By Yash Agarwal
Compiled by: TechFlow
Ethereum venture capitalists face EBOLA — Ethereum Bags Over Logic Affliction.
(Note from Shenchao: The word EBOLA here is a pun in English. On the surface, it refers to being infected with the Ebola virus, but in fact it describes a state in which investors ignore or suppress rational logical thinking because they hold a large number of Ethereum-related assets (bags).)
I'll explain the origins of this highly contagious condition and how you can get vaccinated against it.
Two weeks ago, _choppingblock, hosseeb, and tomhschmidt of dragonfly_xyz laid out a series of arguments in the Ethereum vs. Solana discussion.
Basically, Solana has:
→ Incomplete venture capital ecosystem
→ Capitalization is lower than Ethereum
→ Memecoin Chain
→ Launching on Ethereum is like “starting a business” in the US, and EV+ More
We will review these arguments and:
— Highlighting structural issues of large funds
— How this pushes them toward infrastructure investment
— Even worse, how this can drown founders in bad advice.
Finally, we’ll share tactical advice on how to avoid contracting Ebola.
Chapter 1: Ethereum Venture Investors Infected with Highly Contagious Ebola
As calilyliu said, Ebola (EVM paranoia about logic) is a disease that affects Ethereum VCs - it is a structural problem, especially for large "tier 1" VCs.
In the case of dragonfly_xyz (which raised $650M), they likely made an infrastructure-focused thesis to their LPs.
Large funds are structurally incentivized to deploy their capital within — say, 2-3 years — and are willing to fund larger rounds → assigning higher valuations.
If they don’t fund larger rounds, they can’t deploy the capital and can only return it to LPs.
Given that infrastructure projects (like Rollups/interoperability/restaking) can quickly reach FDVs of over $1B, given the billions of dollars in infrastructure exits in 2021-2022 - investing in infrastructure projects is EV+.
But it is a narrative of their own making, accelerated by the Silicon Valley engine of capital and legitimacy.
This narrative is quite compelling, but the question is: are we straying from the original vision of TCP/IP for global currency as we think about the next EVM infrastructure stack? Or is this rationale driven by the fund economics of large crypto funds (e.g. Paradigm, Polychain, a16z crypto)?
Chapter 2: Ebola makes founders and LPs sick
As infrastructure brands drive high valuations; many major EVM applications announced or launched L2 to earn these high valuations.
The EVM infrastructure chase is so frenetic that even top consumer founders, like the founder of pudgypenguins, feel compelled to launch an L2.
The criticism of low-flow, high-FDV projects is valid; what about low-impact, high-FDV projects?
Take EigenLayer for example – a single project on Ethereum that raised $171 million but is still far from making any significant impact, let alone generating revenue. It will make some venture capitalists and insiders (who hold 55% of the tokens) rich.
The infrastructure bubble has begun to burst, and many tier-one infrastructure projects have launched tokens below their private placement valuations in this cycle.
With the major unlocking happening in 6-12 months, venture investors will face losses and it will just be a race to see who sells first.
There is a reason for the new wave of anti-risk sentiment in the general market; the feeling is:
More VC money = more high-FDV, low-circulation infrastructure.
Chapter 3: The Graveyard of Bad Venture Capital Advice
Fueled by venture capitalists, Ebola has also infected promising applications and protocols. From social/consumer applications to high-frequency DeFi, many were built on Ethereum, despite being unfeasible due to modem-like performance and unaffordable gas fees — resulting in a graveyard of applications that were conceptually promising but could not get beyond the “proof of concept” stage.
LensProtocol is one of the best examples of bad infrastructure advice.
StoryProtocol’s $140 million round led by a16zcrypto, which aims to “power blockchain for intellectual property,” shows that Tier 1 venture investors are still doubling down on the infrastructure narrative — the only evolution is: from “infrastructure” to “application-specific infrastructure.”
Chapter 4: Structural Fractures in Risk Markets
The current venture market does not efficiently allocate capital between private and public markets.
Crypto VCs manage billions of dollars in assets that essentially need to be deployed to specific tasks within the next 24 months: from private seed rounds to Series A projects.
Insufficient supply of public market capital leads to poor price discovery, for example, the total FDV of all tokens launched in the first 6 months of 2024 is approximately $100 billion, which is only half of the total market capitalization of all tokens ranked in the top 10 to 100.
The private venture market is already shrinking. Even Haseeb admits this — these funds are smaller than their previous funds for obvious reasons. If they could, Paradigm would have raised 100% of the size of their previous fund.
The risk of structurally broken markets isn’t just a crypto problem.
The crypto markets clearly need more liquidity as structural buyers in the public markets will help resolve issues in these broken risk markets.
Chapter 5: Vaccination against Ebola
Enough of that, let’s talk about potential solutions and what needs to be done as an industry, both for founders and investors.
For investors – favor liquid strategies that build scale by embracing public markets, rather than fighting them.
As Arthur_0x points out, a functioning liquid crypto market requires the presence of active fundamental investors — and there is ample room for liquid crypto funds to grow.
19/ Multicoin’s Tushar Jain and Kyle Samani summed this up nicely 7 years ago when they suggested that liquidity funds could offer the best of both worlds — venture capital economics (investing in young tokens for outsized returns) combined with public market liquidity.
20/ In contrast to Ethereum, Solana’s average funding round size in 2023-24 is quite small, with the exception of DePIN; almost all first rounds are below $5 million.
In addition to ColosseumOrg, major investors include Frictionless, 6thManVentures, goasymmetric, and BigBrainVC.
As liquid markets develop on Solana, liquid funds can become a contrarian investment for individuals and small institutions.
Large institutions should start targeting larger and larger liquid funds.
For founders — choose an ecosystem with low startup costs until you find product-market fit (PMF).
As Naval said, stay small until you figure out what works.
Compared to Ethereum, Solana has lower startup costs.
As tarunchitra points out; on the EVM, to achieve enough novelty and ensure a good valuation often requires a lot of infrastructure development which is inherently resource intensive (e.g. the whole app-turned-Rollapp craze).
Applications typically do not require high enough capital to launch; Uniswap, pumpdotfun, and Polymarket are examples.
Solana is the best place to “start a business” for the following reasons:
→ Community/Ecosystem Support
→ Scalable infrastructure
→ The spirit of fast delivery
Solana Is More Than Just Memecoins
Many may say that DeFi on Solana is dead with Solana’s blue chip underperforming like Orca and Solend/Save, but statistics suggest otherwise:
While one could argue that the massive price drop for the Solana DeFi token, as well as Ethereum’s DeFi blue chips, highlights a structural problem with governance tokens in terms of value accumulation.
Final Chapter: Advice for App Founders
The bigger the fund, the less you should listen to their advice.
Chasing Tier 1 VCs and high valuations, especially if you haven’t found a PMF yet, leads to valuation burdens and discovery difficulties at launch, making it more difficult to build a truly decentralized community around your project.
Financing - Small-scale financing. More community-oriented.
Raise funds from angel investor groups through platforms like echodotxyz - seek out relevant founders/KOLs or choose accelerators like alliancedao or ColosseumOrg.
This is understated: you trade valuation for distributions to start off strong.
Use a superteam for the very early stages; it's a shortcut.
Consumer-oriented - accept speculation. Attract attention.
When venture capitalists see the billion dollar exits here, they will likely follow the same infrastructure playbook for consumer applications. We have already seen many $100 million annual revenue applications (e.g. pumpdotfun).
in short;
Stop listening to venture capitalists’ mandatory infrastructure narrative.
It’s time for liquid funds to flourish.
Build for consumers. Embrace speculation. Chase revenue.
Solana is the best place to experiment due to the low startup costs.
