A top crypto VC outlines how the firm has avoided the contagion in the LUNA and Celsius fiasco. He also says that the market downturn could present interesting opportunities in altcoin projects.
Terra and Celsius events shook the market
As you follow on Kriptokoin.com, there has been a lot of talk in recent months about the collapse of the algorithmic stablecoin TerraUSD (UST) and serious liquidity concerns regarding centralized cryptocurrency lending platform Celsius. These tremors created serious ripples in the nascent field.
In the case of UST, the token was billed as a safe way to enter and exit the ecosystem while generating high returns. As a result, many individual investors lost their life savings due to the decline. Elsewhere, Celsius has promised users hefty returns, offering users up to 14% returns on cryptocurrencies. On June 12, the firm froze customer accounts.
What distinguishes these moments of market action from the Lehman collapse, for example, is that government bailouts are not the de facto response. Investors and industry participants now have access to risks. It also examines projects more thoroughly, and some are leaving the field altogether.
Framework Ventures is investing in these altcoin projects
Venture companies and hedge funds are affected by contagion risks. Crypto hedge fund Three Arrows Capital, for example, suffered huge losses following the collapse of the algorithmic stablecoin, The Wall Street Journal reported. He has now announced that he has hired financial advisors to steer his potential bankruptcy.
Michael Anderson, co-founder of Framework Ventures, a $1.4 billion early-stage venture firm, gave an interview. Anderson says he managed to circumvent these results during the market downturn. The firm is investing in liquidity protocol Synthetix (SNX), Blockchain oracle network Chainlink (LINK), Blockchain game developer Illuvium (ILV), and lending giant Aave (AAVE). Anderson says:
We are very excited about the future right now. From what has happened in the last three to six months, the leverage of the market that we think is healthy has decreased.
How did Terra and Celsius manage to avoid risk?
As the Terra and Luna debacle unfolded, Framework sent portfolio companies a survey to see what their cash positions were. He made sure that each company would keep it intact for 12-24 months. Michael Anderson explains:
Basically, we had to triage (segregate) accordingly. The easiest way to close shop is to not have the opportunity to pay your employees.
The framework also evaluated whether the portfolio companies’ protocols and products were working as expected. In addition, he checked who the opposite parties were. Former Snap Inc. The product manager says none of the firm’s investments have received UST. For Celsius, Anderson states:
We’ve advised all of our portfolio companies that there are places you probably don’t want to go. This was one of them. We wanted to make sure no one was directly or indirectly exposed to these ecosystems.
Firm continues to buy leading crypto and leading altcoin
In April, the firm announced a $400 million fund, half of which will go towards Web3 games. The news came weeks before both the collapse of the UST and the halt of Celsius. According to Anderson, unlike other major funds, Framework has not deployed much of its capital. Besides, it successfully prepared them for the downward cycle. The firm currently buys Bitcoin and Ethereum. It is also considering allocating market beta and more liquid assets, including doubling tokens in its current investments. Anderson explains:
Bitcoin and Ethereum usually follow the beta of everything the crypto ecosystem does. Frankly, it’s dropped pretty hard in the last six months. However, we think we will see a turnaround in terms of the overall crypto market in the next 12-24 months. Being a little more aggressive instead of sitting on the sidelines with cash will be very beneficial for our investors.
“It’s not a crypto winter, it’s just a market cycle”
Anderson, who has been working in crypto since 2018, says that volatility is nothing new to the industry, despite token prices falling. He also states that if a project has a chance to survive a bear market, then the belief will be stronger. In this context, he comments:
This is not a crypto winter. I think a crypto winter is reassuring for a nuclear fallout where everything quiets down. It’s just a market cycle.
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