Crypto Fund II

Investments made in internet technologies over the last several decades have given rise to products and services used everyday by billions of people, including messaging, video conferencing, ecommerce and everything in between. We think it’s important to keep investing in the long-term development of the internet to address the needs of the coming decades. That’s why we’re excited to announce a new $515 million fund that will be used to invest in crypto networks and businesses. Here are some of the areas we’re excited about:

Next Generation Payments

The payments system we use today was designed more than a half-century ago, and the way we transfer and distribute value has lots of room for improvement. Transferring actual value quickly and cheaply without a third party, in much the same way we currently transfer data like emails or photos, will soon be technologically possible at scale. 

Payment blockchains are picking up where Bitcoin left off, solving for currency volatility and settlement transaction times. In contrast to services like Venmo or PayPal where a digital IOU is sent in place of actual money, here the recipient possesses the actual value without third-party dependencies once you click “send.” Cryptocurrencies are like cash in this way: the bits and bytes are themselves the bearer instrument. Unlike existing systems where the sender and receiver must have fee-extracting bank infrastructure in place, payment blockchains require no bank account, thereby opening up financial services to the two billion-plus unbanked worldwide. 

And for the rest of us who use legacy payment options like banks and credit cards that are “good enough,” new systems could provide a much needed upgrade, significantly reducing friction (unnecessary fees, call centers, faxes, delays, privacy breaches, and generally antiquated processes) and providing a more delightful and modern user experience. Turning money into pure bits also allows software developers to creatively design new services around money the way they have done with photos and text. Payment blockchains could end up doing to banks what email did to the post office and what VoIP services did to long-distance carriers.

Modern Store of Value

Consumers, particularly digitally native users and those in places where the currency isn’t stable, want a modern store of value that is scarce, secure, durable, portable, and censorship-resistant. Even those of us in stable economies are increasingly skeptical of the government’s ability to manage the money supply. Gold has long played the role of a fiat substitute, but Bitcoin is a digital alternative that is gaining acceptance and adoption around the world.

Decentralized Finance

DeFi is a new stack of financial services –– think lending, derivatives, insurance, trading, crowdfunding, and more –– built on top of blockchains that embraces the core values of the open internet, including 1) open access to anyone in the world; 2) commitment to open source code; 3) permissionless extensibility by third-party developers; 4) minimal-to-no fees; and 5) encryption-backed security and privacy.

DeFi has been rapidly adopted by early users and developers. Users have deployed hundreds of millions of dollars in leading DeFi protocols, while developers have embraced DeFi’s open and rich design space. One of the main forces that has driven the rise of open-source software is composability –– the ability to remix and recombine software components. With programmable trust, scarcity, and value as new building blocks, DeFi opens the components of finance to the same recombination and experimentation that makes open-source software so powerful.

New Ways for Creators to Monetize

Over the internet’s history, many new business models have been invented, including banner ads, search ads, video ads, in-app payments, and digital subscriptions. Each new business model helped fund a new set of digital services and a new source of income for creators.

We think the next wave of internet business models will come from crypto. Rather than engaging audiences through centralized gatekeepers that charge high rents and create self-serving rules, creators can use token models that bypass gatekeepers and give their fans a direct stake in their success. 

Today the video game industry is on the leading edge of this trend, experimenting with things like digital goods that can be traded on secondary markets and transferred between games. In the near future, we expect crypto monetization models to be applied to other creative activities –– including writing, music, podcasting, programming, design, and more.

Web 3

One of the key reasons the internet is such a powerful invention is that, because it is primarily software-based, new networks can be created on top of it. Originally this meant networks based on open protocols like email and the web. More recently this has meant corporate-owned networks like Facebook, Twitter, and Uber. 

Companies that own networks have unilateral power over important questions like who gets network access, how revenue is divided up, what features are supported, how user data is secured, and so on. This creates tension as corporate interests often diverge from the interests of those who depend on the network, including users, developers, businesses, and creators.

Blockchains enable the creation of decentralized networks that make strong commitments –– baked into the architecture of the network itself –– as to how control and money will be distributed among network participants. “Don’t be evil” is replaced by “can’t be evil.” An early example of this are storage networks where the economics are shared across the community, and deplatforming decisions are made by community members instead of corporate committees. 

We are still early in this Web 3 build-out. High-performance programmable blockchains will make decentralized network development much more accessible. After years of R&D, we are excited that a number of next-gen programmable blockchains will begin rolling out in the near future.

Source: A16Z