Zefram Lou, co-founder of Betoken, talks about fundraising difficulties for DeFi projects in an uncertain regulatory environment and how they build a decentralized fund that invests in crypto-assets.
Hello! What’s your background, and what are you working on?
Hey, I’m Zefram Lou, co-founder & lead developer of Betoken. I’m also studying for my Bachelors in Computer Science at UC San Diego.
The story of how I got into crypto is probably a weird one. Back when I was in middle school (around 2013), I spent much of my spare time on building RevS, a peer-to-peer network that could power decentralized applications by replacing servers. I kind of gave up on the idea (because high school was more demanding), but in early 2017, I discovered Ethereum, and it was exactly what I wanted to build. I dived straight into the rabbit hole, and now here I am.
Betoken is a decentralized fund that invests in crypto-assets. It’s cool for two reasons:
Betoken is 100% open, meaning anyone can put money in it, and anyone can become a manager and start earning commissions. We hope to not only transform how people invest in cryptocurrencies, but also provide thousands of open job opportunities to crypto-traders.
Betoken uses a meritocratic system that ensures the managers with the best past performances are managing the most funds and pays them the most commissions. This tightly couples the managers’ interests — earning commissions — with the users’ interests — getting the most returns. We believe this will make magic happen.
What’s Betoken backstory?
The idea of Betoken literally came to me in a dream. It was during a hackathon, so maybe it’s not that crazy. I built a proof-of-concept with my college roommate, won the hackathon, and I just never stopped building it, because the concept of Betoken is just so wonderful.
The team composition has shifted a bit, but it’s been mostly me and Guillaume Palayer. I met Guillaume on Reddit soon after I won the hackathon, and we hit it off pretty well as a team. I did the smart contract development and the incentive design, while Guillaume worked on UI & UX design and development. Guillaume has a ton of experience in design, he runs a magazine about web design, teaches design in many French universities, and has done a lot of projects. He’s been a lifesaver honestly since I know nothing about design or UX.
I’m a college student, and Guillaume often works as a freelancer, so we both have flexible schedules that allow us to build Betoken in our spare time, without a serious need for funding. We launched a Testnet Beta in August 2018 and built up a small but active manager community who gave us a lot of insight into how to improve Betoken. Many of the managers are still with us now, and they have been amazingly supportive. They are all very enthusiastic about the idea that anyone could become a fund manager and be paid based on merit.
We spent more than nine months looking for VCs/angel investors to fund our security audit, which is the only place where we needed funding, but that went absolutely nowhere. It seems like people are unwilling to put money into DeFi projects in general, mostly because of regulatory concerns. For every well-funded project like Compound & MakerDAO, there’s probably a dozen equally if not more innovative DeFi projects that can’t get a cent of funding, just because of the fear of regulations. Fortunately, our security audit was reasonably priced, and we got some donations from our community, so we bit the bullet and paid for the audit from our own pockets.
What went into building the Betoken?
It took us around one and a half years of hard work to go from coming up with Betoken and launching it on Mainnet. A surprisingly large portion of that work has been simply coming up with new ideas because Betoken is situated on a frontier that very few have explored before. Betoken sits at the crossroads of two fields–DeFi and DAOs–that are seeing rapid development individually but has so far rarely converged.
Our vision of Betoken is not just an investment fund operated on the blockchain, but also one where decision-making is decentralized, and ownership is open to everyone. No one has done this before, and no one else is doing it today, which is where most of the challenges we face and the excitement we feel come from. If you’re interested in both DeFi and DAOs definitely give our white paper a read, you won’t be disappointed.
Don’t think of us as a “lone wolf” team though, Betoken as it is today would not have been possible without the plethora of DeFi protocols & their wonderful teams. When we built the first proof-of-concept of Betoken back in November 2017, the majority of DeFi protocols today - Kyber, Compound, Uniswap, etc.- were at least months from being launched, and the decentralized exchange we had to use was EtherDelta(!!!). Those were dark times. We quickly ditched EtherDelta when Kyber Network was launched, which was lightyears ahead in terms of both features and ease of integration, and we have been using it to this day.
We also integrated Dai Stablecoin as a stable store of value once it became a thing, which was essential to the operations of an investment fund like Betoken. We integrated Compound to implement margin trading soon after they launched, which took a few weeks, and by the time we integrated Fulcrum as an alternative margin trading protocol in May 2019, it literally only took a few hours. Betoken has witnessed and greatly benefitted from all the advancements in DeFi, and we hope we will provide as much benefit to the protocols to come.
To be honest, we didn’t really expect taking this long to launch: our initial goal was December 2018. Much of the delay came from the time we spent on trying to get funding for our security audit. We already spent a lot of internal effort on securing Betoken, not only from a programming perspective but also from a game-theoretical perspective, since Betoken makes heavy use of incentives. After months of playing the VC game to no avail, we considered launching without an audit, but it just didn’t sit right with us. Eventually, we took our own money & donations we received from our community and got an audit from Solidified.
What’s your business model?
Our main source of income is inflation funding: every 30 days, the Betoken fund mints Betoken Shares equal to 0.1% of the total supply and sends it to its developers (us). Betoken Shares represent shares in the assets under management (AUM) -a tokenized portfolio, containing the underlying tokens that Betoken managers buy and sell. That means we have a vested interest in increasing Betoken’s AUM. We also get income from Kyber Network’s affiliate program, which shares with us a portion of the fees from transactions originating from Betoken.
One interesting aspect of our model is that Betoken’s upgrade governance system allows the community to choose some other team as Betoken’s development team if they’re unsatisfied with the current one, and the new team will take over the income stream. This is part of our effort to be fully decentralized.
What’s your position on the regulatory landscape today?
For DeFi, regulations today are usually literal chokeholds on innovation, and there is a dire need for some serious improvements. We have experienced firsthand how damaging the existing regulations are: most of the VCs we’ve contacted unironically expected us–two regular guys–to assemble an entire team of lawyers and address all of the potential legal problems under today’s murky regulatory regime, before they would even consider investing a dime in Betoken (not really blaming them). Saying that the situation is ridiculous would be a gross understatement.
In the case of Betoken, we have gone with the 100% decentralization approach and positioned our team as nothing more than developers of open-source software. We believe that many more project teams will adopt full decentralization as a viable solution to reduce potential liability, as the field of decentralized organizations & fundraising develops.
What are your goals for the future?
Our main goal for the short term is to acquire more users and more AUM. For our fund managers, we plan to release better tooling to improve their investing experience, such as APIs, limit orders, etc. For people who deposit their capital, we plan to provide multilingual support to make Betoken more accessible across the globe.
For the long term, we intend to explore more of the intersection between DeFi and DAOs, with the ultimate goal of creating a vibrant crypto-native economy that is permissionless, borderless, and composable.
What are your future thoughts for the DeFi market?
DeFi, as it stands today, presents us with a glimpse of a new global financial system that is open and composable, in which an unimaginable degree of rapid innovation is possible. Today’s financial institutions are like AOL, walled gardens each with proprietary and incompatible APIs, where very few have the permission to build new apps and features.
DeFi will be like the Web, where APIs are open and permissionless, and anyone can start building things that even the protocol designers didn’t foresee, leading to an exponential growth in financial applications. I have no doubt that what us in the DeFi space are building today in 2019 will be the foundation for the financial revolution to come.