Decentralised VC, Woolly Mammoths, Stablecoins, Chinese Podcasting and European Aviation
The Tech Tok Weekly #29
Happy Monday!
A snapshot from yesterday:
Monday Musings
The Internet of Things (IoT), blockchain, and AI have long been viewed as the holy trinity: the three tech components of the future that, at full maturity, have the potential to completely transform how humanity operates. Simplistically, IoT is the base layer that captures as much data as possible, blockchain processes and immutably verifies the data, and AI analyses it and draws out patterns and conclusions. Blockchain and AI have had their moments in the spotlight – the blockchain moment, by virtue of crypto and the application of the technology itself, is ongoing, while AI has been through several winters to emerge at the heart of almost every technology we use today. IoT, however, has not garnered as much attention and press. This may soon be changing, with PitchBook saying that the familiar catalyst of COVID-induced digital transformation has led to all IoT segments bouncing back in terms of revenue growth. Early-stage valuations have increased from anywhere between 1.4x to 7.3x, while late-stage valuations have grown between 2.1x and 8.2x. YoY deal value has grown by 85.9%, and industry consensus seems to be that IoT is finally maturing. As more funding and attention is lavished onto the space, IoT should see rapid growth – and its close links to the data analytics vendors that actually make sense of all the data should lead to the valuations of these AI companies increasing even further.
Meanwhile, this week…
Venture Capital is on a path towards becoming decentralised, scientists are aiming to bring back woolly mammoths via gene editing, and stablecoins represent the future of money. Also, Western podcasting giants like Spotify and Apple could learn from China’s podcasting industry, and Wizz Air’s rejected bid for easyJet could signal the beginning of the consolidation of the European aviation market.
#1 The Future of Venture Capital Will Be Decentralised
Web3 represents the core of capitalism: creative destruction, or the replacement of old systems with new, more efficient ones. The VC industry is facing the same type of change. Indeed, the entirety of the digital asset venture funding space has changed seismically in the last four years, driven partly by the rise of venture DAOs. A venture DAO can, theoretically, allow any cooperative in the world to come together and start a venture fund. The fund’s assets would be digital, enabling on-chain traceability, completely verifiable performance, and much higher liquidity. Moreover, anyone can set up a fund, and governance and decision-making processes can be fully transparent, dovetailing well with the way finance is getting democratised globally. And as with other DAOs, venture DAOs democratise the very nature of work. Firms can post open requirements, and individual members can bid or offer assistance competitively for that work. The fluid nature of work can enable a broad variety of funds: those that are global or even those targeted towards niche themes, with freelancers with a wide range of expertise coming together from all across the spectrum. Moreover, venture DAOs can also invest on a global scale much more effectively, since their digital asset-based nature means that are not bound by legacy institutions or centralised banking infrastructure. In the next decade or two, if all the promised benefits of venture DAOs pan out, it is likely that we see a venture fund that is managed entirely on-chain by globally-spread, multi-talented, pseudonymous experts.
Not 3Lau Capital and EGirl Capital are primarily crypto-native analysts that have broken out to do their own investing under a banner they own in collaboration with multiple DAO based organisations. This transition from a centralised firm to a networked one will be the most significant transition for venture funds to make over the next decade.
#2 Scientists Say They Could Bring Back Woolly Mammoths. But Maybe They Shouldn't
It feels like we’re in a sci-fi movie. The Metaverse as a persistent, ubiquitous digital environment that interfaces seamlessly with the physical world is reminiscent of the Matrix. Genomic sequencing and bringing back woolly mammoths? There’s more than a shade of Jurassic Park in that. Harvard genetics professor George Church has obtained $15 million in funding to ‘usher in an era when mammoths walk the Arctic tundra again’. His hope, and that of other researchers, is that the mammoths play a role in combating climate change. Church’s company, Colossal, is aiming to create a hybrid using a gene editing tool called CRISPR-Cas9 to splice DNA from frozen mammoth specimens into that of an Asian elephant. According to Church, resurrecting the mammoth would plug a hole in the ecosystem by enabling them to once again scrape away layers of snow in the Arctic and maintain permafrost that blocks greenhouse gases from being emitted. The technology could also help animals with ‘dwindling genetic diversity’ and increase the health of their populations. The logic is heavily contested – Love Dalén, an evolutionary genetics professor, does not think this will have an impact. Moreover, bringing back woolly mammoths could negatively impact an ecosystem that has already adapted to their 10,000-year absence. And another potentially larger wrinkle could be the move into human gene editing. We’ve already seen the negative effects that can be brought upon by widely heralded world-changing technologies, and in this case, it is critical that genomic sequencing is regulated tightly and precisely.
"I think, as humans, we have a little bit of guilt in us, still knowing that we almost certainly contributed to that extinction event. This may be a way of getting that burden off of our backs," says Joseph Frederickson, a vertebrate paleontologist and director of the Weis Earth Science Museum in Menasha, Wis.
#3 Stablecoins and the Future of Money
Stablecoins could be much more palatable to regulators than volatile cryptocurrencies or the hazy regulatory status of DeFi products. Their lower costs and safe, real-time nature could make it significantly cheaper for businesses to accept payments, governments to distribute money, and the unbanked to access the financial system – if they are regulated by robust legal and economic frameworks. There are three potential approaches towards attaining ‘sound money’:
True Stablecoins
Non-interest-bearing coins with a stable value against a reference currency, with stability achieved by the issuer agreeing to mint and buy back coins at par, and the issuer holding assets to back its obligation to redeem the stablecoins; e.g., $1 held for 1 stablecoin. They should hold 100% reserves in high quality, liquid assets, plus a capital cushion against a bank run.
Deposit Stablecoins
Demand deposit claims against insured commercial banks on blockchain rails, representing an amount a person holds on deposit with an insured bank. A limitation is that only depository institutions can offer these coins, and that fully backed models are not commercially viable without adjustments to capital requirements.
CBDCs
CBDCs need to bring the benefits of cash on digital rails and make sure that the public will use them. They also need to be certain that they do not disintermediate commercial bank operations.
According to HBR, a hybrid model, where the public sector first focuses on the regulation of stablecoins and then on CBDC issuance on multiple rails to complement potential shortcomings, would be the most beneficial.
The question for central banks and regulators then becomes which combination of the three approaches can also improve competition, lower cost, and increase access to the financial system.
#4 What Spotify and Apple Can Learn from Chinese Podcasting Apps
Podcasting has grown leaps and bounds in recent years. An estimated 100 million people listened to a podcast each month in 2020, with the number expected to increase to 125 million by 2022. While large podcast creators like Joe Rogan are minting money, the path towards meaningful revenues is not as simple for smaller podcast creators. Firstly, there is a lack of granular information provided by podcast apps about their audience. Secondly, even though podcast creators can use Patreon, Substack, or Discord to connect with their listeners, the migration of podcasts to an entirely new platform represents too much friction in the customer experience.
China provides a model that the West could follow. Apps like Ximalaya, Lizhi, Qingting FM, and Xiaoyuzhou FM allow for more audience participation and target a variety of audience niches. The apps are a lot more interactive, enabling listeners to take notes and leave comments on audio content. Listeners on Ximalaya can create or join listening circles and discussion channels, or give gifts to their favourite shows. The comment function is especially pertinent for creators, with the instant and directed feedback on an episode-by-episode basis letting them measure the impact of each episode, and influence future episode content.
The innovation taking place in China is truly monumental. While for years it seemed as if China kept copying from the West, the tables have turned, and podcasting represents yet another frontier where the West can learn from the Middle Kingdom.
Because Apple Podcasts and Spotify are already the dominant players in the audio industry, they no longer need to innovate. That means podcast creators like me are forced to chase after subscriber lists and emails so that we can engage with our fan base directly. It would be so much easier if all of these functions were in one place — like they already are on Chinese podcasting apps.
#5 European Airlines Jostle for Position as They Look Beyond Pandemic
Wizz Air’s rejected bid for easyJet could represent the first wave of consolidation in the fragmented European aviation industry. The effect of COVID (bankruptcies, cash crunches, etc.) may force the European market to become more like the US one in consolidating down to four main players. Wizz Air’s move could indicate how the major carriers are moving to position themselves in a post-COVID world. Wizz CEO Jozsef Varadi has made some bullish moves to expand, purchasing more landing spots at Gatwick, obtaining new aircraft, and restoring flying more aggressively. The easyJet deal would have represented a serious show of intent, accelerating its move into Western Europe and giving it extra market share in one fell swoop. It would also have been an extremely opportunistic move, given easyJet’s low share price – and suggests that the orange-livered airline may be at significant risk of a takeover. In recent years, easyJet has tried to position itself as a sort of middle ground between being a budget airline and an expensive intercontinental carrier – but without the network to back up the latter claim. This sort of ‘inbetweener’ airline could face problems, according to easyJet backer and aviation veteran Bill Franke, since it is a difficult needle to thread from a marketing and brand image perspective, and can risk alienating both sets of customers. To survive and thrive, it is imperative for easyJet to decide which side of the aisle it falls on, and move forward with complete conviction, without looking back.
easyJet CEO Johan Lundgren, for one, is phlegmatic about future disruption. “From an M&A transaction point of view, we’re not against that, but it has to deliver value for the shareholders. And this wasn’t even close to this.”
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