Key Takeaways
- Andreessen Horowitz is one of the most accomplished investors in the technology and cryptocurrency space.
- Despite its impressive track record, the firm has made some blunders over the years.
- Some of its worst bets include OpenBazaar, Diem, Basis, and BitClout.
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Andreessen Horowitz established itself as a crypto heavyweight by placing winning bets on industry mainstays like Uniswap, Solana, and Sky Mavis early on. The firm also launched a record-breaking $4.5 billion crypto fund in May 2022, highlighting its commitment to blockchain technology. But even Silicon Valley’s top players make investment blunders from time to time. Here are some of the top crypto projects Andreessen Horowitz has made bad bets on over the past few years.
OpenBazaar
OpenBazaar was an early crypto project with links to Bitcoin’s dark market era. The project attempted to create a decentralized peer-to-peer marketplace for goods and services, akin to an open-source version of eBay with cryptocurrency payments.
OpenBazaar was coded by Bitcoin developer Amir Taaki and a group of programmers from the startup Airbitz as part of a Toronto Bitcoin hackathon in April 2014. However, the project’s creators later abandoned it, and the code was adopted and rebranded to OpenBazaar by a new team of developers. The first version launched on April 4, 2016.
As OpenBazaar, the project attracted interest from several of crypto’s top venture capital firms. Andreessen Horowitz, Union Square Ventures, and Digital Currency Group all backed OpenBazaar through its seed funding rounds. Andreessen Horowitz contributed to OpenBazaar’s $1 million and $3 million seed rounds as well as a later $5 million Series A raise. According to data from Crunchbase, OB1, the company developing OpenBazaar, received more than $9 million in venture capital funding throughout its life.
However, despite its early success and ample funding, OpenBazaar was unable to carve out a place for itself in the rapidly expanding crypto industry. On January 4, 2021, OB1 announced that it would cease supporting the OpenBazaar marketplace’s wallets, APIs, search engine and website, effectively ending the project.
Former OB1 CEO and OpenBazaar project lead Brian Hoffman shed some light on the project’s downfall in a July 2021 CoinDesk interview. He said that conflicting narratives of Bitcoin being both an investment and a payments system was the biggest headwind for OpenBazaar. “Crypto, particularly Bitcoin, evolved from a cheap cash alternative into a store of value—a digital gold—that didn’t make it conducive to daily Amazon-type e-commerce purchases,” he said.
In hindsight, Hoffman also theorized that if OpenBazaar had prioritized stablecoin support early and monetized the platform by charging a small fee on all transactions, it may have had a better chance of success. Although OpenBazaar had a strong foundation and an all-star roster of backers, its failure will serve as a reminder of the risky nature of venture investing.
Diem (formerly Libra)
Diem was Facebook’s answer to growing interest in cryptocurrency payments, and it received huge support from Andreessen Horowitz and other heavyweights early on. Facebook announced Diem under the name Libra in June 2019, touting it as a way to send money across its suite of social media platforms without relying on third-party intermediaries or complex currency conversions.
Planned as a stablecoin pegged to the dollar, the project was set to run on a permissioned blockchain-based system created by the company’s developers. It rebranded from Libra to Diem in December 2020, preceding Facebook’s October 2021 Meta revamp as it announced a pivot toward the Metaverse.
Although Diem fell under the company’s centralized development, it delegated management to a third party known as the Diem Association, of which Meta was one of many members with equal voting weight. This cohort of companies acted as stewards for the Diem currency while also overseeing its development.
Andreessen Horowitz was an early investor in the Diem project and a member of the Diem Association alongside venture firms like Breakthrough Initiatives, Union Square Ventures, and Temasek Holdings. It’s unclear how much capital Diem raised, and the amount that Andreessen Horowitz contributed. According to a July 1 article from CNET, most of the Diem Association members were expected to contribute as much as $10 million each to the project’s development.
Like many of Andreessen Horowitz’s investments, Diem started out with ample support from industry heavyweights. Early backers such as eBay, Mastercard, PayPal, Stripe and Visa hinted that Diem was well positioned to bridge the gap between traditional finance and crypto. However, as the project grew, it drew increasing scrutiny from U.S. lawmakers.
In 2019, several conflicts with regulators and politicians weighed on Diem’s long-term viability. A July Senate Banking Committee hearing ended in policymakers comparing Diem and its creators to arsonists and movie villains, with one of the more vocal critics, Senator Kennedy(R-LA), expressing his skepticism about the project by saying, “Facebook wants to control the monetary supply. What could possibly go wrong?”
Several prominent Democrats from the U.S. House Committee on Financial Services weighed in, sending a letter asking Meta to cease Diem development, citing privacy, national security, trading, and monetary policy concerns. Federal Reserve chair Jerome Powell also remarked that the Fed had “serious concerns” over how Diem would deal with issues such as money laundering and consumer protection.
The President’s Working Group on Financial Markets doubled down on these concerns, stating that combining a stablecoin issuer with a big corporation “could lead to an excessive concentration of economic power.” Even former President Donald Trump joined in airing his skepticism toward the project. “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations,” he said in a tweet.
After resounding pushback against Diem in the U.S., eBay, Mastercard, Mercado Pago, PayPal, Stripe, Visa Inc., and other key backers withdrew their support. After two more years of sluggish development and continued regulatory pressure, the Diem Association made a deal to sell the technology behind the project to Silvergate Capital Corp for $200 million in January 2022. The sale marked the end of the Diem project in its current form.
Basis and BitClout
The final Andreessen Horowitz investment blunder on our list comes in the form of a double feature: Basis and BitClout.
First up is Basis, a decentralized, algorithmic stablecoin project co-founded and led by one of crypto’s most infamous entrepreneurs—Nader Al-Naji. The project aimed to keep its Basis stablecoin pegged to the dollar through on-chain auctions, which issued “bond” and “share” tokens to adjust the Basis supply. Basis was ambitious in its mission, saying it wanted to create a “better monetary system” that would be resistant to hyperinflation, free from centralized control, and more robust than the existing methods for transferring wealth. The project was an early attempt at creating a stable, unbacked, dollar-pegged token, serving as inspiration for other failed stablecoin projects like Basis Cash and Terra.
Questions of viability aside, Basis made sure it looked the part with cool fintech branding and a team of former Google and Goldman Sachs employees. Under Al-Naji’s guidance, Basis raised $133 million in April 2018, attracting big names like Bain Capital Ventures, one-time Federal Reserve governor Kevin Warsh, Lightspeed Venture Partners, and Andreessen Horowitz.
However, neither the Basis team nor the project’s backers had done their homework on U.S. securities regulations. It soon became clear that the bonds and shares used to anchor Basis to its dollar peg would constitute unregistered securities, meaning they would be subject to transfer restrictions. As U.S. securities regulations are notoriously difficult to navigate, Basis realized that creating a “better monetary system” wasn’t going to be as simple as it had initially anticipated.
In December 2018, eight months after its $133 million raise, Al-Naji posted an announcement on the Basis website announcing that it would be shuttering and returning its remaining capital to its backers. “Unfortunately, having to apply U.S. securities regulations to the system had a serious negative impact on our ability to launch Basis,” the post read, adding that complying with securities laws would impact the project’s censorship resistance and reduce liquidity for its on-chain auctions.
Despite getting burned by Basis, Andreessen Horowitz decided to take another bet on Al Naji when he launched his next blockchain startup: BitClout.
Advertised as the first blockchain-based social media platform, BitClout lets users post updates and photos, award money to other users’ posts, and buy and sell what it calls “creator coins”—personalized tokens whose value depends on people’s reputations. BitClout runs on its own Proof-of-Work blockchain called DeSo, short for “Decentralized Social.”
Unlike Andreessen Horowitz’s previous flunked investments, the firm contributed by buying tokens in DeSo’s initial coin offering (ICO). According to Crunchbase data, BitClout raised $200 million from 14 investors through its ICO, putting the average contribution from each at around $14.2 million. While details on how many tokens investors received and the vesting period are unknown, DESO is currently 97% down from its June 2021 all-time high of $198.68, per CoinGecko.
Interest in BitClout hasn’t been helped by the negative perception the platform has earned itself since its launch. Initially, to buy creator coins on BitClout, users needed to send Bitcoin to the DeSo blockchain, which was then converted into BTCLT at a one-to-one ratio. However, once on DeSo, there was no way to convert BTCLT back to real Bitcoin, effectively trapping users’ funds. The withdrawal problem has since been partially resolved after DeSo made its code open-source. Still, many early users lost considerable amounts of money due to the difference in demand between Bitcoin and BTCLT.
Although BitClout and the DeSo blockchain are still active, their futures don’t look bright. The number of wallets and creators interacting with the BitClout platform looks like it’s plateaued, and trading volumes for BitClout’s creator coins are at an all-time low. Many have complained that BitClout monetizes Twitter profiles without their owners’ permission. Stephen Palley, a partner at law firm Anderson Kill., has also argued that the DeSo ICO should have been classed as an illegal securities offering.
In light of yet another of Nader Al-Naji’s crypto projects failing to take into account U.S. securities laws, perhaps Andreessen Horowitz should take heed of a certain old adage when considering its future investments. “Fool me once, shame on you; fool me twice, shame on me.”
Disclosure: At the time of writing this feature, the author owned ETH, BTC, and several other cryptocurrencies.
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