Market sentiment has shifted meaningfully against crypto venture funds and in favor of liquid managers Last week a prominent liquid fund blew up and liquidated its assets, reigniting this debate 1/ A jumbled defense of the role that venture funds play in crypto

2/ It all started with this tweet from @SOLBigBrain Remind me not to lose this man's money 🤣

3/ There was speculation that the fund was Asymmetric This was confirmed a day later when Joe McCann announced that he was shutting down the fund

5/ Now my public markets experience is limited to a truly terrible performance as a summer intern at Bridgewater But I am an LP in in a handful of liquid funds (not Asymmetric) and I have spent a lot of time defending VC structure over the last 18 months. So let's unpack this

6/ At a high level, the distinction between hedge funds and vc funds is whether they are open or closed Hedge funds are 'open - they generally can raise money at any time and investors can withdraw money quarterly

7/ Venture capital funds are 'closed' - they have a defined fundraising period, usually 12-18 months Once investor commit, they are locked for (generally) 10 years and there is no notion of redemption GP's basically return capital when they want

8/ Crypto hedge and venture funds both generally charge 2% management fees annually Venture funds charge 20% of profits once they return the fund to investors You invested $100, I return $120 5 years later, I take 20% of that $20 profit

9/ This is not how hedge funds generally charge carry - they do so on NAV, not distributions If I am a hedge fund GP and my fund is marked up 5x at EOY, I will take carry on the gain in NAV of the fund (even if I have not 'realized' these gains by selling)

10/ Venture arguably aligns LP and GP interests better but there is a huge tradeoff - liquidity LP's give us money for 10 years - that is a long fucking time! If you give people liquidity, they will happy take a lot of tradeoffs along with that

12/ This has led to calls that crypto venture is dead and a lot more attention on liquid funds as the best way to access the asset class I have not seen data on this but I imagine that liquid funds have grown AUM relative to venture last 2 years

13/ It sounds like a great pitch You can access venture returns in liquid markets No 10 year lockup No low float high FDV bullshit

14/ In my humble opinion, this view is wrong and misunderstands why crypto venture exists. Crypto venture's most important feature for LP's is volatility abstraction Obviously returns are what matter at the end of the day But the two are inextricably linked

15/ In this interview with @matt_levine AQR's Cliff Asness describes illiquidity as a feature of private funds For a set of LP's, not having to look at quarterly marks and re-underwrite investments 4x a year is worth that tradeoff

16/ Allocating to liquid crypto funds is not nearly as passive as people think Every quarter you have the chance to redeem or double down That is a bug for many, many people! In crypto you should be buying when you are terrified and selling when you feel like a genius

17/ The best secondary investment we've made is buying ETH the day after FTX collapsed The worst have all been when everyone is smiling at conferences and I'm not getting roasted in the college group chat for my career path

18/ In my experience that is not how most institutional allocators are set up The vast majority of institutional LP's started allocating in 2021 and many have largely stopped as crypto fell out of fashion Many would have sold the bottom if given the chance!

19/ If you put money into Multicoin's liquid fund and your IC turned against crypto after FTX and you redeemed when $SOL was $10, that probably would have been a bad investment If you kept your money in there and rode it back to $200, pretty pretty good!

20/ Sophisticated allocators redeem and invest based on market cycles In retrospect the best strategy here would have been to redeem in 2022Q1 when SOL peaked for that cycle and reinvest in 2023Q1 post FTX But that is an active strategy! You need to be in the trenches for that

21/ Another downside of liquid vehicles is that you have imperfect information on the trades that happened in a given year (and associated taxes!)

22/ If you are an LP in a hedge fund and they made a lot of money in 2024, you probably don't know that (or its impact on your tax bill!) until mid to late 2025Q1 at the earliest And the markets - and the NAV at which you can redeem - could be way down by then!

23/ A hedge fund doing really well in one year - as Asymmetric did - can make future outperformance challenging If you ride SOL to $175 and clip carry there, you have set a (very!) high watermark You now need to beat that watermark to recieve future performance incentives

24/ Even if you are way up from fund inception, if you are down 50% from your last watermark, that can be a very large hole to climb out of Hence you have a lot of 'zombie' hedge funds or funds that shut down bc line of sight to more carry is very unclear

25/ I am not saying that this is the case with Asymmetric specifically Just that it makes it hard to operate an open ended fund in a market that sees frequent 75% draw downs There are a reason there are not that many liquid crypto funds that have sustained!

27/ There is absolutely a huge market imbalance that needs to be fixed! Crypto venture funds have raised $50-60B since 2021; liquid funds are maybe $10-15B That is really unhealthy!

28/ There are two ways to solve this delta Liquid funds grow - as I mentioned, I expect that is happening Crypto venture shrinks - that is also happening! Both of these are healthy

29/ But I think that arguments that liquid funds are a perfect substitute for crypto venture are wrong The downsides of these funds are less well understood, and they are much closer to active investments than passive ones

30/ Crypto venture is dead Long live crypto venture