Market Update :: Pantera Blockchain Letter, December 2018


Pantera Capital
Dec 14, 2018 · 18 min read

Many are wondering what to make of the recent volatility in the crypto markets and the industry-related stories making headlines. We’d like to share our insights on the recent developments, how they may (or may not) relate to Pantera’s investments, as well as our perspectives on investing in this space in the current climate and in the future.

SEC Announcement

As you may know, the SEC issued a press release on November 16, announcing settled charges against two non-compliant ICOs. In sum, tokens that are deemed securities that did sales to U.S. non-accredited investors after the 2017 DAO Report was released without relying upon an exemption, are considered non-compliant. Non-compliant projects will likely end up having to offer to buy back the token at the sale price from investors and will have to register as securities. The analysis of whether a given token is a security will depend on facts and circumstances including the degree to which the project is live and functional and the way it is marketed.

Many of you are wondering whether this development could affect projects in Pantera’s ICO Fund. While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25% of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using Regulation D or Regulation S. If any of these projects are deemed to be securities, the SEC’s position could adversely affect them. Of these projects, about a third (approximately 10% of the portfolio) are live and functional and, while they could technically continue without further development, ending development would hinder their progress. It is worth noting that the same applies to Ethereum, and SEC officials have suggested that Ethereum is sufficiently decentralized to not be viewed as a security. Additionally, some of the projects in our portfolio were done before the 2017 DAO Report. We will monitor our positions for further relevant developments.

Fortunately, approximately 75% of the fund was invested in with what we believe to be compliant exempt offerings, using exemptions like Regulation D or Regulation S, and with at least one year lockups so as to not violate securities law issues.

Bitcoin Cash Hard Fork

On November 15th, Bitcoin Cash forked as a result of an ongoing debate over the future roadmap of the protocol. The two main factions are those in support of Bitcoin Cash Adjustable Blocksize Cap (ABC) vs those in support of Satoshi’s Vision (SV). Simply put, ABC is seeking to optimize the Bitcoin Cash protocol with the introduction of new features. SV will restore many of Bitcoin’s original opcodes and scripts with the most significant change being an increase in the block size to 128 megabytes. Roger Ver, CEO of, and Jihan Wu of Bitmain, are prominent figures in support of ABC. Craig Wright, the self-proclaimed Bitcoin founder and Chief Scientist of nChain, is a vocal proponent of SV. At the time of writing this, many exchanges have returned the BCH ticker to the ABC fork. The SV chain is likely to trade as BSV and is currently valued at around 90% of the price of BCH. Since BCH is a top five cryptocurrency by market cap, it’s possible some of the volatility we are seeing is a result of this fork.

What’s Next

After such a prolonged drawdown in the market, it’s important to reflect and reevaluate the thesis behind utility tokens, whether we’ll ever bridge the gap from speculation to actual usage, valuations, and the market overall.

We firmly believe that tokens will achieve real world usage. In fact, it’s already starting to happen in the depths of this bear market. Over 1% of all ETH is locked up in MakerDAO (a collateralized stable coin project on Ethereum). 0x and Augur are starting to see very modest usage numbers, and many more projects will go live over the course of the next year. That said, we don’t expect to see a significant increase in adoption until we have cheaper and easier fiat on-ramps and much more scalable underlying blockchains. As long as ETH only does 10 TPS (Transactions per Second), few financial dapps will really takeoff. This will be a 2–3 year process for these networks to scale.

As we’ve said previously, eventually the market will become less correlated, but we don’t think it will happen soon. At some point assets will trade solely on their own merits. If there are ten assets in the space with real cash flows, and a thousand without — those with cash flows will be valued according to their actual yields. Those assets are starting to appear, and we’re buying them, but they’ll have to grow enough for the yield to start to become significant before the market starts pricing them fully.

Ultimately, we believe solutions like Bakkt, ErisX, and Fidelity’s blockchain suite will enable institutional investors to enter the space.


ICOs are a major breakthrough, but there are many advantages of venture capital over ICO funding. In fact, the majority of blockchain projects are better suited for equity rather than tokenization — a reality that many projects fail to grasp. You cannot fit a square peg into a round hole, especially in this market where a project’s future success is predicated on sound crypto-economic theory and a robust incentive system.

Low-volatility, or at least the perception thereof, is a major advantage of equity. 2018 was a difficult year for all cryptocurrencies and tokens. Bitcoin over halved in value from Q1 to Q3. On the other hand, Pantera Venture Fund II’s portfolio value is up nearly 60% over the same period. Zooming out to Venture Fund II’s full lifespan — sure BTC is up 11.3x compared to VFII’s 3.3x gross TVPI, both of which are strong returns. But venture did it without the roller coaster ride and additional grey hairs… not to mention the decreased likelihood of errant trades based on short term emotions (we discuss human nature being pro-cyclical in our April letter). We believe a diversified portfolio of cryptocurrencies, tokens, and equity is the best approach to gaining exposure to this market. This year has reinforced that strategy.

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Bitcoin Price: -53.3%

Bitwise 10 Index: -61.5%

Pantera VFII: 59.5%

Overall Venture investment in Blockchain went up in 2018. The median deal size has increased and the number of deals was also up.

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Median Deal Size: $1.0mm increase

# of Deals: 119+ in Q2 2018

Total Investment: $6.8bn

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Earlier this year, Circle launched their Ethereum based ERC-20 coin, USD Coin (USDC). Following the trend of fiat collateralized stablecoins, Circle’s USDC is pegged to the U.S. Dollar. Similar to Gemini and Paxos’ model, the dollars are held in bank accounts that are subject to monthly audits. USDC is regulated as a registered money services business under U.S. money transmission laws. The virtual currency is also regulated under the New York BitLicense.

In October, Circle partnered with Coinbase to support USDC on its platform, making USDC the first stablecoin supported by Coinbase. Pantera initially invested in Circle in 2014. We have tremendous respect for their ongoing innovations in the space.

More about Circle’s partnership with Coinbase can be read on Circle’s Blog.

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ErisX Series B :: Pantera, Fidelity, Nasdaq Ventures

ErisX announced the completion of their Series B on December 4. Other investors in the round include Fidelity, Nasdaq Ventures, DRW Venture Capital, and TradeStation Securities’ parent company, Monex Group Inc. (TSE: 8698). In early October, ErisX’s first round in early October was featured in the Wall Street Journal and included Pantera and TD Ameritrade as investors.

ErisX CEO Tom Chippas had this to say about their Series B:

“With increasing financial support from leading edge firms, ErisX stands to provide the most robust, secure and regulated digital asset offering available to both institutional and individual participants…Closing this second round of funding enables us to continue building our modern platform and expand our team.” Chippas went on to say that the investments will be used to hire staff and “build out our infrastructure and secure the appropriate steps are taken to develop a regulated market for digital assets.”

ErisX offers individuals and institutions a single, innovative platform to access digital asset spot and futures markets. By combining professional tools, advanced technology, sophisticated regulatory oversight, and a diverse product set, ErisX offers compliant, capital markets friendly workflows to digital market participants. Backed by some of the world’s largest trading firms and financial institutions, ErisX brings transparency and reliability to the digital asset class.

For anyone interested, additional details on the Series B announcement are featured in Reuters.

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Harbor Platform Launches with Tokenized REIT

On November 27, Pantera’s VFII portfolio company, Harbor, launched its platform and compliance protocol, an institutional-grade solution for transforming private securities like commercial real estate offerings and investment funds into more accessible and liquid forms of private investments. Harbor’s platform, powered by its compliance protocol, is the first to ensure tokenized securities comply with existing securities laws globally, on every trade. The first offering on the Harbor platform is a tokenized REIT (T-REIT) from Convexity Properties — a DRW Company. It represents $20mm USD of private equity in The Hub at Columbia, a premier off-campus student housing high-rise serving the University of South Carolina. For more details, please read coverage of the launch of Harbor’s platform in Fortune.

In May, Pantera was among investors in Harbor’s $28mm strategic funding round. Other notable investors in the strategic round include Founders Fund and Andreesen Horowitz. Harbor was co-founded in 2017 by David Sacks, previously the founder and CEO of Yammer and COO of PayPal. Harbor’s CEO and General Counsel, Joshua Stein, is a Stanford Law graduate who practiced law for nearly twenty years before joining Harbor. The founding team has many years of collective experience in engineering, marketing, and product development.

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It took Charles Schwab forty-three years to get to 10 million active clients. Blockfolio has gotten half way there in two years. Since its launch in 2015, Blockfolio has attracted more than 5 million users, making it the leading mobile-only portfolio tracking app in the blockchain space — enabling users to track their crypto portfolio from a sleek and thoughtfully designed mobile application. The app lists over 6,000 cryptocurrencies and has integrations with more than 240 online exchanges — allowing Blockfolio to effectively manage holdings, check market data, and receive updates from cryptocurrency project developers. If you are interested in tracking your portfolio, you can quickly and easily Download Blockfolio’s Mobile App

In October, Pantera led the $11.5 million round for Blockfolio, a digital asset portfolio platform that was founded in 2014 by early backers of Dash. Blockfolio sees an opportunity to expand beyond being a market data provider into a role of mediator for project participants where cryptocurrency developer teams and coin holding investors interact to propose changes in features and vote on protocol upgrades.

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This is so weird. Although I’m very bullish on blockchain, I like leaning against the sometimes hysterical notion that blockchain is going to change E-V-E-R-Y-T-H-I-N-G.

Decentralization is very at good some things — like wealth storage, cross-border money movement, social networks — but it’s terrible at some things, such as making smartphones.

To make the point that even as excited as I am that blockchain is often over-hyped I’ve been using this line recently:

Walmart lettuce on the blockchain? I’m fine with centralized lettuce. It tastes great.

And, then BOOM! the CDC announces a nationwide ban of centralized romaine. Too funny. I give…maybe everything does need blockchain!

Here’s Walmart Ad. Awesome timing — came out just before the outbreak and the unprecedented CDC response.

Speaker: Frank Yiannas (VP of Food Safety, Walmart)

“Food is a physical asset and we all appreciate it and it’s very fragile, but we’re digitizing attributes of food so we can enhance how it flows from farm to table and run a safer, smarter and more sustainable foods system. With the blockchain traceability solution, potentially you can scan a product, and trace that product back with precision and accuracy to source in seconds, not days or weeks.

“…Today’s announcement is a very exciting one. We are asking suppliers to join us in promoting greater food traceability. In the future, a customer could potentially scan a bag of salad and know with certainty whether it’s involved in a recall or not.”

I give…decentralized arugula for me.

But, I’m still grumbling. Walmart could just run a centralized database — like FedEx does.

“You’re capturing real-time data at every point, on every single food product,” says Frank Yiannas, vice president of food safety at Walmart, which leads the effort. “It’s the equivalent of FedEx tracking for food.”

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One perspective I’d like to share on the ICO industry: there’s a common perception out there that ICOs were invented May 2017 at Consensus/Token Summit. That day Kik announced theirs and everything just exploded into people’s consciousness. Then they burned bright from May of last year until early this year. Then IT was a dumb idea or whatever and the ICO thing is over.

The reality is, ICOs have been around since 2013. Mastercoin did the first ICO in 2013. Ethereum did theirs the next year. Joey Krug did the first one on Ethereum — Augur — in 2015.

ICOs have existed for five years. For the first three years there were a few really amazing projects where the token was absolutely necessary to the functioning of the network. They were pretty rare.

In May of last year it exploded to the point that we were getting 50 a week of inbound token projects.

There was this mentality out there that ICO tokens were a new thing in your capital structure quiver: debt, equity, or token. As if they were interchangeable. Tokens and equity are antithetical.

For a protocol token to have value it must be absolutely necessary for the functioning of the network and the value is only because more and more people want to use it or find it useful — it has utility.

In 90+% of those offerings the token was not required. As the token has no reason to exist they will unfortunately go to zero.

The post-mania world is returning to be the same as the early years. We’re still seeing extremely compelling projects, but they’re rare. We’re investing in one ICO every few months.

To illustrate this point we graphed the issuance of ICOs over time.

It reminds me of The Little Prince’s snake digesting an elephant.

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The Little Prince :: Opening Sentences

“Once when I was six years old I saw a magnificent picture in a book, called True Stories from Nature, about the primeval forest. It was a picture of a boa constrictor in the act of swallowing an animal. Here is a copy of the drawing. In the book it said: ‘Boa constrictors swallow their prey whole, without chewing it. After that they are not able to move, and they sleep through the six months that they need for digestion.’

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“I pondered deeply, then, over the adventures of the jungle. And after some work with a colored pencil I succeeded in making my first drawing. My Drawing Number One. It looked like this:

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“I showed my masterpiece to the grown−ups, and asked them whether the drawing frightened them.

“But they answered: ‘Frighten? Why should anyone be frightened by a hat?’

“My drawing was not a picture of a hat. It was a picture of a boa constrictor digesting an elephant. But since the grown−ups were not able to understand it, I made another drawing: I drew the inside of the boa constrictor, so that the grown−ups could see it clearly. They always need to have things explained. My Drawing Number Two looked like this:

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“The grown−ups’ response, this time, was to advise me to lay aside my drawings of boa constrictors, whether from the inside or the outside, and devote myself instead to geography, history, arithmetic and grammar. That is why, at the age of six, I gave up what might have been a magnificent career as a painter. I had been disheartened by the failure of my Drawing Number One and my Drawing Number Two. Grown−ups never understand anything by themselves, and it is tiresome for children to be always and forever explaining things to them.”

The Little Prince, Antoine de Saint-Exupery, 1943

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Impressions: 435,000

Likes: 3093

Retweets: 618

Profile Visits: 4043

Comments: 94

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Pantera partners will be traveling over the next months to discuss Venture Fund III and the blockchain disruption. We have organized group lunches in many cities, should you want to meet other investors who share your interest in blockchain. If you are interested in attending one of our group lunches, please fill out the form on this page and we will be in touch regarding availability.

  • Miami, December 27
  • London, January 14 & 15 | January 15 Group Lunch at 12pm
  • Zürich, January 16 & 17 | January 16 Group Lunch at 12pm
  • Chicago, January 23 | including a Group Lunch at 12pm
  • Washington D.C, January 25
  • New York City, January 29
  • Miami, January 29 — February 1 | January 29, Group Lunch | 12pm
  • London, February 11–13
  • February 11, Group Lunch | 12pm
  • Milan, February 14 & 15
  • Amsterdam, February 14 & 15
  • New York City, February 12–15
  • February 12, Group Lunch | 12pm
  • Dallas, February 21 | including a Group Lunch at 12pm
  • Austin, March 13–16
  • Salt Lake City, March 20–22
  • Tel Aviv, February 25–27
  • Chicago, April 8 | including a Group Lunch at 12pm
  • New York City, April 9–11
  • Miami, April 10 & 11 | April 10, Group Lunch at 12pm
  • Washington D.C., April 12
  • Phoenix, April 29
  • Denver, April 30
  • Chicago, May 1 & 2
  • Toronto, May 7 & 8
  • New York City, May 13–15

If you are interested in a meeting, please contact Pantera’s Investor Relations team at +1 650–854–7000 or

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Pantera Venture Fund III will hold its second close next week. New investors will have a capital call of 35% of their commitment. We anticipate calling the remaining committed capital in installments over the next two to three years.

We raised two-thirds of the $175 million target in the first close, and plan to hold a final closing in Q1 of 2019.

The Fund has already invested in six deals — Bakkt, Synthetic Minds, Blockfolio, and three deals yet to be announced. All new investors will get pro rata exposure to those deals.

To review fundraising materials, including access to the data room, where you will find financial, legal, portfolio company details, and due diligence materials on this fund and our two previous venture funds, please contact

Our Venture Fund III Conference Calls are open to anyone interested. Please follow the below link to register to join our next call.

Venture Fund III Call

Tuesday, January 15, 2019 9:00am PST / 18:00 CET / 1:00am CST (Jan. 16th)

Please register (in advance) via this link:

Meeting ID: 331–259–632

We know that our LPs are often primarily motivated by the desire to learn about this very disruptive new technology. We have continued our tradition of offering a Co-Investment Class. Investors who commit $5mm or more will have co-investment rights to at least 10% of every deal.

The VFIII Co-Investment Class is limited to a total of $75 million of committed capital and is likely to be fully subscribed in the next month or two. If you have interest, please let us know soon.

It is likely that at some point the first two funds will have fully invested their follow-on reserves. At that point the pro rata rights of the two previous funds will be granted to Venture Fund III.

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Happy Holidays,

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“Put the alternative back in Alternatives”

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If you would like to receive additional information on Pantera’s funds, including the Private Placement Memorandum, Limited Partnership Agreement, or Subscription Documents, please fill out the form on this page to begin the subscription process.



Pantera is actively hiring for the following roles:

· Venture Associates

· Data Scientists

· Engineers

If you have a passion for blockchain and want to work in Menlo Park, San Francisco, or New York, please follow this link to apply.


Some good material to start with on the development of blockchain technology and cryptocurrencies as speculative instruments:

· Bitcoin: A Peer-to-Peer Electronic Cash System — white paper by Satoshi Nakamoto

· 12 Graphs that Show Just How Early the Cryptocurrency Market Is by Chris McCann

· Blockchain Investments and the New Problem Asset for Conventional VCs by Jake Brukhman

· Cryptoeconomics 101 by Nick Tomaino, and his Tokens, Tokens and More Tokens

· Fat Protocols by Joel Monegro

· What Does $300 Ether Mean? by Vinay Gupta

· Token Economy by Stefano Bernardi and Yannick Roux

· Traditional Asset Tokenization

· The Rise of the Token Sale by Max Mersch

· Making Sense of Cryptoeconomics by Max Mersch

· Why Amazon’s Margin Is Filecoin’s Opportunity Forbes, Aug 28, 2017

· Joey Krug RealVision Interview Excerpts: ICOs, Future of Digital Currency, Ethereum Flash Crash RealVision, Aug 10, 2017

· Pantera Capital to Raise $100 Million in Investment for ICO Hedge Fund Coindesk, Jun 28, 2017

· While Investment Firms Ponder ICOs, This Team is Barreling Ahead with a $100 million ICO Fund TechCrunch, Jun 28, 2017

· Balaji CNBC Interview CNBC

· US Fed Hints at Blockchain Integration Coindesk

· Coindesk State of Blockchain Q2 Report Coindesk

· The Isle of Man Welcomes ICOs Coindesk

· Ethereum Metropolis Release Testnet To Launch Coindesk

· Closure Steps for Chinese Exchanges Coindesk

· China Shmyna, Bitcoin Trading is Way More Distributed Now Anyway Coindesk

· Lawmakers Seek Tax Exemption on BTC Transactions Under $600 Coindesk

· ICO “Rounds” Are Coming TechCrunch

· Crypto Regulation? Not Anytime Soon, Says White House Official Coindesk

Two of the best books are Digital Gold by Nathaniel Popper for a fun high-level history and an in-depth technically-minded look Mastering Bitcoin and Mastering Ethereum by Andreas Antonopoulos.

And some additional information on the ICO model specifically:

· Recommended Primer: Token Mania

· Kin Whitepaper

· Kin Webpage

· AVC Venture Capital on Kin

· Tech Crunch Article on Kin

· Reuters Article on Kin

· Video on Kin by AVC

· USV on Protocol Value

· Tokenomics — A Business Guide to Token Usage, Utility, and Value by William Mougayar

· Earn’s CEO on Token Economies

· Basic Attention Token Whitepaper

· Basic Attention Token Webpage

· Nick Szabo and Naval Ravikant on Tokens

Additional information on blockchain regulation:

· SEC’s Office of Investor Education and Advocacy Investor Bulletin on ICOs

· SEC Issued Statement on ICOs and the DAO

· China Banned ICOs

· FINMA Issues Stricter ICO / AML Regulatory Compliance Requirements

· SEC Puts Task-Force on ICOs

· SEC Shuts Down Protostarr

· South Korea Bans ICOs

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We tweet blockchain news and insights on Twitter and Medium at @PanteraCapital, @Dan_Pantera, @JoeyKrug, and @Veradittakit.

You can subscribe to our publications by visiting Pantera’s website or by e-mailing

· Blockchain Letter: a monthly letter with our thoughts on significant market and ecosystem-related developments. Also, includes our thoughts on blockchain venture capital and news on our portfolio companies for accredited investors.

· Blockchain Investor Letter: Public Letter plus exclusive information for accredited investors.

· White Papers: periodic, original blockchain research and academic papers.


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