Global Mainstream Adoption of Blockchain Innovations
The Five Moments Today that Shape Your Future
By Paul Hsu, Founder and CEO of Decasonic
I remember a moment twenty three years ago like it was yesterday. On Valentine's Day of 2000, I started my venture career at Neocarta Ventures, deal sourcing around 2G wireless, dotcom internetworking and bricks and clicks ecommerce. Thank you, Tony, Tom, and Jarrett, who took the leap of faith hiring me as their first non-founding partner hire as a young, aspiring technology investor.
I also remember many of the challenges we saw in the post dotcom bubble bear markets in the 2000s; restructuring capitalization tables, managing burn rates and strategically influencing situations where we were able to apply our growing knowledge. Adoption of the internet was booming, financial markets didn’t reward those growth metrics, and many of the current companies needed to be restructured to survive and thrive. Some would later emerge as market leaders but most died by the wayside, unable to extend that cash runway to profitability.
Grateful for that life changing opportunity, I can now reflect on other life changing moments that are happening today with blockchain adoption.
#1 Moment Today in Innovation Centers: Public Private Partnerships Accelerating Blockchain
A love of friends and family, a love of venture capital and a love of disruptive technologies is what I love. It’s an endless pursuit of mastery mixed with professional aspirations that takes me to corners of the globe to meet with other innovators, who are building the global mainstream adoption. Today’s innovations are truly global, with public and private efforts accelerating adoption faster and larger than in other innovation cycles.
Once again I made the trek this year to participate in the Satoshi Roundtable IX hosted in the UAE. In its ninth year, the conference is an invite-only gathering of the world’s top public and private leaders in blockchain. Its format preserves off-the-record thought leadership conversations about the future of blockchain, business innovation and its impact on our society. I had the privilege of leading two well-attended sessions, one on “Web3 VC Trends” and another on “Mainstream Adoption of the Metaverse.”
It was my first time in Dubai. Experiencing first hand the public and private commitment this nation has to blockchain, it won’t be my last time. This region is committed to building out the blockchain, web3 and metaverse innovation center, with many announcements of startup hubs, venture capital funding and public programs to accelerate the innovative ideas.
Closer to home, I serve on the Board of Directors of World Business Chicago (WBC), a public private economic development organization committed to transforming Chicagoland with inclusive growth. Our team at Decasonic is honored to collaborate closely with WBC leaders, Michael Fassnacht, Abin Kuriakose and Alexandra Oleksiuk, in driving fintech and blockchain innovation across the many diverse industries as food and agriculture, supply chain, healthcare and life sciences, AI, marketing and advertising and general internet technologies.
These public and private partnerships are focused on funding and building durable use cases powered by blockchain technology. Collectively, there is a sigh of relief that the events of 2022 detoxed the industry of the tourists, the reckless and the inexperienced. Looking forward, there is optimism that our cooperation around durable use cases will generate the next wave of valuable innovations for our global ecosystem growth.
#2 Moment Today In Venture Capital: A Moment of Transition
The business of venture capital is in a moment of transition.
In the past decade, low interest rates and “free money” distorted the venture financing of disruptive innovations. Success in venture capital relied on accessing the hot deals alongside other momentum investors to raise successive rounds of higher valuations. Due diligence was minimal and relied much upon a founder’s achievements and the perceived reputation of the other syndicate investors. Narratives around a founding team’s background to “build it and they will come” attracted hot money, both in crypto and more generally in technology. Investment alpha in VC relied on deal access.
Many growth equity investors, or downstream investors who follow on to seed stage venture financings, believe that there will be a “mass extinction” of mediocre startups who cannot drive operating efficiencies and survive today’s reality. Limited Partners in other funds are driving additional accountability, governance and transparency in those venture capital managers who were sloppy during the events in 2022. Regulators too are investigating other venture funds around due diligence, fiduciary responsibilities and proper custody and segregation of investor assets. Public and private groups are accelerating change in the business of venture capital.
In this new environment of higher interest rates, normalized cost of capital is creating a healthier and less distorted investing environment. Success in venture capital requires a different playbook, especially more so in blockchain, web3 and the metaverse. In today’s environment, venture investors are looking for durable business models that will generate cash flows. Investment alpha will rely on operating experience and investor value add.
Going forward, venture investors will need to work with founders on aligned governance and economics, balancing the relationship and deal terms that enable aligned investment returns for all stakeholders. Venture investors will need to drive accountability on value creation, right sizing product and engineering plans to achieve capital efficient and valuable growth. Furthermore, the ability to influence change will matter.
For many other web3 venture investors, this is a foreign approach that must be learned. For the team at Decasonic, this is authentically how we have operated from when we received our initiating battle scars from the bear markets of the early 2000s.
In 2023, the industry will sustain the technical progress and adoption. We are intensely in search of opportunities that solve key bugs and deliver killer apps. Our execution is further prioritizing the underappreciated cash generative potential of blockchain, in the form of digital goods revenues, high margin cash flows and durable token value accruals.
There is innovation in the financial structures of blockchain venture capital. We see the limitations in today’s equity and token designs and are innovating the execution of these strategies at our companies. The power of our hybrid venture and digital assets fund is the power to optimize open and proprietary tech across equity and digital assets.
#3 Moment for the Global Mainstream Adoption of Blockchain Innovations: Bold Visions
The successful founders today are embracing this moment in venture financing markets and are rapidly adapting. These founders will build transformative companies during these bear markets through a perspective of public private partnerships for inclusive growth. And the venture investors who can partner and co-build alongside these founders will likewise build those enduring venture franchises.
From Day 1, we have formed our investment thesis around the mainstream adoption of blockchain. This has not changed and the recent market transition has only put a greater emphasis on companies who can build durable use cases. We are actively investing across three Bold Visions.
Bold Vision 1: Blockchain will speed up how you pay, lend or borrow.
Bold Vision 2: Web3 will shape how you shop and engage with brands.
Bold Vision 3: Metaverse will transform how you spend time with others.
Other CEOs are also recognizing this opportunity to build blockchain innovations. JP Morgan CEO, Jamie Dimon, was recently quoted on CNBC: “Crypto is a complete sideshow. Crypto tokens are like pet rocks. This doesn’t mean that blockchain is not real. This doesn’t mean that smart contracts aren’t real or web 3.0.” Goldman Sachs CEO, David Solomon, also wrote in the Wall Street Journal that “Blockchain is Much More Than Crypto,” and that “Cryptocurrencies are only one of blockchain’s many applications, so we shouldn’t miss the forest for the trees. Used correctly, blockchain can support responsible innovation across the financial industry.” Jamie and David see rocks and forests. We see blue oceans of opportunities in blockchain.
Bold Vision 1: Blockchain will speed up how you pay, lend or borrow. Durable use cases for blockchain are underway. The Forbes Blockchain 50 2023 showcases the Global 500 enterprises quietly building blockchain deployments to drive their business goals across supply chain, marketing, sales, talent recruiting, capital formation, asset tracking, authentication, asset settlements, climate change, and many more. Despite the recent spotlight on crypto hype, international businesses are building, with substance, in blockchain. These companies are deploying blockchain because this technology helps their businesses operate better, faster or cheaper.
Bold Vision 2: Web3 will shape how you shop and engage with brands. This technology holds the promise to invert ownership of the internet from large tech incumbents towards a user owned internet. We’re seeing a cambrian explosion of ideas around new ways to create and collaborate, to organize internet communities, and to streamline peer-to-peer value transfer. Many global brands have embraced web3 around collectibles, brand marketing, memberships, token gated commerce and loyalty, including Starbucks who’s partnered with our portfolio company Forum3 with their web3 loyalty program.
Bold Vision 3: Metaverse will transform how you spend time with others. The immersive internet is transforming how we blend our physical and digital relationships. Of all the technologies accelerated by the Covid-19 pandemic, consumer behavior in video conferencing, gaming and metaverse seems to have permanently changed. The generations of game, creator and metaverse natives continue to level up the consumer expectations for their internet experiences.
#4 Moment for AI: The Mutually Accelerating Trends
At the same time, AI further accelerates this global adoption of blockchain innovations. Investors in disruptive technologies perceive today as a moment in time for artificial intelligence (AI), given the recent advancements showcased by chatGPT/ Bing and related counter strategic announcements by Bard/ Google. We believe that the bigger moment in time is how disruptive technologies mutually accelerate each other. Our blockchain and web3 businesses, when combined with other disruptive technologies such as AI/ ML, will future proof their long term strategies stronger.
AI drives creativity, spawning more jobs. Generative art and related ChatGPT and AI will catalyze the growth of metaverse applications. AI will build out the 3D immersive internet, or the metaverse, by driving productivity for front line developers and freeing up their time for creative development of consumer experiences.
We believe this unleashed creativity will impact the front end metaverse experiences by enabling rapid transformation in three principal areas: content creation, scaled narratives and an acceleration of the digital economy.
In content creation, AI can and will accelerate the production of detail rich 3D landscapes, cityscapes and supporting characters in the immersive metaverse. AI can and will transform from text based internet experiences to visually rich metaverse experiences.
In scaled narratives, AI can and will enhance our storytelling through period specific and thematic consistent game quests. AI can and will create mass customization and personalization of virtual world themes across genre and time periods.
In the acceleration of the digital economy, AI can and will accelerate interoperability especially web3 across digital asset transformers, digital money and validated identities. There will be an expanded role for creators to build with speed and low code on top of such a metaverse, validated by cryptographically secured authentication of real versus deep fake works. Real work from real creators will drive premium value, compensated by crypto.
#5 The Moment for Your Future: Join Us in Your Life Moment
We are excited about blockchain, web3, and the metaverse, especially with this moment in time for venture capital and AI. Internally, we are applying our perspectives around durable use cases in both pre- and post-investment activities. We have a thesis that a company financed by equity and tokens can drive the highest long term lifetime value of its customers and deliver higher returns to investors, than just equity only or tokens only. We believe this strategic financing approach taps into the cash generative potential of distributed databases.
In our pre-investment work, we are sourcing and investigating prospective business plans around how big, why now and how sustainable. In our post-investment work, we are advising and co-building the business models, product market fit, token market fit, go to market strategies and the scaling of such hybrid equity and token businesses.
In this moment where you may have life changing career and family changes, please join us. If you are an investor, innovator or public official building in blockchain, we would love to hear from you. The moment is today and we’re honored to be a part of this generational change.