Original title: (
Joe Pugliese and Artit Wongpradu
a16z is one of the most accomplished investors in the technology and cryptocurrency space.
Despite its impressive track record, the company has made some mistakes over the years.
Some of its worst bets include OpenBazaar, Diem, Basis, and BitClout.
a16z has established itself in the crypto space by betting on industry mainstays such as Uniswap, Solana, and Sky Mavis. The firm also launched a record $4.5 billion crypto fund in May 2022, underscoring its commitment to blockchain technology. But even Silicon Valley's top players make investing mistakes from time to time. Here are some of the worst crypto projects that a16z has bet on over the past few years.
a16z and OpenBazaar
OpenBazaar is an early crypto project associated with Bitcoin's dark market days. The project seeks to create a decentralized peer-to-peer marketplace for goods and services, similar to an open-source version of eBay with cryptocurrency payments.
OpenBazaar was written by Bitcoin developer Amir Taaki and a team of programmers from startup Airbitz as part of the Toronto Bitcoin Hackathon in April 2014. However, the project's creators later abandoned it, and the code was adopted by a new team and renamed OpenBazaar. The first version was launched on April 4, 2016.
As OpenBazaar, the project has attracted the interest of several top venture capital firms in the crypto space. a16z, Union Square Ventures, and Digital Currency Group all backed OpenBazaar with seed funding. a16z contributed to OpenBazaar's $1M and $3M seed rounds and a subsequent $5M Series A. OB1, the company that developed OpenBazaar, has received more than $9 million in venture capital funding during its lifetime, according to Crunchbase.
However, despite its early success and ample funding, OpenBazaar was unable to carve out a niche for itself in the rapidly expanding crypto industry. On January 4, 2021, OB1 announced that it would stop supporting the wallet, API, search engine, and website for the OpenBazaar marketplace, effectively ending the project.
Former OB1 CEO and OpenBazaar project lead Brian Hoffman explained the project's failure in a July 2021 interview with CoinDesk. Conflicting narratives of bitcoin as both an investment and a payment system are the biggest headwind for OpenBazaar, he said. “The evolution of cryptocurrencies, and bitcoin in particular, from a cheap alternative to cash to a store of value — a kind of digital gold — doesn’t make it conducive to everyday Amazon-type e-commerce purchases,” he said. .”
In hindsight, Hoffman also speculates that OpenBazaar might have had a better chance of success had it prioritized supporting stablecoins early on and monetizing the platform by charging a small fee on all transactions. Despite OpenBazaar's strong foundation and roster of all-star backers, its failure will serve as a reminder of the risky nature of venture capital.
The Downfall of Diem
Diem is Facebook’s response to growing interest in cryptocurrency payments, and it received strong early support from a16z and other heavyweights. Facebook announced Diem under the name Libra in June 2019, touting it as a way to send money across its suite of social media platforms without relying on third-party intermediaries or complex currency exchanges.
The project is planned as a dollar-pegged stablecoin running on a permissioned blockchain-based system created by the company's developers. Renamed from Libra to Diem in December 2020, Facebook announced its move to the Metaverse ahead of its Meta transformation in October 2021.
While Diem is a centralized development of the company, it delegates its management to a third party called the Diem Association, of which Meta is one of many with equal voting rights. This group of companies acts as stewards of the Diem currency while also overseeing its development.
a16z is an early investor in the Diem project and a member of the Diem Association, along with VCs such as Breakthrough Initiatives, Union Square Ventures, and Temasek Holdings. It’s unclear how much money Diem raised, or how much a16z contributed. According to a July 1 article in CNET, most members of the Diem Association are expected to contribute as much as $10 million each to the development of the project.
Like many of a16z's investments, Diem started with strong backing from industry titans. Early backers such as eBay, Mastercard, PayPal, Stripe and Visa suggest that Diem is well positioned to bridge the gap between traditional finance and cryptocurrencies. However, as the project has grown, it has come under increasing scrutiny from U.S. lawmakers.
Several clashes with regulators and politicians in 2019 had an impact on Diem's long-term viability. At the end of a Senate Banking Committee hearing in July, policymakers compared Diem and its creators to arsonists and movie villains, with one more vocal critic, Sen. Kennedy (R-LA). Expressing skepticism about the project, he said: “Facebook wants to control the money supply. How can it go wrong?”
Several prominent Democrats from the U.S. House of Representatives Financial Services Committee also weighed in, sending a letter asking Meta to halt development of Diem, citing privacy, national security, trade, and monetary policy concerns. Federal Reserve Chairman Jerome Powell also said the central bank has "serious concerns" about how Diem will handle issues such as money laundering and consumer protection.
The President’s Task Force on Financial Markets doubled down on concerns about these matters, saying that combining stablecoin issuers with large corporations “could lead to excessive concentration of economic power.” Even former President Donald Trump expressed skepticism about the project. "If Facebook and others aim to be a bank, they must seek new bank charters and comply with all banking regulations," he tweeted.
After the U.S. backlash against Diem, eBay, MasterCard, Mercado Pago, PayPal, Stripe, Visa Inc. and other major backers also withdrew their support. After two years of slow development and ongoing regulatory pressure, the Diem Association reached an agreement in January 2022 to sell the technology behind the project to Silvergate Capital Corp for $200 million. The sale marks the end of the Diem project.
Supports Nader Al-Naji's Foundation and BitClout
The last a16z investing blunder on our list comes in the form of a double feature: Basis and BitClout.
First up is Basis, a decentralized algorithmic stablecoin project co-founded and led by one of the most notorious entrepreneurs in the crypto space, Nader Al-Naji. The project keeps its base stablecoin pegged to the U.S. dollar through on-chain auctions, adjusting the base supply by issuing "bond" and "stock" tokens. Basis is ambitious and wants to create a "better monetary system" that is resistant to hyperinflation, free from centralized institutional control, and more robust than existing methods of wealth transfer. The project was an early attempt at creating a stable, unbacked, dollar-pegged token, which provided inspiration for other failed stablecoin projects such as Basis Cash and Terra.
Feasibility issues aside, Basis does look cool because it's a fintech brand and a team of ex-Google and Goldman Sachs employees. Under Al-Naji's direction, Basis raised $133 million in April 2018, attracting big names including Bain Capital Ventures, former Federal Reserve Governor Kevin Warsh, Lightspeed Venture Partners and Andreessen Horowitz.
However, neither the Basis team nor the project's backers have done their homework on US securities laws. The consequences soon became apparent, with Basis pegged to dollar-linked bonds and stocks that would be considered unregistered securities, meaning they would be subject to transfer restrictions. With U.S. securities regulations notoriously difficult to understand, Basis realized that creating a "better monetary system" would not be as simple as initially expected.
In December 2018, eight months after raising $133 million, Al-Naji posted an announcement on the Basis website that he would close the project and return the remaining funds to backers. “Unfortunately, U.S. securities regulations have had a severe impact on our ability to launch Basis, but we must comply,” the post reads, adding that compliance with securities laws will impact the project’s censorship resistance and reduce its on-chain Auction liquidity.
Despite being ripped off by Basis, a16z decided to take another bet when Al Naji launched his next blockchain startup, BitClout.
As the first blockchain-based social media platform, BitClout allows users to post updates and photos, reward posts, and buy and sell so-called “creator coins” — personalized tokens whose value depends on people’s reputation. BitClout runs on its proof-of-work blockchain called DeSo, short for "decentralized social."
Unlike a16z's previous failed investments, the firm contributed to DeSo's ICO. According to Crunchbase, BitClout raised $200 million in its ICO from 14 investors, with each investor contributing an average of about $14.2 million. While details on how many tokens investors receive and the vesting period are unclear, DESO is currently down 97% from its June 2021 all-time high of $198.68, according to CoinGecko data.
The negative perception the platform has garnered since its launch hasn't helped generate more interest in BitClout. Initially, to purchase Creator Coins on BitClout, users will need to send Bitcoins to the DeSo blockchain, which will then be converted to BTCLT at a one-to-one ratio. Once in DeSo, however, there is no way to convert BTCLT back to real Bitcoin, effectively trapping users' funds. After DeSo made its code open source, the withdrawal problem has been partially solved. Despite this, many early users lost a lot of money due to the difference in demand between Bitcoin and BTCLT.
While the BitClout and DeSo blockchains are still active, their prospects are not promising. The number of wallets and creators interacting with the BitClout platform appears to have plateaued, with BitClout Creator Coin trading volume at an all-time low. Many complained that BitClout monetized Twitter profiles without the owner's permission. Stephen Palley, a partner at law firm Anderson Kill. also believes that the DeSo ICO should be characterized as an illegal securities offering.
Original link
