Exploring the Intersection of Blockchain and Venture Capital
As with any emergent technology, blockchain’s rise has been marked by rapid shifts from unbound optimism, exuberance, and even hubris to crises of confidence. This isn’t unusual; the early champions of disruptive technology often exhibit striking enthusiasm, particularly when it leads to rapid wealth creation. But all technology follows a lifecycle: initial fervor eventually must give way to a practical understanding of where the innovation fits within the wider tech ecosystem.
Now, as we navigate through the ongoing crypto downturn, we find ourselves at a pivotal point in the industry’s evolution.
For years, the primary barrier to mainstream blockchain adoption has been the readiness of the technology. Despite all the innovations we see across the Web3 spectrum, from wallet technologies to improved L1 and L2 solutions, we still have a long way to go. No network — from a throughput, speed, or cost perspective — can support billions of seamless payments, a game with millions of daily active users, or the constant minting of user-generated assets. However, we’re seeing massive efforts to overcome this barrier, with billions of dollars and incredible teams working toward the future of scalability.
Overcoming Barriers to Mass Adoption
But while progress may seem gradual compared to the hype cycle, the industry is making momentous strides. Over 635,000 Ethereum users bridged crypto assets to L2 networks in Q1 2023, compared to only 15,000 users two years earlier.
The crux of the issue lies in a misalignment between the current state of the ecosystem and many mainstream users. While the former champion the core ethos of decentralization, interoperability, anonymity, etc., the latter seek an effortless, seamless experience rivaling that of Web2 counterparts.
Even the most devoted web3 maximalists should recognize that Web2 isn’t entirely flawed. What it lacks in privacy and security, it undeniably excels in user experience and scalability. Single sign-on, traditional password recovery and other subtle features we don’t often think about are critical to our daily interactions with the internet.
For blockchain to scale to the masses, it’s this user-friendliness that matters most to users, not the underpinning architecture. Just as the knowledge of TCP/IP isn’t necessary to browse the web, users shouldn’t need to wrestle with complex jargon and intricacies of blockchain to use decentralized applications.
While Web3’s core tenets such as decentralization, censorship-resistance, and trustlessness undeniably present a transformative opportunity, their full potential remains confined to a fringe group of internet users. The current inability to capture mainstream attention doesn’t negate their existence or importance but rather underscores the dire need for accessibility and ease of use. Until engaging with Web3 becomes as effortless as that with its Web2 counterpart, the power of these attributes will largely remain untapped by the larger population.
Just as cloud computing and artificial intelligence have become standard tools in a tech company’s repertoire, we envision blockchain taking up a similar role. As infrastructure improves, it will simply become another instrument in a company’s toolbox to achieve its vision—a foundational component that enhances operational efficiency, transparency, and security.
We envision a future where blockchain thrives not as an isolated sector, but as a critical thread interwoven into our broader technology ecosystem.
In due time, the steep learning curve for Web3 founders will begin to flatten. At present, a deep understanding of blockchain architecture is vital for most Web3 founders. However, we see this as a reflection of the current moment, rather than a fixed requirement for the future.
Just as project managers grasp the fundamentals of their tech stack, these founders should no longer need a high-level understanding of blockchain technology.
While nuances and complexities will require additional specialized talent, general blockchain usage will become a shared language for all in tech.
As this transition unfolds, we believe a pragmatic approach is key to driving widespread blockchain adoption, unlocking substantial value, and birthing the next generation of society-defining companies.
Rethinking Valuations
Just as we need to revisit our preconceived notion of what mainstream users want. We also need to have an honest discussion about the methods by which many of these companies are valued.
The maturation of the crypto ecosystem frequently draws comparisons to the early days of the dot-com era. Similar to the fledgling internet businesses that eluded conventional valuation models, blockchain companies present similar challenges. Their startup-esque nature renders multiples irrelevant, and their novelty introduces a fresh wave of ambiguity.
While the unique value created by blockchain innovators is undeniable, the principles of assessing intrinsic financial value remain timeless.
The influx of institutional capital into the industry, coupled with the activation of fee switches, is likely to prompt the adoption of more conventional valuation frameworks, mirroring the trajectory of early internet companies.
Initial focus on growth potential is natural in a budding space, but as market caps skyrocket into billions and trillions, shared valuation metrics become crucial. The industry needs to transition from sentiment-driven valuation to a more rational, intrinsic value-based approach. And despite the difficulty in finding potentially new models, these conversations around understanding how these new-age companies generate sustainable value are becoming more prevalent among investors and founders, signaling a much-needed shift in discourse.
Our investment approach at Corner Capital Management will align accordingly, with a continued focus on ventures that exhibit long-term growth viability, potential liquidity, favorable trading dynamics, and strategic applications of the technology. While holding strong to one’s principles and investment thesis is crucial, the importance of adaptability cannot be understated. Being too early is just as bad as being wrong, but an excessively cautious stance can blind us to potential opportunities for value creation.
In this balance—between unwavering conviction and agile market responsiveness— we find our stride.
This is only the beginning.
