by Franklin Bi and Kristie Huang, January 2021

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Crypto’s market maker shortage

Market efficiency requires liquidity. As digital asset trading volumes grow, liquidity providers need to evolve in tandem to maintain market efficiency. For smaller crypto token projects who are still early, liquidity is especially vital. Without enough trading volume and liquidity, investors are subjected to wider bid-ask spreads, higher price volatility, and higher risk. For larger institutional investors, liquidity is critical to ensure that sophisticated trading strategies can be deployed effectively.

In traditional U.S. equity markets, these liquidity issues are typically solved by high-frequency market makers, such as Virtu or Citadel Securities, who together comprise 50–60% of market share. Market makers transact on both sides of the market at millions of trades per second. By doing so, they provide necessary liquidity for investors to execute trades at any time seamlessly. In return, market makers capture profit on the bid-ask spread. As more liquidity becomes available in the market, this spread becomes tighter, creating lower price volatility, fairer price quotes, lower transaction costs, and faster trade fulfillment. …

Pantera Blockchain Letter, January 2021


We began our deep dive on bitcoin halvings in our May investor letter — just after the 2020 halving date itself — like this:

“With the price roughly flat over the last two weeks, there’s a little bit of a ‘The Bitcoin Halving Happened and All I Got Was This T-shirt’ vibe in some of the comments. We have stressed that the halving is a big event — but it takes years to play out. The typical trough is 1.3 years before the Halving and, on average, the market peaks 1.2 years after. The whole process has taken 2.5 years.”

It’s happening — exactly as forecast. …

Pantera Blockchain Letter, December 2020


A Tiger Cub friend/TMT investor: “We don’t invest in bitcoin because there are no cash flows to discount.”

Me: “Well, there’re no cash flows to EUR/USD either, but nobody thinks twice about trading it.”

How do you value bitcoin?

An answer is: Bilateral exchange rates are just supply and demand.

I realize for some, that’s an unsatisfying answer.

In this letter we’ve taken two perspectives on supply and demand.

The first is an Econ 101-style supply and demand chart where:

Y-axis: BTC price
X-axis: quantity stylized — no numbers

The demand curve seems very price-insensitive. When people want in — like now — price doesn’t seem to have a large impact. On the graph, that yields a fairly flat line. On the flip side, supply seems very inelastic. Many holders of bitcoin hold it more for political/philosophical reasons than for price appreciation. It takes much higher prices to induce them to sell. …

by Franklin Bi and Kristie Huang, December 2020

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As the total billion-dollar value locked in DeFi reaches the double digits, more decentralized finance solutions and platforms have arisen to meet this demand. The allure of decentralized finance for users is simple: instead of relying on intermediaries to coordinate transactions, DeFi users trust in the integrity of peer-to-peer, decentralized exchanges.

The current state of DEXes

Decentralized exchanges (DEXes) forgo intermediaries to facilitate peer-to-peer transactions directly on-chain. Automated market makers (AMMs) are similarly decentralized protocols that enable users to transact without intermediaries — but instead of trading peer-to-peer, users are trading peer-to-pool. …

Pantera Blockchain Blog, November 2020

Franklin Bi
Director of Platform

Welcome to the November 2020 edition of the Pantera Blockchain Blog!

Catch up with the Pantera community regularly as we share news announcements, job openings, industry trends, and interesting reads from the Pantera portfolio and the broader industry:

Building in crypto is hard. It comes with the typical challenges of early company-building — recruiting, building, marketing, etc. And it also includes challenges unique to crypto, including but not limited to: new or changing tech stacks, open-source ecosystems, node infrastructure, decentralized communities, token design.

For those building open financial protocols or products, i.e., “Decentralized Finance” (DeFi), there’s yet another level of DeFi-specific complexity. Imagine going from zero to one as an early-stage team, while navigating global financial regulations and bootstrapping capital markets from scratch.

by Franklin Bi and Kristie Huang, Nov 2020

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In early 2018, serial entrepreneur and longtime Maker community member Fernando Martinelli started exploring mathematical frameworks for DeFi liquidity protocols as a research project. Uniswap didn’t even exist at the time — Fernando was simply searching for a better way to provide liquidity on his own terms. Eventually, Nikolai Mushegian, original architect of the Maker/Dai contract system, and Mike McDonald, creator of, joined Fernando to actualize the idea.

Out of their efforts came Balancer.

Pantera Blockchain Letter, November 2020


A divided U.S. government — Democratic White House, Republican Senate — would likely result in more pressure on the Federal Reserve to expand their balance sheet. This money printing will inflate the price of things whose quantity cannot be “eased” — like gold, bitcoin, real assets, and even equities.

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It feels like bitcoin is going to melt up here.

Pantera Blockchain Letter, October 2020


PayPal recently announced they are launching a new service that enables customers to buy, sell, and hold cryptocurrency directly from their PayPal accounts. They are also planning to break into the crypto-payments sector by allowing users to fund purchases with crypto at PayPal’s 26 million merchants worldwide.

This is one of the biggest developments for the industry this year.

PayPal has 300 million active users. That’s 300 million people who will have a direct onramp to cryptocurrency in the coming weeks.

In aggregate across PayPal, Robinhood, and Cash App, that’s 350 million people who can instantly participate in crypto without having to go through a multi-day/week onboarding process for a crypto exchange. That was a major issue all throughout the 2017 bull market. …



There’s an old saying on Wall St. “Don’t fight the Fed.”

I’m inclined to go with that. Our core post-pandemic macro theme has been:

The unlimited printing of money will push up the price of things whose quantity cannot be eased.

Jay Powell, the Chair of the Federal Reserve, recently announced a major policy shift aimed at supporting the labor market and broader economy — by explicitly creating inflation.

“In conducting monetary policy, we will remain highly focused on fostering as strong a labor market as possible for the benefit of all Americans. …

“There are decades where nothing happens; and there are weeks where decades happen.”

— Vladimir Ilyich Lenin


We quoted that line last month — and, it just happened. The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979.

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For the sticklers out there with the knee-jerk counter-argument:

“Hey, you need to use constant dollars — take into account inflation!”

The answer is:

That’s EXACTLY why one should get out of paper money and into bitcoin. It isn’t being inflated away. One bitcoin is a constant fraction of the total 21 million that will ever exist. There is no need for inflation-adjusted numbers — because there is no inflation/hyper-inflation.


Pantera Capital

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