Crypto VC: Token investing and the next bull run with Digital Wave Finance

Venture superior has been a cardinal operator for myriad startups successful the blockchain space. Founders cognize however competitory it tin beryllium to unafraid invaluable VC backing that tin support the lights connected and employees paid during the captious archetypal days of a caller project.

In a caller interrogation series, Cointelegraph sits down with executives astatine immoderate of the astir progressive funds investing successful the crypto abstraction to recognize their perspectives, perceive astir their successes and failures, and find retired what gets them excited astir a caller task successful the Web3 space.

This week, Cointelegraph spoke with Andrei Grachev, co-founder of crypto trading entity Digital Wave Finance (DWF) and managing spouse of marketplace shaper and multistage Web3 concern steadfast DWF Labs. DWF Labs has been highly progressive since precocious 2022, having invested successful the Telegram Open Network (TON), Orbs, Radix, Crypto GPT (now Layer AI) and others.

Cointelegraph: It feels similar DWF Labs emerged from obscurity and started aggressively taking implicit the industry. Tell america much astir the past of the money and the inheritance of the partners.

Andrei Grachev: DWF Labs started operating successful precocious 2021, founded by experienced partners from DWF, a highly palmy high-frequency trading entity that had been operating since 2018. We recognized the imaginable of blockchain exertion and wanted to research concern opportunities successful the industry. After making respective tiny investments and token allocations, we refined our concern strategy and hazard tolerance. Since then, we person been actively investing successful promising projects and providing semipermanent fiscal enactment connected a regular basis.

CT: DWF Labs invests exclusively successful tokens. Many players successful the manufacture see this attack to beryllium market-making. Can you explicate the rationale down this determination and wherefore you judge investing successful tokens is the champion approach?

AG: First of all, fto maine clarify that each task we enactment connected has antithetic woody components. While immoderate impact axenic task investment, others whitethorn see token purchases. Over the past 12 to 18 months, we person seen an expanding fig of marketplace makers entering the concern space. While I cannot talk for the full industry, it appears to maine that marketplace makers connection important enactment to projects that is important to their growth.

For example, marketplace makers typically person established relationships with exchanges, and they tin assistance projects with listing introductions. However, it is up to the speech to judge the recommendations oregon not. Another vantage of moving with marketplace makers is that they tin supply liquidity enactment to tokens erstwhile it is needed. In different words, marketplace makers connection worth beyond conscionable executing trades, and this is wherefore we judge that investing successful tokens is the champion approach.

CT: How bash you measure the risks associated with investing successful tokens, and what steps bash you instrumentality to mitigate those risks? Are determination immoderate peculiar metrics oregon criteria you usage to measure the imaginable of a token?

AG: As a Web3 concern firm, we person developed assorted concern theses implicit clip to measure the risks and imaginable of a project. While we cannot afloat disclose our existent concern strategy, we person identified respective verticals that we are funny successful supporting. On our website, we categorize our investments into 9 macro-categories, allowing america to diversify our risks wrong each vertical by selecting a fewer projects with importantly antithetic attributes.

For example, if we place a increasing vertical wherever aggregate players are processing oregon gathering value, we look astatine the anticipation of supporting much than 1 project. If a task has a wide accent connected infrastructure, the adjacent task we prime mightiness beryllium much focused connected the B2B side, and the adjacent 1 connected retail. This attack provides america with a broad sum of the spectrum of an manufacture vertical.

When evaluating the imaginable of a token, we usage assorted metrics and criteria that are circumstantial to each task and vertical. We analyse the marketplace size, competition, squad acquisition and way record, tokenomics, and assemblage engagement, among different factors. We besides behaviour owed diligence and consult with manufacture experts to guarantee that the task has a coagulated instauration and beardown imaginable for growth. While investing successful tokens does transportation inherent risks, we judge that a diversified attack combined with thorough probe and investigation tin assistance mitigate those risks and make affirmative returns for our investors.

Portfolio companies 

CT: What does the perfect portfolio institution for DWF look like? What bash you prioritize: The idea, property of a founder, a squad oregon traction?

AG: Our concern portfolio is diverse, but determination are a fewer categories that basal retired owed to their value successful presumption of the fig of investments. Decentralized concern and trading, metaverse and GameFi, and infrastructure and endeavor are the categories that look to person captured our attraction the most.

When it comes to prioritizing concern factors, imaginable marketplace adoption should beryllium the superior consideration. This is due to the fact that a large thought oregon merchandise that doesn’t person a ample imaginable idiosyncratic basal volition not beryllium palmy successful the agelong run. Addressable marketplace size is besides an important factor, arsenic it helps to find the imaginable gross and maturation prospects of a company.

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However, adjacent with a ample imaginable marketplace and a large product, the quality of the squad to execute is indispensable for success. A talented and experienced squad with a way grounds of occurrence volition summation the likelihood of palmy execution and bring the merchandise to marketplace efficiently.

Grachev astatine the Meta Era Summit 2023. Source: X

Finally, portion buzz and hype tin beryllium utile indicators of marketplace request and potential, they tin besides beryllium misleading and should beryllium taken with a atom of salt. It is important to measure the underlying fundamentals and imaginable for semipermanent occurrence alternatively than being swayed solely by hype oregon trends successful the market.

CT: Among others, you invested successful TON and EOS. Both projects person a analyzable past and a arguable estimation successful the industry. What precisely did you find charismatic successful these projects?

AG: We invested successful TON and EOS owed to their imaginable for marketplace adoption and addressable marketplace size. Both projects were highly ambitious and aimed to code cardinal issues wrong the blockchain industry, specified arsenic scalability and usability. We were besides impressed with the teams down each task and their quality to execute connected their vision, contempt the challenges they faced. While determination were surely controversies and setbacks on the way, we believed that these projects had the imaginable to marque a important interaction successful the industry, and we were consenting to instrumentality the risk. Ultimately, our determination to put successful TON and EOS was based connected a thorough investigation of their imaginable for semipermanent success, alternatively than their existent buzz oregon hype presumption wrong the industry.

CT: One of your caller investments is Crypto GPT. What is that?

AG: As outlined successful our concern thesis, we strive to mitigate hazard by diversifying our portfolio wrong circumstantial manufacture verticals. This attack allows america to equilibrium imaginable profits with the anticipation of losses. Our concern successful Crypto GPT occurred during a play erstwhile we were supporting assorted AI projects. While the archetypal mentation of Crypto GPT whitethorn not person been impressive, we believed our concern could person facilitated further improvement and led to thing innovative successful the market. It is premature to constitute disconnected the task wholly based connected its existent implementation. For example, the archetypal iPhone did not person the copy/paste feature, but consequent iterations improved upon the archetypal model. The Crypto GPT squad is actively processing and launching caller products, and we look guardant to seeing the results successful the agelong run.

CT: What is the champion mode for the startup to drawback your interest?

AG: Our concern strategy is simply a operation of assorted appraisal criteria, specified arsenic the team, market, traction, competitory scenery and more. As we person a precocious measurement of backing applications monthly, we prioritize projects that drawback our attraction with thing unsocial and extraordinary. This is what we would person referred to arsenic the USP, oregon “unique selling proposition,” successful accepted selling jargon. We worth erstwhile projects showcase their strengths, whether it beryllium successful their assemblage oregon traction, arsenic it allows america to easy place imaginable gems and initiate our owed diligence process.

CT: What is your fastest-growing portfolio company?

AG: There are respective fast-growing projects successful our portfolio, making it challenging to absorption connected conscionable 1 erstwhile highlighting them. However, immoderate projects person managed to turn their communities tremendously, specified arsenic Yield Guild Games, which has accelerated the adoption of GameFi; Conflux, with its signature concern with China Telecom; and Coin98, which has seen monolithic adoption successful Southeast Asia. Notably, Synthetix is simply a groundbreaking fiscal primitive that enables the instauration of synthetic assets. Syscoin has been moving for years to cleanable a solution to the blockchain trilemma, and Fetch.ai offers broad tools for developing, deploying and monetizing applications.

CT: How bash you find the champion deals?

AG: I person to springiness recognition to my partners and our team, who enactment tirelessly to enactment informed and scout for caller projects portion evaluating the imaginable of existing ones. We besides be manufacture events to link with the community, which is inactive precise overmuch connected done “decentralized quality nodes.” These events supply america with an accidental to web and grow our connections, which is important for discovering promising deals.

CT: Many large names — including a16z, Shima and others — are investing successful Web3 gaming, but each the metaverse and gaming projects look to beryllium overestimated. Decentraland reportedly had conscionable 38 regular “active users” astatine 1 constituent successful a $1.3 cardinal ecosystem. What bash you deliberation astir Web3 games and metaverses?

AG: We, similar different VCs, are keeping a adjacent oculus connected the Web3 gaming and metaverse spaces. While we spot the imaginable for these projects to revolutionize the gaming and virtual satellite industries, we besides admit the risks and challenges they face. It is existent that immoderate projects person been overestimated, but this is simply a nascent industry, and we are inactive successful the aboriginal stages of experimentation. As with immoderate emerging technology, it takes clip to make and summation wide adoption.

About the industry

CT: How volition the manufacture alteration successful the adjacent aboriginal and successful the agelong run?

AG: The manufacture has grown truthful large that it is hard to talk astir it without diving heavy into each of the verticals. For example, it would beryllium intolerable to disregard the tremendous interaction that AI is bringing to the world. Also, the unthinkable maturation of GameFi has already contributed importantly to increasing adoption. And certainly, DeFi is present to stay.

Decentralized exchanges person been the speech of the time ever since FTX went bankrupt. More recently, determination seems to beryllium a renaissance of memecoins. There has been a tremendous magnitude of gathering down the sound of token price. We are ever funny successful supporting builders. At the moment, we are peculiarly keen to enactment infrastructure projects, from layers to IoT and real-world assets. We judge that these projects volition play a captious relation successful shaping the aboriginal of the industry.

CT: Some critics of token investing reason that galore tokens are not existent investments but speculative assets taxable to terms manipulation and volatility, which negatively power the full industry. How bash you respond to this criticism, and what grounds tin you supply to enactment the thought that token investing is simply a morganatic signifier of investment?

AG: Token investing is often criticized arsenic a signifier of speculation that lacks legitimacy arsenic an concern vehicle. However, tokens are charismatic to some retail and organization investors due to the fact that of their liquidity. Tokens tin beryllium viewed arsenic the adjacent improvement of shares traded connected a banal exchange. In accepted markets, the democratization of entree to the banal marketplace done platforms similar Robinhood and eToro has fixed retail investors the quality to signifier themselves into communities that tin further their concern thesis beyond the marketplace rationale. The maturation of memecoins is simply a premier illustration of this assemblage attack to crypto investment.

Total memecoin trading volumes. Weekly measurement successful black. Cumulative measurement successful green. Source: Dune

While immoderate memecoins person evolved into projects with ambitious ecosystems, specified arsenic Floki, others beryllium solely arsenic speculative tools. Ultimately, investing is astir profit, and an capitalist who doesn’t privation to nett is called a philanthropist. Therefore, token investing should beryllium evaluated based connected its imaginable for generating returns, arsenic good arsenic its imaginable risks and rewards. Some tokens volition make handsome profits based connected their technological value, portion others volition thrive solely owed to their increasing assemblage of enthusiasts.

CT: The caller collapses of FTX, 3AC and others didn’t adhd immoderate spot oregon optimism to the crypto space, portion caller events bespeak that accepted fiscal institutions and the existent fiscal strategy wide are successful crisis. In your opinion, what’s the champion mode to flooded these challenges?

AG: Finance is simply a highly analyzable field, astatine a crossroads betwixt the system connected the 1 manus and authorities regularisation connected the other. Financial institutions are a captious portion of the system successful day-to-day terms, and it is unfortunate erstwhile specified institutions neglect to comply with regulations oregon intentionally instrumentality malpractices.

As for overcoming challenges, determination are a fewer approaches that could beryllium taken. Firstly, expanding transparency and accountability wrong the manufacture is crucial. This tin beryllium achieved done regularisation and self-policing by the manufacture itself. Secondly, embracing technological innovation and caller concern models could pb to much businesslike and inclusive fiscal systems. Lastly, educating the nationalist and promoting fiscal literacy is indispensable successful gathering spot and assurance successful the industry. Overall, a operation of these approaches could pb to a much resilient, trustworthy fiscal system.

CT: This is simply a fast-growing multibillion-dollar industry, but still, for the wide public, it mightiness look similar thing related to illicit activities specified arsenic wealth laundering. What tin alteration this perception?

AG: This interest seems outdated, arsenic implicit the past fewer years, determination has been important adoption of blockchain exertion and Web3. Many portfolio companies person created a affirmative interaction for communities globally. For example, World Mobile Token disrupts the trillion-dollar telecommunications manufacture by enabling connectivity for everyone done a sharing system and distributing web ownership. [...] It’s indispensable to absorption connected builders and the existent worth they bring to the satellite to dispel antagonistic perceptions astir the crypto industry.

CT: What topics successful the manufacture are the hottest nowadays? Just 1.5 years ago, nonfungible tokens were everywhere. Now, each superior protocol has its ain NFT marketplace but precise fewer users. Are NFTs gone, oregon bash you expect them to germinate into something? What’s the adjacent large thing?

AG: Undeniably, NFTs took the satellite by storm, demonstrating that monolithic crypto adoption is possible. Although their archetypal usage lawsuit was intimately related to self-expression, NFTs represented a specified speculative instrumentality for some. In different words, the usage lawsuit was not the astir coagulated to physique upon, but it was so a bully starting point. Now, we spot galore much innovative usage cases successful NFTs, and we are definite that galore much volition travel precise soon.

For example, with the advent of precocious AI engines for creation creation, the quality to motorboat a caller NFT postulation is nary longer constricted to those with the method skills to execute; rather, the accidental has been democratized to empower anyone with an thought to execute rapidly and easily. This simplification and democratization is already spilling implicit into no-code development, gaming and amusement much broadly, similar euphony and filmmaking. Trading volition besides beryllium importantly impacted by AI integration, and we are already seeing immoderate projects emerging successful this field.

CT: In your opinion, what could catalyze the adjacent bull run?

AG: GameFi volition proceed to pb successful wide adoption arsenic the lowest-hanging fruit. What is peculiarly absorbing volition beryllium to spot however AI integrations bring into beingness a caller breed of highly interactive gaming experiences. For example, AI-driven nonplayer characters volition person emotions and personalities of their ain and volition interact with players acold beyond their scripted scope of existence. Therefore, we should support a adjacent oculus connected however AI volition interaction each industries.

CT: There are alarmists who deliberation AI volition “steal jobs” and affirmative thinkers who are definite it volition marque our lives amended and easier. What is your constituent of view? What important changes tin AI bring to the crypto industry?

AG: The thought that AI volition bargain jobs is real, but successful much applicable terms, radical who cognize however to maestro AI integration volition beryllium replacing different people’s jobs. AI, connected its own, is not going to bargain anyone’s occupation unless idiosyncratic programs it to bash so. There mightiness beryllium galore ethical repercussions related to the archetypal result of AI integrations. It is not excessively far-fetched to ideate AI being regulated successful a akin mode to finance, to a definite extent.

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As for the affirmative interaction of AI, it has the imaginable to bring important alteration to the crypto industry. AI tin beryllium utilized for precocious information investigation and predictive modeling, helping traders marque informed decisions and place marketplace trends. It tin besides beryllium utilized to heighten information measures, detecting and preventing fraud and cyberattacks. Additionally, AI tin assistance successful processing much businesslike and effectual blockchain protocols, starring to faster and much scalable networks. Overall, I judge AI volition play a important relation successful the maturation and improvement of the crypto industry, and its interaction volition beryllium mostly affirmative if implemented ethically and responsibly.