All in on crypto: Joining Cambrial Capital
I’m very excited to announce that I’m joining Cambrial Capital with the mission to build an institutional-grade investment firm deploying a fund of crypto funds strategy. Our goal is to invest in the best fund managers across liquid & illiquid strategies in order to provide selective exposure to a diversified portfolio of the new asset class of cryptoassets / digital assets.
My crypto way ⛓
My journey down the crypto rabbit hole has been formed by people I deeply respect, some luck, and a truly geographically and temporally distributed path. I had my first discussion about Bitcoin in 2012 in my student flat in Karlsruhe, bought into it in August 2015 out of my brother’s apartment in Münster, heard about Ethereum 20 days later when meeting my Columbia class the first time in New York, got smart contracts explained to me during my time at Techstars in London in 2016, and have been following the space since then. I didn’t get what it all meant until a year later.
In early 2017, I was exploring the developments in deep learning and really got interested in its opportunities. I’ve always been curious about technology, having played my first computer games on MS-DOS and Windows 95 and put together my first website + forum at an early age. When I became older, I started wondering about tech’s implications on society. I learned that if I wanted to increase my output /achieve more, I cannot rely on just putting in more hours of work. Capital and technology are levers for scale. When AI startups came along, I thought their underlying technology was the best thing I’ve seen so far for scaling. I didn’t realize back then that it’s not limitations of technology but rather “limitations of mind and institution” that prevent humanity to scale.
My crypto epiphany occurred when I learned about Aragon and the concept of decentralized autonomous organizations (DAOs). I finally saw that blockchains aren’t just another way of powering financial transactions but that they also enable new mechanisms to coordinate human work.
A new form of human coordination 🏛
Coordination is important due to specialization. Specialization allows us to thrive. Humans coordinate in networks of relationships which are built on a set of shared values and etiquettes (such as languages, laws, religion, etc.). Over history, human networks have been coordinated in various ways which all relate to some form of scarcity:
- Monarchies govern by blood right (scarcity of genome)
- Aristocracies govern by wisdom and capability (scarcity of education)
- Democracies govern by one person one vote (scarcity of identity)
- Corporations govern by a nexus of contracts (scarcity of contractual relationships)
- Markets govern by supply and demand (scarcity of economic resources)
These fundamental mechanisms are as old as human history and the last impactful innovation in governance was arguably decades ago. When I learned about the possibility of decentrally and autonomously coordinating unaffiliated people through the help of a cryptographic protocol with baked in incentives, I recognized how big this can be.
Blockchain technology enables the creation of DAOs which resemble meritocracies where people are organized around ability and achievement rather than class privilege or wealth. On top of that, in contrary to common meritocratic systems, cryptographically-enabled incentive networks don’t rely on a centralized authority that assesses each node’s merits to the system.
More generally, decentralized cryptonetworks govern by provable digital scarcity that is enforced without any introduction of counterparty risk. Arguably, the most efficient form of coordination is through markets. Blockchain technology enables networks to function as markets where it was not possible before.
The big picture 💡
What if we could fundamentally change how work is coordinated, how products and services are provided, and how value is distributed among humans?
In the world we live in today, we rely on centralized institutions that provide the goods and services we consume. Google provides your information. Facebook/Whatsapp/WeChat/Twitter provide your digital social interactions. Amazon provides your commercial infrastructure. Your bank provides you with financing and custody of money. Your nation state provides your legal identity. All of this is fine for many of us. Others have experienced limited access to their own money. Some have lost their legal identity. And many have been hacked or censored. Our current social, economic, political, and digital infrastructure revolves around single points of failure and trust. At the same time, these centralized walled gardens extract a lot of value which could be more fairly distributed to all network stakeholders for their contribution.
So what can blockchain technology do?
I see blockchains as necessary whenever there is a strong enough financial or strategic incentive in paying for the elimination of counterparty risk in order to increase security. Decentralization leads to further reduction of that risk which is why it’s so important to improve the status quo. Corporations were founded on the basis that their internal transaction costs are smaller than external transaction costs. Cryptonetworks are created in order to eliminate counterparty risk so humans don’t need to rely on trust anymore in order to transact with each other economically. They reduce mental transaction costs and increase social scalability.
An emerging asset class 📈
A lot of the world’s essential infrastructure is currently being redesigned with decentralization in mind. Entrepreneurs are building open cryptographic protocols and corresponding cryptonetworks that disrupt where value accrues on the internet. These networks function with tokens which can be seen as an intrinsic, internal currency with different usage mechanisms. These tokens represent atomic ownership in the economic activities on the network and make them investable. Investments in tokens unite venture capital style returns with public market liquidity. We acknowledge them as an emerging asset class and believe they will become established in global financial systems over time.
There is an extraordinary amount of innovation going on around cryptographic protocols and their token models. Bitcoin was the catalyst for this new era of protocol innovation. With Cambrial Capital, we want to be one of the catalysts of the professionalization of the investment landscape around this new asset class of crypto assets.
That landscape is quickly evolving. Better tools for investors are being developed, more institutional money is flowing into the ecosystem, and more professional crypto funds are being created. At the same time, it’s still day 1. Valuation models and investment strategies haven’t sufficiently been challenged; and it’s difficult to keep up with the pace with which hypotheses are being created, validated, or proven wrong. Cryptoassets are operating in global, 24/7 markets which are still nascent and inefficient. The best asset managers will be able to navigate these challenging conditions and generate highly attractive consistent risk-adjusted returns over the next decade or more with a strong power-law distribution.
Our mission 🌱
Cambrial Capital deploys a fund of funds strategy. We will consider both liquid and illiquid strategies ranging from traditional VC models to liquid VCs, event-driven strategies, and quant funds. Our goal is to invest in a subset of world-class funds while building one of the most reputable crypto brands, hoping to cut through the noise with a high quality community around us. We would like to position ourselves as a partner to esteemed institutions in the crypto scene as well as the investors entering it.
I’m honoured to join a team with a rare blend of technical understanding, investment and risk management experience, a fiduciary’s mindset, a willingness to continuously rebuild its mental models, and true goodwill towards the crypto community. Our team has started to run and contribute to events with some of the most value-adding stakeholders in this ecosystem and we will continue doing so. We put high emphasis on quality and invite others with the same mentality to join us.
If you are a crypto project/company interested in collaborating with us on our events/community gatherings, if you are a crypto fund looking for capital or feedback on your structure and strategy, or if you are an investor considering deploying capital in a diversified portfolio of cryptoassets please get in touch.
I’m looking forward to building out Cambrial with my passion and energy together with the team over the next decade and more.
Visit us: 🙌
Acknowledgements 🙏🏻
Thanks to all the people that have accompanied me so far on this journey down the crypto rabbit hole and that will continue doing so. You know who you are :)
Legal Notice 📃
The content of this post are not to be considered investment advice.
References 📚
Burniske, C., White, A., (2017) Bitcoin a new asset class? http://research.ark-invest.com/bitcoin-asset-class
Coase, R. H., (1937). The nature of the firm. economica 4.16 (1937): 386–405. https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1468-0335.1937.tb00002.x
Cuende, L., (2017). Introducing Aragon: Unstoppable companies. https://medium.com/aragondec/introducing-aragon-unstoppable-companies-58c1fd2d00ce
Glazer, P. (2018). Valuation Models for Cryptocurrencies. https://hackernoon.com/valuation-models-for-cryptocurrencies-f03e9437786e
Larimer, D., (2013). Overpaying For Security. https://letstalkbitcoin.com/is-bitcoin-overpaying-for-false-security
Monegro, J., (2016). Fat Protocols. http://www.usv.com/blog/fat-protocols
Nakamoto, S., (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. https://bitcoin.org/bitcoin.pdf
Pfeffer, J., (2017). An (Institutional) Investor’s Take on Cryptoassets. https://medium.com/john-pfeffer/an-institutional-investors-take-on-cryptoassets-690421158904
Szabo, N., (2001). Micropayments and Mental Transaction Costs. https://nakamotoinstitute.org/static/docs/micropayments-and-mental-transaction-costs.pdf
Szabo, N., (2017). Money, blockchains, and social scalability. https://unenumerated.blogspot.com/2017/02/money-blockchains-and-social-scalability.html
