OlympusDAO, Byju's, NFT & ICO Pricing, Chinese Semiconductors and European Start-up Strategies
The Tech Tok Weekly #27
Happy Monday!
Join the Queen in hailing the Lord. The English cricket team sure did.
Monday Musings
I seem to speak a lot about antitrust on here, probably because I believe it to be one of the first steps towards creating an equitable environment for consumers, developers, and every aspect of the tech ecosystem. I also (non-hyperbolically) believe that fair prices and free competition are integral to the creation of the Metaverse, or even something close to it. Apple’s recent settlement with developers is not promising, even though it may seem to be on the face of it. All Apple did was agree to keep its commission rates flat for 3 years, allow developers to sell apps at 500 different price points, and pseudo-momentously, let companies send an email to customers telling them about ways to pay other than in their iPhone app. The decision only serves to cement Apple’s power by letting it pass off a settlement that does not significantly impact its bottom line as a major concession, and the perception of Apple having compromised could serve to appease lawmakers and curtail any traction towards further action. The sterility of this decision reinforces that a groundswell of grassroots support is necessary for any meaningful action to be taken against big tech monopoly, and this can only be done with the support of the wider public. This, however, may be too idealistic a take – the large pockets of big tech combined with the relatively positive public perception that Apple and Google have may be a mountain too large to scale in the near term.
Meanwhile, this week…
OlympusDAO attempts to create a stable non-USD pegged stablecoin, Byju’s toxic culture signals that a sea change is needed in India’s EdTech sector, and Vitalik Buterin provides solutions to pricing NFTs and ICOs at below optimum prices. Also, China’s path towards semiconductor independence may be fraught, and Europe’s top tech start-ups follow either a network, scale, product, or deep tech based strategic play to win.
The pre-eminency of the dollar has led to DeFi today being heavily dependent on dollar-pegged stablecoins, a deeply ironic situation when the foundation of DeFi was born out of a desire to de-dollarize. The OlympusDAO protocol was created to solve this problem by virtue of its non-USD pegged, fully backed, algorithmic, and free-floating stable asset, OHM. OHM is fully backed by a >$70 million treasury of cryptoassets (DAI, FRAX and SUSHI), with each OHM issued backed by $1 in collateral, with treasury assets keeping the price as close to $1 as possible. Largely, though, the price of OHM floats and is determined by the market.
OlympusDAO’s immediate objective is to grow OHM supply through staking and bonding. 93% of OHM supply is staked today; holders can lock in their share of the total supply, avoid dilution, and obtain high returns via sOHM tokens plus 90% of the yield generated by the assets in the treasury, which aids in offsetting the current high price volatility of the OHM token. Bonding involves users selling assets to Olympus in exchange for discounted OHM that vest over 5 days; via bonding, OlympusDAO accumulates more assets and grows its treasury, and owns and controls its own liquidity.
It will be fascinating to see how the OlympusDAO project evolves, and whether it provides a building block to the creation of a stable, non-USD pegged token that can be used across the DeFi ecosystem.
Since each OHM only needs $1 in backing, and each token in circulation currently has more than that in backing, the protocol is able to use these excess assets to issue more tokens. It also means that as the value of the treasury grows, so does the ability to mint OHM and continue to pay out high yields to stakers.
#2 Hard Sells and ‘Toxic’ Targets: How Indian EdTech Giant Byju’s Fuels Its Meteoric Rise
For the longest time, the EdTech sector has had a halo around it. Democratising access to education, providing it at cheap prices to lower-income consumers, and gamifying learning to make it more interesting – what’s not to like? Well, the answer is almost everything else, exemplified by India’s EdTech behemoth, Byju’s. Valued at $21 billion with 100 million users and 6.5 million paid subscribers, Byju’s tyrannically rules the Indian EdTech scene. The company’s internal culture is based around profiling clients, hard-sell tactics, and unattainable targets that mean selling products to underprivileged families that cannot afford them. Byju’s collected extensive data on its users to adjudge their socioeconomic status and tailored pitches accordingly to make low-income parents sign up and keep paying even if the products are beyond their means. They partnered with local lending companies to do so, with a number of users unaware about being signed up for loans when they subscribed. They also made it hard for people to get refunds, with users getting to the end of the 15-day free trial period and being unable to opt out. With the clip at which Byju’s is buying new start-ups and eliminating competition, the EdTech space in India looks to be veering towards a monopoly, which will only serve to worsen the current state of the industry. It is clear, then, that the sector is in heavy need of supervision and regulation, and reining in Byju’s influence would be the first step towards making EdTech in India more equitable.
Two former sales associates said that they were told to ask children questions to make them look “bad” in front of their parents on field visits, where they’d meet potential clients in person (or via Zoom during the pandemic). “If their parents weren’t literate,” said Ameer, a sales associate, “we’d ask them questions that looked easy, like, ‘Which is bigger: one over two or one over four?’ … [A younger] child would say one over four.”
As we’ve seen throughout history, when there is a fixed supply to sell of an item that is in high demand, humans tend to set a price lower than the market-clearing price (i.e., the price at which the amount that buyers are willing to buy exactly equals the amount the seller has to sell). This results in the item rapidly selling out, with sellers not obtaining maximum possible revenue, and many buyers who would have paid a higher price have no opportunity to get the item. Both with ICOs and NFTs, sellers priced items at below-market-clearing prices to be fair, not lock poorer people out, and due to the ‘pop’ effect – sellers want the prices to go up for buyers to keep them happy.
Vitalik Buterin suggests some solutions:
Each verified participant buys up to X tokens at price P, and can buy more in an auction;
If more people show up than the pool can allocate tokens to, then each verified person makes a deposit into a smart contract to declare interest for up to X tokens. Each buyer gets an allocation of the minimum of X and N (total amount sold through the pool) / total buyers. The deposit going above the amount needed to buy their allocation is refunded to them.
For fixed, limited-supply NFTs, a system can be implemented where potential buyers buy lottery tickets where the chance of obtaining the item is N (total items sold) / total buyers, and losers get a refund.
[ICO] sales would often end in as little as 30 seconds. As soon as (or rather, just before) the sale starts, everyone would start sending transactions in to try to get in, offering higher and higher fees to encourage miners to include their transaction first. An auction by another name - except with revenues going to the miners instead of the token seller, and the extremely harmful negative externality of pricing out every other application on-chain while the sale is going on.
#4 China, Semiconductors, and the Push for Independence - Part 1
Xi Jinping’s repeated calls for ‘common prosperity’ over the last month combined with the crackdown on Chinese tech and industry due to national security concerns signal a China aiming to become completely self-sufficient and move away from any dependency on the West. The 14th 5-Year Plan emphasises complete self-reliance for the manufacture of semiconductors, and suggests building a near end-to-end chain locally due to chips being a chokepoint that the US has over them. This, however, may be very tricky.
The first obstacle is expertise. The semiconductor industry is characterised by high CapEx, cyclical investment, and extremely sophisticated processes, where very few companies have the resources and knowledge to compete. Because of the atomic size of many of the nodes in a chip, the companies handling them have unreplaceable expertise in their domain. Foundries where chips are made need equipment, processes, a large talent pool, clients, and expertise, all of which China does not have.
Secondly, China needs to be self-sufficient in both, producing foundries and the equipment they rely on (semicaps). Only two of the five semicap firms are outside the US – Tokyo Electron and ASML – and due to ASML’s reliance on American parts, it has been forbidden from selling equipment to China.
To create a semiconductor supply chain, China will need to circumnavigate its lack of expertise and a difficult oligopolistic industry controlled by geopolitical concerns. These barriers seem enormously difficult to navigate and indicate that China has no option but to rely on the West to power its vast compute needs.
[China] have also made it evident that they are looking to lead the world in AI and industrial automation. This makes semiconductors not just their biggest chokepoint should international tensions exacerbate, but also their biggest constraint in achieving their tech growth goals.
#5 Winning Formula: How Europe’s Top Tech Start-Ups Get It Right
McKinsey’s study of the top 1,000 European tech start-ups founded after 2000 highlights that successful companies follow four core (not mutually exclusive) strategic growth paths: network, scale, product, or deep tech.
Network
Start-ups focusing on network effects become more valuable as they gain users and drive product adoption and usage. Example are marketplaces, social media companies, and mobility start-ups. It is crucial for them to win local markets one-by-one and not attempt to grow globally in one go. Winning market-by-market is exemplified by e-scooter players like Tier, who adopted go-to-market strategies specific to each new city to beat competition from global but less bespoke players like Lime.
Scale
They aim for rapid early sales growth, with initial success leading to economies of scale needed to dominate a market. They invest heavily in sales, marketing, and BD, and have the most employees. Examples are e-commerce, consumer, or media start-ups. Along with Network start-ups, they rely heavily on M&A to expand into new regions and consolidate markets.
Product
Product companies start with a great product in a narrow use case before expanding, initially focusing on fast adoption and a strong customer experience. The product-market fit is critical, and is reflected in the importance placed on product and tech roles like R&D, engineering, and IT.
Deep Tech
They tend to work on AI, hardware, biotech, or healthcare, and focus intensely on R&D. These start-ups are characterised by a lower number of employees, and for requiring extensive funding long before they become winners.
Reaching unicorn status requires on average €100 million to €200 million in funding, with 70 to 80 percent of the companies that make it achieving the €1 billion valuation mark within ten years of founding.
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