Venture Capital is typically associated with the traditional finance industry. Decentralized finance does not need investors to give money for a company or business to receive funding. If decentralized finance (DeFi) is becoming increasingly more competitive, how does Venture Capital fit into this?
Decentralized finance does not need investors to give money for a company or business to receive funding. DeFi means startup and tech funding has become increasingly competitive.
Decentralized finance can be managed autonomously, which means no managers or central authorities are controlling it. This type of system relies on smart contracts and blockchain technology for transactions to happen securely without intermediaries.
In a changing financial climate, specific investment instruments available to a VC firm, such as equity financing (selling stocks) and debt financing (taking out loans), may become less valuable and less relevant.
Trad-vesting and DeFi differ even more in the mechanisms behind returns over time when comparing equity returns (selling stocks / IPOing / exits) versus token sales.
Crypto-native and DeFi-native communities as protocol and application users are developing collective expertise for using these new tools at a rate that outstrips the analysis of many funds. Traditional venture investors won’t be able to replicate this expertise. Any new form of venture fund will leverage the power of DAO’s (Decentralized Autonomous Organizations) to deploy capital through decentralized applications.
Since the inception of the internet, the open-source movement, often known as “free distribution of growing code base,” has been an essential component. We are starting to see the concept of open-source Venture Capital becoming a tangible reality. More and more venture investors are aligning their interests with those of founders and their communities at this time. This mutually beneficial connection benefits everyone involved.
Blockchain and decentralized applications (or DApps) will provide new opportunities for financing innovation in both the public and private sectors. DAOs offer a new way to pool and distribute resources, which means they can help move projects from ideation to full development much faster than traditional methods.
The role of Venture Capitalists will slowly evolve to fit into decentralized financial ecosystems alongside other players in a world where community managers, makers, builders, and engineers hold as much sway as investors with straight financial skills.
But more than that, investment funds will become communities more than hierarchical organizations, where token holders replace Limited Partners. In the future, we may not see as much Venture Capital and instead more of a hybrid approach where VCs are community leaders and rallying points, where DAO voting rights hold more sway and more weight in the investment decision-making process than individual paradigms.
Even if traditional VC has less clout than it once did, its ability to funnel large sums of money from investors to protocol, community, technology, and DAO projects will continue to play a significant role in determining the future of DeFi. This may help bridge the gap in adoption until more entrepreneurs become comfortable with DeFi funding choices.
What do you see as the role of Venture Capital in decentralized finance? How do you think Venture Capital firms fit into this space?