Cryptonetworks are not Companies

Joel was the first person that stuck the word cryptoeconomy in my mind. It was mid-2017 and the idea struck me because most everyone was thinking about cryptonetwork valuations (most commonly ICOs) in the context of company valuations. Which is partially why they were considered so obscene.

What the crypto market vaguely understood, though could not fully articulate, is that the prices being paid were for emerging economies. Emerging economies using a protocol in place of the government, specializing in a single (digital) service, and capable of global scale from inception. The good ones, at least.

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Theory Follows Price, Price Follows Theory

Humans have an innate desire to first understand, and secondly reason, about what they see in the world. We go from observing things (facts), to reasoning about those facts (theories), to then applying those theories back on present facts to predict future facts. This habit pattern explains the birth of religion. It also explains how we can expect quantitative models to be formed, evolved, and applied by cryptomarket participants in the years to come.

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Productive Capital in Cryptonetworks

Thus far, cryptonetworks have used their native asset to entice early investment in their economies via two primary pathways:

• Minting to supply-siders that install productive capital

• Selling to investors that contribute investment capital

While investment capital can ultimately be converted into productive capital, the two are not synonymous, and value doesn’t always make the leap from investment capital → productive capital. Sometimes investment capital can waste away on balance sheets like unused kindling. The question comes down to who is first prioritized, the supply-side that installs the productive capital or the investors that float the investment capital?

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The Nouriel in All of Us

This week crypto has been afire with Nouriel news. After voicing my own disgust at Nouriel’s behavior, Chris King responded: “He’s triggered and we’re triggered. No one really wins.”

Chris is right. We’re all so triggered that conversation between the crypto-community and Nouriel has devolved into an intolerant pissing contest of insults, and such rhetoric between groups goes nowhere. We appear just as badly to Nouriel, as Nouriel appears to us.

I raise it as a reflection now, because a rhetoric of intolerance is dangerously common in crypto. 

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Resource Distribution and Power Dynamics in Decentralized Networks →

“The idealized vision of more decentralized forms of networking and social coordination triggered by the invention of Bitcoin continues to inspire entrepreneurs and drive innovation. At the same time, it is increasingly acknowledged within the broader crypto community that though the idealists are onto something, these emerging social systems are far from immune to problems and inequalities that have plagued human institutions historically.

This raises a question: how to conceptualize decentralized networks and “decentralized autonomous organizations” (DAOs) in terms of resource distribution and power dynamics, and by extension, governance? One option is to think of these systems as fields, allowing us to use the well-established framework this term has in sociology.“

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Cryptoassets: Flow & Reflexivity →

“We hypothesize that crypto’s heightened reflexivity is driven by uncertainty and confusion around the early-stage technology, virality of communication mechanisms, lack of standardized valuation frameworks, regulatory paranoia, and majority retail participation. All of these characteristics are amplified by the liquid nature of this emerging asset class, which creates sub-second informational signals that violently feed back on themselves.”

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Information Technology Market Cycles (A Brief History) →

"Information technology evolves in multi-decade cycles of expansion, consolidation and decentralization. Periods of expansion follow the introduction of a new open platform that reduces the production costs of technology as it becomes a shared standard. As production costs fall, new firms come to market leveraging the standard to compete with established incumbents, pushing down prices and margins, and decentralizing existing market powers."

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Investment Thesis Summary

Around October 2016, we began talking about working together. On August 1, 2017 (the day Bitcoin forked), we officially incorporated Placeholder Management, and in December we closed our first fund. 

This is the thesis we shared during our fundraising process: https://ipfs.io/ipfs/QmZL4eT1gxnE168Pmw3KyejW6fUfMNzMgeKMgcWJUfYGRj/

The list of people who helped us get off the ground is long and we’re very grateful to all of them. In particular, we'd like to thank our mentors, Brad and Cathie, who taught us everything we know about investing. 

We look forward to developing these ideas with you over the next decade. 

– Joel Monegro and Chris Burniske