Early stage crypto is extremely crowded. There are 3 consequences:
(1) It’s a great time to be an early stage founder-not investor (2) Builds a leveraging cycle that drives up valuations (3) Creates a large dichotomy between early stage private and later stage liquid valuations
Why is this happening?
(1) SAFTs are attractive to investors because they feel similar to SAFEs--which investors understand
(2) Recent LP capital has gone to funds that will largely focus on early stage.$300m to a16z + $400m to Paradigm (i know they'll hold some liquid assets)
(3) Many investors like that early stage focused funds *dont* mark to market monthly. They'd rather not have to talk to their boss about the volatility
There’s probably >$1.5bn that’s looking to deploy to early stage SAFTs
The best founders & companies solve their own problem
But when bubbles form people use the momentum to solve other peoples alleged problems with the new tech most dont understand
In crypto a high % of dapps are purportedly solving a big problem that they themselves dont have
When you're decentralizing your taxes or Iced tea or supply chain and putting it on a blockchain, is it because you feel underserved from the centralized tax market or because TAM research led you to believe this was the best area to capitalize?
In most cases it's the latter
Why? Because the product today most dapps are selling is to *investors* not to *users*
To date, most dapps have been selling the promise of token price gains. For many investors, potential TAM and other token comps matter more than actually solving real user problems
We're about to see an interesting dynamic in macro markets. The goals of the US Fed and Trump / US policy are diametrically opposed.
The Fed is both cutting its balance sheet and raising rates, while the US deficit is rising past $1tn. Dollar funding is about to evaporate
Trump obviously isn't happy with the rate hike. High rates in the US, coupled with cuts elsewhere (especially china), will make it even harder for him to "bring manufacturing jobs back"
If BTC was large enough to be tied to macro markets, this would be very bearish. A USD shortage will lead to a major short squeeze. A USD rally will hurt most commodities, especially gold. BTC's reaction will be very illuminating.
Your birthday is coming up. Your crazy Aunt offers you the choice between a $500 Amex Giftcard -- the holy grail of bday presents -- or a $500 gift card to somewhere you shop a few times a year. Say Nike, for example.
Which would you prefer?
Now imagine that a service emerged, called Giftcard0x that allowed you to seamlessly trade your Nike gift card into its cash / amex card value. Would you do it?
The key piece to understand is the optionality of cash and positive feedback loops between liquidity and value. The more *other people* demand your money, the more valuable it is
An Amex card is more valuable than a Nike card b/c it's easier to get rid of b/c more people want it
Interesting insights from the "toxic" battle of OSI vs TCP:
-Dev and corp. interest was a *contra* indicator of the winning protocol
-TCP / IP proponents were derided as "maximalists"
-OSI devt. was by committee and everything was open to debate, ultimately killing OSI
Ultimately on one end, TCP / IP was free, cheap and nimble. And OSI was more expensive, complete and elaborate
The overbureaucratized OSI, despite taking on hard technical challenges, failed and the internet converged on the more "simple" TCP/IP standard
- Openness is paradoxical. The more "open" a development process, the more closed the protocol became
The crypto boom w. ICOs is very similar to Yahoo during the dot com bubble. Yahoo ad revenue was entirely supported by spend from other, overhyped startups. Yahoo effectively became a levered bet on dot coms
ICOs have done the same, creating a massive amount of shadow convexity