We started our 2021 Unbounded Capital Year in Review with the following:
“2021 was an exciting year in the cryptocurrency and blockchain space which brought soaring asset valuations for both publicly traded crypto assets and private equity. The Bitcoin SV ecosystem had a fantastic year as well, but reflected largely in the growth of early stage companies, like those in our portfolio at Unbounded, rather than in market cap of the token accompanying the network, BSV.
We understand that being contrarian in a money-grab environment is difficult. However, value is not created overnight. We are confident over the long term this approach will outperform.”
2022 presented virtually opposite market conditions and, as a result, the benefits of our long term, value-oriented approach yielded significant benefits to Unbounded Capital and our LPs. While 2021 was a year of “soaring asset valuations for both publicly traded crypto assets and private equity,” 2022 was a year of collapse, contagion, and even criminal complaints against companies previously regarded by our peers as “blue chip.” Because Unbounded Capital has long avoided the hollow crypto theses du jour, our investors were shielded from these negative developments. Then again, just as in 2021, “the Bitcoin SV ecosystem had a fantastic year…largely reflected in the growth of early stage companies.”
We maintain that value is not created overnight and we feel that our best performing years are ahead of us. 2022 brought developments that point towards this future of exciting value generation powered by an internet supercharged by micropayments and efficient data use-cases.
In this 2022 year in review, we will dive into previous trends that are still developing, new trends that emerged, updates on companies in our portfolio from our Fund I, and updates from our recently launched Fund II.
Portfolio Company Updates
Before we look at some of the broader ecosystem trends, the following outlines some of the highlights, lowlights, and key takeaways from our portfolio companies during 2022.
One major development for Handcash was their partnership with Circle to process USDC natively on BSV rails. This development positions not just Handcash, but also BSV ecosystem companies at large, in a much better position to onboard the tens of millions of users already regularly using USDC. This upgrade is live in a beta environment today and HandCash estimates that this should be live in a few weeks after incorporating the learnings from the beta launch. Having personally tested out the new version of Handcash, we can confidently say that they are close to launching a truly transformative product for the BSV and cryptocurrency ecosystems. We are excited about how this innovation will make it easy for the average person to take advantage of the micropayment processing tech on BSV without having to have exposure to crypto whatsoever.
Beyond the UX improvements for users of the HandCash wallet, HandCash has made major strides on their Connect SDK, improving the developer experience for people building Bitcoin SV applications. HandCash’s partnership with companies like Asset Layer has extended what is possible with their tools by incorporating hyper-efficient digital assets (NFTs) to match with their existing hyper-efficient payments. HandCash SDK customers like Haste Arcade have incorporated these tools to launch cutting-edge products taking full advantage of the efficiency and user experience of HandCash Connect. As HandCash is able to onboard more users to their USDC connected wallet in 2023, we expect many more entrepreneurs and developers to build companies using the HandCash suite of developer tools to provide products and services for users.
HandCash’s impact is to make “Money Go Live'', one of their popular slogans. We think the micropayment element of HandCash will be core to the applications which will define the future of the internet. Perhaps even more exciting is HandCash’s position relative to users and applications in this future landscape. As the predominant wallet ecosystem and developer community, HandCash’s wallet can be the identity layer of the internet as users connect and sign into applications via HandCash and bring their data and connected payment options with them. We think this is one of the biggest opportunities in tech today and HandCash is lightyears ahead of the competition as we begin 2023.
Haste Arcade focused 2022 on growing their products and user base, finding success on both fronts. Over the past 12 months, Haste moved beyond being their initial instant-leaderboard payout (ILP) game development focus to become an ILP arcade, populated by Haste original games and third party games built leveraging their SDK. Haste also expanded their product offering, introducing the Player Card NFT, a tradeable baseball-card-like NFT which shows lifetime stats of players in the Arcade and provides rewards to owners of the card when that player wins games in the Arcade. Haste also integrated Game Collectible NFTs which players can buy, sell, trade, and use in game, tapping Haste into the multi-billion dollar gaming items market with the added benefits of interoperability and efficiency from using blockchain powered digital assets. Beyond gaming and gaming-related NFTs, Haste has seen impressive growth in their TakeIt NFT platform which has become a dominant ecosystem for releasing digital art in the BSV space.
In 2022, Haste did a lot with a relatively small team and limited capital. Haste is looking to leverage this strong year to pursue a higher growth trajectory by closing an already-underway seed round, in which our Fund II is participating, in short order. Initial traction on this raise has been very positive, drawing from both gaming VCs and those with more of a web3 focus. We think Haste’s founders Dan Wagner and Joe DePinto are visionary entrepreneurs when it comes to leveraging the newly available micropayment technology in a way that can create profound new user experiences. Beyond the micropayment opportunity, Wagner and DePinto have proven themselves extremely creative as it pertains to gaming opportunities more generally. Given this leadership, the size of the gaming market, and that market’s rapid growth, we think Haste’s future is extremely bright as core infrastructure and a platform for game developers of all sizes. While their focus today is on gaming, we think that their infrastructure at scale has the potential to be a core part of other large markets like sports and FinTech.
Positive regulatory news out of both the EU and US this year created tailwinds for UNISOT, suggesting that their supply chain mapping solutions are one of the few existing products in the market in compliance with new EU regulations and the FDA Food Safety Modernization Act which require companies to better audit their supplier networks. UNISOT’s digital product passport solutions which appraise quality, provenance, and sustainability are built in accordance with these additional EU regulations. There are very few products in the world today that can help companies remain compliant with developing supply chain regulations, and these recent developments have increased demand in the markets UNISOT is tackling today. If EU and US regulations pertaining to supply chain management continue their course, something we expect, we think the addressable market for UNISOT’s solution will grow tremendously over the coming decade.
Stephan Nilsson, UNISOT’s CEO, has a background with SAP integrations and has always envisioned UNISOT finding success by integrating into these existing ERP solutions with large user bases. On this front, UNISOT ended 2022 on a very positive note. Christen Ager-Hannsen, the new CEO of nChain Group and a fellow Norwegian, is similarly focused on spurring the adoption of BSV and companies leveraging it by integrating with existing solutions. Over the past few months, Christen has honed in on UNISOT as an asset towards his vision of working with large consultancy firms like Bain to drive the growth of BSV. Christen’s team is now working in conjunction with UNISOT towards these ends. We are optimistic that this revamped approach to customer acquisition will get UNISOT’s powerful technology in front of many more eyes in 2023 and beyond but remain aware of the significant onboarding challenge many of their potential customers will face given the current state of Bitcoin SV infrastructure required. If UNISOT can continue to reduce their onboarding friction and push heavily on sales with the support of nChain and other new partners we think 2023 could be a turning point.
Xoken Labs is one of Unbounded Capital’s most BSV correlated portfolio companies. Founder Nithin Mani has innovated cutting-edge solutions that we see as core components of BSV’s scalability, especially as demand to use the blockchain grows orders of magnitude over the coming years. While we fully expect this surge in demand to materialize in the future, so far it has not. BSV is already the most heavily used public blockchain in terms of transaction volume, but where Xoken’s products really shine are when the benchmark is eclipsing AWS scale rather than surpassing Ethereum scale, something we did last year.
That said, the current BSV growth, which we think is just the beginning of an S-Curve, has begun the process of creating customers for Xoken’s tools. One such customer could be leading Bitcoin SV R&D firm, nchain. As nChain makes big changes under CEO Ager-Hannsen’s new leadership, we are optimistic that Nithin’s solutions will be recognized as key parts of the ideal Bitcoin node software. While his customer base is small today, if we are right that a scalable blockchain will be the primary database for most important and secure information over the coming decades, we think Xoken is well positioned in playing a dominant role to make each of the growing number of data entries possible.
Over 2022, RUN, by most relevant metrics, became the most successful token protocol on Bitcoin SV. Even more impressive, it eclipsed the transaction volume of Ethereum with over 400M transactions in 2022 and became one of the most successful public blockchain token solutions, in terms of transaction volume, across the entire cryptocurrency/blockchain sector. While this was encouraging news for the RUN protocol, it did not translate to significant revenues for the RUN company in 2022. RUN’s vision of the future was always two-fold: (1) to create the best open source token protocol which was free to use for applications looking to issue tokens and do smart contracts on BSV, and then (2) to monetize premium paid services on top of the RUN protocol and remain the best positioned company to deliver these due to the team’s expertise on their own protocol. 2022 delivered on step one but not step two. Had RUN maintained this course, it is possible that 2023 and beyond would have led to successful revenue generation but RUN Founder and CEO Brenton Gunning is eyeing something in which he sees more potential.
In 2023, the RUN company rebranded to Aldea and is launching a new layer one blockchain which Brenton and the team have tailored for customers demanding more smart contracting flexibility and higher transaction throughput. Aldea is being built in the vein of successful projects like Aptos and Sui but incorporates insights Brenton learned from RUN including lowering the barrier to entry by leveraging an object-oriented language, improved scalability through features of Bitcoin’s UTXO design, and other design elements used by high frequency trading systems today. While the blockchain has yet to launch, they have already achieved 15M TPS in a testing environment. If when Aldea goes live they can achieve even 20% of this feat, they will be the blockchain with the highest throughput by a wide margin.
Aldea is targeting a large Series A in 2023 with the goal of launching a blockchain that is highly scalable and friendly for high-frequency trading later in the year. The original RUN protocol remains open source and is still widely used today on BSV. We think Aldea has the potential to be, by most relevant metrics, one of the most used blockchains in the world and a core part of the infrastructure for exchanges and trading firms in the coming years.
DXS launched their product about two years ago and already has enabled over $4B in trading volume ($286M in the last quarter - view full stats and more here). DXS is the only company in the world that allows people to invest and trade in small increments appropriate for the emerging and frontier markets by taking advantage of a blockchain (Bitcoin SV) with a current transaction fee median of 1/10,000th of a penny, a rate that is continuously decreasing. We were the first and most recent check into the company out of our Fund II and are extremely excited with their product development and market traction.
DXS is still operating relatively under the radar and iterating on their product rather than spending meaningful time trying to acquire customers. This will change after they launch US dollar-denominated trading which is expected in Q1. With this onboarding friction significantly reduced, they intend to shift gears towards marketing and go full steam ahead on growing their user base. It is incredible to think about how much economic activity they have generated on a small but loyal user base in just the thousands of people that all found DXS primarily by word of mouth. We intend to help them raise from the top FinTech VCs for their Series A this year. Post raise, when DXS is in a better position for rapid growth of the team and product, we anticipate significantly higher trading volumes in the range of $20B to $50B for 2023. The even more exciting opportunity, however, is DXS’s ability to package and sell their software as a SaaS solution for businesses currently struggling to settle and keep track of their transactions today. These potential customers include exchanges and settlement networks of all kinds and spread across the globe.
Tokenized recently raised their Seed round which included investment from our Fund II. They have since been heads down focused on product development. Taking a similar approach to Slack or Figma, James has a very clear idea of how he thinks the world will look like in a decade, with the vast majority of assets of meaningful value being represented on a public database. He is positioning Tokenized to be the software which makes that possible, taking a long term product-first approach.
In 2022, Tokenized won multiple new customers within the BSV ecosystem, most notably another portfolio company of ours, Handcash, on their highly anticipated USDC integration in partnership with Circle. We are confident in the fact that there is no competitive product comparable to Tokenized. Time and again, James has heard a version of the following from potential customers including tier-one banks and multi-billion dollar asset managers, “This is the first tokenization platform that makes any sense and adds meaningful value compared to our existing technology.” We remain confident that the vast majority of the world’s assets will be represented and traded on systems leveraging scalable blockchain technology. We think Tokenized is best positioned to capture this massive and growing market and we are excited to see some of the leading companies in the asset tokenization space become customers in 2023.
In 2022, PngMe made the decision to pivot strategy to focus 80% of their efforts on enterprise banks in Kenya and Nigeria while shifting their FinTech customers to a lighter touch, freemium (self-service) channel, knowing that non-bank lenders would experience short and medium-term loan book contraction and adverse venture funding headwinds. This was a carefully thought through strategic pivot which took into account the macro environment for fundraising, bloated sovereign debt, and more – proving the move prescient.
Pngme is finishing their integration with Absa, a major bank in Africa, now their largest new customer. They have been using this development to drive their enterprise pipeline. Banks in that pipeline having tight control over their cost of capital are now investing heavily in tech infrastructure that will enable scalable expansion into the digital lending space. Pngme is a critical enabler of this expansion and they are positioned well - they currently have the 11 largest banks in Kenya in their pipeline with 2 others at a similar stage to Absa; these are Stanbic Bank Kenya and HF Group Kenya. Between these three banks, they account for over 1 million active mobile users as an addressable user base (non-mobile users are significantly higher).
Their north star for enterprise revenue in 2023 is to secure $2M of ARR from the current enterprise pipeline. Cutbacks were made months ago to extend runway through Q2 2024 in preparation for worst case macroeconomic scenarios.
We are incredibly bullish on Cate and Brendan’s vision for transforming lending, payments, and credit scores. The technology Pngme has built to solve some of the biggest problems in finance is best in class and we are confident in their ability to build a business that transforms access to capital.
Asset Layer is not a portfolio company of Unbounded Capital but is a company born out of Unbounded Capital (UC founding partners Jack Laskey and Dave Mullen-Muhr serving as co-founders) and also touches several other companies mentioned in this update.
Asset Layer had a big year in 2022 culminating in the launch of their API private beta in November. Their game Duro Dogs, the first application using the Asset Layer API, saw significant traction in 2022 minting and distributing over 1.5M NFTs with no-code tools to a small but hyperactive user base, generating over $50,000 revenue on less than 1k MAUs with a median purchase price of $1.99. Asset Layer will launch their developer dashboard in the coming weeks to round out their initial product suite with tools for developers and no-code creators to enable new, interoperable creator economies in games and apps. Asset Layer is targeting a seed round in Q1 2023 to facilitate their growth trajectory. Over 2022, Asset Layer worked closely with HandCash and RUN, and has serviced initial customers including Haste. Now shifting focus towards sales, Asset Layer is approaching 50 teams signed up to use their platform in 2023, including UC portfolio company Frobots, with over a dozen teams already building on the Asset Layer platform today.
The bigger opportunity for Asset Layer is similar to HandCash, in part due to the companies partnership in pursuing their shared vision for an internet upgrade with micropayments and new data use cases. The next phase of internet innovation will be defined by users being oriented as the communication layer between applications. HandCash enables payments to seamlessly move across these applications. Asset Layer enables data to do the same. Together, HandCash and Asset Layer are pursuing one of the largest opportunities in technology today and, again, are lightyears ahead of the competition in delivering it.
New Investments
In 2022, Unbounded Capital invested in John Pitt’s Slictionary, an online dictionary generated by users with an economic incentive to fund and create the best possible definitions. The product is live today but Slictionary is fully in product development mode. 2022 highlights include transitioning from MoneyButton to HandCash as their wallet infrastructure, a change that not only provides an immediate 10x improvement for their user experience, but also enables their business to scale without hitting technical bottlenecks on the wallet-side; releasing an iOS app in Testflight to improve UX and decrease friction to onboard; and conducting back-end research and development on implementing a token solution to store the words and provide a revenue stream to owners as users pay to read their definitions.
For now, Slictionary is mainly focusing on attracting users from the existing BSV ecosystem while they iterate on the product. We think the move to HandCash and the development of their own wallet will supercharge Slictionary’s growth potential in 2023 as much of the app’s initial friction will be diminished.
At first glance, the long term opportunity for Slictionary is often underappreciated. In 2022, Wikipedia was the 7th most visited page on the internet. Despite Wikipedia’s popularity, it captured none of the immense value it provided, relegating them to pleading users to donate on the banner of their site. This is Slictionary’s opportunity: creating a distributed, crowdsourced dictionary which succeeds where Wikipedia failed, leading to better definitions, shared information, and increased value generation for the company as well as the users who participate in the resource’s creation.
In 2022 we invested in Frobots, a modular NFT battle bot game and education coding platform. Jerry Chan, founder and CEO, has described the product as “e-sports for coding” and has been building the product with a lean team which has incrementally grown to 10 people. They recently launched their private beta which has generated some early users and they are now marketing the product to testers with a new tutorial series which teaches developers how they can design and program Frobots.
Frobots will launch a public version of the product this year and seek to raise additional capital to speed up development and marketing of the product. While we are excited about the NFT battle bot game aspect of Frobots, the company’s larger opportunity is their ability to create a micropayment powered market for code. Frobot owners can upgrade their Frobots by adjusting the code which powers them. In many cases, this code will be outsourced to developers who hone a skill set for this specific task. Frobots as a platform will make monetizing these efforts simple and, in the long run, can extend to applications outside of the NFT game. A micropayment-fueled market for code, down to the individual line of code level, has enormous potential which would impact virtually every industry in the world. Frobots is an exciting entry point to this massive addressable market.
RF Labs is our first investment outside of companies explicitly using a scalable blockchain. We haven’t done this before and may only do this a few more times in Fund II as our bar for companies not using a scalable blockchain today is very high. Here are some of the top factors that made us make the investment:
We think it is likely RF Labs will find the value of leveraging the benefits of scalable blockchain core to their offering in the coming months, particularly due to its ability to facilitate data markets for dealing in valuable poker analytics.
Unbounded Capital is uniquely qualified to underwrite this opportunity and add value. Jack and Zach’s involvement in building Just Hands Poker nearly a decade ago was an attempt to solve some of the same problems that RF Labs has identified and solved. Few in poker or other games and sports have tried to tackle these problems.
Most importantly, we are incredibly bullish on the founder, Maanit. Zach has come to know very few people in the world to-date who have been able to move as fast as Maanit hase. His expertise on the problem and solution and his ability to execute to-date make us extremely optimistic about his future success.
RF Labs is both a hardware and software company that helps card houses and casinos track analytics, automate live streams, and improve business operations. Their founder, Maanit Madan, recently made headlines as he appeared on two of the biggest poker podcasts (Joe Ingram and Matt Berkey's OnlyFriends) discussing his recent viral piece on a major poker cheating scandal and how the technology pioneered by RF Labs could mitigate this type of incident.
He recently revamped the RF Poker website which has led to an even bigger increase in backorders for his table. He also redesigned his player-facing app from the ground up and, as a team with serious poker players, we can attest that the improvements are massive. Since we invested, Maanit has spent most of his time designing the next version of their flagship product: the RFID-enabled poker table which is currently being installed at Houston’s Texas Card House. After ironing out any kinks, Maanit intends to focus more time on fulfilling the dozens of backorders on his table from card houses all over the United States.
And while we think RF Labs is well positioned to dominate the poker card house market in short order, his long term vision is much bigger than just that. Through intimately understanding the customer experience of poker players and card houses, he has created a suite of hardware and software products to improve the social gaming experience. We are optimistic he can leverage that expertise not just for poker but also for much more popular games like blackjack, golf, chess, and more.
Scalable Blockchain Ecosystem Trends
The Bitcoin SV ecosystem saw continued growth in 2022 with regards to the development of consumer facing applications and user growth for those applications. In our 2021 year in review, we highlighted how the development and maturation of core Bitcoin SV infrastructure companies was beginning to make higher level application development easier and we predicted that in 2022 we would see a proliferation of these new applications built off infrastructure providers like HandCash, RUN, and others. This is what happened over the last 12 months. The HandCash ecosystem has grown by over 61% since the beginning of the year with 21 new applications launched using their Connect developer SDK. Other Bitcoin SV wallet and development ecosystems like Vaionex have seen similar growth with 23 companies being incubated and incorporated via their sister company the Block Dojo. Throughout the year we have taken dozens of meetings with new companies building B2B and B2C products in this space. The maturation of available developer tools used to make building applications simple is one important piece of the puzzle. The other key piece is growing the potential user base to properly incentivize application development for founders in the first place. The user growth of applications as well as the wallet ecosystems connecting users to applications was another predicted trend from last year. This is another trend which certainly continued in 2022. Applications like DXS, Haste, Duro Dogs, Cryptofights, Twetch, and others continued to grow in number in 2022, despite negative market movement across the cryptocurrency ecosystem. Because most applications in the Bitcoin SV are not focused on the speculative value of underlying blockchain coins and assets, decreases in market price of BSV often has little to no negative impact on user experience for these applications, something that cannot be said for the crypto consensus applications which are mostly speculation oriented. HandCash made enormous strides in 2022 to connect the Bitcoin SV ecosystem to other cryptocurrency ecosystems via their USDC integration which allows users from blockchains like Solana, Ethereum, and others to seamlessly interact with HandCash-connected applications like Haste, DXS, and Duro Dogs via the USDC stablecoin, but now for the first time issued on hyperefficient BSV rails. This product was built throughout 2022 and is now live as a beta release which will be launched publicly in a matter of weeks. We are confident we will see a major step up in user growth throughout this coming year thanks to this development and others previously mentioned in this review.
Some broader cryptocurrency market trends from 2021 did not continue in 2022. Instead they virtually came to a complete stop, creating an anti-trend. These anti-trends are probably the most significant macro crypto trends of 2022. DeFi, staking, yield farming, speculation-oriented NFTs, DAO, and other crypto staples of 2021 saw a significant decline this year. Beyond the rapid drop in value of the publicly traded assets associated with these projects, Unbounded Capital saw significantly less inbound from entrepreneurs seeking to raise for these types of products. From our point of view, these 2021 trends virtually coming to an end is an extremely positive development. Throughout this year, entrepreneurs who, in 2021, may have been incentivized to raise large amounts of capital for projects which often resulted in zero-sum games were instead, in 2022, nudged in other, more positive-sum directions. As capital allocators in these markets, we are able to see the early signs of these shifts by way of the inbound communications we receive and the types of companies we encounter when meeting founders at conferences and events. From our point of view, 2022’s market woes trended the quality of these companies in the right direction and we are excited to see the fruits of these companies in 2023.
As a fund focused on micropayments, we regard blockchain technology as the exclusive technology available today which can facilitate payments below one dollar in an economically viable way. While it is possible that other technologies may emerge, we think it is overwhelmingly likely that a scalable blockchain will be the predominant engine for global micropayments at scale.
This begs the question: which blockchains are good for micropayments today? A key question we have been tracking at Unbounded Capital is: “Does a given blockchain get cheaper or more expensive as more people use the network?” Today there is only one public blockchain that has gotten cheaper over time as adoption has increased. That network is Bitcoin SV. We have been closely tracking other allegedly scalable blockchains like Solana, Avalanche, Polygon, Algorand, Stellar, and more. But according to the empirical data available, all of these share the same trend: they get significantly more expensive as their user base grows and their transaction volume increases (see our scalability research page to learn more).
As a result, we remain focused on investing in companies leveraging Bitcoin SV to solve some of the world’s biggest problems. That being said, we are increasingly looking at companies not leveraging a blockchain of any kind today, and are seeing a lot of promise in that arena. Last year we made our first investment into such a company from our Fund II. For that company, and others that aren’t using a blockchain today, we think it is likely that they will take advantage of blockchain-based micropayments in the coming years as a key part of their tech stack. In addition, we spend a meaningful amount of time tracking other promising ecosystems, largely consisting of recently created blockchains.While in 2022 we didn’t find any other blockchain ecosystem outside of Bitcoin SV investable, in early 2023 we did with Aldea.
Bitcoin SV Update
Speaking purely from the perspective of the price of the BSV token, 2022 was a bad year. BSV market price fell 66% over the course of 2022. However, this downward movement comes amidst a backdrop of a broader market crash where BTC fell 65%, ETH fell 68%, and SOL fell 94%, leaving aside the handful of major tokens which fell over 99%, sometimes virtually overnight. That said, the Bitcoin SV ecosystem at large has had many positive developments over the past year.
Transaction volumes on the network have continued to climb. In January of 2022, the world's first 4GB Bitcoin block was created by BSV mining company TAAL, packing ~2,000 times more transactions and transaction data into a block than possible on BTC. This headline grabbing development quickly became blasé as blocks that size became a daily occurrence. This surge in transaction volume made it popular for Bitcoin SV developers and investors to follow the pie chart on bitinfocharts.com which tracks 24 hour transaction volume by network from many of the major blockchains used today. Bitcoin SV has 50% or more of all blockchain transaction volume on many if not most days. The following screenshot of the chart from last September 2022 was especially exciting, showing over 34 million transactions on BSV that day, representing over 93% of transactions across all blockchain networks.
Despite the surge in transaction volume, transaction fees on the network continued to remain among the lowest in the industry, even continuing to drop below 2021 lows. Today, at the time of writing (1/12/23) the median transaction fee rate on Bitcoin SV is ~48,000 times lower than on BTC; with BSV at $0.000007 per transaction vs BTC’s ~$0.36 median transaction fee. These miniscule and shrinking transaction fees, independent of or even inversely correlated to transaction volume, are at the foundation of the infrastructure and application level companies building on BSV with an eye on efficiency and scale. Applications like HandCash which currently process user transactions for free are easily able to eat this cost given the cumulative fee for 1 million user transactions is only $7.
A negative from the Bitcoin SV ecosystem in 2022 was temporary network instability experienced due to an empty block miner, or a transaction processor who was effectively refusing to process transactions. As a result of this empty block miner, some applications began experiencing disruptions as transactions were being broadcast but not accepted into blocks for minutes or even hours at a time. While this was frustrating for users and developers, the situation eventually resolved itself as mining empty blocks is not a profitable exercise in the long run. Because of these incentives against empty block mining, we are not worried about this being a problem moving forward, though temporary disruptions arising from short term actions like these are something to continue to monitor for and safeguard against moving forward.
Though not a new development, the Bitcoin SV ecosystem also continued to suffer from a lack of support from the broader cryptocurrency and blockchain space. This manifested primarily in the BSV asset being delisted from additional exchanges like Bitfinex, and in January 2023 Robinhood as well. The removal of BSV from popular exchanges adds additional friction to potential users of applications like HandCash and connected apps like Haste but we are confident that these UX challenges are only temporary with Handcash’s new launch supporting USDC anticipated in only a matter of weeks.
Other solutions to this added friction also exist. Haste, for example, added the ability for users to create accounts and play for free or onboard with transitional USD payment options with Haste abstracting the cryptocurrency behind the scenes. HandCash’s solution to this onboarding challenge was to incorporate in-app top-ups directly, allowing users to buy BSV with credit and debit cards in-app. Their addition of USDC will continue to reduce friction from non-BSV cryptocurrency customers as well as average non crypto-savvy users.
Overall, the Bitcoin SV ecosystem continued to build in 2022. The easy money for venture backed crypto companies building the ‘hot crypto thing of the day’ was never truly available to entrepreneurs in the Bitcoin SV ecosystem, so its rapid evaporation had only a mildly negative impact on funding in BSV compared to the broader crypto ecosystem. By and large, entrepreneurs who have chosen to build on Bitcoin SV pre-2023, when it was not popular to do so, have chosen the ecosystem because they are building a product for enormous scale which requires micropayments. Companies seeking these asymmetric outcomes have continued to build.
While we think that a portfolio of the top companies building on BSV represent a better risk-adjusted long term return than the Bitcoin SV token, we are still very bullish on a long time horizon on the value of the BSV token itself. In the past, we ascribed meaningful double digit percentage probabilities to a massive increase in the price of BSV related to a couple of prominent Craig Wright court cases. These bets failed to materialize on a short time horizon. We continue to think that the probability of such a rapid price increase in the near term is relatively low.
As more companies continue to use the most scalable blockchain network today for payments, data, and more, especially where transaction fees drop as the network usage grows; we think the token will appreciate as a proxy for the value of the data on the Bitcoin SV blockchain. As we see growth from more companies with the Bitcoin SV blockchain at the core of their tech stacks, we think the adoption and recognition of one of those fast-growing BSV companies will remain the most likely catalyst for a near term spike in the value of BSV.
Management Company Update
The biggest development in Unbounded Capital was the launch and the first close of our first traditional venture fund: Unbounded Capital Fund II. Unbounded Capital Fund II is a fund focused on investing in micropayment infrastructure companies leveraging scalable blockchains to tackle the world's biggest problems. We are continuing to raise for this fund with our next close date in March of this year, targeting a final close in June 2023.
Another major development was the addition of our newest investment committee member, Joshua Henslee. Joshua is a consultant, developer, writer and educator within the Bitcoin space. After completing degrees in Computer Science and Mathematics from the University of Georgia, he worked for 7 years as a Technical ERP consultant, helping to deliver full lifecycle software implementations for middle market companies. Joshua became interested in Bitcoin after specializing in retail and credit card implementations, eventually deciding to leave his position and work full-time in the Bitcoin space in late 2019. He has developed several applications on Bitcoin, written many technical articles, and maintains a YouTube channel publishing videos discussing Bitcoin and web development tutorials.
A highlight of 2022 for many members of the Unbounded Capital team was our first annual Unbounded Capital summit in New York City last September. In attendance were many of our limited partners, prominent venture and hedge fund managers, FinTech and blockchain entrepreneurs, and institutional and family office investors. The attendees were treated to a keynote speech, entrepreneur talks, panel discussions, mingling and meals, and even a fireside chat with former Treasurer of the United States, Rosie Rios. We look forward to holding more Unbounded Summits on an annual basis. We are hosting another event in Austin this March and will be back in NYC for our second annual Unbounded Capital Summit in the Fall.
Looking Ahead To 2023
We are excited for 2023. We expect major developments for Unbounded Capital, the Bitcoin SV ecosystems, and our portfolio companies.
Continued Decline of the Crypto Consensus
2022 was a devastating year for the crypto consensus theses. The fallout of continued contagion from collapses which already happened or criminal charges which are yet to be brought should continue to wreak havoc on these largely zero or negative sum applications and use cases. We think the decline of these areas of focus will be a net positive for investors, entrepreneurs, and end-users, as much of capital and energy that went to glorified Ponzi schemes and highly speculative ‘decentralized’ projects and companies in 2022 will now be put towards long-term oriented value creation by leveraging technology centered on efficiency and scalability.
The history of financial markets is filled with brilliant people making huge mistakes that result in unrecoverable capital loss. The investments in FTX two to three years after its creation at $18-32B valuations are no exception.
This apparent fraud, in particular, is throwing many people for a loop, not just because the size and scale of capital lost is possibly greater than Madoff’s Ponzi scheme, but also because some of the most respected names in the investment world participated in funding FTX.
Sequoia is generally considered one of the most respected VC funds in the world. Until recently, they had a long piece on their site on Sam Bankman Fried’s exceptional character and vision. Other major investors included BlackRock, Tiger Global, Insight Partners, and even the pension fund of The Ontario Teachers which led their Series B.
For years, Unbounded Capital has been highly critical of the consensus thesis of the blockchain/crypto space, often proclaiming that various emperors have no clothes. Whether those emperors were crypto wunderkinds like SBF plastered on the cover of Forbes, the hot crypto trend de jour like DeFi or speculative JPEG NFTs, or even the supposedly bedrock foundational blockchain protocols like BTC or ETH, we have maintained our independent thought and sought the signal through the noise against a backdrop of crypto investors chasing FOMO and piling into overpriced investments they do not understand.
As mentioned in our 2021 year in review, this has been a challenging position to maintain during the wild jubilation of past bull markets, but when sentiments rapidly shift like they did in 2022, we were happy to be without exposure to toxic assets like FTX or FTT and solely focused on long-term value investments like those in our portfolio today. For years we have been unequivocal in how we think having exposure to later-stage ‘crypto infrastructure companies’ like FTX, miners, and prime brokers represents some of the worst risk-reward of any investment opportunities.
When both 3AC and FTX blew up, Unbounded Capital had no exposure to FTX, FTT, DCG, or Genesis across any of our funds. In fact, the exchange we have predominantly used over the past couple of years has been SFOX - a decision we made explicitly due to their practice of protecting user funds from any of the exchanges they choose to trade on. We have been hyper-aware of the outsized counterparty risk with exchanges. We have always kept as little assets as possible on exchanges of any kind. As a result, Unbounded has never lost assets due to an exchange hack or misappropriation of user funds.
Despite doing our best to have as little crypto exposure as possible, there will likely continue to be a short-term negative effect for our portfolio companies as a result of the crypto decline, the current state of which we anticipate is just the beginning. We expect negative effects will largely come in the form of companies having difficulty raising subsequent rounds of financing. This is especially true for companies which have a user base of primarily cryptocurrency enthusiasts. We expect the material decrease in the net worths of this profile of user to negatively impact their discretionary spending with some of our companies.
We imagine most investors will be more skittish on anything blockchain-related for a while. But investors like us, and presumably whoever is reading this, are excited about the future of blockchain being more oriented towards companies and use cases delivering real value. We think companies which are trying to solve big real-world problems by leveraging a public, scalable blockchain will be in an environment to successfully fundraise throughout 2023.
We expect the carnage for crypto and crypto-infrastructure companies is not over and we are glad to be well-positioned with no exposure to crypto consensus investments. On the plus side, while this decline makes aspects of growing a start-up difficult in the short-term, it also makes the valuations we are investing at much more attractive. For example, we have been able to invest out of our Fund II at valuations that are the same or similar to when we made investments one to two years ago out of our Fund I, despite the companies having grown in value in that time frame, substantially derisking these investments for our LPs.
BSV Ecosystem Growth via USDC Ecosystem Influx
We have been actively monitoring the state of entrepreneur activity in the BSV ecosystem for over a year now. 2022 was a year of progress and continuity for the 394 BSV projects which were active since 2021 or earlier. 2022 was also a year of optimism for over 50 companies which we know were newly founded in the BSV ecosystem, and 23 of which were incubated by Block Dojo. This places BSV as the second or third most-active blockchain ecosystem, behind Ethereum and on par with Solana. With the increase of companies incubated by Block Dojo, and increased awareness of the power of BSV, we expect the number of newly founded BSV startups to grow substantially in 2023. However, mainstream adoption requires payment options denominated in the local currencies of various jurisdictions. We think HandCash’s integration of USDC will kickstart an influx of entrepreneurs into the ecosystem, as they realize they can make micropayments without speculation and currency-exchange risk. Further, independent of HandCash, our portfolio companies DXS and Slictionary will soon release their own USD solution in addition to products pegged to other fiat currencies.
We have repeated this fact in this review because it’s so important: The ability for users already onboard with other cryptocurrency ecosystems to seamlessly use HandCash-connected apps and benefit from the extreme speed, efficiency, and scalability of BSV rails could be the biggest development of the past several years, not just for the BSV space, but for the entire blockchain sector. For years crypto and blockchain developers and users have struggled with network congestion, high transaction fees, or slow applications, due to the limitations of unscalable blockchains. When these users are able to easily experience what Bitcoin SV can do via HandCash’s USDC integration, everything could change. More users in HandCash means more incentive to build applications for them which leads to more users. We look forward to that virtuous cycle playing out and we are keeping our excited eyes on it for 2023.
Promising Developments at nChain
One of the largest and most capitalized companies in the BSV ecosystem is nChain. They have over 200 employees at their base in London and hundreds of additional largely developer employees around the world through acquiring multiple dev shops over the past few years. The prominent blockchain research and development firm now has new leadership. At the end of 2022, Christen Ager-Hanssen became the CEO of the company and immediately invigorated nChain and the BSV ecosystem at large with a new surge of energy. Thus far, it appears that nChain’s approach has shifted dramatically with regard to their accessibility from, and support of, the wide array of Bitcoin SV ecosystem companies. Ager-Hanssen has also made it clear that two major focuses of nChain will be leveraging their vast IP portfolio and working with major consulting firms to develop and integrate solutions that leverage BSV into companies around the world. They have already made big moves with Unbounded Capital’s portfolio company Unisot, and they are excited to see how the partnership develops this year. We are optimistic that nChain’s new approach will yield better results for the entire Bitcoin SV ecosystem and will directly benefit many of Unbounded Capital’s portfolio companies as they continue to sell their solutions to businesses around the world.
Major Marketing Push by Many Portfolio Companies
The ongoing transition from infrastructure to application-level companies is transformative, but applications need users. Users have been relatively scarce in the blockchain space for years and this has been especially true in the Bitcoin SV ecosystem that includes most of our portfolio companies. Until recently, the friction to onboard users was significant. Because this friction has decreased considerably and is about to take another major step downward thanks to HandCash’s USDC integration among other developments, founders of BSV applications will be able to efficiently spend more money trying to onboard users. Much of the user growth in BSV has been organic, which is a testament to the products being built, and supercharging this with traditional ad spend will be a big boon to the ecosystem, especially since users can move so seamlessly across applications which are connected to the same wallets and developer tools. There are multiple portfolio companies of ours that are waiting for HandCash rails/other fiat rails to work well before spending money to acquire customers and are already equipped to turn on the faucet. Kickstarting user growth with ad spend will improve the chicken and egg problem of developing and growing an ecosystem, and we are eyeing 2023 to be a major year for this growth.
A BSV Breakout Application in 2023
Because of the aforementioned trends we are expecting for the new year, we expect 2023 to be the year of The Breakout BSV Application. We have made investments which indicate which applications we think may earn that title but the application could even be something that is not currently conceived yet, but is launched thanks to the improved developer tools which exist and the users we are anticipating onboarding to the ecosystem in the coming months. Given the updates already described in this review, we think it's likely that either HandCash itself or a HandCash-connected application could be this first viral application. If this plays out, it will be an extremely bullish development for the entire HandCash and Bitcoin SV ecosystems as the friction to onboard HandCash users to your app is much less than a user not already connected.
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While 2022 was a tough year for many investors, especially those in the cryptocurrency and blockchain space, we think that the net impact of 2022 on Unbounded Capital’s thesis and our portfolio companies was uniformly positive. The value-generating groundwork laid by our portfolio companies is beginning to stand out as wheat among an array of crypto chaff. Over the short term, we anticipate our theses to continue to become less contrarian as more investors and entrepreneurs see the value in what can be accomplished by leveraging technology that emphasizes efficiency and scalability. We are extremely grateful to our LPs for their continued support. And we are, as always, committed to being the best custodians of your capital.
Onwards and Upwards,
zach resnick
Managing Partner
DAVE MULLEN-MUHR
Partner