GENERAL: a16z going airborne.

a16z is moving its headquarters into the cloud and embracing the new post-COVID reality. "[…]we have configured the firm to be able to physically assemble anywhere in the world very quickly […] we are opening 3 new offices in Miami Beach, New York, and Santa Monica in addition to our existing Menlo Park and San Francisco locations."

Takeoff.

INFRASTRUCTURE: The network state. 

"Technology has enabled us to start new companies, new communities, and new currencies. But can we use it to start new cities or even new countries?" Balaji Srinivasan explains this notion in his book the network state. Vitalik Buterin, co-creator of Ethereum, post a review of Balaji Srinivasan's ideas on his blog: https://twitter.com/balajis/status/1547124298908725248?utm_source=substack&utm_medium=email

Read the book.

METAVERSE: Bored Ape Yacht Club stress test.

Yuga Labs is building their Metaverse play in public by doing occasional tech demos for token holders. Whilst I find them rudimentary, most people are impressed by them. ApeCoin surged 22% after the successful stress test.

Read on.

GENERAL: Web3 use case follow-up

The last weekly update was all about Web3 use cases. SBF, the founder of FTX, chipped into the discussion. SBF illustrates three use cases: payments, market structure, and social media in detail on Twitter: 

https://twitter.com/SBF_FTX/status/1548292354318036995

NFTs: Minecraft says no to NFTs

In a letter posted to its website on Wednesday, Minecraft developer Mojang Studios told users that the blockchain and NFTs isn’t in line with their values.

Dive in.

INVESTMENT: This time it's different.

Most crises are described as being different, yet most of the time they have large commonalities. CNBC still believes, however, that this crypto winter is different. The macroeconomic environment, a large influx of debt through centralized finance, and the collapse of Terra are all notable differences.

Understand more.

INVESTMENT: Three Arrows Capital breaks the silence.

The founders of 3AC share their viewpoint on how the entire catastrophe unfolded. The entire read feels like they are trying to blame others for what happened and that they were just little kids being a bit naive. The problem: they gambled with a lot of money, not just some pocket money.

Read more.

NFT OF THE WEEK

https://twitter.com/Abs0lutelywrong/status/1550231309850742785

OTHER STUFF

• Meow Raises $22M in Series A Funding Round

• Elon Musk’s Tesla Has Sold 75% of Its Bitcoin Holdings

• Crypto Crash Stalls WeWork Founder Adam Neumann’s Climate Venture

• The Unofficial 3AC Gallery

Web3 use cases

The critics

Charlie Warzel's article at the Atlantic summarized what happened well:

https://newsletters.theatlantic.com/galaxy-brain/62ba500cbcbd490021aaef70/web3-crypto-movement-uses-marc-andreessen/

Marc Andreessen and Packy McCormick (two proponents of the Web3 movement) failed to make a case for valid and simple Web3 use cases in interviews. 

https://twitter.com/liron/status/1537186589486460928?s=20&t=oQxq6uwJYUFLrYbvyMouhw

https://twitter.com/liron/status/1533214640460574720?s=20&t=elOCwVkULzOzuaT2Vnfrpg

https://twitter.com/zachweinberg/status/1539038527534428161

The conclusion of Web3 critics: "Behind all the Web3 bluster is just hollow abstraction."

I invite everybody who's working in Web3 to read the article and to listen to the podcasts. I believe these are exactly the discussions that are needed. The reason why I quit my job to work full-time in Web3 was to: "create companies that solve real problems with clear business models, where the blockchain offers 10x advantages over the current way of doing things". And I believe it is hard to argue with my goal, as even the critics share the same sentiment:

https://twitter.com/levie/status/1540723593318830085

But, I also struggle to have conversations with people from the space about actual problems and real use cases and I hope that during the bear market we'll have more honest conversations in the industry.

The in-between

However, thus far these use cases in the market seem limited. Ben Thompson and John Gruber had a sober conversation on their podcast Dithering about Web3 use cases. "Web3 advocates are overselling and trying to recreate everything from scratch. Recreate everything on the crappiest database ever. This is just not going to work." They continue to say: "The Web3 advocates are struggling to explain use cases, as they are going too far, they are overselling it." Their case for a Web3 use case: Decentralize the components that actually benefit from the blockchain and have everything else remain the same (on Web2 that is). Erin from disco.xyz called it minimum viable centralization, which is a great term to describe it.

https://twitter.com/mictuc/status/1539707849831497734

Ben Thompson and John Gruber argue that a simple use case could be a connective layer that provides authentication between untrusted parties for content creators that have an audience on YouTube and on Instagram. A simple system, yet hard to build. John Gruber quotes John Gall: "A complex system that works is invariably found to have evolved from a simple system that works. The inverse proposition also appears to be true: A complex system designed from scratch never works and cannot be made to work."

This is a similar notion to Alex Danco's tokengated commerce and what he is doing over at Shopify:

https://open.spotify.com/episode/498S1ce1KG2Qp4H9MgYyCb?si=208701805a554bdd&nd=1

Alex Danco is very optimistic about the future of Web3 use cases and what it means for its Shopify merchants and so is Packy McCormick 

The optimist

Packy McCormick responded to his own struggle to articulate Web3 use with a two part essay, which is again a must-read for anybody working in this space.

https://twitter.com/packyM/status/1539955598938308609?s=20&t=8bmwaKm9UQviAgAXLUFjuQ

Part 1 describes Web3 use cases today:

https://www.notboring.co/p/web3-use-cases-today

and part 2 talk describes Web3 use cases of the future:

https://www.notboring.co/p/web3-use-cases-the-future

We're in a summer slump news-wise. Well, other than 3AC, Cesius, Voyager and many more who have caused a mini credit crisis.

Let' see what next week holds.

Happy weekend! 

Here is how most of the move-to-earn apps work:

1. Sign-up and buy an NFT accessory (e.g. a sneaker)

2. Track movement with their app and earn a non-asset-backed token

3. Upgrade, repair, or mint a new NFT accessory

4. Sell an NFT or token to another user

There is an appetite for move-to-earn apps

Most people are lazy and need motivation to move - money is motivating. STEPN has shown great success with the straightforward Ponzi model. At the time of this writing, the ecosystem coin has a market capitalization of ca. USD 1 BN (whilst being in an economic downturn).

People are making money, but don't be the last person standing

The current move-to-earn ventures all suffer from the Ponzi scheme mechanic. The apps reward players to move with tokens and NFTs (sneakers or other artifacts). Tokens and NFTs only hold value, as long as new players buy tokens and NFTs of the early investors with new capital. Profitable for the company in the short term, but not sustainable in the long term.

These games are still basic

Users can top up money, spend money on an NFT and track their movement, but that is it. Some of the play-to-earn apps (a variant of move-to-earn, where people are playing a game and earning money) are more sophisticated, but the gameplay mechanics are still basic.

How to fix move-to-earn apps

There are two options to break out of the Ponzi scheme mechanics:

1. Create a compelling sports app that people will use (in single-player mode) even if it wasn't for the monetary incentives (see Chris Dixon’s Crypto Tokens blog post). Not a trivial feat, as companies like Strava, Nike, Runtastic (aka Adidas), and Garmin all have apps

2. Have a third-party inject money into the system to get something other than a token in return, i.e. user movement data or customer loyalty

Non-blockchain examples (non-exhaustive) that have a functioning action-to-earn mechanics:

• Miles and More: people are flying with Star Alliance airlines because they need to travel. Miles and More rewards users for their loyalty with points and gives discounts. Airlines and partners are paying for a customer's loyalty

• Keller sMiles: people are using running apps to do sports already. Keller sMiles is rewarding users who connect running apps with their app with points that they can use in the Keller Sports e-commerce shop

• Payback: people are shopping at their local supermarkets and are being rewarded to swipe a card at the cash register to track their purchase. Retailers are willing to pay Payback for user data and customer receives discounts in return

STEPN will need to find a third party who is willing to inject money into their ecosystem

It is unlikely that STEPN will create an app better than the incumbents anytime soon. There are three options to fix it. Build an app orthogonal to other running apps, e.g. with a running app integration. Increase customer loyalty of a third party. Allow a third party to access customer data (privacy adherent).

STEPN will only be able to thrive going forward if they fix their economy. Otherwise, they are facing a collapse like Axie infinity.