The last two years have been nothing short of spectacular for Decentralized Finance (DeFi). The DeFi market began with approximately 794 million USD in April 2020 and grew by 6,575 percent in a year to reach 55.43 billion USD. The ongoing pandemic accelerated DeFi’s growth significantly, as social distancing increased the need for digitization. Throughout this time period, legacy systems have struggled to adapt to the new normal, prompting authorities to take drastic measures. Censorship, inflation, and manipulation are all at an all-time high.
Throughout this, DeFi has emerged as a savior, and with justification. Nonetheless, we cannot tell this successful story without making reference to incubators and launchpads. Although they work behind the scenes, they are frequently the true game changers in terms of DeFi projects‘ success. Thus, the question arises as to why incubators are so critical. Isn’t it entirely about novel concepts and their potential? To be honest, yes and no.
The Need For Funding
The DeFi market is teeming with startups and fledgling businesses that are showcasing truly revolutionary ideas. Nonetheless, despite their enormous disruptive potential, these projects face significant roadblocks. It is primarily due to a lack of funds, but also due to a lack of competent mentorship.
Funding or liquidity is a challenge for the majority of innovators, compelling them to seek funding from multiple sources. However, once they begin looking for investors, they waste valuable time, effort, and resources. They eventually stray from working on their nascent concepts and subsequent development.
Institutional investors were more willing to fund startups prior to the pandemic. However, in light of the pandemic-induced turmoil, they are playing it safe and investing in a risk-free manner, which is ultimately detrimental. As a result, more and more projects are turning to crowdfund to achieve their financing goals, but frequently fail. Thus, nearly 89 percent of projects fall short of their funding targets.
As a result, incubators and launchpads provide necessary funding for DeFi projects. Apart from providing extensive liquidity, they can infuse funds into developing projects via the appropriate channels and at the appropriate time. Additionally, incubators maintain relationships with highly qualified financial advisors and venture capitalists. As a result, money and experience flow freely, enabling the project to flourish.
A Symbiotic Relationship
One might wonder what the launchpads stand to gain from this arrangement. What is the purpose of funding DeFi projects in the first instance? The answer is straightforward: they expect to see significant returns on their investment in the near future. Start-up accelerators are not philanthropic organizations that provide assistance to aspiring entrepreneurs. Instead, they form symbiotic relationships with startups, lending them their platform and expertise in exchange for a stake in the company.
Once a startup achieves success, the incubator continues to receive dividends from them in perpetuity. The greater the success of a company, the greater the return on investment. That is why launchpads adhere to stringent due diligence procedures and ensure that their „graduating alumni“ are just as serious as they are about their business as well.
Since the beginning of 2019, cryptocurrency exchanges have become involved in the incubation process. They work in collaboration with launchpads to bring a DeFi startup’s token to a wider range of potential customers. The arrangement is profitable for all parties involved: the DeFi project gains widespread exposure, the exchange generates revenue, and the launchpad reaps long-term benefits from the arrangement.
It’s Not Just About Money
To reiterate a critical point, launchpads or incubators are not simply financial partners of DeFi projects; they are also strategic partners. Networking, mentorship, consultation, and education are all part of the deal with this relationship. Launchpads typically have a team of experts on hand to guide aspiring entrepreneurs in the right direction. Companies that receive the assistance of launchpads during their development stages are more likely to be successful than those that do not receive assistance. Although funds are required, it is expert assistance for better ideation that is the most important factor in achieving success.
Finally, allow me to share the words of Andrew Adcock, the CEO of Crowd for Angels, with you. As he puts it, “firstly, they (launchpads) provide knowledge transfer…secondly, they provide a key network of investors, service providers and stakeholders…finally they provide a vital source of early-stage finance …a business that enters an incubator can be seen as ‘championed’ and thus create a good foundation for the potential future ahead.” Andrew, in all his wisdom, recognizes the promising future that DeFi is destined to have, and so do we.