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The Cardinal Sin

November 7, 2023 · 10 minute read

We raised a 3.3M seed round

Good afternoon, pilots.

You may recall that in project update #14 from July of 2022, we mentioned an important development in a section called "Whispers of a Cardinal Sin" and refused to give many details. At that time, and for the rest of the year, we were in the process of raising funds. Today, we’re ripping off the cowl of secrecy and sharing it all.

🎉We raised a $3.3M Seed Round led by 1kx, with participation from Shima Capital, HASHED, Matchbox DAO, Ready Player DAO, and several angels.

This secures years of runway for Citadel and allows us to make a game that would not have been possible before. At the same time, we think we found a positive sum structure for funding the creation of a decentralized world. So, read on if you want to learn about how we did it!

✦ Wait, why raise? I thought you guys were against VCs​

We’ve always held (and loudly shared) our opinion that VCs often end up being a net negative to decentralized projects — especially to their communities.

We still think that’s true. Our goal has always been to keep Citadel as decentralized and community-owned as possible, even at our own expense. We hard committed ourselves to this in 2021 when we left our previous jobs to work full-time on and self-fund Citadel. So, in early 2022 when a few funds reached out and asked if we were considering raising, we respectfully declined as we assumed this would require compromising too many of our goals with decentralization.

Bootstrappin' days in the original team office circa 2021 (aka fleets old bedroom) 😎

Still, these interactions led us to ruminate over a few important questions during our morning team workouts:

  • "What compromises are we making to stay within our self-funded runway? How much would we benefit from going all the way?"
  • "What causes raising to ruin other projects? Are there any funds out there thinking the way we are? Is it possible to structure a deal so it’s not harmful?"
  • "What if we run out of bootstrapped funds before the product is ready? Are we comfortable with launching something we’re not proud of?"
  • "If we need to increase our allocation of the initial mint funds beyond the current planned split of 30% for ourselves and 70% for the DAO, are we compromising the decentralization of the project?"

Narrator: (At this point in the story, as the Citadel team reflected on these questions, a lightbulb in their heads went off…)

  • "Wait… are we the centralized baddies? Even if we do just stick to taking 30% of the initial mint funds from the community like we planned?"
  • "Hold on… what if we didn’t need to rely on initial mint funds from the community to stay alive at all? What if instead of a 70/30 split, we could direct 100% of the mint funds to the community treasury?"
  • "Oh shit… what if we could (continue to) take our time to develop an actual game product instead of launching yet another over-engineered flash game?"

Narrator: (Now, the Citadel team was rather warming up to the possibilities. Echoes of "how cool that shit would be man" could be heard across the office as many margaritas were consulted.)

By now, it was around the middle of 2022. The more we discussed the pros of taking funding, the more we became convinced that it was worth the effort to try to find solutions to the cons. Eventually, we came up with a set of requirements and a structure for a deal that we believed would be net-positive. It felt good to know that it was possible in theory, but we had serious doubts that anyone would actually be interested.

The whole thing would hinge on finding a fund with the same principles.

✦ Partnering with 1kx​

Of the funds that reached out to us in early 2022, 1kx stuck out. We butchered our call with them in February, and admittedly the embarrassment prompted us to start reading their research more closely. We were blown away by the detail, thoroughness, and similarity to our own aspirations. Eventually, we became friends with Terry and Peter. We started sharing notes, attending their conferences, and meeting up in person.

Raising on our terms seemed unlikely in general, but if there was anyone who would share our values, we knew it would be 1kx. So, when we broached the idea to them, we were delighted to hear that they felt the same way about us. Soon after that, they agreed to help us raise a seed round. To say that they led the round would be an understatement. They funded the majority of the round in a high conviction commitment like true onchain gigachads.

As the raise process continued, we were introduced to several other highly aligned funds, like Shima Capital and HASHED, who have become our close friends and advisors. It was both surprising and gratifying to know that there are VCs out there that share our principles.

Meeting Jun from HASHED for the first time in-person.

Despite all that, the crucial question remains: how can a raise like this be structured without compromising the decentralization of the project, and what are the implications of such a structure?

✦ The Good, the Rad, and the Lovely​

1. 100% of mint funds go to the DAO​

  • Instead of the promised 70% and 30% split (with 70% to the DAO), all funds from the initial mint will now go directly (and trustlessly) to the DAO.

2. Investors buy into the core team, not the DAO​

  • This still gives investors value, but does not give them a direct share of the DAO.
  • We formed a company separate from Citadel and sold 20.86% of the equity in that company to investors in exchange for the $3.3m we raised.
  • The post-money valuation for our company that we raised against is $16m.

3. The core team is just a contributor​

  • The core team company will operate through the same processes as a normal contributor to the DAO. Upon launching, we’ll negotiate a service contract with the DAO. We’ll receive remuneration and be held accountable for the services and support we provide.
  • Part of our request from the DAO will be that we receive:
    • 15% of the new supply of governance assets from weekly auctions. This is comparable to the 10% share that Nounders (Nouns DAO founders) receive from their Nouns auctions. We deliberately lowered the core team company valuation to keep this number as low as acceptable for all parties.
    • 15% of the initial supply from the genesis mint (but, again, we receive 0% of the funds raised from the mint).
    • 20% of the marketplace royalties, if they exist lol. This part is likely to change as we continue to plan how marketplaces will work for Citadel.
  • The service contract will not be a one-time engagement between the core team and the DAO. In the interest of the DAO, we intend to stipulate that the terms be regularly reviewed by both parties.

4. Investors have the same incentives as the core team​

  • Investors own a share of what we receive for contributing to the DAO through the company equity they own.
  • Since we are raising explicitly from the core team company and not the DAO, future fundraising efforts will not affect the decentralization of the project.

5. Governance assets vest over 4 years​

  • Our contracts stipulate that any assets the company receives from the protocol (Citadel) can only begin to be distributed to core team members and investors after a 4-year vesting cliff.
  • Any governance assets sent by the DAO will be received by a smart contract, which will lock them up for 1 year. After that, they will be sent to another smart contract owned by the core team company. Upon year 4, tokens in that vault will become eligible for distribution to anyone with equity in the core team company, if shareholders vote to distribute them. Any distribution event will occur over a 2-year schedule, with monthly unlocks.
  • This means that the core team and all of our investors, both current and future, are betting on the long term. We have extremely high conviction that prioritizing the best interest of the DAO will be very fruitful in the long run. Moreover, this ensures no one is able to dump any assets on the community, as founders and VCs so often do.

6. Ore is (still) not for sale​

  • Nothing changes with our plans for ore.
  • Ore still has no tokenomics pie charts. No ore will be allocated to the core team, our investors, or anyone else before, during, or after launch.
  • As before, the only ore that will be issued outside of player activity in the game will be the pre-mint to the DAO's treasury upon launch.

We believe that, with these terms, our raise will be a net-positive for the project, maintaining and potentially increasing its decentralization. We’re somewhat shocked but very grateful that it worked out. From what we can tell, this is one of the most equitable ways that a DAO centric project has raised funds.

This approach ensures that:

  • The core team has strong incentive to serve the community’s best interests in the long term, as all of its upside comes from recurring auctions rather than a one-time mint.
  • The core team is held accountable, because the DAO can remove it at any time. Our service contract gives the the community the power to remove us at any time if we’re not the right fit. This would stop the flow of any remuneration, leaving us with only the share we had earned up to that point.
  • Our investors are aligned with us, because they have the same upside as the core team. This ensures that they will be motivated to support us as we build and contribute.
  • Best of all, 100% of the initial mint funds raised by the community will stay with the community, as all funds will go to the DAO treasury and will not pass through us.

✦ We're Hiring!​

Join us, or face your doom. 💀 (Not pictured, a Mining Officer holding the camera)

Like every other company after announcing a raise, we wanted to let you guys know that we’re hiring!

We have some [REDACTED] [REDACTED] [REDACTED] stuff [REDACTED] the works, and we’re looking for [REDACTED] [REDACTED] to help us make [REDACTED] happen (in all seriousness, the details will be covered in next week’s project update for Citadel 2.0).

Unlike every other other company after a raise, we’re looking to hire from within this damn fine Discord communications based online digital community if at all possible. We’ve hired a significant portion of the core team directly from here, all of whom have been omega chads and several of whom have become co-founders. They’ve become some of our favorite people, both personally and professionally, and we’d like to keep that trend going.

For now, we'll provide you with this team alignment chart. For those of you who are interested, please study it in the meantime. Remember, you will need to select one person from each column for your interview.

We'll share the roles we're looking to fill in next week's update.

✦ Fleet Commander's Big Exciting Mega-Dox​

So, this really isn’t as relevant as it might have been eons ago. We had anticipated being launched by now when we first started working on this

Anyway: I was the guy with the wolf game exploit (also, Architect and Code Runner were involved in the making of this as well.)

✦ What's next?​

This November marks our 2-year anniversary of working on Citadel. We feel that it’s only right to honor it by doing something extra special. So, next week, we’ll be posting our biggest project update yet, covering what we’ve secretly been up to these last few months.

Citadel 2.0 — November 21st, 2023

P.S.: It feels good to finally release this announcement. We’d been holding it in for a minute, and that felt like a cardinal sin of its own! Thanks for sticking with us <3

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