EV3 Ventures — Investor Letter (Q1’25)

Market Overview

Crypto ended Q1 with ~$2.8T of market cap (−18% QoQ). The quarter was whipsawed by the inauguration of a crypto‑friendly U.S. administration followed just days later by the $TRUMP and $MELANIA memecoin launches—two events that pulled flows in opposite directions. ETF inflows decelerated sharply (−98% QoQ), while new asset launches (+80% QoQ) and insider vesting (+46% QoQ) increased sell pressure. DePIN underperformed alts and closed the quarter at ~$16B market cap (−54% QoQ).

Where do the next external flows come from? We see three competing narratives: (1) TradFi allocators rotating into assets with pending ETFs; (2) retail re‑entry via mainstream fintechs like Robinhood deepening crypto listings; and (3) onchain revenues funding buybacks/dividends that create organic demand (e.g., Hyperliquid’s ~$1M/day fees with ~50% directed to buybacks). Markets initially rewarded buyback announcements, but there’s an active debate over whether they’re the best use of capital versus growth incentives.

Open vs. Closed Protocols

We distinguish between open protocols (network tokens with no single controller) and closed, company‑backed protocols (tokens subordinate to equity). In open networks, programmatic buybacks best protect tokenholders. In closed networks, teams may exercise discretion similar to corporate share repurchases.

Open protocols

Open protocols can produce asymmetric outcomes (100x+). Community‑market fit often precedes PMF and shows up as: (1) rabid communities with low time preference, (2) resilience through setbacks, and (3) commitment to immutable, permissionless rails. Liquidity/volatility are tradeoffs—early BTC‑like frictions can persist until custody/exchange support matures.

New investment: MetaDAO. MetaDAO pioneers futarchy—minting and trading conditional tokens around governance outcomes. It launched from Solana’s MtnDAO; first products include a futarchy‑based governance tool and a token launchpad. The $META token has no programmatic inflation; future supply is set via futarchy proposals, making supply reflexive as the market evolves.

Closed protocols

Closed protocol tokens often function like junk equity: junior claims relative to company shareholders and frequently priced at premiums to the underlying equity. Tier‑1 exchange listings drive a “blue‑chip premium” even where growth/margins favor lower‑multiple peers.

DePIN Revenue Landscape (Q1’25)

Eight protocols collectively generate ~${200}M ARR with a combined ~$10B FDV (~50×). However, many revenue streams do not translate into net token buy pressure (affiliated demand, gross miner revenue, slashing, one‑time deposits). Examples discussed include Aethir, Grass, IO.Net, Glow, Akash, Filecoin, Hivemapper, and Livepeer.

Five protocols share onchain economics with tokenholders via buyback/burn, totaling roughly ~$10M annualized buybacks against ~$1B FDV (~100×): Braintrust, Geodnet, Helium, NATIX, and WiFi Map.

Takeaway: Most DePIN tokens are overvalued today, but a minority are deeply undervalued with paths to 10× revenue growth and credible mechanisms to prioritize tokenholders over shareholders.

Valuation Framing

1. Buybacks ≈ FCF/EBITDA. We map buybacks/burns to bottom‑line multiples. Infrastructure REIT comps (towers, datacenters, renewables) trade ~20–30× earnings; at ~100× buyback multiples, DePINs need ~3–4× revenue scale to “grow into” that level.
2. Growth premium. Even after 10× growth, DePIN penetration is <0.1% of addressable markets. Sector leaders—especially in wireless, energy, compute—should command higher run‑rate multiples than mature REITs.
3. Tokenholders as first‑class citizens. Protocols that hard‑code key parameters onchain (vs. relying on off‑chain reporting) strengthen tokenholder claims relative to traditional equities.
4. Re‑rating to L2/L1‑like multiples. As successful DePINs launch appchains or settle more economics onchain (and capture MEV‑like value), their multiples can converge with L2/L1 benchmarks.

TGE Environment

Applying IPO discipline to crypto launches—market education, book‑building, pricing support—can reduce volatility and costs. Recent DePIN TGEs have struggled: since 2024, only a small minority have beaten USD or BTC, with nearly half now trading below ~$30M FDV (seed‑round territory). Survivors from here can post 10–100× returns, but require patience and selective entry.

Outro

We remain focused on crypto that delivers real utility and paying customers across decentralized wireless, energy, compute, mapping, logistics, identity, advertising, and more. Our own journey—from fundraising through turbulent cycles to building EV3—reinforces the long‑term commitment required to compound in this space.

— Your partners,
Sal & Mahesh