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The past two years have been phenomenal for Decentralized Finance (DeFi). Starting off with about 794 million USD in April 2020, the DeFi market grew by 6,575% in a year, reaching 55.43 billion USD. The ongoing pandemic had significantly propelled DeFi’s growth, as social distancing escalated the need for digitization. During this period, legacy systems have increasingly grappled with the new normal, and authorities have taken drastic measures. The risks of censorship, inflation, manipulation, and so on are at an all-time high.
Amidst all of this, DeFi has emerged as a savior, and with good reason. Yet, we can’t narrate this successful story without alluding to incubators and launchpads. Although they work backstage, they are often the real game-changers, in terms of DeFi projects becoming successful. So now, the question is, what makes incubators so crucial? Is it not purely about innovative ideas and their potential? Well, yes and no.
The Need For Funding
The DeFi market is brimming with startups and fledgling companies, showcasing brilliantly revolutionary ideas. Yet, even for their immense disruptive potential, these projects face crucial obstacles to their forward march. Primarily, it’s the lack of funds but also competent mentorship.
Bootstrapping funds or liquidity is a challenge for most innovators, compelling them to approach multiple sources. But once they go hunting for investors, they lose valuable time, effort, and resources in the process. Ultimately, they deviate from working on their nascent concepts and further development.
In a pre-pandemic world, institutional investors were more willing to fund startups. However, given the pandemic-driven turmoil, they are playing safe and investing in a risk-free fashion that is detrimental in the long run. As a result, projects are increasingly turning to crowdfund to meet their financing goals, yet often fail. So much so that nearly 89% of projects fail to meet their funding goals.
In light of this, incubators and launchpads provide the necessary financing opportunities for DeFi projects. Besides providing deep liquidity, they can infuse funds into budding projects through the proper channels at the right time. Additionally, incubators have connections with expert financial advisors and venture capitalists. As a result, money and experience flow seamlessly, allowing the project to thrive.
A Symbiotic Relationship
One might wonder what’s in it for the launchpads. Why do they fund DeFi projects in the first place? The answer is simple: they see huge returns on their investment in the foreseeable future. Launchpads are not philanthropic organizations out there to help new entrepreneurs. Instead, they build symbiotic relationships with startups, providing their platform and knowledge in return for a share in the company.
Once the startup becomes successful, the incubator keeps earning dividends from them. The more successful a company is, the bigger the returns. That’s why launchpads follow strict diligence procedures and ensure that their ‘graduating alumni’ are as serious as they are.
From 2019 onwards, crypto exchanges have gotten involved in the incubation process. They collaborate with launchpads to introduce a DeFi startup’s token to a broader audience. The arrangement is profitable for everyone; the DeFi project gets broad exposure, the exchange generates revenue, and the launchpad gains long-term returns.
It’s Not Just About Money
To reiterate a crucial point, launchpads or incubators don’t simply have financial ties with DeFi projects. The relationship entails networking, mentorship, consultation, and education. Launchpads usually have experts on board who guide budding innovators in the right direction. Companies that get the support of launchpads during their developmental stages tend to be more successful than those without support. Funds are necessary, but it is expert assistance for better ideation that drives success the most.
Finally, let’s conclude with the words of Andrew Adcock, the CEO of Crowd for Angels. According to him, “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.” With all his wisdom, Andrew recognizes the bright future awaiting DeFi, and so do we.