Since the last update, there have been three big inflection points that have altered (or likely will alter) the state of crypto:

1. President Trump won the election. It also appears we will have the most pro-crypto Congress ever.

2. An AI agent called Truth Terminal started posting about a token called $GOAT.

3. Hyperliquid airdropped its token.

The following are some of the ways I think the impacts may play out. 

The New Administration

The win for crypto seems to be quite broad sweeping. We saw this sentiment reflected in the price action immediately following November 5th. 

It’s hard to know what the new administration and new Congress will actually do. My hope would be some mix of the following: more ETFs, greater clarity on how traditional financial institutions can embrace digital assets (via legislation, agency-level rulemaking, or a combination), stablecoin legislation, and maybe some paths for decentralized revenue-generating protocols to redistribute earnings.

There are multiple ways this may manifest in the startup market:

• Several known categories of businesses will be de-risked, and we may see increased competition as a result. Institutional staking is a good example. If we get staking in the ETFs, the business risk will shift from being market-based (i.e. how big is the market and how fast will it grow?) to product and team oriented. 

• The number and quality of customers for crypto projects may grow, stemming from traditional finance being able to more easily embrace the industry. For instance, consider the downstream effects of financial institutions being able to custody digital assets. In the U.S., there are over 2000 large commercial banks and over 3000 brokerage firms. Any and all that embrace digital assets will need custody and security services. It would represent a sea change in the addressable market for both crypto protocols and services-oriented software businesses. 

• All developers should benefit. In today’s world, figuring out what may or may not be compliant is resource-intensive; navigating the lack of regulatory frameworks consumes valuable time, headspace, and (often) capital. In some cases, this potential headache may discourage new developers from starting a project entirely. Regulatory clarity would bolster developer confidence, increase productivity, and even attract new entrepreneurs who find project inspiration from the guidelines / more legible market structure. 

On the whole, we are entering what is likely to be the most friendly environment for crypto developers in the industry’s ~15 year history. Among builders and other investors I’ve talked to, the excitement is palpable. I can’t wait. 

Truth Terminal

The second of the major inflections occurred on October 20th with the following tweet:

For the full backstory on the Truth Terminal bot, I highly recommend this episode of the Ben & Marc Show. 

Truth Terminal kicked off the current wave of interest and development around crypto-enabled AI agents and frameworks. To be honest, it does not yet seem like many agents are actually doing unique and interesting things with crypto. The most notable “action” is capital accumulation – in the form of trading and, more commonly, receiving airdrops from people trying to get the agent to post about their token(s). 

As far as I can tell, there is (currently) little to no economic relationship between many of the agents and their tokens. (The one exception I can think of is Botto). It’s also not entirely clear how consumers can use these agents, save from buying their tokens. Contrast this to DeFi summer, where participants were actively using the protocols. The challenge is that it’s not clear exactly what it looks like to “use” an agent. My colleague Jesse wrote a great piece on what at least one compelling model could be:

“With AI automating day-to-day objectives, the role of humans can be minimized to focus on providing capital, nudging guidance, long-term planning, and other resources the models do not have at their disposal.”

Check out the full piece here. 

One obvious next step for these agents is to start deploying that capital. That could be via trading, venture investing, providing liquidity to protocols, staking tokens to run validators, creating additional assets… the list goes on. Humans could help set the parameters or investment objectives. 

Zooming out, there are a lot of factors that could continue to propel the crypto-enabled AI agent category. For one, the agents of today are fairly nascent. As they start performing more productive tasks and/or collaborating with each other, both excitement and fundamentals should grow. Second, some of the agent innovation is driven by forces external to crypto. The broader AI industry is full of talent dedicated to improving agents and the underlying models. As those researchers continue to expand the bounds of what agents can do, crypto developers can leverage that work as a foundation for then integrating crypto in unique and interesting formats. 

Agents are just one part of the crypto x AI stack. Under the hood, these agents need to access compute, run inference, incorporate new training data, make payments, and more. Many teams have been working hard over the past year to build out performant infrastructure. Variant has invested in a number: Hyperbolic provides verifiable inference and compute, Sapien is scaling access to cost-efficient training data, and an unannounced project is working on decentralizing training. We’re actively investing in more. 

Why is crypto-native infrastructure necessary for agent innovation? Agents should be able to sell shares of themselves, self-fund their operations and infrastructure needs, interact with other agents (and have verification mechanisms for instances where they’re deriving information from other agents, i.e. “agentic oracles”) – all without the risk of their operations being censored or shut down. Decentralized infrastructure plays a critical role in removing platform risk and giving these agents access to capital.

Hyperliquid Airdrop

The third inflection point was the Hyperliquid airdrop. It made a major splash in the industry. The project was entirely self-funded, so there were no non-team “insiders.” Nearly a third of the supply was airdropped to historical users of the project, creating a massive wealth generation event. And most importantly, the product itself is widely used and loved; it’s something users want to own a piece of.

As a result, Hyperliquid’s airdrop acted as a sort of lightning rod for illuminating other fundraising dynamics that have been emerging over the past half year. There are two themes the market has increasingly trended toward: 1) giving retail investors greater parity of access with institutional allocators, and 2) avoiding the adverse effects of unlocks (where there is a known date that a portion of the vesting insider tokens become liquid and dilute the existing circulating supply). Hyperliquid achieved both of these.

There had already been a decent amount of industry discussion bubbling about alternative funding and launch strategies. Hyperliquid brought a megaphone to the category. None of the following are apples-to-apples, but I think they fit well alongside a discussion of why Hyperliquid’s launch was so impactful. So with that caveat, some of the ways we’re seeing teams strive to achieve similar end goals include:

• Raise “community rounds” on platforms like Echo, where individual accredited investors are given the chance to invest in private fundraises. Such platforms enable a project’s community to put skin in the game while simultaneously expanding the set of capital options available to founders. These are becoming increasingly popular. Again, it’s not a direct comparison to the airdrop: private rounds often have vesting schedules while the Hyperliquid airdrop was liquid immediately. But on the whole, community rounds strive to achieve a similar end goal of giving community members valuations / access typically reserved for institutional allocators.  

• Launch the token first and build the product second. The token then provides a source of capital for developing the product and attracting third-party contributors. Notably, it’s the opposite of what Hyperliquid did: build the product first, launch the token second. So again, it’s far from apples-to-apples – but it attempts to give early project users the chance to contribute, participate in the development, and speculate on the upside nonetheless.

• Reject unlocks altogether, and give investors the option to sell at token generation. Should early investors indeed choose to realize returns, the effect would likely be a temporary price decrease – in turn giving community members a chance to get in at attractive valuations. We’ve seen one or two of these; I think they’ll become increasingly common.  

Why does this matter? The guiding theme seems to be that there are now more options than ever for projects to help their users become owners. Writing as an admittedly biased VC, I don’t think there’s any substitute for taking early-stage funding from venture investors – the legal help, strategic advice, and portfolio resources can be invaluable for going zero to one. Luckily, raising venture dollars is not mutually exclusive with leaning into some of these alternative fundraise / launch strategies. Thoughtfully embracing paths to giving communities true upside can and should be rewarded. But again, underpinning all of this – and the true lesson / reminder from Hyperliquid – is to build great products that users love and want to own :)

Concluding Thoughts

The above considers major inflection points that occurred during the second half of 2024. It’s a bit different from my 2024 H1 reflection, in that the intent for the first was more focused on highlighting data-driven instances of what was working in crypto. Luckily, trying to replicate that here would take up many, many pages (there’s a lot that’s working!).

So instead, I’ll leave any readers who have made it this far with two of the most astonishing charts I’ve seen:

Crypto is becoming harder and harder to ignore.

And if you enjoyed this reflection, check out some of the other pieces I published over the last two quarters:

• What Credit Card Networks Can Teach Us About Stablecoin Opportunities: link

• What’s Happening at Coinbase? link

• What’s Happening at Robinhood? And Will It Become the Next Great Crypto Exchange? link

• We’re in the app phase: link

• DeFi super apps: link

• Distribution is all that matters: link

• Some ideas about lossless products: link
  

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Thank you to Jake Chervinsky, Hootie Rashidifard, Jesse Walden, Jack Gorman, and Derek Walkush for feedback on this piece.

Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated.

This post was originally published on Alana's blog.