CoinFund's David Pakman says crypto hasn't solved tokenomics

Quick Take

• Pakman argues that many crypto tokens continue to trade primarily on online narratives rather than the economic performance of the networks behind them.
• He suggested projects could pay contributors in stablecoins, allowing nascent networks to attract participants less willing to bet on the long-term value of a native token.

David Pakman, managing partner at crypto venture capital firm CoinFund, said the industry still hasn't solved one of its biggest tokenomics challenges: creating native tokens whose value is closely tied to the long-term success of the underlying network or product.

Pakman argues many crypto tokens continue to trade primarily on online narratives rather than the economic performance of the networks behind them, creating uncertainty for contributors weighing immediate compensation against long-term exposure to a project's native token.

"It's this battle between economic incentive in the task you're doing to help build out a network and short-termism versus long-termism view on when you want that return paid to you," Pakman said Tuesday during an appearance on The Block's The Starting Block podcast. "If you're taking a longer-term perspective and you're helping build a network, and you think the future value of the network will be very high relative to today's current price, well then you'd love to be paid in some native token."

Pakman, who also serves as CoinFund's Head of Venture Investing, suggested projects could instead pay contributors in stablecoins, allowing nascent networks to attract participants less willing to bet on the long-term value of a native token.

"We're in this world where younger people really want their bets to resolve much more quickly and take their winnings or losses and then move on," he added. "Then maybe you should just get paid in a stablecoin."

The debate goes to the heart of how crypto networks should incentivize and reward early contributors --- whether through native tokens that could appreciate over time or more concrete forms of payment such as stablecoins.

Pakman reflected on his own experience mining Ethereum, saying he benefited from being paid in ether because he held onto the tokens as their value appreciated. But he acknowledged most projects have failed to produce similar long-term returns, leaving contributors with tokens that ultimately lost much of their value.

"So many are so wrecked for so long ... do they have some updraft that's going to power their long-term returns, or are they just these sort of short-term market perturbations that are based on narrative or Twitter activity?" Pakman asked. "And boy, if it's that, then they're not interesting as products. But if they really can resort back to some tie-in to [the] fundamental value of the network or whatever product they're building, well, then I think it could be interesting."

Pakman pointed to Ether.fi as an example of a protocol with a successful product, arguing that investors want its governance token to reflect some of the value created by the underlying network. CoinFund is an investor in Ether.fi.

"There's a native token that governs Ether.fi. If you follow this company, you would probably like to hold some piece of their future value, but you gotta believe that there's a relationship between that token and their business," said Pakman. "We've been prevented by the SEC, aggressive government action, from linking those two things, but that's what hopefully this forthcoming bill solves."

The legislation Pakman alluded to is the Clarity Act, the crypto market structure bill currently before Congress. Many across crypto hope the legislation will establish regulatory certainty that increases participation and investment.

Pakman's CoinFund was started in 2015. Some of the firm's investments include World, Superstate and Ondo.

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