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1confirmation partners tell you how they evaluate and invest the project?

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Music NFT will have a similar breakout moment in 2022

Dialogue 1Confirmation Partners: Invest less than once a month on average, many VCS are traders in disguise

Original source: crypto@Stanford

Linch, chain Catcher

Richard Chen Is a well-known crypto venture capital & NBSP; A partner in 1Confirmation and Stanford Cryptography OG (Class of 2018), the investment firm's portfolio since its inception in 2018 includes OpenSea, Coinbase, Polkadot, dYdX and Cosmos.

Recently, Stanford University encryption community pair; Richard Chen Conducted an interview, which involves their own investment strategy, evaluation of many VC, etc., chain catcher compiled the article as follows, among which the main views include:

- If you do an initial coin offering, there will be a bunch of traders pretending to be VCS. Organizations like Alameda, Three Arrows, CMS, DeFiance, etc. dump your tokens and ignore your emails once they lock in profits. Or short your token on a derivatives exchange for the Delta neutral cash carry trade.

-Money is your ability to bend reality to your will. However, the vast majority of people I've seen getting rich quick from cryptocurrencies have become hedonists and complacent, spending money for their own enjoyment rather than using their lifetime wealth to make a lasting impact on society.

- Developers are busy building, they don't have time to tweet. I think the easiest way is to unfocus people who are trying too hard to be thought leaders.

01 Step into encryption

C@S: When did you become interested in encryption and why?

Richard:It was when I went to Stanford in 2015. It was professor Dan Boneh's first year of teaching CS 251 (Bitcoin and Cryptocurrencies). Ethereum was relatively young at the time. In fact, ethereum was my entry point into crypto compared to Bitcoin, because I thought building apps was more interesting than the Austrian school.

I delved into cryptography, security and game theory. Blockchains and cryptocurrencies happen to be the most natural real-world application of all of this. So I became more and more curious about encryption. I also wrote a paper on Ethereum in my freshman PWR class (writing course).

C@S: Wow, so you really started early.

Richard:Yes, even though that was a few years after the Ethereum ICO, so I feel like I missed a big crypto wave. Then, all of a sudden, 2017 saw another big boom in cryptocurrencies. I co-founded the Stanford Blockchain Collective with Vince McPhillip, Alex Pruden, Anna Carroll, and others. I have been actively involved in encryption at school. After I left college, they renamed it the Stanford Blockchain Club.

C@S: What is your overall view of the crypto /NFT space right now?

Richard:I think encryption is a bottom-up, grassroots movement by people who grew up in the Internet culture. This is the generational transfer of wealth from baby boomers to millennials. It is also a paradigm shift in distrust of institutions. This could be a central bank for Bitcoin extremists, or a big tech company for Web3 believers. NFT offers artists an alternative to the gatekeepers of the entertainment industry.

C@S: What does Web3 mean to you?

Richard:In 2017 I wrote a paper on Web3 with the main idea of shifting power from the central gatekeeper to the people. It's not Twitter fact checkers who decide content moderation policy, it's the people. I think that's even more important today. There have been a lot of recent controversial decisions about certain banned Twitter accounts, like Nancy Pelosi's portfolio tracking or Dr. Robert Malone. Twitter's new CEO went so far as to say that Twitter is not bound by the First Amendment. Web3 will be our chance to redeem ourselves as serfs oppressed by technological overlords.

02 confirmation about 1

C@S: How do you think 1Confirmation is different from other funds?

Richard:One big difference is that we don't actually invest much (less than once a month on average), so our portfolio is small and concentrated. Because of this investment model, we are able to spend more time really working closely with entrepreneurs by providing a first-class service. That's how we win deals.

For new founders who want us to invest, we ask them to go to our existing founders for advice and ask them who is the most helpful investment on their balance sheet, and they almost always say us. Concentration (rather than picking the right companies) is also the biggest driver of return on capital, and I've written before about my views on portfolio construction.

As an example, I'm going to build for the portfolio. I created a SuperRare Twitter bot that now has 25,000 followers, which is a very underrated way to market and create a passionate community of artists and collectors. There are also many Dune control panels, the most famous of which is the OpenSea panel, which has been referenced by the media.

For the DeFi project, we will be early liquidity providers and I will build simple arbitrage bots before professional MEV traders come in. Thinking about product strategy is also a big issue, and I believe you can only give good advice if you have a deep historical background in the field and can analyze past patterns of success and failure.

We have also provided a lot of help with token allocation, token economics, and legal and regulatory issues. For the US team in particular, regulation is the biggest issue for tokens because it operates in a legal grey area. Depending on the lawyer you talk to, you get a very different opinion, and a lawyer who doesn't understand encryption can do a lot of damage to the company. We have the best lawyers in cryptography.

C@S: 1Confirmation has invested in some great projects like Ethereum, Cosmos, Polkadot, Coinbase, OpenSea, etc. What is your strategy for evaluating the potential of investment projects?

Richard:Mainly & have spent 1) Market, 2) product, 3) team, and 4) community in any order. In the short term, communities and memes are the biggest drivers of cryptocurrency prices, so some investors would argue that fundamentals don't matter. But memes are fleeting, so in the long run, what you really want is a really passionate community of users, not some anonymous guy talking about price.

Ultimately, we're excited about new product use cases (0 to 1 products instead of 1 to N products) that can move the crypto space forward. This allowed us to invest super early in categories like DeFi (dYdX and MakerDAO in 2017) and NFT (OpenSea in 2018) before they became clear trends. We don't want to be pigeonholed into a specific vertical, so thinking about what users like helps us stay ahead.

C@S: I know you led the OpenSea seed round, which was great. What did you see in them in the beginning? Because obviously, the NFT market wasn't that big, right?

Richard:When the ERC-721 NFT standard was first invented, we saw digital collectibles as an important asset class that would support new use cases. CryptoKitties was the largest NFT project at the time. It attracted a lot of early enthusiasts and speculators, which usually indicated that the long-term trend of NFT was correct, but then there was a period of disillusionment.

CryptoKitties charges a 5% commission on its market, while OpenSea, a secondary market, has a 2.5% commission.

The two big contenders at the time were OpenSea and Rare Bits. The Rare Bits team was formerly Farmville, Zynga. They had a higher profile and raised more money from VCS, but they didn't know as much about NFT as the OpenSea people. OpenSea's founders are highly motivated. I remember they were busy working, living in Discords, touching every NFT project to bring it online OpenSea.

I know Alex Atallah from ACM at Stanford, who is one of the co-founders of OpenSea. When we invested in it in April 2018, OpenSea was trading four times more than Rare Bits. Rare Bits finally closed in early 2020. OpenSea's founders kept their overhead ultra-low and patiently waited for the NFT explosion in 2021.

C@S: Is there any investment project that you are very optimistic about recently?

Richard:We invested in Catalog in June 2021. It is a music NFT market. Unlike art, collectibles, or games, the music NFT market has yet to take off, but its growth rate is truly astounding; While the absolute numbers on the Y-axis aren't huge, it reminds me of what I saw with SuperRare and Cryptoart in early 2020, when it hadn't exploded yet but the growth rate was there. I think music NFT will have a similar breakout moment in 2022.

C@S: Which is your favorite investment, your personal one or 1confirmation?

Richard:I work closely with Nexus Mutual, which is the market leader in DeFi insurance and has a huge advantage. Founder Hugh Karp, the CFO of Munich Insurance, then quickly began to delve into cryptocurrencies, which is rare for someone from the traditional world.

His combination of traditional insurance experience with an understanding of crypto native has helped Nexus avoid mistakes made by other competitors that were addressed in insurance decades ago (for example, there are good reasons we don't use prediction markets or put options).

C@S: What investments do you wish you had made?

Richard:The portfolio I missed was worse. I usually go through the entire list, but the one that caught my attention recently was Dun Analytics. I'm probably the biggest user on their list (except for the CEO who doesn't count).

I was attracted to the B2B SaaS business model and potential market size, and I should have thought "this is an obvious product that people would like to use". As a power user myself, I should invest in things I like to use. I'm also familiar with the founder.

03 VC in Web3

C@S: As VC, do you think ICO and DAO Have the new Web3 fundraising methods changed the VC field significantly?

Richard:Not much has changed. The project became popular with ICOs (initial coin offerings) in 2017 and then IEO (initial exchange offerings) in 2019. Now it's called IDO (Initial DEX release), almost the same thing renamed in different ways.

These items tend to be short-term hype for traders rather than what really matters to long-term venture capitalists who are thinking about the product. It was a different world from the one I knew. Daos are like SPVS and angel syndicates in the traditional world.

C@S: Are you saying that ICO and IDO are usually better for fast projects than long term focus?

Richard:Yes, I can only name a few successful ICOs from 2017 that are still alive. For many token presale traders, they sell the tokens as soon as they are unlocked and listed on exchanges.

C@S: Do you think that's still the case? Or, if someone really wants to work on cryptographic projects, should they try to go the traditional VC route?

Richard:It's just adverse selection. If you do an initial coin offering, you have a bunch of traders pretending to be VCS. Organizations like Alameda, Three Arrows, CMS, DeFiance, etc. dump your tokens and ignore your emails once they lock in profits. Or short your token on a derivatives exchange for the Delta neutral cash carry trade.

What you need are investors with diamond hands who will be with you for the next few years.

C@S: Are you worried that a lot of the crypto-type messages on Twitter will be dominated by VCS and developers' opinions will be buried?

Richard:Yes, of course. Developers are busy building, they don't have time to tweet. I think the easiest way is to unfocus people who are trying too hard to be thought leaders. Be proactive in reaching out to developers to build interesting things. I do this all the time, someone will build some cool NFT tracker, and I'll DM or email the developer and have a quick chat with them.

There's a lot of cutting edge knowledge to be learned from talking to developers, rather than chasing whatever the thought leaders say on Twitter is the next big thing. Also, there is a lot of unethical psychological warfare going on behind the scenes with these thought leaders (selling your project at a markup to your followers so they can be your liquidity outlet).

C@S: Do you think most Twitter VCS really know what they are talking about? Like Chris Dixon and Ali Yahya of A16Z. But there are a lot of new "thought leader" VCS out there, and I don't know if you've ever had a chance to interact with them and measure their capabilities.

Richard:When you talk to them in person, what they say is flat because their thought leadership is just amplifying and repeating what others have already said. It's hard to find people who come up with original ideas on their own. Chris and Ali from A16Z are the first people that come to mind.

I also respect the VCS who believed early and stuck with it. For example, invested in early game ventures like Axie Infinity and Sandbox back in 2018/2019 and waited patiently for the space to explode. Right now, "thought leader" VCS are FOMO some $100 million game projects in the pipeline.

C@S: I think this is some advice for your readers to try to find Twitter influencers or VCS who have been involved in crypto for a long time and keep following them.

Richard:Yes.

04 hypothesis

C@S: What advice do you have for new graduates?

Richard:They should be asking themselves, "Would you still trust crypto if cryptocurrency prices collapsed by 90%?" I think this is especially true of Stanford and Silicon Valley types of founders because they tend to be mercenary. The reason is that they are very talented and have many choices; If you can build encryption, you can build traditional technology. If you are talented but have no conviction, there is no intrinsic motivation to survive crypto bear markets year after year.

The worst-performing investments in our portfolio were silicon Valley mercenary founders who switched careers in 2019. They became disillusioned with cryptocurrencies, transitioned prematurely, and then a year later the crypto ecosystem exploded. I think you have to be a believer, not a mercenary. Don't just want to get rich quick, have patience and focus for a few bear/bull cycles.

C@S: Who do you think is the smartest person working in cryptography right now?

Richard:Alex Angel of Primitive Finance is one of them because even though he was a business major in college and dropped out to start Primitive, he was able to become such a Solidity expert so quickly. He is in the top 1% of all Solidity developers I know. He is also one of the smartest people I know on joint curves, AMM research and financial engineering.

C@S: You're a billionaire and don't have to work for money anymore. What will you do next?

Richard:Money is your ability to bend reality to your will. However, the vast majority of people I've seen getting rich quick from cryptocurrencies have become hedonists and complacent, spending money for their own enjoyment rather than using their lifetime wealth to make a lasting impact on society. Capital is abundant, but power is scarce.

Being able to influence politics is where you show real world power, otherwise no one will care about your crypto money. That's why you see so many billionaires getting involved in politics and trying to shape it. Unfortunately, much of it is just about enriching itself and perpetuating inequality, which is why populism has risen in the past decade. I want to break the garbage policies of elites and institutions (e.g., mainstream media, big pharma) to keep their power at the expense of the rest of society.

I also support the arts. I have loved playing the oboe since CHILDHOOD, and I can understand the challenges musicians face. I buy NFT, even though I may never make a financial return on my purchase, but it's very much my way of giving back to the artist. I love this line: "The arts have nothing to do with defending our country, but make it worth defending."

C@S: What will the world look like when the crypto market becomes 100 times larger?

Richard:If Bitcoin hits $200,000, half of the world's billionaires will be cryptocurrency billionaires. This is the generational transfer of wealth from the old money boomers to the new money millennials. These people grew up in an Internet culture, playing video games like RuneScape and living in Subreddits and Discords.

The last time there was such a generational transfer of wealth was during the Industrial Revolution, when you had landed gentry, and then property suddenly became less valuable. The Carnegie and Rockefeller of that era were the big winners of this generational paradigm shift in their ability to build businesses and create value rather than rent-seeking value. They also leave a lasting legacy through their philanthropy.