Foresight Ventures: Bear Market, Back to Paradigm-Changing Formula for Investment Opportunities
Author: Forest, Foresight Ventures Co-Founder
Foresight Ventures is an institution focusing on Blockchain and Crypto investment. This article uses a lot of cases from traditional industries, because we believe that Crypto is a constantly innovative industry, and various unprecedented technology stacks and application stacks will be born. Neither referring to previous crypto cycles nor referencing traditional companies is perfect. At present, projects in the encryption industry are overly obsessed with Tokenomics or Ponzi's design, and are keen on dumping Token and auctioning NFT. Returning to the essence, we try to return to the needs of human nature and the law of innovation to find possible investment opportunities.
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The formula for paradigm change has been continuously verified more than two hundred years after the first industrial revolution occurred in 1769, steam engine, alternating current, Internet and Bitcoin.
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Requirements and Technology Cannot Succeed Alone
Amazon, with a market value of 1.5 trillion US dollars, was the first company to sell books online. Bezos found that the book market is huge, but the concentration is very low, and the cost of middlemen and physical stores is high.
The needs of users here are: 1. Lower price; 2. More bibliography; 3. Retrieve bibliography faster.
And how does technology match these needs: 1. Internet business does not require physical store costs, and bears less labor costs; 2. Compared with the limited area of physical bookstores, the storage space of the Internet is almost unlimited; 3. Electronic retrieval Infinitely shortens the time to find a bibliography.
ByteDance, the world's largest unicorn, and its subsidiary Tiktok already generate more revenue than Twitter and Snap combined. The original intention of founder Zhang Yiming was to use algorithms to push content to users. He tried comics, jokes, news, and short videos, all of which achieved varying degrees of success. Among them, the short video app ushered in a new era of the Internet.
The needs of users here are: 1. Diversified content; 2. Content that carries more information; 3. Content that meets their preferences; 4. Social relationships based on preferences.
Zhang Yiming did not get the approval of many VCs when he first raised funds. Shen Nanpeng said in the interview that there are two main reasons: 1. The algorithm-based content recommendation model has not been successful before. 2. Other giants are trying to do the same.
The success of ByteDance is inseparable from technical support: 1. Zhang Yiming has developed an algorithm that better meets user needs. 2. 4G brings faster network experience and makes it possible to watch short videos online. 3. Short videos carry more information than text, pictures, and sounds. 4. High-frequency content loading can allow the algorithm to obtain more data, thereby quickly optimizing the push results.
From these two examples, it seems that technology determines whether a paradigm change will occur. This is what we often say that a technological revolution brings about a business revolution. Let's find some examples where even though the technology was adequate, it still failed due to lack of demand.
The Segway self-balancing car was discontinued in 2020 because a reporter drove it over the sprint world champion Usain Bolt during the Beijing Olympics
Various new medical devices have not been recognized by the market, largely because doctors need more patients, not cooler operating roomsThe biggest reason is to develop products hastily without analyzing the needs, accounting for 42%.
Narrative is the bond of human society
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1. The importance of narrative
First citing Everett Rogers' innovation diffusion theoretical model, users will experience a process with a slope from low to high and then decreasing from awareness to adoption. In a complete innovation cycle, diffusion is also a spiral.
Narratives are crucial in the transformation of human society. Narratives are the basis of trust in social organization, and Yuval Noah Harari writes in his book "A Brief History of Humanity" that Homo sapiens could communicate what exists and what does not exist through language 70,000 years ago. Narratives make people believe in gods, and they can also work for bosses they don't know. Narrative is also a core way of human knowledge transfer and storage. Through continuous repetition and inheritance, narratives are continuously strengthened and guide human behavior. The humanistic spirit and Confucian culture of ancient Greece still have a huge influence on the countries, governments and industries of the East and the West.
In the Crypto world, Narratives capabilities are also often mentioned by us. Gavin Wood created the term Web3 in 2014. During this period, pioneers represented by Chris Dixon continued to explain and strengthen this term. For example, Polkadot, Dfinity and other entrepreneurial projects continue to use actions to realize this vision. There are also concepts such as Metaverse, DAO, Ownership and the most important Decentralization.
Let's analyze the process and details of BAYC's narrative: born from the rebellion of the new Web3 force against the traditional world; attach importance to brand membership; expand ecological content; give commercial use rights to NFT owners; airdrop NFT and issue Apecoin; mergers and acquisitionsMore NFT IP; create Metaverse, Game and Movie; develop public chain and Marketplace, etc.
We have to admit that in the secondary market of the bull market, the price performance can even be said to be mainly driven by narrative. It can rely on narrative to support a market value of billions of dollars without products and actual users.
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2. How to narrate
What is a good narrative? Be concise and engaging.
What is a bad narrative? Lack of focus, pain points not addressed, hard to understand.
We can see that the narrative of even the largest corporations in the world can be summed up in one sentence:
Apple: Make products with world-class design and protect user privacy.
Alibaba: Let the world have no difficult business.The ability to tell a story often has a major impact on its valuation.
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3. Narrative is not a panacea
We must realize that narrative is important, even sometimes more important than data in driving capital market prices. But narrative alone cannot truly bring about a paradigm shift. We understand that in the last cycle, projects such as on-chain exchanges and blockchain games have appeared, but they were not successful at that time.
Allow me to use Loot as an example of a failed narrative. Loot can be said to be an absolute phenomenal product in 2021. Its rapid rise and numerous supporters have left a deep impression on people. Multicoin Capital invested tens of millions of dollars, and it has fallen by 95% today. At this point, we can say that Loot failed to a degree.
Loot's narrative is indeed interesting: giving the community open access to creation from the bottom up.
Players also have many praises for it:
Ethereum in NFTs
Decentralized Fundamentalism
Unlimited Compatibility and Scalability
Within a week, the price rose from a few hundred dollars to tens of thousands of dollars, and soon spawned a series of derivative projects such as Rarity, Loot Realm, TreasureDAO and so on.
Why did Loot fail?
As an asset, the fork threshold is too low, and it is even easy to create a better Loot
Difficult to form consensus in a chaotic community
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Technology iterationRome was not built in a day, and the paradigm shift also took place after twists and turns, and finally reached the critical point.
The iterative ability of technology will significantly affect its large-scale application, and may even be replaced by other technical solutions.
In the 1980s, Nikon once occupied more than 50% of the lithography machine market. In 2020, Nikon's market share is only 8%, and ASML accounts for more than 60%. EUV lithography machines are only produced by ASML. In 2004, ASML cooperated with TSMC's Lin Benjian to boldly try immersion lithography (Immersion Lithography), shortening the wavelength of the 193mm light source to 132nm in one fell swoop. Nikon is more conservative in the innovation of architecture, the wavelength of the new product is only 157nm, far behind. In this example, Nikon has stronger technology accumulation and production capacity, but failed because the iteration was not open enough.
The development of VR equipment can better reflect the impact of technology iteration speed on large-scale applications. Regardless of the products of the last century, Oculus Rift came out in 2012. Countless developers have worked hard for ten years to create excellent products such as HTC VIVE and Valve Index. But today, VR devices are still not as popular as mobile phones and TVs. Excessive volume, low resolution and frame rate are the main problems affecting the experience. Even though we are sure that VR devices will be the mainstream of future interaction, the speed of its paradigm change is severely restricted by the power of technological iteration.
The development of technologies such as Blockchain expansion will also dominate the development of upper-layer applications and the speed of user acceptance. At present, there is a big gap between the TPS and Finality of Blockchain and the centralized server.
threshold
Here we mainly discuss learning threshold, usage threshold and conversion threshold.
Learning threshold: the difficulty for users to go from 0 to mastering the basic ability to use the product.
Use threshold: the cost of time, money and other conditions that users need to pay for using the product.
Switching threshold: the cost that users have to pay and the price to give up when switching from other products to this product.
Stepn is an excellent example here. The learning threshold of Move to earn is 0, everyone can walk, and the running habits of people in different countries are not much different, and the operation of the app is not particularly difficult compared with traditional running apps. The main usage threshold for users of Stepn is the money cost of buying running shoes NFT, and the price of NFT is usually 1-2k US dollars. Of course, if users want to upgrade or buy rarer NFTs, they will need to spend more. The cost of entry is acceptable even for non-Web3 users. This is an important reason for Stepn's success. Not all business models can apply the Web3 model in this way.
However, the conversion threshold of the Stepn model is not high, which is a challenge for its user retention. When facing similar competitors, users only need to sell the NFT and download a new app. Of course, competitors may not have better anti-cheating, economic models, and more stable yields. I am just saying that when users want to switch to a new app, their actual cost is lower.The iPhone has a very high switching threshold. Most people think of Apple as a hardware company, but I thinkAs we all know, IOS is a relatively closed system, which has an independent operating system, development language, office and entertainment suites. More importantly, its iCloud service saves user data, which not only backs up photos, but also records user behavior habits. When users change to a new iPhone, they can seamlessly switch through data replication, retaining all the original habits and experiences. But switching to Android is difficult, meaning it takes weeks for users to learn how to use a new device.
In the past, Uniswap was also challenged by the low conversion threshold. Sushiswap launched an LP attack, and in a short period of time, it robbed most of Uniswap's LPs through incentives. As a result, Uniswap had to deal with the competition by issuing Token. With the launch of Uniswap V3, Uniswap did not open source its code, which raised its conversion threshold, higher capital utilization, better reputation, and established a stronger moat.
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Looking forward to the occurrence of paradigm revolution
The paradigm revolution will be a revolution based on the technical characteristics and human needs of blockchain and Crypto.
The technical characteristics are: decentralization, interoperability, programmability, and composability.
The needs are: ownership, asset protection and appreciation, speculation, Showoff, privacy, etc.
Let's use the first principles to imagine what Crypto's underlying paradigm revolution might be:
lower cost of customer acquisition
lower transaction costs
Resilient, unmanaged runtime
Open Protocol and Composable App
Token-oriented programming
User owned platform, assets, data, identity
An immutable trust system
new source of income
new stable currency
new organizational form
etc.So far, this paper has completed the analysis of the paradigm change formula. We have just experienced the super deleveraging of luna, and many people are very frustrated, but as long as we return to the thinking of paradigm change, this is still the most promising industry. We will re-experience the resonance of capital cycle, innovation cycle and talent cycle.
https://en.wikipedia.org/wiki/Diffusion_of_innovations
https://novuminsights.com/post/deep-dive-into-polygon-or-ethereum-off-chain-scaling-solutions/
