A thread on crypto exchange launch and funding
In light of the recent macro-level developments in the crypto exchange landscape and changing venture funding dynamics, we analyzed the pattern of crypto exchange launches.@TheBlockRes has examined data of 263 crypto exchanges. pic.twitter.com/vX7TmKByqa
— Atharv Deshpande (@ADtheintern1) September 14, 2022
1/ As opposed to previous bull runs, no. of exchanges launched in crypto is no more correlated to the increase in the total market cap of the industry. This could be a result of the sophistication of existing players in the market and evolving regulations in several jurisdictions pic.twitter.com/Q5EHK8DfmW
— Atharv Deshpande (@ADtheintern1) September 14, 2022
3/ products and services have been developed, making it more difficult for new players to enter the market
— Atharv Deshpande (@ADtheintern1) September 14, 2022
Evolving Regulations
As nations are presenting more stringent regulations for crypto assets, selective business licensing to crypto services has also caused
4/ a decrease in no. of exchanges entering the market. With increasing recognition from retail and institutional investors, governments are making a concrete effort to create regulatory frameworks for digital assets, thereby validating the crypto movement.
— Atharv Deshpande (@ADtheintern1) September 14, 2022
5/ Crypto-friendly countries like Singapore, Estonia, etc are tightening regulations for the financial security of their citizens in the aftermath of recent events of the @terra_money crash, downfall of @3arrowscap, and liquidity crisis surrounding lenders like @CelsiusNetwork.
— Atharv Deshpande (@ADtheintern1) September 14, 2022
6/ On the other hand, responding to the executive order from the @POTUS, @CFTC introduced a new bipartisan bill that empowers the CFTC with exclusive jurisdiction over the digital commodities spot market of the US, although it remains unclear what exactly a digital commodity is.
— Atharv Deshpande (@ADtheintern1) September 14, 2022
7/ In the last three years since our previous analysis,
— Atharv Deshpande (@ADtheintern1) September 14, 2022
China’s decision to ban crypto forced native exchanges to shut down/shift their HQs elsewhere. Singapore saw a 220% rise in no. of exchanges launched. The no. of exchanges established in Seychelles increased from 3 to 17. pic.twitter.com/rO6EBL0AAx
8/ Ideally, policymakers would want to balance tightening rules for crypto services & their seamless integration with tradfi. If countries cooperate to avoid regulatory arbitrage and promote universal guidelines, we'd be a step closer to a more efficient global financial market.
— Atharv Deshpande (@ADtheintern1) September 14, 2022
Venture capital and web3
Venture capital and web3.
— cantino.eth (@chriscantino) September 14, 2022
NFT Twitter has been lobbing grenades at VC.
— cantino.eth (@chriscantino) September 14, 2022
Apes were recently valued at $4B. Doodles and Proof approaching unicorn status. All were initially bootstrapped, and have early users to thank.
But what does it mean when projects outgrow their communities, and turn to VC for growth?
First, let’s dispense with the us vs. them mentality.
— cantino.eth (@chriscantino) September 14, 2022
We all know: not all VCs are bad. They help founders shoot their shots.
But we also know why these narratives exist. To warn against repeating the flaws of web2.
VC is not perfect. But web3 is improving the model.
In fact, VC itself is a proxy for decentralization. It allows for dozens/hundreds of investors to own small pieces of companies.
— cantino.eth (@chriscantino) September 14, 2022
Web3, with its ability to support the growth of artists and companies, makes everyone a venture capitalist of sorts.
But there is a key difference.
By collecting tokens, you do not receive equity in projects. But, you might still see profits—just on a shorter time horizon.
— cantino.eth (@chriscantino) September 14, 2022
Instead of waiting 5-10 years for an exit or IPO like VCs do, you can exit whenever there is liquidity.
Important: Projects do not owe you liquidity.
Good news: Web3 fundamentally tilts towards decentralization.
— cantino.eth (@chriscantino) September 14, 2022
Indie creators, from Nouns to XCOPY, are bootstrapping capital from communities.
BAYC had a 9-figure warchest BEFORE taking VC.
Compared to web2, we are arcing towards progress—let's not diminish this innovation.
Web3 is by and large open-source, from code to block activity. Its openness and interoperability establishes the basis for decentralization. A major QOL improvement over web2.
— cantino.eth (@chriscantino) September 14, 2022
VCs own VERY little of this code.
The technology is inherently communal.
Decentralization also enables new defenses.
— cantino.eth (@chriscantino) September 14, 2022
Because many projects can be “forked” (duplicating their underlying source), participants can simply choose to follow value-aligned derivatives if the original project becomes extractive.
Web3 is a forcing function for good behavior.
Now, let's be real about the downsides of VC in web3.
— cantino.eth (@chriscantino) September 14, 2022
Simply put, 9/10 VC-backed companies fail. This is a problem, but it’s also a solution. It means more projects shooting bigger shots.
Yes, VC is a risky investment class—but it has its place in the ecosystem.
Some startups in particular will need major cash infusion to have any chance at scale—more than they could raise from communities.
— cantino.eth (@chriscantino) September 14, 2022
Infra layers like Alchemy or Pinata, for instance, are well-suited to VC or hybrid fundraising models.
Not everything needs to be community-funded.
Now to the root of the problem:
— cantino.eth (@chriscantino) September 14, 2022
There is dissonance when projects have rallied users around speculative promises to keep valuations high, and then suddenly fracture those prior incentives by raising large sums of venture capital. https://t.co/YVT7Ti8BtS
When that blue-chip takes outside funding, you better believe that their investors have an expectation of returns.
— cantino.eth (@chriscantino) September 14, 2022
KPIs before VC: User sentiment, community participation, floor price
KPIs after VC: Revenue, valuation, daily users
And so, incentive structures begin to crack.
It is not all doom and gloom.
— cantino.eth (@chriscantino) September 14, 2022
Companies will do their damndest to please both collectors and investors.
They will NOT succeed 100% at both.
But, over long time horizons, if the benefits of VC scale pay off and millions of users accrue, patient collectors will see major gains.
Yes, suddenly your token is less liquid.
— cantino.eth (@chriscantino) September 14, 2022
But do you believe that projects can deliver this generation's biggest gaming and entertainment companies?
If so, perhaps projects that signal the balance of both collector and investor returns is the greatest alpha of all.
A warning: Some VCs have raised outsized capital, and are deploying with a flamethrower.
— cantino.eth (@chriscantino) September 14, 2022
Startups growing too fast, with inflated markups. Many failing due to misaligned incentives.
It’s OK to be skeptical. VC is a competitive industry like any other.
Sometimes it gets ugly.
But implying that VC simply doesn’t have a place in web3, or that its incentives are universally incompatible, doesn’t leave room for innovators who need that institutional capital for a real shot at mainstream success.
— cantino.eth (@chriscantino) September 14, 2022
If you’re building today, keep your options on the table.
So, who actually owns web3?
— cantino.eth (@chriscantino) September 14, 2022
-Developers
-Miners
-Startups
-Investors
-Users
In short, everyone.
But what’s important now is getting the distribution of ownership right. We need people fighting to bend web3 towards decentralization and equality, and balance power structures.
Drawing battle lines and fueling stereotypes isn't in the spirit of web3.
— cantino.eth (@chriscantino) September 14, 2022
We need nuanced, patient conversation—not scare tactics and rhetoric.
If done right, web3 will succeed in part thanks to VC, not despite it. Much like web2, but with better aligned incentives.
End rant.
