Welcome to Immersion — your gateway to the new Exponential Age. Written with love for the multiverse creators, AR/VR architects, blockchain developers, crypto investors and web3 visionaries of the world.
Time is opportunity, so let's dive in.
[•] Super talented people are leaving their cushy big tech jobs, consulting gigs, banking bonuses and finance careers in droves to join the burgeoning web3 space full-time. Is this the beginning of a paradigm-shifting revolution, or a short-lived fad soon to deflate?
Let's start with the Captain Obvious in the web3 room.
There are many incontestable reasons as to why interest in the space has skyrocketed:
Unyielding FOMO (Fear Of Missing Out). People all over the world have been attracted to the extreme price jumps of various tokens during the latest crypto super-cycle, as well as to the stories of overnight millionaires that were born after making the "right bet” early-on. Crypto FOMO is real. The perceived possibility of scoring a 100x or even an 10,000x return on one's investment can be very enticing for anyone, especially for small retail investors faced with few good investment options and banks that provide interest rates near zero for deposits. The euphoria that follows when people believe they can make millions selling JPEGs of some ape is infectious — and will remain so while the music keeps on playing. Irrational exuberance, after all, is a thing.
Unprecedented liquidity. The amount of money flowing into crypto in the past few years — towards tokens, projects, startups, research vehicles, and even the slightest secondary exposure to the space — has been extraordinary. VCs all around the world are raising record-breaking new funds dedicated to crypto, web3 and the Metaverse, trying to capture as much out of this emerging new "land of opportunities” as possible. Slowly and cautiously at first, then fast and impulsively later, institutional investors have also joined the crypto game exhibiting a newly-found rapacious appetite. Pension funds, funds of funds, insurance companies, investment banks, growth equity funds, even private equity groups — they all are now rushing to invest in an area that was considered untouchable only a decade ago.
Stratospheric valuations. In 2021, global VC investment in crypto exceeded $33.8B with a total deal count surpassing 2,018 — both new records in the space and well-above their prior all-time highs. "We are still early” is the new mantra many investors keep repeating almost in cultish unison in an effort to not only raise their fresh funds, but also justify sky-high (and often, completely unreasonable) valuations. Contrary to the barren investment land of the last crypto winter, when some of the most innovative startups in the space struggled to even raise their seed rounds, massive checks are now being thrown out almost indiscriminately to any flashy project with the magic tagline to their pitch: “crypto”, "NFT”, “Metaverse”, "web3” or "decentralized”. The difference between the pre-money valuations of crypto-related startups compared to all other VC investments is mind-boggling, reaching +141% in Q4 of 2021.
Ginormous Salaries. Extraordinary activity in the blockchain space has translated to increased demand for people with relevant skills in crypto. Together with liquidity and startup valuations in ballooning, web3 salaries have also “gone to the moon.” The rush for talent has led to offers of ridiculous compensation packages in both fiat and tokenized form, primarily for technical talent (e.g. Solidity, Rust and Vyper developers) currently experiencing a unique supply crunch, but also extending to non-technical talent (e.g. bizdevs, but also community-focused roles, such as discord managers and meme-makers).
All aboard the web3 hype-train!
If you noticed a slightly negative tone in the descriptions so far, this is because the unfettered hype-train sweeping over the web3 space today is neither healthy nor sustainable — at least not in its current form. A good chunk of cryptoeconomics today is nothing more than pure ponzinomics, plain and simple. Pump-and-dump schemes and rug pulls have become rampant across the entire tokenized landscape. Zero-value protocols are employing every trick in the Multi-level Marketing (MLM) playbook to entice gullible new users to buy in. Shillfluencers are promising that you will bathe in riches, if only “you buy into this hot new NFT collection” — in which they just happen to have a massive stake on. It is as if we learned nothing from the ICO bust.
These are all sad, yet very much real parts of the ecosystem today. But is this bulk of crypto-craze noise, speculative self-enrichment and outright scammery in fact covering every single corner of the market? Is this what we should all be paying attention to? And will it win over the long-run? In my opinion, the answer to each of these questions is no.
Not everything that shines is gold. But when you find nuggets of gold, keep digging.
Despite the evident shortcomings of the space, there remains an impressive cluster of golden nuggets being created in web3 today, in both number and quality. After all, the exploration of these meaningful contributions constitutes the very purpose of this newsletter. I will not touch on these here, but you are welcome to read the previous (and future) issues of Immersion to make a personal judgement on whether or not they even exist in the first place. My view is that they do. What interests me more today is to investigate the less obvious, yet highly consequential reasons that have pushed a massive wave of very different, ambitious, forward-looking and exceptionally smart people to drop their previous (often, prestigious) careers and dive into the web3 space en masse. I think this is the part that we should all be paying closer attention to.
Going one step deeper than recognizing the fad-like elements of the space, these are some of the underlying motivations behind the “great web3 migration”:
The possibility of building a better future. Blockchain (as a technology) is certainly not the panacea many of its zealots argue, web3 (as a space) has still some way to go until it could (potentially) prove beyond reasonable doubt many of the use-cases its builders envision creating, and the Metaverse (as a concept) is still nebulous enough to be understood in concrete terms by an average observer. And yet the growth mindset and forward-looking potential discernible in the wider ecosystem acts as a refreshing inspiration for many people looking to do good in this world, on both a personal and professional level. The web2 world (in big tech), the TradFi route (in banking and finance) and the consulting path (in the “pretend-management” sector) are currently rife with people problems. Overworked, burned out and in search of a higher (personal) purpose and wider (professional) impact, many of the talented young folks that used to throw themselves with vigour into these jobs are currently finding very little in terms of inspiration in these work environments. High salaries and promises of fat bonuses are not enough to entice them any longer. They want to feel like they are working towards something meaningful instead. This feeling has been severely exacerbated by the pandemic blues, which have forced a re-evaluation of how many of us view the world and our place in it.
The promise of renewed digital ownership. In web2, everything that users read, write or share in the digital sphere is typically owned by the respective tech company providing the underlying platform. Users (co-)create value in these platforms but either do not capture any of it or end up keeping a fraction of their work; often, they might even be denied access or even end up losing major part of their contributions due to whimsical decisions of the companies themselves. The power imbalance here is quite clear. In web3, the ability of users to control their participation and retain ownership of their digital assets/footprint becomes a fundamental guiding force of the space. Simply put, web3 empowers its participants to become owners of their own data, contributions and interactions, as well as retain an active stake (as opposed to watching from afar or participating without gaining anything) in an ecosystem of new digital opportunities. Ultimately, this also means greater autonomy for all stakeholders involved, especially users and creators.
The gradual fusion of our physical and digital identities. Little by little, our physical and digital worlds are becoming more and more intertwined. The future looks increasingly “phygital” (physical + digital), with our digital identity (or identities) gaining higher importance, new relevance and brand potential in both our social and professional life. While this intermixture does not come without its problems, it will be important to understand its driving forces and repercussions, especially in the context of a growing Metaverse. Moving from a landscape where most game development studios control the entirety of one's possessions and interactions within the virtual worlds they create, to one where users not only own but can also transfer their digital identity, reputation and assets across different digital and IRL settings, will be revolutionary. On-chain mechanics will help facilitate this transition, as well as enable the smoother interconnection between our physical selves and our digital instantiations. Younger generations (primarily Gen-Z and Millennial gamers) seem to get it, which is why so many people are now creating or joining projects that combine gaming, blockchain and AR/VR.
The emancipatory potential of open finance. Open financial structures leveraging blockchain technology allow us to reshape the historic model of middlemen (i.e. banks) in the global financial system with one of middleware (i.e. on-chain infrastructure and tools). A significant portion of the world's human population, especially in lower socioeconomic strata and across emerging markets, is denied fair and easy access to global financial instruments and pools of capital. Insurmountable credit checks, unreasonable transaction fees, extremely low interest rates on deposits (which are ridiculously high on loans), unclear framework and hidden costs on remittances — these are all typical problems still faced by billions of people on earth. Transparency, accessibility, affordability and speed — all fundamental precepts of open finance that can be empowered by blockchain — are key to unlocking a greater but also more equitable share of the wealth created in this planet across the entire world.
The power of open-source lego building-blocks. The intersection of transparency, composability and community is extremely powerful. The idea of money legos as interoperable on-chain building blocks has been already very popular in DeFi, but it extends far beyond just that. Smart contracts that are open-source, upgradable, executable on top of blockchain protocols and interoperate with each other can apply to many more cases than just financial instruments. For example, in sharing and improving on AI / ML / deep-learning models, building game engines and economies that will allow different virtual worlds to connect with each other, or even creating on-chain knowledge hubs that can be forked and extended. The opportunities here are endless, which is why so many developers have been rushing to learn how to build open and composable structures, with DeFi being the first use case. This open-source mentality has also trickled down to the investing landscape. Paradigm's model of bridging VC with R&D products that are open not only to their portfolio companies, but accessible to the entire community of web3 builders, and can be used (and iterated on) by just about anyone is, well, truly paradigm-shifting (pun absolutely intended). No wonder Paradigm has been so influential in the web3 space, attracted such great talent, built a fanbase of dedicated supporters and has already started inspiring interesting copycats.
The (new) new land of opportunity. In web3, nobody cares about who you are and where you come from. What people look at is what you do. Eponymity, academic credentials and prior experience matter little (if at all) in this space; what matters more is the quality of your GitHub commits, the level of your on-chain contributions, the number of your protocol governance voting participations, the ubiquity of your DAO involvement and even the engagement generated by your memes. Web3 has a level playing field. All you need to get yourself going is merely dive in, start learning and begin contributing in areas that you like and/or think that you can add value. With the rising re-evaluation of credentialism and the student debt crisis (especially in the US), the opportunity to build something (or become someone) great simply by virtue of one's passion for the on-chain digital world is quite enticing for bright young people. There is no better example than the hiring of transmissions11, an anonymous blockchain developer and researcher still in high-school, by Paradigm, arguably the best web3 building and investment house in the world today. Amazed by the quality of his code, they went on and hired him. While a general background check might have taken place, his age, gender, location, education or experience played zero role. All that mattered was his (anonymous) twitter presence, impressive GitHub commits and value-adding projects. The web3 space is full of similar stories, which are multiplying in number every day.
The inversion of anachronistic work paradigms. While the web3 space is still full of mumbo-jumbo, one thing it largely avoids is silly working rules and habits that simply do not make any sense, especially in a post-pandemic world. Most startups and projects in web3 could not care less about having their employees clocking in hours, staying up late only to be pretending to work, or even be physically present regularly in the same office so that middle-managers can feel they can exercise greater control over their teams. There is this indelible sense of freedom in knowing that you can join this space and do your work from anywhere in the world. Moreover, web3 startups typically operate and market their brands in a less pretentious, more quirky and quite laissez-faire way that is high on memes and low on typical corporatism. These are important distinguishing factors, particularly for younger generations deciding what they want to do with their lives. Gen Zers are much more willing to expose themselves as they are, which is why they typically prefer raw videos on tiktok over rehearsed photoshoots on instagram (or well-orchestrated marketing campaigns), and this is also why their self-deprecating meme game is so strong.
The web3 brain-gain is real.
Looking at the TrueUp Crypto Job Report for March 2022, we see 12,000+ crypto-related jobs open last month. The two most common programming languages in blockchain development — Solidity and Rust — both exhibit very strong growth in the latest issue of RedMonk's programming language rankings. As Tomasz Tunguz aptly observes, Solidity appeared on the chart for the first time ever, while Rust ranks 19th and constitutes one of the the fastest-growing languages out there.
According to Electric Capital, which tracks web3 code repositories and commits for its annual report, there are now more than 18,000+ monthly active developers in web3. A wave of developers is leaving web2 for web3, many of them having made the jump only in the last year, attracted to the innovation and wealth of opportunities that have emerged in the space. Naturally, all sorts of talent is being poached from big tech to join new web3 startups.
Some of the best universities in the world have added a range of blockchain-related classes in their curricula and are trying to find ways to integrate them further with design, AR/VR and entrepreneurship courses. Business school students are forgoing lucrative offers in banking, consulting and even big tech, opting to start a career in web3 instead. I have witnessed both trends firsthand within the rich web3 ecosystem at MIT, which has produced amazing new startups and enabled recent graduates (including many MBAs) to join top new projects in the space.
Current and former Wall Streeters are pivoting towards investing full-time in crypto, gaming and the Metaverse. With bonuses paid for the year, many GS & JPMorgan quants keep leaving for crypto. Banking executives are also leaving their TradFi roles to jump into web3 — in Citi alone, at least 15 employees have left the bank to join digital asset-related startups in the past year. As finance firms have added 3x the staff for digital currencies in 2021 as they did in 2015, the crypto-induced brain-drain is making Wall Street worry.
So, what does this inflow of talent look like once they cross the rubicon? It looks like web3 startup builders, blockchain developers (Solidity masters as well as RUSTaceans), DeFi degens, artists, designers, AR/VR specialists, multiverse game creators, cryptographers, security experts, DAO governance delegates, protocol specialists, Dune wizards, on-chain data monkeys, crypto analysts, community managers and even memelords (who have taken over traditional marketing functions).
As more opportunities are gradually unlocked thanks to blockchain technology, new types of roles are created every day.
From believer in skepticism to skeptical believer.
If you have read this far, I would like to share a personal story. Looking at the crypto space from many different vantage points, I used to be a big skeptic for quite some time. This is why I understand much of the distrust and cynicism towards web3. Wearing my old social scientist hat, it was hard to square my training in model validation and causal inference with the low-in-facts but high-in-promises "fake-it-till-you-make-it” mentality so prevalent in crypto.
Coming from the world of value investing, it was also difficult to understand a market in which fundamentals did not really make much sense and where they were even often readily dismissed (this was before the memestock revolution, which introduced me to the magical field of alphanomics).
My first lesson in finance was that "past performance is not a guarantee of future results” and yet many people in crypto seemed awfully ready to accept any predictive model, as long as it promised that the value of their tokens would go up. If one behavior or result was true in the past, there was no conceivable universe in which it would not hold true (and repeat itself) in the future as well. This really baffled me for a long time, especially given my interest in the history of manias, panics and crashes.
Finally, having had the pleasure to work with exceptionally talented techies and engineers in the startup world, it was often brought to my attention that blockchain seemed more like a hammer looking for a nail, rather than a valid solution to an actual problem facing the world. For a number of projects in the space, I think this definitely holds true even to this day.
This healthy dose of skepticism remains part of my mental model in trying to better understand the web3 space. But, I am also quite optimistic, and increasingly find myself in good company. Cutting through the noise, the fads, the hype, the scams, the pump-and-dump schemes, the rug-pulls, the shillfluencing, the Miami/NYC bubbles, there are some truly ground-breaking projects that seem to perfectly capture the zeitgeist of our time but also our common future. These are the golden nuggets of web3 and the reason why I believe we will keep seeing super talented people flowing in, even when we reach the inevitable (and imminent) crypto winter stage of this cycle.
Wanna learn more about these golden nuggets? Subscribe and stay tuned for more!
Media Watch Post.
Bloomberg talked about the BAYC discord hack, Miami as the crypto capital of the US, FTX founder SBF wanting to give his fortune away and the dangers of India's new crypto tax plan. CNBC wrote about Terra Luna and the stablecoin issuer purchasing billions of dollars in Bitcoin. Yahoo reported that ‘Entourage’ actor Adrien Grenier is bullish on crypto. WAPO investigated why Binance users are pushing back against the world’s largest crypto exchange. FT claimed that the UK risks undermining crypto consumer protection. The Verge reported on the Epic and Lego partnership to build a Metaverse for kids. Rolling Stone asks whether we are on the brink of a virtual artist revolution at the intersection of music and the Metaverse. Forbes talked about the UK's post-Brexit crypto plans, companies leveraging web3 technologies and why Tommy Hilfiger’s CEO loved Metaverse fashion week. WSJ reported that short sellers are betting against Tether. VentureBeat said that DAOs could revolutionize startups. TIME talked about the online crypto scam boom.
🏅 Biconomy $2M Community Grants Program. Biconomy is offering $2M in grants over the next 6 months to support projects that help increase web3 adoption.
🏅 Axelar Bug Bounty Program. Win up to $1M in rewards (distributed according to the impact of the vulnerability discovered) to help make Axelar's network even safer.
3️⃣ The New Creator Economy: A guide on Web3 creator platforms. A comprehensive report by Antler on the new type of creator ownership empowered thanks to Web3.
⛓️ How to stake on Ethereum. Great reddit post on what it means to stake on the Ethereum beacon chain in April 2022. Lots of good information, worth a read.
⛓️ Unstoppable Finance Statement on the Critical EU Vote on DeFi Wallets. The case against the EU crypto regulation that was passed recently.
📕 Metaverse and Money. Long report by Citi on the growing Metaverse industry, full of interesting explainers, data and graphs.
📕 Analyzing Voting Power in Decentralized Governance: Who controls DAOs? An empirical study of how voting power is distributed in Compound, Uniswap and ENS.
★ [Metaverse] Dreams (video game creation system and service)
Disclaimer: Nothing written in this newsletter is in any shape or form investment advice. Content is for informational purposes and only reflects the views of its author, if at best.