Major tech funds’ backing could signal a new dawn for token sales. But should crypto rejoice? 

If 2021 was the year that venture capitalists embraced token investing, 2022 could be the year in which even deeper-pocketed investors join the party. 

On December 9, decentralized talent network Braintrust raised $100 million through a private token sale. Coatue Management led the raise, marking only the second time the hedge fund has purchased tokens. 

Coatue is run by Philippe Laffont, one of the "tiger cubs" — so-called for earning their stripes at Julian Robertson’s tech investment giant Tiger Global Management before going on to set up funds of their own. Tiger also invested in Braintrust’s latest round — its inaugural foray into the world of tokens.

According to their latest filings, Coatue has $48 billion in assets under management, while Tiger boasts $95 billion. They have made 11 and 22 crypto investments, respectively, according to Dealroom data. 

The firms’ newfound taste for tokens could have mammoth implications for crypto — particularly for decentralized finance protocols, entities that are generally governed by token holders. 

Josh Goodbody, COO at the decentralized infrastructure firm Qredo, says that every growth equity investor he has spoken to in recent months is trying to get comfortable with token investing. 

“A massive amount of capital from that caliber of investor is going to enter the space into tokens,” he says. 

Token economics 

In the case of Braintrust, tokens represent control. One token gives the holder one vote on any proposals for developing the network, according to co-founder Adam Jackson. 

But they are first and foremost viewed as a financial instrument.

One venture capitalist, who spoke on the condition of anonymity, described the rise of hybrid investing — with speculators snapping up both shares and tokens — as a hedging strategy. “What if I’m investing in the equity of this company but the value lies in this token that they’re developing?” the VC told The Block. 

For Braintrust, according to another investor close to the organization, there is no corporate equity available; tokens were the hedge funds’ only option.

As a deal sweetener, institutional investors in the $100 million raise received “slight preferential pricing in the form of a discount to market price,” according to Jackson. Coatue and Tiger bought in alongside True Ventures and previous backers Blockchain Ventures and HashKey. 

The discount will be welcome. Since the token sale closed on December 9, the price of Braintrust’s token (BTRST), is down from around $4.70 to $3.70, according to CoinMarketCap. 

The anonymous venture capitalist says that getting into token investing will offer hedge funds “a fantastic way to subsidize market-timing risk” in crypto. While equity bets tend to lock up capital for long periods, tokens are generally more liquid — or “very tradable,” as they put it. 

But for Braintrust tokens, trading will be limited. The protocol’s investors have committed not to trade “in and out of the token or trying to time the market,” says Jackson. “They buy and hold then distribute to LPs [Limited Partners] once the fund closes and returns capital and asset.”

In addition to investing, Coatue “is also onboarding as a client on the network and leaning in on developing a talent recruiter product for the platform (as they have a lot of in-house expertise here),” he adds. 

Who owns ‘web3’? 

The endorsement of hedge fund heavyweights tends to be seen as a good thing by crypto acolytes. Coatue and Tiger, with their tens of billions in assets, embody the sort of institutional adoption that industry commentators have long obsessed over. 

“I think it’s good for the web3 space that more professional early-stage investors are investing,” says Ajit Tripathi, head of institutional business at Aave, the lending protocol. “I think cash will squeeze returns by stretching valuations and extend the venture cycle, but it will also attract talent.”

The timing, however, is delicate. Lately, the growing influence of venture capital funds within protocols that are, in theory, run in a decentralized manner has come under the microscope. 

Just this week, Jack Dorsey, who recently stepped down as CEO of Twitter, called out venture capitalists over the prevailing narrative that web3 is a decentralized place — built for the benefit of many instead of a few big-name investors. 

“You don’t own ‘web3.’ The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label,” Dorsey proclaimed, adding in another tweet that web3 setups are simply “a different cap table structure.”

Chris Dixon, a general partner at a16z, was prominent among those rushing to counter Dorsey. His employer has been at the heart of the debate about who owns, and who should own, web3. In August, a16z published fresh details on efforts to redistribute some of its considerable sway over DeFi projects, after critics suggested the firm forced through a controversial Uniswap grant. 

“I think there’s a lot of noise in the market about the outsized influence that these firms have and there’s concern and I do understand that,” says Qredo’s Goodbody. “But I think this is a natural evolution in fundraising for projects.” 

Qredo has conducted both standard equity rounds and token sales this year — an $11 million seed raise in May and a $35 million token sale in July. And although he feels Qredo got it right with its own retail-focused token sale on CoinList, a platform that vets such raises, Goodbody says that the regulatory complexity of raising retail capital via Initial Coin Offerings has driven many projects into the arms of institutional investors. “Builders and project creators are taking the path of least resistance.”

Either way, with the world’s biggest tech investment funds now set to join the token fray, the debate between VCs and their critics over who owns “web3” will surely intensify. 

DeFi, as it stands, is a hedge fund’s paradise — unregulated, extremely volatile and fraught with inefficiency. The extent to which this new breed of token investors seeks to exploit those conditions could help settle the debate about what ‘web3’ actually is.

Coatue and Tiger were contacted for comment but did not respond by press time.