Crypto investors are pushing each other to actively participate in the networks they fund.
A segment of the blockchain world has been buzzing since at least last fall about “generalized mining,” an idea that the decentralized web invites users to contribute resources to running different services – all while earning rewards for doing so. Extended to the investment community, that means directly engaging the networks you invest in.
The latest funds to make the case for direct involvement are CoinFund and Placeholder, with a new partnership revealed first to CoinDesk. The partnership comes in tandem with the launch of the Grassfed Network, an initiative meant to showcase CoinFund’s commitment to helping its portfolio projects achieve network effects.
“CoinFund and Placeholder have both spoken previously on the use of generalized mining as a differentiated strategy for cryptofunds to directly engage networks and generate returns,” CoinFund wrote in a Medium post announcing the initiative. “These services include, but are not limited to, transaction processing, staking, software or Merkle Mining, content curation, market making, active governance, and many others.”
Investors began articulating this perspective over social media, and many of those conversations point back to a Twitter thread that CoinFund founder Jake Brukhman shared in October, in which he concluded:
“Not only does #GeneralizedMining enable investors to add measurable concrete value to their portfolio networks through bootstrapping, liquidity provision, and operational loss-leading; cryptoinvestors are also the best-positioned profile for this type of early network engagement.”
New protocols need users, and Grassfed is meant to dramatize that dynamic. CoinFund is already providing support to live networks such as Livepeer, Steemit, Compound and others.
Placeholder has consistently been interested in protocols that allow different kinds of stakeholders to participate in different ways. From its backing of Aragon, MakerDAO and Decred, the fund has consistently invested in optimizing cooperation.
Placeholder has been bullish on Decred. As we previously reported, the protocol was conceived to improve bitcoin governance by sharing authority over the network across stakeholders. Decred holders stake tokens to win a chance to participate in governance, and Placeholder will delegate their tickets to Grassfed’s voting service, marking an ongoing collaboration across the two funds.
Putting voting into the same category as hashpower stretches what some longtime crypto watchers think of as “mining,” but CoinFund actually takes the notion even further: including putting crypto into on-chain loan-making services, starting with Compound.
“We see any activity that is compensated with on-protocol rewards denominated in network assets as ‘generalized mining,’” Devin Walsh, an analyst at CoinFund, told CoinDesk in an email.
Brukhman hasn’t been the only one to articulate the advantages of deep-pocketed investors putting resources into network health.
Multicoin Capital’s Tushar Jain wrote about some of the active network participation his fund has pursued, concluding:
“Just as a traditional VC firm would set aside capital for follow-on rounds, we believe that crypto investors who typically invest in protocols will find it’s a best practice to also set aside capital for supporting the network.”
Meanwhile, another Brooklyn-based fund, Notation Capital, admitted that the deeper it gets into this kind of work, the harder it is to understand how to optimize it, writing:
“We’re super excited to participate in these communities and learn from others, and to be frank, we still have more questions than answers. Should we be building more internally? Partnering? Outsourcing? It may be some combination of these strategies or something else entirely.”
Early entrants into the generalized mining space appear to be betting that a track record in aiding companies’ bootstrapping will pay off – in investor-speak – asymmetrically.
“As investors, we are looking to attract great teams seeking our network participation in their early stage projects,” CoinFund’s Walsh said. “We want teams to come to us because they know they will get measurable value from this relationship while bootstrapping their networks in early stages.”
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