Multicoin Capital: The 9 cryptocurrency sectors currently of most interest, with a future focus on the consumer market

Original Title: 《Announcing Venture Fund III》

Author: Multicoin Capital

Compiled by: Runsheng & Hu Tao, Chain Catcher

We are excited to announce the launch of our latest venture fund—Venture Fund III. This is a $430 million fund that, combined with our long-term liquidity fund, will invest between $500,000 and $25 million in early-stage opportunities, as well as up to $100 million in later-stage projects.

So far, we have invested in the crypto industry for about five years and have witnessed a gradual rise in innovation. As we continue to make deep technology and infrastructure investments, we are spending more and more time on consumer-facing initiatives that have the potential to reshape the massive consumer market. Here are some areas we are particularly interested in:

Physical Proof of Work

As we have written before, one of the most powerful features of crypto-economic protocols is their ability to create incentive structures that allow anyone in the world to contribute to a set of shared goals without permission. These incentive structures can be fine-tuned to facilitate large-scale coordination towards specific objectives. While the vast majority of crypto innovations have focused on coordinating digital communities and economies, tokens also create opportunities for innovation in capital formation and human coordination that transcend the digital world and enter the physical realm.

We refer to this theme as "Physical Proof of Work." Protocols that align with this theme incentivize people to perform verifiable work to build real-world infrastructure. Two of the most notable in our portfolio are Helium and Hivemapper. However, we are increasingly interested in this space and actively seeking projects that aim to disrupt existing industries using this model (e.g., Web3 AirBnB, Uber, microgrids, etc.).

DataDAOs

DataDAOs are conceptually similar to Physical Proof of Work, but they focus on data rather than physical infrastructure.

There is a lot of fragmented data that, if aggregated, would be more valuable than the sum of its parts. Currently, this data cannot be aggregated because it is too sensitive or too personalized, or because aggregators are not user-controlled. Crypto technology helps address this issue by: 1) providing users with stronger incentives to contribute data that exceeds the current risk-reward; 2) expanding access and inclusivity by creating decentralized, permissionless, trust-minimized data intermediaries; 3) driving the transfer of governance power from a few to the many in the community (also known in crypto terms as "trusted neutrality"). Crypto incentives are key to inviting participation and unlocking data that is more valuable than the sum of its parts.

We recently invested in the first DataDAO—Delphia. Delphia is aggregating data contributed by investors to improve trading algorithms, which become smarter with each new investor and contributor (i.e., DAO).

Creator Monetization

While creator monetization is not a new idea, the opportunities are only just beginning to emerge as platforms and rails mature. As we have mentioned, the prototypes for the next generation of creator monetization tools are being invented. Currently, the most effective and profitable models are a global experiment, but once they take shape, millions of creators will be waiting on the sidelines to join the game. The opportunities for creators to profit will come gradually and then suddenly.

We expect millions of new creators to build meaningful new businesses across countless online platforms, utilizing cryptocurrencies for payment rails, DeFi, NFTs, social tokens, and more. For example, Kyle extensively discussed the idea of Music VC DAOs in his keynote speech at the Multicoin Summit in December 2021.

We have invested in several creator monetization tools and platforms, including: Metaplex, the NFT standard on Solana; Audius, a web3 digital streaming platform; Strata Protocol, an open-source protocol for tokenizing individuals, projects, or ideas; and FanTiger, an NFT song platform.

Consumer Products

As the underlying infrastructure systems (Solana, Aptos, Ethereum, etc.) mature, it becomes increasingly easier to build various forms of consumer-facing applications. Myriad web2 entrepreneurs are exploring crypto technology and are committed to creating world-class consumer experiences that leverage the unique properties of cryptocurrency systems to unlock new consumer behaviors.

We have invested in some consumer social products but have not announced them yet. We aim to be a flagbearer in user experience and show the world how to build world-class crypto-native consumer experiences.

New Business Models for Intellectual Property Collaboration

One of the most misunderstood superpowers of cryptocurrency is its ability to enable new mechanisms for capital formation. Bitcoin pioneered this with mining, followed by a wave of capital formation innovations: ICOs, airdrops, liquidity mining, NFT minting, Helium's coverage proof, and more.

Before the internet, there were only a handful of major media companies in the U.S. (Hearst, NYC, Sinclair, News Corp, etc.). However, over the past 20 years, the media landscape has fundamentally changed with the rise of blogs, newsletters, social media, and more. Now, there are billions of media resources worldwide.

Similarly, there are only a few large IP studios in the U.S. today (Disney, Marvel, Comcast, Warner, Paramount, etc.). We expect the next wave of IP studios to be crypto-native and community-driven.

Web3 Infrastructure

We have written extensively about the Web3 stack and the opportunities within it. Since early 2018, we have been one of the most active investors in Web3 infrastructure, investing in Livepeer and The Graph.

We will continue to invest in core Web3 infrastructure, with recent investments including Ceramic and Fluence, along with some that have yet to be shared.

Open Finance

Open finance is one of our grand themes in crypto. Open finance, often referred to as decentralized finance (or DeFi, which we view as a subset of open finance), is one of the most important areas of innovation in the crypto space. During the 2018-2021 period, we witnessed the rise and explosion of innovation in DeFi. Since then, the market has cooled, but it has certainly not disappeared. We talk to founders every day, building new DeFi tools to replace the status quo or create entirely new categories. Innovation is always active at the forefront.

With DeFi, we can (re)build many more inclusive and open markets. BetDEX is one such example, focusing on sports betting, which is currently a highly restricted area. Another example is DFlow, a pioneer in the order flow payment market within the crypto industry.

We hope to invest more and look forward to seeing higher-level applications built by leveraging composability within our creator monetization and permissionless finance themes.

India

In our investment team, Shayon and Vishal have spent considerable time in India, Dubai, and neighboring markets.

Given the following factors, we believe India is in a particularly favorable position for the adoption of Web3 technologies: 1) Difficult market penetration by U.S. and Chinese tech giants; 2) Opportunities to build and own Indian-native Web3 enterprises; 3) A relatively young, tech-savvy, and English-speaking demographic; 4) The surge in remote work.

We also believe that Indian entrepreneurs will be best positioned to design products that serve the local market and intend to make significant investments in Indian Web3 startups like FanTiger.

DAO Tools

We see early experiments happening in the intersection of cryptocurrencies and online communities centered around shared interests. Crypto has driven the formation of these communities by leveraging global talent and capital pools. However, better coordination infrastructure is needed to realize this vision at scale. We are actively monitoring this space and participating and investing in it.

Partnering with Us

While we have made significant progress over the past few years, our approach has not changed. We remain theme-oriented and founder-first. Regardless of who leads the investment, each member of our investment team works directly with all the companies in our portfolio. Our collective skills are the leverage we deploy to help the best crypto ideas succeed.

While we may sometimes be accused of being out of touch, our reputation in the eyes of founders is what we care about most. As an organization, we deliberately choose to remain small and focused. We review each member of the team to ensure they contribute in new and differentiated ways. We go to great lengths to avoid groupthink and strive to add value in ways that other investors cannot. If you are building anything that aligns with the themes above, we would love to talk to you and hear your thoughts. Our DMs are open, and you can reach out to any member of our investment team via email or Twitter.