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November 10, 2020

In Conversation With

How there’s some magical thinking in some DeFi projects with Union Square Ventures

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Union Square Ventures has been one of the earliest investors in the blockchain space, backing companies like cryptocurrency exchange Coinbase. They are also directly invested in a number of protocol level projects. Albert Wenger, managing partner at Union Square Ventures, discussed how he feels about the industry right now, saying:

(5:51) “Well this is a particularly exciting time period I think because there’s a couple of different things coming together. One is that, obviously there’s been a lot of activity on Ethereum, especially in the DeFi space. On the other hand, that very activity has shown some of the issues that Ethereum has today as people are encountering $50 gas fees, for example. And that in parallel there’s a whole set of new chains that have launched or are launching including some of the ones that we’ve invested in, such as Algorand launched over a year ago….So there is a lot of activity in this space.”

Wenger also suggested that while there has been a lot of technological progress, some projects need a reality check, saying:

(6:43) “I also would caution that at the same time, there are a lot of people operating in this space who seem to think that somehow the fundamental laws of reality can be rewritten. I just think a project that was premised on there being a 1% interest rate daily, and I think there’s some fundamental misunderstandings about why some things exist or can’t exist in the world. So I guess I would say there is a bit of magical thinking in some of the projects that are out there. So it’s an exciting time and certainly one that we’re following very, very closely.”

Union Square Ventures’ investment thesis has evolved over the past few years. Wenger explained,

(7:34) “I think we in the early investing were very focused on the infrastructure layer. So projects like Blockstack, or Algorand…or Helium, those are all sort of infrastructure layer projects; Arweave. We do think that the infrastructure is really now coming along and so we are starting to look more at applications. And obviously we have some investments that have applications as well, something like Dapper for example. So it definitely feels like we are on the cusp of a shift toward where the infrastructure is there. I don’t think we can say it’s there today, but I think we can see that it will be there. And so definitely now is a good time to really start thinking about applications and what’s happening at the application layer.”

Nisa asked about the wildfires that are spreading in the United States and also those that happened in Australia earlier in the year, asking if blockchain technology could be used to combat climate change. Wenger said,

(17:58) “I think the market for carbon offsets is a really interesting potential application for this. This is a market that has a lot of issues. And blockchain in and of itself doesn’t necessarily magically solve them, but it can form a new system where people can register offsets and where you can see, for example, let’s take a forest; where you could make it very clear that a certain set of trees has actually already been sold so I’m not selling the Brooklyn Bridge to seven different buyers. Now it doesn’t solve all problems because there’s still the issue of do I even own this forest and have the right to sell it? That’s one problem that one needs to understand. And the other thing is what’s the ongoing monitoring?…So there are certain problems here that I think blockchain can solve.”

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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