[ad_1]
The crypto venture capital industry has become more selective thanks to a general market downturn and confidence swings caused by numerous scandals and market turmoil, but investors in major companies still have their checks in this space. is writing
Amid market volatility, decentralized finance, or DeFi, continues to be a hotspot both in the crypto VC world and the community at large as new use cases, protocols, and projects emerge.
Between 20% and 50% of crypto-related pitches today are focused on DeFi, according to multiple investors we surveyed. This indicates that there are a huge number of his DeFi projects seeking funding.
Alex Marinier, Founder and General Partner of New Form Capital, said:
Ultimately, DeFi is a reflection of traditional finance (TradFi), and the founders’ deep expertise in the sector of TradFi, coupled with a fundamental understanding of blockchain, sets them apart from the rest of the team. shared Paul Verradittakit, general partner at Pantera Capital.
Last year, the crypto world faced major industry-changing events, including the collapse of the Terra/LUNA ecosystem in May and the collapse of crypto exchange FTX in early November. Both events took down many small startups and large corporations and mixed with players in now defunct markets.
As the market looks to the future, some venture capitalists are revamping their investment strategies, while others are keeping their current plans, perhaps with minor adjustments. Read on to find out what an active investor thinks about DeFi, how she advises her portfolio companies amid cash shortages, how best to approach them, and more.
We investigated:
- Michael Anderson, co-founder of Framework Ventures
- Alex Marinier, Founder and General Partner of New Form Capital, said:
- Samantha Lewis, Principal, Mercury
- Pantera Capital General Partner Paul Beladitakit
- David Gan, Founder and General Partner of OP Crypto
- Mike Giampapa, General Partner, Galaxy Ventures
Michael Anderson, co-founder of Framework Ventures
How big is the DeFi market today? How much do you see it growing in the next five years?
When we think about the DeFi market, we look at the total market cap of DeFi assets, Total Value Locked (TVL), and trading volume. Total Value Lock (TVL) as a metric certainly has its shortcomings, but we still believe it is a good measure of activity in the sector. As TVL increases, we believe total market cap may follow suit.
We pay attention to the relative activity of the sector, such as trades, volume and users compared to centralized alternatives such as exchanges. Despite the negative sentiment surrounding cryptocurrencies today, we still believe activity will eventually return to the industry. But the aftermath of all these dramatic Centralized Finance (CeFi) explosions Given that, the next time a user decides to enter this space, I think they will think twice about trusting a CeFi exchange or company and choose to use it instead. Decentralized protocol.
What were the biggest challenges your company faced in 2022? What steps are you taking to better prepare for 2023?
Like most investors in this space, our biggest challenge has been dealing with the seemingly endless CeFi explosions and failures that have rocked the industry. , was able to avoid most of these explosions.
As a result, Framework hasn’t been hit as hard as many of the big VC firms in the space. We are in a pretty strong position to continue to capitalize on this new market.
These CeFi incidents have caused a lot of collateral damage across the industry, so a major priority over the past 12 months has been to ensure that all portfolio companies are healthy, liquid, well-capitalized and moving forward. It was to be able to survive for one to three years. This helps our portfolio founders reduce costs, prioritize high-growth activities, and provide advice on product, growth, and future funding strategies in an unfriendly funding environment. It means that
In general, our position is a validation of the core thesis of the last three years and continues to double down on DeFi, web3 gaming and more. Given that many other companies are not actively investing at this time, we see this market as an excellent opportunity for Framework to selectively deploy capital.
What advice would you give your portfolio companies for 2023?
We are working with them to reduce costs and focus on getting through the next 1-3 years. We believe in cryptocurrencies for the long term, but we do not know how quickly the market will recover. As such, survival should be your top priority.
It also encourages founders to think more strategically about project development. If the team has three different areas for him to focus on, instead we recommend only prioritizing the activity with the highest growth.
What percentage of all pitches you receive are DeFi protocols or projects? What can you do to stand out in the wider crypto world?
These days, about 30%-35% of the pitches we receive are firmly focused on DeFi.
If DeFi projects really want to stand out, they want to make sure they’re thinking about where the pack is going. We are looking for projects that have the potential to be regulatory friendly. If a team doesn’t think about regulation or thinks they can figure it out in the future, it’s not a starter.
Additionally, we are interested in projects that have a direct relationship with the institution or at least a compelling growth strategy involving the institution. We do not believe retail will provide a large enough DeFi market for projects in the next two years, so creating something attractive for institutions should be a more important focus than before.
We also want to make sure that the projects are differentiated from a product perspective. I’m not interested in another Uniswap clone or an open sea copycat of the flavor of the week, alt-L1.
What is your current strategy for investing in DeFi protocols and projects? How has it changed from past quarters?
In 2020, in the height of the DeFi summer, the market was big enough and the project attracted retailers and DeFi degens [a nickname for people interested in risky, niche, speculative crypto projects]The market today is completely different.
Unfortunately, retail has been hit in more than a dozen ways in the last year and is unlikely to bounce back in the next few years. As a result, we are more focused on projects that we think address new, more organized users and markets.
We understand that regulation is likely to move forward, so we are very interested in projects that are regulation-friendly or at least regulation-friendly.
What types of DeFi use cases do you think will see more mainstream adoption in the future? What areas of DeFi are perceived as more important than before?
With the merge officially over, Liquid Staking has become a huge area of ​​excitement for us. After Shanghai goes live and users have the opportunity to withdraw their assets without worrying about illiquidity, I think liquid staking projects will get more attention.
How can we bridge the gap between traditional finance (TradFi) and DeFi?
We need to see more DeFi products and services that more realistically address institutions. This means projects where regulation-facilitating elements are built into the product itself, such as KYC, the ability to restrict certain assets, etc. The projects that the institution can trade on don’t look like the traditional his DeFi we’re used to, coexisting as a relatively different ecosystem.
What impact do you think the regulatory framework will have on the DeFi space? Which countries or regions do you think are heading in the best direction?
Sometime in 2023, we will see the groundbreaking crypto regulation that everyone has been waiting for for years. More clarity can be a huge plus.
No firm position, but on the surface it looks like the UK is fast becoming one of the most open countries in terms of thought leaders.
How do you like to receive pitches? What is the most important thing founders should know before speaking with you?
We really like good stories. We want to know why you are working on this problem, why you have to solve it now, and why you think you can beat others.Competitive advantage is important to us am.
Alex Marinier, Founder and General Partner of New Form Capital, said:
How big is the DeFi market today? How much do you see it growing in the next five years?
The DeFi market is currently around $50 billion in TVL. Over the next five years, the market is expected to split into two categories: permissioned and permissionless.
Permissioned DeFi will gain traction among institutions as it combines the benefits of blockchain technology with the compliance standards of traditional finance. Moving a small fraction of traditional financial activity on-chain could create a market opportunity of over $1 trillion.
Add in permissionless DeFi, which is for individual users and makes up the bulk of DeFi today, and the total market value could reach $500 billion to $2 trillion by 2028.
That said, DeFi’s growth doesn’t just depend on increasing use cases. It will also be affected by developments in infrastructure, regulation and financial innovation.
What were the biggest challenges your company faced in 2022? What steps are you taking to better prepare for 2023?
Navigating high-profile collapses (Terra, Celsius, FTX) was the focus of 2022. We needed to spend more time supporting our founders and ensuring we had enough runways to withstand a prolonged bear market.
This year, our focus is on helping founders find creative ways to grow through this market and position themselves for the next bull market. We are also focused on raising opportunistic investments at attractive valuations and incubating more projects in-house.
[ad_2]
Source link
