#Table of contents
Web3 entrepreneurship is a very fashionable and trendy thing this year. Whether in China or the United States, many young people from large Internet companies have resigned and devoted themselves to web3.
1. Fundamentals of Web3
We divide web3 investment into four sectors:
First, L1, public chain;
second, the middle layer;
Third, at the application layer, GameFi and DeFi are the most talked about now;
Fourth, crypto finance.
2. Business Cycle and Track Opportunities
Any industry development will go through:
The first stage is academic thinking, coming up with this thing in the laboratory.
The second stage is geek thinking. As long as you can figure out this thing, it counts. Satoshi Nakamoto has achieved success by figuring out Bitcoin.
The third stage is the engineer's mindset, which is to make the product run well and not make any mistakes in engineering. Above the engineer, there is product thinking and user thinking, and above that, there is business thinking in order to expand the company.
3. What is the difference between Web3 entrepreneurship and web2?
4. What opportunities do Chinese people have in web3?
In the history of blockchain development, Asian and Chinese teams have always controlled more than 70% of the world. Until now, in the mining industry, Chinese still control at least 30-40%, but these people are not in China.
In addition to mining, Chinese people account for more than 90% of mining machine companies. Among the top ten exchanges in the world, five or six are founded by Chinese people. There are even more Chinese investment institutions in Web3, but they are relatively low-key.
5. How do Web3 projects raise funds?
The blockchain industry has experienced a period of de-VCization, with many projects not needing VC money and relying on crowdfunding. Web3 projects have raised less money than web2, but more institutions are involved, which is also a reality.
Web3 entrepreneurship is a very fashionable and trendy thing this year. Whether in China or the United States, many young people from large Internet companies have resigned and devoted themselves to web3. But recently, many people feel that web3 is too difficult and may not be able to survive, so they are considering returning to web2 to find a job.
The Chinese Web3 venture capital community ThreeDAO recently invited Deng Chao, head of HashKey Capital, an investment fund under Wanxiang Blockchain, to give a presentation to entrepreneurs.
Deng Chao disassembled web3 entrepreneurship from five aspects:
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1. Current fundamental analysis of web3;
2. Web3’s business cycles, rules and opportunities;
3. What is the difference between web3 startups and web2 startups? Is the experience of web2 still effective?
4. What opportunities do Chinese people have in web3?
5. How do web3 projects raise funds?
1. Fundamentals of Web3
What exactly is web3? Technical people see distribution, while business people see more control and ownership.
After practice and research, our team believes that web3 is different from web2 at four levels:
First, the underlying technology is decentralized, or more precisely, distributed. In the past, the computer room was provided by one company, but now it is decentralized and many people are involved.
Second, web3 applications all have financial attributes, starting with Bitcoin, which is very different from the Internet. The Internet is more of a technical attribute, and then it has commercial attributes. It was not until Alipay and WeChat Pay that it had financial attributes, but blockchain has been a financial attribute since its birth.
Third, the business model of blockchain is very different from that of the Internet due to differences in underlying technologies.
Fourth, governance, that is, the relationship between users and platforms. In Internet applications, users follow the rules of the platform, and the platform makes the rules and controls everything, including user data.
The balance of web3 is gradually leaning towards users. For web2 accounts, you need to apply to the platform, while for web3, you authorize the platform to connect your wallet. Users have a say in the direction of the platform, and on DAO, you have a say and decision-making power over an organization.
We divide web3 investment into four sectors:
First, L1, public chain;
second, the middle layer;
Third, at the application layer, GameFi and DeFi are the most talked about now;
Fourth, crypto finance. Now a crypto finance layer has been formed that is parallel to traditional finance, with infrastructure, centralized and decentralized exchanges, custody services, etc. Then there are financial services, such as lending, trading, and asset management, which are very similar to traditional finance, but are essentially very different. For example, lending does not require intermediaries, but is directly borrowed through agreements.
Anyone who has used it knows how much more efficient it is than traditional banks, and those who have used digital asset financial services will not be willing to go back to traditional finance, just like using Alipay will not go back to the era of paper money.
Web3 is currently at around the year 2000 of the Internet, and it is still in its early stages.
First, the underlying technical modules have been formed, but they have not yet reached the stage for large-scale commercial applications. The TPS that everyone criticizes is not enough, and it cannot reach the capacity of 200,000 transactions per second during Alipay’s peak period.
Secondly, commercial applications have begun to be explored. Everyone only sees GameFi and DeFi, but in fact, a large number of applications related to traditional business, data traceability, supply chain, and payment have emerged, and there are already more than 100,000 applications on the chain.
There are more than 300 million blockchain users worldwide. At the end of last year, Coinbase had 103 million users who had completed KAC verification. If we include those who have not completed verification, the conservative estimate is 300 million.
From an investment perspective, web3, like the Internet in 2000, has experienced the bursting of an asset bubble. Bitcoin has fallen from $69,000 to less than $20,000, a huge drop. Just like the previous round, it has fallen by 80 to 90 percent. The bubble has burst, and things have begun to return to rationality, starting to brew the next stage.
2. Business Cycle and Track Opportunities
Since I entered the blockchain industry in 2014, I have experienced three cycles. In each cycle, there is price first, then interest, then ideas, then development, and then hype.
The cycle in 2015 was ICO. Everyone unanimously denied it, which I think is wrong. ICO is an innovation in project financing. Because there is no supervision, it was messed up by some people who wanted to make quick money. After ICO, it was quiet for a few years, and various O appeared. Recently, there has been a large-scale DeFi, NFT, and a craze around on-chain assets.
After each cycle, even at the low point of the cycle, compared with the previous cycle, there is an order of magnitude increase in terms of technology maturity, number of applications, number of users, and scale of on-chain assets. Although there are bubbles that appear and burst, the overall trend is spiraling upward, and the application tracks and fields are constantly changing and evolving.
Those recognized by the market will continue in the next cycle; those not recognized by the market will be eliminated in the next cycle.
For example, DeFi did not appear in this cycle. It existed as early as 2015, but it was not so popular at that time. At that time, the assets on the chain were only at the level of 100 million or several hundred million US dollars, scattered among millions or tens of millions of users, with thousands or tens of thousands of dollars per person, and there was no financial demand.
In the last cycle, some landmark events made people realize that it is not safe to store assets in centralized exchanges, so a large number of assets were transferred from centralized exchanges to the chain, and the assets on the chain increased from the billion-dollar level to the hundred-billion-dollar level. When hundreds of billions of dollars of assets are gathered together, there are various financial needs, including trading needs, lending needs, and asset management needs, which derives various financial models.
NFT also existed in the previous cycle, when offline artworks were transferred to the chain, and even offline artworks were burned to attract people. But this round is more about artworks native to the chain.
DID was originally just about registering a wallet, but now it aggregates your behaviors from various perspectives onto one carrier, turning it into your mobile phone, bank account, or social platform.
The development of any industry will go through a stage. The first stage is academic thinking, which is to come up with something in the laboratory. The second stage is geek thinking, which means that just coming up with something counts. Satoshi Nakamoto came up with Bitcoin and became famous. The third stage is engineer thinking, which means making the product run well and not making any mistakes in engineering. Above engineers are product thinking and user thinking, and above them is business thinking to expand the company.
Before 2015, blockchain was a geeky concept. Now, from the perspective of engineers, it is still not perfect. In the past, the geeks faced millions of users, and later there will be hundreds of millions of users. For example, after the Ethereum upgrade, whether the current roadmap can be realized requires more people with technical strength to join.
At the higher business level, there is a lot to explore, such as games, social networking, etc., and there are many opportunities.
The core of Web3 is to forget about web2, first look at what web3 should do, and then introduce the successful experience of web2.
For example, the problem that everyone may face is digital wallets. If you have used metamask or imtoken, you must have had a frightening experience. When I used these applications in 2014, every step was frightening. You had to copy 24 mnemonics and hide them at home. You couldn't be found, and you were afraid that your phone would have problems and be seen. This experience is very similar to when I was a child learning computers. At that time, we were in the computer classroom, and the teacher taught us how to type in the dos command line and which one was to turn on and which one was to shut down. But now, turning on and off the computer only requires a click.
Today’s blockchain applications are still designed for engineers, but users don’t want these things. Our ideal wallet is very simple: you don’t need to tell me the mnemonic phrase, I just need to set a password, you hide the most complicated things underneath, and just do the underlying technical support.
The current entry threshold for blockchain users is too high, and user experience is very lacking in this industry.
In addition, how do professional institutions enter the blockchain? In foreign countries, there are already many banks that have digital asset custody, but there are none in Asia. There are no data institutions like Bloomberg and Wind that can observe data on the chain.
Therefore, the infrastructure on the chain is still in its early stages. It is difficult to generalize which track has more opportunities. I can only provide a framework for everyone to refer to.
3. What is the difference between web3 entrepreneurship and web2?
What is the difference between Web3 entrepreneurship and traditional entrepreneurship?
For traditional Internet companies or companies in other fields, how long does it take for a founder to have an idea in his mind, turn it into a product, launch it to the market and get feedback? Basically, you have to write a business plan, register a company, raise funds, build a team, buy equipment, do development, promote it, and then get market feedback. It takes at least 6 months, which is already very fast.
But what does a blockchain startup look like? If you have an idea, you can write a white paper and write out the code framework. You don’t need to register a company or buy equipment, because the development platform is open source and you can just connect to the platform with a computer. You don’t need to recruit people. As long as your idea is interesting, people will come naturally. There are hundreds of thousands or millions of developers on Ethereum who work tirelessly and without pay. Promotion can also be done in the community. There are naturally hundreds of thousands or millions of users here, and you can get feedback quickly.
And user feedback is real-time. If you don’t have good technology, you will be hacked very quickly. For Web2 products, it is not that fast from the time the product is released to being hacked by hackers and challenged by technical personnel. If your web3 product mechanism design and business model design are not good, you will be fleeced immediately.
From the perspective of financing, blockchain financing is not as dependent on VC as traditional Internet. The community attribute is very strong. We don’t like a project to be dominated too much by one or a few institutions, especially when one participant exceeds 50%. In blockchain, it is called a 51% attack, which means you can do evil and attempt to manipulate something.
I once infiltrated some discussion groups of Web2 entrepreneurs, and everyone was discussing control, and how not to lose control too early. But with Web3, the opposite is true. The more control the founder has, the lower his prestige in the community. For example, Vatalik, the founder of Ethereum, only holds a single-digit stake in Ethereum, less than 5%, and the entire Ethereum Foundation holds no more than 10%. There are also a large number of public chains where the founders have very low stakes.
From the perspective of product design and the relationship between the platform and the users, traditional game developers will criticize web3 games for being difficult to use and having a poor user experience, but web3 will criticize web2 for treating them like a krypton gold machine. If the platform makes money, it must share it with me, and the interests must be aligned.
Web2 is prone to binary opposition, if you have it, I don’t have it. But web3 is about co-construction and sharing, which is a big difference in product design.
Web3 can be promoted through airdrops. Some people think that airdrops are issuing coins, but in fact they are transferring the ownership of the project. You can understand this as the traditional project promotion fee, which used to be taken out of the balance sheet, but now it is taken out of the ownership.
4. What opportunities do Chinese people have in web3?
In the history of blockchain development, Asian and Chinese teams have always controlled more than 70% of the world. Until now, in the mining industry, Chinese still control at least 30-40%, but these people are not in China.
There are certain misunderstandings about mining. Mining is not a waste of electricity. In fact, its correct name is to provide capabilities for the underlying computing of the blockchain. It is called mining in English and translated into mining in Chinese.
Many terms in blockchain cannot be understood literally, including digital currency. Digital currency is not a currency, but an asset, which is divided into three categories: the first category is Bitcoin and Ethereum, which are the attributes of currency; the second category is the vast majority, tokens, which are your benefit certificates when you invest in a blockchain project; the third category is NFT, non-standardized digital assets.
In addition to mining, Chinese people account for more than 90% of mining machine companies. Among the top ten exchanges in the world, five or six are founded by Chinese people. There are even more Chinese investment institutions in Web3, but they are relatively low-key.
But we have to face a reality objectively. Chinese people are good at areas that require strong execution and implementation. Commercialization is our strongest point. But in terms of underlying thinking and creativity, Western entrepreneurs are stronger, especially in the design of the underlying chain mechanism.
The previous few cycles of blockchain have been focused on technology and underlying infrastructure. As Mr. Xiao said, the next phase will see explosive growth in blockchain applications, and the Chinese team is very competitive.
Especially those who have experience in traditional finance, technology, and social media, who have both commercial experience and understand the underlying logic of web3, can be said to have unlimited prospects. When it comes to the stage of web3 commercial application, as more web2 people enter, our advantages will become more obvious.
5. How do Web3 projects raise funds?
The blockchain industry has experienced a period of de-VCization, with many projects not needing VC money and relying on crowdfunding. Web3 projects have raised less money than web2, but more institutions are involved, which is also a reality.
How a project raises funds during the seed round depends on the specific situation of the project. If you are more community-oriented, you can raise funds in the community, airdrop tokens, and attract user groups. When your token is valuable, there will be a price, and funds will come in.
But if your project is more commercial, it is best to use equity financing.
In the past, 70-80% of our investments were token financing, and equity financing accounted for only 20-30%. But now there are more and more equity financing projects, because more and more projects are moving towards applications. To make applications, you have to deal with the real world. For example, if your application needs to be promoted, the supplier of the promotion must deal with a company, and is unwilling to deal with a foundation, so you need a company entity.
Disclaimer: Readers are requested to strictly abide by local laws and regulations. This article does not represent any investment advice.
Original link:
https://mp.weixin.qq.com/s/nfkZ7ErGQRrlnTB5hvYn9Q
Speaker: Deng Chao from HashKey Capital
Compiled & Source: Science and Technology Capital
*Copyright belongs to the original author
*Reprinted content is for learning purposes only and is not intended as investment advice
