Consensus and Non-Consensus: Countercyclical Direction in a Bear Market

Author: Jims Young

The primary market has been deserted for too long, and it has been a long time since new things have appeared. But in theory, for VC, the bear market is the time to enter the counter-cyclical market. Based on this judgment, I went to Singapore in June and discussed the direction of the bear market with many old and new friends. I found consensus and non-consensus in many industries, and precipitated some thoughts. After internal sharing, write a written article for discussion, and project parties and VC friends are also welcome to communicate more. Due to space limitations (meaning that I can’t finish writing: P), this time I will focus on the framework, and I can write more observations and judgments on subdivided tracks later when I have time.

1. Consensus: what is generally agreed by everyone

1.1 Two main investment ideas: 1) Return to the essence of the financial industry 2) Huge opportunities in the application layer

At present, there are two mainstream investment ideas. One is to return to the original heart of the blockchain — the financial approach, investing in RWA, insurance, payment channels, bank-like projects, derivatives, stable coins, and so on. In fact, this trend has appeared since the Wanxiang Conference in Hong Kong, but it has appeared more and more frequently recently. The investment here has two angles. One is that innovation in the industry is limited, while financial related is a proven direction, which is safe and has cash flow. The other is that the possibility of mass adoption brought about by the compliance narrative is increasing. What is on the bet is the income expectation of future big gold flow.

The other is to bet on the application layer. Recently, more and more funds have begun to pay more attention to the application layer, and even funds that mainly invested in Infra before are experiencing Paradigm Shifting. There are many reasons here. One of the main reasons is that there is no big barrier to the technology of the Crypto industry itself. When one company’s technology comes out, other competing products can quickly pivot. The core competitiveness of the chain lies in ecology rather than technology. Traffic is still the core driver of the industry. After Infra becomes more and more perfect, it will be the real application that attracts users, and the real value will also be deposited in this layer. In the end, the super application will choose Infra and have the ultimate dominance. This is also the story that happened on Dydx. (The opportunities for the application layer will be discussed later in the article.)

1.2 The development speed of the industry is slowing down, and the actions under tightened liquidity are the questions that all VCs need to answer

Release of water is the source of power for the development of soft technology, and foam is the engine for the rise of new industries. Although the words are a bit absolute, it is undeniable that the rapid development of the technology industry in the past few decades has largely benefited from the capital surplus after World War II. For a small market like Crypto, the most intuitive case is that the emergence of Defi Summer comes from the release of water by the Federal Reserve. However, at the moment when liquidity tightens today, the question that both traditional VC and Crypto VC have to answer is, how to deal with the tide when the wave is gone?

1. For investment: the strategy of most funds may be: invest less, if you don’t understand, you can not invest, you can invest or not, and if you want to invest, you can invest more. If you have enough Bar, you should bet. We should stockpile more food (so entrepreneurs rush, we still have liquidity). In addition, Crypto began to focus on other industries such as AI, chips and even biomedicine.

2. For post-investment: When the pre-investment work is less, the post-investment work can actually be done more. For an industry with close first- and second-tier relationships like Crypto, the refined operation of projects and assets has been put on the agenda by more and more funds.

2. Non-Consensus: Big Differences Are Big Opportunities

2.1 Crypto investment is returning to the traditional dollar logic

Crypto, as an emerging technology industry, used to be Tech Driven in its investment logic, with a deep understanding. You can invest if you understand the superiority of technology first. The essence of making money is efficient money. However, as the industry becomes more and more perfect and gradually enters the logic of applied investment, the general investment method of the US dollar fund may become more effective, that is, the business model of investing in people. Technology will become a direction worthy of attention, but it is by no means the only determinant. Compared with technology itself, more attention will be paid to the new business model brought about by technological breakthroughs.

2.2 L2 and high-performance L1

This is probably the biggest non-consensus right now. Today, when L2 is about to become politically correct, there are still many new public chains eyeing the tiger, and there are still new chains ushering in new financing disclosures. Indeed, Long Ethereum through Long L2 seems to be the safest choice, because developers, communities, and funds are all concentrated on Ethereum, and Ethereum is also the most suitable decentralized existence at present... It's just that the premise is that the external conditions remain unchanged. Once new funding comes in, new developers come in, and the story could go in the other direction as well.

2.3 AI+Web3？

Regarding AI, one very tricky point is that AI, an industry that appeared in the 1960s, has been popular for several times. If I remember correctly, in the middle of last year, the establishment of the AI track was still a topic of discussion. The investor circle in Silicon Valley should still be discussing whether an industry such as AI should first invest in the cloud and then sink Vertical data, and then ML The last three steps of AI, and after the appearance of GPT 3.5 this year, all doubts disappeared directly, and it is already an arms race for all funds to run wild. :P

After more than half a year, whether AI is a track or a bubble is still an unsolved mystery. Echo @Laobai's Threads, in addition to the noisy and noisy large model and application layer judgment, the traditional direction has begun to discuss AGI at the level of embodied intelligence (that is, AI+robot, you can see that Web2 is also very capable of creating concepts) up. But in any case, what is visible to the naked eye is that this time the AI craze has significantly improved the experience of C-end users. Whether it is New Bing, Claude, or PoeAI, they all have a good (at least me) direct experience improvement. As for the combination of AI and Web3, I still think there is potential space in the utilization of long-tail resources. On this point, you can write a separate article later.

3. Thinking: Non-consensus opportunities glimpsed in consensus

3.1 Infra as an “APP”？

Infra is often compared to water, coal and electricity by us, and we are worried that it will become a real infrastructure that will not be able to capture high returns after it becomes more and more perfect. But back to the first principle, if we bet on the final business model, Infra, or the existence of the blockchain as a tool attribute, there is still the possibility of independently generating application scenarios, such as AI chain, payment chain, etc. In fact, A chain that can do one thing well is pretty good. Although it may be far away from us today, it is still very likely to appear.

3.2 What is the main contradiction in the industry?

My own answer is two,

1. There are not enough high-quality assets on the chain.

If we bet that there will be a large amount of funds entering the market in the future, the premise is that there are interest-earning assets on the chain that at least exceed the return on U.S. debt and can allow large amounts of money to enter. The main contradiction at present is that, firstly, the liquidity of assets is completely insufficient, and secondly, there are not enough assets with excess returns. As for long-tail money, if you can find a suitable geo-arbitrage asset and implement it in an area where the rights of assets on and off the chain of the centralized chain are confirmed, RWA is indeed a direction.

2. There is almost no consumption on the chain.

In essence, the vast majority of users in the currency circle are small B-sides, with almost no C-sides. The original intention of speculators must be to make money, and the vast majority of NFT holders also hold a bullish mentality. Only a very small number of NFT true love players will hold small pictures for a long time regardless of high price or low price, and become the ultimate consumption By. In this case, if there is no real consumption, there will always be only MLM ponzi.

3.3 Is the Web3 upgrade enough?

Leapingfrog theory: Due to the characteristics of technological change, developing countries have a latecomer advantage, and the technological level of advanced countries may be locked within a certain range of small changes due to technological inertia. In this case, the backward country may surpass the original advanced country, which is the "leapfrog" process.

Recently, I talked with many friends in traditional industries. Regarding the industry upgrade brought about by Web3, many people feel that it is a bit interesting, but not very interesting. Yes, this is similar to pushing QR code payment in a country where everyone has a credit card. When the benefits brought by the paradigm shift are not enough to smooth out the switching costs, technological change becomes difficult. Similar to technological innovation in the past several cycles, because the old technology is backward in developing countries, the innovation advantages of the new technology can easily exceed the switching cost, thus creating a technological breakthrough. From this logic, when the innovation of Web3 is limited, the possibility of disrupting the systems of developed countries is much smaller, but there may be great opportunities in developing countries.

3.4 Be an industry oracle machine, Think out of the box

With the development of the blockchain industry today, due to the attributes of Infra, it can already be more or less connected with various aspects including IOT, finance, and even basic necessities of life. The solutions to many problems may be just outside the circle. For example, as I talked with @siyuan, the problem of Ethereum’s state explosion may be solved by reducing the cost of storing this physical entity. After all, it may be Moore’s Law that solves the software problem, not the technology from Crypto Native.

When there is no answer in the circle, you should look outside the circle. Be an industry oracle machine, take a step back, and look at a higher perspective, in this era of invisible Beta, Seeking Alpha.

*Disclaimer: This article only represents the author's personal opinion, not the opinion of the author's institution. This article does not constitute any investment advice, and is not responsible for the consequences of any behavior that relies on this article. Readers are requested to strictly abide by local laws and regulations. For any public reports or citations, please indicate the author and source. *

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