The number of real users is dismal; is the $150 million financing of Farcaster a setup by VCs for their LPs?
The number of Farcaster users does not match its valuation; behind the large financing, could it be that the VC took the LP's money and doesn't want to return it?Author: Liron Shapira
Compiled by: Alex Liu, Foresight News
Farcaster is a crypto/Web3 version of a small Twitter. How did it raise $150 million at a $1 billion valuation?
Dune Analytics shows that Farcaster has 45,000 daily active users. This number is not impressive and is even negligible in the social category. Moreover, this figure is inflated by spam bots.
Evidence that Farcaster has about 5,000 DAU (daily active users):
I believe Farcaster's DAU is between 50 and 5,000, rather than the 45,000 shown by Dune Analytics data.
The official Farcaster client has a public API endpoint to "get all power badge users," which roughly corresponds to real non-spam DAU. The API returns data showing ------ 4,387 users.
Imagine valuing a social network at over $200,000 per user 😂
What type of content do users primarily post on Farcaster?
Imagine you are reading a Discord server themed around crypto, but redesigned to look like you are reading Twitter.
What I see is content partly from real users and partly from spam bots using generative AI.
People point out that Farcaster has an amazing feature called "Frames," which works similarly to the canvas feature that Facebook launched in 2007 and phased out a few years later.
My response is simply to ask: Is there a compelling use case?
@dwr (Farcaster developer) has this to say on the topic:
Question: What is the coolest app built on Farcaster?
Answer: I equally love all ecosystem projects.
Does Farcaster align with the spirit of Web3?
Chris Dixon from a16z says: In Web3, you don’t rent; you own.
Farcaster: Users must pay "rent" to Farcaster to store their data - currently, it costs about $7 worth of ETH for every 5,000 posts. If users do not want to pay, their old posts will be deleted when they post new ones.
Why do venture capital firms like a16z think a $1 billion valuation is attractive for a startup with an active user base comparable to a niche Discord server?
Are we suddenly entering another crypto bubble where everyone becomes a paper unicorn again?
I think there are three explanations:
- It’s like Clubhouse
In 2021, a16z valued Clubhouse at $4 billion. That bet did not pay off, but the logic made sense.
The valuation of social platforms can grow to over $100 billion. If VCs see a 10% chance of such an exit, they can justify a valuation of over $1 billion.
Compared to the user base Clubhouse had in early 2021, Farcaster has only 0.1%, when Clubhouse was valued at $4 billion, which was an extremely risky valuation.
But to me, the real reason is darker…
- Crypto VCs are taking LP money and don’t want to return it
If VCs still have LP capital to deploy and they "invested $150 million" instead of returning it, it means they can charge themselves an additional $20-30 million in management fees.
2% fees per year × 10 years is 20%.
- The Web3 space is like Bernie’s weekend
So far, everyone has realized that "Web3" is a logically contradictory idea.
But those VCs who wasted billions of dollars do not want to admit it and are therefore being sued.
Farcaster allows them to maintain this facade. If you squint hard enough, you can see a Web3 use case!
The bull case for Farcaster is that it is a protocol like RSS that enables microblogging functionality on an open network.
To me, this is an idea worth exploring. Although similar ideas like Mastodon have not posed much of a threat to Twitter.
Let’s wait and see 🍿
I think Farcaster is doing well, and the $4 billion valuation is based on the team, execution, and appeal.
The focus of this article is that setting a valuation of over $1 billion before even finding a path to achieve 500,000 DAUs is so unreasonable that VCs seem a bit off ------ they are either scamming or simply incompetent.
