Capital Formation, Merit-Based Investing, and ICOs: Rebuilding a Broken Fundraising System with Legion

In a recent interview on the Arcanum Ventures BOOM ROOM podcast, Fabrizio Giabardo, co-founder of Legion, provided a compelling vision for the future of capital formation and raising funds for startups. The conversation, which also featured Arcanum Ventures’ Sasha Asheghi and Carmelo Giuliano, explored the fundamental flaws of the current fundraising system and how Legion is creating a new, more aligned model with merit-based fundraising, exchange distribution, and access for investment. Other topics covered of this insightful discussion included:

• Merit-based investment
• Bringing back Initial Coin Offerings (ICOs) with new frameworks, legislation, and technologies
• Solving the issues of cryptocurrency launchpads

Watch the Interview Here:

A new wave of innovation is sweeping through the industry, challenging the status quo. For years, the traditional “launchpad” model has been plagued by a cycle of speculation, inorganic price discovery, and misaligned incentives. Arcanum Ventures believes this is crypto’s killer app, not just raising money, but building a robust ecosystem with the right participants so they are able to onboard capital and raise funds the right way with the best possible investors.

Why the Old Model Is Broken

The 2017 Initial Coin Offerings (ICOs) boom showed decentralized fundraising’s immense potential, but the speculative frenzy that followed led to a harsh regulatory crackdown. 

This pushed most activity into private markets dominated by venture capital. This shift created several key problems:

• Inorganic Price Discovery: Valuations became detached from a project’s actual value, driven by private funding rounds that lacked transparency and public market feedback. By the time a token reached the public, most of the upside was gone, leading to “down-only” charts.
• Misaligned Incentives: The primary goal of many early investors was a quick exit for profit, not long-term contribution. This extractive behavior hurts a project’s ability to build a genuine, sustainable community.
• Lack of Quality Control: Projects lost control over who was receiving their tokens, unable to ensure they landed in the hands of value-adding community members instead of speculators who would immediately dump their allocation.

The Launchpad Dilemma

The current crypto market structure hurts both retail investors and new projects. Top-tier projects launch with extremely high valuations, limiting retail upside. Smaller projects, unable to secure adequate venture funding, turn to unregulated launchpads. These platforms offer limited visibility and attract short-term “flippers,” which erodes value for long-term supporters.

The current crypto market structure creates significant problems for both retail investors and new projects.

For retail investors:

• High entry costs: Access to top projects often comes at extremely high Fully Diluted Valuations (FDVs), leaving little room for price appreciation.
• Low-float offerings: The limited initial supply inflates the FDV and creates a large supply overhang, which can lead to downward price pressure.
• Exit liquidity: Early retail buyers can end up as “exit liquidity” for other investors as token prices inevitably fall after launch.
• Flipping culture: Decentralized launchpads attract short-term speculators (“flippers”) rather than genuine long-term supporters. 

For new web3 startups:

• Inadequate funding: Smaller web3 startups cannot raise enough capital from traditional VCs.
• Launchpad limitations: Decentralized digital asset launchpads have limited visibility and are unregulated, increasing legal risks and making partnerships and exchange listings difficult.
• High costs: Market-making, launchpad investment, and digital asset exchange listing deals can be prohibitively expensive for teams with limited funds.
• Impaired growth: The focus on short-term buyers and speculative cryptocurrency investors harms long-term network effects and sustainable business model growth for startups.
• Systemic issues: Projects also face challenges like inefficient airdrops and gatekeeping from established market players.

This cycle of low returns and poor incentives creates a negative feedback loop. The result is a broken ecosystem with misaligned incentives, where new offerings struggle with inefficient funding, poor network effects, and minimal value-add for the money raised.

Legion‘s Solution: Merit-Based Investing

Legion, a capital formation platform, is tackling these issues head-on with a new paradigm: Merit-Based Investing. This approach goes beyond the old opaque investment process and reintroduces a crucial element from traditional finance: due diligence on both sides. Just as VCs vet a project, a project should be able to vet its public investors.

This is a two-way opt-in process that connects value-add projects with value-add network participants. It’s a system built to distribute tokens to people who will actively contribute to the project’s success.

Legion’s solution is a “Legion Score,” a reputation mechanism that evaluates potential investors based on a variety of metrics:

• Qualitative Information: An investor’s profile, including their role (founder, builder, trader), expertise (tokenomics, marketing, development), and investment strategy.
• Quantitative Metrics: On-chain data (EVM and SVM), social media activity, and contributions to open-source codebases (via platforms like GitHub).

This merit-based system ensures a project’s token is distributed to a community that genuinely believes in its mission and has the skills to contribute meaningfully.

Advice for Founders

Fabrizio offers founders three key pieces of advice for successful fundraising:

• Passion is a Prerequisite: Building a company is an extremely difficult endeavor that requires unwavering passion and commitment.
• Cultivate Social Capital: Fundraising is about building relationships. Founders should have at least 40 “touch points” with a fund before asking for a check, treating the process like dating rather than a one-off transaction.
• Diligence is a Two-Way Street: Founders should do as much diligence on their investors as investors do on them. It is crucial to ensure that investors are aligned with the project’s mission and will contribute long-term value.

The Importance of Regulation

Fabrizio argues that regulation is not a hindrance but a necessary component for the maturation of the crypto industry. Legion is actively engaging with regulators in Europe on the MiCA framework and in the U.S. to create clear, consistent rules.

He believes that removing information asymmetry and providing a clear regulatory path will unlock a 100x amount of capital from traditional finance. This convergence of crypto rails and traditional finance is already in motion, as evidenced by major investors like VanEck and Brevan Howard backing Legion.

What’s Next?

Looking ahead, Giabardo is most excited about two major trends:

• Tokenization of Real-World Assets (RWAs): The inevitable on-chain migration of traditional financial instruments and assets.
• Decentralized AI: A crucial application of crypto that combats the existential threat of centralized AI, which can manipulate information and control public opinion. He’s most interested in projects that are properly decentralizing AI models, inference, and data sets to create a more open and fair future for all.

Final Thoughts

The days of anonymous, low-effort investors are numbered. The future of capital formation belongs to those who build, contribute, and demonstrate their value. The BOOM ROOM interview with Fabrizio Giabardo was a wake-up call, a crystal-clear look into how the industry is finally maturing beyond hype and toward a future built on merit, compliance, and genuine community.

If this content interests you, be sure to follow Arcanum Ventures on our social media channels. If you have questions about your fundraising or token design & economic modeling, and how to prepare your technology startup for success, reach out and speak with the Arcanum Ventures team.

About Legion

Legion is a merit-based crypto fundraising platform that bridges traditional finance and blockchain technology. Focused on regulatory compliance, investor accountability, and transparency, Legion enables startups to raise capital through compliant token offerings and equity sales, while providing retail investors better access to on-chain fundraising and redefining the IPO process for the digital age. Projects using Legion can customize allocation, whitelist discounts, and move using on-chain and off-chain criteria about each investor to handpick an organic community of die-hard supporters.

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