Crypto Revolution – The Democratisation of Access

Photo by Alex Knight on Unsplash

Everyone should have the chance to take the same shot – the outcome may well depend on a combination of everyone's abilities and some luck, but everyone gets the shot.

When it comes to opportunities to make money in the investment world, the argument is that the market (in particular, the stock market) is the fairest playing field of all. Everyone has access to the same instruments, and in recent months, it has even been argued that the “masses” (or Reddit) have levelled the playing field against institutional investors.

All is well, then. Why are we even digging into this thorny issue of equality of opportunity again?

Because we all know that the above is nowhere near a true reflection of reality. The stock market – whether companies come for a listing through a traditional IPO, a direct listing or a SPAC – is the final destination for companies on their journey of growth, rather than an early milestone. As we wrote about almost two years ago now when we asked “Where did all the money go?”, the surfeit of capital in circulation and the structure of how traditional finance is set up precludes the everyday investor from accessing these opportunities.

PE and VC funds are largely limited to “professional investors”, with limitations put in place thanks to well-meaning (but arguably poorly thought out) regulations aiming to protect “mom and pop” investors from excessive risk. As a result, the best opportunities are accessible only to investors who can shell out a US$100k minimum ticket to a PE fund – how many people have that much spare cash lying around to lock-up with a manager for 10+1+1+1 years?

By the time these investments come to fruition, protected for years from mark to market valuation changes, they list on the public stock market as “lower risk” investments that everyday investors can access. The operative word is “lower”, not “low” – risk is ever present, but what is definitely not present is the potential for meteoric upside. Of course, being stock investors ourselves we know there is a large opportunity to make multiples on one’s investment from IPO but the bulk of the value uplift (often thousands and times the initial capital) has been extracted from seed rounds all the way to listing. Listings, for this part of the chain is the end, not the beginning.

Access was never fair – everyone knew that. And then something changed.

It all started with Bitcoin.

All aboard

Bitcoin never had an IPO. There wasn’t even an offering prospectus outlining risks and important earnings information. No S-1, no registration, just a 9-page white paper outlining the idea and some code that had been implemented. In fact, until now, no one knows who started it all.

But it was available for anyone who wanted to get their hands on it. No fuss, no form filling, just plug in a processing unit (PC, GPU, whatever you fancied) and start picking up some Bitcoin.

That freedom – the freedom of being permissionless – has been at the heart of the crypto revolutoin to date. And make no mistake the revolution is only just beginning. Bitcoin today trades at just under US$60k apiece, but had its humble beginnings priced closer to zero. The cries of regret of those who had sold “just $100 of it worth when it was worth $1 and sold at a 100x gain” tell the entire story of what exponential growth and adoption can do to an asset’s price – even in the face of widespread scepticism.

When we say that crypto is a nascent asset class that offers VC-type returns with public equity liquidity, the implications of that are clear: because there are no minimums in terms of size, qualification or any other regulatory registration needed to make an investment, the everyday investor can literally walk in and buy a piece of any project they fancy.

Of course, the “free for all” arena that is the crypto economy is fraught with as much danger as reward. The success stories are those we continually hear of, from Bitcoin to Ethereum, from AAVE to Uniswap, from Thorchain to Synthetix to Curve. Yet there are also billions of dollars’ worth of unfulfilled promises, overly ambitious projects that are “still building”, billions of dollars lost in hacks and perhaps untold billions more of failed projects or outright fraud.

Yet, how different is that from the VC world? A founder with an idea and some numbers on a spreadsheet comes looking for funding – there’s a tiny chance it could be the next Mark Zuckerberg, and a massive chance that it flops – for any collection of reasons including fraud, excessive ambition and technical failure. The only difference is that founders in crypto can approach ANYONE, and the outright non-traditional structures that exist in crypto (from a collection of smart contracts built on Ethereum to a DAO or even a company) offers flexibility that traditional corporate structure cannot offer. What does it mean to hold a token rather than a share? What if there’s no company, but there are claims on revenues from smart contract interactions?

Democracy presupposes that each voting citizen has the ability to make the right decisions for themselves, and that the collective decision making and submission to the social contract will be naturally optimised. Unlike traditional VC, crypto projects have very few barriers, other than the need to do some preparatory work (get a crypto wallet set up, perhaps) and a lot of research.

Leaps of faith – and those who take them

To be clear, the many questions that are rightly asked about investing in crypto are valid and not to be glossed over. Yet investing itself is the very act of putting capital at risk in exchange for a prospective future return. The disclaimer that everyone needs to accept before risking any capital in crypto is what is better known on crypto twitter as “DYOR”: “do your own research”.

And when it comes to transparency, nothing could be further from the truth than the oft-peddled tripe that crypto is opaque and a black box. To be sure, it isn’t something that one can simply walk in and understand – most of it is programming code. But ALL of the code and ALL of the transactions conducted by a contract is publicly viewable and auditable, with many protocols now allowing users and token holders (one and the same) to vote on governance matters – which is more than can be said of listed companies that report earnings once a quarter and are run by executives.

Unlike traditional VC/PE, there is nothing stopping anyone from taking a shot at making it big in crypto. Founders like Vitalik Buterin (Ethereum), Stani Kulechov (AAVE) and CZ (Binance) have built massive protocols and businesses with funding raised almost purely from the public, and the uplift in value for token holders has been rewarding many thousands of times over. Critically, these were not spinoffs from a branded PE/VC shop: these were just individuals with an idea and the gumption to back themselves and go for it. And here they are, the behemoths of a new age.

As their projects mature, new generations of founders come along and take on the mantle of growth. First it was computing layers like Ethereum, then came DeFi and now NFTs. Mind you, they’re not a new thing – non-fungible tokens have their roots in Ethereum’s ERC-721 standard, and their first iteration was in the spawning of Cryptokitties back in 2017. Another story of how the ludicrous evolves into the revolutionary with the passing of time and maturity.

The NFT boom has most recently culminated in the story of Metakovan, who is now best known for having placed the winning bid for Beeple’s “Everydays: The First 5000 Days” digital art piece, sold as a non-fungible token by none other than Christie’s for a whopping $69m.

Who is Metakovan? Previously pseudonymous like most of crypto twitter, Metakovan revealed himself to be Vignesh Sundaresan, a Singapore-based entrepreneur and investor. The first we’d heard of him prior to this auction was when his project, Metapurse, launched as a collection of other Beeple digital art pieces, as well as land parcels in upcoming digital metaverses like Decentraland, perhaps the most pertinent applications of NFTs.

Prior obscurity aside, the point is that well-timed, well-positioned investments in crypto – as a function of its nascency and the scope of exponential adoption – offer massive asymmetry in risk/reward. On one hand, the risk is a 100% blowup, and one loses everything. On the other, exponential returns over time as adoption flows into a potentially universal asset class.

US$69.3m to spend on a piece of digital artwork at Christie’s is more than just a purchase: it is a statement. The critics of the auction price have come hard with scathing comments, ranging from “Why can’t I just take a screenshot of this?” to “He’s pumping his own book of NFTs”. That may be true, but the reality remains that Metakovan had $69.3m of cash lying around and paid that sum for a piece of digital art to Beeple. Barring absolute collusive fraud, the statement is a testament to the wealth that can be created from the right investments in the space and the global nature of what this space has to offer. We don’t know Vignesh Sunderesan but the fact that he comes from the subcontinent without a glossy ivy league background shows that anyone with the intellect and capability to apply themselves to this space can make it. He had access and opportunity -something which up until very recently would simply have been impossible. Indeed if he was from the east coast of the US, instead of the many critics crying foul from the fences, maybe they would be celebrating him as the visionary he may well prove to be.

Everyone gets a shot

As with many of the cultural developments that happen in the crypto space, they begin with a largely benign typo/autocorrect. “HOLD” became “HODL”, which spawned “BUIDL”. One that came out last year was an accidental typo that led to DeFi being “The Future of Finance” coming out as “The Future of France”.

Coincidentally, France’s national motto “Liberté, Égalité, Fraternité” would not be a far cry from describing the esprit de corps of the world of crypto investing.

The freedom of access, offered in a manner that is permissionless, enables everyone who is willing to put in the work to get an equal shot at getting into these projects at an early stage and hopefully enjoying their success, rather than being the receptacle for a VC/PE exit at a traditional IPO. It further gives the best entrepreneurs from all over the world (not only in traditional hubs like Silicon Valley) access to a wider pool of capital giving rise to the possibility that global innovation could be supercharged through sheer numbers.

We continue to see the rise of this nascent asset class as a generational opportunity to create immense wealth. The potential for exponential growth and adoption, and the ability to participate in these projects as an investor at such an early stage that whoever gets involved and diligently applies their skills can quite easily enjoy that asymmetric risk/reward balance and amass huge amounts of wealth.

No exceptions, no permissions needed.