Venture investors view the current situation as a warning, as well as an opportunity, for the rise of decentralization and maturation of the greater blockchain ecosystem as the cryptocurrency market processes the volatility of the last few days.
Marc Weinstein, founding partner of Mechanism Capital, said, They are actively evaluating and investing in the right possibilities. If anything, the collapse of centralized corporations from opaque counterparty connections has strengthened the concept of DeFi.
Decentralized finance (DeFi) is frequently connected with relying on blockchain technology to perform services via smart contracts, whereas centralized finance (CeFi) typically refers to more traditional business models that include individuals managing funds and manually executing services.
Historically, the venture market isn’t “very outraged” by what happens in secondary markets, according to David Gan, general partner at OP Crypto. Regardless, the apparent demise of FTX is upsetting for everyone, not just in the VC area, but across the board, he said.
It speaks to what they have been witnessing over the previous ten years when there are significant crashes and burns: It’s the Wild West out there, Samantha Lewis, principal at Mercury, said.
Lewis summarized the situation by saying, When it comes down to it, she sees it as a continuation of the phase that started when winter arrived and seen Luna and all these insane companies crash and burn like BlockFi, Celsius, and now FTX. As an early-stage venture investor, it indicates that the enthusiasm has definitely subsided. However, that marks the maturing of the area that many of us have been longing for.
According to Gan, capital increases would likely be kept to a minimum over the upcoming few months. People or even venture funds had a lot of deposits on FTX at the same time, so they are currently locked out.
For instance, according to a report by The Block, Multicoin Capital was impacted by the FTX collapse with around 10% of its Master Fund’s total assets under management still awaiting withdrawals on the exchange.
Regardless of the FTX scenario, we continue to have a fairly pessimistic outlook on the market due to the global macro environment. That will persist for at least a year, which is a little longer than people anticipate.
Investors want the euphoria and inflated valuations of cryptocurrency businesses to fade overall.
Values are declining, therefore now is a good moment to start over and return to reality regarding values and what can be accomplished with tokens, etc., the investor stated. Lewis continued, Crypto locals are freaking out, but so many people outside the world don’t even know what FTX is.
When new employees join the sector in two years, they might hazily recall this point in time, but it won’t have the same significance for them as it has now, according to Lewis. However, the current discussions must center on issues that can be resolved with better infrastructure and legislation.
Market sentiment is shaky, but committed venture capitalists with knowledge of multiple crypto market cycles will keep investing, according to Weinstein.
According to Lewis, this presents a big opportunity for performers who have been creating genuine value for the area. “FTX did provide value, but they are thinking about it in a long-term sustainable way,” the speaker said.
Lewis asserted that the combination of excessive amounts of money flowing about and a complete absence of regulation culminated in what happened this week. “When you combine those two, evil actors are sure to result.”
After that, Lewis quipped, there was so much money being thrown at anyone who can speak intelligently about blockchain and crypto. That money needed a place to go and was being used in activities with no real purpose. The value wasn’t really being driven by any core commercial use cases.
Due to a number of factors, such as transparency provided by on-chain data, many investors and market participants now believe decentralization is the best option moving ahead. This situation with FTX, a centralized cryptocurrency exchange, has changed conversations.
This clearly demonstrates the importance of decentralization, according to Gan. He believes that many centralized projects were being sponsored, and they have seen that centralized, non-transparent, opaque firms like Voyager, Celsius, and FTX, etc. Decentralization will therefore become increasingly important. Any open source protocol development will receive extra funding.
Weinstein believes wise investors will “take a hard look at DeFi and improve the user experience for on-chain activity moving forward” despite the short-term hardship.
When you have free access to DeFi, why would you use a centralized, heavily leveraged, insecure platform? Investor enquired. History will keep repeating itself until these centralized actors are properly governed. What stops the emergence of another Celsius?
Though not everybody concurs. Lewis, for one, argues that there are two camps among businesses that are crypto-native and those that are not.
According to Lewis, there is a significant amount of value in the global economy that has not yet reached web3 or the decentralization industry. And if they don’t comprehend it, they’re not going to touch it.
