AC's new work Flying Tulip: Wants to use DeFi Treasury bond income to "raise" an exchange giant

Flying Tulip, a new project by AC and his team, aims to build a comprehensive crypto exchange offering spot, perpetual swaps, options trading, lending, and structured yield products. Its unique approach involves reshaping crypto capital formation through a novel financing model.

Fundraising Model: The project plans to raise up to $1 billion via token sales, investing the capital in low-risk DeFi strategies to generate yield (estimated at 4% annually, or ~$40 million). This revenue funds operations and product development until the platform becomes self-sustaining.
Investor Protection: Investors receive Flying Tulip (FT) tokens with embedded perpetual put options, allowing redemption at the original investment value at any time, minimizing downside risk.
Token Economics: All FT tokens are distributed to investors at launch, with no lock-up periods. Proceeds from DeFi yields and future platform fees are used to continuously buy back and burn tokens, creating a deflationary cycle.
Market Impact: This model encourages constant buy-side demand and reduces token supply, potentially driving price appreciation. However, success depends on effective treasury management, stable yields, and delivering a competitive product suite.

Flying Tulip represents an innovative experiment in sustainable funding, aiming to support long-term growth while mitigating traditional token model limitations.

Author: Lemniscap

Compiled by Tim, PANews

We are excited to announce our participation in Flying Tulip's $200 million seed round. Flying Tulip is a new project from AC and his team, aiming to build a full-stack exchange encompassing spot, perpetual swaps, options trading, lending, and structured yield farming—a truly ambitious initiative built from the ground up. While the project encompasses a wide range of areas, this article will focus on its groundbreaking fundraising model.

Why was Flying Tulip created ?

Head-on competition with DeFi giants is daunting. They boast deeper pockets, robust recurring revenue, and established teams, operating at a scale far beyond the reach of smaller, more agile startups. These giants enjoy immense network effects, deeply integrated ecosystems, and loyal user bases. Furthermore, there's the political dimension: the power to influence industry standards and partnerships is often as crucial as the quality of the product itself.

Therefore, even small startups with truly innovative technologies face a completely different set of challenges in successfully entering the market. This isn't just a technical challenge, it also involves financial and social challenges. Flying Tulip addresses this challenge by reshaping the crypto space's capital formation model. Instead of relying on short-term profit-seeking liquidity and token mechanisms, it strives to establish a fundraising model that can sustainably support business development, allowing its product pipeline ample time and space to independently grow and mature.

Limitations of the current token fundraising model

To date, the most successful application model for cryptocurrency has been crowdfunding: raising funds by issuing tokens to support the launch of a project. However, after the initial phase ends, many tokens gradually disappear, their value approaching zero as the project owners struggle to maintain sustained demand.

The use of tokens is still an active area of experimentation, but in many cases, tokens primarily serve as fundraising tools, a role that often makes the most sense in the early stages of a project, before it develops into a self-sustaining company.

Flying Tulip faces this reality and tries to build a corresponding model based on it.

Flying Tulip's unique financing model

The core idea is simple: raise large sums of money through token sales, invest the funds in low-risk DeFi strategies, and use the profits generated to maintain operations until the product line achieves self-profitability.

Investors receive Flying Tulip (FT) tokens backed by perpetual put options. As long as they hold these tokens, they can redeem them at any time for their original investment value, and the put option never expires. From a rational perspective, investors will only exercise their options when the token price falls below the purchase price, at which point their tokens will be destroyed.

In effect, investors incur an opportunity cost: if they had invested this capital directly in certain DeFi strategies, they could have earned a yield of approximately 4%. Instead, they gain the upside potential of the FT token while minimizing downside risk through structural design.

Flying Tulip ultimately aims to raise $1 billion. The tokens have no lock-up period, and all tokens will be distributed to investors upon issuance. Based on a 4% yield on the project's treasury, this could generate approximately $40 million in annual revenue, which will be used for operating expenses and to develop its product portfolio until fee income becomes the primary source of revenue.

Buyback and Destruction: The Core of the Model

The proceeds from the DeFi Treasury bond will be used to cover operating costs and repurchase FT tokens. In the future, fees generated by the core product portfolio will become another source of repurchase demand.

It's important to note that if investors sell their FT tokens on the secondary market, their put options will immediately expire. This initial capital will be transferred to the foundation to repurchase and destroy tokens. This means that selling not only deprives investors of protection but also directly reinforces the token's deflationary mechanism.

In summary, these designs ensure that there will be constant new buying on the demand side of FT tokens, while the supply side continues to decrease. This deflationary positive cycle will continue to reinforce itself.

The impact of token economics

Since the entire FT supply is held by investors at the time of listing, market prices may experience significant volatility in the early stages. The limited circulation and ongoing buybacks create a foundation for strong reflexivity.

Unlike traditional token issuance, where supply is distributed between the team and investors, the Flying Tulip project initially allocates 100% of tokens to investors. Subsequently, the supply will gradually shift to the foundation, ultimately leading to deflationary destruction. Theoretically, once this token has fulfilled its historical mission, it could be completely withdrawn from circulation.

Our thoughts

"Flying Tulip" isn't a guaranteed win, but it's a uniquely innovative venture. The success of this model hinges on the team's ability to effectively manage funds, maintain stable returns, and build a competitive product ecosystem. The cost is capital inefficiency, as investors forgo returns they could have earned through direct investment. Only project success can offset this opportunity cost.

For a large financing round to be successful, the following elements are crucial:

The ability to raise large amounts of capital usually relies on a core person or team who attracts capital through their credibility, influence and trust.
A sufficiently mature product line is indeed worthy of large-scale fundraising and expansion.

In our opinion, Flying Tulip offers a rare combination of these two factors.

AC is one of the most astute builders in the crypto space, both influential and controversial. His track record of pioneering crypto primitives is undeniable, and the "Flying Tulip" project continues this tradition: fundamentally reimagining the token fundraising model with unprecedented mechanisms, while simultaneously launching a product portfolio that directly targets industry giants.

We support the Flying Tulip team because it represents a reimagining of the token fundraising model, a core mechanism of the crypto movement. If it works, it will accelerate the launch of ambitious projects, enhance the competitiveness of the ecosystem, and ultimately benefit end users.

It’s an experiment full of unanswered questions, but it’s precisely this kind of exploration that drives the crypto industry forward.