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Why Decentralization Matters1


So the news over the weekend is that Microsoft is buying GitHub. Many companies and developers are thinking “do I want my source code hosted on a service owned by Microsoft?” Fortunately, the protocol that GitHub is built on, Git, is open source and there are other Git hosts, like GitLab. There are also a number of proprietary Git solutions offered by companies like Atlassian and BitBucket. Moving your source code repositories from GitHub to GitLab or somewhere else is not a simple thing, but it can be done. Kind of like moving your email from Outlook to Gmail. Lock-in is a bitch. And everyone who has ever been locked into a shitty piece of software over the years knows, there is often no easy way out. Software built on decentralized protocols offers a different and better way. You can move your data out if you don’t like where things are going. And that is what some developers are doing right now with GitHub. https://avc.com/2018/06/why-decentralization-matters-2/

Why Decentralization Matters1


So the news over the weekend is that Microsoft is buying GitHub. Many companies and developers are thinking “do I want my source code hosted on a service owned by Microsoft?” Fortunately, the protocol that GitHub is built on, Git, is open source and there are other Git hosts, like GitLab. There are also a number of proprietary Git solutions offered by companies like Atlassian and BitBucket. Moving your source code repositories from GitHub to GitLab or somewhere else is not a simple thing, but it can be done. Kind of like moving your email from Outlook to Gmail. Lock-in is a bitch. And everyone who has ever been locked into a shitty piece of software over the years knows, there is often no easy way out. Software built on decentralized protocols offers a different and better way. You can move your data out if you don’t like where things are going. And that is what some developers are doing right now with GitHub. https://avc.com/2018/06/why-decentralization-matters-2/

Why Decentralization Matters1


So the news over the weekend is that Microsoft is buying GitHub. Many companies and developers are thinking “do I want my source code hosted on a service owned by Microsoft?” Fortunately, the protocol that GitHub is built on, Git, is open source and there are other Git hosts, like GitLab. There are also a number of proprietary Git solutions offered by companies like Atlassian and BitBucket. Moving your source code repositories from GitHub to GitLab or somewhere else is not a simple thing, but it can be done. Kind of like moving your email from Outlook to Gmail. Lock-in is a bitch. And everyone who has ever been locked into a shitty piece of software over the years knows, there is often no easy way out. Software built on decentralized protocols offers a different and better way. You can move your data out if you don’t like where things are going. And that is what some developers are doing right now with GitHub. https://avc.com/2018/06/why-decentralization-matters-2/

A Guide for Blockchain Usage Metrics


Source: http://startupmanagement.org/2018/06/03/a-guide-for-blockchain-usage-metrics/ Do you ever wonder why most cryptocurrencies rise and fall together like a herd? Seemingly, there is no discrimination between good and bad coins, and the root cause is a lack of discrimination between smart and dumb money. In theory, smart money will find the better coins, because their information signals are better. But when the majority of investors are from the dumb money category and generating a disproportionate amount of trade activity, the supply/demand dynamics are messed up. In truth, there is a lack of significantly visible traction metrics for these coins, and not enough credible valuation  metrics that can be universally applied. Speculators don’t care for these metrics. The only Kool-aid they drink is a belief that skies are the limit, and price multiples grow on trees. That’s why I am always on the hunt for tokens that are actually used, and have been saying: We are in dire straits for token usage metrics, not just to vindicate the “utility token” moniker, but also to eventually bring some sanity into how we could evaluate some of these coins. In the long term, I believe that not all coins are equal. And not all coins deserve the same valuation metrics. Super tokens like Bitcoin or Ethereum are multi-purpose, and they might deserve extraordinary multiples in part because it helps them secure their sovereignty as bona fide consensus protocols with strong crypto-economic defenses against theoretical attacks. (although with POS the attack equation changes a bit.) Aside from technical protocol coins, most other coins will be more closely aligned with end-user traction as the primary correlation factors for their valuation. This includes all flavors of app coins including the upcoming variety of so-called governance coins. The purpose of a coin is to create economically valuable business models directly or indirectly via the ecosystems they engender. Blockchain-based transactions are arguably a key traction metric. Of course, market prices can be influenced by news instead of usage activity, or they can be artificially influenced by lopsided token distributions that affect price elasticity as a result of the scarcity of the trading pool. But these are short term, centrally manipulated tactics that eventually run their course. You can amplify and concoct your news for so long before that game is up, and you can lock your reserve tokens for so long until eventually your Token economic models catch-up with reality. If you look at CoinMarketCap, you get a macro view of the market, but if you look hard at the project levels, the real traction will be revealed from the bottoms-up metrics related to real usage. Below is a list of the Macro vs. Traction View metrics, as I see them. The Macro View is Top Down whereas Market Reality Traction happens Bottoms Up via Outcome and Activity metrics. Macro View Market Cap Daily Trades Amounts raised Number of Coins Number of Apps Traction View Outcome Metrics Active Users (Daily, Weekly or Monthly) Total transactions (number) Value of transactions (value) Balances in smart contracts (value) Transactions to/from contracts (number) Value of transactions to/from contracts (value) Blockchain rewards to users (value) Wallets value (value) Activity Metrics (numbers) Unique addresses Active addresses Wallets Nodes Transactions per second Blocks per hour Developers API calls Software downloads Repositories Commits App downloads Clients Here is my favorite (short) list of traction metrics (Testnet transactions don’t count): Ethereum: 52% of transaction types going to smart contracts (Source: Amberdata) CryptoKitties: 2.8 Million smart contract transactions in first 6 months (Source: Dappboard) 0x: Over 100,000 lifetime trades (Source: 0x Tracker) Until there are real revenues and profits (if that applies), I’d like to see more traction metrics from blockchain companies. We need to see them soon.

Valuation Inflation


In the blog post announcing changes at SV Angel last week, the SV Angel partners wrote: The amount of money raised in seed rounds has doubled and valuations have increased significantly. I thought I’d go back over the last three USV funds and see what I could learn about the market from our experience. Since raising our third early-stage fund in 2012, we have led or co-led 16 seed rounds, 31 Srs A rounds, and 8 Srs B rounds, for a total of 55 new USV portfolio companies over the last six years. I put all of that data into a google sheet this morning and this is what I learned: The average pre-money valuation for a seed round has gone from $5-10mm in the 2012 time frame to $10-15mm in the 2017 time frame and the average amount raised in seed rounds has gone from $2.5mm in the 2012 time frame to over $4mm in the 2017 time frame. The average pre-money valuation for a Srs A round has gone from $10-15mm in the 2012 time frame to $22-$27mm in the 2017 time frame and the average amount raised in Srs A rounds has not changed very much. It still averages around $5-7mm. We have not been leading or co-leading many Srs B rounds in the last three years so my data on that market is not good enough to come to any conclusions there. USV invests in North America and Europe and our largest density is in NYC and the Bay Area. This data is averaged across all of those markets and so it could be off significantly for a specific market. We find the Bay Area to be the most expensive place to invest and Europe to be the least expensive. I think the comment made by the SV Angel partners is correct, at least directionally so. What this means for returns for angel and early-stage investors remains to be seen. Right now the angel and VC sector is producing great returns, but those are driven off of investments made in the 2005-2010 era for the most part and we have yet to see what the returns for the 2010-2015 cohort will deliver and we are a long way from knowing how the 2015-2020 era will turn out. https://avc.com/2018/06/valuation-inflation/