Welcome to our Crypto Insider for February 25th, 2022 – FREE edition.
By popular demand, we’re bringing you the smartest insight, analysis, and investing tips for all things Crypto.
Today’s is another special issue. We’ve had a few requests to look at Yieldstreet’s Pantera Token Fund. You asked, we listened. Here it is.
Pantera Early Stage Token Fund I, for Accredited Investors
What’s the big deal?
Pantera Capital was founded by Dan Moorhead in 2003 and specializes in blockchain investments with over $5.6 billion in managed assets.
This specific fund makes direct investments in pre-ICO tokens into teams and protocols in the blockchain ecosystem, making the fund a combination of a Cryptocurrency investment vehicle and a Venture Capital fund.
Below are some of the basics of the fund structure:
- Investment Size: $25,000 to $1,000,000
- Term: 4 years
- Offering Size: $20M
- Annualized return target: 50%+
- Only accredited investors may invest
Takeaway from above:
- There is a 1.75% fee (Annual management fee + Annual flat expense) that Pantera takes
- Returns above 15% are split 90% to investors (Inv share in excess profits) and 10% to Yieldstreet (Incentive fee)
Note: Our understanding is that these are Yieldstreet’s fees. There may very well be double fees (Pantera’s).
The Pantera fund’s strategy is to invest in early-stage tokens before the initial coin offering, or ICO.
Investors who can invest in projects before ICOs get much better rates than those who do it during or after ICOs because they are early investors. There are hundreds of projects Pantera analyzes for pre-ICO opportunities, something most investors can’t do by themselves.
This analysis helps Pantera stay ahead of the curve by better understanding the cryptocurrency trends and ecosystem and cherry-picking projects it believes will be successful.
They seem to typically have about 10-20 deals in the pipeline, according to this chart:
Approach to risk
Like any investment into early-stage companies or projects, a single investment is inherently risky.
Pantera seeks to invest in digital assets that Pantera believes can offer an asymmetric risk/reward tradeoff, i.e., digital assets believed to be underpriced relative to Pantera’s fundamentals-based valuation.
While investing in a single project may be a bit of a crapshoot, Pantera’s shotgun approach seems to bet more on cryptocurrency as a whole, and they certainly model out the risks and rewards of projects.
What are they investing in?
As of December 2021, their strategy involves investing in a lot of decentralized finance protocols (de-fi), as well as next-generation Layer-1 blockchains. Like them, we are also quite bullish on Layer-1 blockchains, which serve as great alternatives to Ethereum, the leading Layer-1 blockchain.
A big part of their research seems to look at the teams behind projects, which is very common in both the cryptocurrency and venture capital worlds. It isn’t easy to know how successful a company will be but having a solid team certainly gives it a higher chance of success.
While the fund has a term of 4 years, Yieldstreet expects to liquidate 50% of its investment in year three and liquidate the remaining 50% in year 4. However, Yieldstreet may extend or accelerate liquidation based on its direction.
Returns & Payment
The below is from the site itself, which we think best articulates payment terms:
As expected, cash flows are received by the fund from the Early Stage Token Strategy, Yieldstreet’s management fees and fund expenses are deducted first, and then capital contributions are returned to investors. Next, the remaining proceeds are paid to investors up to a 15% annualized return (Investor Preferred Return) on invested capital. Additional remaining proceeds are paid to Yieldstreet (YS Catch Up) until it has received an amount equal to 10% of proceeds distributed to investors (net of capital contributions), and then all remaining proceeds (Profit Sharing) are split between investors (90%) and Yieldstreet (10%). Please also refer to the Private Placement Memorandum for additional details regarding the fund’s prioritization of distributable proceeds.
- Chief Executive Officer and Co-Chief Investment Officer.
- He is the founder of Pantera Capital Management, former Co-Founder and CEO of Atriax, and former CFO and Head of Macro Trading at Tiger Management.
- Twitter: https://twitter.com/dan_pantera
- Co-Chief Investment Officer. He was the founder of the first ICO on Ethereum called Augur; built a POS system enabling Bitcoin payments with sound and Bluetooth; established an AngelList syndicate which is now in the top 15 by backing.
- Auger raised $5.7M and reached a total market value of $152M.
- Twitter: https://twitter.com/joeykrug?lang=en
- Forbes profile: https://www.forbes.com/profile/joseph-krug/?sh=243113bfc528
The team, for the most part, has a strong track record. It’s clear from Dan’s experience that he is well-versed in the world of asset management.
On the other hand, Joey has less experience in finance but has a lot more technical expertise. He joined the team in 2017 after being involved in several successful projects. Although Joey is still quite young (he seems to be around 27 years old), he has been programming since middle school. Given his expertise, it’s likely he spearheads the due diligence process.
- Fund has historical annualized returns of 100%+/year
- Invests in new projects for high returns
- The team has extensive experience in both asset management and cryptocurrency
- We like the investment approach and take similar strategies
- Participate in de-fi without having to spend hours learning and studying
- Fund mentions security practices and how assets are held
- Invest into a diversified basket of cryptocurrency “startups” rather than just a few
- Investing in pre-ICO projects are inherently high risk, even for cryptocurrency projects
- A prominent team member, Joey, has first-hand experience with crypto projects but is still relatively young and inexperienced
- Blockchain security and smart contracts can be exploited
- Minimum investment of $25,000 and only for accredited investors
Disclosure: This is not financial advice. This article is for entertainment purposes ONLY. I am a holder of $FTM, $AVAX, and am long cryptocurrency.