Dialogue with a16z partner Chris Dixon: Encrypted market crashes, how will the future of Web3 develop?

Original title: "Opinion | As Bitcoin Busts, What’s the Future of Web3? And What Even Is Web3?  》

Originally by Kara Swisher, The New York Times

Compilation of the original text: Hu Tao, Chain Catcher

Compilation of the original text: Hu Tao, Chain Catcher

Chris Dixon is one of the most enthusiastic encryption technology evangelists in Silicon Valley. As a general partner of venture capital firm Andreessen Horowitz (a16z), he is currently responsible for leading a16z Crypto, looking for investment opportunities in the Web3 field.

Last week, Bitcoin hit an 18-month low, Ethereum's value has fallen to a quarter of its November 2021 peak, cryptocurrency trading platform Coinbase announced it would lay off nearly 20% of its workforce, and cryptocurrency lending platform Celsius suspended operations. Withdrawals, various black swan events occur frequently.

Kara Swisher：In this context, Chris Dixon recently accepted an exclusive interview with New York Times reporter Kara Swisher about Web3, stablecoins, regulation, and the collapse of the crypto market. The excerpts are as follows:

Chris Dixon：Can you briefly explain Web3, and the difference between Web3 and Web2, can you give a more concise explanation? Maybe this concept cannot be summed up simply, but please try it.

Kara Swisher：Well, in simple terms, Web3 is a whole approach to building a web where the Web3 network is not owned by a company but by a community of users. So, you know, you can have a social network where, through tokens and other types of mechanisms, the community gets the economic advantage of the network, they control the rules of the network, and thus combine the best features of openness, Web3 is like integrating Web1 to Centralized protocols and advanced modern features of Web2.

Chris Dixon：In other words, there will be no Google in Web3.

Kara Swisher：hope so. In Web1, no company benefited from the growth of the Web. I mean, there are individual companies on the web, but no company owns the web, right? Whereas in Web2, you have a set of companies that own the web. And I think we're in an era where four or five companies control most of the Internet. I feel like this is a bad thing for a number of reasons. I think Web2 makes the whole thing less dynamic and less interesting, but I think, more importantly, for creative people, if you do what you do, or if you're an artist, or you're Do -- you are now brokered by these companies and they are very, very good at withdrawing all the money.

Chris Dixon：Well, Andreessen Horowitz will be a big part of Web3.

Kara Swisher：Indeed.

Chris Dixon：Indeed.

Kara Swisher：Yes.

Chris Dixon：Yes.

Kara Swisher：We are part of Web3.

Chris Dixon：However, the crypto market doesn’t seem to be doing so well these days. So let's talk about what's happening now, can you explain the cryptocurrency crash and how you as an investor evaluate it.

certainly. Actually, I mean, I guess the way I see it now -- I mean, no one really has the full macro picture. In my opinion, it’s not just cryptocurrencies that are falling in the market.

I mean, for example, if you look at the high-growth tech stocks, they've actually fallen a lot. I don't know what's going to happen next, but it feels more like 2008 to me, I'd say. It feels like a macro thing, with inflation and everything. Again, I'm not an expert on this. I think the first to be affected are highly liquid, high growth stocks like crypto and tech. So we'll see how it ends. But I do think it's—

Kara Swisher：I think a couple of things are going on. So over the years, cryptocurrencies have certainly been very volatile, no doubt about it. This is an emerging industry category. I mean, we in the VC category put a lot of emphasis on early-stage technologies that are being built that may not be very mature at first, so that's definitely a factor. But I think it's also the whole macro thing, and we'll see how the macro economy plays out in the crypto market.

OK Let's talk about this crypto market crash. Bitcoin and the entire industry you've been investing in has been hit especially hard more than any other industry. Currently, the bitcoin price is around $22,637. (Note: This figure is the BTC price at the time of the interview)

Chris Dixon：In fact, just recently, in November 2021, the price of Bitcoin reached $68,000. At the peak of cryptocurrency, the overall market capitalization was basically maintained at $3 trillion, but now it is only $1 trillion. Incidentally, Ethereum is worth around $1,200, down from November's highs of $5,000. How do you address this as an investor?

Well, we have a VC model, right? So we're not a hedge fund, so we're not going to go buy a bunch of stuff and bet on momentum or something. So we do.

Kara Swisher：By the way, this is a very deliberate choice. We deliberately said that we want to be a venture fund. We want to have a long-term view. Our limited partners (LPs) are the same as the LPs in our main fund, basically with a term of 12+ years. We tell them, look - there's going to be bad news in the market, but I believe in crypto and I'm going to dedicate my career to it, but you should opt in if you want to, and we've actually attracted a bunch of limited partner.

Chris Dixon：So essentially, these guys give you the pocketbook and you take it.

Kara Swisher：You are right. Yes, limited partners are the ones who give us money. So we have a group of investors that have chosen this model. I mean, they're big institutions, I don't know the exact numbers, but they're probably putting 0.1% of their endowment and stuff into these kinds of projects -- they know it's venture capital, right?

Chris Dixon：You guys are already a $4.5 billion crypto fund.

Kara Swisher：Yes, that's the new fund we raised.

Chris Dixon：Focus on blockchain investment?

Kara Swisher：Yes, we just closed our new fundraising.

Chris Dixon：From limited partners?

Kara Swisher：Yes.

Chris Dixon：Yes.

Kara Swisher：Really?

Chris Dixon：Yes.

Kara Swisher：Yes.

Chris Dixon：Don't they see the current disastrous situation in the market, won't they worry and say: Oh, oh, my God, it's not good.

Kara Swisher：In fact, many of our LPs have been working with a16z for over 10 years. We spend a lot of time trying to educate and get people to understand things. I'll be hosting some kind of webinar or something at some point, probably talking to people and things soon. But no, I think our LPs are very patient.

Chris Dixon：So they're not freaking out now? After all, people are afraid of a market crash.

Kara Swisher：not at all.

Chris Dixon：So, are you still bullish on the crypto market right now? Is it time to go the extra mile with your ideas?

Yes, I am very bullish on the crypto market. I mean, the way I look at encryption, you know the history of the Internet and technology, I think of it as two separate processes that happened. On the financial side, I feel that cryptocurrency prices were too high last year, and of course, I feel that they have fallen too low this year. This is my understanding, I am not providing investment advice. But to me it seems very unstable in a way that doesn't quite make sense. In terms of product and technology, what I think about is: what is the pipeline of a good product? How is the infrastructure? Is it constructed? So you think, I put blockchain into history, if you go back to World War II, every 10 or 15 years or so, there is a new wave of computing. I've spent a lot of time thinking about this and reading its history.

Kara Swisher：Each wave has what I call an incubation phase. Taking mobile computing as an example, we see companies like General Magic emerging. I think it was '93 or '94 or something, right? It's that early. I was watching "Die Hard" the other day, and for some -- it wasn't "Die Hard," was it -- "Lethal Weapon."

Chris Dixon：You've seen this before. But let's focus on the news first. I would like to draw an analogy to other things like crypto bank Celsius halting withdrawals for nearly 2 million users, and crypto exchange Binance briefly halting trading. It feels like we've all seen "It's a Wonderful Life," and we know what a bank run is like, right? What do people think when this happens?

Kara Swisher：Well, I think we should talk about regulation, and I think a lot of the issues here are not enough regulation around these things. We're not directly involved with Binance or Celsius or Terra or any of them, but my view is that, in general, we've had very little guidance from the regulators, what they've been doing, is what they call law enforcement regulation. So selective regulatory action, I've been on the board of Coinbase for a long time, and the thing that frustrates me the most is that they spend a lot of time and money to comply, and then there's always some kind of disregard for the rules. Shore competitors. What ends up happening is that, for whatever reason, regulators spend all their time on Coinbase. Let's take stablecoins as an example, see Terra Luna has made headlines, shall we. I think USDC is the gold standard for stablecoins.

Chris Dixon：Explain what USDC is. Is it dollars?

Kara Swisher：USDC is a blockchain token worth $1 because they actually have $1 sitting in the bank, right. And audited. Like, is it perfect in terms of regulation? I have no idea. Maybe they can upgrade a bit.

Chris Dixon：USDC considered one of the safest stablecoins?

Yes. But I mean, they do have a dollar in the bank. This is very, very different from some of these so-called collateral-free stablecoins, which have nothing in the bank. Yes, an unsecured stablecoin is just backed by another token. Then, they had a bank run. So I think that in a sensible regulatory regime, it's the regulator who makes the distinction between those two things, right? They'll say, well, there are rules.

Kara Swisher：If you’re going to call yourself a stablecoin and you’re going to market it and you’re going to say it’s safe — and I think that’s the worst part, marketing to consumers — you need to do something, but the rules don’t does not exist.

Chris Dixon：So, let's talk about 2008 analogies and mainstream cryptocurrencies. To what extent is the current market crash a recognition of systemic risk? Some people liken it to the 2008 financial crisis, do you agree? Some people think that the encryption market is still a small area, after all, real estate is a $43.4 trillion industry, and the market value of gold is as high as $10 trillion. Of course, those have experienced a lot of volatility, especially housing.

Kara Swisher：I think the combined market capitalization of all cryptoassets, including Bitcoin, is roughly $1 trillion as of today, half the value of Apple stock. But, what I mean is that the crypto market is literally insignificant in the global economy, small, nothing compared to housing, credit, stocks.

Chris Dixon：But from your perspective, is this the "2008 moment" for cryptocurrencies?

Kara Swisher：Well, when I did it in 2008, I thought about it more -- I mean, as I said when I was talking to a wider range of friends in the financial world than cryptocurrency, I mean, I haven't seen such negativity since 2008. Like the end of the world. Not sure if you've had this experience, I'm amazed at how negative people are.

Chris Dixon：Yep, is it too early to say how awesome encryption is?

I'm not saying how great encryption is. But look, I thought -- let me say something else, I think in the crypto industry, there are really two factions, right. There is a faction that we think we belong to, which is what I described earlier, the Web3 Builder faction. Then there's another aspect, which I call "the casino." I generally don't like people who bet on crypto, nor do I support them. I don't like these promotional ads, I don't think they talk about innovation, they send the wrong message. I don't think this stuff is good, I don't know if it needs to be regulated or something.

Kara Swisher：I think the core technology is very important and in the short term we need some sensible regulation. I'd like to see balance so we can still build what I've described. We can build social networks and marketplaces and all kinds of new things. And, look, I think that's the most important thing to balance the power of the big tech companies. No other credible disruptive contender - In my opinion, no other disruptive technology in the world right now has a real chance of beating these companies, not Web3.

Chris Dixon：However, Jack Dorsey (what I call a crypto evangelist) is also against people investing like yourselves, he is against centralization.

Kara Swisher：We are being hit from all directions.

Chris Dixon：So let's talk about this idea of ​​fraud and scams. We meet a lot of people who say that cryptocurrency is a massive scam? There are also a lot of plagiarism issues, can you talk about that in detail?

Yes. Look, as I mentioned, I think regulation is going to be good. I think there are many such things. I mean, look, there are a lot of problems. We have maybe 80 crypto investments right now, and they're all real entrepreneurs who could pass any test at any VC firm.

For example, we invested in a company called Uniswap that pioneered this thing called a decentralized exchange. I won't go into details. But what happened immediately was that they were copied, because everything is open source, so they were copied by Sushiswap, right?

Kara Swisher：Meanwhile, Uniswap, they're in -- I'm in New York, they're in New York. They are on the streets of New York. They are all in the office. They're the most serious, geekiest, greatest entrepreneurs you'll ever meet, and they have a team of lawyers. And then they have all these cheating clones, so I think it's necessary. It's frustrating, frankly, but it's also competition.

Chris Dixon：They have to deal with it. You guys actually see it in some of the issues that are at least relevant, like you said, in one of your recent investments, the copycat clone, OpenSea. It's like eBay for NFTs. Blockchain verification is rife with scam cryptographic security holes, but is not actually secure. How do you handle when it's open season like this? What is the mechanism for doing this?

Well, OpenSea is an example. We invested in them about a year and a half ago, and they were 10 people at the time, and they're hundreds of people now. If you go and look at their executive team, they've hired from Facebook, you know, senior people from Facebook, Lyft, a bunch of other places. In 2020, Opensea GMV numbers are low, but in 2021 they have reached tens of billions of dollars, and they are growing at an alarming rate.

Kara Swisher：Look, if you know Devin and the CEO OpenSea, they're very, very serious, well-intentioned entrepreneurs building things as fast as they can. But it's not perfect. It's growing very fast. Look, I'm biased, but I feel like some of the coverage only focuses on the negative stuff.

Chris Dixon：Can you explain to someone who doesn't know what a DAO is?

Kara Swisher：Of course, a DAO is -- a Decentralized Autonomous Organization, basically a blockchain-based internet-native organization that can -- whatever the organization can do. They can create software, they can, you know, play esports, they can do anything. But they are a bunch of people who come together.

Chris Dixon：community get together

Kara Swisher：Yes.

Chris Dixon：Yes.

I think it's pretty cool, when you think about it -- to me, Wikipedia is one of the greatest wonders in the world. In fact, a group of people on the Internet who are completely anonymous can come together and create what I think is a very good resource of information.

Kara Swisher：I think uh, it's a miracle we have this "crowdsourced" encyclopedia now, but Wikipedia is short of money every year, right? Thank God, Wikipedia as a product doesn't really need any product development. Yes, if they tried to build a search engine like this, they would end up spending all their investment and lose the game. So DAOs are exciting, we now have a great internet-native behavior, a bunch of people coming together. Unlike in the past, they can now have the resources and it's an investment opportunity, that's how I see it.

Chris Dixon：Anyway, Chris, thank you so much for the interview, I really appreciate it.