Token fever is taking hold in Bitcoinland.

Call them 'token sales', 'initial coin offerings' or just plain 'ICOs', the idea that funding a new project can be as simple as creating cryptographically unique units of data, linking them to a blockchain and selling them to the public is attracting venture investors and web crawlers alike.

Yet, if there is some shape to a sometimes senseless market (where millions are raised in minutes on white papers and web pages alone), it's being defined by Polychain Capital – one of an increasing number of 'crypto hedge funds' that have sprung up to buy stakes in what's being heralded as a new asset class.

Unique to Polychain, however, is the $10m mandate it received from VC firms Andreessen Horowitz and Union Square Ventures. The message sent in the December announcement was clear – a shadowy part of the crypto world was finally being opened for business.

So, if there's someone who knows the secret to the budding market, then Polychain CEO Olaf Carlson-Wee might be that person, or at least, the one best positioned to figure it out.

Founded in mid-2016

(shortly after Carlson-Wee left VC-backed bitcoin exchange Coinbase), Polychain has emerged the de-facto leader in the market (if for a lack of competition at the moment).

The first notable pillar of its investment strategy, however, is that despite what headlines might advertise, Polychain doesn't see token sales as necessarily a new way of funding, a disruptor for traditional Silicon Valley deals.

In a sense, anything that could be considered an existing security isn't of interest to the firm.

Carlson-Wee told CoinDesk:

So far, Polychain has made only a few of its bets public, but it is largely investing prior to any public sale in lesser-known token-based projects such as Tezos and MakerDAO.

It's also backed ethereum, the second largest blockchain by way of its ether token, hinting that it's also interested in existing players as well.

The investments come amid a banner year for ICOs, which attracted nearly 50% of the capital raised by more traditional blockchain ventures in 2016, according to a report by CoinDesk Research released in March.

Still, the survey also found that problems in the market remain.

For example, 76% of participants in token sales indicated they were interested in the projects primarily for financial gain – a statistic that backs up the perception that many ICOs may be just 'pump and dumps', little more than modern get-rich-quick schemes.

But Carlson-Wee disputes these notions about the nascent market.

In discussion, he was open about what his team looks for in a token sale, and how it is turning speculation into informed investment strategy.

Essentially, it amounts to this: Polychain is looking for tokens that incentivize 'core actions' of the protocol, and considers that doing so could result in 100x opportunities.

The line of thinking is similar to what was put out last year by Union Square Ventures in a blog post that touted the idea of 'fat protocols', a theory that says blockchains will create the most value for investors at the infrastructure layer, not in applications.

What does this mean in practice?

For one, Polychain is paying close attention to attempts to tokenize elements of base blockchain components, like the scripting languages they use to describe commands that can then be read by their distributed networks.

"We think that application developers are similar to applications on the normal internet, they want a selection of programming languages, and certain applications make more sense in certain languages," Carlson-Wee said.

That’s why Polychain made a bet on Tezos, a husband-and-wife project advertised as having new governance innovations.

Tezos is written in OCAML (a language that can be formally verified). This makes it an interesting differentiator, Carlson-Wee said, though even he isn't yet sure if the feature will create value.

"It's unclear how useful that will be," he said.

One thing that the firm does believe can add value, however, is its support.

For example, the firm's co-founder (an investor who became the firm's second staff member), Ryan Zurrer, described Polychain less as a VC firm and more as an investment bank, one that is directly involved in helping to boost the projects that it puts its money in.

This includes helping projects with marketing efforts and even the structure of their token offerings, he indicated.

Take Cosmos, a project aiming to build an 'internet of blockchains' that raised $16.8m in 30 minutes last week.

"They were only planning on raising $10m, but we realized it's going to take a long effort to get Cosmos operating, and that it's a many-year project," Zurrer said. "Raising the soft cap [on total investment] made sense."

Further, assisting in security auditing is one of Polychain's biggest value-adds, according to Zurrer.

He mentioned Jordie Melina, Joey Krug and the developers behind the smart contracts project Zeppelin as some of the more active auditors working with the firm. Despite high-profile issues with auditing, he also contended that understanding of the science of token issuance is advancing.

"It's increased significantly since The DAO and because of The DAO," he added, referring to the failed project that lost more than $60m last year.

But Polychain is also interested in investing toward a larger vision.

Ultimately, Carlson-Wee sees blockchain as providing ways to replicate the entire functions of companies programmatically.

"When you think about the endgame of Uber as a protocol competing with Uber as a company, that's great, but Uber is built on a massive stack of technologies," he explains. "Mobile, identity and reputation, and without each component, Uber wouldn't exist."

"What is interesting to us is a decentralized server protocol, a computation protocol, a mobile internet status," he continues.

Asked what the world will look like if the firm's investments succeed, Zurrer defaulted to similar assessments of change brought about by the internet.

Projects like IPFS, Cosmos, Polkadot and ethereum, he said, will form the backbone of an internet where power isn't centralized in single entities.

In the meantime, he explained, the nascent community supporting token-based projects will simply have to work through issues, including the inevitable "spectacular failures" while trying to prove the market can offer more than high-tech penny stocks.

For Polychain, that means continuing to invest in talented and robust teams, just like VC firms historically have.

He concluded:

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