“Crypto’s $3 trillion in liquid value creation in 10 years now rivals all other venture-backed startups combined.” Messari.io
Digital assets powered by blockchain technology offer new trading and investment opportunities with greater liquidity and speed. What we call “liquid ventures” – digital assets issued by early-stage companies and projects – expand the tradable environment.
Investing in venture capital (VC) generate net profit Outperforming the S&P 500, but not accessible and illiquid for average capital. 7 to 10 year lockup periodExperienced traders who consider the unique nuances and risks of liquid ventures can have new alternatives to long-term locked-up VC investments.
Wes Hansen is Arca’s Director of Trading and Operations. This article is part of CoinDesk’s Trading Week.
Traditionally, young companies had limited funding options and mostly relied on VC funding to start their companies. Similarly, access to startup investment opportunities is notoriously restricted to the ultra-high net worth and select funds. As a result, investors have been looking for alternatives to expand this pool of opportunities.
Recently, blockchain has allowed startups to issue tokens to bootstrap their projects. The digital asset ecosystem democratizes start-up investing by giving regular investors broad access to the potentially huge returns of a liquid venture market, often with no holding period restrictions for traders. allows you to buy and sell assets to
But traditionally, startups have the advantage of time to experiment and grow without worrying about public scrutiny or token price movements. However, when companies offer publicly tradable assets to the market, they face increased regulatory scrutiny.
Digital asset projects feel many of the growing pains of traditional startups, such as immature organizational processes, hiring and funding responsibilities, product rollouts, and tech bugs, but are more publicly experienced. When a team faces obstacles or struggles to find product market fit, any growth failure or dip is magnified by the team’s public persona and the price action of its token.
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Many teams are ill-prepared for the stress and complexity that comes with public scrutiny and pressure. As a trader in this space, long-term play is less important when investments are continuously marketed.
The trading nature of liquid ventures can be complex and volatile due to the myriad of factors that can affect the price of a token. For this reason, trading Liquid Venture tends to be best suited for traders who can actively monitor ecosystem idiosyncrasies with the support of analysts and other traders around them.
Some factors to consider are:
Nascence: Venture projects and their tokens are often backed by small, young teams with limited resources. Inexperience, poor communication, mismatched priorities, and infighting can derail a project at any time. Successful teams demonstrate perseverance and diligence, putting the best interests of their business and their customers first, delaying the short-term gratification of high token prices. These teams understand that a focus on the company’s long-term success is favorable for sustained price appreciation in the future.
Resilience: Traders must be quick in decision-making, flexible in investment thesis, and knowledgeable about the factors that drive token prices. Agility and resilience to move on from bad deals while maintaining the ability to properly evaluate the next deal is paramount. And balance is key. Don’t be afraid to lose more money or retaliate too aggressively for bad deals. A good trade should not acquire overconfidence that can miss red flags.
Information: On-chain metrics such as revenue, volume, users or active addresses, and total value locked (TVL) can provide a real-time picture of the health of a token or company. Additionally, startups are required to provide public information through transparency reports.
Regulation: Inconsistent and often abrupt decisions adversely affect token prices, as regulators may unexpectedly subpoena token projects for violating exploratory investigations or outdated regulations. Digital assets and start-ups need clear, relevant and fluid regulation that allows those in the field to experiment and evolve. Otherwise, maintaining traditional frameworks for new technologies will create non-compliant firms and encourage them to build teams in other countries, making the US a prime location for the growth of the digital asset industry. prevent it.
Experienced venture investors know that the peaks and troughs of investing can be exhilarating and unpredictable. But for liquid ventures, these fluctuations occur publicly in assets that react instantly to news.
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Sometimes there is no room for error or recovery. Markets are direct indicators of problems and successes. Still, liquid ventures are a strong complement to equity and fixed income investments, providing additional diversification to a liquid asset portfolio and access to emerging companies with high growth potential. .