Understanding Multicoin Capital
What can we learn from reading through all of Multicoin's published writing?
Everyone in crypto has an opinion on Multicoin. I thought they were essentially left for dead after the FTX implosion, but with the recent Solana pump it seems they’re totally back! Instead of continuing to form my opinions from random people shouting on Twitter I figured I should actually go to the source and read through all 100+ articles they’ve posted on their website over the last 6+ years. The goal was to really understand how Multicoin thinks about the crypto market and how their thinking has evolved over the years. I took 26 pages of notes which I’ve distilled below into a bunch of key takeaways listed in no particular order…
Multicoin cares about value accrual. From some of their earliest writing about Factom and Ripple to their current writing on DePIN, they’re constantly trying to determine where value accrues in a system. In a couple of articles, most notably about Ripple, they differentiate between a good use case (such as interbank transfers) and a good investment (why do those transfers accrue value to Ripple token holders?)
One thing that surprised me about Multicoin’s writing is that they’re not nearly as bearish on Ethereum as I was expecting. My takeaway is that they came into crypto at a time in 2017 when Ethereum was taking up all the oxygen in the room. They thought there was room for other chains, not that Ethereum was bad. To me they come across as impatient for Ethereum to realize the full Vitalik roadmap with things like sharding and L2’s. Until then there’s plenty of room for L1’s with specific use cases that can develop their own monetary premium. At several points they go to great lengths to say that they expect these new chains won’t detract from Ethereum’s monetary premium or dominance in open finance (roughly speaking their term for DeFi).
Multicoin has a relentless focus on creating a simple and elegant UX in all aspects of crypto. Building up from first principles leads them to basically assume from their earliest writing that users wont know or care which blockchain they’re interacting with. The thought process around “what happens to crypto when complexity gets abstracted away” leads them to some pretty contrarian opinions when framed in the world of Bitcoin maxis fighting with upstart Ethereum tech nerds.
Multicoin doesn’t get caught up in purity fights or ideological battles. They were early advocates of the idea that consumers don’t care about privacy. They figured that all the ideologically driven people had already shown up to crypto by 2019 or so. Going forward it was all about utilitarian reasons for people to use crypto.
Multicoin caught on very quickly that attention drives token price in the short term, but value accrual and/or monetary premium drives token price in the long term. I think that’s generally accepted wisdom now, but it was an astute observation during the 2017 bull market. This idea came up again when they wrote about liquidity mining as a marketing strategy to attract users, but needing to not mistake that marketing with real product/market fit.
A constant theme in Multicoin’s writing is the critical importance of network effects in crypto. In “Good Artists Copy. Great Artists Steal.” they make a compelling argument that because open-source software can be copied without permission the network effects are the only thing that matters. They write, “Achieving network effects is mostly a function of go-to-market strategy and execution…teams need to prepare to ramp up go-to-market functions aggressively as soon as they’ve achieved product/market fit. Fast-followers will use inventors’ tech to try to beat them at their own game.” I love this article because it takes such a pragmatic business strategist approach to a crypto market that is/was dominated by technologists. At a later date in “Exchanges are Open Finance” they write, “The source of network effects in all these systems is capital, not code.” I think that’s a brilliant insight and one that’s probably still underappreciated in crypto.
Multicoin figured out how to add real value to their portfolio companies. They offered marketplace liquidity, governance support, and other services that only a crypto-native investor could add. Providing this kind of support seems obvious to me and maybe other VC firms do it, but I feel like it’s still pretty rare. Multicoin understands the crypto game and is willing to help their portfolio companies win the attention game when necessary, but also accrue value for long term success (hopefully…). I think so much of web2 startup success goes along the lines of YC’s “build something people want, talk to customers, constantly iterate your product, rinse, repeat”, but crypto investing is fundamentally different and too many VC’s port over their web2 approach to crypto. Multicoin showed up without any web2 baggage and decided on a VC approach reasoned from first principals that would work best for the crypto market.
Without having access to Multicoin’s financial transaction history I can’t know how much of this point is actually true in their behavior, but in their writing they take a very non-zero-sum approach to the market. They often reference an article they wrote about crypto as a $100T opportunity and how that industry valuation comes to fruition. It’s not a PvP environment for them, they expect massive growth still ahead. It makes me think of their wild ride with Solana where it came out that investors were frustrated that Multicoin had closed out some successful positions in 2021 only to reinvest those profits in SOL instead of returning capital to the LP’s.
Broadly speaking, the attention theory of value started coming up more and more in their writing over the last few years, culminating in a post by that very name in their “What Multicoin is Excited About For 2024” article. To me, the theory essentially boils down to this — your attention is valuable and you should be putting a monetary value on it! Why would you look at Instagram only to let Meta get all the revenue from the ads you looked at? That should be your ad revenue! Now I think there’s a bunch of nuance and this could be a long conversation, but to put it simply — I think it’s accurate to say that Multicoin thinks people should think of their attention as a financial product they should be monetizing. I personally think this hyper financialized world is a environment only a VC could love, but I digress…
Multicoin almost never talks about short term market conditions or explicitly about token price (post 2017/2018 era). It’s interesting that just reading their writing there isn’t any indication of whether the crypto market is up or down. I assume they started keeping that analysis much closer to the vest at some point. One notable exception was their writing on the Helium flywheel which read to me like a pitch for a multi-level-marketing scheme. It was a clear outlier from their other writing and frankly it came across as pretty scammy because they wrote about the initial up-front hotspot purchase and payback period without addressing the sustainability of the HNT token price itself (or overall financial rewards to people who deploy the hotspots).
Multicoin believes that decentralization is a process that’s important but doesn’t take precedence over the UX, network effects, value accrual conversation that must happen first. It’s pretty pointless to have a product that’s maximally decentralized, but no one uses.
Muticoin is extremely bullish on DePIN. DePIN became a major theme starting in the spring of 2022. They had already invested in Helium, but by spring of 2022 the whole “proof of physical work” thing was coming up a ton in their writing. They also expanded the idea to things like DataDAO’s where fragmented data, if aggregated, would be more valuable than the sum of the parts.
So what can we learn? I have 3 overall takeaways…
The point of Multicoin is to make money, never forget that. Money doesn’t have to be the only thing, but it’s definitely the number one thing. I think there are legitimate questions around how much of DePIN’s financial success will come from business practices that the SEC would say violate anti-pyramid scheme laws if tokens were securities. Further, we all agree that attention is critical for crypto product/market fit. How many times has Multicoin profited from an investment not because the project had real product/market fit, but instead because the project had attention from gamblers/speculators for long enough for Multicoin to cash out? Multicoin is comfortable swimming in and profiting from these waters.
They clearly have excellent business instincts at both a theoretical (quoting Aggregation Theory) and practical (see their 2018 returns) level. Their focus on UX, value accrual, network effects, etc in an industry so focused on technology really was a huge benefit back in the 2017-2021 era.
They really do reason from first principals and don’t get caught up in all the tribal fighting in crypto. It’s impressive how much of their writing from 5+ years ago has held up at a conceptual level. While many of their individual investments didn’t pan out, they were totally in the right idea spaces despite those idea spaces being fairly non-consensus at the time.