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IOSG: Web3 investment, direction>team>product?

IOSG Ventures

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It is not so important whether you enter the market first or not.

Original title: 《 IOSG Weekly Brief | Web3 Investment, Direction > Team > Product? #121 》

Original source: IOSG Ventures

Part.1 Insight Web3 Investment, Direction > Team > Product?

Author: Momir, IOSG Ventures

This article is only for industry learning and communication purposes and does not constitute any investment reference

In 2007, Marc Andreessen published a famous article "The only thing that matters", arguing that among the three dimensions of market, team and product, the market should be the most important aspect for investors to evaluate startups. For investable areas, Marc is mainly optimistic about companies that have discovered real needs and have a large number of potential customers. "The product doesn't need to be perfect, it just has to work."

The Example of Uniswap

If you were product-first in 2018, you would have missed Uniswap. Most finance professionals would have told you that its design was pretty stupid.

If you focus on the team, you'll have concerns about the qualifications of inexperienced founders, first-time entrepreneurs, people with no finance background to build financial applications.

However, if you focus on the market direction, you'll notice that there is a large latent demand for on-chain trading venues that can support price discovery and value exchange, and Uniswap is the first project that actually works. That's why it's worth investing in.

Previous attempts at Uniswap were either order books that were not feasible on the chain, or AMM designs like Bancor that required the use of their governance tokens to trade, which would have a negative impact on the user experience.

"It's not that important to be first to market. Instead, the people who find the perfect match between product and market first are most likely to be the long-term winners"

Unsiwap became a unicorn and a multi-billion dollar project because of good timing and good functionality. This is not to underestimate or belittle the importance of founders. Without talent, they would not have noticed the need and would not have been the first to produce a product that "just worked". However, if a founder with similar qualities to Hayden-Adams had chosen to build the first prediction market instead of a DEX, the project would likely have failed.

Going back further, we can find another similar example - Ethereum

Imagine that Vitalik recommended the Ethereum whitepaper to you in 2015

Similarly, if you focus on the team, you would be concerned about an inexperienced founder, a first-time entrepreneur who did not go to an Ivy League school, carrying out such a challenging, world-impacting task.

For many people who really understand the technology, they must not think Ethereum is the most impressive architecture. The EVM is one of the most criticized inventions.

However, if you look at it from the perspective of market direction, you will find that this is the first blockchain that supports the development of smart contracts, although these smart contracts are only usable.

In recent years, Ethereum has become the recognized leading public chain, despite the pressure from competitors. So the conclusion is that it is precisely because Ethereum opened the right market that it attracted the smartest group of talents to build around it and even innovate further based on it. This unique advantage makes up for all the shortcomings at the beginning.

What is the current situation in the market today? How can early-stage startups find the right PMF? How to identify real needs and false needs?

If there is no forward-looking bias, judging PMF is more like an art and requires a considerable degree of imagination. To be fair, luck also plays an extremely important role. For example, the explosion of P2E is based on the simultaneous occurrence of multiple unlikely events.

Although we cannot predict the future, we can at least try our best to identify potential needs. Understanding the current market and the likely behavior of users is such a logical strategy.

Uniswap v3 and dYdX are defined as the most successful DEXs because they are at the top of the volume rankings in the spot and derivatives markets respectively. But what factors determine that they can be in a leading position?

It is undeniable that the huge volume makes Uniswap v3's slippage more competitive, and as more retail volume flows through DEX aggregators, pricing for slippage will be key to gaining volume.

But in fact, the reason for v3's superior volume is the high participation of MEV bots. As shown in the figure below, every day, bots account for 75% of Uniswap's volume. Therefore, even if there are no users participating in the Uniswap protocol, as long as there are liquidity providers willing to be arbitrageured, Uniswap v3 will still have a larger volume than most DEXes.

（Source: https://dune.xyz/momir/MEV-Ethereum）

Bots and whales dominate Ethereum's on-chain activity. Knowing this, would you want to invest in an Ethereum DEX that eliminates MEV and optimizes the experience for small traders? Probably not.

The reason AMMs and DEX Aggregators are among the most successful DeFi verticals in particular is that they serve the two largest types of users on-chain: Bots and Whales, respectively.

Connecting the dots

The irony is that once a startup is successful, and you ask the founders what made it successful, they usually cite a variety of unrelated things. People are not good at understanding causality. But in almost every case, the cause is actually Product Market Fit

Investors also seem to be bad at understanding causality. Lately, I've heard a lot of people trying to quantify the characteristics of Axie, Uniswap-type founders to know what to look out for in future projects. While this is an interesting intellectual exercise, I don't think it adds much value to the decision-making process.

Not finding product-market fit right away isn’t a big deal, unless…

Finding PMF can be a very long process that requires constant iteration. However, problems arise once a project implements an aggressive growth strategy without achieving PMF.

Because there is a high risk that a project will not reach PMF on the first try, overly aggressive liquidity mining in the early stages of a product often leads to problems with premature scaling: projects trade long-term ownership for short-term product metrics, attracting speculators instead of real product users.

Nevertheless, this seems to be the mainstream practice in the industry. Founders tend to adopt aggressive liquidity mining when launching products, and the reasons include:

Overconfidence in the project - while confidence is good, it is definitely helpful to have a healthy skepticism.

The belief that tokens should be launched when the market is hot, regardless of the fundamentals - this logic only sounds good when you are looking for a good pump and dump opportunity.

The project already has a strong buzz, either due to the adoring followers of the OG founders or the community is very excited about the project.

Due to the peculiarities of the crypto industry, we often see the third category of projects get amazing valuations without even an MVP (Minimum Viable Product). Or, some projects maintain a 10-digit valuation without reaching a certain scale of users.

Do these types of projects make our PMF reasoning above untenable? Should community strength and memes be a category as important as market, team, and product, or is it somehow derived from these aspects?

In any case, I think these types of projects are the exception rather than the rule, and as the industry matures, this factor becomes less important. In essence, community strength just buys time and resources for the project to find PMF. Without real demand, these projects will eventually die.

So depending on your investment time horizon, you may have a different value judgment on community and memes than other factors.

You may be intellectually right that the product will never succeed in getting real use, but you can still get a good deal out of it.

“Would you rather be intellectually right and lose money, or be intellectually wrong and save your trade?”

Problems in PMF Assessment

Speculation in cryptocurrencies begins even before the Token issuance. Does a high user count mean that the product has found PMF, or are most users just pre-mining because the project announced that Paradigm participated in their seed round?

There are certainly many nuances in finding and assessing PMF and pricing aspects such as market, product, and team. After all, each factor is critical and must reach a certain threshold for a project to succeed. However, if I had to rank these factors in order of their importance in evaluating a project, I would do it in the following order: Direction > Team > Product.

Part.2 Investment and Financing Events

Mintbase Completes $12.5 Million in Financing, Led by Woodstock Fund and Participated by IOSG Ventures

* NFT Infrastructure

NEAR Ecosystem NFT Infrastructure Mintbase announced that it has received $12.5 million in financing, including $7.5 million in Series A VC financing and a $5 million funding program Mintbase Grants supported by the NEAR Foundation. This round of financing was led by Woodstock Fund, with participation from Coinbase Ventures, Libertus Capital, Sino Global Capital, Animoca Brands, Fundamental Labs, Figment, IOSG Ventures, TRGC and others.

Spruce completes US$34 million Series A financing, led by a16z

*Digital identity authentication

Digital identity authentication company Spruce announced the completion of US$34 million Series A financing, led by Andreessen Horowitz (a16z), with participation from Ethereal Ventures, Electric Capital, Y Combinator, Okta Ventures, SCB 10X, Robot Ventures, OrangeDAO, A.Capital Ventures, Third Kind Venture Capital, Protocol Labs, Gemini Frontier Fund, SV Angel and others.

Privy Completes $8.3 Million Seed Round, Sequoia Capital and Others Lead Investors

*Privacy Solutions

Data privacy solutions Privy announced the completion of a $8.3 million seed round, led by Sequoia Capital and Blue Yard Capital, with participation from Electric Capital, Archetype, BoxGroup and Protocol Labs. Privy aims to solve the contradiction between the poor user experience of multiple wallets and the privacy risk leakage of integrated logins through the Web3 solution. This round of financing will be used to build the team and continue to create use cases that meet customer needs.

Decent Labs launches Decent DAO and completes $10 million in financing

* Ethereum Accelerator

Ethereum project accelerator Decent Labs announced the launch of Decent DAO and completed $10 million in financing, led by BlockTower Capital and GSR, with participation from Cumberland DRW, Digital Currency Group and 1kx, with a post-investment valuation of $56 million. Decent Labs aims to empower Web3 projects by not only investing, but also participating in the construction.

Contxts.io completed approximately US$12 million in Series A financing, led by Hashed

* NFT asset management

NFT asset management platform NFTBank operator Contxts.io completed 15 billion won in Series A financing (approximately US$12 million), led by Hashed, with participation from Sequoia Capital, 1kx, DCG, Alameda Research, Dapper Labs, etc. In addition, there may be additional investments from other institutions.

Scroll Completes $30 Million Series A Financing, Led by Polychain Capital

* Scaling

Ethereum scaling network Scroll has completed a $30 million Series A financing, led by Polychain Capital, with participation from Bain Capital Crypto, Robot Ventures and Geometry DAO. In addition, Ying Tong and Carlos Aria from the Ethereum Foundation and Ethereum community members such as Anthony Sassal, Ryan Adams and Santiago Santos also participated in this round of financing.

MetaLend completes $5 million seed round of financing, led by Pantera Capital

* NFT lending

NFT lending protocol MetaLend announced the completion of a $5 million seed round of financing, led by Pantera Capital, with participation from Collab+Currency and Ancient8. The new financing will be used for product development, recruitment and marketing.

ZeroDrop Completes $1.27 Million Seed Round Financing, Nansen Leads Investment

* Chain Game Analysis

Web3 game analysis company ZeroDrop has completed $1.27 million in seed round financing, led by blockchain data analysis platform Nansen. It is reported that this is Nansen's first investment in an external company. In addition, Mechanism Capital, MixMob and some angel investors participated in the investment.

Bastion completes US$9 million Series A financing, led by Three Arrows Capital

* DeFi

Bastion, a DeFi protocol based on Aurora blockchain (a subnet of NEAR blockchain), completed US$9 million in Series A financing, led by Three Arrows Capital, with participation from FTX Ventures, Jump Crypto, Jane Street, CMS Holdings, Crypto.com Capital and others.

LiquiFi completes US$5 million in financing, led by Dragonfly Capital Partners

* Web3

Web3 startup LiquiFi completed US$5 million in seed round financing, led by Dragonfly Capital Partners, with participation from Nascent, Alliance DAO, 6th Man Ventures, Robot Ventures, Y Combinator, Orange DAO and angel investors Balaji Srinivasan, Katie Haun, Packy McCormick, Anthony "Pomp" Pompliano and Anthony Sassano.

CertiK announces $60 million in funding from SoftBank Vision Fund II and Tiger Global

* Blockchain Security

Web3 and blockchain security company CertiK has announced $60 million in funding from SoftBank Vision Fund II and Tiger Global, marking SoftBank’s first foray into Web3 security. This also means the company has raised a total of $290 million in 9 months, further consolidating its unicorn status.

Goons of Balatroon Completes $2.46 Million Seed Round

* Blockchain Security

Blockchain game development company Goons of Balatroon announced the completion of $2.46 million in seed round financing, with participation from Merit Circle, Jun Capital, Vulcan Forged, Faculty Group, Maven Capital and Bullperks.

Part.3 IOSG Post-Investment Project Progress

Moonbeam Joins Hands with IOSG Kickstarter Program to Empower Early-stage Projects

* Polkadot Parachain

Moonbeam, a Polkadot-based compatible EVM smart contract development platform, joins hands with IOSG Kickstarter Program to empower early-stage projects. PureStake CEO Derek Yoo, who supports the operation and development of Moonbeam, has become a mentor for the IOSG Kickstarter Program, and has joined hands with IOSG to provide all-round support for startup projects in the crypto field. Currently, both the Moonbeam Foundation and the Kickstarter Program have opened grant application channels for startup teams. Any developer and early-stage project with ideas can apply for support in terms of funding, resources, technical guidance, and other aspects.

It is reported that Moonbeam is an EVM-compatible smart contract platform developed based on Substrate. As the preferred development platform in the Polkadot ecosystem that supports the development of multi-chain decentralized applications, it can easily build native interoperable decentralized applications. IOSG has also been deeply involved in Web3 since 2017, aiming to help support early builders of the most cutting-edge ecosystems in the Internet. Kickstarter has also received nearly 200 project applications, including but not limited to infrastructure, DeFi, NFT, games, and other directions.

Kava 10 Mainnet is expected to be released on May 10

* Public Chain

Kava Network’s Cosmos and Ethereum co-chains are officially ready to enter the critical period before the release. Kava 10 Mainnet is expected to be released on May 10.

MakerDAO will deploy to StarkNet in phases, with a simple cross-chain bridge launching on April 28

* DeFi

MakerDAO announced that the Maker protocol will be deployed to StarkNet, Ethereum's second-layer scaling solution, marking the first time the protocol has integrated a network other than the Ethereum mainnet.

Specifically, the deployment will be carried out in four phases, with a simple cross-chain bridge between the Ethereum mainnet and StarkNet L2 launching on April 28, followed by quick withdrawals, cross-chain bridges between different Layer 2s (expected to be completed by the end of July), and multi-collateral Dai (to be completed by the end of this year or at the latest in Q1 2023), which will significantly reduce the cost of DAI transactions and minting.

Stripe announced that it will use the Polygon network to pilot crypto payments on Twitter

* Layer 2

Online payment service provider Stripe announced that it will use Ethereum extension solution Polygon to pilot crypto payments on Twitter, initially supporting only USDC transfers on Polygon. Twitter's various monetization services, such as Super Follows and Ticketed Spaces, are expected to integrate the pilot project. In addition, FTX is also using Stripe to build new user training and identity verification features.

Polygon launches "Supernet" chain, promising to provide $100 million to Web3 developers to promote adoption

* Layer 2

Polygon, an Ethereum expansion solution, has launched a new network for Web3 development, promising to provide $100 million to early users to help them adopt quickly.

The Polygon Supernet chain enables developers to build their projects in a customizable environment without hosting or operating costs. Developers will be able to deploy their projects on the Supernet Sovereign Chain or the Supernet Shared Security Chain, the former is managed by a single validator, thereby reducing maintenance costs, while the latter provides an easier path to decentralization, allowing professional validators to verify the network by staking MATIC Tokens .

Aurora launches bug bounty program with a maximum reward of $6 million

* Layer 2

Aurora, an EVM expansion network based on NEAR, has partnered with Immunefi to launch a bug bounty program, mainly covering aspects such as Rainbow Bridge, governance funds, and smart contracts. Specifically, for smart contract vulnerabilities, the bounty amount ranges from $1,000 to $6 million depending on the threat level of the vulnerability; for websites and applications, the bounty amount ranges from $2,000 to $100,000 depending on the threat level of the vulnerability.

Part.4 Industry Pulse

ConsenSys Chief Engineer: The second Ethereum mainnet shadow fork went very smoothly

* Infrastructure

Adrian Sutton, chief engineer of Ethereum infrastructure development company ConsenSys, tweeted that the second Ethereum mainnet shadow fork went very smoothly. Before the merge, both Prysm and Nimbus had some problems handling the large number of deposits being processed. It just shows that all the best clients have deposit problems, and I don’t know why Lighthouse and Lodestar didn’t realize it. Prysm generated blocks very late, causing many people to miss the vote and low participation in the synchronization committee. Nimbus is producing invalid blocks. Both problems are unrelated to the merge and have been fixed.

Crypto Fund DeFi Wonderland Releases Proposal for Comprehensive Reform of SushiSwap, Including Proposing to Abandon the xSUSHI Model

* DeFi

Crypto Fund DeFi Wonderland Releases Proposal for Comprehensive Reform of SushiSwap, Including Proposing to Abandon xSUSHI and Transfer the Profits that Originally Belonged to xSUSHI to SushiDAO; Improving Transparency, Including Publishing Financial Roadmap, Publicizing Budget and Expenditure Information, and Publicizing Data on Transferring Funds from Multi-Signature Wallets to Fund Vaults; Diversifying Fund Vault Assets; Establishing Four Teams, Technical Working Group, Ecosystem Growth Working Group, Multi-Chain Working Group, and R&D Working Group, to Take Charge of SushiSwap's Development Affairs; Enabling veSUSHI Token Economic Model; Adding a Decentralized Front-end; Expanding to Non-EVM Networks. DeFi Wonderland said that they hope SushiSwap will provide 5 million SUSHI to support their actions, and the release of tokens will be determined based on whether the SUSHI price reaches the established target.

Coinbase NFT Marketplace Beta Version Launched

* NFT

The Beta version of the Coinbase NFT Marketplace is now live. From today, everyone can access the Beta version of the NFT Marketplace, but initially only certain users can buy or sell NFTs. The Coinbase NFT Marketplace currently supports Ethereum-based NFTs and ETH payment methods. Sanchan Saxena, Vice President of Product at Coinbase, revealed that the market will integrate other blockchains in the future and will soon fully support fiat currency deposit channels.

Report: The amount of financing in the blockchain game field reached US$2.5 billion in the first quarter of this year

* GameFi

The 2022 Q1 Blockchain Game Report released by DappRadar and the Blockchain Game Alliance (BGA) shows that 2022 will be a benchmark year for cryptocurrency game developers. The report shows that $2.5 billion was raised in the first quarter of this year alone. The report predicts that by the end of 2022, the amount of financing in this field may surge by 150% compared with last year to $10 billion. Last month, blockchain games attracted 1.22 million unique active wallets (UAW), which currently account for 52% of the active data in the blockchain industry. The use of blockchain games has increased by 2000% in one year.

Yuga Labs Metaverse Project Otherside will be launched on May 1

* Metaverse

Yuga Labs Metaverse Project Otherside announced that it will be launched at 0:00 on May 1, Beijing time. At the same time, Otherside has opened a Discord channel. According to previous news, Yuga Labs has released a promotional video for its new project Otherside on social media. The NFT series featured in the video include Bored Ape Yacht Club, Mutant Ape Yacht Club, CryptoPunks, Meebits, CoolCats, World of Women and Nouns.