How did Farcaster, a crypto/Web3 mini-Twitter, raise $150M at a $1B valuation?
Dune Analytics shows that Farcaster has 45,000 daily active users. This number is not outstanding, and it is not even worth mentioning in the social category. What's more, this number is even inflated by spam robots.
Evidence that Farcaster has around 5,000 DAU (Daily Active Users):
I think Farcaster's DAU is between 50 and 5,000, not 45,000 as Dune Analytics data shows.
The Farcaster official client has a public API endpoint to "get all power badge users", which roughly corresponds to real non-spam DAUs. The data returned by the API is - 4,387 users.
Imagine valuing a social network at over $200k per user 😂
What types of content do users primarily post on Farcaster?
Imagine you were reading a crypto-themed Discord server, but redesigned to look like you were reading Twitter. That’s what browsing Farcaster would feel like.
And only part of the content comes from real users, and part comes from spam bots using generated AI.
Unique features? People pointed out that Farcaster had an amazing feature called “Frames” that worked similarly to the canvas feature that Facebook introduced in 2007 and retired a few years later.
I'm just asking briefly: Are there any compelling use cases?
Let's see what @dwr (Farcaster developer) has to say on this topic:
Question: What is the coolest app built on Farcaster?
Answer: I love all ecological projects equally.
Does Farcaster fit the Web3 spirit?
Chris Dixon of a16z said: In Web3, you don’t rent, you own .
Farcaster: Users must pay Farcaster "rent" to store their data - currently, it costs about $7 worth of ETH for every 5,000 posts. If users don't want to pay, then their old posts will be deleted when they publish new ones.
Why would venture capital firms (VCs) like a16z think $1 billion is an attractive valuation for a startup with an active user base comparable to that of a niche Discord server?
Are we suddenly entering another crypto bubble where everyone is a paper unicorn again?
I think there are three explanations:
- It’s like Clubhouse
In 2021, a16z valued Clubhouse at $4 billion. That bet didn’t pan out, but its logic made sense.
Social platforms could grow to valuations of $100B+. If VCs see a 10% chance of such an exit, they could justify $1B+ valuations.
Farcaster has only 0.1% of the number of users Clubhouse had in early 2021, when Clubhouse was valued at $4 billion, an extremely risky valuation.
In my opinion, the real reason is much darker...
- Crypto VCs took LP’s money and don’t want to give it back
If the VCs still have LP capital to deploy and they “put in the $150M” instead of returning it, that means they can collect an additional $20-30M in management fees for themselves.
2% per year in fees x 10 years is 20%.
- Web3 is like Weekend at Bernie’s
By now everyone realizes that “Web3” is a logically conflicting idea.
But the VCs who wasted billions of dollars don’t want to admit it and get sued for it.
Farcaster lets them keep this cover. If you squint hard enough you can see a use case for Web3!
The bull case for Farcaster is that it is a protocol, like RSS, that enables interoperable microblogging capabilities on the open web.
In my opinion, this is an idea worth exploring, even though similar ideas like Mastodon haven't posed much of a threat to Twitter.
Let's wait and see 🍿
I think Farcaster is doing great and the $4 billion valuation is based on team, execution and traction.
The point of this article is that pricing a $1B+ valuation before even finding a path to 500,000 DAUs is so irrational that there is something wrong with the VCs — they are scamming, or just plain incompetent.
