I’ve written previously about how I think the market for crypto VC is trending in terms of how funds themselves find ways to bring value to get into deals and the way that they “differentiate” themselves. In this article, I will seek to expand on that explanation of differentiation, and then give my two cents on a) why there has been so much inflow into crypto VC in the past 2 years b) what the result of these inflows will be and c) why the crypto VC market will NOT trend like traditional venture capital has, towards the law of large numbers, and instead remain a decentralized game that (almost) anyone can play – provided that they “do their reading” (i.e. do the research).

First, the amount of capital that has flowed into the crypto/blockchain space in the last 18 months alone is astounding. There was $6.5Bn in VC funding for crypto and blockchain startups in Q3 of 2021, which surpassed Q2 of 2021, which saw $5.2Bn. In the first nine months of 2021 there was 3 billion in funding, with early stage deals (pre-seed, seed, and Series A) accounting for nearly 80% of that funding. There ended up being $30bn worth of VC funding for crypto and blockchain startups total in 2021, up 445.5% as of late December 2021. This may seem like a lot of money, so it may be hard to believe that 2022 looks like it’s about to break this record: 4 billion was raised in January for crypto startups - if the trend holds, nearly 50 billion will be the number for this year. In terms of subject matter, 10% of early stage companies are working on blockchain technology (at least as of 2021).

Why is so much cash coming into the space? The growth rate for crypto has been astounding, in terms of adoption/sheer number of users, but the returns are equally mind boggling: if you had bought an index of the top 20 cryptocurrencies by market cap in 2018 and held it today, you would have nearly 30x your money. Most (good) crypto VCs have mirrored the market with 20-30x returns - the outstanding ones, like Multicoin, which marked about 200x at their height, do much better. I’ve heard rumors that the average 19-year-old/Gen Z-er in the United States has a crypto wallet but not a bank account (have never seen this substantiated, but it wouldn’t be shocking). Nearly 13% of Americans own cryptocurrencies. In places like Southeast Asia, where P2E is common, playing games has taken the place of other forms of labor.

These are all the obvious answers. But I believe that there are more reasons beyond the basic understanding we all have that should likely be discussed because they are relevant to what is happening in crypto and underscore aspects of the space that don’t get addressed often enough.

At Iconic Holding GmbH, I specialized in building out a platform that would cater to emerging crypto hedge funds. The reason that the company - which had originally found success as an accelerator with its own adjacent venture capital fund, once the most successful in Europe focused on crypto, with a 94% hit rate - was moving into hedge funds (having already launched the first regulated index fund for cryptocurrencies) was because it was hoping to build out its place as a full - stack crypto asset management firm (this included launching ETPs as well). The thought was that as an asset management company, Iconic would be able to weather any downturn by offering strategies on the hedge fund side that would perform irrespective of a bull market. As someone who was tasked with selling these hedge funds (after finding them, doing due diligence on them, and then servicing them), the pushback I would always get was that if you had just made a directional bet, you could outperform the index, so the preference towards VC was enormous (and ultimately one of the major contributing factors for my making the jump this way), even in cases where the hedge funds would outperform the VC returns. Why? Because being a good VC is a skill and can be replicated, whereas trading vol or making one-off 18,000% trades wasn’t necessarily replicable, since the funds themselves are so young (as were the people managing them) and it’s impossible to know who is the best trader by sheer skill.

But what makes VC returns so much better than those of crypto hedge funds? We can’t overlook how nascent the infrastructure for crypto buying/selling/trading actually is. This Washington Post article focuses on how Binance, the world’s largest cryptocurrency exchange, often struggles to service individuals during high volatility moments and has not honored executing their trades as a result – perhaps invidiously. Meanwhile, crypto exchanges charge *ridiculously* high fees relative to their non-crypto fees, averaging .05-.2% of volume in trading fees (some exchanges charge as much as 5% to retail for purchasing and selling while offering discounts to institutional traders), and their aggregate profits equate to tens of billions of dollars a year. Since VCs have a near monopoly on the cheapest tranche rounds, and sell down the road to retail, who are charged such high fees upon buying and selling that unless an aggregate return threshold is met, they usually HODL - sometimes to their detriment. But the retail capital props up both centralized exchanges and the VCs that put money into the tokens that eventually get listed on these exchanges. (Where this retail money in a country where the average person doesn’t have 300USD to their name comes from is another question, but let’s assume crypto has grown in part thanks to the influx of capital to consumers during the pandemic.) And the exchanges can take all the profit they’d like (theoretically) because they never have to be open during times when they would lose the most money - since no governing authority ever really seems to take fault for them doing this (@ the SEC, where are you?).

It would seem rational, if we were indeed in a rational market, that market participants would notice this major “glitch” in the product and proceed to price the company accordingly. But Coinbase, an exchange I’ve used that even this time last year would not allow me to log in during times of high volatility, was somehow still worth 40 billion as of a few months ago (not as of the date this was first posted, 5/12/22). It rose to over 100 billion at one point, which could be because certain types of investors were looking for crypto exposure and this was their answer. But as the market grows, true competition will hopefully flush out the malpractice that is unfortunately so common. Let’s just hope that the same retail users - 70 million in the United States for Coinbase, for example - are more forgiving.

The larger point, here, however, is that people who have never sold out of their positions (VCs included), opting instead to go long, have made the most money. I can’t help but to believe that part of the reason for this is - wait for it - because there has been no truly great, reliable way to trade cryptocurrencies irrespective of OTC, which itself has had historically insane fees. If you can’t log into your Coinbase account during high vol times, why ever sell? If there were truly ways to hedge your bets in crypto with counterparties you could trust, average hedge fund returns would squash those of VC (or at least mirror them more closely). (At Iconic, we used to have hedge funds present us with two results when reporting their returns: what their returns actually were, and what they would have collected if Binance, [insert other exchange], etc. had actually executed their trades.)

The problem, of course, is that now there is so much inflow into VC that there are certain cryptocurrencies/companies that seem to be propped up by the VC money itself (and not much else). Subsequently assessing value for projects has almost gotten murkier, not easier, over time because the market doesn’t always reflect true value creation, just capital influx [this trend has required active rails of communications with OTC desks, market making desks, whales, independent traders, hedge funds, VCs that are hedge funds, VCs that have a large liquid book, and others, to parse.]. (In fact, the hope of some VCs is that with enough capital and resource aggregation, they will be able to “put lipstick on a pig” and dress up companies that otherwise would have been hapless in the days of good ole VCs who did nothing for their companies and sat on the sidelines.) In crypto, because liquidity events happen preemptive to the (full) product, not upon a company going public, we are seeing almost reverse capital markets in real time: tons of hype will be generated for a product before it gets its product-market fit, leading people to stake (read: provide liquidity), which adds to overall Total Value Locked, which sometimes tokenomics reflect almost 1-1, which leads to the product becoming insanely valuable before ever seeing a true user base adopt it. Over time, the liquidity may be pulled, which leads to a value loss. The benefit to this structure is that over time, the market can still read how valuable the product is due to hyper liquidity, but the downside is that early on in a product’s life cycle the price can peak and trough. But because there is no dilution in tokens, meaning when VCs buy tokens in pre-seed, seed, or Series A investments, they are buying literal percentages of the overall supply, manipulation is much easier and ownership is much less democratic - BUT returns are much higher than in traditional VC.

Many people have written about the institutionalization of the crypto space, and how big money is going to change how business is done. Even if this influx of capital DOES change the way business is done, I don’t believe that the same players that have dominated traditional VC - A16Z and Sequoia - or the ones that have dominated crypto VC - please see reference to the Five Families here - will have the highest returns moving forward.

Part of this is because of the sheer size of their funds: at 2.5 billion USD, A16Z can’t 200x their fund. They can’t even 10x it, a potential 5x may be possible. Same with and Sequoia (or Paradigm/DCG for that matter).

We all know about the law of large numbers with regards to venture capital. The more bets you make, the more unicorns you’ll be able to seed. And the vaster your network, the better your deal flow. (The general thought is that as more capital flows in, deal flow gets more professionalized and less collaborative, leading to more corporate, staid ways for funds to gain deal flow, whether by creating their own pipelines or being more secretive.)

But more money does not necessarily denote smarter money, at least not in crypto. The funds that seem to be doing the best by returns lately are the most decentralized.

There are various reasons for this. Crypto is a global business: American funds do not necessarily have the same hegemony or prestige that they used to carry. As cryptocurrencies trade 24/7, there necessitates a different work culture for the teams that end up being successful (read: East or South Asian teams seem to flourish as founders in this space, not coincidentally, partially due to 9-9-11 culture). Third, there seems to be a much more decentralized process to teambuilding - many teams are virtual first, multi-ethnic and citizens of several countries as an aggregate. The traditional demaractors of a good team (a famous VC in the Valley once said his best investments were “white, male, Harvard dropouts”) have dropped by the wayside, as have moats and other hallmarks of traditional VCs. Welcome to crypto, where the only things that truly matter are execution, hustle, and the ability to build community and brand in tandem.

Subsequently, some of the best deals come from far reaches of the Earth that traditional VCs would never bother entering. A great example of a decentralized DAO that has sourced some of the best deals - and has the best returns for a debut fund that I’ve ever seen in crypto, having made 30x in the past twelve months - is Global Coin Research, led by Joyce Chang.

What can we learn from her success? What is she doing that other VCs aren’t? For one, Joyce has 30,000 subscribers, many of whom share deal flow and do due diligence as well as deal closings on behalf of the DAO. They also build out their own research and have pipelines to be full service value-add businesses. With 40 employees and 16 investments, Andreseen’s crypto network couldn’t touch hers (assuming founding teams of 5 people, who each bring their own network of roughly 200 independent people). She’s also starting to incentivize the users with tokenomics that payout 15% carry/percent of profit if DD on a deal is done, and tokens for the finding of the deal itself. With the token, she is able to employ a team of 20+ people.

We can’t help but to believe that the next great founder will be found by a wide ranging network of individuals who would never get hired at a white shoe fund.

In a follow up to this article, I will be trying to further discern what Joyce’s group can do that A16Z [insert other large fund] can’t, how the process for crypto VC is different from traditional VC such that it’s nearly impossible to capture value and an understanding of the market on a 6-person team basis, and whether or not (and if so, how) this trend towards decentralization been reflected in the current state of VC. ** **

Cheers!

A new zeitgeist has arrived in the first score of the 21st century, dissolving digital boundaries erected in the information age and birthing what may be remembered as “the age of decentralization”. Cryptocurrencies triggered this paradigm shift by introducing a universal economy decoupled from national governments. Of course, economies are much more than just currencies and also include sophisticated orchestration of resources and human labor. Thus naturally, cryptocurrency will soon (and already has begun to) influence these other critical economic factors. A particularly interesting evolution underway is the transformation of structured human labor from institutions and corporations into decentralized autonomous organizations (DAOs).

First, what is a DAO?

DAOs are internet-native communities that share a mission and a balance sheet. DAOs can represent a wide spectrum of communities from  large  companies, non-profits, academic institutions to small clubs, sports teams, and special interest groups. In the context of companies, DAOs may also share ownership of the product or service that is created. Already in the tech industry, DAOs are beginning to evolve how humans work, transitioning the workforce to be more decentralized and the workplace to be more distributed. Some modern workforces find DAOs attractive because they place automation logic at the core of operations and humans at the edges, maximizing their time available for creative, intellectual work. Others are attracted to the shared ownership construct bearing similarity to traditional worker cooperatives. Regardless of the reason, it is clear that DAOs are growing in popularity with thousands of DAOs existing today compared to only a handful in 2017. This is only the beginning of a new chapter. As with any new frontier, there are new challenges in this space which beckon for novel tools to solve them. The digital nature of DAOs is placing a high demand for their existence, and especially on the development of innovative software tools. In the remainder of this article, we explore software tooling for DAOs, and assess how venture capital can play a role in cultivating the advancement of tomorrow's decentralized workforce.

Tooling for the decentralized workforce

While the DAO software tooling landscape is still very much in its nascency, some clear categories are beginning to emerge. To bring reason to this landscape, it's cogent to first consider how DAOs have been formed historically (and organically) - on internet forums, email lists, chat groups, and social media. At the root of any human coordination is some form of communication. (Sean Parker once said that communication was the largest market on Earth, and we would wholeheartedly agree.) Thus, the clearest, and perhaps most mature, category in the DAO software tooling space is communication tools. The next clearest category, stemming from the intimate relationship of DAOs and cryptoeconomics, is that of multi-party, digital asset management. Other blossoming categories include governance, administration, product development, community management, and project management. Some technology solutions in these categories today have simply repurposed existing enterprise software with web3 integrations, while others are building completely new software from the ground up. Next, we will summarize these categories and highlight specific efforts currently building solutions in these areas.

Communication tools are essential to any organization's success, and DAOs are no exception. DAOs have largely utilized existing group messaging apps (e.g. Telegram, Discord, Slack, even text) and forums (e.g. Discourse) for community discussion due to each’s convenience and low costs. Still, extending these platforms onto blockchains is an active area of development for DAOs. The future of communication platforms for DAOs will build better bridges to blockchain networks, and offer new user experiences such as pseudo-anonymity, direct value transfer, and verifiable content credibility.

DAOs have an incredible aptitude for raising capital exemplified by TheDAO's ~$50M raise during a couple of weeks in 2016 or the recent ConstitutionDAO ~$47M raise over several weeks in 2021. However, once funds have been raised, DAOs face the challenge of monitoring and managing these funds. With currently over $10Bn worth of assets under management in DAO treasuries today, asset management is a sector that has become increasingly pertinent and will likely see further growth. Projects in this category include dashboard analytics, multi-sig wallets, grant providers, and contributor payment systems.

The frameworks/development category encompasses the wide spectrum of tooling ranging from product infrastructure support to  developing the DAO itself. Early projects like Gitcoin provided freelance marketplaces to match skilled talent with DAO and protocol needs. Now, specialized services exist for smart contract development, DAO scaffolding, web development, and more.

The project management category consists of tooling built to enable frictionless collaboration and work autonomy amongst the decentralized workforce. These tools generally take the form of web-based project trackers, task boards, gantt charts, etc. Successful development of these tools for DAOs must consider additional web3 design  constraints such as user-controlled privacy and verifiable credibility. An under explored regime is explicit design for mobile and deskless workers.

How does one onboard onto or offboard out of a DAO? How are contributors recruited and compensated? How are formal relationships with other businesses or DAOs handled? DAOs must solve these and many more administrative-type problems.  DAOs can rapidly grow from small group chats to thousand person teams, so these solutions need to be adaptable and scalable. New administrative tools will help community managers maintain in close touch with internal and external community members on a variety of platforms through fewer channels.  DAO onboarding systems will need to optimize balancing both accessibility and selectivity to attract strong, diverse talent. Encoding contributor quality and integrity is a growing trend that may help establish robust and universal methods for membership processes. For example, there is current development of decentralized identity (DID) and verifiable credential protocols that will improve integrity in the ecosystem and maintain contributor privacy.

Decentralized governance has garnered much activity since the advent of Decentralized Finance (DeFi). Some early pain points for DeGov have been prohibitive gas-costs for voting, lethargic proposal processes, and cluttered forums. Several young projects have spearheaded tackling these problems, but have only scratched the surface of this glacial domain. This space can be expected to have an importance (to be as important or as significant) as mighty as any governing body in a sovereign nation state. DAO governance will be a vital source for important information impacting consumer-facing applications and invested financial traders. Verifiable and confidential governance can have vast applications on many different levels and corners of society. Tooling in this arena thus has the potential to attract high attention (DAU and retention) from a diverse set of user bases including national governments.

A new opportunity for venture capital

The budding DAO ecosystem is in a vibrant and exciting phase. The creative DAOs forming today are eclectic, open-minded, and intelligent with a high enthusiasm to build and ship. Whether this energy dampens, only time will tell. We do know that many stakeholders are vested for at least 3-5 years which is a long runway for software applications to innovate. With the advent of innovations in the DAO ecosystem, DAO operations will likely never reach a one-size fits all solution which means DAO software tooling will have continual demand and opportunities for growth. DAOs will always be faced with the decision to build or buy services they need. We can thus expect several forms of relationships to manifest in this market: traditional businesses may service DAOs (B2DAO), DAOs may provide products and services to businesses (DAO2B), or DAOs may service other DAOs(DAO2DAO). This presents a fertile market opportunity particularly for VCs with experience in B2B SaaS. While the terrain of DAO tooling is certainly unique, many landmarks and obstacles are similar to those encountered in B2B SaaS within the last 5-10 years. With a lot of the same infrastructure being used ( cloud computing, personal computers, mobile, etc.) VCs with knowledge of B2B SaaS can quickly pattern match trends and make reasonable predictions about the potential growth of this market.

Another interesting growth factor to consider beyond the crypto-native interest in DAOs, is the transition of global workforces to deskless, digital, and remote domains. Today, 1/7 jobs are remote (½ in the U.S.), freelancer/contract-based work increased over 20% for small and large companies between 2019-2020, and the Covid-19 pandemic has incited 'the great resignation' in the U.S. as workers leave legacy companies seeking  more independent and flex-work alternatives. Human labor is evolving into a 'satellite' workforce, where individuals work remotely orbiting their workplace from their computer or mobile phone. It is possible that DAOs witness an influx of interest from this new demographic of satellite workers that find favorable work within decentralized communities.

Lastly, aside from the market opportunity for investing in DAO tooling, VCs should still take the time to understand DAOs because of their potential impact on the VC industry itself. DAOs and VC firms have a lot in common considering that the majority of DAOs have operated as investment vehicles. DAOs already have hinted at a product-market fit in regards to mission-driven fundraising and capital deployment. DAO-based VC firms are already forming, like Seed Club or The LAO, and traditional VCs wishing to invest in the DAO space may consider embedding themselves deeper into the ecosystem to remain relevant and competitive.

I had written before that I think that there are three silos of funds: Brand Funds, Specific Value Add Funds, and All-Purpose Service/Value Add Funds (usually begun and continued on as Incubators and Accelerators), and that the type of funds that would come to dominate were the funds that could become “full stack VCs”, i.e. service their investments on all sides and in all stages of their businesses. This is not necessarily false, but the structure of these kinds of full stack service funds is important to note and is going to be the topic of this article.

We discussed funds that were brands unto themselves for being vintage (or “first” rather), and then funds that developed marquee brands for being smarter (Gumi Cryptos is a great example). Since these funds tend to be brands unto themselves, they attract deal flow without having to be reciprocal in sharing it.

Then there were value add funds that focused on one specific way to bring value to their companies, and others that were full stack. It seems like for every three specific value add funds and for every all-purpose value add, there is (at least) one decentralized alternative. If LedgerPrime, Coral Capital, Alameda, GSR, Jump, Efficient Frontier, Spartan, Wintermute, Blocktower, and CMS were all the best market makers to partner with out there, then DxDAO, which specializes in bringing liquidity to its partner projects, is an interesting decentralized alternative, as does Neptune DAO. (On that note, decentralized finance is a silo that has popped up, but most of the funds that are the biggest value adds there tend to be market making firms.)

There is a new female focused fund that is coming onto the scene; perhaps it will mirror its decentralized predecessor, Komerebi DAO.

For every NFT fund that has popped up, there is a DAO that has specialized in buying them as well. Now that there are centralized funds focusing on NFTs (SFermion, as mentioned previously, but more recently Red Pill Ventures (NFT collector Mike Dudas’ new fund) and Kevin Rose’s new fund, it feels remiss to not mention the decentralized funds (read: DAOs) that have been collectively investing into NFTs all along - and may even serve as a better option for investment purposes. NoiseDAO specializes in buying sound and music NFTs, Flamingo DAO focuses on collecting metaverse-themed art, and PleasrDAO doesn’t necessarily seem to have one central focus, instead acquiring an unreleased Wu Tang Clan album and the original DOGE NFT meme. On the collector side,  The One DAO wants to buy the largest house in the world and the ConstitutionDAO attempted to buy a copy of the U.S. Constitution. Even Links DAO is attempting to buy a golf course for its members.

I had mentioned metaverse funds as being a specific silo, or focus, of certain funds, including  Galaxy Interactive, Gemini’s metaverse fund, Metaversal, Republic Realm (which has rebranded to Everyrealm), and Haun Ventures. I meant to add Animoca Brands, which wants to be the Berkshire Hathaway of the metaverse, and has a super aggressive investment arm at all stages of the business. But what I didn’t mention were the countless decentralized counterparties to these: NeonDAO invests into metaverse companies, Corby Pryor’s new metaverse investment DAO does the same, PangeaDAO - a first-of-its-kind a metaverse land cooperative, is acquiring land in the metaverse for its members to make sure that real estate there is democratized (not unlike AxieLands NFT and Landworks). There are other metaverse funds for in-game assets as well. (You could even argue that buying into gaming guilds, which are buying game assets, is another form of subscribing to a fund that focuses on those types of NFTs).

I had mentioned several funds as a focus of geography, but only included East Asian as the focus (mostly Chinese/Hong Kong-based: Folius Ventures, Sky9 Capital, OP Crypto, GBIC, Hashkey, C Squared, SkyVision Capital, Spartan Group). In fact, there are several funds that focus on a variety of locations around the world. Hashed and A21 Crypto are Korean-based but globally focused. Ledgerprime had first focused on Southeast Asia as part of their mandate. As for India, they remain relatively underrepresented: the only two that I know of are Woodstock Fund and LightShift Capital. I don’t currently know of any funds focused on Latin America or the Middle East.

As for which funds are truly global, with outposts in various countries and the foresight to do geographical arbitrage not unlike Yuri Milner’s DST Global is Whitestar Capital, with nearly ten global offices and over 30 employees.

There are even law firms that are opening up their investment arms to invest into these kinds of startups, not unlike law firms currently do with traditional venture, to offer their legal advice as value add services. Horizon Law, Marin Capital are examples. Sino Global is said to be focused on regulatory / legal arbitrage.

I had mentioned funds that were focused on specific ecosystems as value add funds as well.

DOT has Hypersphere and Parity, Cosmos has Tendermint (rebranded as Ignite), Terra has its Terra Ecosystem Fund. Avalanche has several ecosystem funds. Algorand’s Borderless Capital (and Valhalla Capital), Zilliqa’s Zilliqa Capital. Solana’s Solar Ecosystem Fund, Solana Foundation, Evernew Capital. Near has Metaweb VC.

Grants programs as well: Polygon, Flare Network, Uniswap, and now OpenSea as well as Gitcoin, etc. Uniswap actually just launched their own venture fund, led by my genius former Columbia classmate Teo Leobowitz, and the founder of Uniswap, Hayden Adams.

Exchanges that have their own investment arms or adjacent funds - I had mentioned Coinbase Ventures previously, and Huobi Ventures, but we should add Kraken Ventures here for good measure - now have ByBit DAO to contend with, the DAO spun out of ByBit exchange, which dwarfs them in terms of usable capital: 2.1 billion USD. Other venture DAOs include: the Lao and MetaCartel.

Community is another silo that I did not mention last time. Koji Capital focuses on cultivating community for its projects, as does Framework VC, whose thesis is almost exclusively decentralized finance focused. Israeli Blockchain Association, which also invests, is a great community creator. 0xVentures DAO, which I had framed as a full stack DAO in my previous article, also does tons of community building on behalf of the founders as well.

Marketing, which is tacitly different from community building, is a value add that especially younger teams need (and appreciate). For example, vaunted investor Shima Capital is extremely well known for their ability to do business development on behalf of their portfolio companies and the ability to market their investments on Twitter, and through various events that the team there always populated. Yida Gao, the firm’s founder, even teaches a class at MIT where he had everyone from Vitalik Buterin and Alex Mashinsky as guest lecturers. I spoke to one of their portfolio companies who had said that after investing, Yida had made 3 business development intros for him the first 30 days after investing. As I mentioned before, IDEO Co-Lab specializes in helping founders design their products and marketing materials as well as Twitter presences.

I had highlighted Electric Capital’s research as being truly value additive such that people saw it as one of their main competitive components. It’s worth noting that Global Coin Research, a decentralized do-it-all venture hub, also publishes its own vaunted research that everyone relies on.

LP bases are even sometimes value add, or the person who owns/started the family office the particular investments come from. Eric Schmidt’s Steel Perlot is starting to make investments in the space and is said to be starting their own incubator. Some investors are celebrities in their own right, or married to ones: Alexis Ohanian’s latest fund is said to be focused on crypto/blockchain. And Larry Ellison’s fund, Quiet, has already made several strategics in the crypto space. Sabrina Han’s new fund is said to have celebrity LPs that would love personal exposure to the teams themselves (if Moonpay’s latest celebrity fundraising round is any signal, it seems like more and more celebrities want access to crypto deals and are willing to invest either individually or by way of funds).

Sometimes the LPs or the GPs of the fund are also bought into OTHER crypto funds, which they see as a way to gain deal flow. L1 Digital is an LP in dozens of funds (as they double as a multi-manager platform) and finds it easy to gain first look at everything because of this.

Funds that run validators as their main value add are also popping up, either as ancillary to the staking businesses that they work with (Figment has a VC), or independently: P2P and Everstake.

Other large crypto companies have VCs as well. Terrawulf, the large mining firm, has a VC, and HUT8 does VC as well, both focus on strategic infrastructure investments but also all purpose early and late.

I mentioned the last category of fund last time, All-Purpose Value Add Funds, but didn’t truly separate them by decentralized/centralized. Many of these kinds of funds were started as incubators or accelerators, or still function this way as an extension of being value additive along the way. Consensys’ Ethereal Ventures, Thesis, Delphi Digital, and Advanced Blockchain AG. Longhash VC, and Alphabit are Asian accelerators.

The fascinating trend of incubators and accelerators is that many of them are becoming more and more decentralized. I had mentioned Yunt Capital, 0xVentures DAO, and New Order DAO as examples of decentralized organizations that were able to do full service value add stuff. But I didn’t mention Defi Alliance DAO, or Global Coin Research. There are now several incubators and accelerators that are decentralized, too: Kernel0x, Seedclub, and more.

In fact, because it’s harder and harder to prove value add at certain funds, virtually every fund or family office I know is launching one: Spartan Group, Nima Capital, just to name a few.

If everyone is starting to incubate, and if incubation is moving more and more towards a decentralized future, what will become of funds?

We honed in on Joyce’s GCR in our last article because we truly believe in the law of numbers.

Unfortunately, Nobel Laureate Paul Krugman is no exception. Some of you may have seen Paul Krugman’s op-ed in the NYtimes that was published on January 27th about how crypto is the new subprime. I wanted to focus on dissecting the article itself as there are a number of deeply misleading remarks by Krugman that should be addressed, and to spend time giving my own anecdotal evidence about this business to counter most of his points.

Let’s begin with an analysis of what Krugman is saying (and why it’s wrong).

To answer his own rhetorical question – “What’s this crypto thing about?” - Krugman turns to payments (and then proceeds to denigrate payments as the use case for crypto). This in and of itself is wrong. There are various use cases for cryptocurrencies, and payments is but just one. We can discuss the efficacy of the payments use case a bit later, but I wonder what Mr. Krugman would say to those who are using the Reserve stablecoin to make payments for basic things like groceries in Venezuela and other Latin American countries where the currencies have encountered such bad inflation that many citizens have turned to alternate currencies. Don’t get me wrong, I don’t totally disagree with Krugman about the payments use case being shoddy in “stable” [whatever that means] countries like the United States. Yet as someone who used to live in China (and sell bitcoin there), I was happy to use cryptocurrency as a payments mechanism when capital controls inflicted onto my bank account would not allow me to dine at fancy restaurants where the cost of the meal may be several times what I was allowed to take out that day in renminbi from my bank. Nevermind the fact that when I was forced to leave the country due to COVID, my only hope of exchanging the rmb that I had in my Chinese bank was to use my former employer Eigen Capital’s OTC desk to swap it for BTC/stablecoin.

Let’s focus on the base inaccuracies in what Krugman says before delving into other use cases he must have forgotten (or ignored, or never bothered to learn). He says that one of the main differences between “mainstream payment schemes” and cryptocurrencies is that these mainstream schemes rely on a third party, like “your bank” to “verify” that you actually own the assets you’re transferring whereas cryptocurrencies use “complex coding” to do the same.

This is both true and false simultaneously.

First, cryptocurrencies do use “complex coding” to do away with third parties. Albeit whether or not we can call these lines of code “complex” is up for debate. In fact, it’s just one line of code that checks whether or not a trade in a decentralized protocol (I’m using AAVE here as an example) can occur based on the wallet’s balance:

function _calculateAvailableCollateralToLiquidate(

You can see these docs: https://etherscan.io/address/0x987115c38fd9fd2aa2c6f1718451d167c13a3186#code#F11#L147 https://docs.aave.com/risk/asset-risk/risk-parameters. Most code in cryptocurrency for very complex procedures is not very complex at all: the code for an atomic swap can run about fourteen lines long (if written in Golang – I know this because I’ve written that code) - for reference, this is insanely short for a computer program - and the Bitcoin whitepaper’s genesis block for bitcoin was seven lines of code in C. It feels as though Krugman is trying to position the lines of code that underpin most of these trades as some sort of mysterious AI/robot that others can’t see, which is false. All of the code that underpins these protocols is open source and available for those to read (see docs above or the image below).

In fact, lending in cryptocurrency markets (at least with regards to decentralized finance) is INFINITELY safer than other kinds of lending (in traditional markets) because it relies on a concept called overcollateralization. Before getting debt for your cryptocurrencies, you must usually put 125-250% up for collateral for the currency you’d like to receive. This is wildly controversial in crypto BECAUSE it is seen as less egalitarian and more inaccessible for others to get the same loans. (Imagine going to buy a house and needing 1.5x the assets, and then needing to put those up as collateral to receive it.)

Second, if you’re trading on centralized exchanges you have to have a bank verify that you own the assets you’re transferring because you need a way to get cash into the exchange to buy the cryptocurrency you’re buying. So Krugman is wrong to assume (or intonate, as we can’t be sure of his actual assumptions) that all cryptocurrency interactions don’t need a bank verification. How else would people be able to buy the cryptocurrencies in the first place?

It’s also wrong of Krugman to assume that having a bank as the verification method for payments is the best way to ensure that people won’t buy things they can’t afford. For example, credit cards, which use banks as the verification method for the user (alongside FICO scores to evaluate which interest rate to give people), have kept Americans in terrible debt: the average American has $16,425 in credit card debt and 40% have less than $400 in their savings account. College loans are another example of people being allowed to take out debt for something they don’t have the assets for: 30% of adults have some debt from attempting to go to college but never finishing. Nevermind the affordability crisis of homes and healthcare (how many people do you know have gone into debt to pay medical bills, or own a home they can’t afford?).

By asking “what’s this crypto thing about?” and answering with only payments as the answer is woefully ignorant. Not only are cryptocurrencies used as a payments rail, their biggest use cases are (usually) totally different (and myriad). According to Cathy Woods, decentralized finance scales more efficiently than traditional finance; stablecoins have fueled trading, lending, and payments; Decentralized Autonomous Organization have enabled novel forms of coordination and governance; NFTs are a new type of active entertainment; and Play-to-Earn is enabling new forms of labor. (Not to mention the new types of financial instruments that are being invented.)

A few paragraphs later, Krugman states that: “crypto ends up being an awkward, expensive way to do things you could have done more easily in other ways, which is why cryptocurrencies still have few legal applications 13 years after Bitcoin was introduced”. This is also false (perhaps not with regards to payments, if we were using Ethereum the gas fees would make it more expensive): the true reason cryptocurrencies have “few legal applications” is BECAUSE regulators have not built the legal infrastructure to properly regulate these types of currencies - when they are used as currencies and mediums of exchange (and in other use cases, but mainly those). While it’s certainly true that Venezuela has likely not made the use of stablecoins legal, there are merchants that happily accept Reserve in the country. In fact, stablecoins are now the biggest remittance tools (despite not being regulated), mostly in SE Asia, where - you guessed it - they remain unregulated.

After having been pressed for years and years (and years), the SEC has set forth barely any guidelines on tokenization and the general blockchain space, preferring instead to give the absolute lightest wrist slaps to those who did unregulated token sales (does anyone remember EOS’ minuscule $24 million USD fine for hosting the largest unregulated token sale in the history of token sales?). In the face of ambiguous regulation, amazing innovation will continue to occur regardless.

The most arrogant turn of the article occurs when Krugman says: “so crypto has become a large asset class even though nobody can clearly explain what legitimate purpose it’s for.”

Perhaps he has not read the dozens of books about cryptocurrencies that discuss its copious use cases (i.e. Andreas Antonopolous’ and Safidean Ammous’ books), investigated the boundless use cases of new companies in the space, listened to amazing interviews with great investors in the space, or become a client or crypto himself, but many people are explaining what its purpose is for. Unless Mr. Krugman is living under a rock (not possible, as I’ve seen evidence of his living room in Princeton in past interviews), he must totally misunderstand how the crypto world works or purposely not expose himself to it.

The more concerning part of Krugman’s op-ed are the racist (and ultimately prejudicial) undertones of what he’s saying about who are going to be “the biggest losers” in the crypto space. He believes that minorities and lower income individuals are going to be burnt by crypto in the way that they were during the housing crisis. His main evidence is a study he cites that says:

“According to researchers from NORC, the average cryptocurrency trader is under 40 (mean age is 38) and does not have a college degree (55 percent). Two-fifths of crypto traders are not white (44 percent), and 41 percent are women. Over one-third (35 percent) have household incomes under $60k annually.”

From this description, we can see that the average crypto trader looks a lot like….the Average American. For example, the average American does not have a college degree – only 37.5% above 25 years of age do. As I noted previously, nearly ⅓ of adults have debt from attempting to go to college but never finishing. Lastly, the study states that: “Over one-third (35 percent) have household incomes under $60k annually.” While most Americans are white (about 60% according to this Washington Post article, or precisely 57% according to the latest census taken in 2020 - which is controversial because it classifies Middle Eastern individuals as white), the average income for an American is under 60k.

Let’s go through this descriptor of the average crypto trader piece by piece to understand why Krugman’s alarm about who owns cryptocurrencies is unfounded.

First, assuming non-college educated investors cannot understand cryptocurrency is classist and elitist (at best). Some of the best traders I know dropped out of college because - wait for it - they were making too much money trading crypto.

I even have savvy friends that are avoiding sending their children to college at all (highly educated and very wealthy individuals). This past weekend, I dined with an investor friend at a crypto conference who confessed he is not sending his 18 year old to college next year, but instead to spend years learning how to code and working at his different friends’ hedge funds and PE firms. David Johnston, one of the greatest cryptocurrency investors of all time,  didn’t go to college. I sat with him this past weekend at the conference, so naturally a discussion of why occurred. “Because curriculum based learning doesn’t work.” Fair. In fact, in tech, it can be seen as a badge of honor to attend college but never finish. At a private dinner for cryptocurrency investors last week, a friend of mine (the great Adam Winnick) made a joke about how going to Harvard had become a double-edged sword: if you attended Harvard and hadn’t dropped out yet, people would start to ask why.

It’s true that the social capital that comes with education cannot be ignored, nor can the fact that social and financial capital are closely intertwined, creating another reason that social mobility is nearly impossible in this country. Education costs more than ever, and yet it remains a bastion for higher pay: people with undergraduate degrees make 60% more than their high school graduate counterparts and those with graduate degrees make 21% more than those with only undergraduate degrees. Salaries tend to be determined by age 25, which puts an undergraduate education — and the two years that follow — as the main demarcator for professional advancement. The twenties are where the most career and salary growth happen mostly due to a phenomenon called weak ties, in which your broader social network ends up shaping your future in unforeseeable ways . For the less privileged who have to take their coursework part-time to work while undergraduates, the negative effects on their career could be enormous. And it should be noted that the wealthier a young professional’s family, the more resources to put towards their career — it’s these graduates who go furthest. Mentors matter too, more than internships/relevant professional experience; and job placement can be traced to who you know: 70% of job offers go to someone who knew at least one employee at the company.

It’s true that college is important for social mobility. But is it important for the actual learning of relevant information to your career, and does it indicate IQ? Only 27% of people ever actually have a career in what they majored in. And many graduates can get by without being particularly intelligent. If college is worth anything, I think it’s worth it if only to meet other smart kids. [Thanks Zak Hap for introducing me to crypto!] But assuming that somebody that did not go to college cannot make investment decisions for themselves is absurd, because, like we mentioned previously, the average person in this country did not go to college. Unless Krugman thinks the average person shouldn’t be investing (and aggregating wealth for themselves in the process), which is classist and immoral, what he is positing doesn’t align with the data (and, quite frankly, makes no sense).

Second, the fact that many crypto traders aren’t white (44%) is not necessarily alarming (in fact, if you look at the spread for white Americans versus minorities in the aforementioned Washington Post article, it’s virtually identical give or take 12% percent, or a few percent, depending on how White is defined). How is he to know that these individuals are the ones that have lost (or will lose) money? Most of my friends who have made fortunes in crypto are minorities (myself included). As a woman who counts as a minority on the census, and who has never lost money trading or investing into cryptocurrencies, I take special offense to Krugman’s comments. I’ve built generational wealth for myself. And yes, I’m highly educated and have a high income. But I would never have been able to build the kind of wealth I’ve managed to build for myself - especially not in the time frame I’ve done so, either - in a traditional financial path. Why? Because I never would have gotten a job as a banker. Why? Because I didn’t have anyone at any bank to get me a job - despite being credentialed and highly educated [see the statistics above about how graduates really get their jobs]. (And if you’re going to ask me if I thought college was worth it - with the exception of my meeting Hap, no, I wouldn’t hire the vast majority of individuals I went to college with and most of what I learned did not prepare me to have a career in an industry that did not yet exist.)

My situation isn’t new. Minorities are outpacing non-minorities in many areas of life, including income (and educational levels, and other areas, but let’s focus on income). For example, Asian Americans now make more money than white Americans, and the top 5 specific ethnic groups in terms of income are as follows: Indian, Taiwanese, Australian, Filipino, and South African. Having been in this business for years, I’ve seen high-income white (mostly) men lose fortunes, and not just in the form of bad trades (don’t forget your keys, kids!). (And if there were a specific race that seems to have done better than others, from my own experience it would be East/South Asian Americans/non-Americans.)

Trying to say that minorities who lost their homes in 2008 because they were given loans they never should have been given by banks who did not do their due diligence are going to be the same people who lose money in crypto, or are going to be hurt just as badly as they were in 2008, is comparing apples to oranges. You can recover if you’ve put your 399 USD in life savings into a bad crypto trade, but buying a house with 3% down is going to be a problem when you lose your job and can’t pay the mortgage. You won’t have anywhere else to stay. (He alludes to this by explaining that crypto is a smaller asset class than mortgages, but it’s worth highlighting again.) The upside to owning a house is having a place to live, but the upside of having put 399 USD into bitcoin in 2012 is infinitely higher. Which would you choose to do if you could make the choice?

Third, the study states that 35% of crypto investors make less than 60k a year. I wonder why Krugman thinks this is an issue. The vast majority of millionaires in the United States never made more than 60k a year. Who is to say that those making less than 60k don’t have wealth or haven’t been able to aggregate it? My income statements from tax returns dated to a few years ago would look similar to your average millionaire next door. (Maybe we do live in an age where the Retired Janitors of Idaho could decide the shareholder vote better than our plutocratic executives can.) In fact, the people with bad credit tend to be high income earners. In his book “Millionaire Next Door”, Thomas J. Stanley goes into depth about how most people who make high incomes don’t capture the value from that wealth because they’re too busy spending all of it instead of investing it.

It’s also hard to track who actually owns these cryptoassets. Many crypto investors don’t report their gains and tons of crypto is stored in hard wallets that utilize cold storage such that nobody else can know their whereabouts or contents.

Krugman ends his article on a pessimistic, prejudicial note.

“But these investors should be people who are both well equipped to make that judgment and financially secure enough to bear the losses if it turns out that the skeptics are right. Unfortunately, that’s not what is happening.”

A great foil to Krugman’s comments are those of Cathy Wood of ARK invest. In her latest update, she focused a lot on blockchain:

“All money and contracts could migrate to open-source protocols that enable and verify digital scarcity and proof-of-ownership. The financial ecosystem could be forced to reconfigure to take advantage of the capabilities these technologies afford, potentially leading to more transparency, fewer capital and regulatory controls, and significantly lower contract execution costs. More of everything could become money-like: fungible, liquid, quantifiable; every corporate entity and consumer will have to adapt corporate structures might be called into question, every sector could be impacted.”

I can’t wait to see how else the blockchain space impacts our world!

Whenever I think about who has had traditional success in crypto primitives, I always think about a great scene in a wildly underrated film called “Margin Call”. In what can be described as one of the most titillating parts of the film (because it’s supposed to mirror the reality of Lehman Brothers pre-2008), Jeremy Irons, who plays the big shot CEO who knows nothing while at the same time knowing the most important thing - that the market will tank before it does - tells his associates “why [he] earn[s]  the big bucks”.

“What if I told you that there were three ways to make a living in this business?” he asks the room rhetorically.

“Be first. Be smarter. Cheat.”

This heuristic can be applied to most of the crypto funds that you’ve probably heard about (with a slight modification). However, there is a new framework for understanding these funds that we will also merge with these three categories. As Advanced Blockchain AG Head of Operations Richard Malone so eloquently put it, there are three basic categories for funds today: Brand Funds, Specific Value Add Funds, and All-Purpose Service/Value Add Funds (usually begun and continued on as Incubators and Accelerators). I will add some nuance and sub categories to further elucidate these Types.

You can think of those that came First as being Brand funds. They have their roster, they have their Big Shot Investors Making a Name for Themselves, and they have the LP base that will stay forever. Everyone knows who they are. To get investment from these funds would be equivalent to attending an Ivy League university, having the most exclusive of all Birkin bags, owning a Bugatti, or [insert other status symbols]. These Brand funds become self fulfilling prophecies: when other funds hear they are investing, they fight to get into these deals and consequently bring a panache that did not previously exist, which in turn brings more resources and becomes a network effect. (This isn’t a new phenomenon and happens in traditional VC as well.)

Brands are important because, like stereotypes, they are often steeped in reality. But they aren’t everything. If there is any critique to be made of Brand funds it’s that they can sometimes be seen as resting on their laurels. Further, economies of scale make these funds less likely to do early stage deals as time goes on: the larger their AUM, the less able they are to write smaller checks. Paradigm recently stated that they won’t be writing checks under 2 million USD. This automatically eliminates the vast majority pre-seed deals that are on the market.

Sometimes brands are tied to Twitter profiles and the Cult of Personality of the General Partnership, which many find to be a shallow metric when it comes to actually getting business done. When I asked an investor-turned-operator why she made the move recently, she said she didn’t want to have to be involved in “shitty Twitter thought leadership battles''. Touché.

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Let’s talk about who came First and why this was important. As someone who loves thinking about crypto but who also has an affinity for mafia movies, something I haven’t been able to stop mulling over lately is who would be the Five Families (or, in our case, Four) of crypto. If crypto were a mafia, as we all know it to be (wink wink nudge nudge), who would be the most VIP of all VIP funds?

To me, the answer is obvious.

Blockchain Capital comes to mind as an “OG fund” with roots as far back as 2013 with Brock Pierce being one of the three founders. BCap, as it’s colloquially known, is a marquee name boasting some of the biggest success stories in its roster and one of the largest AUMs in the space.

Then you have Pantera Capital. It’s hard to compete with famed macro investor-turned-early-crypto-enthusiast Dan Morehead, who spearheads one of the most successful funds (by returns alone) to date, and was amongst the earliest well-known funds to begin investing into crypto, with a bitcoin fund launched in 2013 as their first foray into the space. Not to mention that they’re now innovating with a new rolling fund structure and aiming to raise billions.

Fenbushi comes third, having started in 2015 in Shanghai, boasting billions in AUM as well, and superstar young partners now launching their own funds. A lot of their AUM comes from being so early in the space.

Digital Currency Group, founded by Barry Silbert in 2015, is now valued at 10 billion USD and is one of the oldest, most storied, and most prestigious firms for crypto in the world. Technically they are not a fund as they do not take outside LPs, but must be on this list for the aforementioned reasons.

However, Brand Funds are not just famous for being first. Many of them have evolved to become formidable because they have specific value that they bring. (They would fall into Specific/All Purpose Value Add if – and only if – they weren’t such strong brands).

Paradigm, started in 2018, is not just an early fund or a brand name, but one of the best funds period. Fred Ehrsam is a legend, having gone from being a Coinbase co-founder to an absolute killer investor. Now having raised the largest crypto fund ever, they are notoriously tough to compete with. Among founders (and investors), they are certainly a crowd favorite for their unparalleled technical expertise. (On the conference circuit, Justine Humenansky [justinehy.eth] and I queried every founder we could about who their Dream Crypto VC would be to work with. Each and every one said Paradigm).

A16Z Crypto was also started in 2018, so it counts as a fund that was started early in the space. While many funds purposefully fly under the radar, A16Z does the opposite. It has developed an ​​unparalleled media/PR machine. With former Assistant U.S. Attorney Katie Haun at the helm until recently, their regulatory/legal/lobbying expertise and influence was known as the best in the business by other investors.

Parafi Capital, started in 2018 by Benjamin Forman, is another example. They have a clear focus on decentralized finance (in fact, they were one of the first-ever DeFi-focused funds), but they also have unparalleled participation in protocols they back by way of governance. In a way, they’re kind of the new activist investors, my friend Justine Humenansky pointed out during a conversation about this list.

Multicoin Capital, which was started in 2017, is up about 200x on their first fund. You could say that they, too, are both brand and smarter: known for contrarian positions (i.e. Solana) that usually work out, we can’t ignore them.

When it comes to firms that didn’t start as brands per se (or aren’t vintage enough to automatically assume the category of Brand Fund), there are a few that totally count as being Smarter and that have value adds that are not super specific and that are now brands unto themselves.

Miko Matsumura’s Gumi Cryptos, started in 2017, has one of the best rosters right now. They just closed a second fund in October, and they have returned Fund I having invested at the seed stage into category-killers like OpenSea, Yield Guild Gaming, Celsius Network, and Agoric. I personally know founders who will keep their rounds open so that Miko, the deep thinker who leads many of the fund’s investments, will invest. As a personal friend of Miko’s, I have yet to find anyone that can match his breadth of knowledge, his critical thinking, and his ability to understand, foresee and tie trends together.

Arrington Capital, also started in 2017, is another fund that’s managed to grow to manage billions in AUM and to have some of the smartest, most nimble investors on their roster. Their founder, Michael Arrington, was already known as a savvy Silicon Valley investor, and was his own brand. As someone who has co-invested with the firm before, I can attest to the deep research that they do and the brilliance of their team, and am continually impressed by their ability to aggregate deal flow, do due diligence, and work quickly to close investments.

We can’t leave out Polychain Capital and Dragonfly Capital here, either. Or Reciprocal Ventures, Digital Finance Group, Bixin, Nima Capital, Kenetic Capital, Republic Crypto, Blockchange, Galaxy Digital (which is technically a merchant bank for crypto and not just a crypto VC), Coinfund, or Distributed Global.

Each of these are smarter and brands (but brands BECAUSE they are smarter, not necessarily because of chronology alone, even though they were started in 2013 (Nima Capital), 2014 (Bixin), 2015 (Digital Finance Group, Coinfund), 2016 (Polychain, Reciprocal Ventures, Kenetic Capital), 2017 (gCC, XRP Arrington, Distributed Global, Republic Crypto, Blockchange) and 2018 (Dragonfly, Galaxy Digital)).

Then we get to firms that have intelligently positioned themselves so as to be useful to founders looking for investment. In fact, just as venture capitalists ask founders “What’s your tech stack?”, so will founders eventually ask venture capitalists “What’s your venture capital stack?”. Investors that qualify as All-Purpose Value Adds will be “full stack” VCs.

Funds that understand this reality count as being Smarter. With regards to specific value adds that we have not spoken about under the Specific Value Add silo, we see one that has become wildly popular: liquidity provision for decentralized finance. For projects that have yet to get on their feet, there is more and more need (now requirements for investment at times) to have investors that will back the project with liquidity. GSR, LedgerPrime, Coral Capital, Jump, Alameda, Efficient Frontier, Wintermute, CMT, Blocktower, and CMS are all some of the biggest market makers out there that firms launching (defi) protocols kill to work with.

A lot of specific value add funds that are popping up in recent days are forming as DAOs. DxDAO specializes in providing liquidity to its DAO members and friends. Santiago Ramos recently started a venture DAO with his friends. Some DAOs exist to help certain kinds of founders (Komorebi Collective is for female and non binary ones in the crypto space). Operator DAOs are starting to pop up. Even DAOs that focus on Shitcoins have gained popularity. ByBit DAO, as an example of an exchange that became decentralized to form as a DAO, which was seeded by Pantera - in what can be seen as one big loop from centralization to decentralization – is going to be one of the most interesting social experiments with regards to how VC in the space can happen with large AUM in a decentralized manner.

Sometimes funds aren’t the vehicle for investment, but the firm is still a brand unto itself. For example, Kenetic Capital (helmed by the great Jehan Chu) and NIMA Capital (both were mentioned before) are family offices, but known to be some of the most aggressive and successful crypto investors. HOF Capital is another family office that in the last few years has carved out an elite niche and reputation as being insanely aggressive investors, led by Corby Pryor. LD Capital is another example of an amazing family office (based in China and focused a lot on East Asian investments) that we’ve seen do great deals.

Another specific value add that’s popped up in recent times is design. IDEO Co-Lab specializes in helping founders design their products and marketing materials as well as Twitter presences.

Electric Capital is known for publishing amazing research that everyone from developers and investors rely on when surveying the market.

Variant Fund specializes in Web3 and creator economy investments and in connecting their founders to others in the creator vertical.

Tribe Capital is known for its machine learning technology that is best-in-class at sourcing deals.

Other types of specific value add funds that we can think of are Silo Specific funds. NFT funds have popped up in recent times: SFermion comes to mind here as they specialize in NFTs and are soon moving towards DAOs. Wave Financial is said to have an NFT fund as well. Collab + Currency have also pivoted to focus mostly on NFTs and Arca just launched an NFT fund. Metaverse funds, some of whom even invest into in-game assets have gained popularity (Galaxy Interactive is likely the most marquee of these funds, Gemini’s metaverse fund is as well, Metaversal, a JV with CoinFund, and Republic Realm is another that just popped up). Katie Haun’s new fund is going to focus on metaverse. Some themes are even tied to geography. Folius Ventures focuses on East and Southeast Asia as a main part of their mandate, as does Sky9 Capital, GBIC, David Gan’s OP Crypto, and a few others. Kosmos VC is the biggest blockchain VC out of Australia.

Ecosystem funds are another example of specific value add funds. Their main purpose is to prop up an L1 Ecosystem. Hypersphere will give you DOT exposure as they focus mainly on Polkadot ecosystem investments. Parity Ventures is another DOT ecosystem fund. Cosmos has Tendermint’s new fund. Terra has the new Terra Ecosystem Fund. Avalanche has several ecosystem funds. Algorand has Borderless Capital. Zilliqa has Zilliqa Capital. Solana alone has at least three: Solar Ecosystem Fund, Solana Foundation, Evernew Capital. NEAR has MetaWeb.VC. Flori Ventures is CELO’s bet. Even companies in the space have their own. Chainlink is said to be starting their own, for example. Most of the big exchanges have their own venture arms in the same vein (Coinbase Ventures, Huobi Ventures, OKEX, etc.).

[Sometimes funds focus on certain ecosystems but not as only an ecosystem fund. Our friends at Valhalla Capital focus a lot on the Algorand ecosystem, for example.]

Grants programs are a kind of ecosystem fund in their own right without the returns, and worth mentioning because they bring so much value to the ecosystem themselves, with lightning speed as they are not meant to function as investment. Certain grants programs are more active than others (Polygon has a well-known grants program, not without its controversy, NEAR has an aggressive grants program where grants under 10k always get accepted, Flare Network has tons of grant money, Uniswap, the list goes on and on…).

There are also more general, nebulous “value add funds” that may have smaller, scrappier teams (and a good roster because they’ve been around for a while) and a Head of Platform whose responsibilities are nebulous at best and too far reaching at worst. These teams find it harder to get an “edge” into crypto deals. These funds are usually populated by young, nimble people who hustle and are well networked but don’t scale very well. In fact, many of these managers do investments for business development purposes.

Lastly, you have All Purpose Value Add Funds, usually started as an Incubator or an Accelerator. Consensys’ Ethereal Ventures is the most obvious example. Thesis is another. Delphi Digital too. Advanced Blockchain AG comes into play as well. (JUMP identifies this way but is more known as a market maker/trading desk.)

Yunt Capital is another DAO that has been successful at establishing itself as specialists in all “hot spots” of crypto. “When we invest in projects we look beyond just providing capital. We like to be involved with projects that want to work with us and look to offer our guidance and advice in: tokenomics, governance, and content, but we also have niche specialties across the board as well.” one of their founding members stated recently. With eighteen members, they are decentralized enough – and well connected enough – to have gained a great reputation as value add investors without the traditional fund structure in place. 0xVentures DAO is similar - with 80 members who double as the investments’ power users (“quants, NFTs maxis, traders, gaming wizards, VCs, and developers” as just a sampling, their founder told me over Telegram earlier this week) who help them build the optimal product. Examples of work that they’ve done for founders are: creating content, consulting for major platforms, incubation, machine learning provision, node operation, code reviews, and more. Neither DAOs have a token yet, but another group – New Order DAO – has the same value adds and is structured as a DAO. Founded by former Outliers Ventures Partner Eden Dhaliwal, their decentralized accelerator model is working perfectly, with their first product launched – Opytfi – a crowd favorite. You can also buy their token on the open market.

The future of funds in the space will have to involve the most robust, value additive structures possible.