Charles Nurdin

Of strange coincidences

Last week, I read two very interesting facts in quick juxtaposition.

First, that, on the same day, two different billion-sized web3 funds had been raised. Joe McCann and other founders from a16z raised a 1 billion funds on Tuesday. And in the afternoon, Dragonfly Ventures raised its new fund of $700m — not a billion exactly but you can call it poetic licence.

On the very same day, Metamask proudly announced that it had passed the cap of 30m users (which is impressive, I don't deny it).

So there you have it: a billion for a million. An order of magnitude 1000 of difference. Quite the gap. The Terra – Luna distance one could say, if one was feeling cheeky.

All that: Defi, layer 1, layer 2, so many dApps you need other apps to keep them working together, more DAOs than human beings on Earth, the hundreds of talks about “the Metaverse” that look and sound like they were made in the 1990s and, of course, the billions, so many billions you can juggle with them. All that for a user base that is the size of a small size country, or one big city.

That's not to say web3 won't change the world. There are some theoretically very useful use cases : unified medical data, better local governance, unfalsifiable identity, even decentralized architecture, if it is proven than distributed ledger can be more efficient than a traditional one. Social gaming, and entertainment in general, is also one such case — and indeed what some posit this ever-elusive “Metaverse” will be (more on this below).

In any case, with so much money beeing thrown at a single piece of technology, it better become ubiquitous — and it will, if only by virtue of large numbers. World War II style : when you mobilize immense resources and the full might of the richest market on Earth, you usually end up achieving something.

But even if this future will come, we still need to get there. As a wise man once said, the future ain't what it used to be. So, the biggest challenge for web3 in the next few years is encapsulated in a single word: mass.

As per in military doctrine expression: build mass to attack. If it doesn't, it will run of a cliff in two to three years time, when the hype dies down and funding dries down.

Of skewed incentives

So why isn't there any actual mass user adoption of decentralized technologies? It has to do with the state of the art, legacy friction and with incentives, but mostly the latter.

Simply put: there are no reasons to tackle actual problems. First, because, so far, web3 is a rich man's game. YugaLabs is valued at $5B — and is already trying to raise at a higher valuation — but who buys BAYC? The happy few, the rich and famous. With this kind of margins, why on earth would you try to do anything else than NFT?

Even at the other end of the spectrum, with the gaming guilds set up in Vietnam, the margins on art and gaming tokens are excellent. It is simply impossible to compete with another business.

The second issue is legacy. Let's say that you want to bring all medical records, from a private doctor, an hospital, ... on the blockchain, something everyone agree would help a lot of patients receive improved care. You would need to integrate a multitude of legacy systems. So much friction, so much hassle: better to stick to native blockchain ecosystems. That is: Defi and collectibles (art, sports, gaming). Nothing else.

The last issue is the tech, and this one might get resolved. The gas fees, to be precise. High gas fees means lower margin, hence an incentive to go only for the “positional goods” as they are being called politely by economists. But, with Polygon and layer 2, it is finally changing.

The pressure of traction

Another strange fact about the web3 craze. Notice how we talk of web3, blockchain, DeFi. All those words describe the technology, not the use case. So with such focus on the tech, you would expect an R&D-minded market, similar to what happened during the self-driving or the AI wave. Long-term projects, with technical milestones conditioning funding.

Alas, the success of early web3 ventures has investors addicted to short-term returns. This leaves only two avenues for companies: either to focus on the flow (ie. building an IP business like Yugalabs) or on the pipes (infra and tooling). But no one has any incentives in changing the source. We're building magnificent aqueducs to syphon water from a stagnant marsh. We're two years in the market explosion, and yet the core use cases are desperately the same.

We need to talk

A word here about the Metaverse, because it illustrates so well how skewed the incentives are. The more eloquent description of the Metaverse I have ever read comes from Ledger, who posited it would be a “continuum of unreal-engine powered games with strong social communities” (quoting by memory).

It is indeed a smart hypothesis, because the two closest things to the concept of “Metaverse” I ever saw were Minecraft and Fortnite. Games where people spent time to play and also to interact with each others. I'd say EPIC Games is the biggest Metaverse company out there that no one talks about.

It's probably what Mark Zuckerberg had in mind when he shifted all of Facebook's resources to Meta, as he reaffirmed at the same time that the company's mission was to focus on young people.

But you know what those games had in common? They're fun. And beautiful. Minecraft sure has a simple look, but it's incredibly creative. It has to have such a simple structure to allow for total flexibility. Fortnite just looks georgeous with bright colors and creative maps.

Now, let's look at the “future of the Metaverse”. Isn't the Sandbox the poster boy for it? Well, it looks more like any DeFi platform to buy, stake, swap, collateralize etc. LAND tokens than anything else.

The reason is simple: there are no incentives for the company to do otherwise. Great, fully constructible open world could be built on the blockchain, it could make the user's experience even more interesting. But no. Since there is so much speculation on tokens, any game company has every incentive to act as an asset manager rather than as a game developer.

It's not that games are corrupted by money, but when there's only money and no game, it's a bit short.

A (strangely) not so heretical point of view

At this point, you might think I am a jaded soul who hates anything that is either new or fun. Certainly, a web3 skeptic, who will be buried by History.

But in this case, I am in good company. I read two interesting quotes recently that restored my faith in my own sanity (very much ungrounded belief if you ask me, but such is the mystery of Faith).

Talking at the Paris Blockchain Conference, Arthur Breitman, co-founder of Tezos, said : “There's a lot of hype, you'll see the interesting use cases when the hype dies down”.

And Sandeep Nailwal, cofounder of Polygon sang to the same tune in another interview. “We know who is the AWS of web3 [a little humblebrag has never hurt anybody, has it?] but he haven't yet seen the Snap or Meta of web3”.

Of the space elevator finally making its (fashionably late) appearance

In every good sci-fi work, there's a space elevator. That's how you recognize them. For instance, Foundation on Apple TV: they put the Star Bridge in it, so it's alright. Tviolkosky's short fictions? He was the first to describe a space elevator concept, even before Clarke, and he's the man without whom we wouldn't get rockets (seriously, check it out — he's the greatest underestimated genius of the modern age).

The idea behind the space elevator is that of a simple cable, or tether (if I find out that the USDT is named like that because of it, then I'll start buying it. I'm like that: dumb) between the Earth and the Moon.

The beauty of it is that it can enable travel through purely mechanical forces, with a weight / counterweight system, without having to deploy the extreme amount of energy rockets need to escape the Earth's gravity.

There are some thorny issues of how to create a structure so long and high so that it supports deformation — but it might be doable with carbon nanotubes (or not, it's a heated debate).

In any case, if we're ever to durably exploit the moon's ressources like Helium 3, which will be so critical once nuclear fusion reaches scale (it will, have some faith), a space elevator is the most elegant and energetically efficient solution.

Where am I going with this long-winded metaphore — that's really just a way to speak about my childhood hero Tviolkosky?

Look at the Moon. It has great ressources, could open up a wealth of possibilities, but because of the energy required to get there, only a few people can make it.

The Moon is web3 today.

All the efforts are currently focused on building a moon base, in complete autarcy. It's pouring billions upon billions on a 30 million user market, without looking to expand it.

It cannot succeed.

What is needed is to bridge the gap between the Earth and the Moon, to build this space elevator that will enable to use the ressources of web3 and bring them into the Earth's athmosphere.

So let's get to it (and by “us”, I mean “you”, dear reader, if you are an MD at a multi-billion VC fund. In which case, you probably have better things to do than to read those posts).