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Decentralized Finance (DeFi) is a system that allows the use of financial instruments by participants on a programmable and permissionless blockchain, usually with the aid of smart contracts. It is a rapidly evolving system that aims to eliminate intermediaries, i.e. banks, in financial transactions. It often requires the use of cryptocurrency, as a means of primary payment or settlement.
For a long time, DeFi has face a problem of fundraising to drive ecosystem innovation. DeFi is growing, and with it, the resources required to drive its further expansion. A majority of DeFi players have relied on external sources of financing, i.e. Venture Capitals, Angel Investors, Pre-seed, seed and series funding, etc.
*However, the devils knocks, and it knocks hard, after giving its gifts*
It was soon discovered that, not only is it often nerve-wrecking to have a corporation breathing down your neck, taking financing from these funders come with significant challenges. Venture capitalists and early investors often seek large equity stakes and influence over protocols, sometimes leading to decisions that do not align with the long-term vision of the project. Many DeFi projects have struggled under the pressure of investor expectations, leading to rushed development cycles, governance issues, and even protocol failure
**Several DeFi protocols have explored alternative means to source funding to develop their products. This introduced a period of IPOs (Initial Public Offering) and ILOs(Initial Liquidity Offering); both are similar and involve raising funds from the community in a relatively fair manner. It involves allocation and sale of a defined amount of protocol tokens to community at a fixed price. This could come in several stages and may be used in tandem with other funding options.
However, these models often fail to provide long-term stability. Early investors tend to sell their tokens at a profit, leaving later investors at a disadvantage. This creates a pattern where the first entrants benefit the most, while new participants take on the most risk. Additionally, there are often several different types of token allocations that may come before IPOs and ILOs, especially to the earliest investors, at even more discounted prices. This leaves several tiers of investors disappointed at the end of the day.
But how can protocols ensure that every market participants has equal chances to acquire the ILOs?
And so, we have the Dutch-Auction Fair-Pricing model. This model combines with ILO to ensure every market participant has equal opportunity to get a portion of the token offering, and a fixed price is determined after the token sale ends.
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In simple terms, a pre-defined total amount of tokens is offered to the market over a time period. Each market participant pledges an amount of stablecoin to the protocol to buy tokens, but without a definite price yet. At the end of the sale, the token price is obtained from a factor of total fund raised and total token set aside for sale.
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Again, this was acceptable for a while, but soon became flawed, as it is not totally decentralized, and prone to human influence. Additionally, early funders often get a bigger bite, at much lesser prices, including the team themselves.
Nirvana Finance is a DeFi protocol built on the Solana blockchain. It was designed to offer a novel approach to decentralized financing, token distribution and value stability. It was first launched in April 2022, and re-launched in December 2024, after it suffered a security setback in July 2022 -Nirvana hack and refund.