PitchBook, a data provider for the private and public equity markets, has released a proprietary framework designed to help retail and institutional investors assess the long-term value proposition of blockchain protocols.
Until now, no other reputable institution has successfully defined the standard factors driving long-term value creation for blockchain protocols. Investors are left with a limited understanding of how to evaluate the viability of a crypto-asset investment – an asset class plagued by high levels of price volatility and uncertainty. PitchBook believes the crypto-asset class has the same risk profile as early stage venture investments and should be evaluated in a similar nature. PitchBook's framework examines five factors impacting a protocols' long-term potential including, the incentive structure, token distribution, market opportunity, founding development team and network strength.
"VC's clearly recognise the transformational potential of crypto-assets and blockchain technology, with many of the prominent investors already altering their LPs agreements (LPAs) to invest in this new market. However, the lack of understanding and high volatility often drowns out larger discussions of the long-term value proposition,” says Nico Cordeiro (pictured), PitchBook analyst. "If developed and implemented successfully, the technology creates an entirely new asset class that could significantly impact the broader investment ecosystem."
In the current environment, crypto-assets are viewed through the lens of more traditional stocks or ETFs, when in reality the asset class is most akin to early stage venture investing. These protocols, or products, are typically in the proof-of-concept phase and carry a high-level of risk due to the extreme uncertainty over the long-term outcome. For this reason, both asset classes are likely to share similar return distributions, whereby investors should expect many crypto-assets to fail, and a small proportion to deliver outsized returns. However, unlike venture capital, with as ecosystem, standardised benchmarks and regulatory oversight, crypto is decentralised and lacks the same type of industry-wide standards and protocols. To help address this issue, PitchBook says it has developed a clear framework that provides investors with a roadmap for evaluating a crypto project's long-term value. Over the course of 2018, PitchBook analysts will apply this framework when evaluating various crypto-assets. The goal is to help investors understand the potential value proposition of specific protocols and how they can affect the traditional ecosystem, by focusing on the variables that matter.
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