INVESTING IN EARLY STAGE TOKENS MADE SIMPLE

Blockchain Coinvestors Newsletter

Vol. 3, No. 16, July 2021

INVESTING IN Early Stage Tokens Made Simple

Last week we published our updated list of blockchain unicorns for midyear 2021. Many of you were surprised to learn that there are more than 100 blockchain enterprises and crypto projects that are valued at more than $1 billion, and we received a lot of comments about the high coverage that Blockchain Coinvestors has of these unicorns in its funds (See opening Exhibit). However, the fact that surprised most was that there are now 76 crypto projects that trade at market capitalizations over $1bn.

In newsletter Vol. 3, No. 13 we focused on 'Protocol Tokens Made Simple'. Today we provide a broader token taxonomy to assist those of you who would like to join us investing in early stage token offerings (email ir@blockchaincoinvestors.com if you are an accredited investor and want to know more.)

Please join us on Monday August 2nd at 7am pst or 12pm pst to watch our webinar 'Investing in Early Stage Tokens' or watch the recording by clicking here to learn more.

Crypto Tokens Simplified

To begin with we need a simple taxonomy to break apart the diversity of cryptoassets that are included in those 76 crypto unicorns and the many thousands of projects that are ranked below them. Just as in private equity investing, we need to differentiate between different industries, sectors, business models and technologies, so too in token investing.

The following exhibit provides a simplified 8 part categorization that we find helpful. There are much more complex and probably more nuanced taxonomies that have been created for other purposes, but right now for investing purposes, we find this is a good start - although it is hard to be MECE in this arena.

The first four categories are focused on monies and asset backed tokens. We find it helpful to simplify these back into four categories, none of which are where we focus our own investing activities. They are:

  1. Central Bank Digital Currencies. These are in the news all the time these days as the world's governments begin the challenge of upgrading central bank fiat currencies to new digital versions. CBDCs are just that. Digital versions of national currencies. The most advanced is the digital Chinese Yuan.

  2. Stablecoins. Until we have a world of digital monies, we need to move back and forth between 'old world' fiat currencies, and 'Fifth Era' digital monies. You can't buy, hold, trade, or use fiat currencies in digital wallets so they are unfit for our future digital economy. Right now, in order to make those conversions back and forth we need something that is digital but backed by fiat so that it trades in a closely correlated way to fiat. These are 'stablecoins' such as USDC and USDT (Tether). Much is being written about stablecoins, and increasingly governments are appreciating that by their own inaction they have created global demand that these crypto stablecoins are now filling - with serious potential repercussions for fiat currencies.

  3. Cryptoassets. Our third category are cryptoassets. Here we see digital tokens that have been created to be means of payment, units of account, or stores of value to function in a digital economy and without the help of a traditional centralized authority like a central bank. This is where the crypto movement began with the search for a solution to native e-cash which led to Satoshi Nakamoto's original white paper and Bitcoin.

  4. Asset-Backed Tokens. Beyond stablecoins backed by fiat currencies we can in fact back or secure a token with any asset. So this fourth category is diverse, from crypto commodity tokens like Universal Gold (UPXAU) and Universal Carbon (UPC02) to tokens that confer ownership of real estate, funds, private investments, and so on. We also call these security tokens (STOs). For us, NFTs are a subset of this category, although NFT platform tokens are included below and we could make a case for including the actual NFT's in that eighth category instead of in this one.

A few examples of each of these four categories are included in the next exhibit.

Our Investment Focus

The second four categories are focused on tokens that support software development projects of one sort or another. We wrote newsletter Vol. 3, No. 13 to provide some historical context and simplified understanding of how these tokens have become the drivers of the leading edge of software development around the world. We see them coming in four principal flavors at this time. They are:

  1. Protocol Tokens. These are the tokens being used to incentivize and reward communities building decentralized, distributed software platforms. We focus on the protocol layer but conceptually this could be middleware or applications too. Examples are Ethereum, Polkadot, and Solana to mention just three.

  2. Utility Tokens. Beyond protocol tokens, there are a few other tokens that clearly have great utility in the context of the projects that they support, but which don't neatly fit into protocol, DeFi, or NFT platform categories. These are used to support projects like Filecoin's distributed storage, DFinity's Internet Computer, and so on. We include them here as well as the 'centralized exchange tokens' from major exchanges such as Binance, Huobi, and FTX.

  3. DeFi Platform Tokens. All really decentralized financial projects use tokens in their communities for various reasons, and we have seen a proliferation of these tokens as DeFi begins to scale up and become a viable alternative to financial services provided by our traditional centralized financial providers. Examples here include Aave, Compound, Sushi, and Uniswap to name but four.

  4. NFT Platform Tokens. Finally, we are now seeing the tokenization of the digital entertainment world, as well as the large but disorganized world of assets that we buy and sell but that we don't think of as being traditional financial assets. Fine art, collectibles, and so on. These are being tokenized to provide digital ownership records which in turn will enable global digital marketplaces for them and we include the asset backed tokens themselves in our Asset-Backed category. However, there are also entire platforms for these tokens and those NFT platforms are also using tokens in their software development communities. Examples include Dapper Labs' Flow, or Gala Network's Gala token.

A few examples of each of these four categories are included in the next exhibit.

Investing in Early Stage Tokens

We believe that these second four categories of tokens are important for us as early stage investors.

The movement from centralized software development, to decentralized, distributed software development is not a new idea, and Linux proved more than 30 years ago that it could create a mission critical software platform of great value. What's different now, is that the software creators are using tokens to support their projects throughout their life cycles. Increasingly they take little or no equity capital. This means that if you want to be an investor in the next generation of global software solutions, you simply have to consider investing in early stage tokens of the leading projects.

We are doing just that at Blockchain Coinvestors, and we will have our new Blockchain Coinvestors fund in position later this summer to take advantage of these early stage tokens.

Please reach out to us directly, or email ir@blockchaincoinvestors.com if you want to get onto the waiting list to learn more once we are ready to share the details.

Thank you for reading.

Alison Davis
Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

Launched in 2014, our goal is to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and capture superior returns through investments in the leading blockchain venture partnerships. The strategy is now entering its 8th year and has to date invested in 25 pure play blockchain venture funds in the Americas, Asia and Europe; and in a combined portfolio of more than 300+ blockchain and crypto projects including 30+ blockchain unicorns. Headquartered in San Francisco with a presence in London, Menlo Park, New York, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.

FUND PERFORMANCE

Blockchain Coinvestors Funds are continuing to generate strong returns. To date, over 80% of the funds we are invested in are performing as top quartile funds against the Cambridge Associates benchmark. This remarkable performance results from powerful tailwinds driving the world towards a future in which digital monies and digital assets are ubiquitous and the businesses and projects providing blockchain and crypto products, services, and infrastructure benefit disproportionately.

BLOCKCHAIN COINVESTORS FUNDS

Blockchain Coinvestors’ goals are to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships:

  • Fund III is open only to investors who meet the Qualified Purchaser definition with a minimum subscription of $250,000.

    • A “qualified purchaser” is an individual or a family-owned business that owns $5 million or more in investments. The term “investments” shouldn't include a primary residence or any property used for business.

  • Fund III Parallel is open to investors who meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. Please contact ir@blockchaincoinvestors.com if the minimum is of concern.

    • Currently, an individual or entity is a qualified client if he, she, or it: (i) has a net worth of $2,200,000 prior to investment in the fund (excluding the value of his or her primary residence).

While the two funds are substantially the same, there may be some funds and investments that are only available in the Qualified Purchaser vehicle. Blockchain Coinvestors funds can take investments via IRAs. We support several providers, including AlgoIRA, Kingdom Trust, Millennium Trust Company and Pacific Premier Trust Company (Pensco).

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@blockchaincoinvestors.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@fifthera.com to learn more.

LINQTO
'Private Investing Made Simple'

While our funds are only available to Accredited Investors who are also Qualified Clients we believe in the democratization of investment access to all investors and look forward to that day. In the interim, we have partnered with Linqto which is an easy to use Mobile and Web app that makes it exceptionally easy to invest into attractive opportunities. The provide access to Accredited not Qualified Client investors as well as much lower minimums. Go to Linqto.com or download the app from your App store to use this approach.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

Click here to receive the insightful weekly crypto newsletter and webinar invitations from our Blockchain Coinvestors partner Lou Kerner.

REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links:

Investing in Early Stage Tokens

- August 2nd, 7:00am PST
- August 2nd, 12:00pm PST

What are SPACs and Why are They Relevant to Blockchain & Crypto?

- August 16th, 7:00am PST
- August 16th, 12:00pm PST 

Blockchain Coinvestors Investment Thesis

- August 30th, 7:00am PST
- August 30th, 12:00pm PST


Recordings of past webinars and calls can be found at www.fifthera.com/webinars.

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