Remembering the Failed Crypto Projects a16z Backed

Andreessen Horowitz established itself as a crypto heavyweight by putting profitable 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 Might 2022, highlighting its dedication to blockchain expertise. However even Silicon Valley’s high gamers make funding blunders now and again. Listed here are a few of the high failed crypto tasks Andreessen Horowitz has made dangerous bets on over the previous few years.

Andreessen Horowitz and OpenBazaar

OpenBazaar was an early crypto undertaking with hyperlinks to Bitcoin’s darkish market period. The undertaking 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 gaggle of programmers from the startup Airbitz as a part of a Toronto Bitcoin hackathon in April 2014. Nonetheless, the undertaking’s creators later deserted it, and the code was adopted and rebranded to OpenBazaar by a brand new crew of builders. The primary model launched on April 4, 2016. 

As OpenBazaar, the undertaking attracted curiosity from a number of of crypto’s high enterprise capital corporations. Andreessen Horowitz, Union Sq. Ventures, and Digital Foreign money Group all backed OpenBazaar by way 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 elevate. In accordance with data from Crunchbase, OB1, the corporate creating OpenBazaar, obtained greater than $9 million in enterprise capital funding all through its life. 

Nonetheless, 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 undertaking. 

Former OB1 CEO and OpenBazaar undertaking lead Brian Hoffman shed some mild on the undertaking’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 most important headwind for OpenBazaar. “Crypto, significantly Bitcoin, advanced from an affordable money various right into a retailer of worth—a digital gold—that didn’t make it conducive to day by 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 charge on all transactions, it might 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’s Downfall

Diem was Fb’s reply to rising curiosity in cryptocurrency funds, and it obtained enormous assist from Andreessen Horowitz and different heavyweights early on. Fb introduced Diem beneath the identify Libra in June 2019, touting it as a strategy to ship cash throughout its suite of social media platforms with out counting on third-party intermediaries or advanced forex conversions.

Deliberate as a stablecoin pegged to the greenback, the undertaking 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 beneath the corporate’s centralized growth, it delegated administration to a 3rd social gathering often known 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 growth. 

Andreessen Horowitz was an early investor within the Diem undertaking 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 accordance with a July 1 article from CNET, a lot of the Diem Affiliation members had been anticipated to contribute as a lot as $10 million every to the undertaking’s growth. 

Like a lot 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 nicely positioned to bridge the hole between conventional finance and crypto. Nonetheless, because the undertaking 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 undertaking by saying, “Fb desires to manage the financial provide. What might probably go unsuitable?”

A number of outstanding Democrats from the U.S. Home Committee on Monetary Providers weighed in, sending a letter asking Meta to stop Diem growth, 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 take care of points comparable to cash laundering and client safety. 

The President’s Working Group on Monetary Markets doubled down on these issues, stating that combining a stablecoin issuer with a giant company “might result in an extreme focus of financial energy.” Even former President Donald Trump joined in airing his skepticism towards the undertaking. “If Fb and different firms wish to turn into a financial institution, they need to search a brand new Banking Constitution and turn into topic to all Banking Rules,” he mentioned in a tweet. 

After resounding pushback towards 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 growth and continued regulatory stress, the Diem Affiliation made a deal to promote the expertise behind the undertaking to Silvergate Capital Corp for $200 million in January 2022. The sale marked the top of the Diem undertaking in its present kind. 

Backing Nader Al-Naji’s Foundation and BitClout

The ultimate Andreessen Horowitz funding blunder on our record comes within the type of a double characteristic: Foundation and BitClout. 

First up is Foundation, a decentralized, algorithmic stablecoin undertaking co-founded and led by considered one of crypto’s most notorious entrepreneurs—Nader Al-Naji. The undertaking aimed to maintain its Foundation stablecoin pegged to the greenback by way of on-chain auctions, which issued “bond” and “share” tokens to regulate the Foundation provide. Foundation was formidable in its mission, saying it needed to create a “higher financial system” that may be immune to hyperinflation, free from centralized management, and extra strong than the prevailing strategies for transferring wealth. The undertaking 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 crew of former Google and Goldman Sachs staff. Underneath 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. 

Nonetheless, neither the Foundation crew nor the undertaking’s backers had executed their homework on U.S. securities laws. It quickly turned clear that the bonds and shares used to anchor Foundation to its greenback peg would represent unregistered securities, which means they might be topic to switch restrictions. As U.S. securities laws are notoriously troublesome 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 elevate, 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 laws to the system had a severe unfavourable affect on our capability to launch Foundation,” the publish learn, including that complying with securities legal guidelines would affect the undertaking’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 wager 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 pictures, award cash to different customers’ posts, and purchase and promote what it calls “creator cash”—customized tokens whose worth depends upon folks’s reputations. BitClout runs by itself Proof-of-Work blockchain referred to as DeSo, brief for “Decentralized Social.” 

In contrast to Andreessen Horowitz’s earlier flunked investments, the agency contributed by shopping for tokens in DeSo’s preliminary coin providing (ICO). In accordance with Crunchbase data, BitClout raised $200 million from 14 buyers by way of its ICO, placing the common contribution from every at round $14.2 million. Whereas particulars on what number of tokens buyers obtained and the vesting interval are unknown, DESO is at the moment 97% down from its June 2021 all-time excessive of $198.68, per CoinGecko. 

Curiosity in BitClout hasn’t been helped by the unfavourable 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. Nonetheless, as soon as on DeSo, there was no strategy to convert BTCLT again to actual Bitcoin, successfully trapping customers’ funds. The withdrawal drawback has since been partially resolved after DeSo made its code open-source. Nonetheless, many early customers misplaced appreciable quantities of cash because of the distinction in demand between Bitcoin and BTCLT. 

Though BitClout and the DeSo blockchain are nonetheless lively, their futures don’t look vivid. The variety of wallets and creators interacting with the BitClout platform appears 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 yet one more of Nader Al-Naji’s crypto tasks failing to consider 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 penning this characteristic, the writer owned ETH, BTC, and a number of other different cryptocurrencies.