Crypto Assets Offer New Opportunities for VCs on a Global Scale
As institutional capital in the crypto space increases regularly, the need for blockchain technology and related enterprise support is at an all-time high, and several companies are working hard to provide both as the arena expands.
One of those companies is Coefficient Ventures, a crypto fund set on financing blockchain systems worldwide. Thus far, the company has made over 25 investments in companies and applications like Filecoin for decentralized storage; Raiden for scalability; and Zeppelin to improve smart contract capabilities.
Speaking with Bitcoin Magazine, founding partner Chance Du described how she sees a central role for blockchain investment across all sectors of the global economy.
The global financial industry features significant flaws in its current design. Two billion of the world’s people have virtually no access to financial services, while an additional four billion have very limited access. Du says she began investing in blockchain technology in 2017 because she believes it can remove these barricades and allow for a “more accessible and democratized” financial infrastructure.
“The internet has been an extraordinary conduit for uploading, exchanging and disseminating information,” she explains. “However, until 2009, if you wanted to go and exchange value online, there was no way to do that. Whether it was data, money, the title to your car or home, you had to do it in a way that didn’t involve legacy institutions such as banks, governments and clearing houses. With blockchain technology, people can have bank accounts in their pockets. They no longer need these legacy institutions that have kept so many consumers out. Blockchain technology offers a value protocol which allows for the frictionless exchange of value.”
Hoping to assist businesses that can remove financial pain points from our monetary systems, Coefficient Ventures also offers extensive start-up support. Its current advisory portfolio includes projects like TomoChain, which seeks to build blockchain and crypto-based partnerships between national markets; IoTeX, a decentralized network for the Internet of Things; and Havven, a payment network and stable coin system based in Australia. Du says the next step involves collecting capital from accredited investors to fund these projects and incentivizing contributors to “build tools and services” to facilitate them.
As with all business enterprises, challenges have emerged that have made it hard for start-up VCs to stay on track. Du notes that the financial industry is a relatively saturated space, with hundreds of crypto funds and traditional VC funds joining the “ICO investing race” every day. Competition is extremely fierce, and carving out the right business strategies isn’t always easy.
Regulation and the constant changes it presents has also made things difficult. Du says one of her main goals is to see the cryptocurrency arena thrive and she recognizes the necessity to adhere to ever-changing regulations in order to bring further legitimacy to the space.
“We must keep a close eye on every country’s regulatory environment and adjust our strategies accordingly,” Du says. “Token exchange listings, for example, are directly affected by regulatory shifts. Many exchanges are not allowed to list any new tokens during strict regulatory days, and we’ve had to find alternatives for fund liquidity.”
One strategy that has worked for Du involved turning to decentralized exchanges or DEXs. Users’ own wallets are utilized to transfer and collect funds, and transactions are published directly on the blockchain, thus eliminating several risks one might encounter through centralized platforms.
“We are also considering tokenizing our own fund, but we must be cautious to remain in compliance with the SEC,” she continued. “I think the whole world is watching the moves of the SEC. They’ve proven quite adequate when it comes to dealing with emerging technologies like cryptocurrencies. I believe once the SEC has figured out how to treat crypto, other countries will mirror its moves, but right now, governments don’t seem to understand them well enough yet.”
While hostility still seems to exist toward digital assets, Du suggests legislative systems will eventually adapt to become more accepting. She even compares cryptocurrency to Uber, which in the beginning, she states, was the object of speculation amongst those who felt it was breaking certain legal barriers.
“Uber got tons of legal challenges in the beginning, and it drove regulation once it was adopted by the masses,” she explained. “The demand of Uber from the public was so high that the local laws were forced to adapt. The same will happen for cryptocurrency.”
In the end, Du believes that blockchain and digital assets present advantages often missing from traditional finance mechanisms.
“Traditional VCs have burdens in the new game because of the old investing philosophies they carry,” she says. “Things don’t work the same way, anymore. Compared to traditional VCs, new crypto funds move fast and understand the underlying value of crypto projects.”