Crypto Investing Framework: Why Insurance Is Relatively Undervalued

Unlike traditional investors, investors in the crypto space must analyse and underwrite a series of stacked risks when investing in projects:

• Will the project create value and attract users?
• Will the project be able to capture value from those users and establish a long-term, defensible moat?
• Will the value captured accrue to the token?

The first test is the easiest in the sense that it’s one investors in traditional markets are already used to making. Is the product useful? Does it have product-market fit? Is the team experienced and capable? While in traditional markets a strong product and team get you most of the way there, in crypto this is only the beginning. 

The second test is tougher in that it requires an analysis of the network effects present in the project’s particular product and sector. Ideally, as investors we want projects with multiple, compounding, unforkable moats that cumulatively mean the project has some form of increasing returns to scale, meaning it gets more difficult to unseat the bigger it is. In traditional markets, investors can get away with being less rigorous about this test as propriet