Binance Labs, the venture capital and incubation arm of Binance, is a chain agnostic investor which spends about 80% of its time focusing on token investments and 20% in equity.
On its incubation side, Li, who joined the company over a year ago, says the company focuses on early-stage founders and projects, where they will run a Y-Combinator lifestyle program, consisting of a running list of what is needed to successfully go to market – a 50% investment and 50% operational value-added services.
Two-year vesting schedules are red flags
Right now, Li says the company pays a lot of attention to tokenomics investing schedules.
“What we’ve seen is that as the bull cycle gets bigger and bigger, typically vesting schedules get shorter and shorter,” Li told Be[In]Crypto.
“So, it’s always a red flag for us whenever we see 18 month or 2 year vesting schedules.”
Vesting schedules are incentivized programs that an employer presents to an employee which gives them the right to certain asset classes, which speak to retirement, stock-options, and equity.
Li says that Binance Labs believes that the average vesting schedule in cryptocurrency should be 10 years.
“We don’t mind if founders get liquidity or hit any cliffs; but what we do like to see founders continuing to invest over a long period of time, because it shows they’re committed to the project.”
One of the biggest consequences shorter vesting schedules bring upon users and the industry is the lack of time to fully grasp the utility.
An 18-month vesting schedule, for example, means that from the time the investment round starts, there’s almost an 18-month clock to get the token listed, to launch some protocol into market, and oftentimes, that time is relatively arbitrary. If you look at a roadmap and every kind of pitch deck outlining Q1-Q4, you see the token generation happening quite early, which, oftentimes, the utility of those tokens relative to the protocol might not be ready.”
He expanded on his example by pointing out that the general trend begins with those users and founders who have completely invested after two years, but due to where the token is in the process, development may either slow down or it ultimately gets dumped into the markets – hurting both the industry and users.
Li shared that one of the projects Binance Labs has been involved with is a decentralized social network called Bulletin Board System (BBS) Network, which recently concluded their token generation event last week.
Founded by Bancorp’s very own Eyal Hertzog, BBS holds itself out as a SocialFi project that enables its network of user-run online message boards to earn rewards and revenue based upon the content generated. Back in December, Binance Labs led BBS’ $1.5 million seed round, which according to BBS, allows it “to focus on building and launching new features such as Native App, Search Engine, and Cross-BBS Authentication.”
“We were fortunate enough to be able to lead that seed investment round, where Al has also been incredibly helpful for the Binance Labs community. This is a project that speaks back to a long-term project that has a 5-10 year roadmap in mind.”
We asked Li what types of questions Binance Labs ask as they come across the variety of developers, investors, and founders looking to take their project to the market.
“Assuming we are still at the inception stage, the first thing is identifying the experience,” Li said, speaking to the specific experience the user will have that is better than what they would get as an alternative.
“Where pP2E games have failed, is where there’s a huge disconnect between the game experience and the economy – specifically as it relates to the end marketplace, aggregation of tokens, and how value accrues to the tokens. Regardless of the human rigor behind a project, having a very symmetrical alignment between the tokenomics and game experience is the most important thing.”
Gaming’s generations of evolution
With the growing popularity of Web3 gaming, Li recognizes the inevitability for gaming to be a huge use case for the cryptocurrency community.
“Ninety-three percent of the platform’s users are creating crypto wallets for the first time via game and tournament platform, which is really cool. As you know, fintech platforms can’t always keep that role, nor should they.”
While exciting, the reality according to Li, is that there still hasn’t been a “truly amazing gaming experience that’s been built” because of how early we are as measured against the gaming studio system.
“The gaming industry has had generations of evolution – the studio system in particular,” he explained. Pointing to Netflix as an example, Li says if you evaluate the quality of material that platforms such as Netflix puts out as against the studio system, time was what transformed Netflix into a “not so great quality” to a “significantly higher quality” system.
“Over time, the average quality has become significantly higher, and now it’s quite common across all the different streaming platforms that produce incredibly high quality content.”
Another factor he pointed to is the mix of talent. “Most of the top tokens for P2E games have largely been started by founders and teams that have a stronger strength in creating great economies – and only recently started to create great gaming experiences. And now you’re seeing the opposite happen, where more Web2 game studios or developers from those studios are stepping in and creating their own Web3 games. Those might be great games, but not really fully-use economies the right way, so if you go through any type of Discord or YouTube comments section the real gamers are still a bit suspect around NFTs.”
Having said that, Li also emphasized that with time and innovating with proper talents, that the gaming community will experience long-term success – it just might take awhile.
Organic education seems to be the trend
From an educational standpoint, companies like Binance Labs through its Binance Academy and Bankless, provide opportunities for the community to obtain the resources and understanding necessary to begin to have many of these conversations that are taking place within Web3 and the DeFi space.
“Many people who initially become interested in this are learning about it organically themselves, finding those resources,” Li said. “People lead people, right? You’re meeting somebody who’s inspiring and they ultimately become a mentor to you.”
Li’s entrance into the cryptocurrency industry first came from one of the early seed investors of Ethereum, who he says was “incredibly patient with him” in terms of explaining the lingo and allowing him to ask the questions he needed to.
Another resource for the community are universities and online institutions like Binance Academy, which people can use to get a better understanding of concepts such as smart contracts and immutable ledgers to more complex concepts like Oracle. Other platforms like Alchemy and Coinbase have similar learning platforms.”
For universities such as Berkeley and Stanford, which offer pragmatic courses that teach blockchain and cryptocurrency, it appears that there is an alliance of sorts between industry players and universities, feeding the global demand by students to learn more about this space throughout their educational tenure.
For those who attended ETHDenver, Li encourages individuals to really take advantage of the networking opportunities that are presented on a silver platter, especially if it’s their first time.
“Often, there is not a lot of social capital being built just because things move so quickly and you can send thousands of Discord and Telegram messages a day, or hop on Zoom calls, but I think the human bond that gets created from these conferences is pretty important,” Li emphasized.
“If you are coming to ETHDenver for the first time, I think the main takeaway is approaching this as you would a recruitment fair back in college. This community is very open, where everybody is very welcoming and barriers to entry are very low.”
For Li, attending conferences like ETHDenver allows him to see portfolio companies and other co-investors that they work with, and having that connection.
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