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Lost Eraser LostEraser (losteraser)
, author: Li Rongbin, partner of Genesis Capital, reproduced by Odaily with authorization.
Algorand completed the "highly anticipated" epic Dutch auction yesterday, ending the auction of the first batch of 25 million ALGOs in 3 hours and 37 minutes, and sold a total of 60.4 million US dollars, each priced at 2.4 US dollars.
For a while, interpretations of the ALGO Dutch auction were flying all over the sky. Some praised "surrender and lose 10%" and thought it was a rare project with conscience in the currency circle. It is guessed that the project party will directly participate in the auction to underpin the price, so it is a brainless stud. Regardless of the evaluation, ALGO’s auction is indeed one of the most eye-catching and controversial issuance methods in the currency circle after EOS’s year-long Dutch-like auction (ALGO will be auctioned for 5 years!).
I was honored to discuss (spray) Algorand’s economic system and future development with Professor Micali, Dr. Chen Jing, the chief scientist of Algorand, and Ms. Chen Fangfang, the head of the Algorand Foundation, last week (although my spraying of the Turing Award winner is like coming from the road. Just find an elementary school student to talk to me, the gap may be even bigger). I also got the guidance of Professor Micali. First of all, I would like to thank Teacher Wu for giving me this opportunity~
Before discussing and understanding Algorand's controversial Dutch auction, we must first understand a question: what does Algorand want to do? Everyone mentioned that Algorand solves the impossible triangle of blockchain, super high TPS and technical characteristics of never forking, but they think that Algorand is just a "giant" POS public chain. Strictly speaking, any high-performance public chain may become a new blockchain infrastructure.
What Professor Micali has repeatedly emphasized is that Algorand is committed to creating "democratic finance", that is, democratized finance.
How to understand democratized finance? My understanding is threefold:
Any subject, regardless of national boundaries and wealth, enjoys the same rights to access financial services, buy and sell financial assets.
There should be as many participants in the financial market as possible.
The pricing power of financial assets is determined by the common people, rather than in the hands of a few interested parties.
From this point of view, a Dutch auction with a long duration, wide participation, and transparent information to sell the original asset ALGO of the public chain is the first step for Algorand to practice democratic finance.
ALGO's innovative Dutch beater solves three problems.
Pricing issues. The initial pricing of assets is no longer determined by the project party, but by all the general public participating in the Dutch auction.
The problem of uneven distribution of resources. Professor Micali mentioned that when the traditional Dutch auction is used in the auction of US Treasury bonds, only qualified financial institutions can participate. The Dutch auction based on the Internet and blockchain can maximize the scope of participation.POS is the most criticized initial token distribution problem. Algorand will distribute 30% of the total tokens without permission in 5 years, and at the same time use no more than 49% of the self-holding tokens to ensure the security of the network (49% will not be sold to the secondary market, because only Algorand Only when the system is stable and safe can the team get the most benefit). In this way, tokens will be distributed as widely as possible to avoid the problem of POS tokens concentrating on the rich. (Algorand also uses the mechanism of providing new token rewards regardless of whether the token is online or not to avoid this problem)And the biggest innovation of this Holland shooting,
It is the introduction of a 90% refund promise after one year (refunds below $1 will be reduced, but at the current final price of $2.4, a 90% refund is guaranteed).
Moreover, accounts participating in the Dutch auction can sell their own tokens, and then buy them from the secondary market. As long as they do not exceed the original holdings of the account, they can apply for a refund. It is equivalent to this time that in addition to purchasing ALGO, the participants also purchased an account-based put option. The exercise of this part of the option is not bound to the token, but to the participating account.
Therefore, if the refund period is approaching and the price in the secondary market is lower than the refund price, there will be buyers in the secondary market seeking refund arbitrage, thereby raising the price above the refund price. If the price in the secondary market is high For refund prices, there is no risk of refund at all. Investors who participate in the private placement in advance can participate in the auction, purchase and transfer tokens equivalent to the private placement share, and then even if all the private placement tokens are refunded, they can lock in up to 48 times the income in advance (the private placement price is 0.05 US dollars) .
To some extent, this put option has set the lowest bottom line for ALGO's secondary market price within a year. In addition, if the PUT OPTION is transferable, investors who purchase the PUT OPTION can purchase ALGO in the secondary market at any time during the year when it is lower than 90% of the auction price, and carry out risk-free arbitrage on the exercise date . Due to the existence of risk-free arbitrage, the secondary market price will not seriously deviate from the exercise price + PUT OPTION price + capital interest.
And if ALGO's Dutch auction is successful, according to Professor Micali's plan, the Dutch auction will be fully linked to Algorand in the future. Holland Auction will become the first and most widely used Dapp on Algorand. This is the most important significance of this Dutch Auction test-to create a native Dapp with native tokens as an example. The Dutch auction + PUT OPTION + high-performance public chain will become the first step in the democratic finance with the participation of common people and pricing by common people.
Just imagine the future, any financial asset that can be chained can be distributed in the Netherlands with Algorand, and Algorand will fully guarantee its security and transparency. This also explains why Algorand cooperates with many traditional banks and financial institutions. At the beginning, I thought this was a compromise of the old world. Now that I think about it, this may be a practical and practical compromise for Algorand’s development from semi-decentralization to decentralization.
Of course, there are many questions, and I'm still looking for answers:
Is pricing really determined by the market? We have already seen large-scale institutions and agents entering the Dutch auction. Will such a market be sufficient and effective?
Can the refund fund pool be protected only by auditing? The rise in the price of the mainstream currency used for investment is good. If it plummets and the refund fund pool does not implement active value management, how can it be refunded at that time?
