Token Takeaways ✍️
✨ Silicon Valley-based venture capital firms have played an increasingly prominent role in the token ecosystem as it has grown.
✨ Many top VC firms spotted the potential in spaces like DeFi and NFTs early on.
✨ Silicon Valley Selects spotlights some of the VC world’s favourite token projects.
Although the token economy is still in its infancy, the space has seen huge change over the past 14 years, to the point where Silicon Valley is showing interest in the space today. Since Bitcoin launched as a Cypherpunk-led movement back in 2009, thousands of tokens have emerged. Crypto is now a trillion-dollar industry. One of the key changes to come out of this growth has been the role venture capitalists play in the space. In recent years, leading VC firms have provided support to niches like DeFi and NFTs—spotting key trends early on before they grew. As VC funds are integral to the ecosystem today, we curated a Collection called Silicon Valley Selects featuring some of their favourite tokens. Read on to learn more.
Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.
How crypto started as a grassroots movement 🌱
The token economy started when Satoshi Nakamoto launched Bitcoin. The first cryptocurrency token optimised for total decentralisation. Bitcoin received no outside backing, and anyone could mine their own coins by securing the network.
As the space has grown, many teams have emerged to contribute to the token movement. This has led to the creation of thousands of projects and tokens.
Although Bitcoin bootstraped growth from the ground up, new projects typically require funding to build new products. While Satoshi spent months developing Bitcoin and launched it in a covert manner, the space has become more competitive today. This is because there are so many projects hoping to establish themselves.
Token teams often seek investment to pay for engineering, design, marketing, legal teams, and other costs. This is why venture capitalists play a crucial role in the ecosystem.
Silicon Valley’s involvement in crypto 💵
Running a successful token project is expensive. Many projects turn to crypto-native firms to fund their ideas in exchange for a token allocation or equity. For the projects, this provides a chance to contribute to the token economy. For the VCs, investing in the space offers a chance to support promising projects and secure a potential return from receiving an allocation of tokens.
Just as it did with Web2 Big Tech companies like Netflix and Facebook in the 2010s, the venture capital world has played an important role in the token ecosystem over recent years. Many early decentralised finance projects built their protocols after receiving funding from VC firms. More recently, Layer 1, NFT and Metaverse projects have also raised funding from prominent investors in Silicon Valley and beyond.
While there are many crypto-focused VC firms, some of the leading teams investing in the ecosystem today include the likes of Andreessen Horowitz (otherwise known as a16z), Paradigm, and Polychain Capital. a16z has been particularly influential, backing projects like Uniswap, Bored Ape Yacht Club, and Solana early on. The Silicon Valley firm famously rose to prominence out of the early Internet era. a16z co-founder Marc Andreessen has frequently drawn parallels between the emergence of the World Wide Web and the crypto ecosystem today. In May 2022, a16z launched a $4.5 billion fund to support crypto projects.
Advantages and disadvantages to Silicon Valley’s crypto interest 🤔
Venture capital’s interest in crypto tokens has advantages and disadvantages. On the plus side, it’s never been easier for projects to raise funds and contribute to the ecosystem. Without VCs, the ecosystem would be in a different place today as some crucial projects may have never got off the ground. Additionally, the top venture capitalists have historically had an excellent track record when supporting promising projects.
On the other hand, some VC firms have faced criticism over their investment choices. As there are many firms ready to invest in the ecosystem, projects can raise funds without fulfilling their vision. This can lead to saturation and a dilution of quality projects in the ecosystem. Many VCs lock in deals that ensure they are guaranteed a return on their investment before tokens are available to the public. Additionally, many fear that VCs with large token allocations could increase centralisation. These issues have raised questions about whether VCs have made the playing field less equal. Some have argued that VCs represent the antithesis of crypto’s core ethos.
There are benefits and drawbacks to venture capital’s growing prominence in crypto. But it’s fair to say that the ecosystem has grown as a result of some investment firms. Moreover, as the token ecosystem grows, it’s likely that VC firms will continue to play an important role in the space.
The token.com Collection 💫
Silicon Valley Selects features several projects that have received support from crypto-focused VC firms. It gives an insight into where the leading firms think the token ecosystem could head in the future.
The early decentralised finance space received financial support from firms who believed in the vision for creating an alternative financial system. Silicon Valley Selects features some of the leading DeFi projects that raised capital in their early stages. They are MakerDAO, Uniswap, and Compound—three “blue chip” projects that have had a major impact on the DeFi landscape since they launched.
Since Bitcoin and Ethereum found success, many alternative blockchain networks have emerged. Polkadot, the ecosystem that acts as a hub for “parachain” networks, is one of the most popular tokens among institutional investors and venture capitalists, per Messari data. As a result, it also features in our Collection.
Several so-called “alternative Layer 1” networks rose to prominence in 2021. This was partly because they offered affordable transaction fees while gas fees on Ethereum soared. The likes of Avalanche, NEAR, and Solana welcomed new users amid the boom. They also received funding from venture capital firms that predicted a rise in alternative chains. The three networks feature in the Silicon Valley Selects Collection.
After DeFi and “alternative Layer 1,” NFTs and the Metaverse have received funding from firms like a16z. Many venture capital firms have touted the Metaverse and Web3 as the future of the Internet and backed the leading projects before they gained traction. Silicon Valley Selects features some leading NFT and Metaverse projects that have received funding: ApeCoin, Axie Infinity, Decentraland, The Sandbox, and Yield Guild Games.
Discover more 👀
Now that you’ve read our guide, you should have an understanding of how the venture capital world has impacted the token ecosystem. To discover the top tokens the VC world has invested in, head to token.com and check out the Silicon Valley Selects Collection. Knowing where to invest in the token economy can be difficult. We hope that our Collection highlighting where the world’s top investors are looking makes navigating the space easier. Head to the app to learn more.
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