In this article, I refer to VC(s) to mean “Venture Capitalists” and bucket the term to mean any accredited individual or group getting opportunities to fund early-stage companies.

Ever since the implosion of ICOs as reliable funding vehicles for teams building in the crypto space (circa 2017), we’ve seen a fallback toward the traditional model of funding rounds for many of the current and upcoming prominent projects. While I won’t speak on the matter of whether VCs are yet again taking the majority of the pie, I do notice a trend towards their investing style and from reading a lot of articles on several of their involvement thesis that hints at the future they envision for the “end-game” of how blockchains are involved in our world - more particularly a multi-chain future.

I think it’s important to discuss how VCs are positioning themselves and the industry itself top-down. While the last statement may be bold I truly do believe crypto is at the stage where institutional money has enough weight to throw around and decide ultimately what lives and dies via capital control alone. We’ve seen the emergence of ETH-competitive L1s such as Solana and Avalanche arguably sole-championed by VCs into their current prominence. Their voices for better or for worse empirically has the ability to influence markets and how extended actors such as developers will position themselves.

Crypto VCs come in all shapes and sizes, we’ve seen VC firms have made a name for themselves as strictly crypto native firms such as 3AC, Multicoin Capital, and Paradigm. Firms that stem from tradfi such as Jump Crypto and Bain Capital Crypto, as well as extended investment arms of well-established entities such as Samsung Next, FTX Ventures, or Binance Labs.

Ultimately, do not be mistaken, VCs are not friends of the people. Their objective is first and foremost to generate a return on their capital - in any manner they deem necessary.

It is not my place yet to give a strong opinion on the presence of VCs. There has been debate as to whether they are a net positive or negative force in crypto and if they are fundamentally antagonistic to the mission thesis of crypto itself. However, one cannot deny the impact VCs have had in preserving and increasing capital flow into building the expanding infrastructure of crypto which makes it easier for all participants at the end of the day.

I can leave my thoughts as such: As long as VCs are incentivized to continue supporting the crypto ecosystem, they can be seen as a net positive force. Indeed this has been the side of supporting VC presence in the space and where my analysis comes into play.

The point I am attempting to illustrate is quite simple so I won’t waste time using long-winded setups. Why the hell are there so many L1s? Furthermore why the hell are more L1s being funded into existence?

I refer to L1s as “layer 1 blockchains” which compose of a core consensus protocol. The most prominent L1s traditionally have always been Bitcoin - the foundation of cryptocurrencies itself and Ethereum - built to introduce computational execution within a blockchain that Bitcoin was not originally designed for. Ethereum will be the focus of this article.

Given that Ethereum itself is Turing complete, has a clear scalability roadmap and has already grown substantially since inception in terms of real users, developer ecosystem, and organization. One might wonder why new L1s are even needed? At a glance, the baseline argument is that just like with Bitcoin there are flaws within Ethereum’s original design Vitalik Buterin did not account for and thus an alternative is needed to address them.

If we look at the closest competitive chain to Ethereum: Solana, the biggest competitive point is that Solana is cheaper to run transactions on (lower gas fees) and it processes transactions at a much higher throughput. These apparent advantages don’t come without tradeoffs, and many market participants view Solana as anti-fundamentalist on the key principle of decentralization given that the SOL blockchain does not utilize an EVM. Its ludicrous scalability at the L1 layer relative to ETH is possible because Solana processes computation at the hardware level which naturally leads to less decentralization as the barrier to running nodes becomes hardware-gated.

Adding onto this fact is that Solana has major shareholders via the use of token SAFTs from early backers which as you probably guessed, are comprised of VCs. SAFTs are locked token stake accounts that vest over a given number of years categorically similar to equity stake contracts obtained from web2 funding rounds but in tokenized form, and often at ten or hundred multiples cheaper than the open market prices. The notion of having an “investor stake” in essential protocol layers for crypto seems like a ridiculous notion but it’s not something I want to dive into right now.

Adding to this is the empirical evidence that Solana has indeed gone offline multiple times and we arrive back to our question for this section: Why is there the need to fund/sustain additional L1s when everyone can help pool and build on ETH?

The one insight we can glean at this moment is back to SAFTs and the incentives for VCs to become founding investors. They are motivated to increase the value of their investments and hence need to continue supporting the development of their own protocols, not the majors.

It is my belief that Ethereum is largely abandoned by the broader VC community.

I posit 3 conditions for why from a VC perspective this is the case:

1. Ethereum has missed the window for compounding network effects

2. Ethereum has over-optimized itself as money

3. Ethereum network participants are not incentivized by sufficient opportunity

I can go further and bundle the 3 reasons ascribed above into a singular point:

Ethereum cannot capture the market at an acceptable rate.

Growth is the primary engine of valuations going up. The biggest earworm touted around crypto has always been about “network effects” and having sufficient critical mass to reach broad adoption - meaning, crypto becomes a standard in day-to-day life in some capacity. Ethereum has always remained a poster child destined to carry on a torch that Bitcoin has long passed that being the torch of reaching such critical mass.

Can old grandpa Bitcoin run smart contract code and replace the existing financial system? It’s much safer to bet on a new layer of digital infrastructure with ETH that can add or extract value from existing systems instead of backing the OGs aiming to replace gold or the dollar as Bitcoiners would dream.

However, such expectations don’t always guarantee a smooth delivery and as the years went on throughout several crypto boom/bust cycles there arose a sentiment that Ethereum’s many promises of shipping new upgrades to scalability and performance were nothing but vaporware and empty promises. This sentiment would further exacerbate with every new on-chain innovation being plagued by network bottlenecks.

It seemed our darling Ethereum was being outpaced by its own innovations, if this was to continue, then where was the growth? How do we increase the valuations of the future crypto economy we’d envisioned and promised when the base chain everything ran on was not performing well and not upgrading as fast as everyone had hoped? Beyond the early wave of crypto speculators, the worst-case scenario is convincing a new basket of developers, investors, and customers into an ecosystem where nothing actually worked as promised - we’d lose the momentum and would hence never achieve the network effect we’d dreamed of. This was unacceptable.

It was time for a paradigm shift.

I’ll skip a ton of historical stuff as this wasn’t meant to be a total recap of all the events that transpired since 2017. The main focus is the now - looking at the landscape of crypto and L1s from my perspective there is an ideological shift away from the traditional belief that a monolithic Ethereum would power all of “web3”, and instead, we are moving into what will be the new norm: a multi-chain future. One where not only tens but maybe hundreds of viable L1s can exist, all having a different set of tradeoffs given the blockchain trilemma but interconnected via bridges or omnichain protocols directly.

The narrative has already been changed, we will see the words “interoperability” and “composability” as the new focal point during investor pitches and VC thought leaders. I think the value proposition for this new narrative is very clear: If Ethereum cannot scale at a rate we are satisfied with, we can simply work around this by not relying on Ethereum at all. With nearly infinite funding coming from a flurry of investor interest it’s rather easy to compose new base chains in serving whatever purpose is needed whether it’s hyper-secure or high-throughput chains.

SOLUNAVAX is an abbreviation to outline the first three alternative L1s to reach general community acceptance within crypto (Solana, Luna, Avalanche). This itself is already a huge achievement given that veteran crypto-natives generally view all alt-chains to be shitcoin pump and dumps except Bitcoin and only recently Ethereum.

Does it matter that Solana shuts down from time to time and isn’t very decentralized?

Does it matter that Avalanche has ramping fees that may rival Ethereum if unchecked?

Does it matter that Luna has a stable coin that is backed by reserve assets purchased using itself?

The question to the three questions above is “not really”. I think it’s evident by now that crypto participants don’t really stand by fundamentalism or traditions that validate the concept of “web3”. Humans, after all, are driven primarily by self-interest first and laziness second. To face reality for a second I doubt the broader community actually wants to run their own nodes, manage wallets and seed phrases, or actually care if transaction finality is validated in a decentralized way as much be fast. I don’t see this as necessarily a bad thing as I believe overall that systems can be designed in such a way where the broader mission of crypto is pushed via the pursuit of self-interests much like the ideal state of capitalism. We’ve also progressed past the intention of having crypto as an alternative currency, there is so much more that blockchain networks can offer from providing real permissionless architecture - but that will be a topic for a different time.

My main point is the one demonstrable fact that speaks volumes which is that there’s nothing you can’t do when enough capital is being deliberately concentrated whether it’s attracting users onto a new chain via ridiculous APYs for farming/staking incentives or developers with mouth-watering grants.

The opportunity to make money will always be the best catalyst for the continued growth of these chains and many more L1s will continue to follow suit on a now proven model. For many new arrivals to crypto, there is now a strategic question of which network to begin with - a network with high fees, slow throughput and a community that has largely already made it financially or networks that will shower you with rewards just for paying them attention, filled with hungry folks that are in solidarity and looking to make their big break? I think the answer to this for most entrants will be obvious, humans are after all largely in the pursuit of their self-interests.

I have no doubt that crypto will continue capturing the attention of the world over the next upcoming boom/bust cycles as it always has. As a former Ethereum maximalist myself, I have since resigned my own belief in embracing this new multi-chain future as frankly, I see no stopping this narrative. VCs want their innovation, they want their returns in funding scrappy new startups.

Under the multi-chain future, the doors are now open to an infinite number of participants that can cater to every need. There will be more L1s, more protocols and more bridges to help connect everything all together neatly wrapped under the Markham of the “composable and interconnected ecosystem”.

The VCs will get their share of everything. There will be the continuation of the innovation march. There will be eternal market capture.

In this article, I refer to VC(s) to mean “Venture Capitalists” and bucket the term to mean any accredited individual or group getting opportunities to fund early-stage companies.

Ever since the implosion of ICOs as reliable funding vehicles for teams building in the crypto space (circa 2017), we’ve seen a fallback toward the traditional model of funding rounds for many of the current and upcoming prominent projects. While I won’t speak on the matter of whether VCs are yet again taking the majority of the pie, I do notice a trend towards their investing style and from reading a lot of articles on several of their involvement thesis that hints at the future they envision for the “end-game” of how blockchains are involved in our world - more particularly a multi-chain future.

I think it’s important to discuss how VCs are positioning themselves and the industry itself top-down. While the last statement may be bold I truly do believe crypto is at the stage where institutional money has enough weight to throw around and decide ultimately what lives and dies via capital control alone. We’ve seen the emergence of ETH-competitive L1s such as Solana and Avalanche arguably sole-championed by VCs into their current prominence. Their voices for better or for worse empirically has the ability to influence markets and how extended actors such as developers will position themselves.

Crypto VCs come in all shapes and sizes, we’ve seen VC firms have made a name for themselves as strictly crypto native firms such as 3AC, Multicoin Capital, and Paradigm. Firms that stem from tradfi such as Jump Crypto and Bain Capital Crypto, as well as extended investment arms of well-established entities such as Samsung Next, FTX Ventures, or Binance Labs.

Ultimately, do not be mistaken, VCs are not friends of the people. Their objective is first and foremost to generate a return on their capital - in any manner they deem necessary.

It is not my place yet to give a strong opinion on the presence of VCs. There has been debate as to whether they are a net positive or negative force in crypto and if they are fundamentally antagonistic to the mission thesis of crypto itself. However, one cannot deny the impact VCs have had in preserving and increasing capital flow into building the expanding infrastructure of crypto which makes it easier for all participants at the end of the day.

I can leave my thoughts as such: As long as VCs are incentivized to continue supporting the crypto ecosystem, they can be seen as a net positive force. Indeed this has been the side of supporting VC presence in the space and where my analysis comes into play.

The point I am attempting to illustrate is quite simple so I won’t waste time using long-winded setups. Why the hell are there so many L1s? Furthermore why the hell are more L1s being funded into existence?

I refer to L1s as “layer 1 blockchains” which compose of a core consensus protocol. The most prominent L1s traditionally have always been Bitcoin - the foundation of cryptocurrencies itself and Ethereum - built to introduce computational execution within a blockchain that Bitcoin was not originally designed for. Ethereum will be the focus of this article.

Given that Ethereum itself is Turing complete, has a clear scalability roadmap and has already grown substantially since inception in terms of real users, developer ecosystem, and organization. One might wonder why new L1s are even needed? At a glance, the baseline argument is that just like with Bitcoin there are flaws within Ethereum’s original design Vitalik Buterin did not account for and thus an alternative is needed to address them.

If we look at the closest competitive chain to Ethereum: Solana, the biggest competitive point is that Solana is cheaper to run transactions on (lower gas fees) and it processes transactions at a much higher throughput. These apparent advantages don’t come without tradeoffs, and many market participants view Solana as anti-fundamentalist on the key principle of decentralization given that the SOL blockchain does not utilize an EVM. Its ludicrous scalability at the L1 layer relative to ETH is possible because Solana processes computation at the hardware level which naturally leads to less decentralization as the barrier to running nodes becomes hardware-gated.

Adding onto this fact is that Solana has major shareholders via the use of token SAFTs from early backers which as you probably guessed, are comprised of VCs. SAFTs are locked token stake accounts that vest over a given number of years categorically similar to equity stake contracts obtained from web2 funding rounds but in tokenized form, and often at ten or hundred multiples cheaper than the open market prices. The notion of having an “investor stake” in essential protocol layers for crypto seems like a ridiculous notion but it’s not something I want to dive into right now.

Adding to this is the empirical evidence that Solana has indeed gone offline multiple times and we arrive back to our question for this section: Why is there the need to fund/sustain additional L1s when everyone can help pool and build on ETH?

The one insight we can glean at this moment is back to SAFTs and the incentives for VCs to become founding investors. They are motivated to increase the value of their investments and hence need to continue supporting the development of their own protocols, not the majors.

It is my belief that Ethereum is largely abandoned by the broader VC community.

I posit 3 conditions for why from a VC perspective this is the case:

1. Ethereum has missed the window for compounding network effects

2. Ethereum has over-optimized itself as money

3. Ethereum network participants are not incentivized by sufficient opportunity

I can go further and bundle the 3 reasons ascribed above into a singular point:

Ethereum cannot capture the market at an acceptable rate.

Growth is the primary engine of valuations going up. The biggest earworm touted around crypto has always been about “network effects” and having sufficient critical mass to reach broad adoption - meaning, crypto becomes a standard in day-to-day life in some capacity. Ethereum has always remained a poster child destined to carry on a torch that Bitcoin has long passed that being the torch of reaching such critical mass.

Can old grandpa Bitcoin run smart contract code and replace the existing financial system? It’s much safer to bet on a new layer of digital infrastructure with ETH that can add or extract value from existing systems instead of backing the OGs aiming to replace gold or the dollar as Bitcoiners would dream.

However, such expectations don’t always guarantee a smooth delivery and as the years went on throughout several crypto boom/bust cycles there arose a sentiment that Ethereum’s many promises of shipping new upgrades to scalability and performance were nothing but vaporware and empty promises. This sentiment would further exacerbate with every new on-chain innovation being plagued by network bottlenecks.

It seemed our darling Ethereum was being outpaced by its own innovations, if this was to continue, then where was the growth? How do we increase the valuations of the future crypto economy we’d envisioned and promised when the base chain everything ran on was not performing well and not upgrading as fast as everyone had hoped? Beyond the early wave of crypto speculators, the worst-case scenario is convincing a new basket of developers, investors, and customers into an ecosystem where nothing actually worked as promised - we’d lose the momentum and would hence never achieve the network effect we’d dreamed of. This was unacceptable.

It was time for a paradigm shift.

I’ll skip a ton of historical stuff as this wasn’t meant to be a total recap of all the events that transpired since 2017. The main focus is the now - looking at the landscape of crypto and L1s from my perspective there is an ideological shift away from the traditional belief that a monolithic Ethereum would power all of “web3”, and instead, we are moving into what will be the new norm: a multi-chain future. One where not only tens but maybe hundreds of viable L1s can exist, all having a different set of tradeoffs given the blockchain trilemma but interconnected via bridges or omnichain protocols directly.

The narrative has already been changed, we will see the words “interoperability” and “composability” as the new focal point during investor pitches and VC thought leaders. I think the value proposition for this new narrative is very clear: If Ethereum cannot scale at a rate we are satisfied with, we can simply work around this by not relying on Ethereum at all. With nearly infinite funding coming from a flurry of investor interest it’s rather easy to compose new base chains in serving whatever purpose is needed whether it’s hyper-secure or high-throughput chains.

SOLUNAVAX is an abbreviation to outline the first three alternative L1s to reach general community acceptance within crypto (Solana, Luna, Avalanche). This itself is already a huge achievement given that veteran crypto-natives generally view all alt-chains to be shitcoin pump and dumps except Bitcoin and only recently Ethereum.

Does it matter that Solana shuts down from time to time and isn’t very decentralized?

Does it matter that Avalanche has ramping fees that may rival Ethereum if unchecked?

Does it matter that Luna has a stable coin that is backed by reserve assets purchased using itself?

The question to the three questions above is “not really”. I think it’s evident by now that crypto participants don’t really stand by fundamentalism or traditions that validate the concept of “web3”. Humans, after all, are driven primarily by self-interest first and laziness second. To face reality for a second I doubt the broader community actually wants to run their own nodes, manage wallets and seed phrases, or actually care if transaction finality is validated in a decentralized way as much be fast. I don’t see this as necessarily a bad thing as I believe overall that systems can be designed in such a way where the broader mission of crypto is pushed via the pursuit of self-interests much like the ideal state of capitalism. We’ve also progressed past the intention of having crypto as an alternative currency, there is so much more that blockchain networks can offer from providing real permissionless architecture - but that will be a topic for a different time.

My main point is the one demonstrable fact that speaks volumes which is that there’s nothing you can’t do when enough capital is being deliberately concentrated whether it’s attracting users onto a new chain via ridiculous APYs for farming/staking incentives or developers with mouth-watering grants.

The opportunity to make money will always be the best catalyst for the continued growth of these chains and many more L1s will continue to follow suit on a now proven model. For many new arrivals to crypto, there is now a strategic question of which network to begin with - a network with high fees, slow throughput and a community that has largely already made it financially or networks that will shower you with rewards just for paying them attention, filled with hungry folks that are in solidarity and looking to make their big break? I think the answer to this for most entrants will be obvious, humans are after all largely in the pursuit of their self-interests.

I have no doubt that crypto will continue capturing the attention of the world over the next upcoming boom/bust cycles as it always has. As a former Ethereum maximalist myself, I have since resigned my own belief in embracing this new multi-chain future as frankly, I see no stopping this narrative. VCs want their innovation, they want their returns in funding scrappy new startups.

Under the multi-chain future, the doors are now open to an infinite number of participants that can cater to every need. There will be more L1s, more protocols and more bridges to help connect everything all together neatly wrapped under the Markham of the “composable and interconnected ecosystem”.

The VCs will get their share of everything. There will be the continuation of the innovation march. There will be eternal market capture.