Outlier Ventures
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Outlier Ventures

State of Blockchains - Q1 2018

Fueling the rockets for the moon

The first quarter of the year has been largely symbolic of what we can expect over the next 2 years as the ecosystem matures — volatile, fast paced and unexpected. While token prices saw an incredible dip (upto 80% in some cases), both mergers and acquisitions for growth stage startups and funding in equity for market leaders have seen no dearth. As most heads turn towards red charts and losses stemming from tokens they may have purchased in Q4 2017, it is important that we take a step back and look at what’s going on in the ecosystem from a bird’s eye view. Our report for Q1 2018, aims to give readers a perspective most charts and discussions around the ecosystem would fail to provide in a brief and concise fashion. Focusing on start-ups, enterprises and governments, we break the document into numbers, trends and analyses our audience ought to be aware of as they seek to engage with the token economy.

#buidlers over #speculators

With over $488 million going into 130 deals in Q1 alone, startups have no lack of funding this year. As the dust settles around the hype for token sales, it has become evident that venture capitalists will play a crucial role in the industry for growth stage companies that seek to raise follow on rounds and create strategic partners. Token sales have raised over $3.2 billion within the first 3 months of the year. Over 150 times the amount collected during the same period, last year. Naturally, capital has begun accumulating with a handful of market-leaders. Effective accumulation of capital has also lead to a surge in mergers and acquisitions. Poloniex has been acquired for over $400 million by Circle, whilst Coinbase acquired Earn (formerly 21.co) for a little over $100 million. The new influx of capital is anticipated to provide early investors in the ecosystem an exit and the ability to re-invest into new projects. Overall, a good period for #buidlers of the ecosystem as unlike earlier, their innovations may not die due to a lack of capital.

Venture capital thinks blockchain is cool again.
Enterprise ICOs continue to set new QoQ highs for token sales.
Change in the frequency and size of fund raises indicative of change in nature of startups doing token sales.

Enterprises are FOMOing on the party

Incumbents are no longer discounting the potential blockchains hold in opening new markets and obtaining operational efficiencies. From launching native tokens of their own, as is the case with Kik and Telegram to investing into tokens launched by startups as was the case with Bosch and Lufthansa, enterprises have variable approaches towards avoiding being disrupted completely by new players. In addition to witnessing a number of cloud services providers such as AWS, Baidu and Google cloud entering the BaaS space (blockchain as a service) , the quarter observed real life implementations of blockchains at enterprise scales occurring in industries varying from energy to provenance. Over $1.8 billion has been invested into firms working with the blockchain ecosystem through corporate venture capital to date.

Key Financial Enterprises have positioned themselves as investors in industry leaders
And hedged themselves through patent registrations.

Governments are flexing their (legal) muscles.

Nations have become increasingly favorable to the token economy. The FSB and IMF have played a role.

Nations no longer discount the impact the token economy has on them and have become increasingly proactive with creating regulations. The G20’s FSB turned heads early into the year as they stated that they do not see a serious threat from the token economy for global financial stability yet. The IMF’s head Christine Lagarde echoed that sentiment as she suggested that member nations should approach the ecosystem with a lighter approach and aim to integrate the benefits distributed ledger technologies offer to their financial ecosystem. Regions have also been competing to attract top talent and startups with the intent of maintaining an edge in this new technological paradigm. Binance’s move from Hong Kong to Malta is symbolic of the fact that startups will now be able to take advantage of regulatory arbitrage as global sentiments to tokens change. Frameworks for token categorisation and legal issuance of coins have increased. Regulators in both EU and the US are in active conversations with key stakeholders in the ecosystem to provide regulatory clarity for token issuers.

Tokenisation is here to stay :)

As we tread into the 2nd quarter of the year, it is to be noted that 2018 Q1 may have been the best period to date for the ecosystem in terms of proactive government involvement, enterprise adoption and funding. If trends continue, we’ll end the year with the highest number of mergers and acquisitions and venture capital dollars flowing into the ecosystem since 2016.

Tokenisation as a paradigm shift is no longer a matter we wait upon. It is here, permeating through the membranes of enterprises, governments and startups alike. Creating a new asset class that paves the way for heightened value transfer in the tech driven future we are collectively building.

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