Dialogue with Blockchain Capital: Which directions in Web3 are promising in 2023?

Original Title: 《What Are Crypto VCs Bullish on in 2023?》

Author: Revelo Intel

Translation: Deep Tide TechFlow

In this episode of the podcast, host Jason Choi talks with Kinjal Shah, a partner at Blockchain Capital, and Yuan Han Li about verticals that may take off in 2023, the framework for investing in verticals, and tools that make it easier to build in Web3.

Here are our notes on this podcast.

Introduction

• The collapse of FTX has proven the need for decentralized systems.

• Kinjal Shah joined Blockchain Capital in 2018 after working in Tradfi, focusing on consumer infrastructure, particularly in the NFT and DAO space.

• Yuan Han Li has been with the Blockchain Capital team for 8 months, focusing on scaling and decentralized infrastructure.

Exploring Consumer Verticals

• The focus is on consumer infrastructure and providing the infrastructure that makes it easier for users to access applications in the space.

• NFT infrastructure has developed well, with companies like Stardust and Upshot focusing on NFT pricing data, and WorkDAO addressing compliance challenges.

• The cryptocurrency market is not yet ready for consumer-facing applications like Airbnb or ride-sharing platforms.

• The user experience of wallets needs improvement, and developers need to integrate in-game assets into their games more seamlessly.

• The emphasis should be on taking initial steps to improve infrastructure and prepare for consumer adoption.

Account Abstraction Improving Wallet User Experience

• Account abstraction is a concept in the Ethereum community that focuses on making private keys less important in the blockchain ecosystem.

• Account abstraction aims to find ways to make private keys less critical, such as through programmable accounts controlled by multiple keys or other secure methods.

• This approach can make blockchains more user-friendly and accessible while still maintaining the core value of self-custody.

• Account abstraction allows for programmable wallets and features like key rotation and multiple keys with different permission levels.

• Private keys are a major barrier for new users using cryptocurrencies, and account abstraction may be the best solution to reduce the importance of private keys.

Unlocking More Use Cases for NFTs

• The concept of dynamic NFTs has the potential to unlock a range of new use cases.

• Dynamic NFTs introduce programmability into NFTs, allowing metadata to change over time, which can enable applications like changing appearances or financial contracts with expiration dates.

• Data tracking, indexing, and specialized infrastructure, such as Uniswap V3 positions, are all important sub-industries.

Applications Developing Their Own Chains and Rollups

• There are trade-offs in choosing to use chains and rollups, such as sacrificing composability, sovereignty issues, and fee capture.

• Ultimately, rollups will prevail over application chains, and applications will choose to become more autonomous through rollups.

• Some projects, like Ethereum and Solana, would benefit from having more control over value capture and product experience from a business perspective due to being constrained by their roadmaps.

• Using application chains for gaming would make more sense.

• Of course, this depends on the specific application and the project's choice of one of these two models.

Making Web3 Development More Accessible

• The blockchain is not yet ready to enter the no-code era.

• The technology should be easy to use to encourage application development.

• The blockchain space is ready for Web2 developers to build on it.

• Zksync, Scroll, and Polygon are willing to help Web2 developers choose the right solutions and assist in development.

Layer 1 Landscape and New Developments

• The future of the blockchain industry lies in the modularity of blockchains.

• Building rollups can allow for innovation on virtual machines without compromising security and decentralization.

• Starting new trust networks and virtual machines from scratch on new Layer 1 blockchains is seen as unnecessary extra work because people underestimate the time and effort required to bootstrap a new L1. It is difficult and takes about 5 years.

• Once L2 tokens are launched and gain attention, new L2 developers will see the benefits of developing on rollups, enabling them to innovate in their own areas of expertise.

Value Capture of dApps and Protocols

• The debate in the cryptocurrency consumption space is whether to build applications first and then guide protocols, or to start with protocols and attract developers to build applications on top of them.

• The application layer is crucial for future consumer growth.

• Applications have the potential to generate more economic value than protocols, which could change the incentives for protocols.

Projects to Watch in 2023

• WorkDAO is a company that helps DAOs and Web3 companies legally pay their contributors, allowing them to contribute to Web3 without worrying about how to pay rent with tokens.

• Zksync is easy to use and fully compatible with EVM, allowing developers to deploy their applications with minimal changes.