prePO aims to be a decentralized platform where users can trade assets that are not yet public in both the equities and the crypto markets. They are trying to solve the problem of accessibility of investment opportunities to retail investors.
This podcast was hosted by Nick Drakon, a full-time investor & founder of Revelo Intel. He is joined by Xavier Ekkel who is the founder of prePO. They touched on topics such as the history of the capital markets, investor protection and the details on prePO.
Read our notes below to learn more.
Shifting Trend in Raising Capital
Nick
● Public markets historically have been the path of least resistance to access capital.
● Since the mid-90s, the number of listed companies in the US has dropped from 8,000 to 3,600.
● A lot of VC money has been invested in companies during their whole lifecycle.
● VC capital is a cheaper, faster, and simpler way to raise capital for new companies, and they could raise capital through various stages of their growth, thus, reducing the need to go public.
● Often companies go public when VCs think that they are getting a good price.
● Retail investors end up participating at the worst possible time.
Problem of Accessibility
Xavier
● What played out in private markets is now happening in crypto.
● Xavier became interested in crypto when ICOs (Initial Coin Offering) became popular.
● ICOs were very open and everyone could participate.
● Currently, private stages, where VCs are raising capital to invest in crypto projects, are an integral part of crypto.
● The tokens get listed on an exchange at their peak valuations.
Reflection on ICOs
Nick
● ICOs were more fair, because they democratized access to projects.
● Without regulations and oversight, ICOs resulted in many people losing money.
Xavier
● Human greed is the reason why ICOs failed.
● If the code of a smart contract has been audited by proven auditors, and is proven to be decentralized, then you don’t need to trust individual people.
Thoughts on Investor Protection
Xavier
● Xavier thinks that it’s OK to put in place some measures that would make it more difficult to make bad decisions.
● Measures taken against those who are misleading investors on purpose are acceptable.
● It’s not acceptable to restrict someone from participating who is willing to take risks.
Nick
● We need to decide what’s more important because we can’t have it all.
● In a world of freedom and accessibility, it needs to be accepted that some people will lose when investing.
Values of DeFi
Xavier
● DeFi ideally would be very decentralized, with no human involvement in decision-making (or within a well-designed and controlled system).
● If it’s not decentralized, there’s no reason to use crypto.
Transition From Centralization to Decentralization
Nick
● Two schools of thought:
● 1. Decentralized from the beginning.
● 2. Start with some centralization with the view to transition to full decentralization.
Xavier
● He thinks all projects are starting at some point of centralization and moving toward decentralization.
● If you’re building on a centralized blockchain and make your app decentralized, you’re still on centralized rails.
● If there is a governance token, decentralization is a function of how distributed and decentralized the governance token is.
● In the initial stages, it’s impossible to perfectly distribute a token to people who are going to care about the project.
● All of the projects are on centralized front-ends even if the smart contract system is decentralized.
● The front-end is vulnerable because any jurisdiction that has control over the domains can restrict access.
Decision Making vs Decentralization
Xavier
● Token holders could vote on representatives who do the day-to-day decision making.
● This could happen in crypto in 3 years or less.
● The votes on governance could be initiated at any time and the changes may be in force instantly.
● Another method could be non-governance, where the protocol attempts to automate or remove decision points over time.
About prePO
Xavier
● The mission of prePO is to democratize pre-public investments.
● It’s a trading platform that allows going long or short on any pre-IPO stock or token.
● Offers synthetic positions that are fully collateralized by USDC.
● deBridge co-founders are investors.
● One of the key deciding factors to work on this project was the size of the problem.
● Xavier worked at Canva previously, where the company’s aim was to democratize design and this core philosophy has been brought over to prePO.
● In v1 there is inherent leverage, however, in v2 there will be actual leverage.
● Xavier helps to design the architecture but is not coding himself.
Nick
● There is a possibility to exploit this system if you have inside information by frontrunning everyone.
● There have been precedents where these types of bad actors have even been prosecuted.
prePO Price discovery
Xavier
● More liquid markets help.
● prePO is facilitating the market with liquidity that allows for price discovery to occur.
● This occurs within ranges and there can be speculation on where the price is.
● The range is adapted based on trading.
● Eventually, prePO can become the place that people look to for price discovery because of its liquidity.
Safeguarding Against Counter Party Risk
● Risk management is involved.
● The price starts at a relatively accurate price, and by having ranges the losses are bounded.
● This should balance out based on their simulations.
● If it’s not profitable, the fees could be adjusted.
● There will be deposit caps which will be increased with time.
Current Progress
● PPO token recently launched on Arbitrum, following the pre-sale which concluded in under 20 minutes.
● Will be launching on Arbitrum later this year.
Challenges With Compliance & Regulations
Xavier
● The project is taking a decentralization first approach.
● Holders have the power to change the representatives.
● Trying to automate as many decisions as possible.
● Trying to distribute the tokens to as many people as possible, for the project to be deemed sufficiently decentralized.
The Key Stakeholders of the Project
● Liquidity providers who provide USDC.
● Traders.
● Token holders.
Thoughts on Going Multi-Chain
● Going multi-chain splits up the user base and liquidity, therefore, it doesn’t make sense for the project.
● prePO is chain agnostic and will go to the chain that makes the most sense for the project.
Long Term Vision
● Creation of indexes, for example, Elon’s private companies.
● Baskets of individual markets that don’t make sense on their own, like local coffee shops.
● Long-tail assets.
● Act as an infrastructure that exchanges, brokerages, and other trading platforms can plug into.
● Build products for institutional clients.
Important Links
● Follow Revelo Intel for more notes like this
● Watch the original episode here
● Follow Nick Drakon on twitter
● Follow DeFi Sparks Podcast on twitter