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Crypto VC Thoughts: Physical Assets vs Digital Assets

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Written by   34
1 month ago

I run my own crypto VC now. But I am failing in many ways. So I am writing my own thoughts and share with my failure experiences. 

It is funny that I was about to take a deep look at Terra, and it collapsed faster than the time I spent researching its protocol.

Yup, apparently, I suck at VC. And here is just my reflections on cryptocurrencies. 

$Luna collapsed, giving crypto space to rethink the valuation of each crypto project 🧐.

The physical assets are backed by the dollar, which the government supports on its valuation. Digital assets are supported by the dollar also.

However, cryptocurrencies are backed by no one - a decentralized system that eliminates third-party involvement 🤫.

 $Luna is a perfect example that digital assets are not fundamental value when the market is bearish. 

🤯 What has not been working

👉 Massaging tokenomics

https://twitter.com/laurashin/status/1525505300219961344

Building a community of bagholders 😏 to support your token value is not working. Messaging supply and demand within the ecosystem will erode more of the trust and create a vicious downward spiral devaluation process to make the token useless.

Governance tokens are difficult to mitigate risks when the downward market pressures the sustainable valuation of the ecosystem. 

👉 NFT fund-raising

That does not work either but creates more bagholders 🎒. For example, NFT real estate does not present real estate valuation. Real estate is valuable because of its geolocation, while in Metaverse, the geolocation is virtually created. Similar to the UST valuation created by the algorithm in Terra blockchain. Both are identical experimental assets with no fundamental value to support their price until the market correction wipes out the fake valuation.

👉 Fake Scarcity

Either tokens or NFTs heavily relies on artificially imposed scarcity for only one reason to push up the price. It is similar to the massage of tokenomics that does not create any cash out of the effort. 

🥳 What works

👉 Proof of Work

Proof of Work consensus may still work as it is. However, it is a trade-off from energy input to force payment to process in the cost of mining companies' investments to distribute valuation to whoever holds the assets. The valuation has a fundamental value that the mining companies provide as long as they continue inputting energy to mint more cryptocurrencies and later put effort into transacting cryptocurrencies around the world.

👉 Intrinsic platform value

Image credit: https://www.sciencedirect.com/science/article/abs/pii/S0167624520301256

This model is harder to capture the valuation, but it can indirectly produce the utility of cryptocurrency usage. It is heavily relying on its utility to support the valuation of the cryptocurrency but not to increase its valuation to decrease its utility value.

Thus, Ethereum has been on the wrong spectrum to become a utility currency and become encroaching on its valuation by reducing the efficiency of the blockchain operation. The longer it operates, the harder it will return its operation efficiency, and the valuation will be permanently lost. 

Therefore, many Ethereum-like blockchains will compete for its valuation and challenge to replace Ethereum until one can finally achieve the status. 

👉 Meme wave rider

This is the third wave of valuation created recently. But, again, it started from the crypto space and penetrated the stock market. The meme is not a fundamental value but a catalyst 🚀 to make a chain reaction in the valuation of such speculative assets.

A strong meme can be persistent and create a community to support such meme movement as long as the meme continues.

🧠 My thoughts

It is very difficult to capture valuation on any assets simply because you can not monitor enough data to accurately pinpoint its price while the valuation continues evolving. It is for your to educated-guesstimate the valuation that aligns with your goal to achieve and be able to explain it to others simply. 

👋 Follow me here

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