PROOF OF CONTINUOUS INNOVATION IN BLOCKCHAINS

Blockchain Coinvestors Newsletter

Vol. 3, No. 18, September 2021

PROOF OF CONTINUOUS INNOVATION IN BLOCKCHAINS

In the last newsletter Vol. 3, no. 17, we talked about Diffusion of Innovations Theory and we posited that blockchain has still not moved beyond the Early Adopter phase based upon the global penetration rates of cryptoassets and applications that have been built on top of the blockchain protocols. We argued that blockchain is about where the Internet was in 1999. We asked you to think back to 1999 and remind yourself what was going on back then, and what happened in the following two decades. Especially with regard to the global adoption of the technology and the massive value and wealth creation that followed.

We had some interesting reactions to that newsletter. Most who wrote to us asked us to give our viewpoints on what this implied for the price of Bitcoin and other leading cryptoassets and what it implied for our early stage investing strategies. We responded that we think continuing to place new early stage capital investments makes sense if you believe that new innovators may still surface - as we do.

But the question that one of you asked that we want to address today was "can you give me one piece of evidence that blockchain is still innovating and that continuous innovation will occur in this space or should I just place a bet on Bitcoin since all the innovation is already embedded in it?"

Evidence that Blockchain is still Innovating

Take a look at the chart above from Rareliquid. Ben Chon is a former JP Morgan analyst and he publishes interesting Youtube videos regularly. His chart above was intended to explain the rapid increase in the price of Solana that has been the narrative of the last couple of weeks. The chart was made before the most recent run up in the price of Solana.

Here are some takeaways we have from his table.

1. A comparison of blockchain protocols like this demonstrates that there are enormous variations across them in regards to:

  • Capacity

  • Speed

  • Cost of transaction processing

  • Ability to handle massive usage volume

  • Number of developers building applications on each

2. The oldest blockchains (e.g. Bitcoin, Ethereum) are much slower, more expensive and have less capacity than the newest blockchains (e.g. The Ethereum v2.0 upgrade and Solana). Now to some extent this results from design choices that were intended to increase decentralization, censure resistance and security, but nonetheless the key performance indicators are dramatically different today.

3. The valuation of blockchains does not directly correlate with their performance and potential. There is a 10x and more valuation gap between, for example, Ethereum and its fast growing competitors who are benefitting from:

  • Learning how to iterate beyond Ethereum's capability level

  • Are able to do this by building new code with the learnings from those that have gone before

  • Have the advantage that they are not burdened by legacy code that needs to be maintained and upgraded (remember the burden of legacy becomes larger the older your software is, and eventually bogs down even the most capable software developers and companies)

4. Those new applications that require faster, higher capacity and lower cost transaction processing, have the option of choosing more capable blockchain operating systems to build on top of. Their developers are likely to migrate towards the blockchain protocols that solve these fundamental constraints if they plan to serve tens of millions of users.

5. This is especially true as we move out of the Early Adopter phase into the Early Majority phase. As the number of users starts ramping up quickly, cost, capacity and throughput matter more than ever. Early blockchain applications had handfuls of users. Today blockchain applications may need to cope with daily average users in the millions - e.g. NFT platforms and applications.

Implications for Investors

For investors, this discussion is fundamental. 

Just like Facebook displaced Myspace, and Google displaced Inktomi so we should assume that new blockchain players will surface who may improve upon the capabilities of those that have gone before.

We often give the example of the first generation ISP's which were painfully slow and very unreliable. We can all remember trying to download images only to have the ISP fail halfway through after we had waited 10 and 15 minutes for the image to appear line by line. Today we have global, real time, high definition, multiparticipant, video streaming. 

Innovation did not, and has not stopped.

The new, and often more capable players can be invested into at much lower valuations - especially if you are an early stage blockchain investor. Of course all the best practices of early stage investing need to be applied including the need for diversification.

Solana may be a case study in the making.

And more are coming everyday.

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 crypto projects. The strategy is now in its 8th year and has to date invested in more than 25 pure play blockchain venture funds in the Americas, Asia and Europe; and in a combined portfolio of 300+ blockchain and crypto projects including 30+ blockchain unicorns. Our funds rank in the top decile amongst all funds in their respective categories on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in Grand Cayman, London, 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

- September 13th, 7:00am PST

- September 13th, 12:00pm PST

Options for Investing in Blockchain & Crypto

- September 20th, 7:00am PST

- September 20th, 12:00pm PST

Institutional Investors - Making the Case for Blockchain

- September 27th, 7:00am PST

- September 27th, 12:00pm PST

Meet the Blockchain VCs

- October 4th, 7:00am PST

- October 4th, 12:00pm PST

Options for Investing in Blockchain & Crypto

- October 18th, 7:00am PST

- October 18th, 12:00pm PST


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

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