised, translating to $1m in funding for the treasury. This would cover a year of runway, security audits, a healthy bug bounty program and other costs such as initial liquidity for our supported asset pools.

By giving users a large time window for redemption, users could wait and see whether we deserved their funding, and the expiry date gave us a deadline as a team to produce results. As we continued to build and share our progress, users redeemed their options and we saw a steady stream of funding into the treasury.

The Expiry

As the expiry date for these call options drew closer, we encountered several setbacks, including a deeply-embedded and critical security vulnerability in our program codebase. While our backend team worked to refactor the code, the rest of the team was working to improve the frontend, eventually committing to a full re-design to make room for all of the improvements.

Despite our best efforts, we weren’t able to complete these tasks in time to launch before the call options expired. Rather than attempt to release a product we weren’t ready to be proud of, we chose to delay our launch and this resulted in approximately 80% of the options expiring without being exercised.

The redemptions which did occur have covered our costs to date and will continue to do so for several months more, carrying us through the launch of the platform. In our eyes this is a huge success; we are able to bring Jungle to market and it belongs to the community who supported us and helped to carry us this far.

We intend to issue another round of call options on the unredeemed JFI, although this time those options will be distributed to the platform users instead of the general public. We’re still on a tight budget and that is as it should be; our funding comes from our community because they have entrusted us to build a great product. Nothing more and nothing less.

The Takeaway

We did something new and new approaches always come with new challenges. One of the larger challenges we faced during this process was educating our community on the options themselves; what they are, how and where to exercise them and the differences between a more “typical” airdrop consisting of the native token itself.

Many of the people who received our airdrop had no interest in exercising their options whatsoever, even if it was at an advantageous price. Had we made additional efforts to educate potential registrants on the process beforehand, we may have been able to better target participants genuinely excited for what we are doing. In retrospect, additional media content prepared ahead of time might have smoothed the process and led to more calls being exercised.

Of course, the largest difficulty we faced was our failure to meet the self-imposed deadline set by the call expiry date. We would have likely been better off allowing ourselves additional time between the projected launch date and the expiry of the call options in order to avoid the time crunch imposed as we encountered delays. This could also have been remedied perhaps by issuing calls across multiple expiry dates, or implementing a “roll-over” program allowing users to exchange expiring calls for a later-dated equivalent.

One potential pitfall which we managed to avoid is that of inflation. Since most protocols rely on liquidity mining programs to sustain liquidity on their native tokens, care must be taken to avoid suppressing token price via emissions. If the token becomes more attractive to purchase on the open market than by exercising the call option, the options can’t function effectively as a fundraising mechanism. This mechanic forces token economic design to be carefully considered and leads to greater sustainability in general.

Over all, we’re proud of the results we’ve been able to achieve with this method of fundraising and token distribution. DeFi allows the opportunity for teams and projects to test new concepts and ideas for fundraising, governance, economic design, community management and so much more. We hope our story can help encourage and educate others as we work together for a more decentralized future!