Vega Fund: Ethereum Venture Capital Crowdfunding Platform
Vega is an Ethereum-based crowdfunding and venture capital platform, designed to be as decentralized and secure as possible. Though the project is still under development, it could grow into one of the biggest decentralized autonomous organizations (DAO) on Ethereum – or any other blockchain for that matter. That’s because of its similarities to The DAO (referring to the specific 2016-founded DAO that had a fatal flaw in its code), and how The DAO, before its collapse, took in more crowdfunding than any other project in history (outside of political campaigns).
Vega is unlike traditional venture capital groups, in that it aims to be a platform where investors, passionate about Ethereum and blockchain technology, are able to pool their funds to foster the growth of companies and projects within the ecosystem. Vega also wants to encourage higher market standards by creating deal structures similar to traditional venture deals, hopefully easing the onboarding of experienced investors with limited crypto-experience. Vega cofounder George K. Van Hoomissen wrote in a Medium post:
“Vega is not simply a fund that offers exposure to asset tokens. Rather, Vega is a platform where companies that have opted to raise capital via token creation can receive the help and funds of a community of cryptocurrency enthusiasts. We believe that by relying on the wisdom of the crowd and having the crowd itself be comprised of genuine enthusiasts, who seek to promote the growth of these technologies, we can achieve the best results possible for both the Vega community and the overall market.”
How Does Vega Work?
Much like Augur, the Ethereum-based prediction market, Vega plans to take advantage of the “wisdom of the crowd” to make their fund successful. The idea is if most of the investors voting on Vega’s direction are active Ethereum devotees, high-quality projects will be more likely to receive funding.
To enter into the fund, an investor would purchase Vega Tokens during their Initial Token Sale (ITS). They’re calling it a “token sale” instead of “coin offering” because “Vega Tokens and the Vega Initial Token Sale are not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy any security or investment product or service.” Instead, the value of Vega Tokens lies in their use as voting rights for investors.
Once the Vega ITS is over, and the minimum fundraising targets are reached, the funds will be released to Vega from the ITS’s decentralized, escrow smart-contract. In the event that targets are not met, funds will be returned to investors. The stake that investors have in Vega is reflected in the number of tokens they hold, which is equivalent to the weight of their vote. Since the Vega Fund is endowed by the sale of Vega Tokens, the more tokens you buy, the more voting power you rightfully earn.
Vega Token holders are able to vote on any project proposal, as well as submit their own proposals. After a project proposal’s voting period ends, if it has received the required number of votes, the Vega platform allocates the funds appropriately. The idea is for Vega to be almost entirely automated. Token holders direct the investing, but smart contracts govern the platform itself. This is the general concept of a DAO and was exactly what ‘The DAO’ sought to become.
Vega Vs. The DAO
Vega is effectively filling the hole left by The DAO. While ‘The DAO disaster’ definitely hurt general trust in blockchain-based platforms, that fear has mostly subsided. Many in the crypto-sector are skilled at seeing the good in a less than ideal situation, and as such, Vega should actually be that much safer due to The DAO.
A hacker was able to drain nearly $50-million from The DAO, simply by exploiting a flaw in the code of the smart contract that held pooled funds. Thankfully, most of that stolen money was recovered, and Dapp developers now think differently about how they write their code, relying on the ever-improving industry best practices. Vega’s focus on platform maintenance and security is where the new platform outshines The DAO. Token holders will be responsible for vetting Vega’s contracts. If an issue is found, a token holder can propose a vote to update or release a new smart contract. There is a separate fund within Vega reserved solely for the maintenance and support of the platform, called the Developer Funding Initiative (DFI).
The DFI is for any area of the fund that token holders think needs improvement. Once a member proposes an upgrade, individual developers can compete for the job. The DFI is somewhat like an insurance policy, should anything unexpected happen to the platform. This should help to assuage any insecurity that investors might feel in backing something that’s been called “The DAO 2.0.” Beyond the developer fund, Vega is separating itself from The DAO in that it will only allow Vega token holders to invest in projects that offer ERC20 tokens. Vega’s Van Hoomissen said:
“The DAO allowed non-Ethereum-token-based projects to be funded. Vega token holders can choose to invest in a project that is not related directly to Ethereum, but all projects must issue Ethereum-based tokens (ERC20 Tokens) in return for funding, this is more simple and can help perform better accounting practices.”
Along with the increased security of prohibiting “Child DAOs” (a DAO within a DAO), Vega eventually plans to encourage particular deal structures, via smart contacts. These arrangements will mimic traditional venture capital deals like SAFE (“Simple Agreement for Future Equity”) and KISS (“Keep It Simple Security”), adding time-tested, familiar agreement structures to the platform.
DAOs stand to change the way projects, communities, and even entire companies are governed and directed. Focusing on security for the sake of end-users and the entire ecosystem seems a good plan for the Vega platform. Vega appears to be getting back on the horse that bucked The DAO.