Editor’s Note: In this article, we follow the perspective of a seasoned participant in the cryptocurrency market and KOL to gain insight into his analysis of current market trends, reflections on his personal investment philosophy, and profound insights into the angel investment field. Through his writing, we not only gain insight into the dynamics of the cryptocurrency market, but also appreciate how an investor continually learns, adapts, and seizes opportunities in a rapidly changing financial environment. Additionally, the article provides foundational knowledge of venture capital, offering readers a comprehensive perspective to understand this multidimensional and dynamic industry.
Preface
It’s been a while since I opened a document, and facing a blank page, I didn’t know where to start. However, I do miss the feeling of freely expressing myself through writing. Unfortunately, such opportunities have been scarce lately. So, I set a time limit of one hour for myself. In these sixty minutes, I allowed my thoughts to flow freely and let my pen produce beautiful words. No distractions from the internet, no interference from the outside world, just a blank paper and the passing of time. (Actually, the title you see now was decided at the last moment. Initially, even I wasn’t sure what I would write about.)
Current Market
The recent cryptocurrency market has been rather sluggish, with altcoins steadily declining over the past three months, and Bitcoin has also been stagnating. I anticipate that this low period will continue throughout the summer until August, when the market may see a recovery with the launch of the Ethereum ETF, preparations for the presidential election, and potential interest rate cuts. However, this is just my opinion and should be taken as such.
Lately, my activities have been relatively limited. Apart from holding ETH, participating in yield farming through Pendle and Gearbox, and signing numerous angel investment agreements, I must admit that I haven’t been involved in many other affairs. Trading has become exceptionally difficult, with almost all airdrop projects in the market encountering sell-offs, with very few exceptions, such as ENA, which has risen by about 50% since TGE. We are in an entirely new market environment. I have previously discussed the issue of low circulation and high FDV tokens in several earlier briefs.
Compared to 2021 and 2022, tokens launched over the past year have hardly experienced price fluctuations after TGE. This phenomenon no longer exists. As Cobie described in his latest Substack article, the price fluctuations of these tokens actually occurred during the private phase. Therefore, unless you are a project founder, venture capitalist, angel investor, a trader with internal connections, or a KOL, you will find this bull market exceptionally challenging. Of course, there are exceptions, such as the overall period from October 2023 to March 2024, which is a good period, and if you participated in some emerging meme coins early, you could still make a profit. However, most people will likely agree that this is one of the most challenging bull markets they have experienced.
Interestingly, even seasoned OGs seem to have not fully leveraged their advantage. Take Hsaka, for example. Despite being a key player in the market, we seem to only see him when the market is easy to operate. Ansem’s situation is similar; he appears to be somewhat directionless. However, should we really blame him? Ultimately, we need to take responsibility for what we buy, when to sell, and what trades we make. Although KOLs create FOMO, the person ultimately responsible for managing funds is still ourselves.
In 2023 and early 2024, I spent most of my time immersed in various trading interfaces, whether it was PvP terminals, Tweetdeck/X Pro, or Telegram’s alpha chat groups. However, recently, I have taken a more relaxed approach to the market. This is mainly because, except for short-term trading, other trading directions seem unsustainable (the rumors about the ETH ETF a few weeks ago being an exception). This situation reminds me of the silence in the market after the Terra crash in May 2022, and we had to return to real life. Although I see some similarities with that time, I still believe that DeFi is experiencing a new resurgence.
While I am looking forward to the return of traditional DeFi, farming points and airdrop hunting seem to have evolved into a new form of DeFi. For example, the Ethena project allows you to lock USDe for three months in advance, and then earn profits in subsequent airdrops. Few people foresaw that Ethena would become so popular. I wish I could have seized such opportunities better at that time. Currently, there is a new stablecoin protocol called Usual, which gives me similar expectations. They are currently operating in the private phase and also offer a high APR. The key is whether they can seize the market opportunity accurately like Ethena (their airdrop plan is scheduled for October).
Stablecoins
I still believe this is the most critical and practical application scenario in the cryptocurrency field. It provides a possibility to store funds in personal wallets without being restricted by the network and to send funds to any corner of the world in an instant. Some stablecoins in the market, such as Ethena, Open Eden, and Usual, come with returns. Although the stability and reliability of these stablecoin returns are still questionable, we have clearly surpassed the era of Terra UST. For example, Open Eden is a stablecoin protocol backed by government bonds that can provide approximately 5% net annualized returns. During the peak of the last bull market, the market value of Terra UST reached $20 billion, while the current market value of Ethena is only $3 billion. I am very much looking forward to seeing how these stablecoins can develop and whether other protocols can challenge their position.
I have a dream that after this bull market ends (perhaps during the trough of the next bear market), we can have a stablecoin that is as secure as USDT/USDC and can provide at least a 5% sustainable return. This market undoubtedly has enormous potential, just think of Wall Street and those investors holding bonds. The first step is to ensure the absolute security of this stablecoin, and I hope we can get the support of financial giants like Larry Fink and Blackrock.
In this bull market, I am looking forward to EigenLayer, Pendle, Gearbox, Hivemapper, and sports betting and prediction market protocols. I miss the high-yield mining projects in the last bull market, such as TOMB on the Fantom chain, which was full of speculation and high risk. Although there are still some similar speculative projects in the market today, their TVL is not high, and they are not very popular.
Overall, I am more inclined to support innovative products, as I am skeptical about the necessity of numerous fork versions of Pendle and EigenLayer. At the same time, I am also seriously considering launching my own project, although this is only a preliminary idea. If you are a developer and interested in this, please feel free to contact me.
Due to the recent market slump, I have been able to spend more time immersed in reading. Let me share some books that I have recently been reading.
The books I am reading mainly cover the fields of philosophy, economics, and life skills. Additionally, as I have gradually ventured into venture capital over the past year and a half, I also intend to read books in this area.
Some Basics of Venture Capital
When introducing venture capital to investors, it is crucial to understand several core terms related to the structure of venture funds.
Please refer to the chart below, and we will discuss these terms in detail in the text.
A venture fund is a fund specifically used to invest in start-up companies, commonly known as “dry powder,” and is the primary investment tool. Each fund is managed as a limited partnership and operates within a period of about 7 to 10 years according to the partnership agreement.
The sole goal of the fund during this period is to make a profit, mainly through two ways:
Performance fees for fund returns, usually around 20%.
Management fees, usually around 2%.
This explains why you hear about the 2/20 model.
The management company, also known as a venture capital firm, is responsible for the day-to-day operations of the venture fund. It is different from the venture fund itself and is an operational entity established by company partners.
The management company uses the received management fees to pay for the company’s operations, including rent, employee salaries, etc. These management fees are used to support the deployment and growth of the fund.
Venture capitalists only receive their performance fees when the limited partners have received their capital back and achieved a preferred return. This is known as the “waterfall structure.”
Overall, the cryptocurrency market has seen recent lows, and the investment landscape remains challenging. While the market continues to experience difficulties, opportunities still exist for innovative and sustainable projects, particularly in the stablecoin space. As we continue to navigate these challenges, we must also take the time to invest in our knowledge and understanding. With an eye towards the future and a critical approach, we can adapt and thrive in the ever-evolving landscape of venture capital and the cryptocurrency market.In order to receive performance bonuses, one must achieve results. The General Partner (GP) is a key member in managing a company and is responsible for overseeing and supervising the operation of venture capital funds. The GP can be a senior partner in a large venture capital firm or an independent individual investor.
The responsibilities of a GP include raising and operating venture capital funds, making investment decisions, evaluating potential investment opportunities, recruiting teams on behalf of the fund, assisting portfolio companies in achieving exits, and deciding how to effectively utilize the funds they manage. In general, the role of a GP can be summarized into two key tasks: investing in promising and high-quality companies and raising more capital for the fund.
The compensation for a GP comes from performance bonuses and management fees from the fund. For example, if the performance bonus is set at 20%, then 20% of the fund’s profits will serve as the GP’s compensation.
Limited Partners (LP) are the financial backbone behind venture capital funds and provide the actual capital. LPs typically include institutional investors such as university endowment funds, pension funds, sovereign wealth funds, insurance companies, foundations, family offices, and high-net-worth individuals.
The core assets of a venture capital fund are its portfolio companies, which are usually startup companies that exchange preferred stocks for investment from the venture capital fund. Although specific requirements may vary depending on the fund, companies that receive venture capital investment generally need to meet the following conditions:
– They should operate in markets with vast potential.
– They should have achieved a product-market fit.
– They should have excellent products that are highly favored by customers.
– They should demonstrate strong economic performance and have the potential to generate significant returns for investors.
Here is a list of some of the largest cryptocurrency venture capital firms:
1. Angel Investments
Angel investments typically refer to investments made in earlier stages of venture capital, and angel investors often operate independently with relatively smaller check sizes. This type of investment usually occurs in the “pre-seed” or “seed” rounds of a company, which are the stages before the product or service is fully developed or in its early stages of development. Angel investments, although risky as most startups may not sustain their growth, also offer significant potential returns if the invested company can successfully grow.
I am passionate about the field of angel investments because here, regardless of background, one can become someone who influences others within 1 to 3 years by investing time, effort, and continuous action. This field is innovative and dynamic, and even without a prestigious educational background, you can become an expert by constantly experimenting, making mistakes, and staying curious.
So, how did I start angel investing? Let’s go back to the beginning of the story. Before entering the world of cryptocurrencies, I was involved in the stock market, focusing on stock trading and improving the quality of life. In January 2019, I created a Twitter account primarily to share content related to these topics. Prior to Twitter, I also ran a blog discussing investment topics and wrote some press releases (which are now deleted). In 2021, I quit my 9-to-5 job and dedicated myself full-time to the cryptocurrency field. Initially, I was randomly investing in NFTs, DeFi projects, and some niche coins on Binance. But as I continued to share my insights, I started receiving opportunities to participate in trades. At first, I declined these opportunities due to lack of experience, but soon I realized that many people with even less experience than me were already involved.
This experience made me realize that although I initially knew very little about cryptocurrencies, I was able to gradually accumulate experience and find my place in this field through learning and practice.
As you may know, I am a Key Opinion Leader (KOL), although I don’t particularly like that term. With 300,000 followers on Twitter and 30,000 subscribers on Substack, many project founders contact me to ask if I would be willing to invest in their projects, usually without any conditions attached. However, there is an unwritten rule that you should create content for the project, which makes perfect sense. Exposure to the project leads to people paying attention, more people buying, and the price going up.
Therefore, I believe that this round is more focused on KOLs because many founders feel that VCs do not contribute much. Yes, they do have network resources, but they usually don’t have a large audience. On the other hand, KOLs have a large audience and usually have solid network resources. As a result, many VCs have also transformed into semi-KOLs in order to share more benefits. Honestly, I don’t blame them.
Basically, I ventured into multiple areas of the Crypto and Web3 fields out of curiosity. I wouldn’t call myself an expert in any particular field, but rather a well-rounded person with knowledge in many topics. If I don’t have the answer myself, I use my network resources in that field to find the answer. Many opportunities have come to me after people saw the content I wrote or posted and reached out to me. However, I do believe that I have certain advantages in some aspects. In the DeFi field, I am particularly interested in trading DEX, stablecoin protocols, and yield narratives, such as projects like EigenLayer, Pendle, Gearbox, Mellow, and Symbiotic. I am also fascinated by trading, whether it’s on CEX or DEX. My dream is to one day have a competitor that can rival Binance/Bybit, so I also enjoy collaborating with teams that have this goal. I also have an advantage in marketing, knowing which methods are effective as a KOL and which are not.
How to get trading flow?
In the Crypto field, having specialized market knowledge or building a strong personal brand is crucial. Ideally, having both brings the best results.
Angel investors who have significant personal brands or a large audience base can excel because companies value their support, which not only enhances their reputation but also helps with the promotion and distribution of their products. When reputable individuals stand with a company, it sends a positive signal in itself, contributing to the dissemination of the company’s products or services.
Furthermore, when founders mention their investor list in promotional materials and someone sees your name, it becomes a strong trust indicator. For example, if you see that Cobie is also recommending this project, many people may choose to invest without conducting in-depth due diligence. After all, if a project can attract well-known figures like Cobie, it should be a good choice for you too.
When deciding to make a trade, the timing is undoubtedly a key factor. I need to carefully evaluate the trading conditions, including our current market situation and market expectations for the next 3 months, 6 months, 12 months, or even 2-3 years in the future. This is especially important considering the longer attribution timeline.
I also delve into whether the team is developing innovative and market-fit products and whether these products are sustainable. I explore how they will align with market narratives and which venture capital firms may participate. Next, I communicate with people in my trusted network to understand their perspectives, including why certain venture capital friends did not participate or why they did not invest on a larger scale.
I also consider the competition and evaluate the current Total Value Locked (TVL) and future potential. Additionally, I need to ask myself if the protocol can sustain itself independently after the incentive program ends or if it will be abandoned by the market. These questions are essential parts of the decision-making process.
I have outlined the functions of venture capital firms and provided a basic understanding of angel investments. Here are deeper insights into angel investments from Ben Roy:
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To summarize this topic, I would like to share a quote that I particularly like from @DCbuild3r’s recent article on angel investments:
“The accumulation effect of social capital is just as powerful, if not more influential, than the growth of your financial capital. I believe that in any professional pursuit, whether it’s sales, technology development, academic research, or philanthropy, social capital is the key driving force for professional success. Having a network of talented friends is crucial, as they not only have extensive connections, capital, and new insights, but also the wisdom and ability to initiate change. If you become friends with such a group of people, you will be able to work together to truly improve the world.”
That’s all for today.
