How Bull-Bear Cycles and the Future of Crypto Evolved See what Sequoia Capital has to say

Original title: "Does Venture Capital Investment Violate the Ethos of Crypto? Sequoia Says No"

Original source: UnChained

Original compilation: Huohuo, Vernacular Blockchain< /blockquote>

Sequoia Capital was established in 1972, and it will be exactly 50 years this year. In the field of global venture capital, Sequoia Capital is the undisputed leader.

Since its establishment, Sequoia Capital has successfully invested in giant companies such as Apple, Cisco, Oracle, and Google, and has witnessed the shining moments of legendary companies one after another.

This article comes from UnChained’s conversation with Shaun Maguire and Michelle Bailhe, two partners of Sequoia Capital. The former started five companies and succeeded in three, while the latter started at McKinsey , and later served as the team leader of the Silicon Valley Creative Lab.

The vernacular blockchain organized, translated and excerpted the content of the interview.

Interview highlights:

- What is Sequoia's long-term view and arguments for the crypto industry  

- How different our lives will be in 20 years due to blockchain technology 

- How Sequoia decided to invest in the project behind entity or token 

- Does involving venture capitalists go against the spirit of decentralization 

- How Michelle sees the macroeconomic environment affecting cryptoassets, and this Is the cycle different from previous ones 

- What should crypto projects focus on and what business models should they pursue 

- Even if it is not clearly stated, how should crypto founders Always Doing the Right Thing 

- The Future of the Metaverse and How to Define it 

- The Crypto Industry Mental Model and the Stages to Global Landing

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What is Sequoia’s long-term view and arguments on the encryption industry

Moderator: I heard that Sequoia has launched An encryption fund of US$5/600 million has been established. According to news, the fund is for the layout of encrypted assets in the next 20 years, so what exactly is it?

Michelle: The encryption industry is quite mature in terms of technology and application. Interestingly, the question we've been asked lately is whether our beliefs have changed, and the answer, of course, is no. Namely, cryptoassets create a whole new asset class and computing platform, and there will be business units that will both serve these assets. You know that many financial businesses develop Dapps on decentralized platforms in a combination of centralized and decentralized ways, so we have been continuing to invest in these projects, including Layer 2   infrastructure and applications at the core layer, and look forward to More good developments will be seen in the next 20 years.

What after 20 years of blockchain-based life

Moderator: What do you think our lives will be like in the next 20 years?

Shaun: First of all I think it's hard to say. You know predicting what crypto assets will be used in the next 20 or 30 years is similar to predicting how the Internet will be used in 90 years in the 70s.

I personally think that in the next 20 years all money will be digitized, for example, the US dollar may become a digital tool for the government, and the adoption rate of decentralized currencies will increase. significantly increased, especially in developing regions of the world.

The current situation of Uniswap   is a good case, that is, you can use some very simple codes to make some very high-volume businesses run forever, No one needs to maintain it, just post the code and it's there. I feel like there are a lot of examples like this that give me a glimpse of what the future might look like, but you know, it's hard to get too specific.

Michelle: I totally agree with Shaun, I imagine something like the internet, it's fundamentally an information revolution , so it is hard to predict. Just like we couldn't predict what the Internet would become today, no one would have predicted that Google/Mobile Internet would definitely happen today, but they were born.

Now we can order taxis on our mobile phones and book hotels anywhere, like we couldn't understand at the time. But a clear trend is that billions of people will have more information than they used to, and the cost of sharing information / transacting information will be greatly reduced, I think this is consistent in all businesses, except it is difficult to say exactly What form will it take. And you know today's Internet services are not the same in terms of censorship, regulation, I think, it doesn't mean that the old ones will disappear, but we will have more choices.

Sequoia’s decision on project entity/Token investment

Moderator: At present, many successful large venture capital companies mostly come from the old investment model. Now this kind of start-up company or VC is very similar to a centralized company. In order to adapt to the new investment model of this decentralized new world, it is necessary to carry out some restructuring and invest a large amount of Token Wait, are they really decentralized?

Shaun:I agree with you, but there are many differences in the encryption industry, although encryption There are a lot of similarities to a traditional business, like you agree you need to hire engineers and product people to help build the best PR, product, you need to pay them and manage them, building a crypto company has a lot of similarities to building a traditional software business company .

But it's really not like what people think it is, you know Sequoia has been around for 50 years and the biggest wins in early investing are Apple and Atari and a few others Hardware companies, and in the late 1980s and early 1990s, Sequoia Capital invested most successfully in Internet infrastructure companies. We all know Cisco as an example, but we don’t know the core infrastructure of Oracle. Whether it is really decentralized is not actually a superficial model.

Moderator: Let’s talk about your investment in encryption projects now, many protocols have a centralized entity behind them, so you can choose the investment project Token or equity in the centralized entity that started this decentralized project, for example, I know you guys invested in filecoin, so I'm sure you can choose to invest in filecoin token or protocol labs, how do you decide?

Michelle: Most of the time the problem we have to solve is alignment with the founders, We will require matching Token, which is very important. Now there are examples of inconsistent incentives everywhere, which will lead to unsatisfactory results. Of course, non-encrypted assets are just broader technical applications, so we always have to try to promote equity shareholders and discuss Token shares, ratios, etc. .

Now Token is widely used in encrypted assets, but in fact there are many different things in my mind, some things look more like commodity relations, use Native tokens that are used to stabilize or secure a network like bitcoin or ethereum or whatever, and then you might have tokens that are tied to the success of your app, and then you have something that just looks like reward points, like it's basically It's airline miles, like it has nothing to do with business, but it's just a way to get you like a deal discount or something like supermarket points or airline points.

You have something else, you have dogecoin, or whatever else you want, so what we call token really depends on the business and their What's being built, if it's reward points or something, you know we probably don't care because those don't have value to us because we're not necessarily the users that transact on it so we probably just care about being Equity shareholders, what we might really care about is the application or both and then for the first layer it's just the entitlement of the first layer and that's where the value accumulates so the scope of it depends on what's being built content and how you deal with the attitudes of some members of the crypto community.

Is involving venture capitalists against the spirit of decentralization

Moderator : Had to ask a follow-up question because obviously you know Sequoia has invested in startups like door dash or airbnb, you might have heard some crypto entrepreneurs say things like, decentralization means they're going to have Tokens that incentivize different workers, so when you think about what about a certain product or service that can be offered on the internet, how do you make sure it makes more sense? Whether offered by a centralized entity or in a decentralized manner, or when are you planning to invest in crypto companies?

Shaun: This kind of thinking has been popular for the past 20 years, so now It's somewhat uncertain whether the main difference is putting early ownership of the network in the hands of users to help incentivize early programmatic bootstrapping. Therefore, there will be some differences at the beginning, but the final state is not important, just like you know airbnb, suppose you have a decentralized airbnb, and you give up 50% of the equity as Token to motivate early users and early Mainframes and everything you have once you get to a certain scale, but there's also a lot of competition, and people want to use the best product, and a good product means having the most customer base, having the most liquidity, having more Good service etc so I'll just say the only difference is if you give away ownership early on to help incentivize usage but at the end of the day you have to have a better product because if your product isn't better than the alternatives people will leave and go to the next thing. So I think this is actually something that a lot of web3 companies are not paying attention to.

Michelle: I agree, this desire for unfettered decentralization is gaining ground, and I think when you really dig into it, Running something decentralized is actually inefficient, it takes more computing resources and more coordination to make sure it does well, so over time we have a luxury to expect it to deliver.

You want to use it for the most important thing, and this is like pursuing stateless freedom, you know, store of value and public information network Important, you don't want some government or some company you know to be the only ones in control, so it's kind of like a common problem that humans have been facing all along, people are always looking for how best to organize the government or the people, and you can Centralized democracy can also make it more decentralized, but this requires a lot of cost and a lot of participation, so for the ultimate desired result, while optimizing decentralization for ease of access or speed among other things, a centralized business model is adopted.

As another example, someone said, if you think about what Google is doing, or if you're solving a problem that changes the existing advertising business model, then You will know that some web 3 startups are a big threat to Google. Billions of people getting free information and funding it with ads is a great way to do it but it's hard to do it by charging those people if what you want is not getting private information not selling it ads and you probably need something that has more security and control then you're not going to pay for billions of people to have access to the same information that they can't afford but it's probably a smaller group that has access It, so really it's just different options, so we think it allows for centralization, or this blunt tool of decentralization always at all costs. I'm happy to use something centralized because it's probably cheaper and more convenient.

How Michelle sees the macroeconomic environment affecting crypto and whether this cycle is different from previous ones

< p>Moderator: So much news lately, let's start talking about the bear market in general! Bitcoin was launched during the last global financial crisis in 2008. Cryptoassets mostly exist in the U.S. around a 0% interest rate environment, so what do you expect to see happen in the next year? Where do you predict we are now in the crypto industry?

Michelle: I think it's just to prepare people when they see things, In the crypto industry, crypto trees have grown taller. So it will oscillate more when it gets hit, which doesn't mean it's going to disappear, or like the amount of dollars, maybe the amount is more but the value has dropped because they're more bulky. This period of change and volatility will feel greater than before, and that's because we have more users, more dollars, more liquidity, more regulatory attention than cryptoassets have ever had Yeah, so it's really just trying to get people ready.

And cryptoassets always go through cycles, but this one might have some unique elements that make it feel different and be prepared for that, I think it's really Depends on the business you're running, as to how you should react, you know some of them may have been active with a lot of retail transaction activity over the past few years, you know they may require extremely low cost to plan for a future environment, different Yes there may be less retail interest but it's not going to be zero it's less than before and you've seen a lot of the big public companies that are brokered trading have seen their volumes drop significantly since last year obviously because last year was history high point, but that doesn't mean it's going to go away, but you just have to plan for that difference, so that's what we've been trying to talk to our founders about, is recognizing that, it's a different environment, If you continue to do what you are doing for the past two years, you may soon find yourself in quicksand, so recognize that circumstances have changed and plan accordingly for some people you will know, focus In some product areas or difficult transitions, it also depends on who you are and how you think about it, but the message we just want to convey is that this is a different plan and a plan that can be prioritized.

How crypto asset founders should always do the right thing even if it is not clearly stated

Moderator: Then the last point I want to ask you in your post is that you said to build a sustainable business Token, but not a business model. What kind of business model do you think will work in decentralization? effect?

Michelle: You know that Token is a really cool invention, just like in terms of regulatory dynamics There's some really cool stuff about finding this way of really getting incentivized, you know there's a lot of really interesting things about rewarding users, rewarding early devs, and a lot of people are going to use them again for real value, like Ethereum Or Bitcoin and a lot of other things like that, it's really useful in stabilizing and securing the network, and there are other places where you know it works, but there are a lot of other projects that don't really have value.

There's been a lot of excitement over the last few years of the crypto boom, maybe things are looking good, everything is trading and you'll probably see a lot of growth , and then you think, oh my god, we're doing something amazing and it's working.

But once the interest rate environment changes and starts to flow out of the market, when there is no liquidity, you will see the value of the project disappear, which is now The situation of many projects.

Just like you can't see if there is such a business model by looking at the rise of Token, just like the situation without Token, if you just keep Getting valuation growth from investors but a lot of other health indicators not there doesn't mean the business model is real so to really understand what the actual business model is what people are actually paying you for your product or service What, how does it work and then how does it relate to the asset, which may or may not be relevant to the business, is an important question.

The future of the metaverse and how to define it

Moderator: Your opinion on the metaverse Is there any expectation of what the universe will become? Do you think VR, AR has to be part of it or do you think it doesn’t need to be right now, everyone is talking about the metaverse and I don’t think there’s a good definition so I’d love to hear your thoughts.

 Shaun: Oh my God, you're asking me a hard question! I thought about the metaverse, and I agree that there's no good definition of the metaverse at the moment, other than reading Neal Stevenson's book and liking his description of the metaverse, obviously the metaverse in which we ideally live. Anyway I think the metaverse could go two different ways, one is just the next big phase shift of the internet, it's hard, don't even know what that's going to be, but it's like when the internet evolves from today to unknown In the future, I will call it the Metaverse.

And I think some type of spatial component might be one of those important properties, like we invested in a company called gather that can easily Build maps, and you know you can link maps together like an office, so you can have a bunch of remote crypto companies. You know, like they're teams based around the world, but their offices can be like a digital Tokyo where you can walk from one crypto company's office to another, maybe like a shared game room, that kind of feels like connecting humans from different places on the planet, but they can walk digitally from one space to another and talk to people, so these organizations are not based on geography but based in cyberspace Ideas are organized like Metaverse Finance which I hope is very strong in any field.

Encryption industry mental model and the stages of global implementation

Moderator: We talked about at the beginning that there is a 20 or 30-year vision for the encryption industry, but Michelle, your blog lists the application S-curve of blockchain technology, can you give a brief overview?

Michelle: The early stages of this curve look like nothing is happening, as you As you know, encryption is an island, it is very disconnected from other resources, and the ingress just for assets is still a kind of cumbersome information flow, and you know it is difficult to get data from other Internet on the chain in smart contracts, so although The island has a need to exist, but very little can be done.

Overall, as the island continues to grow in users and funds, more crypto-native applications will be built to serve This universe, not elsewhere.

It's more likely that the world of incumbents start connecting here and start meeting those needs, and then we have to move to phase two because the infrastructure gets a lot of Big improvement, you know from the dial-up phase to the broadband phase to now 5G, we're right now, those core infrastructure layers are significantly improved, orders of magnitude faster and cheaper. And we're starting to build more connectivity between on-chain and off-chain applications through the liquidity of assets and information, and I think it's hard to see the future at the stage we're just starting.

Because the core infrastructure has to be addressed first, it's like the foundation of a building, you really have to start at the bottom, and then we get to Internet-scale users , and you can start getting really large applications. So what people often miss is, through that growth curve, you think, wow, this company or product has grown amazingly, but I'm sure it's out now. When we have 4 billion or more crypto users, you may think it's far away, but when you start to see trillion-dollar companies or two-trillion-dollar companies, it's different because they really do in a way Serving the Internet-scale population in a very significant way, so we think we're still in the early stages of Phase 1 and maybe just hoping to get to Phase 2, but it's still really early days.

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