Keeping track of new developments in the distributed ledger technology space.
Token Economy
🏔️ #14: Post Venture Retreat Edition

(also published on Medium)
📌 Token Economy
Hello Hodlers
Some of our most addict readers will have noticed that this week's issue came a bit later than usual, and in a slightly more concise form. Reason being both of us have been attending the first edition of the European Venture Retreat up in the Dolomites last week, so haven't had enough time to stay on top of and fully digest the numerous events that occurred while we were hiking. And quite frankly we were looking forward to switching-off a little, which also made it easy not to care about the massive crash. We will resume with the usual format from this week, but we thought we would still drop a quick note to assure you all that we all made it up and down in one piece, and to share a few of the takeouts.

The retreat was a raging success by the way, huge kudos to Stefano and Lorenzo for thinking of the format, organizing it all and pulling it off in a very smooth fashion. And thanks for all the participants for giving it a chance. We had snow, rain, fog, wind and sun, and three days (and nights) to spend with a great and diverse group of 60+ people in an truly stunning and unique setting. 
These, plus more at the bottom, are some of the views we had the fortune of experiencing (while waiting for the pro pics):
Inevitably crypto was a very popular topic at every hour, be it sun or be it rain. We were lucky to have some of the deepest thinkers in the space up there with us. These are some of the interesting bits that stuck with us from various conversations: 

  • 🔩 The framework for valuing crypto assets is shaping up. Knowing which variables impact crypto prices will be tremendously helpful to investors but crucially to the founders who design the monetary policies powering these assets. Chris Burniske is pushing the boundaries on this front. One key variable in his models that historically has not attracted enough attention is velocity, i.e. how frequently the monetary base changes hands in a given unit of time, which denotes whether an asset has more features of store of value or means of exchange. Point being that velocity is actually negatively correlated to network value, ie the higher the velocity the less value the network needs to store for a given transactional output. That stuff can be designed into the token economics, so what velocity should a network target? What's the right balance of low and high velocity users? The importance of crypto economic design cannot be underestimated.
  • 🆙 Hussein Kanji noted that token valuations have an inherent long bias (they mostly cannot be shorted). How to reflect that in any valuation model?
  • 👽 Crypto founders are just “wired differently”. Typically born in the mid-to-late nineties, these folks know nothing but an online world, for them code is the only religion and crypto has been their fist and only investment. We had the good fortune of having Luis Cuende from Aragon with us, which is one of the most glaring examples.
  • 🥚 On that note, crypto founders are (or can be) well diversified from day 1. Unlike traditional founders who typically hold all their eggs in one basket, crypto founders are likely to have done well on Bitcoin or Ether and to have reinvested some of the proceeds in other projects. Is that good or bad? It's good in that they have a strong vested interest in the whole ecosystem while being able to maintain a long term focus without short term pressures; it's bad in that they may have less hunger and drive and may be easily distracted away from the main thing. In any case, the 'all eggs in one basket' framework is often forced onto founders by VCs (who themselves are well diversified across a portfolio), while crypto is empowering and liberating founders.
  • 🤐 There is a whole underground cottage industry developing around ICOs. One can now relatively easily 'farm' KYC'ed accounts to get around personal caps just like a mobile app could farm reviews, dark investment pools are forming up to gain more leverage in pre-sales, and god knows what else. All this is fascinating, if not a little scary...
  • 💰 Lots of people raising or thinking of raising funds, or know someone who's raising a fund. The majority are hedge funds and that's a little worrying as the way they are typically structured is not necessarily aligned with the projects they fund. Hedge funds allow for redemptions and those tend to happen at the worst of the times (market crashes), potentially triggering a death spiral where more redemptions cause more selling pressure which cause even more redemptions. This will be bad for the networks, as data shows high volatility reduces usage.
  • 👔 On that note, it seems that old school institutional LPs are starting to dip their toes in the space, which would be great validation.
  • 📈 Generally, and perhaps not that surprisingly, the consensus is that there is still a very long way to go despite the market feeling a little overheated. An interesting metric that was thrown around was the cumulative amount of fresh fiat capital that has gone into crypto so far vs the aggregate network value of $100-150 billion, most likely only a small fraction of that. Someone tried to do a rough back of the envelope math assuming 50-100k new wallets created daily across all exchanges, depositing an average of a few hundred USD, and then looking back 6-7 years with an exponential growth curve. Local Weiss beer didn't help with the mental calculations, but the end number did not amount to very much USD, in the grand scheme of things.
  • 📊 On that note, it was mentioned that the resilience in crypto markets after material corrections is a sign that new fiat is anxiously waiting on the sidelines for attractive entry points. In fact, the days around the PBoC news had volumes on exchanges well north of $10 billion over 24 hrs (highest in history and about 2x normal volumes).
  • 🏦 BTC over the counter volumes apparently match those traded on exchanges. That's a lot bigger than what most were expecting. Pro traders really don't trust exchanges...
ℹ️ About us
Token Economy is written and curated by Stefano Bernardi and Yannick Roux.

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Token Economy · The Dolomites · 38121 Trento TN · Italy
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