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Time To Accelerate Crypto's App Ecosystem | Mike Dudas & Carl Vogel

By Lightspeed

Published on 2024-07-02

Explore key insights on Solana's growth, airdrop strategies, and the future of crypto applications with Mike Dudas and Carl Vogel of 6th Man Ventures.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Rise of 6th Man Ventures

6th Man Ventures emerged as a significant player in the crypto investment landscape, founded by Mike Dudas and Serge Khosarajian in 2021. The venture firm's origin story is deeply rooted in the founders' experiences in media, fintech, and their personal investments in the crypto space. Mike Dudas, previously known for founding the crypto media company The Block, saw an opportunity to transition from reporting on the industry to actively participating in its financial flows.

The firm's thesis is broad yet focused on supporting the creation of more crypto-native applications. As Mike Dudas explains, "Our whole goal is how do we help support the creation of more crypto native applications? So we are primarily application layer investors." This approach stems from their belief that scaled usage of end-user apps will drive the next wave of blockchain adoption.

Solana's Resilience and Growth

One of the most exciting developments discussed in the podcast was the announcement of Vaneck filing for the first Solana ETF in the United States. This move highlights Solana's resilience and growing prominence in the crypto ecosystem. Carl Vogel emphasized the significance of this development:

"I think it's a mark of the resilience that the ecosystem has had. So in terms of the number of punches any ecosystem has taken, I would say that submit that Solana is probably at the top of that list from many different ecosystems and even regulatory things and, and of course, SDF."

This resilience is reflected in Solana's rapid recovery and growth, especially after the challenges faced in late 2022. Mike Dudas noted the dramatic turnaround:

"When people were making jokes, you know, in December of 2022, that there were only 75 developers left on Solana and basically really rapidly with this fan of, you know, one to two months, incredibly resourceful, dedicated group of folks basically said, no, like the chain was not FTX and SPF, there's an absolutely passionate native group of folks building real technology, real infrastructure."

The Importance of Real-World Applications

The discussion emphasized the critical role of real-world applications in driving blockchain adoption. 6th Man Ventures focuses on investing in applications across various sectors, including payments, DeFi, gaming, and social platforms. This approach aligns with their belief that practical use cases will lead to increased user adoption and ecosystem growth.

Mike Dudas highlighted the importance of having a strong product and engineering DNA on founding teams, as well as a native understanding of crypto ecosystems. He stated, "That's where that initial, you know, that initial fuel is going to come from that's going to get you then out to the next layer of the next layer of users."

Evolving Landscape of L1s and L2s

The podcast delved into the evolving landscape of Layer 1 (L1) and Layer 2 (L2) solutions, with a particular focus on Ethereum's scaling roadmap and the emergence of new L2 solutions. Carl Vogel discussed the challenges faced by developers when choosing which L2 to build on, given the increasing number of options available.

"It's since exploded in terms of the number of ecosystems that are going to be out to use, they're going to be launching this year. So it's a really hard problem," Carl noted. He emphasized the importance of considering factors such as the breadth and depth of the ecosystem, the culture of the community, and the alignment with the project's goals when selecting an L2 platform.

The Promise of AI and DePin in Crypto

The intersection of artificial intelligence (AI) and decentralized physical infrastructure (DePin) with crypto was highlighted as an area of significant potential. Carl Vogel shared insights on the challenges and opportunities in these sectors:

"I think we've really proven out that we can build supply for new networks. I think almost, you know, you look at helium, hive mapper, um, I own that, like a number of these different deep in providers and others that are coming out of stealth that we invested in. Um, they've proven that they can get people, individuals to run hardware in their homes or in their offices to create a network."

However, he also pointed out that the main challenge for DePin projects has shifted from building technology to creating demand and effectively monetizing their networks.

Airdrop Strategies and Tokenomics

One of the most insightful portions of the discussion focused on airdrop strategies and tokenomics. 6th Man Ventures conducted extensive research on these topics, aiming to provide data-driven recommendations for founders. Carl Vogel shared some key findings:

"We recommend biasing your airdrop towards core users over, again, trying to use it as a marketing tool. It's become pretty clear that giving away money to people that have never used your product is not a good way to go ahead and try to actually attract them, use the product instead you want to make that customers."

Their research found that airdrops to core users resulted in better price performance 60 days after distribution, while widespread airdrops to non-users experienced 2x more selling. Interestingly, the size of the airdrop did not significantly impact price performance or volatility, challenging the common "low float, high FDV" approach.

Token Vesting Best Practices

The podcast also delved into token vesting practices, with 6th Man Ventures sharing insights from their research. Key recommendations included:

  1. Limiting increases in circulating supply to less than 1% at a time to reduce downward pressure on token price.
  2. Reconsidering the traditional one-year cliff, three-year vest structure common in traditional startups.
  3. Starting vesting after a one-year wait period to avoid creating a single large unlock event.

Carl Vogel explained, "Don't have a clip. Like, why would you set up this major self pressure event and have everything again coincide with each other? Market makers in the market can absorb a certain amount of selling pressure. So you can't have these all lines simultaneously."

The Importance of Founder Focus and Vision

Both Mike Dudas and Carl Vogel emphasized the critical role of founder focus and vision in the success of crypto projects. They advised founders to:

  1. Project calmness amidst the volatility of crypto markets.
  2. Have a bias towards action and rapid product delivery.
  3. Stand for something specific and maintain maniacal focus on core use cases.
  4. Be passionate about their work and focus on radically better ideas.
  5. Prioritize simplicity in product design and communication.
  6. Trust their vision while considering advice from stakeholders.

Mike Dudas highlighted successful investments like Pump That Fun, StepN, and Magic Eden as examples of projects with clear focus and vision.

The Future of Crypto Applications

The discussion painted an optimistic picture for the future of crypto applications, especially on platforms like Solana. With increasing institutional interest, as evidenced by the Solana ETF filing, and a growing ecosystem of developers and users, the stage is set for innovative applications to drive the next wave of adoption.

6th Man Ventures' approach of focusing on application-layer investments across multiple blockchain ecosystems positions them well to capitalize on this trend. As more real-world use cases emerge and user experience improves, crypto applications are poised to bridge the gap between blockchain technology and mainstream adoption.

Challenges and Opportunities in Crypto Investing

The podcast highlighted several challenges and opportunities in the current crypto investing landscape. One key point was the interplay between liquid markets and venture markets. Carl Vogel noted that while venture valuations have become high in some cases, there are still opportunities to invest in great teams at fair valuations, particularly in the pre-seed or seed stages.

The cyclical nature of the crypto market was also discussed, with both speakers emphasizing the importance of long-term thinking. Mike Dudas mentioned that for some investments, particularly in the DePin space, they are looking at a 5-10 year horizon.

Conclusion: Accelerating the Crypto App Ecosystem

The conversation with Mike Dudas and Carl Vogel of 6th Man Ventures provided valuable insights into the current state and future potential of the crypto application ecosystem. Their focus on supporting innovative, user-centric applications across multiple blockchains, including Solana, highlights the growing maturity of the space.

As the industry moves beyond infrastructure-heavy projects towards practical, user-friendly applications, the potential for mainstream adoption increases. With continued innovation, strategic token distribution, and founder-focused investment approaches, the crypto app ecosystem is poised for significant growth and impact in the coming years.

The resilience and rapid growth of platforms like Solana, combined with increasing institutional interest and a maturing developer ecosystem, create a fertile ground for the next generation of crypto applications. As these applications solve real-world problems and provide tangible value to users, they will play a crucial role in driving the broader adoption of blockchain technology and realizing its transformative potential across various industries.

Facts + Figures

• 6th Man Ventures was founded in 2021 by Mike Dudas and Serge Khosarajian, focusing on investing in crypto-native applications.

• Vaneck filed for the first Solana ETF in the United States, marking a significant milestone for the Solana ecosystem.

• Solana experienced a rapid turnaround from having reportedly only 75 developers in December 2022 to becoming one of the most used blockchain networks.

• 6th Man Ventures' research on airdrops found that distributing tokens to core users resulted in better price performance compared to widespread airdrops.

• Airdrops to non-users experienced 2x more selling compared to airdrops to core users.

• The size of an airdrop did not significantly impact price performance or volatility, challenging the "low float, high FDV" approach.

• Research on token vesting recommended limiting increases in circulating supply to less than 1% at a time to reduce downward pressure on token price.

• Three out of four protocols studied by 6th Man Ventures became more centralized over time, contrary to the goal of decentralization.

• The firm recommends a one-year wait period before starting token vesting, rather than the traditional one-year cliff.

• Tokens with more than 70% of supply circulating performed better in terms of price and had lower volatility compared to those with less circulating supply.

• 6th Man Ventures typically invests in pre-seed or seed stage deals valued at around $20 million or less.

• The firm has invested in successful projects like Pump That Fun, StepN, and Magic Eden.

• DePin (decentralized physical infrastructure) projects have proven successful in building supply networks but face challenges in creating demand and monetization.

• The crypto market's cyclical nature requires investors to think in 5-10 year horizons for some investments, particularly in sectors like DePin.

Questions Answered

What is 6th Man Ventures' investment focus?

6th Man Ventures primarily focuses on investing in crypto-native applications across various blockchain ecosystems. They are particularly interested in supporting projects that have the potential to drive user adoption and create real-world value. The firm takes a broad approach within this mandate, investing in areas such as payments, DeFi, gaming, and social platforms, with a preference for founders who have a strong product and engineering background.

How has Solana demonstrated resilience in the crypto ecosystem?

Solana has shown remarkable resilience by quickly rebounding from challenges faced in late 2022. Despite jokes about having only 75 developers left in December 2022, the ecosystem rapidly recovered within a couple of months. This turnaround was driven by a dedicated group of developers and founders who continued building real technology and infrastructure on Solana. The recent filing for a Solana ETF by Vaneck further demonstrates the growing confidence in the platform and its potential for mainstream adoption.

What did 6th Man Ventures' research reveal about airdrop strategies?

The research conducted by 6th Man Ventures on airdrop strategies revealed several key insights. Firstly, airdrops to core users of a protocol resulted in better price performance 60 days after distribution compared to widespread airdrops. Secondly, airdrops to non-users experienced twice as much selling as those to existing users. Interestingly, the size of the airdrop did not significantly impact price performance or volatility, challenging the common "low float, high FDV" approach. Based on these findings, the firm recommends focusing airdrops on core users rather than using them as a marketing tool for attracting new users.

What are the recommended best practices for token vesting?

According to 6th Man Ventures' research, several best practices for token vesting emerged. They recommend limiting increases in circulating supply to less than 1% at a time to reduce downward pressure on token price. The traditional one-year cliff, three-year vest structure common in startups may not be ideal for crypto projects. Instead, they suggest starting vesting after a one-year wait period to avoid creating a single large unlock event. Additionally, their research found that tokens with more than 70% of supply circulating performed better in terms of price and had lower volatility compared to those with less circulating supply.

How important is founder focus and vision in crypto projects?

Founder focus and vision are crucial for the success of crypto projects. Both Mike Dudas and Carl Vogel emphasized that founders should have a clear, specific focus and maintain a maniacal dedication to core use cases. They advised founders to project calmness amidst market volatility, have a bias towards action and rapid product delivery, and prioritize simplicity in both product design and communication. Successful investments like Pump That Fun, StepN, and Magic Eden were cited as examples of projects with clear focus and vision. The ability to stand for something specific and trust one's vision while considering stakeholder advice is seen as essential for navigating the challenges of the crypto space.

What challenges do DePin (decentralized physical infrastructure) projects face?

While DePin projects have proven successful in building supply networks, such as getting individuals to run hardware in their homes or offices to create decentralized networks, they face significant challenges in creating demand and effective monetization. The research by 6th Man Ventures revealed that many top DePin protocols, despite having impressive technology and teams, still struggle with generating substantial revenue. The main challenge has shifted from building the technology to creating sustainable demand for these decentralized infrastructure services and finding ways to monetize them effectively.

How does 6th Man Ventures approach the cyclical nature of the crypto market?

6th Man Ventures acknowledges the highly cyclical nature of the crypto market and adapts its investment strategy accordingly. For some investments, particularly in sectors like DePin, the firm takes a long-term view, looking at 5-10 year horizons. They remain opportunistic, balancing between venture and liquid investments based on market conditions. While they pay attention to valuations, they prioritize investing in founders with big visions and the potential to create billion-dollar opportunities. The firm maintains flexibility to increase investment velocity when market conditions are favorable and focuses on working with the right founders regardless of short-term market fluctuations.

What role do real-world applications play in driving blockchain adoption?

Real-world applications are seen as crucial for driving broader blockchain adoption. 6th Man Ventures focuses on investing in practical use cases that can attract users and demonstrate tangible value. The firm believes that scaled usage of end-user apps will be the primary driver for the next wave of blockchain adoption. By supporting projects that solve real problems or provide clear benefits to users, they aim to bridge the gap between blockchain technology and mainstream users. The emphasis on application-layer investments across multiple ecosystems reflects their belief in the importance of user-centric, practical applications in growing the overall blockchain ecosystem.

How is the landscape of L1s and L2s evolving, and what challenges do developers face?

The landscape of Layer 1 (L1) and Layer 2 (L2) solutions is rapidly evolving, with an increasing number of options available to developers. This expansion presents challenges for developers in choosing the right platform to build on. Factors to consider include the breadth and depth of the ecosystem, the culture of the community, and alignment with the project's goals. The podcast highlighted the importance of considering the number of launch partners, the amount of capital and runway for the core foundation, and the availability of developer tools when selecting an L2 platform. The increasing options also raise questions about interoperability and the potential for projects to migrate between different L1s and L2s as the ecosystem matures.

What advice does 6th Man Ventures offer to crypto founders?

6th Man Ventures offers several key pieces of advice to crypto founders. First, they emphasize the importance of being passionate about the problem being solved and focusing on radically better ideas rather than incremental improvements. Founders are advised to maintain a bias towards action and rapid product delivery, given the fast-paced nature of the crypto industry. Simplicity in both product design and communication is highly valued. The firm also stresses the importance of trusting one's vision while being open to advice from stakeholders. Additionally, founders are encouraged to project calmness amidst market volatility and to have a clear, specific focus on their core use cases. The ability to articulate a potential billion-dollar vision, even if starting with a niche product, is seen as crucial for attracting investment and driving long-term success.

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