Protocols Don’t Capture Value, DAOs Manage Risk

By Spencer Applebaum

| 8 minute read

This essay is a spiritual successor to On Value Capture at Layers 1 and 2. It also builds on some ideas from On Forking DeFi Protocols. In those essays, we explored potential value capture mechanisms for both Layer 1 (e.g. BTC, ETH, and SOL) and what we at the time called Layer 2 tokens. In retrospect, this was a misnomer; at the time we were referring to application layer tokens—e.g. MKR, UNI, and AAVE—as opposed to Layer 2s such as Starkware, Matter, Aztec, Optimism, and Arbitrum.

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Protocols Don’t Capture Value, DAOs Manage Risk

This essay is a spiritual successor to On Value Capture at Layers 1 and 2. It also builds on some ideas from On Forking DeFi Protocols. In those essays, we explored potential value capture mechanisms for both Layer 1 (e.g. BTC, ETH, and SOL) and what we at the time called Layer 2 tokens. In retrospect, this was a misnomer; at the time we were referring to application layer tokens—e.g. MKR, UNI, and AAVE—as opposed to Layer 2s such as Starkware, Matter, Aztec, Optimism, and Arbitrum.

Tokenizing MEV

Today, I am excited to announce that Multicoin Capital has led a $17.4M round in Eden Network, alongside participation from Jump Capital, Alameda Research, Wintermute, GSR, Defiance Capital, and Andre Cronje, the founder of Yearn.Finance.

Solving the Stablecoin Trilemma

Today I’m excited to announce that Multicoin Capital has led a $3M seed round in UXD Protocol with participation from Alameda Research, Defiance Capital, CMS Holdings, Solana Foundation, Mercurial Finance, Solana founders Anatoly Yakovenko and Raj Gokal, and Saber founder Dylan Macalinao.

The Future of Finance is Real-Time Reporting

Today, we’re excited to announce that Multicoin Capital invested in Dune Analytics’ $8M Series A led by our friends at Union Square Ventures. Redpoint Ventures and Dragonfly Capital also participated. As avid users of Dune, we revel in the opportunity to double down in this fundraise after participating in Dune’s seed round last year. It’s not often that we have the opportunity to invest in something that we use everyday.

Scaling Reads and Writes

A blockchain is a database with unique trust-minimization properties. Like all databases, there are two kinds of operations: reads and writes. Most of the discourse to date around scaling blockchains is about writes. This is often measured as transactions per second (TPS). For example, Ethereum supports 15-30 TPS, Binance Smart Chain supports up to 160 TPS, and Solana supports up to 50,000 TPS. Investors have invested billions of dollars to scale blockchain writes.

Networked Cash Flows

DeFi is the most useful application of blockchains. We spend a meaningful percentage of our time thinking about DeFi, and learning from the best DeFi entrepreneurs who are building the future of finance. But when most people think about blockchains, they think about value transfer. Why? Because it’s just easier to understand. Superfluid, a new protocol we just invested in, represents the biggest step forwards in value transfer since the advent of Bitcoin.

Technical Scalability Creates Social Scalability

This essay assumes familiarity with Nick Szabo’s essay on Social Scalability, Vitalik Buterin’s essay on Weak Subjectivity, and Haseeb Qureshi’s essay on Why Decentralization Isn’t As Important As You Think. This essay is not a rebuttal of Szabo’s essay.

Announcing Venture Fund II

Building on the success of our first venture fund, we’re proud to announce that Multicoin Capital has raised a new $100M venture fund to back entrepreneurs building companies (equity), and protocols (tokens) in and around the crypto space. We have been investing out of this vehicle for several months already.

Our Investment in REALY

Today, I’m excited to announce our investment in REALY, a platform that trades the legitimacy of streetwear and other real world collectibles. Our friends at Alameda Research and SNZ Capital also participated in the round.

The Helium Flywheel

Helium is a new crypto economic protocol that underpins a new business model deploying and managing wireless networks at about 100x lower cost than traditional top-down telecom business models. The first wireless technology supported by Helium is LoRaWAN, a popular technology for IoT devices. Multicoin Capital co-led the Series C round in Helium Inc in 2019 along with USV.