LIQUID vs. VENTURE - Understanding the Differences

Liquid Investments and Venture Investments are two distinct approaches to investing in the crypto market. Here's a high-level comparison of the two and our comments inr egards to relevant Meta.

LIQUID

Liquid investments are a type of investment strategy that focuses on short-term trades, typically held for seconds, minutes, hours, or days. The goal is to capitalize on market fluctuations and generate quick profits. To achieve this, liquid investments require high liquidity, which is typically achieved through trading on centralized exchanges, decentralized exchanges (DEXs), or through over-the-counter (OTC) markets.

Liquid investments often employ market-making strategies, where investors provide liquidity to the market while earning a spread (the difference between the bid and ask prices). This approach typically carries lower risks due to the short holding periods, but it also offers lower returns compared to venture investments.

For example, a market maker provides liquidity on a popular exchange, earning a spread of 0.1% on each trade. They trade 10,000 times per day, generating $100 in daily revenue. This illustrates the potential for liquid investments to generate quick profits through high-frequency trading.

In general, liquid investments are characterized by their short-term focus, high liquidity requirements, and market-making strategies. They offer lower risks and returns compared to venture investments, making them suitable for traders, market makers, and those seeking more short-term profits.

VENTURE

Venture investments, on the other hand, are a type of investment strategy that focuses on long-term holdings, often months or years, to benefit from a project's growth and development. Tokens are vested for several years after the Token-generation Event (TGE) and start to unlock after one year and on a linear basis.

Venture investments typically require lower liquidity, as investors are willing to hold onto assets for longer periods, giving them time to grow in value. More and more investors find ways to sell their stake in the project even before tokens officially unlock. Even some founders make use of that practice.

Venture investments often involve equity stakes in blockchain projects, allowing investors to participate in the project's decision-making processes and potentially earn more significant returns. However, this involvement can also slow down or hinder the founders from executing their own unique idea about their project.

Venture investments carry higher risks due to the longer holding periods and the potential for project failure. However, they also offer higher potential returns if the project is successful. For example, an investor participates in an initial coin offering (ICO) for a promising blockchain project, purchasing 10,000 tokens at $0.10 each. After a year, the project's token price increases to $1.00, providing a 900% return on investment.

THE OLD META

In the past, the investment landscape was characterized by a clear distinction between liquid and venture investments. Liquid investments focused on short-term trades, while venture investments involved longer holding periods. Liquid investments required high liquidity, whereas venture investments required lower liquidity.

The risk and return profiles of these two investment strategies were also distinct. Liquid investments offered lower risks and returns, whereas venture investments carried higher risks but offered higher potential returns.

THE NEW META

However, since 2023, the meta has shifted, and only a few investors have honestly noticed. As the digital asset class begins to mature, precise asset selection is becoming paramount, further highlighting funds with unique thesis/underwriting versus the less opinionated model.

Recent discussions about liquid versus venture funds have underscored this shift. In reality, the conversation is focused on valuations and cash flows. Venture teams have historically been able to make money regardless of the valuation. However, valuations will correct to the point that liquid funds believe the valuation can justify the projected growth.

In traditional finance, cash flows are the name of the game, and crypto will be no different. It's natural as more institutional allocators enter the space, and whether that happens in the next six months, twelve months, or five years, these conversations are already underway.