Best Twitter threads of the day – September 14th 

In light of the recent macro-level developments in the crypto exchange landscape and changing venture funding dynamics, we analyzed the pattern of crypto exchange launches.@TheBlockRes has examined data of 263 crypto exchanges. pic.twitter.com/vX7TmKByqa

— Atharv Deshpande (@ADtheintern1) September 14, 2022

1/ As opposed to previous bull runs, no. of exchanges launched in crypto is no more correlated to the increase in the total market cap of the industry. This could be a result of the sophistication of existing players in the market and evolving regulations in several jurisdictions pic.twitter.com/Q5EHK8DfmW

— Atharv Deshpande (@ADtheintern1) September 14, 2022

3/ products and services have been developed, making it more difficult for new players to enter the market

Evolving Regulations

As nations are presenting more stringent regulations for crypto assets, selective business licensing to crypto services has also caused

— Atharv Deshpande (@ADtheintern1) September 14, 2022

4/ a decrease in no. of exchanges entering the market. With increasing recognition from retail and institutional investors, governments are making a concrete effort to create regulatory frameworks for digital assets, thereby validating the crypto movement.

— Atharv Deshpande (@ADtheintern1) September 14, 2022

5/ Crypto-friendly countries like Singapore, Estonia, etc are tightening regulations for the financial security of their citizens in the aftermath of recent events of the @terra_money crash, downfall of @3arrowscap, and liquidity crisis surrounding lenders like @CelsiusNetwork.

— Atharv Deshpande (@ADtheintern1) September 14, 2022

6/ On the other hand, responding to the executive order from the @POTUS, @CFTC introduced a new bipartisan bill that empowers the CFTC with exclusive jurisdiction over the digital commodities spot market of the US, although it remains unclear what exactly a digital commodity is.

— Atharv Deshpande (@ADtheintern1) September 14, 2022

7/ In the last three years since our previous analysis,

China’s decision to ban crypto forced native exchanges to shut down/shift their HQs elsewhere. Singapore saw a 220% rise in no. of exchanges launched. The no. of exchanges established in Seychelles increased from 3 to 17. pic.twitter.com/rO6EBL0AAx

— Atharv Deshpande (@ADtheintern1) September 14, 2022

8/ Ideally, policymakers would want to balance tightening rules for crypto services & their seamless integration with tradfi. If countries cooperate to avoid regulatory arbitrage and promote universal guidelines, we'd be a step closer to a more efficient global financial market.

— Atharv Deshpande (@ADtheintern1) September 14, 2022

Venture capital and web3.

— cantino.eth (@chriscantino) September 14, 2022

NFT Twitter has been lobbing grenades at VC.

Apes were recently valued at $4B. Doodles and Proof approaching unicorn status. All were initially bootstrapped, and have early users to thank.

But what does it mean when projects outgrow their communities, and turn to VC for growth?

— cantino.eth (@chriscantino) September 14, 2022

First, let’s dispense with the us vs. them mentality.

We all know: not all VCs are bad. They help founders shoot their shots.

But we also know why these narratives exist. To warn against repeating the flaws of web2.

VC is not perfect. But web3 is improving the model.

— cantino.eth (@chriscantino) September 14, 2022

In fact, VC itself is a proxy for decentralization. It allows for dozens/hundreds of investors to own small pieces of companies.

Web3, with its ability to support the growth of artists and companies, makes everyone a venture capitalist of sorts.

But there is a key difference.

— cantino.eth (@chriscantino) September 14, 2022

By collecting tokens, you do not receive equity in projects. But, you might still see profits—just on a shorter time horizon.

Instead of waiting 5-10 years for an exit or IPO like VCs do, you can exit whenever there is liquidity.

Important: Projects do not owe you liquidity.

— cantino.eth (@chriscantino) September 14, 2022

Good news: Web3 fundamentally tilts towards decentralization.

Indie creators, from Nouns to XCOPY, are bootstrapping capital from communities.

BAYC had a 9-figure warchest BEFORE taking VC.

Compared to web2, we are arcing towards progress—let's not diminish this innovation.

— cantino.eth (@chriscantino) September 14, 2022

Web3 is by and large open-source, from code to block activity. Its openness and interoperability establishes the basis for decentralization. A major QOL improvement over web2.

VCs own VERY little of this code.

The technology is inherently communal.

— cantino.eth (@chriscantino) September 14, 2022

Decentralization also enables new defenses.

Because many projects can be “forked” (duplicating their underlying source), participants can simply choose to follow value-aligned derivatives if the original project becomes extractive.

Web3 is a forcing function for good behavior.

— cantino.eth (@chriscantino) September 14, 2022

Now, let's be real about the downsides of VC in web3.

Simply put, 9/10 VC-backed companies fail. This is a problem, but it’s also a solution. It means more projects shooting bigger shots.

Yes, VC is a risky investment class—but it has its place in the ecosystem.

— cantino.eth (@chriscantino) September 14, 2022

Some startups in particular will need major cash infusion to have any chance at scale—more than they could raise from communities.

Infra layers like Alchemy or Pinata, for instance, are well-suited to VC or hybrid fundraising models.

Not everything needs to be community-funded.

— cantino.eth (@chriscantino) September 14, 2022

Now to the root of the problem:

There is dissonance when projects have rallied users around speculative promises to keep valuations high, and then suddenly fracture those prior incentives by raising large sums of venture capital. https://t.co/YVT7Ti8BtS

— cantino.eth (@chriscantino) September 14, 2022

When that blue-chip takes outside funding, you better believe that their investors have an expectation of returns.

KPIs before VC: User sentiment, community participation, floor price

KPIs after VC: Revenue, valuation, daily users

And so, incentive structures begin to crack.

— cantino.eth (@chriscantino) September 14, 2022

It is not all doom and gloom.

Companies will do their damndest to please both collectors and investors.

They will NOT succeed 100% at both.

But, over long time horizons, if the benefits of VC scale pay off and millions of users accrue, patient collectors will see major gains.

— cantino.eth (@chriscantino) September 14, 2022

Yes, suddenly your token is less liquid.

But do you believe that projects can deliver this generation's biggest gaming and entertainment companies?

If so, perhaps projects that signal the balance of both collector and investor returns is the greatest alpha of all.

— cantino.eth (@chriscantino) September 14, 2022

A warning: Some VCs have raised outsized capital, and are deploying with a flamethrower.

Startups growing too fast, with inflated markups. Many failing due to misaligned incentives.

It’s OK to be skeptical. VC is a competitive industry like any other.

Sometimes it gets ugly.

— cantino.eth (@chriscantino) September 14, 2022

But implying that VC simply doesn’t have a place in web3, or that its incentives are universally incompatible, doesn’t leave room for innovators who need that institutional capital for a real shot at mainstream success.

If you’re building today, keep your options on the table.

— cantino.eth (@chriscantino) September 14, 2022

So, who actually owns web3?

-Developers
-Miners
-Startups
-Investors
-Users

In short, everyone.

But what’s important now is getting the distribution of ownership right. We need people fighting to bend web3 towards decentralization and equality, and balance power structures.

— cantino.eth (@chriscantino) September 14, 2022

Drawing battle lines and fueling stereotypes isn't in the spirit of web3.

We need nuanced, patient conversation—not scare tactics and rhetoric.

If done right, web3 will succeed in part thanks to VC, not despite it. Much like web2, but with better aligned incentives.

End rant.

— cantino.eth (@chriscantino) September 14, 2022