Flying Tulip: Andre Cronje Redefines DeFi Funding with a Redemption Mechanism

Flying Tulip: A Novel Funding Mechanism Backed by Andre Cronje

In previous market cycles, Andre Cronje, the founder of Fantom (now Sonic), was widely regarded as the "King of DeFi." Now, this prominent figure returns to introduce a new paradigm for funding in the crypto market. Despite the currently cautious climate, Flying Tulip managed to complete a seed round of approximately $200 million last month, with plans to raise an additional $800 million through a public offering, aiming for a total valuation of $1 billion. How did they do it?

What is Flying Tulip?

AC’s latest project, Flying Tulip, aims to be an "end-to-end on-chain financial marketplace," seeking to integrate functions like spot trading, lending, and perpetual contracts through a unified risk and pricing model. Technically, it focuses on hybrid AMM (Automated Market Maker) + order book, volatility-adjusted lending, and cross-chain support. Simply put, it aims to reuse the "same unit of collateral" across different functions to improve capital efficiency.

The Reversible Funding Mechanism: The Key Innovation

The project’s most significant innovation is its reversible funding mechanism, or "non-consumptive financing." This primarily includes:

• On-Chain Redemption Rights: Flying Tulip's funding structure incorporates an "on-chain redemption right" mechanism, allowing investors to redeem their original investment by burning tokens under certain conditions. All private and public investors have redemption rights that can be exercised at any time (similar to a perpetual put option), limited to the original investment amount, achieving a "downside asymmetric payoff" structure.
• Redemption Mechanism: Implemented through audited smart contracts, with rate limits and a queuing system to ensure solvency.
• Funds Deployment: The funds raised are not directly spent but are invested in protocols like Aave, Ethena, and Spark to generate an annual yield of approximately 4%.
• Cash Flow Arrangements: A portion of the funds is invested in low-risk DeFi strategies or structured products to cover operating expenses and redemption requirements.
• Risk Isolation: Redemption reserves are separated from operating capital to ensure safety.

This model ensures that the funding remains intact, with yields supporting operations, achieving "running the project with yields rather than principal."

Incentivization and Buybacks

Regarding incentives, FT’s team incentive models may draw inspiration from the approach of Hyperliquid, a leading decentralized exchange, and proposes incentives and buyback mechanisms based on it:

• Zero Initial Allocation: The team receives no initial token allocation, earning yields through open market buybacks funded by protocol revenue.
• Revenue-Linked: Team earnings are entirely dependent on the protocol’s actual usage and long-term performance.
• Continuous Buybacks: All revenue sources (transaction fees, lending spreads, stablecoin yields, etc.) are used to buy back and burn tokens.
• Public Transparency: Buyback plans will have clear timelines, avoiding the opaque token releases found in traditional projects.
• Fixed Supply and Deflationary Mechanism: FT has a total cap of 10 billion tokens, with 10 tokens corresponding to every $1 of collateral. There is no inflation. The deflationary mechanism continuously increases token scarcity and holder value.

The Essence of the Funding

The essence of this funding is that investors are buying a long-term put option that is redeemable at any time, while the project supports operations through low-risk DeFi yields. In other words, in this investment, investors can exchange their tokens back for the original U.S. dollars (or stablecoin equivalent) at any time.

The $200 million raised is locked into low-risk DeFi yield strategies (such as Aave, Ethena, and Spark), generating an annual yield of approximately 4%. This means that every $1 billion raised can generate approximately $40 million annually to cover project operating expenses.

This allows the funds raised to remain as core capital, unconsumed, with only the passive yields generated being used to maintain project operations. Project longevity requires revenue generated from the platform to achieve long-term self-sufficiency. For investors, participating in the funding means the opportunity cost of using the funds.

The Key Innovation

This model is the key innovation that differentiates this project from traditional funding methods. It allows investors to bear only the opportunity cost. However, in a bull market, this form, which may develop slowly initially, may lead to some funds being redeemed in pursuit of higher returns.

Institutions that have been announced or rumored to be investors include: Brevan Howard Digital, CoinFund, DWF Labs, FalconX, Hypersphere, Lemniscap, Nascent, Republic Digital, etc.

For the project, this approach establishes a sustainable pool of funds and stable cash flow. In the future, if other projects wish to attract institutional funding, they may also need to provide similar principal protection and yield-linking mechanisms, tie team rewards to platform usage, and avoid early sell-offs. This will drive the industry toward "revenue buyback" and "performance alignment" funding models.

Conclusion

Overall, the interests of initial investors are typically prioritized over secondary market buyers and the team, and this is emphasized in the mechanism design. This model has the potential to reshape crypto primary market funding standards, providing investors with a greater margin of safety and sustainability. Of course, project success ultimately depends on the ability of its core product to outperform in fierce market competition. Even if it takes time to verify, we still expect it to achieve a positive flywheel. This model may be setting a new and higher starting point for subsequent startups.