Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
Emerging crypto and blockchain ecosystems represent a novel avenue through which investors can access highly attractive risk-adjusted returns through investment in early-stage protocols. Historically, seed and early-stage investing has been restricted to angels and venture capital, available to investors with a high tolerance for risk and years of capital illiquidity. The rise of token-enabled internet-native protocols has turned this dynamic on its head, providing several game-changing departures from what has been true in the past, including:
As described in detail throughout our multi-part introductory series, Triton’s strategy – Liquid VC – capitalizes on these new dynamics by coupling a deep, venture capital-style investment approach with extensive, robust data analysis and monitoring. Through this approach, not only can we identify and invest in the most promising new protocols within a vertical, we can also track that project and each of the top competitors in real-time, watching for when idiosyncratic or market-wide dislocations present actionable opportunities – or signal an exit.
The common response at this point is typically along the lines of: “By derisking on the liquidity and transparency side, where else are investors picking up the risk to justify those same return profiles?”
Very fair.
Undoubtedly, blockchain protocols introduce their own novel risks that are not on a typical investor’s radar: smart contract risk, exploit and hack risk, global regulatory risk, composability risk, custody risk, governance risk, anonymous teams, rug risk, hostile forks, vampire attacks, nation-state hostility, and the list goes on. Even something as simple as a single individual, Bitcoin’s anonymous creator Satoshi Nakamoto, being identified could send massive shockwaves through the entire multi-trillion-dollar market.
These very dynamics are what lead to the market inefficiencies that make Triton’s data-driven, deep evaluation of the space such an effective approach. We take a three-pronged approach to evaluating new protocols. For each vertical, we map out the active projects in the space and do a qualitative deep dive on each protocol, assessing the team, organization and community, the protocol mechanism and business model, the ecosystem, narrative and market, traction, tokenomics, and token value accrual design.
A unique element of these open, permissionless and community-driven ecosystems (especially compared to e.g. traditional investments) is that almost everything is out in the open, but you have to know where to look. Founding teams are highly accessible and just a Discord-message away; code is open-source with public audits available, supported by live permissionless 6- or 7-figure bug bounty programs. Project decision making is largely out in the open through governance discussions, Discord conversations, Telegram chats and Twitter threads. Token holder balances, trade flows, and transaction histories are readily accessed through explorers, (at the time of writing there were 8 transfers involving USDC on Ethereum mainnet in the block 15 seconds ago totaling $17,874.61 in aggregate, mostly through Uniswap's v2 and v3 protocols). Even the core KPIs of projects such as users, revenues, fees, expenses, token incentives, developer commits and trade volumes can all be accessed in real time - no more waiting for quarterly reports. We dig deep through all of this and more during our initial dilligence process.
For the projects that we assess as having a real, fundamental likelihood of succeeding over the long term, we add them to our tracking infrastructure and do both a protocol-specific analysis and a comparative analysis of the on-chain data, evaluating trends in the underlying fundamentals. For the strongest projects, we’ll build detailed financial models. Whether we invest at that time or not given the attractiveness of the valuation, we track those top projects over time, watching for when we feel the price has sufficiently departed from the underlying fundamentals to warrant initiating or exiting a position.
That is all great in theory, but executing on this requires the right team. Triton was incubated and seeded by FJ Labs, one of the most prolific venture capital firms in the world (1000+ investments to date) and primarily focused on marketplaces, of which crypto is the ultimate example. Triton’s global team is composed of founders, engineers, and investors, educated at the top universities in the world, and all with deep backgrounds in crypto, blockchain and finance.
Cryptocurrencies and blockchain protocols offer investors a novel asset class in which to invest, with idiosyncratic characteristics that are brand new to the financial world. Triton’s approach is tailor-made to capitalize on the unique opportunities presented while minimizing the downside risk, in a systematic and repeatable way.
For more detailed discussion about our process, check out our multi-part introduction to Triton’s investment process for liquid crypto:
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The $450 billion-dollar question. What is the value of ETH the native asset.
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