GCR Investment Review – First Quarter 2022

GCR Investment Review – First Quarter 2022

Written by Jin Kang and Cosmo Jiang

Highlights

GCR is a research and investment DAO. As a community, we source investments together, research and diligence together, and invest together.

Here are some highlights for this quarterly issue:

  • In Q1 2022, GCR invested in 15 deals closed and $5.0M+ deployed
  • Community saw over 100 investments in Q1, of which 33% of GCR’s investments were brought directly from the community
  • The top invested categories for the community were DAO Tools, Gaming, and Infrastructure
  • GCR team’s macro overview

A Push for Community Sourcing

We are committed to GCR’s vision to create a community-driven investment DAO where the best Web3 investments are brought by the community for the community. In just a month, we have made tremendous progress on this front:

  • The GCR community was shown 55 deals in March, of which 33% came directly from the community members
  • By category, DeFi continues to index the highest (~33% of deals sourced), followed by infrastructure/tools (~30%), and gaming (~11%)

We plan to continue to share our progress on this front regularly to highlight the power of GCR’s community-led investing platform. This underscores the GCR’s robust community engagement and our ability to leverage that community to add value to the projects with whom we partner. If you’d like to learn more about community sourcing, join our Discord.

GCR Investments During Q1 2022

Portfolio Companies
Date of Investment
Description
January 2022Lending pools that incentivize good saving habits (link)
January 2022Financing solutions for Play-to-Earn guilds (link)
January 2022Competitive gaming platform (Play-to-Earn) (link)
January 2022Community platform for creators and brands (link)
January 2022Decentralized pre-IPO & pre-token trading platform (link)
January 2022ZK-Rollup infrastructure to help build the metaverse (link)
January 2022Decentralized encrypted file sync platform (link)
February 2022Accounting for crypto-native organizations/DAOs (link)
February 2022Mobile-first DAO governance tool (link)
March 2022Gateway to the ReFi economy (link)
Stealth*
March 2022Decentralized investing protocol for DAOs
March 2022Decentralized media platform focused on Web3 (link)
March 2022Asset storage platform built on Gnosis Safe (link)
March 2022Web3-native social messaging platform (link)
*Stealth denotes projects where their fundraising has not yet been publicly announced

There are a few themes that clearly stand out when we look at our community investments this quarter.

First – DAO tools. DAOs have exploded in number over the last year. With that explosion in users and engagement, so has the complexity of onboarding, coordinating, engaging, evaluating and retaining DAO contributors. Developers have emerged to meet the challenge and here at GCR, we have reviewed dozens of DAO-tooling deals over the last few months. As potential users of DAO tools ourselves, we are incredibly excited to try out all these new products and have confidence that by this time next year we will see a DAO-tooling software unicorn. As a DAO, GCR loves meeting DAO tools and working with them strategically on helping with providing them with feedback and growth opportunities. We have high hopes in five of our deals this quarter: Coinbooks, Circle, Mural, Mysterious, Den and Syndicate. If you are a founder building a DAO-tooling business, please reach out! We are eager to be early test users.

Second – Gaming. One of our core theses is that as an increasing number of consumers get onboarded into web3, there is more incentive for developers to create consumer-facing apps that will further accelerate that user adoption flywheel. One such design area is play-to-earn gaming. Accordingly, there are an increasing number of tools to support these games. GCR found two exciting opportunities in this space – OpenGuild and BlockBets.

Third – Infrastructure. We believe crypto infrastructure solutions are crucial to Web3 as they provide a secure base layer on which various DApps and tools can be built. It is a broad term but at GCR, we target nascent industry verticals that need technological disruption. Our key focus has been on metaverse and data. We have seen many applications and tools in these sectors but have yet to come across solid infrastructure solutions where developers can contribute to creating a full ecosystem. We believe Topology and Slik are some of the prime examples that will lead the way for technological innovation.


Market Outlook

It is relevant to note that GCR has continued to make progress amidst the backdrop of mini crypto winter. Here at GCR, we are not macro experts nor do we pretend to be. Our expertise is in surfacing new disruptive ideas, evaluating founders and their teams, and bootstrapping these early-stage companies. That said, it’s important to be aware of macro, especially when the environment has turned on a dime so quickly.

There are many reasonable explanations for the drawdown since November of last year and the continued worsening through March. These reasons include (A) US Fed Funds rate increasing to combat rising inflation, (B) inflation continuing to worsen, exacerbated by the move up in oil following Russia’s invasion of Ukraine, and (C) parts of China shutting down again because of COVID flare-ups.

There has been a regime shift since the market bottomed on 3/14, with major indices moving up in nearly a straight line

  • S&P 500 is now only down 3%, having rallied 10% from the lows in only three weeks
  • Bitcoin is now only down 30% from the highs and in-line with the beginning of the year, even slightly outperforming the major equity indices
  • Smaller cap liquid tokens have also rallied, with a particularly strong performance from DeFi related names (e.g. $LDO, $MPL, $CVX, $SRM).
    • Footnote: Check out community member Cosmo Jiang’s thesis on $LDO! (link)

In the equity markets, the simple explanation is that incremental newsflow was no longer getting worse – whether it comes to rates, inflation, oil prices, or the Russia/Ukraine conflict.

Crypto markets have also rallied given their correlation to equities, but there are also industry-specific reasons for sudden >20% $BTC and >30% $ETH price appreciation. The most important one is the news that the Luna Guard Foundation was bolstering its UST stablecoin reserves through the purchase of Bitcoin. This is estimated to be adding a material 80bps of buying pressure per day, further accelerated by the reflexive nature of shorts getting liquidated on the way up. Another notable reason, probably less well understood by crypto-native investors, is the historic stimulus relief package passed in China (note the KWEB index was up 40% in one day after that news) – China is incredibly important as one of the largest and earliest adopters of crypto.

Looking forward, it’s not all roses. The markets are still down meaningfully from the highs, but they probably deserve to be:

  • The growth outlook is weaker – the 5/10yr US Treasury spread is negative, which has preceded a recession the last two times it has happened
  • Consumer spending power is declining – CPI +7-8% continues to pace ahead of wage inflation +5-6%, which means real wages are declining
  • Valuation multiples should not return to prior highs because rates have moved up meaningfully (10yr US Treasury is +80bps YTD)

Here at GCR, we have a multi-year investment horizon that is appropriate for early-stage investing. We continue to believe in the secular growth drivers for the crypto asset class:

  • Increased penetration of crypto usage amongst consumers
  • Developer talent – the industry onboarded tens of thousands of developers last year and the fruits of their labor will only bear out over the coming months and years
  • TradFi institution adoption – these participants have long decision-making cycles and the benefit of asset flows will begin trickling in over the next 1-2yrs

Conclusion

We are excited about what lies ahead for GCR and the rest of the crypto community. Please reach out if you have any questions to anyone from our Core Team.

Some of the other initiatives you should check out:

  • GCR 2.0 Launch – we launched GCR 2.0 to push through a few key initiatives that will better serve our members and our broader mission (e.g. new membership tiers, GCR Angel Network). Click here for more details.
  • GCR Angel Network – as part of GCR 2.0, GCR Angel Network was created to leverage our strong community to support our portfolio companies and new projects. Click here for more details. We would love to see you participate and contribute to the GCR Angel Network!
  • We co-hosted various in-person events with our partners: Axie Infinity (Meetup in LA & NYC), Magic Eden (NFT NYC),Aurora (ETH Denver), Avalanche Summit (Barcelona, and more!

GCR has reached 4,000 Discord members (and counting)! Join us on our journey by visiting our Discord! The quality and quantity of engagement on our Discord continue to grow at a rapid pace.

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