SushiSwap Financing Controversy! Various venture capital firms detail why they are investing in SushiSwap

Communities and investment institutions had an open discussion.

(This article is authorized to be reprinted from BlockBeats, with the original title "Why do VCs invest in SushiSwap?", original article here)

Recently, SushiSwap's community governance has attracted industry attention. SushiSwap co-founder 0xMaki proposed a treasury diversification plan "phantom troupe strategic raise" on the official governance forum, suggesting to sell a portion of the approximately 51 million SUSHI held by the SushiSwap treasury to institutional investors at a discount of 20%-30%, in exchange for stablecoins as treasury reserves. The scale of this sale plan could reach up to $60 million.

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Why Introduce Strategic Partners at This Node?

0xMaki believes, "Sushi has reached a turning point. After building a substantial amount of groundwork, Sushi must now quickly integrate. We will continue to integrate various functions of traditional finance onto decentralized infrastructure to empower projects."

Having such a large community has driven the vertical and horizontal expansion of protocol and product development. SushiSwap has evolved from a specialized AMM to an ecosystem.

Furthermore, strategic partners can also expand Sushi beyond DeFi. They can help bring Sushi into the "real world." Strategic partners will also assist Sushi in several key areas:

Legal and regulatory assistance for traditional participants, increasing trading volume and partnerships, improving user experience to compete with web2 products, introducing more MCV2 and BentoBox integrations, brand building and visibility, tokenomics, and governance, among other areas.

Additionally, converting SUSHI to USDC can mitigate potential downside risks of market volatility. Fund management and advice are key for growing organizations. Therefore, 0xMaki hopes to introduce strategic partners for SushiSwap through this move. He has also provided his criteria for a qualified partner:

Whether the partner can provide additional technical resources and legal advice/execution. Whether the partner can help us reach new audiences (DeFi is still very niche). Whether the partner can integrate our product into new partners or portfolio companies. Whether the partner shares a long-term strategic vision (strong research department). Whether the partner will actively participate in governance and help drive discussions like these.

Community members have also expressed their views on this. The introduction of more than twenty strategic partners may lead to concerns that Sushi will not be valued by institutions. Additionally, Sushi's annual operating expenses are currently less than a million dollars, does Sushi need to sell so many tokens? With Sushi's token price remaining low recently, will this move further impact Sushi's price and harm the community? These and other questions have led to doubts among community members, sparking intense discussions in the community, with most community members expressing opposition to this.

The proposal indicates that the confirmed strategic investment institutions include Lightspeed, Spartan, Dragonfly Capital, Polychain, Blockchain.com, Pantera Capital, 3AC, DeFiance, Parafi, Hashed, Multicoin Capital, Coinfund, CMS Holding, and 21 other institutions.

In response to community doubts, Pantera Capital, DeFiance Capital, and many other cryptocurrency venture capital institutions have explained and responded to this proposal, while non-direct participants such as Arca Capital partners and UMA protocol developers have also joined the discussion on this topic.

In this event, how do the institutions that are expected to participate view this event? The following are institutional perspectives, where "we" refers to the corresponding institution and does not represent the views of the translation platform.

Pantera: Five Supportive Investments for Sushi

Source: Franklin, Pantera Portfolio Development Director

Pantera Capital is an investment institution dedicated to investing in the blockchain ecosystem since 2013. Pantera has made over 100 investments in cryptocurrencies, early tokens, and venture capital companies. Franklin, Pantera's portfolio development director, states that Pantera can provide Sushi with support in recruiting, industry networks, market research, suppliers, and marketing.

Recruitment Support: Sushi's team and community are excellent, but as the scale grows, the team will expand, and Pantera's committee and talent network can provide support. Talent is one of the biggest bottlenecks for the DeFi industry to realize its potential, so it is one of the highest leverage activities where we can help. Pantera has an internal recruitment team, a talent network composed of headhunting companies, an active candidate database—all of which help in recruiting personnel for all positions from smart contract engineers to CFOs for Sushi.

Portfolio/Industry Connectivity: Sushi has built strong partnerships and relationship networks within the ecosystem and nurtured these relationships reliably within the community. Therefore, we can provide additional value to Sushi by helping establish connections with potential partners, finding partners that can help explore new markets or products.

Technical/Market Research: Cryptocurrencies change rapidly. Having a partner who constantly tracks new technologies and solutions is crucial for discovering the next new market. For example, which Layer 2 should be prioritized? Which cross-chain bridge should be considered first? Which new tools can speed up delivery? While Sushi focuses on executing its product roadmap, we will help it continuously review key opportunities and risks emerging in the crypto ecosystem.

Resources/Suppliers/Best Practices: Over the years, we have built a reviewed group of suppliers who specialize in providing services to crypto companies/projects, such as security audits, law firms, market makers, insurance providers, etc. We will make every effort to collect and share these experiences in real-time. This will also save the Sushi team a lot of time.

Marketing: We have a user group of over 100,000 institutional investors, CEOs, industry leaders, and other professionals engaged in the industry. They are eager to learn about changes and trends in the cryptocurrency industry. As Sushi develops, we will help convey the latest information about their products to new audiences to help Sushi discover new opportunities and expand its visibility.

Lightspeed: Providing Support Beyond DeFi for Sushi

Source: Amy Wu, Lightspeed Partner

Lightspeed believes that from a product, vision, and execution perspective, Sushi is one of the top teams in DeFi. The decentralized governance model and active community built by the community are long-term competitive advantages.

Lightspeed's value to Sushi lies primarily outside of the crypto world. Expanding the current DeFi audience to potential future millions or even billions of users has a long way to go. This will require a strong network outside of DeFi, which we have in other industries. For example, we can introduce various FinTech products and gaming products to the Sushi team and community.

Outside of the crypto world, Sushi's brand awareness is still low (like almost all DeFi projects—this is not unique to Sushi). We can spread the word about Sushi through our own PR network and introduce the product to new partners outside of the DeFi world.

Lightspeed can support Sushi's company building. As mentioned above, we help our portfolio companies in recruiting, PR, marketing, BD, and other areas. Don't take our word for it. If helpful, many people from the Sushi community can share some stories, and/or we can bring some of them here to write posts.

Lightspeed can also provide its global network. Our investors are spread across the US, Europe, Israel, China, India, Singapore, and other regions of portfolio companies. We will help Sushi continue to expand globally. Today, capital has become commoditized, so becoming a VC does not make us stand out. Our main asset is our reputation, which we have built with the companies we support.

Currently, Lightspeed does not hold Sushi. We encourage the community to conduct due diligence on any investor (including us) who wants to participate in this round of financing, inquire about the projects they support, and how much help the fund ultimately provides to the companies they invest in. We look forward to taking the first step in establishing a long-term relationship with the Sushi team and community.

Spartan: Solving the Selling Doubt with "Sushi+Sushi Call Options" Composite Tokens

Source: Jason Choi, Spartan Capital General Partner

Since the launch of this project, Spartan has been in active contact with Sushi. With a growing team and a wide network of DeFi projects, Spartan believes it can participate in this round of financing as a partner for Sushi, given the scale of the committed investment. Spartan will be one of the joint lead investors in the transaction. We are happy to co-lead the transaction with other major VCs and suggest conducting community discussions on this forum. In the past few days, we have been closely monitoring community discussions surrounding this proposal, and we would like to share our perspectives.

Spartan is a cryptocurrency fund headquartered in Asia that has been investing in the field for the past three years. Since 2019, we have been active users and supporters of DeFi and are one of the few funds dedicated to DeFi, aligning with the risk investment prospects in Asia.

Spartan is an early holder of SUSHI and an early user of Sushiswap. We drafted one of the earliest governance proposals for Sushi. From the most difficult times for Sushi to when we nominated ourselves as multi-signers (Chef Nomi saga...), to this day, we are still supporters of Sushi in most public statements.

Spartan believes that the Sushi team should communicate more concretely on how the funds will be used and in what scope. Additionally, the Sushi team should also publicly state how much buffer space they need so the team can continue to expand in a potentially long bear market. Spartan also agrees with the view that the list of investors may be too long.

We suggest that each strategic investor should list their contributions to Sushi and let the community vote on who should be included in the investor list based on these contributions.

Regarding the community's most concerning issue of investor selling, we are evaluating the suggestion from the UMA team: "Success Tokens." This seems to be a positive alternative. We are pleased to be seen as part of this community—if the community ultimately strongly opposes any type of dilution, that won't diminish our enthusiasm for DeFi.

UMA: "Success Tokens"

Given the community's opposition to discounted token sales, UMA has designed "Success Tokens."

Success Tokens are composite tokens consisting of 1 SUSHI + 1 SUSHI call option with specific strike prices and expiration dates. This structure allows the Sushi team to avoid selling any tokens at a discount upfront. In other words, the call options themselves will not immediately pay profits to VC investors through a pre-sale discount. VC investors will only profit if the token exceeds a certain price before expiration (e.g., 3-4 years), otherwise the options may be worthless. Success Tokens avoid the prepayment of incentives to VC investors (in the form of a discount) and only pay incentives to VC investors after generating certain results.

Our view: Sushi should definitely seek strategic financing from first-tier VCs. However, a better incentive structure should be designed instead of simply selling tokens at a discount. We should use our financial tools and financial engineering knowledge to create a structure that benefits everyone (investors, DAOs, communities). Isn't the role of DeFi to invent these novel structures?

ARCA: We Encourage the Community to Vote Against This Proposal

Source: alex17, Jeff Dorman Arca CIO

ARCA's perspective differs significantly from other VCs. ARCA believes that this proposal undermines Sushi's value and encourages the community to vote against this proposal. ARCA has even created a counter-proposal to counter this proposal.

We believe our expertise in capital markets and trading structures can bring more economic and strategic benefits to Sushiswap and its existing investors/community than the current proposal.

Some VCs on the institutional list boast about their "strategic value," yet they may sell the SUSHI purchased at a discounted price to the secondary market. In other words, this looks more like arbitrage trading rather than strategic long-term investment.

As a large investor and a staunch believer in Sushiswap, ARCA is very willing to hold for the long term. If the Sushiswap community intends to sell SUSHI from the central treasury in this environment, we would be very interested in being a buyer. We firmly believe that Sushi's trading price is significantly below fair value, so we do not need further discounts. In fact, we will pay above the current trading levels.

Arca is one of the largest holders of xSUSHI, owning 7.51% of the circulating supply of xSUSHI. All of these xSUSHI tokens were purchased from the secondary market without any discounts.

Since there is no lock-up period, we can sell xSUSHI at any time, but instead, we have been buying on dips. Because in my over 20 years of professional investment experience, I have never seen a company with hyperbolic growth and such a healthy balance sheet with an average dividend yield of 16.4%.

Generally, companies usually need to raise funds for three reasons:

1. The company needs money. Obviously, Sushiswap does not.
2. The company believes they will need money in the future to compete in the fiercely competitive market. Obviously, this is not the case either.
3. The company sees strategic benefits in raising funds from certain investors. If Sushi needs it, what strategic benefits these VCs will bring has not been clearly articulated in the proposal.

Currently, Sushiswap's SUSHI token has sufficient public liquidity, so there is no reason to conduct a large private financing PIPE at a significant discount. Sushiswap can reach millions of potential investors and does not need to privately seek investment from a few people. Instead, every investor interested in SUSHI, if they really want to own SUSHI, can buy it on the secondary market.

DeFiance Capital 8

Source: Wangarian

DeFiance acknowledges that the current financing size of about $60 million is too large. Considering Sushi's financial scale and requirements, $20 million would be a more ideal size. However, due to high investor demand, the transaction size has expanded several times. DeFiance believes that the number of institutions does not affect the quality of this round of financing.

Since Sushi's price has been below $1.00 since October 2020, DeFiance has been one of Sushi's biggest supporters. As a crypto investment fund with a liquid position, our nature requires us not only to buy tokens but occasionally sell them. We believe it is not necessary to explain publicly every action we take.

In the future, DeFiance will not participate in this round of financing. However, we hope the Sushi community can establish a large treasury denominated in stablecoins, which could provide meaningful financial support to the SushiSwap team in the coming years.

GSR: Four Strategic Values

GSR is a long-standing native crypto company in the industry, founded in 2013, with over 125 employees globally. We have deep trading expertise derived from nearly a decade of experience and relationships spanning the global crypto market.

As Sushi considers adding strategic partners, each investor should contribute to Sushi's growth and ultimately bring value back to this community. We can bring the following four strategic values to Sushi:

Liquidity. Investment partners in the ecosystem can bring new liquidity to Sushi, which will help Sushi establish deeper liquidity pools.

New Capital. We have deep relationships with institutional capital from the wider TradFi world, where tens of trillions of dollars are still waiting to enter this market. Collaborating with this institutional capital will ultimately benefit the Sushi ecosystem, benefiting both financially and communally.

Product Strategy. Most of the investors in the proposal have rich experience working with many leading teams both inside and outside crypto, providing market advice on product strategies and roadmaps. If these partnerships are based on long-term considerations, the experiences and expertise will provide value to the community.

Marketing. Having an active and respected group of investors throughout the crypto ecosystem will help raise awareness of Sushi and expand success, bringing a range of benefits.

We plan to become a strategic partner for Sushi and are excited to see the community's involvement in this proposal.

Zee Prime: Focus on Diversification of Funds

This proposal should clearly state that the main goal is the diversification of funds to withstand the risks of a long bear market.

It is reasonable to ask each investor to write down what strategic value they can bring, but excessive focus on KPIs and deliverables may miss the point—fund diversification. Investor selection should be based on consistency with the values of the investors and the Sushi community. For example, let each participant sign a consistency statement—e.g., they will maintain behavior consistent with Sushi, not dump or hedge their SUSHI tokens privately, etc.

The fundraising amount for this proposal should be reduced to $30-50 million and set a maximum investment quota for a single institution. At the same time, the lock-up period should be extended 1.5 to 2 times to filter out more short-term investors.

Community Still Actively Discussing, Vote May Open Next Week

After nearly half a month of discussion, combining community opinions and institutional feedback, 0xMaki believes that Sushi has the ability to become a leading market player. By introducing strategic partners and establishing network effects among VCs, Sushi will be able to compete effectively