Crypto venture is quietly undergoing a radical transformation Fund sizes are compressing, strategies are shifting, and new winners are emerging Why? 1/ The set of risks that VC's get paid to take is evolving - and that changes everything

2/ A decent mental model of crypto venture from 2017 to 2021 is that you were arbitraging the gap between private and public valuations of blockchains A L1 blockchain like Solana or Terra would raise at $50-200M in private markets and could trade up to $100B in public ones

3/ This trade worked really, really well -There were not that many crypto funds and so you could generally get into deals -Competition was less stiff and so private valuations were not crazy -There were a limited number of tokens on CEX's and retail gobbled these things up

4/ Risk drives financial returns and early crypto venture funds profited handsomely from the structural risk they took It was hard for them to raise money, there was a huge amount of regulatory uncertainty, and most people were still very skeptical of the space

5/ You could do very well backing up the truck on infra deals even if the products never saw much commercial validation Algorand, Dfinity, Filecoin all helped return early funds Did they ever find PMF? 🤷 But on a huge % of these VC deals made a lot of money

6/ Now the history of financial markets is a history of an arbitrage opening - and then closing As market participants recognize an opportunity, they crowd a trade, and margins tend towards zero

11/The big overarching story here is that the risk in crypto venture is shifting away from a structural one (being early to crypto) to taking risk on every investment This means that what drives returns is shifting too

12/ This may sound obvious but think about the game that most crypto VC's have been playing for the last few years Roll the dice on a bunch of infra things because they fit into the hot narrative and you believe they will trade higher in public markets than what you paid

13/ That trade is quickly dying People who don't shift their strategies will get rekt and have to sublease out their overpriced soho office space to an AI company Financial returns will shift to those who go further out on the risk curve

14/ Very early/green teams Unproven categories Emerging geographies Competitive markets New business models Novel investment strategies Most market participants are not willing to take on these risks And so that is exactly what is going to drive returns

15/ Equity businesses are ironically a perfect example of a novel investment strategy They were not a focus for most crypto venture funds 2017-2024 because they had not generated meaningful returns relative to tokens

16/ Funds who zigged when others zagged will reap the rewards Firms like @CastleIslandVC seeded a bunch of great equity biz's over the last few years and will be rewarded as a result. Good for them. As this strategy is becoming more consensus, alpha will erode Like always

17/ am mega long tokens and there will *obviously* be good returns from correct bets going forward But it will require a higher level of non-consensus to do well Markets are already correcting and pricing this risk. Pre-seed network vals are down 50% from 2021

18/ Being early and right is fucking hard, and that's why there is alpha there We talked to the @pumpdotfun team pre-pivot and passed after one call because who wanted to fund an NFT project in 2023? @mdudas saw something different and 6MV will print as a result

19/ How are we responding? We are looking at everything from revenue-generating businesses in emerging markets to DePIN hardware deployment We are also investing in vv early teams building novel crypto applications