- Andreessen Horowitz is likely one of the most completed buyers within the expertise and cryptocurrency area.
- Regardless of its spectacular observe file, the agency has made some blunders through the years.
- A few of its worst bets embody OpenBazaar, Diem, Foundation, and BitClout.
Share this text
Andreessen Horowitz established itself as a crypto heavyweight by putting successful bets on business mainstays like Uniswap, Solana, and Sky Mavis early on. The agency additionally launched a record-breaking $4.5 billion crypto fund in Could 2022, highlighting its dedication to blockchain expertise. However even Silicon Valley’s prime gamers make funding blunders sometimes. Listed below are a number of the prime failed crypto tasks Andreessen Horowitz has made unhealthy bets on over the previous few years.
Andreessen Horowitz and OpenBazaar
OpenBazaar was an early crypto challenge with hyperlinks to Bitcoin’s darkish market period. The challenge tried to create a decentralized peer-to-peer market for items and companies, akin to an open-source model of eBay with cryptocurrency funds.
OpenBazaar was coded by Bitcoin developer Amir Taaki and a bunch of programmers from the startup Airbitz as a part of a Toronto Bitcoin hackathon in April 2014. Nevertheless, the challenge’s creators later deserted it, and the code was adopted and rebranded to OpenBazaar by a brand new workforce of builders. The primary model launched on April 4, 2016.
As OpenBazaar, the challenge attracted curiosity from a number of of crypto’s prime enterprise capital corporations. Andreessen Horowitz, Union Sq. Ventures, and Digital Foreign money Group all backed OpenBazaar by means of its seed funding rounds. Andreessen Horowitz contributed to OpenBazaar’s $1 million and $3 million seed rounds in addition to a later $5 million Collection A increase. In line with data from Crunchbase, OB1, the corporate creating OpenBazaar, acquired greater than $9 million in enterprise capital funding all through its life.
Nevertheless, regardless of its early success and ample funding, OpenBazaar was unable to carve out a spot for itself within the quickly increasing crypto business. On January 4, 2021, OB1 announced that it will stop supporting the OpenBazaar market’s wallets, APIs, search engine and web site, successfully ending the challenge.
Former OB1 CEO and OpenBazaar challenge lead Brian Hoffman shed some mild on the challenge’s downfall in a July 2021 CoinDesk interview. He mentioned that conflicting narratives of Bitcoin being each an funding and a funds system was the largest headwind for OpenBazaar. “Crypto, significantly Bitcoin, developed from an inexpensive money various right into a retailer of worth—a digital gold—that didn’t make it conducive to each day Amazon-type e-commerce purchases,” he mentioned.
In hindsight, Hoffman additionally theorized that if OpenBazaar had prioritized stablecoin assist early and monetized the platform by charging a small payment on all transactions, it could have had a greater probability of success. Though OpenBazaar had a powerful basis and an all-star roster of backers, its failure will function a reminder of the dangerous nature of enterprise investing.
Diem was Fb’s reply to rising curiosity in cryptocurrency funds, and it acquired big assist from Andreessen Horowitz and different heavyweights early on. Fb introduced Diem underneath the title Libra in June 2019, touting it as a solution to ship cash throughout its suite of social media platforms with out counting on third-party intermediaries or complicated forex conversions.
Deliberate as a stablecoin pegged to the greenback, the challenge was set to run on a permissioned blockchain-based system created by the corporate’s builders. It rebranded from Libra to Diem in December 2020, previous Fb’s October 2021 Meta revamp because it introduced a pivot towards the Metaverse.
Though Diem fell underneath the corporate’s centralized improvement, it delegated administration to a 3rd celebration referred to as the Diem Affiliation, of which Meta was considered one of many members with equal voting weight. This cohort of firms acted as stewards for the Diem forex whereas additionally overseeing its improvement.
Andreessen Horowitz was an early investor within the Diem challenge and a member of the Diem Affiliation alongside enterprise corporations like Breakthrough Initiatives, Union Sq. Ventures, and Temasek Holdings. It’s unclear how a lot capital Diem raised, or the quantity that Andreessen Horowitz contributed. In line with a July 1 article from CNET, a lot of the Diem Affiliation members have been anticipated to contribute as a lot as $10 million every to the challenge’s improvement.
Like lots of Andreessen Horowitz’s investments, Diem began out with ample assist from business heavyweights. Early backers comparable to eBay, Mastercard, PayPal, Stripe and Visa hinted that Diem was effectively positioned to bridge the hole between conventional finance and crypto. Nevertheless, because the challenge grew, it drew rising scrutiny from U.S. lawmakers.
In 2019, a number of conflicts with regulators and politicians weighed on Diem’s long-term viability. A July Senate Banking Committee listening to led to policymakers evaluating Diem and its creators to arsonists and film villains, with one of many extra vocal critics, Senator Kennedy(R-LA), expressing his skepticism in regards to the challenge by saying, “Fb desires to manage the financial provide. What may probably go unsuitable?”
A number of outstanding Democrats from the U.S. Home Committee on Monetary Companies weighed in, sending a letter asking Meta to stop Diem improvement, citing privateness, nationwide safety, buying and selling, and financial coverage issues. Federal Reserve chair Jerome Powell also remarked that the Fed had “severe issues” over how Diem would cope with points comparable to cash laundering and shopper safety.
The President’s Working Group on Monetary Markets doubled down on these issues, stating that combining a stablecoin issuer with an enormous company “may result in an extreme focus of financial energy.” Even former President Donald Trump joined in airing his skepticism towards the challenge. “If Fb and different firms need to turn out to be a financial institution, they have to search a brand new Banking Constitution and turn out to be topic to all Banking Rules,” he mentioned in a tweet.
After resounding pushback in opposition to Diem within the U.S., eBay, Mastercard, Mercado Pago, PayPal, Stripe, Visa Inc., and different key backers withdrew their assist. After two extra years of sluggish improvement and continued regulatory stress, the Diem Affiliation made a deal to promote the expertise behind the challenge to Silvergate Capital Corp for $200 million in January 2022. The sale marked the top of the Diem challenge in its present kind.
Backing Nader Al-Naji’s Foundation and BitClout
The ultimate Andreessen Horowitz funding blunder on our listing comes within the type of a double characteristic: Foundation and BitClout.
First up is Foundation, a decentralized, algorithmic stablecoin challenge co-founded and led by considered one of crypto’s most notorious entrepreneurs—Nader Al-Naji. The challenge aimed to maintain its Foundation stablecoin pegged to the greenback by means of on-chain auctions, which issued “bond” and “share” tokens to regulate the Foundation provide. Foundation was formidable in its mission, saying it wished to create a “higher financial system” that might be immune to hyperinflation, free from centralized management, and extra strong than the present strategies for transferring wealth. The challenge was an early try at making a secure, unbacked, dollar-pegged token, serving as inspiration for different failed stablecoin tasks like Foundation Money and Terra.
Questions of viability apart, Foundation made positive it seemed the half with cool fintech branding and a workforce of former Google and Goldman Sachs workers. Beneath Al-Naji’s steering, Foundation raised $133 million in April 2018, attracting large names like Bain Capital Ventures, one-time Federal Reserve governor Kevin Warsh, Lightspeed Enterprise Companions, and Andreessen Horowitz.
Nevertheless, neither the Foundation workforce nor the challenge’s backers had carried out their homework on U.S. securities rules. It quickly grew to become clear that the bonds and shares used to anchor Foundation to its greenback peg would represent unregistered securities, that means they might be topic to switch restrictions. As U.S. securities rules are notoriously tough to navigate, Foundation realized that making a “higher financial system” wasn’t going to be so simple as it had initially anticipated.
In December 2018, eight months after its $133 million increase, Al-Naji posted an announcement on the Basis website revealing that it will be shuttering and returning its remaining capital to its backers. “Sadly, having to use U.S. securities rules to the system had a severe unfavorable impression on our skill to launch Foundation,” the publish learn, including that complying with securities legal guidelines would impression the challenge’s censorship resistance and cut back liquidity for its on-chain auctions.
Regardless of getting burned by Foundation, Andreessen Horowitz determined to take one other guess on Al Naji when he launched his subsequent blockchain startup: BitClout.
Marketed as the primary blockchain-based social media platform, BitClout lets customers publish updates and photographs, award cash to different customers’ posts, and purchase and promote what it calls “creator cash”—personalised tokens whose worth will depend on individuals’s reputations. BitClout runs by itself Proof-of-Work blockchain referred to as DeSo, brief for “Decentralized Social.”
Not like Andreessen Horowitz’s earlier flunked investments, the agency contributed by shopping for tokens in DeSo’s preliminary coin providing (ICO). In line with Crunchbase data, BitClout raised $200 million from 14 buyers by means of its ICO, placing the common contribution from every at round $14.2 million. Whereas particulars on what number of tokens buyers acquired and the vesting interval are unknown, DESO is at present 97% down from its June 2021 all-time excessive of $198.68, per CoinGecko.
Curiosity in BitClout hasn’t been helped by the unfavorable notion the platform has earned itself since its launch. Initially, to purchase creator cash on BitClout, customers wanted to ship Bitcoin to the DeSo blockchain, which was then transformed into BTCLT at a one-to-one ratio. Nevertheless, as soon as on DeSo, there was no solution to convert BTCLT again to actual Bitcoin, successfully trapping customers’ funds. The withdrawal downside has since been partially resolved after DeSo made its code open-source. Nonetheless, many early customers misplaced appreciable quantities of cash as a result of distinction in demand between Bitcoin and BTCLT.
Though BitClout and the DeSo blockchain are nonetheless lively, their futures don’t look brilliant. The variety of wallets and creators interacting with the BitClout platform seems to be prefer it’s plateaued, and buying and selling volumes for BitClout’s creator cash are at an all-time low. Many have complained that BitClout monetizes Twitter profiles with out their homeowners’ permission. Stephen Palley, a accomplice at legislation agency Anderson Kill., has additionally argued that the DeSo ICO ought to have been classed as an unlawful securities providing.
In mild of one more of Nader Al-Naji’s crypto tasks failing to keep in mind U.S. securities legal guidelines, maybe Andreessen Horowitz ought to take heed of a sure previous adage when contemplating its future investments. “Idiot me as soon as, disgrace on you; idiot me twice, disgrace on me.”
Disclosure: On the time of scripting this characteristic, the creator owned ETH, BTC, and several other different cryptocurrencies.