Why Large Cryptocurrency Funds Bet on Open Finance and Web3

Open Finance and DeFi (Decentralized Finance) is a general term for the financial ecosystem around the Ethereum blockchain, and it is a new way of conducting financial activities that is transparent and does not require permission.

On the other hand, Web 3.0 is a concept that represents the next form of the World Wide Web (WWW) after Web 1.0 and 2.0, and is aimed at returning data to a person and managing them in a more decentralized way.

According to Coinmarketrate.com many of the Web3 projects have raised huge amounts of money during the ICO, and a total of more than $45 billion has been placed in smart contracts Open Finance, which makes this movement even very noticeable.

We believe that the most effective way to answer this question is to focus on the views and investment trends of venture capitalists (VC) and hedge funds who are more familiar with these latest movements than others.

By studying and observing their investment theories and conditions, we may be able to get a clearer picture of the cryptocurrency market in the coming years.

Let’s take a look at some of the most famous crypto funds in the world together and find out why they are betting on DeFi and Web3.

Multicoin Capital

Multicoin Capital is a crypto fund that was founded in 2017 and has become one of the most productive funds of its kind.

A recent blog post published by a representative of the foundation provides an answer to the above questions:

Open Finance

The key innovation of Open Finance is the modularity of various smart contracts that perform financial transactions.

A number of financial protocols have been deployed, all of which are modular and used by higher-level applications, while the protocol itself is never used by the end user.

Modular is a technical term used to describe pieces of software that are designed to be very independent and easy to add or replace. Modular refers to a combination or combination of two.

For example, BritzPredict (BP) is a decentralized prediction market application that uses two protocols, Augur and 0x, relying on Augur for market creation, profit sharing and execution, and 0x for the settlement part. MakerDAO’s Dai also accounts for most of the tokens used for trading.

These protocols can be defined as modules independent of each other, and BP was able to combine them and provide only an application interface to provide a user experience with minimal trust, which was not possible before.

The breakthrough is colossal! This is an unprecedented financial system based on a variety of contracts that do not have a global resolution and counterparty risk.

Open Finance will soon become a global financial market infrastructure with millions of business stacks, providing reliable financial products to people on any scale, international and local.

Web3.0

Just as Open Finance is based on the premise that financial services are modular, Web3 is based on the premise that data ownership and application logic are separate.

In existing Web2 applications, users collectively rely on the service operator to get their data and application logic. However, by sharing this data and passing it back to the person, the user no longer needs to trust the service operator.

In other words, Web3 is the self-assurance of ownership and control over data: specifically, the difference between Web2 and Web3 is that in Web2 the company stored user data in a closed way (technically and legally), whereas Web3 allows users to own their own encrypted data on an open network using Ipfs and cryptographically signed smart contracts.

The above comments by the head of Multicoin Capital show that Multicoin Capital has a very positive and confident view on both of these areas.

Refreshing is the fact that while Open Finance tends to focus on transparency and non-resolution, the emphasis on modularity is paramount.

And as big data becomes increasingly important, and data security risks and people’s sense of data privacy become more critical, Web3 is an important approach.

Portfolios

The diagram above shows the MulticoinCapital portfolio. They have invested in financial projects such as Augur, a decentralized prediction market, Springs Lab, a decentralized identification and credit scoring platform, Bakkt, a payment platform, and Web3 projects such as Tari and Livepeer. This shows that the company is trying to prove the hypothesis mentioned in the above blog post.

They also invest in a wide range of underlying protocols, including the Layer1 blockchain (Dfinity, Solana), scaling technologies (SKALE, Kadena) and privacy technologies (MobileCoin, Keep).

Opinions and approaches of other venture funds

Here, let’s take a look at the future of Open Finance and Web3 with the help of two well-known venture capital companies, Polychain Capital and Fabric Ventures.

Polychain Capital

Polychain Capital is a San Francisco-based venture capital company focused on cryptocurrencies and funded by Andreessen Horowitz, Union Square Ventures and other well-known venture funds.

Since its foundation in 2016, the firm has made more than 30 investments, making it quite a prominent venture investor in the industry.

Below is the portfolio of the Polychain company. For clarity, we have divided them into Open Finance, Web3 and the rest.

What is remarkable about the aforementioned portfolio is that the firm is actively investing in decentralized lending and stable coin ecosystems, especially in the open finance space, among which MakerDAO is the most notable.

A striking example is investing in Bloqboard, an application that combines three lending protocols – Maker, Compound and Dharma, in a single interface.

It is this connection between the aforementioned protocols as modules and the applications that combine them, and Polychain has invested in all four.

In other words, Polychain invests in Open Finance projects based on the fact that they will not develop in isolation, but in synergy with each other.

This has been proven in practice, as over the past year DAI has started to develop rapidly, and Compound and Dharma have significantly improved their UX and increased liquidity.

Fabric Ventures

Fabric Ventures is a crypto-focused venture capital firm based in London. Since its foundation in 2017, they have invested in 19 projects, mainly in the field of Web3.

Here is an image from their website that clearly expresses their philosophy: “We are investing in Web 3.0 to drive the transition to human-centric computing.

The following image shows the portfolio of Fabric Ventures. It is difficult to define what a Web3 project is, but we have categorized Web3 projects that are directly related to the philosophy of “self-sufficient use of data”.

Thus, it is easy to understand that Fabric Ventures has high hopes for Web3: Polkadot, a Web3 Foundation project, and Blockstack, a dapps development platform that allows people to own their own data, are two examples of projects embodying the Web3 concept.

Conclusion

Of course, theories and investment trends of even the most prominent venture investors do not define the entire future of cryptocurrencies.

However, venture investors are not only engaged in distributing money, they are one of the few structures that have a wide range of academic knowledge, have a broad view of the industry, conduct more research and risk projects than anyone else.

Therefore, it is obvious that the theories and investment trends presented by them deserve attention, and this article is written with this in mind.