> I'm genuinely curious what their thought process is.
The thought process for VCs investing in crypto is simple: they get a huge discount on the tokens in the raise that they can turn around and dump on retail a few months later for huge returns. Instead of waiting 10+ years for a traditional exit, they can get liquidity in a few months.
As Chamath admitted on the podcast, even when they're on a vesting schedule they can sell the claims to future vesting prior to actually receiving the tokens.
That’s my understanding as well after listening to Crypto Critics and Griftonomics podcasts. Highly recommend both although so much stuff is way over my head. I wish there was a beginner’s version :)
I'd like to recommend a shelf of great to read erudite and intelligible financial history and financial social history and technicality, from which you'd recognize the simulacra, but it wouldn't help very much because this crypto game strips out everything fundamental economic and human from their imaginary systems and leaves solely a caricature of a carcass.
I'm despondent about the overall crypto situation, please forgive me for my cynicism, because I'm genuinely concerned about how many times people can exclaim the king is naked the cupboard is bare the promises aren't merely empty but never had meaning, and yet the socialized penny just won't drop.
This FT article [0] goes some way to describing how vulnerable young and low income people are to false investment scheming. What's needed (very rapidly) is to reveal the full extent of behavioural and technical engineering used in exploitation, instead of blaming the phenomenon on concocted reductio ad infortunium.
Edit,: added for clarity, "...from which...the simulacra.."; corrected "onto" as "on" and thereafter revised with clearer unchanged meaning the rest of final sentence. (and Ed2 sp ip.); E3 people instead of folk ,(mobile sorry) E4 added, "scheming" after "false investment" for clarity.
The discounts are getting smaller and smaller as the valuations go up. A new chain, Aptos, is raising at 2B valuation. Optimism, an ETH Layer2 raised at 1B valuation. Until like last week, it had a circulating marketcap of 100m.
Lots of smaller projects are priced below VC prices. For example, CowSwap is at like 12c when private rounds were at 15c.
I'm guessing that the VC premium pays for privileges like lock up and preferred terms.
VC buying - aka VC selling to greater fool LPs, with purported guarantees trails a wake of retail that fuels their vig.
I know nothing concrete about crypto n.b. but I think I can recognize the structured avarice. If my precis is all that's happening I'd convict this kind of VC instantly.
> Lots of smaller projects are priced below VC prices.
How do you know what the VCs paid? These are private transactions. Sometimes they invest in equity in the business at the published round price, but get tokens for almost free on the side.
Uber makes revenue from customers. Not all investments are good investments but the fact remains that businesses have non-investor participants from which the goal is, in the full course of time, to extract profits. While specific equities may be bad investments, equities in aggregate are positive-sum because investors aim to extract profit from non-investor participants. They may fail! But that doesn't change the goal.
This is not the same as a cryptocurrency which relies solely on later investors to create returns for earlier investors. There are no non-investor participants from which profits can be derived, period. Cryptocurrencies are in aggregate either zero-sum (best case, PoS) or massively negative-sum (worst case, PoW, especially Bitcoin).
This represents a pretty fundamental misunderstanding of, well, investing.
Even PoS is negative sum; developing and hosting nodes isn't free, to say nothing of human capital wasted on attention diverted toward a rube goldberg ponzi lottery in any capacity, right down to this hastily composed reply to your post.
I think the next set of companies will become more smarter in their vesting terms.
Just think about it, if these data point of selling claims get be bought to on-chain then I am sure people and next set of companies will not borrow some such investors.
because of this particular reason I feel DeFi will replace traditional finance first before any other form of crypto companies takes.
A recent IMF admitted that DeFi is 10x efficient than TradFi.I am sure once DeFi get a bit regulated and has better risk management principal embedded into code the system will become more efficient
I also see the recent housing crackdown and loss of money for common people playing an important role of smart contract lead world for the financial safety of the larger population. People are losing trust way faster than they are able to change systems
> A recent IMF admitted that DeFi is 10x efficient than TradFi.I am sure once DeFi get a bit regulated and has better risk management principal embedded into code the system will become more efficient
For the efficiency part. To be fair, traditional finance as an industry operates as a super inefficient, regulatory-captured pyramid scheme. Shouldn’t be too hard to beat.
> For the efficiency part. To be fair, traditional finance as an industry operates as a super inefficient, regulatory-captured pyramid scheme. Shouldn’t be too hard to beat.
They're dense. They don't get it at all.
The "super inefficient, regulatory-captured" part is a feature, not a bug. We want transactions to be reasonably slow and checked by a human somewhere along the way. We want a myriad legal protections.
"pyramid scheme", that's rich, coming from cryptocurrency companies.
All the naive investors who keep making investments in crypto will lose their money, like they have on current round of failing crypto 'banks'. It's both the fact that existing finance is hard to access for poor people, and it's got a lot of regulation that can protect them, and it can cost more, and there are still terrible legal investments (payday loans). But it provides way more protection than defi, which provides none.
With all the large firms (crashing daily) that provided impossible ~19% returns still trying to attract new investors, there's just no defense of the 'industry'.
You can trade Bitcoin on an exchange that never handles Bitcoin. Synthetic securities can always be constructed regardless of how the original securities are represented. In this sense blockchain isn't much better than og paper shares
The thought process for VCs investing in crypto is simple: they get a huge discount on the tokens in the raise that they can turn around and dump on retail a few months later for huge returns. Instead of waiting 10+ years for a traditional exit, they can get liquidity in a few months.
As Chamath admitted on the podcast, even when they're on a vesting schedule they can sell the claims to future vesting prior to actually receiving the tokens.