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Another VC Ditches Crypto? Good! by@MarkHelfman
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Another VC Ditches Crypto? Good!

by Mark HelfmanMay 26th, 2023
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Big crypto investor Paradigm dropped crypto and web3 from its branding. Bitcoin did just fine without VC money, and other cryptos did, too. People will naturally give their money to the protocol in exchange for whatever benefits they get from it. More than 90% of projects still fail. Building without hype and FOMO has its benefits.

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Did you hear the news?


Big crypto investor Paradigm dropped crypto and web3 from its branding.



Good for them. A lot of other crypto VCs failed before they could pivot.


Julius Caesar called this thousands of years ago when he said “I came, I saw, I failured.”

Not so bad

Paradigm’s still into crypto, they’re just not saying it in public.


Why would they leave? They did well with crypto.


Many VCs did.


For a few years, they held the keys to the kingdom: access to the best deals at basement prices, ample chances to dump their tokens for huge gains, deep pockets, eager backers, access to exchange data, plenty of insider information, and connections to put that information to good use.


You might worry that altcoins will fall apart as VC money runs away.


After all, smart people tell you that the world’s economies are about to collapse and traders sold at the top of our recent pump to $13,000. Surely VCs did, too.


Now where’s the money going to come from?

Time for crypto to earn its Lambos


Money will come from the same place it should’ve come from in the first place:


Us.


Bitcoin did just fine without VC money. A few other cryptos did, too. Surely, others will also find success on the merits, rather than pumpage and hypage from wealthy supporters and vigilant marketers.


I’d wager any protocol that does something valuable will never have to worry about where the money comes from. People will naturally give their money to the protocol in exchange for whatever benefits they get from it.


It’s not like VCs have the Midas touch.


Since I got into crypto, the flow of private capital into altcoins exploded. Has it done any good? More than 90% of projects still fail. Most of the top 100 will not be there when this bull market ends.


Hopefully, they’ll be replaced by tokens that have organic communities and strong networks.

Skewed incentives

While private funding helps projects get off the ground, it gives teams less incentive to care about the community. They get their money from their investors, not us. We simply provide a market that they can sell to.


In some cases, more than 40% of a protocol’s tokens go straight to early backers who gave money to the project leaders in exchange for big discounts. That’s a lot of rewards for people who contribute nothing to the protocol or its network, as I discuss in this video.

Compare that to bitcoin and some other altcoins, where everybody needs to give something to the network in order to get tokens. You have to put in some work to earn your keep.


To their credit, VCs protect and incubate projects. Development can happen without the social pressure of “why didn’t the price go up” or stress when the market goes too high or low. Building without hype and FOMO has its benefits.


At the same time, that flips the core altcoin paradigm on its head.


As people and communities build and grow the protocols, VCs take a cut of their rewards—a type of rent-seeking activity that crypto is supposed to eliminate.


In doing so, VCs have morphed the industry into something much closer to the legacy system that they say they want to replace.


The irony.

Progress comes in fits and starts

Good people can disagree on whether VCs are good or bad for crypto. You get more money, interest, and talent but also lose the natural, healthy, organic growth that’s essential for durable value and massive returns.


Maybe that’s ok.


In the end, we're wagering our fortunes on the outcome of speculative financial experiments. As long as we benefit, does it matter how the projects succeed? Can’t some of these VC tokens do amazing things, too?


Great things rarely come from ideological purity or clever design. Serendipity, risk, luck, effort, creativity, money, vision, and timing play a role.


Nobody knows how much of each gives you the best mix for success. That’s the adventure. Discovery has its own reward, especially when the best discoveries can grow your wealth in ways the legacy system can’t.


VCs can give it their best shot. So can normal people and everybody else. With cryptocurrency, anybody can create a new financial system from their laptop and scale it globally, instantly, without permission.


Once these new financial systems put all of the world’s wealth at your fingertips, we may discover VCs don’t matter for crypto anymore.


Maybe, they never did.


This post is collectible as an NFT on Mirror.


Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Superpeer or Tealfeed.