Farcaster, the nascent player in the crypto and Web3 space, has come under scrutiny from on-chain sleuths. Recently, it secured a whopping $150 million at a $1billion valuation. Data from Dune Analytics revealed that the decentralized network boasts a mere 45k daily active users, a figure too tiny to attract funds of that valuation. Upon closer look, investigators discovered that spambots heavily inflated 1 billion.
So, the next question is why a prominent VC firm like a16z has made huge investments on such a tiny platform that is riddled with spambots. Liron Shapira who wrote a long thread, questioned the valuation and stated its active user base is comparable to a niche Discord server. “The billion-dollar question remains: we are on the brink of another crypto bubble, where valuations inflate and everyone becomes a paper unicorn again?”
One such possible explanation is that social platforms have the potential to grow to $100 billion. If VCs perceive even a 10% chance of such an exit, they can justify a $1B+ valuation. He cited an example where a16z valued Clubhouse at $4 billion back in 2021. But as per Shapira, the real reasons are shadier.
Crypto VCs might have capital left from Limited Partners (LPs) that they don’t want to return. By deploying $150M, they can collect additional management fees, amounting to $20-30M. With a 2% annual fee over 10 years, that’s 20% in fees.
Secondly, the Web3 space is largely seen as a logically incoherent idea. However, VCs who have already invested billions are reluctant to admit their losses and face potential lawsuits. Farcaster allows them to maintain the illusion of a viable Web3 use case.
Farcaster’s User Base: Reality vs. Hype
The third and most important observation is the kind of content that is dominating Farcaster. Imagine a crypto-themed Discord server but reskinned to resemble Twitter. There’s a trickle of real user content, but it’s mostly spambots using generative AI to flood the platform.
Shapira concluded that the estimated daily active users of Farscaster could range anywhere between 50 and 5k daily active users, not the 45k suggested by Dune Analytics. “Is Farcaster the next big thing, or just another inflated Web3 hype? Only time will tell,” he wrote.
