FIP #2: Removing Revenue Distributions & Focusing on Business Growth

Summary

After reviewing the business of Fancy Studios, market environment, and legal & regulatory landscape, we propose the following recommendations:

1. Remove Revenue Distributions (“RevDis”) going forward.
2. Burn 100% of the FNC tokens purchased through revenue.

The goal of these recommendations are to allow the Fancy Studios to reinvest its revenue into growing the business and capturing more market share, and provide a better ability to list the FNC token on major crypto exchanges. These changes should help maximize value for the entire ecosystem overall.

Overview

As a start-up company, Fancy Studios has an incredible opportunity to make a name for itself and lead the innovation in GameFi. With that being said, a focus on growing users and capturing larger market share should be top priorities. In order to grow quickly, Fancy Studios will need capital to fund those goals. Initial fundraising has helped, but in the long-term, Fancy Studios needs to be self-sustaining. To become self-sustaining, the project needs the ability to reinvest its earnings back into the business. Currently, with RevDis, this isn’t possible and actually runs counter to our goals.

Rationale

At the core of our recommendations are 2 topics: provide Fancy Studios the ability to grow as a business and reinvest its revenue to achieve that goal, and gain a better ability to list the FNC token on a major crypto exchange.

We hope that by providing our full rationale below, that we can offer greater transparency to the community in our recommendations and demonstrate how much thought has gone into this proposal.

1. Fancy Studios should have the ability to reinvest its revenue to growth and capture more market share and focus on growth. As a start-up, Fancy Studios should focus on growth and capturing market share quickly in an emerging industry such as web3 gaming. To grow, Fancy Studios will need capital to fund new games, paying staff & hiring talent, operational maintenance of its infrastructure & legal affairs, and invest in areas where we believe there is a high expected return.

We believe that if we were to continue distributing 100% of our revenue to FNC token holders, we would effectively guarantee the inability to fund future growth. This naturally leads us down a dangerous path as we cannot fundraise easily (we’ve already used most of the FNC tokens allocated for fundraising, plus our FNC token price is quite low and we’d be losing a lot of tokens while raising a small amount). If you follow the logic, 100% RevDis equates to the project not being able to reinvest anything material back into the platform. There would be no future game developments once we run out of cash, and important infrastructure and staff would leave the project as we could not afford the burn rate. As competitors discover a new area of the market and perhaps another innovation in web3 gaming, we would be constrained to only do what we financially can. This naturally puts us at a large strategic disadvantage.

Taking a step back and looking at tech/gaming start-ups at a high level, it doesn’t make sense for a start-up to promise 100% of revenue (not even profit) to its token holders since day 1. To visualize this - imagine Amazon/Google - Riot Games/Epic Games/Scopely - had they agreed to 100% of RevDis, they likely would not have survived more than a few years and would have been misaligned and wrongly focused. Fancy Studios can be compared to a growth start-up as the ecosystem value is mainly derived from a growing market share versus focusing on smaller profits at an early stage.

We believe the better business model and business strategy is to firstly focus on growth and taking more market share (especially in a new industry with lower barriers to entry), and then to focus on profits and monetization. This isn’t meant to be interpreted that we won’t do any types of revenue avenues or monetization strategies - on the contrary, we definitely will (and have been) - but rather, this just won’t be the key priority. We believe that the FNC token can have a higher value if Fancy Studios were to gain millions of users with millions in revenue versus having thousands of users with only thousands in revenue. For us to continue doing RevDis likely produces the result of us never hitting a large user base and/or achieving a significantly lower user base than had we focused on growth vs the distribution of revenue. If we are allowed to focus on growth and market share, then Fancy Studios can accelerate onboarding more users and consequently create more utility and value for the FNC token.

Further, the amount of RevDis available through today is about 5.9 million FNC (see the RevDis wallet here 6 for the exact figure). This factors in the 5% OpenSea and Marketplace royalty fees we receive, all items bought in the Marketplace, breeding, name changes, and tournament entries. Please note that a large amount of open market buys on the FNC token from ETH/USDC occurred when the FNC token price was materially higher. However, we believe that we likely will remain at this level of revenue for a fair amount of time.

2. We want to list the FNC token on major crypto exchanges. Another aspect that RevDis is currently hindering is our ability to list on major crypto exchanges (namely the top 5/top 10 by volume). The majority of volume in crypto is on major crypto exchanges - that audience would be unlocked and beneficial to our platform if we can get listed. Additionally, we would expect better liquidity, which means our FNC token will not be as volatile, which we recognize is important to our scholars and a population of FNC token holders. We also believe that if/when the public and crypto markets recover, we would be in a great spot if we were already listed to try to pick up some of that positive momentum. We are aware that some exchanges have listed other projects with RevDis but offers like this have not been extended to FNC and this leaves us stuck until we can comply. Many exchanges require or highly prefer legal letters stating that we are a token without RevDis for us to even be considered being listed.

Concluding Thoughts

After carefully considering the benefits versus drawbacks of removing RevDis, we believe the positives vastly outweigh the negatives. If Fancy Studios can reinvest in itself and grow faster with the goal of capturing more market share and producing more games with a faster timeline, that would be a great improvement for the project. Additionally, if the FNC token can be listed on major exchanges, FNC will have a much better liquidity profile and greater exposure to a large web3 audience, which is quite beneficial both immediately and when the market does come back. The burn also represents a fair transition based on the circumstances and provides the best chance for the project to maximize its success and FNC token usage.

Posted by CleverName in the Fancy Birds forum: https://gov.fancybirds.io/t/fancy-improvement-proposal-fip-2-removing-revenue-distributions-focusing-on-business-growth/98