#29 Why would a16z launch a $4.5B investment fund now?
YCombinator and a16z seem to be living parallel realities. Also, intellectual propery and apes, Uniswap reaches $1T in trading volume and NY en route to banning Proof of Work.
One recession, two points of view
Two of the most iconic institutions in the venture capital space recently provided their perspective for the future in this time of uncertainty.
YCombinator, the Californian incubator behind that hatched companies like Airbnb, Stripe, and Coinbase, sent an email to company founders expressing their view of the current times of economic recession. They gave companies eight things to do: #1 was “plan for the worst.” and number 8 was “just stay alive.”
On the other hand, Andreessen Horowitz announced their biggest crypto fund to date, Crypto Fund 4, with an investment of $4.3B. “We think we are now entering the golden era of web3,” they claim.
YCombinator and A16Z live on two different planets. YC works with high speed, high growth, capital-burning startups searching for a place in the market. YC looks at the macroeconomic environment, and they see capital fleeing from risky investments and interest rates freezing funds in the vaults of banks.
a16z looks at web3 and sees 80-90s web1 revisited, or the calm before the storm of the mobile boom of 2009-11. They look at the macro environment and see a market purging itself from excess hype and senseless euphoria. They see real buidlers (typo intended) providing killer tech, and to them, investing in this stage is a no-brainer.
We wouldn’t want to sound shallow and triumphant, like your friend, the next-door-neighbour-Instagram-crypto-influencer, but we belong to the team of faithful believers in crypto. We believe in certain inalienable truths from this industry that seem independent from any economic cycle. Things that just make sense.
Crypto is highly efficient. Protocols running on distributed networks achieve things that would otherwise require massive investments in hardware and software services and teams. We’ll get back to this in our “Angles,” but hear this: Uniswap reached $1T in traded value in less than four years with a team of ~50 people. The world simply can’t look away from such an outstanding improvement in efficiency. Productivity is the shortest way to increased profitability.
Crypto is also one of the most attractive destinations for high-quality, high-drive talent. In the last years, the inflow of capital from VCs has made Web3 compete head to head with Web2. But it’s not only a matter of bigger bags; crypto offers a brand new type of incentive, thanks to tokens. Web3 offers workers unseen levels of ownership and participation in a project through token allocations and their attached utilities. Stocks are also frequent rewards for early talent, especially startups. But tokens are far more expressive than stocks thanks to the governance powers they usually add to the financial incentive.
Cost-saving tech and highly driven talent are the perfect lineup in any context.
⬡ Six Angles
We select six topics to illustrate the very different angles crypto can be approached from. We could choose dozens, but six is the atomic number of carbon… and otherwise we'd be writing for ages.
1. DeFi | Uniswap reaches $1T in traded volume
“Today, the Uniswap community celebrated an impressive milestone as the protocol passed a lifetime cumulative trading volume of $1 trillion.” Uniswap Passes $1 Trillion in Trading Volume.
If you call $1T in cumulative trading across four years “historical,” TradFi bros might laugh at you. The whole Forex market does $6,6T daily. But Uniswap is an entirely different species. It is a piece of software running autonomously on the blockchain, offering crypto-financial services worldwide at the speed of light, with a team of ~50 developers maintaining its frontend while the whole backend is delegated onto a decentralized network.
Except for the token part, Uniswap remains just as Hayden Adams announced in this tweet from 2018. Hayden is the developer who implemented the vision of a decentralized exchange that Vitalik had expressed in a blog post. Three and a half years later, the foundations of a different breed of finance, Decentralized Finance, have been set. $1T in trades proves that this is not a bluff.
2. Intellectual Property | Stolen Bored Apes Club
According to the Terms and Conditions of the Bored Ape Yacht Club, ape owners hold exploitation rights over the NFts they purchase. This means that whoever buys a Bored Ape is entitled to create any business using the image of their NFT: wanna sell shirts, sneakers, and towels with the image of your ape? Go for it!
Actor-director, and Bored Ape owner Seth Green, tried to become the first person to have their Ape star in a show. But before the show became more than a trailer, the ape was stolen. And together with ownership went the IP rights.
Green has been working on a new show called White Horse Tavern, which features a number of different characters from various NFT collections. But, the show revolves around one main NFT piece: Green's Bored Ape Yacht Club #8398, which he had named Fred Simian.Seth Green's Bored Ape was stolen. Now he can't make his NFT show.
These are not the 15 minutes of fame Fred Simian expected.
3. L1s | From Terra’s ashes
It’s already been a month since the UST lost its 1:1 relation with the dollar and started a chain reaction that made the stablecoin UST, the token LUNA, and the whole Terra blockchain virtually worthless. Since then, there has been a lot going on that we can summarize in three main bullet points.
Terraform Labs, the company behind the Terra blockchain is being investigated by South Korean authorities, looking for signs of negligence and trying to trace the funds that the Luna Foundation Guard allegedly used to save the peg.
Do Kwon and his team pushed the launch of a new blockchain that renders the previous one obsolete. The old, worthless Luna becomes Luna Classic (it does sound much better), UST disappears from the new blockchain, and a new token, the LUNA, was minted and airdropped to the community. Reactions were mixed, but it seems like the Phoenix (the name given to the project) has weak wings.
In the meantime, sleuths discovered that one of Terra’s most important dApps, the Mirror protocol, had been exploited for $90M in October without nobody noticing and had later suffered another $2M theft. A leaking faucet in a flooded house.
4. Survey | The two different types of crypto adoption
Three recent surveys have provided the industry with actual research that helps us move from intuition to data when discussing crypto adoption.
The US Federal Reserve found that 12% of adults held crypto in 2021. The most widespread use case was investment. Only 2% used crypto to make purchases and 1% to send money, while 92% of the respondents who owned crypto claimed to use it as an investment. Crypto in the US is heavily skewed towards people with high earnings trying to earn passive income.
In the EU, there’s a similar proportion of crypto owners among the general population: 10% of European households own crypto, according to a survey by the European Central Bank. Young adult males and highly educated people are the two most prominent cohorts of crypto owners.
A third study by Block (Jack Dorsey’s crypto-evangelizing company) offers an overview of worldwide crypto adoption. Some of the findings add a backdrop to the details unveiled by the Fed and the ECB.
The report suggests higher-income people buy for investment reasons (make money, diversify, etc.), and lower-income people buy bitcoin for utility reasons (easy way to send money, to purchase goods). Bitcoin for a more equitable world
There are two main uses for crypto at the moment. A wealthy majority is seeking returns to the deployment of capital. A poorer minority is exploring payments, remittances, and other use cases where digital assets might perform better than traditional currencies.
5. Energy | The Merge is coming at the right time.
Testnets are copies of a running blockchain where “real blockchain” conditions can be simulated for developers to try out new features, upgrades, etc.
Ropsten is considered the most important Ethereum testnet, because of its similarity to the mainnet. And in the upcoming weeks, it will be ready to implement Proof of Stake- one of the most critical stages in the road towards The Merge, the process that will turn Ethereum from a Proof of Work to a Proof of Stake blockchain. After that, two more testnets, Goerli and Sepolia, will be next before the focus shifts back to transitioning the mainnet.
Good timing. NY regulators are in the process of banning Proof of Work mining in their state. The reason is the alleged environmental harm from the mining industry. Proof of Work is the consensus mechanism where computers compete against each other in validating the next block in a blockchain by using raw computing power. Proof of Stake changes the criteria from a power-consuming process to one based on financial incentives, which will bring significant cuts in energy consumption.
6. Reputation | Crypto and Human Rights
Crypto has a few reputational problems. It is generally considered a Garden of Eden for heartless, brainless crypto-bros, and it is hard to take that idea away from the general public’s minds when all they get is Ponzi-esque stablecoins melting down and monkeys selling for millions of dollars.
In that context, the narrative of crypto as a tool for worldwide social good sounds like a hypocritical take by interested parties. However, there is some truth in this narrative, and hopefully, the industry will keep the window of opportunity open. Reporter Ana Baydakova from Coindesk gathered examples from worldwide that prove that there is indeed a way of doing activism and promoting human rights thanks to crypto.
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