One of the most heavily discussed and researched protocols in the past few years is IOTA. The IOTA protocol is a distributed ledger technology developed by the IOTA Foundation, an open-source distributed ledger that focuses on providing secure communications and payments between different equipment and machines.
In 2017, IOTA was dubbed by many to be the next big thing. By the end of the year, interest in IOTA had certainly peaked as large corporations like Volkswagen and Bosch signed on to develop applications based on it. With the investment of those large corporations and others, IOTA’s total market value dramatically increased from $1 billion to over $12 billion. However, the success and extended market value were short-lived as the valuation fell back to $1 billion in early 2018. The sharp decrease came in large part from concern voiced by Vitalik Buterin, the founder of Ethereum, and the internal turmoil within the IOTA Foundation. Internally, they refused to work with security researchers and experienced fighting and disagreements among their board members.
The disputes and decrease in value would, in turn, make investors back out and take the loss. But Jamie Burke of Outlier Ventures did not adopt that strategy. Outlier Ventures, among many other venture capital companies, believes that not only are the rules of technology being changed, but also the rules of venture capitalism. Like Outlier Ventures, Metastable Capital and Placeholder, two other venture capital firms, have started to explore the notion of taking token stakes in new blockchain protocols.
Traditionally, venture capital firms use other people’s money to buy stock in private companies and eventually cash out on those investments as the company is acquired or goes public. On the other hand, cryptocurrencies are often times illegal for venture capital firms to invest in or hold.
The new method of investing in token states is very legal and has paid off handsomely for many investors. Polychain Capital, founded in 2016 by the first employee of Coinbase, Olaf Carlson-Wee, turned a mere $4 million into well over $1 billion in token assets as a result of this new investing scheme. One of the largest venture capitalists in the world has also jumped on board with the idea. Andreessen Horowitz announced his firm a16z will “invest in traditional financial instruments like equity or convertible notes, and new instruments including the direct purchase of coins/tokens.”
Looking at the real merit behind the strategy of token asset investing, it would seem, at first glance, that the notion is rather worthless. There is certainly large downside risk and both less oversight and control around token asset investing. Additionally, the failings of IOTA leading to a seven-figure loss for Outlier Ventures is not a prime example of what went well. However, Burke and other investors alike are confident in the vision and innovation provided by token asset investing. As noted by Burke, with this kind of protocol investing, the value of holdings in a company has the potential to rise infinitely, even if the protocol’s creator has long been gone. And recent news about an upcoming partnership with Fujitsu and specifics on a digital CarPass technology have moved IOTA sharply north, proving there is still much life to this token.