DeFi VC Says ‘Yield Wars Aren’t Over Yet’, Framework Ventures

  • Michael Anderson cofounded Framework Ventures in 2019, which focuses on investing in decentralized finance (DeFi).
  • Anderson’s explains why traditional VCs will struggle to break into DeFi despite the rise in crypto funds.
  • He also breaks down why “yield wars aren’t over yet” and what might be the next big catalyst.
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Crypto venture capitalist Michael Anderson is known for making bold predictions and for having an eye for investing in decentralized finance (DeFi).

Both Anderson and his co-founder at Framework Ventures, Vance Spencer, made early bets on Chainlink (LINK), a protocol that allows blockchains to securely talk to external data feeds, and Synthetix (SNX), a derivatives-


The protocols have surged 269% and 350%, respectively, over the course of the year.

Anderson and Spencer’s skill in understanding DeFi helped them raise their first venture fund at $15 million in 2019. And this year, they raised a second fund for $100 million, again for DeFi investing.

DeFi projects aim to remove financial intermediaries and enabling direct transactions between two parties. This was once seen as a niche area but is now gaining mainstream attention. 

There’s already been over $1 billion in venture capital funding invested in non-fungible token and DeFi startups this year, according to PitchBook.

Legendary investment firm Andreessen Horowitz (a16z) recently launched  a $2.2 billion crypto fund featuring a number of heavyweight hires. A16z got into crypto investing early with stakes in Coinbase and Ripple. 

Several VCs told Insider reporter Margaux MacColl that firms that haven’t historically invested in crypto are scrambling to catch up, get into deals and make big investments. But Anderson isn’t anticipating a huge flood of investors trying to break into DeFi, for two reasons.

1) Structural barriers

The DeFi world is fast-moving and complex, it takes a lot of time to really understand what’s going on in this space.

It means firms, or a subset within firms, need to focus on this full-time, Anderson said.

“There’s structural changes that prevent this traditional venture from getting in,” he said.

Framework Ventures is unique in that it has a development team that works alongside the portfolio and can help bootstrap growth and provide liquidity for the DeFi projects.

2) Philosophical mindset 

In most cases, these DeFi projects are DAOs, decentralized autonomous organizations, rather than corporations.

This means value accrues more in the tokens than in the equity and traditional VC firms might struggle to adapt to this model, Anderson said.

“I think for those reasons, it’ll be difficult for traditional venture to really move in size into this industry, which gives us a path to grow,” Anderson said.

Yield wars

One of Anderson’s big predictions was the rise of yield farming wars among rival projects.

Investors stake – or lend – their tokens to provide liquidity for a DeFi project in exchange for a return that could be in the form of more of that cryptocurrency – referred to as “yield farming”. 

Yields from DeFi projects can range from 2% to as high as 10%, far higher than the kind of returns investors can expect in traditional markets, where the S&P 500 at record highs will still boast a

dividend yield
of just 1.34%, while a 10-year US Treasury note yields a mere 1.45%. 

Crypto trader Scott Melker referred to the ability to generate yield for stablecoins, whose value is pegged to the US dollar and which generally don’t offer the kind of money-making volatility that typical coins do, as one of “the largest crypto innovations” in the last two years.

The current yield farming war draws parallels to the ride-sharing wars funded by VCs in San Francisco in 2013 to 2015, when the likes of Uber and Lyft, fought fiercely for market dominance, Anderson said.

“A lot of what bootstrapping engagement looks like is throwing money at the problem,” Anderson said.

DeFi projects rely on yield farmers to get off the ground in many cases. And farmers won’t think twice about switching from one project to another to secure better returns. 

“What will have to happen is the protocols that are just for yield farming will realize that they can’t continue to market their way out of the problem, they have to have something of substance,” Anderson said.

Inevitably, protocols will need to reduce how many rewards are provided to give way for productive value in the form of cash flows, Anderson said.

“It’s not going to be earning tokens, and then selling them to generate yield, it’s going to be owning tokens that earn yield,” Anderson said. “And that’s the value accrual mechanism.”

Building a value stack for the valuation of tokens comes down to both discounted cash flows and ownership rights, Anderson said.

“I would also say yield wars are not over,” Anderson said.

Anderson thinks later in the summer, there will be a reversal of current bearish sentiment and more excitement around yield farming again. One catalyst could be the layer two launches of Optimism and Arbitrum.