Tokens and monetary incentives are driving the growth and development of cryptocurrencies and blockchain technology, with projects like Filecoin, 0x, and Maker utilizing decentralized architectures and network effects to create value.
Founder of PolyChain Capital discusses experience with Bitcoin and cryptocurrency, launch of largest blockchain investing hedge fund, and evaluating potential impact of new technologies.
Olaf Carlson-Wee, founder of PolyChain Capital, discusses his experience with Bitcoin and cryptocurrency, including being paid exclusively in Bitcoin during his time at Coinbase, and the launch and growth of the largest blockchain investing hedge fund in the world.
The hedge fund is focused on blockchain and cryptocurrency assets, with a long-only strategy and a rebalancing period of roughly every 90 days.
Investing in protocol specifications is similar to venture investment, but requires managing liquidity and risk due to the quick transition to liquid markets.
When reading white papers, we look for novel concepts or ideas that enable new behaviors, rather than forks of existing technology, and when vetting a team, we evaluate their commitment and track record.
Investing in new blockchain technologies requires security audits from third parties, but there are still unknown unknowns, so Coinbase relies on their experience with technical people and their ability to bet on great ideas.
Investing in technology requires evaluating its potential use and impact on the world, with most current investments focused on developer tools rather than end-user applications.
Filecoin is a decentralized architecture that adds high uptime, fast bandwidth, and resiliency to the IPFS network.
Filecoin is a decentralized server client architecture that serves as an incentive layer for the IPFS server system.
Filecoin allows for a decentralized architecture where users pay to submit requests to nodes across the network, similar to a distributed server architecture.
Filecoin is a crucial missing layer in web 3 that adds high uptime, fast bandwidth, and resiliency to the IPFS network, making for a better user experience.
An open Bazaar is a better solution to buying and selling than centralized systems like eBay, and while web 3 services may compete on cost structures, their unique capabilities are what make them interesting.
Blockchain platforms charge reasonable fees for value-added services like dispute arbitration, but there will be unique use cases for web 3.0 apps, particularly for decentralized autonomous organizations (DAOs) that require software-based legal arrangements.
Web 3 native applications will eventually emerge and become the focus, despite the current difficulty in imagining them.
Tokens are a game theory hack to create powerful network effects and provide incentives for early backers and investors in the complex world of cryptocurrencies and blockchain technology.
Blockchain technology is like the primordial goop from which life originated, and owning a piece of the right amino acids can create something, but cryptocurrency is often portrayed as a get-rich-quick scheme in the media.
Cryptocurrencies and blockchain technologies are complex and constantly evolving, with new developments such as on-chain governance and incentivized development creating even more complexity.
Understanding the technology behind tokens is crucial for a deep understanding of the field, and while there may not be a strong reason from a technology standpoint to create new tokens, they serve a purpose in paying for specific resources.
Tokens are a game theory hack to create powerful network effects around a specific application and provide embedded incentives for early backers and investors.
Tokens provide narrow network and incentive effects, but there are questions around whether money is the best motivator and the balance between empowering collective creativity and focused creativity.
The distribution of resources can be problematic, but having a focused intent can be both positive and negative, as seen in the Manhattan Project.
Adding monetary incentives to open source projects will accelerate development and drive growth, with crowd sales and ICO fundraising surpassing seed round financing in dollar terms.
Adding monetary incentives to open source projects will accelerate development and drive growth, as it captures the value creators bring to the world.
Building something great will attract attention, capital, and users, and the speed at which capital is coordinating to back efforts is unprecedented, with VCS and early seed investors having unique access to early stage projects.
Crowd sales or ICO fundraising is a trend that is just beginning and has already surpassed seed round financing in dollar terms, with huge amounts of capital being coordinated by pure incentives around projects.
The market got it right with Tasos, the largest crowd sale ever, which accurately predicted the future of blockchain and surpassed other projects with hype but little progress.
Crowd sales are being used more as a fundraising round than a means of distributing tokens and building a powerful user base, with many projects incentivizing a first-come, first-serve rush for the doors that benefits traders rather than developers or authentic backers.
Speculation is currently driving the excitement around protocols like Ethereum, but it is important for driving eventual network effects.
Traders buying tokens during crowd sales hurt authentic users, while uncapped sales may raise more money for developers but still attract speculators.
Traders buying tokens during a crowd sale capture a huge amount of value that should be captured by the developer team, and this hurts authentic users who want to hold or develop the tokens.
Uncapped sales may raise more money for the developer team than traders, but the majority of the investment could still come from speculators, leaving too little for the developers in the long run.
The uncapped crowd sale of Tasers raised $200 million, which could potentially trade at the same value when it goes live on markets in about three to four months.
Eliminating day trading may not be a long-term positive holder strategy, and a liquid point of a year or more may be more effective in incentivizing the right kind of users.
Developers are happy to hold for three years to build things on top of the protocol, but an artificial hold period may be too long and dangerous from an execution perspective.
Raising money from sophisticated investors like Poly Chain before a crowd sale can act as a distribution and launch rather than a fundraising event, and protocols are actively maintained and developed for years with the potential for future improvements.
0x and Maker are exciting projects utilizing the etherion protocol to enable decentralized and risk-free token exchange, while stable coins like Maker's DAI are crucial for adoption in prediction markets and e-commerce transactions.
0x is a decentralized exchange protocol that allows for instant trading between Ethereum and tokens within smart contracts, eliminating the need for centralized exchanges and reducing counterparty risk.
The etherion protocol will enable fluid token exchange without centralized services or counterparty risk, and 0x and Maker are exciting projects utilizing this technology.
Maker is creating a token called the dye, which is pegged to the IMF currency basket and backed by collateral in smart contracts.
Maker is a decentralized stable coin with an interest rate paid to Maker holders and collateral requirements determined by a decentralized voting structure, making it like a crypto central bank.
Volatility-free crypto coins like stable coins are crucial for the adoption of prediction markets and e-commerce transactions with narrow margins.
Investors should do their research and understand the experimental and volatile nature of the token market, while creators should consider establishing a non-profit foundation in friendly regulatory and tax locations such as Switzerland, the Cayman Islands, Hong Kong, Singapore, and Gibraltar.