# Bankless Interview - Rainbow Token Sale
## Diarized Transcript

**Speakers:**
- **Bankless Host** (Ryan Sean Adams or David Hoffman)
- **Mike Demarais** - Co-founder of Rainbow
- **Alex LaPrade** - CEO of Rainbow

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**Bankless Host:**
I'm here with Alex LaPrade and Mike Demarais from Rainbow. Guys, welcome to the show.

**Mike Demarais:**
Thank you for having me.

**Alex LaPrade:**
Thanks for having us.

**Bankless Host:**
Congratulations on getting a token sale out of the door. That's what we're gonna talk about today. What are the first details, logistics, information? that any potential sale participant needs to know about the rainbow token sale.

**Mike Demarais:**
Well yeah I think maybe we should start by just quickly just recapping like what is rainbow. Um, you know, so Rainbow's a fun, simple, and powerful Ethereum wallet that makes uh, you know, using crypto every day uh simple and approachable. via the Rainbow Mobile app and browser extension. Um, you know, we've been in the game since 2019. We initially saw a lot of traction from our best in class NFT support. But since then we've been building Rainbow into the go-to app for all financial services on-chain. Um, you know, over the summer we shipped Rainbow V2, which was focused on like rebuilding the guts. of our code base uh in order to increase our shipping velocity. And since then uh we've been on a roll. We've been shipping a new revenue line each quarter. First we shipped um, you know, the best in class like mobile uh perps trading experience with their hyperliquid integration. And today we're very excited to announce that we're shipping our uh polymarket prediction market uh integration uh to our public test flight. So as soon as uh our engineer wakes up uh after working hard all night on it, uh we're gonna post uh the public test flight link to the Rainbow Twitter account. So uh everyone out there who's looking to try uh what, you know, we really do think we kind of reinvented the the the the UX of uh mobile prediction market trading. So uh encourage everyone to give it a try.

**Bankless Host:**
Uh Mike, maybe just explain some of the philosophy of Rainbow. Why is Rainbow what it is?

**Mike Demarais:**
Yeah, I mean, listen, I mean, fundamentally, right? Like when we started Rainbow all the way back, it was really clear to us that you know, this sort of uh DeFi and and sort of Ethereum in particular just seemed like the obvious future of the financial system. And If you look at the other wallets in the market, they honestly seem a lot more like developer tools than consumer apps that we would expect to see on any of our family members. f like h phone home screens, you know? Uh so that was really the origin, right? And and fundamentally, yeah, we just like are big uh users of this stuff. We we like live in this world and we uh you know we love this shit. So, you know, yeah, I mean basically our goal is to is to sort of bring um the best of on-chain financial services to consumers before Wall Street incumbents can.

**Bankless Host:**
Alex, uh I think people will be familiar with Mike just from Twitter. Uh but uh your face is new to the rainbow ecosystem, or at least it's it's new to me. Maybe introduce yourself a little bit and uh tell us about who you are.

**Alex LaPrade:**
Sure. Uh I've known Mike a very long time, joined a little bit over a year ago as CEO, and I think part of the world that Mike has described about. uh the a new financial system. A part of that is ultimately being a little bit more grown up, a little bit more professional. Ultimately people are trusting us with their money. And so I get to be the preferable preferable person who does the things that people who worship the collars do.

**Mike Demarais:**
Very cool. Very cool.

**Bankless Host:**
Uh Mike, maybe talk about the why now. Uh why is now the right moment for the Rainbow Token sale?

**Mike Demarais:**
Yeah, actually I'm gonna put that to LaPrade. LaPrade has a good answer for that.

**Alex LaPrade:**
So so I I think it's the why now and But if you know about Rainbow, ultimately UX has been the most important thing. And I think we would only ship a token when we're very excited about the impact it would have to UX. So initially at TGE, uh every single revenue generate generating action in the app will Earn your rainbow almost instantly as cash back, as well as looking at uh things like staking in the in the products and how that can impact everything from sort of fees to the amount of cashback that you can get. Um Secondly, I think in terms of timing, um Rainbow's been around since 2019. Almost every week, Mike and I talk to users from uh the COVID era who were all sort of very loyal, very passionate. If you think about the intention of tokens. Um an aligning community and to your users, um there sort of is no better time than doing that uh right now.

**Mike Demarais:**
Mm-hmm.

**Alex LaPrade:**
Uh are there some economics involved with the token?

**Bankless Host:**
You said there are a bunch of revenue generating things in the app. Maybe maybe we can talk about what those are. Like what are the big revenue drivers inside of the Rainbow app? And then after that we'll talk about the way that the token relates to that. Sure.

**Alex LaPrade:**
So I think as Mike highlighted, over summer we worked on Rainbow V2 really to rebuild the foundation of the product. And that's allowed us to ship one large revenue line every quarter. uh which should continue for the foreseeable future. So last quarter perps in hyperliquid, this quarter, prediction markets uh on polymarkets, uh and so we'll continue um each quarter um off for then and so I guess if you think about uh most companies, they're typically reinvesting in growth. You will only see them st uh start to return capital to holders. uh via dividends, via buybacks, when management teams run out of places to reinvest in growth. It could be organically back into business, it could be inorganically via MA. I think within crypto it's somewhat unique in that you have tokens everyone wants value accrual to a token, whether it's via regulatory or other reasons. Historically the way of showing value accrual has been via buybacks of your token. I think in our point of view, it's not a great capital allocation decision. We're much more excited about reinvesting back into the business. We believe that the believe is higher rates of return on that capital of reinvesting back into our business, of which Mike's highlighted some of the opportunities. And so I think the challenge for us is how do you let token holders sort of benefit from th those reinvestments? And easy answer for us was uh you make the foundation the largest shareholder of of your business. And so we've done a lot of work, we've created a new class of stock called Class F. It's designed to be held by a foundation, and uh we will work on finalizing the rainbow foundation will be the logged shareholder of Rainbow at TGE.

**Bankless Host:**
Okay, cool. So I think what you're getting into is uh we're talking about the investor or uh entity alignment uh question, which is like we we saw some It Uh perhaps fumbles of the industry in the last few months with the Coinbase acquisition of the Tensor NFT platform, but did they acquire the token? No, they did not. And then there's uh Axelar got acquired by Circle, but did they acquire the token? No, they did not. Uh and so maybe you guys can just like uh double click onto uh the alignment conversation and what you guys are doing with uh the alignment of token holders in the rainbow ecosystem and the actual token entity and organization.

**Alex LaPrade:**
Sure. So I think in the case of um Coinbase and Circle, I part of the tricky question is down to fiduciary duty is can those management teams as public companies even give consideration to token holders sort of by design or are they just letting shareholder value leak and ultimately are it's they're going to be sued by their shareholders? And then by virtue of token design. Foundation is a separate entity, separate separate board of directors. Nothing is imminent but sort of if there was ever in MA events. They would have a distribution and sort of that team would do what's in the best in the best case in the best case of token holders and ultimately um in our point of view uh distribution to uh two rainbow token holders.

**Bankless Host:**
Okay, so the the whole idea is that the fact that there is a foundation, which has a very large percentage of tokens is token aligned more than entity aligned. And so the foundation represents as i it is like the representative of token holders.

**Alex LaPrade:**
Yes, they they're the their shares are on on the cap table, uh and thus they're they are paid out like any other shareholder um in an MA transaction.

**Mike Demarais:**
Okay, cool. Um Yeah, we think it like really elegantly solves that that typical misalignment between equity and tokens, right? Like the examples uh you know the the re from recent history that you just pointed out, um you know, fundamentally I think LaPrade's point is correct, right? That like, you know, if you're a publicly traded company, um, you know, you're you you sort of uh your shareholders are not going to let you just sort of pay money out to token holders just because that's that would be cool, right? Like, um, and really we wanted to structure things in a way that uh protected token holders' rights like structurally, right? And sort of um prev you know, remove that kind of like Wall Street uh uh, you know, bias towards fucking token holders out of the equation.

**Bankless Host:**
Um is there then a c uh a question about is there like one to one alignment? Because the f foundation doesn't hold one hundred percent of the tokens, so maybe they hold, you know, X percent of the tokens, does that mean that they're only X percent aligned? Well, so first of all, the foundation holds equity, right?

**Mike Demarais:**
So that's the unique thing here is that basically the foundation is holding 20% of Rainbow's equity, making them the largest equity holder. Um and sorry, LaPrade, you can speak to where that 20% number come from.

**Alex LaPrade:**
Sure. I think in most cases between foundation and labs, it's sort of a one-way in terms of value transfer. I think in our point of view, um there's sort of a two-way value transfer of sort of which is where the twenty percent equity to the nation comes from. I think it it's will say um people are probably going to ask well one at a hundred percent. I'd say one certainly is always possible in terms of you go public on chain, entire amount of equity. floats. I think regulatory-wise, we're not quite there yet in terms of you're then essentially a public company, you're paying all the costs to to be a public company. uh as well as I think in the MA scenarios laid out. Um there are very good Delaware laws both to uh prevent a tr prevent a transaction in case of like a hostile takeover. uh but also to sort of force a transaction to go through that that has approval.

**Bankless Host:**
And so we are watching it closely, uh but that is the way of land right now. Do you think this could represent a model for other uh organizations to use in their potential token sale?

**Mike Demarais:**
Is this like a template that might be interesting? Yeah. Yes. We're working, um, so yeah, I mean we've been Super excited to to get all this inbound interest from other founders in this space who have been reaching out to us asking to learn more about this class F structuring. um how they can sort of learn from it or or sort of you know use uh sort of run with this playbook exactly. Um so excited to sort of chat with them more and figure out if this is something that we can um sort of like lock down into a a playbook that sort of uh uh makes it a lot easier for founders to kind of uh take this path. But yeah, I mean I think listen, like fundamentally, like yes, this does represent a new model for tokens. Um, one where sort of equity and and token holders are aligned and we hope that uh yeah, this really starts a trend.

**Bankless Host:**
Yeah. In in that case I I think it would just be really good if the industry just got some just more and more legal eyes looking at this, get some legal opinions, like the Jake Shrevinsky's of the crypto industry. Like I think the uh getting getting people like those to to get their just opinions out there. I know that Jake's gonna say, well, in my opinion, it's not your legal advice, but but nonetheless. Uh let's get into the actual details of the token sale. When Is the token sale, how is the token sale happening? What's what's all of the the the sale logistics?

**Mike Demarais:**
Yeah, so our token sale is live right now on Coin List, um and uh sort of live through Thursday. uh December eighteenth. Um, you know, it's uh a mainnet pre-sale, meaning, you know, you can send stable coins on mainnet. Um and we're excited to actually announce today the uh the official airdrop and TGE date for rainbows. LaPrade?

**Alex LaPrade:**
Uh so exc exclusively here on on Bankless, uh the day is going to be Thursday, February fifth, twenty twenty six. Cool. Congratulations guys.

**Bankless Host:**
That's a huge milestone. Uh I'm sure there's a lot of people who are going to be very, very excited about that. Some of the uh metrics and and just numbers around the race. Like what how what percentage of tokens are you selling? What is the price or valuation that you are selling them at? Like stuff like this? Um sure.

**Alex LaPrade:**
So uh we're it's three percent supply. at hundred million dollar FTV, the implied market cap is 18 million. Uh again, and it's in Rainbow's DNA to be as inclusive as possible. It is available to both US non-US. If you're outside of the US, it is fully unlocked at TGE. If you're in the US due to Reg D, it is locked for one year. Uh sale fills bottom up. Again, I think in the Rainbow DNA, since Mike, Jin, and Christian founded the company. Uh is to be as inclusive as possible. Um and that's the that's where we landed.

**Bankless Host:**
Okay, so you're selling this as a security under the regul regulation D exemption. Is that how this works? Okay, cool.

**Alex LaPrade:**
US investors. Um we've done the extra work to be again as inclusive as possible.

**Mike Demarais:**
I think earlier you asked about sort of economics. Um you know, I think uh LaPrade might have breezed over it. But yeah, so basically, you know, Rainbow is gonna have uh uh sort of in-app rainbow rewards where uh any action that you take in the app that generates. revenue, um, e uh sort of a percentage of that revenue gets used to go and market by the rainbow token and give it back to you as incentives. But So like basically as a cashback, right?

Um so quite excited about that.

And then yeah, I think lastly, um, you know, we've heard from some people that they've run into issues with, you know, uh the onboarding process to CoinList uh or KYC if anyone is having any problems with uh participating in the pre-sale, please reach out to us or Coinlist and we can uh help smooth that out.

**Bankless Host:**
Is it possible for just potential investors to just take a peek at uh I don't know what the technical term is, but just like the revenue numbers and like run rate and burn of the team. Like if I really wanted to like unpack the the financials and the financial health of Rainbow, would I be able to do that?

**Mike Demarais:**
Well, so we just set up investors. rainbow. me, a dedicated webpage uh for collecting and aggregating all sort of investor materials. Um right now it mostly contains updates. We're working hard to sort of uh clean up or like basically like package and f you know format uh metrics in order to uh post them on the site.

**Mike Demarais:**
LaPrade, anything else?

**Alex LaPrade:**
I think I would add that we are working to voluntarily be more transparent everything from material updates to standardizing metrics and the and the cadence of which metrics are uh disclosed uh as part of the lead up to TGE and how we want to conduct ourselves uh post-TGE.

**Bankless Host:**
Yeah, I'm sure pretty interesting dance because you guys aren't going public, so you don't have all of the public requirements. But nonetheless, like you do want to give investors confidence and so you have to go and and uh disclose some amount of stuff and the I don't think really the industry really has ever done something like this before.

**Mike Demarais:**
So we're all kind of learning about like what the right amount of stuff to disclose is in the particular moment. We're trying to set a new standard here. Um so yes, we're gonna be adding metrics, analytics, et cetera, to the investors. rainbow. me site. In the meantime though, uh, you know, Rainbow is an on-chain business. You can um look us up on Dune or on DeFi Llama uh to see high-level high level stats.

**Alex LaPrade:**
Yeah, I maybe one thing to add to that is like in terms of token design, like it's we try to design a token that we would be thrilled to buy and to hold in RPAs. And in terms of disclosures and investor page, trying to conduct ourselves in a way that's what what's the how do we want management to behave in a in a business or token that sort of again we were we were holding in our PA.

**Bankless Host:**
Cool. Alex, Mike, congratulations on the token sale. Best of luck. I hope it goes well for you guys. And uh thanks for coming on and sharing with me all the details. Thanks for having us.

**Bankless Host:**
Shut up, Bankless. Thank you so much for having us. Bankless Asian, you guys know the deal. Crypto is risky. You can lose what you put in, but nonetheless, we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot. I like that do you go we're headed west. I like