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Maybe old-fashioned venture capital wasn’t so bad after all

Published

8 months ago

11 June, 2024

Maybe old-fashioned venture capital wasn't so bad after all

As the founder of a layer 2 blockchain focused on consumer cryptocurrencies, i.e. user-friendly applications that can achieve mass adoption, I’ve spent a lot of time thinking about why it’s more popular to talk about consumer cryptocurrencies rather than invest in them. It’s a common complaint among builders that infrastructure not only gets all the love, but he also gets all the money.

While this may seem rich coming from the founder of an infrastructure project, since our success should technically depend on consumer adoption of cryptocurrencies, it is an important problem to solve. The more I thought about it, the more I realized that I needed to take a step back to understand the incentives of people investing in these potential consumer applications.

Azeem Khan is the founder of Morph, an Ethereum Virtual Machine (EVM) layer 2 blockchain in testnet.

It often seems that cryptocurrency investors are not aligned with the projects they invest in. Perhaps it’s because tokens are changing the way venture capital works as a whole. On the other hand, venture capital is not a monolith.

If we want consumer applications to receive investment, more honest conversations will be needed about what project founders and their funders want to achieve.

If you were to ask someone who knows about venture capital or your favorite search engine how it works, you would probably see more or less the same answer: private equity financings in which investors provide money to startups, take shares and traditionally try to see returns exceeding 10 years. To date, this is how venture capital has worked.

So when you go to a cryptocurrency venture capitalist, that’s what you would expect, right? Not so fast. The token launch changed everything.

Take Ethereum. It is not only one of the most well-known blockchains but also the one where most of the builders are located. But Ethereum’s real innovation was becoming a platform where anyone could launch a consumer crypto application and its utility token.

VCs saw another opportunity here, organizing multibillion-dollar token drives for so-called “Ethereum killers.” While many of these projects have failed, leaving behind dormant ghost chains, it has been a profitable endeavor for many of the investors who put money into them. And this is part of the nature of how tokens work.

Before the introduction of token launches, venture capitalists used to invest in companies where they only received shares – think Meta, Airbnb, Roblox and so on. The way to get their investment money back was to have another company acquire the startup they invested in or have the company do an initial public offering (IPO) on the stock market. This is one reason why it has taken venture capitalists so long to see returns on their investments.

Since the advent of blockchain-based tokens, investors willing to fund crypto projects have found another avenue to earn their returns, often much faster.

The way venture capital deals work with Web3 startups these days is that investors take a percentage of tokens, shares, or both depending on the investment deal. One of the main things investors need to understand is how token allocations work. This is a new problem, never seen in traditional venture capital.

The two main aspects to consider are the “lockup” period, i.e. how many months after the launch of the token an investor must wait before starting to contribute their tokens, as well as the duration of this maturation period (the total allocation of tokens will be based on investment as a percentage of total token supply).

The last thing to consider is that the tokens these investors get have liquidity, meaning they can easily be sold for cash on an open market. This contrasts sharply with the equity-only model where it is much more difficult to sell your stake.

Going back to the beginning, if investors had to wait nearly a decade to see if their investments were successful, but can now start cashing out within a year thanks to token deals, perhaps it’s time to start rethinking venture capital.

Maybe it’s time to start looking at which investors are looking to earn less than 100x-1000x returns on their investments over a decade, and which are looking to earn smaller returns over a shorter period of time. The first is what will lead to consumer adoption, because we need to educate people about why blockchain is better for consumers, build the products, launch them, get the regulators involved, and actually be in a place where blockchains can handle traffic. , all things that take time. The latter will only continue to further enrich already wealthy VCs, which is the opposite of what we need.

Hopefully, an honest dialogue about the evolving nature of venture capital will pave the way for more investment in the right infrastructure and consumer applications in the cryptocurrency world.

Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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How Ether Spot ETF Approval Could Impact Crypto Prices: CNBC Crypto World

Published

7 months ago

3 July, 2024

AltcoinUpdates Staff

How Ether Spot ETF Approval Could Impact Crypto Prices: CNBC Crypto World

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CNBC Crypto World features the latest news and daily trading updates from the digital currency markets and gives viewers a glimpse of what’s to come with high-profile interviews, explainers and unique stories from the ever-changing cryptocurrency industry. On today’s show, Ledn Chief Investment Officer John Glover weighs in on what’s driving cryptocurrency prices right now and how the potential approval of spot ether ETFs could impact markets.

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Miners’ ‘Capitulation’ Signals Bitcoin Price May Have Bottomed Out: CryptoQuant

Published

7 months ago

3 July, 2024

AltcoinUpdates Staff

Miners' 'Capitulation' Signals Bitcoin Price May Have Bottomed Out: CryptoQuant

According to CryptoQuant, blockchain data shows signs that the Bitcoin mining industry is “capitulating,” a likely precursor to Bitcoin hitting a local price bottom before reaching new highs.

CryptoQuant analyzed metrics for miners, who are responsible for securing the Bitcoin network in exchange for newly minted BTC. As outlined in the market intelligence platform’s Wednesday report, multiple signs of capitulation have emerged over the past month, during which Bitcoin’s price has fallen 13% from $68,791 to $59,603.

One such sign includes a significant drop in Bitcoin’s hash rate, the total computing power that backs Bitcoin. After hitting a record high of 623 exashashes per second (EH/s) on April 27, the hash rate has fallen 7.7% to 576 EH/s, its lowest level in four months.

“Historically, extreme hash rate drawdowns have been associated with price bottoms,” CryptoQuant wrote. In particular, the 7.7% drawdown is reminiscent of an equivalent hash rate drawdown in December 2022, when Bitcoin’s price bottomed at $16,000 before rallying over 300% over the next 15 months.

This latest hash rate drop follows Bitcoin’s fourth cyclical “halving” event in April, which cut the number of coins paid out to miners in half. According to CryptoQuant’s Miner Profit/Loss Sustainability Indicator, this has left miners “mostly extremely underpaid” since April 20, forcing many to shut down mining machines that have now become unprofitable.

CrypotoQuant said that miners faced a 63% drop in daily revenue after the halving, when both Bitcoin block rewards and transaction fee revenues were much higher.

During this time, Bitcoin miners were seen moving coins from their on-chain wallets at a faster rate than usual, indicating that they may be selling their BTC reserves“Daily miner outflows reached their highest volume since May 21,” the company wrote.

Among the sales of Bitcoin miners, whales and national governmentsBitcoin’s price drop in June also hurt Bitcoin’s “hash price,” a metric of Bitcoin Miner Profitability per unit of computing power.

“Average mining revenue per hash (hash price) continues to hover near all-time lows,” CryptoQuant wrote. “Hashprice stands at $0.049 per EH/s, just above the all-time low hashprice of $0.045 reached on May 1st.”

By Ryan-Ozawa.

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US Congressman French Hill Doubles Down on Trump’s Pro-Crypto Stance

Published

7 months ago

3 July, 2024

AltcoinUpdates Staff

US Congressman French Hill Doubles Down on Trump's Pro-Crypto Stance

US lawmaker French Hill has noted that Donald Trump will take a more pro-crypto approach than the current administration. The run-up to the presidential election has seen cryptocurrencies become an issue with lawmakers making huge statements ahead of the polls. Donald Trump has also been reaching out to the industry, making a pro-crypto case.

French Hill Backs Trump’s Pro-Crypto Stance

Republican Congressman French Hill has explained the type of cryptocurrency regulatory framework he believes Donald Trump could adopt in the country. In a recent interview with CNBC, French Hill said that the recently passed FIT21 bill is the type of regulatory framework the Trump administration will adopt in the sector.

#FIT21 passed the House with 71 Democratic votes, it’s exactly the kind of digital asset regulatory framework former President Trump would support if re-elected.

See more on @SquawkCNBC🔽 photo.twitter.com/ceTmU4LApU

— French Hill (@RepFrenchHill) July 3, 2024

THE FIT21 Bill It is intended to protect investors and consumers in the market by establishing clear rules and powers for the various regulators in the sector. According to Hill, Trump will adopt it because it directs the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) on the specific regulatory framework needed in the market.

“… for people who are innovating and starting a crypto token, a related business, custody of those assets, how to ensure consumer protection, so I think that framework is the right approach and that’s what I’m going to recommend to the President to pass, which is that we have not passed it between now and the end of this Congress.”

He also called Trump an innovative and pro-growth president in financial matters.

Cryptocurrency is going mainstream

This election cycle saw the cryptocurrency industry taking a place in mainstream issues following broader adoption across demographics. From candidates moving toward enthusiasts to recent pro-Congress legislation, cryptocurrencies have become a rallying point for officials. The U.S. regulatory landscape has been criticized for stifling growth due to frequent SEC LawsuitsThis has led executives to push for pro-cryptocurrency laws and raise money for pro-industry candidates.

David Pokima

David is a financial news contributor with 4 years of experience in Blockchain and cryptocurrency. He is interested in learning about emerging technologies and has an eye for breaking news. Keeping up to date with trends, David has written in several niches including regulation, partnerships, cryptocurrency, stocks, NFTs, etc. Away from the financial markets, David enjoys cycling and horseback riding.

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US Court Orders Sam Ikkurty to Pay $84 Million for Cryptocurrency Ponzi Scheme

Published

7 months ago

3 July, 2024

AltcoinUpdates Staff

U.S. Court orders Sam Ikkurty to pay $84M for crypto Ponzi scheme

A federal court has ordered Jafia LLC and its owner, Sam Ikkurty, to pay nearly $84 million to cryptocurrency investors after ruling that the company was operating a Ponzi scheme.

The ruling, issued by Judge Mary Rowland in the U.S. District Court for the Northern District of Illinois, follows a lawsuit filed by the Commodity Futures Trading Commission (CFTC) in 2022 after the fund collapsed.

Judge Rowland found that Ikkurty, based in Portland, Oregon, did numerous false claims on his company’s hedge funds.

These included misleading statements about his trading experience and the promise of high and stable profits. Instead, Ikkurty used funds from new investors to pay off previous investors, a hallmark of a Ponzi scheme.

The Ponzi Scheme

The court found that Ikkurty misappropriated investment funds for personal use without the knowledge of the investors. These funds were used for personal use and were reported as Fraudulent Investmentscausing significant financial losses to customers.

This non-transparent operation violated Transparency Commission regulations, which led to the imposition of a hefty fine to compensate defrauded investors and restore some public confidence in the financial system.

Judge Rowland emphasized that fraudulent activity such as this violates the law and undermines the integrity of modern financial markets. The $84 million award seeks to address the financial harm inflicted on investors and reinforce the importance of legal compliance in cryptocurrency trading.

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