Describe what reading most influenced your view on crypto.
I found it difficult to point to one single reading after having read so many takes from all sorts of angles, but this article captures what I believe to be the most important aspect of crypto on a high level:
How Blockchain will Give Consumers Ownership of their Data
Currently, companies that hold our data do so as centralized entities. This means that they have control over who can access it, how it’s used, and how it’s stored. However, with the advent of blockchain technology, this is all about to change. With blockchain, data can be stored in a decentralized way, meaning that it is spread across a network of computers, rather than being held in a single location. This has a number of advantages, one of which is that it makes data much more secure, as there is no central point of failure. Another advantage is that it gives consumers more control over their data. With blockchain, consumers can choose which companies they want to share their data with, and they can also revoke access at any time. This gives them a much greater degree of control over their personal data, and it also makes it much more difficult for companies to misuse or sell our data without our consent. In the future, blockchain-based data platforms will give consumers complete control over their data, and they will be able to use it to get better deals, receive personalized services, and even earn rewards.
What is your understanding of Web2 vs Web3?
Chris Dixon wrote up a neat high-level characterization about the evolution of the web in his “Why Web 3 matters” post:
Web 1 (roughly 1990-2005) was about open protocols that were decentralized and community-governed. Most of the value accrued to the edges of the network — users and builders.
The important thing to highlight imo is that the value accrual has been and always will come from data generated by the users participating in any network. Web3 is the latest iteration in the natural arrow of progress concerning who owns, controls and benefits from this data by giving the user a choice he wasn’t given in web2.
In another non-technical post he gives a simple example of how this evolution in terms of data looks like in practice using NFTs and compares take-rates across in web2 vs web3 which represent who benefits from value accrual in both worlds.
Please come up with three example use cases for NFTs? All examples need to be from different application domains.
Digital collectibles Digital collectibles play the same role as physical art, fashion, baseball cards etc. With the dawn of the digital age and the digitalization of all aspects of our daily lives this shouldn’t come as a surprise. The core innovation behind blockchains unlocked scarcity in the digital realm and laid the groundwork for digital collectibles like crypto punks, apes, beeple, etc.: Digital art that was previously infinitely reproducible can now be made scarce and thus collectable.
Gaming objects
I believe it’s the consensus view by now that this is the big one in terms of NFT use cases due to gaming having the biggest TAM after financial services for crypto. Web2 gamers spend about $40B/year on virtual goods. But users don’t really own those objects, the company does. And the objects cannot interoperate and compose across games.Social tokens
This use case is geared towards the creator economy and is perhaps the least palpable at this point because it will bring about new behavior and mechanisms of interaction. The gist of the value proposition is to allow creators monetize their audience directly and align incentives with their community of followers, tightening the bond between creator and followers.I mentioned my involvement w/ Limewire. Top tier musicians will be launching their tokens on the platform which will allow super-fans to unlock unreleased tracks, interact w/ the artist or give preferential discounts to shows, etc. All of this while participating in the success and the strength of the artists follower base.
How does the Axie Infinity business model work?
It helps to contrast Axies Play-to-earn business model to the dominant model in gaming:
Traditional Free to play:
have app on some platform (iOS, Android, Steam)
Most ppl play for free, don’t pay
some pct of players generate bulk of revenue
dev gets rev - 30% platform tax
—> User acquisition/growth through paid ads, performance marketing Facebook/google
Play-to-earn flips this on its head: buy NFT to play game, by definition every new user is a paid user instead of direct sales model, it becomes a marketplace model where dev is merely facilitating tx via marketplace and charges 4.25 % / tx Players can purchase and sell Axies, land, items, as well as bundles (both primary + secondary market)
To best of my knowledge they do not generate revenue from either one of their tokens (SLP is minted & burned by players by winning & breeding, AXS is supposed to function as a governance token)
What areas of blockchain would you find most promising for a generalist VC fund like HV? Please note HV is allowed to invest in both equity and tokens.
Digital Infrastructure:
It’s no secret that this is top of mind for most VCs at the moment, everyone is looking for the next Metamask, Infura or Coinbase.
Web development and data frameworks are pretty well understood in web2 making the deployment of consumer facing products straightforward and seamless. We currently haven’t reached that level of consolidation in web3 due to a range of factors and not in small part due to the decentralized nature of this space. But this is a hinderance in unlocking the full potential behind the technology resulting in inefficiencies in development efforts and poor UX.
Companies building the rails to enable mass adoption to the digital asset ecosystem need to tackle topics like Middleware, Identity Management, Verified frontend hosting, … before we can have a smooth end user experience.
Gaming: Clearly there is a lot of competition here too, but that’s proportionate to the size of the potential. While I expect a number of breathtaking games with embedded web3 mechanics to come out this year, the one area that isn’t well understood is how to design incentives and virtual economies around gaming simply because this hasn’t been a core competency for devs in this space.
Apart from traditional equity governance tokens associated with games can be an attractive investment feature and I haven’t yet seen a coherent playbook on the role of VCs in long term governance of crypto networks in general.
Consumer products: I firmly believe there is a myriad of consumer products not only in fintech that will have a web3 architecture embedded in them where the end user will have a similar experience to todays apps and services but in addition be rewarded for her participation. Just as a small preview, I recently downloaded an app called Sweatcoin (basically a clone of the famous move-to-earn app Stepn but without requiring NFTs), and from day one it rewards me with 1 coin every 1000 steps (tracked by apple health telemetry) which I can either sell on the open market or use for discounts in an embedded marketplace advertising all sorts of digital & physical products. It’s difficult to imagine consumers will not want to use the web3 counterpart to many apps they already use in their daily lives, because they simply are better aligning incentives. Variant calls it the ownership economy.
This example however only constitutes a rebundeling of web2, it gets really interesting when we think about newly emerging behavior because of web3. This post by Chris gives a neat framework around how to think about consumer experiences with no prior analogue and simply couldn’t have existed before.
I think the conversations in web3 is still too centered around ethereum vs solana but in web2 no consumer ever debated whether instagram should run on python vs java script. That’s the result of the thought leaders in the space coming from a strong technology angle, and I think this is where HV can really carve out its niche given it’s extensive experience with consumer.