1 Year Of Building Clip — Lessons Learned
This blog post aims to recap the first year of building Clip Finance and share some of the lessons we’ve learned.
TLDR of key lessons:
- Speed vs safety
- Staying power
- On finding talent
- Business model & economics
Intro
It’s never easy to build a new business, especially in the environment that we had in 2022. It’s been an absolutely insane year for crypto.
We’ve had a lot of conversations with people in the industry. A lot of good people that we’ve got to know around the globe. DeFi influencers, content creators, fellow builders, advisors, etc.
We’ve had good reactions to what we’re building. And we’ve had cold reactions. Usually, the cold reactions are in the form of “because there are more interesting financial products we could build” and recommendations to build for the new emerging narratives. All fair points I aim to tackle in this article.
The good reactions have emphasized the need for a product like Clip. A rock-solid product for stablecoin yield that’s risk-managed and automated (monitored and rebalanced based on the real-time performance of the yield strategies).
I hope the following will give a little bit of insight into how we’re thinking about Clip, and where we want to go. All feedback is welcome.
Speed
This industry moves faster than any other we’ve ever seen before. The talent density in crypto is insane. And when you have groundbreaking technology, tons of smart people, a lot of money entering the space, and a good chance to get rich beyond your imagination… interesting things will happen.
We’re seeing incredibly complex financial products being brought to the market. Both TradFi copycats and DeFi primitives. It’s mind-boggling, it’s exhilarating, and as a builder, it makes you wonder about the level of gigabrains you’re competing against.
And while we welcome all this innovation and speed, we shouldn’t forget that we still need to improve simple DeFi products that just work. Building something simple isn’t simple. Building something safe and rock-solid takes time. And due to the financial nature of the technology the protocol has to be really safe so you wouldn’t lose user funds. That’s rule number one. Never lose user funds. Risk management can’t be a meme. Building something solid and testing an ungodly amount of corner cases takes a lot of time. This has forced us to sacrifice speed and postpone our launch dates, but we believe it’s for the right reason.
The reason is you, anon, and your funds.
It’s not easy to build a good web3 product. We applaud every team that has managed to ship a secure product that works well. It’s not an easy feat. Especially when moving at the speed of the industry.
Staying Power
As important as speed is, success and survival are largely about staying power. Can you survive in this market for as long as it’s needed to build the product, change course if you have to, improve, and gain trust and adoption? It’s not only about money, it’s about resilience. Opportunities are calling from left and right, and the bear market tests the will of us all. With all the rugs and hacks of 2022, it’s not hard to have doubts about the whole industry. And seek something that’s less..uncertain.
We’ve come to admire the protocols that have survived and still have the core team contributing on a daily basis.
Don’t fade protocols that have managed to stay around and still build, even if it may sometimes feel like no one is using them. We see protocols starting to get traction that have launched 2–3 years ago. This is the magic of staying power.
It’s not easy to keep grinding after seeing other protocols taking off at blistering speed (in the bull market). Fellow builders of these “other protocols” sainted to the status of semi-gods. And the money, of course, the money…
You have to keep showing up and find something that works. Or the market has to evolve to the place where the protocol has an actual use case. Whatever it is, keep building.
Stay in the game, anon.
Finding talent is hard
Unless you’re so well funded that you can pay around $150-$200k (and more) per year to a developer plus a token warrant, you’re going to struggle (unless you’re a bunch of devs coming together in the first place) to find really good people.
We’ve been lucky to tap into our existing network to find a few amazing developers, but we’ve also struggled to find more of them.
We’ve gone through 100s of Github accounts and connected with developers whose contacts we could find. We’ve reached out to developers in failed/closed protocols. And we’ve reached out to teams in discord channels just to see if someone, maybe, wants to contribute to building Clip as well.
You can find people who will make empty promises. You can find people who can code, but don’t have the discipline or communication skills to work in a remote team. Communication skills are so important it’s hard to overestimate them.
But as fruitless as it is at times, there’s no other way than to keep looking and asking around. All the non-responses and empty promises lead you to someone who is suitable and as importantly, available.
And then you’ll need to put your negotiation skills to work to make them happy with what you can pay now and what the Valhalla will look like when we get there, together.
The good people you will meet during the process of putting together the team, assuming you’re a good person as well, will lay the foundation for the opportunities that will come your way in the future.
Be a good person, be polite, and keep your word.
Business model & economics
We’ve spent quite a bit of time thinking about the business model and what kind of additional revenue streams we can add in time.
It’s pretty clear that most of the protocols don’t make any profit. They live off of raised capital or/and their own token emission. Of course, the industry is still very young and it’s not realistic to expect that most of the protocols would turn in a profit. But I don’t see how we could aim to build a protocol without the aim of becoming a profitable business.
This takes us to the fee structure. Fee structures of different yield optimization protocols vary quite a bit. Yearn is charging a 20% commission on earned yield (10% on some Curve vaults) and Autofarm is charging just a few percentages. We want to be somewhere in the middle.
We don’t see a viable outlook for a protocol to be sustainable from business proceeds if it’s charging (for example) 1,5% on the earned yield. The scale would need to be massive. To get to that scale, you need staying power. Unless heavily funded (and thus token supply owned by VCs?), you won’t get to the massive scale because the business itself is bleeding cash.
Clip will take a commission from the earned yield (we plan to charge between 10% -15%, with fee reduction opportunities for long-term token stakers).
This commission is split between the protocol Treasury (to cover expenses, fund the insurance fund, etc) and stakers. We have multiple different approaches here on how to split the revenue in terms of allocations depending on how the protocol is performing, but this will be a topic I will write about in a separate blog post.
While we’ve made a number of financial models to understand how we’d fare in different scenarios in terms of covering our expenses, reality can always differ and throw us curve balls. But it’s better to have some models to navigate these uncertain waters than to completely wing it and hope for the best.
For the future of the product, we’ve got a number of plans and ideas we’d like to implement to create new revenue streams. I may write a separate blog post detailing all the ideas that we have. Make sure to follow us to be in the loop!
Last but not least, a few words about our tokenomics. Clip’s tokenomics was designed by an ex-Bridgewater Associates gigabrain, and we’re happy with what we have done with it.
However, we all know that tokenomics are never ideal. It’s not easy to make a fair system that incentivizes the right types of users to use the protocol and receive proper rewards for it. Smart people with a lot of money and the permissionless nature of the protocols are the perfect storm for gaming the systems.
Key information about our tokenomics:
- Clip rewards users when the platform hits TVL (total value-locked) milestones
- Team and investors tokens vest based on hitting these milestones, which forces the team to really work on scaling the platform instead of just waiting for the tokens to vest. In this scenario, the team and investors’ interests are aligned with the users.
- Users who qualify for Clip rewards at the time of the snapshot but withdraw their TVL afterwards will have 4x slower vesting compared to users who keep their TVL above the threshold (for the vesting period) they had at the time of the snapshot.
- We use a different method to measure the platform TVL than simply the raw TVL. It’s one of the ways we try to fight against gamification. We’ll explain that in the tokenomics litepaper you’ll find from the link below.
- Stakers will receive a portion of the protocol revenue (and potential fee reduction)
We’ve heard genuine concerns around “what if the market is bad and milestones are not hit?” This can happen, but we’ve deliberately designed the tokenomics around milestones for a reason — if the protocol is successful, everyone is rewarded. Why should a protocol that is not succeeding and growing emit more tokens to the market while the value of the protocol isn’t increasing?
Moreover, we hope that we incentivise users to spread the word about Clip and work in unison to hit those TVL targets.
Last but not least, even when we’re not emitting Clip rewards, the yield strategies we’ve deployed should still be attractive enough for users to stay and earn a yield on their stablecoins. After all, this is the core value proposition of the protocol.
Please read our tokenomics litepaper v1 for more details and leave your feedback here:
Conclusion
I hope that I’ve succeeded in giving a little bit of insight into what we’ve learned, what we’re doing and how we’re thinking about Clip Finance.
The most crucial lesson we’ve been reminded of is this: network and supporters matter. And luckily, there are so many gigabrains that are ready to give you a piece of advice if you just ask them. Good relationships will get you through the hard times.
Please join our discord, follow us on Twitter, and reach out if you’d like to work together.
