Variant 2024 Intended Investment Areas: Chain Infrastructure Remains a Focus

Variant Fund talks about what they expect to be investing in by 2024. Here's what they're looking for in startups, covering a wide range of areas such as consumer payments UX, DeFi tools, gaming, betting and prediction markets.

Cryptocurrency Payment Infrastructure

As of now, there is significant potential in leveraging

cryptocurrency

technology to enhance global payments. However, for both users and developers, utilizing cryptocurrency for payments and navigating the transition between cryptocurrency and traditional payment channels remains challenging. Within the value chain of crypto payments, there are numerous opportunities to eliminate friction among developers, users, and merchants.

Institutional-Grade DeFi

In the mid-term perspective, with the convergence of cryptocurrency and most domains in traditional finance, the distinctions between them will diminish. There is still an opportunity to build high-performance financial applications and infrastructure that fully leverage the capabilities of cryptocurrency, catering to existing crypto users while gradually onboarding new users, including institutional clients.

Consumer-Centric Transactions

Geoff Hamilton, an investment partner at Variant, believes that there is significant design space around applications facilitating the buying and selling of cryptocurrencies. Providing users, both present and future, with more interactive choices related to cryptocurrencies can offer them highly engaging experiences and prove to be beneficial for their overall involvement in the crypto space.

Information Marketplace

Regarding information markets, investment partner Alana Levin and data scientist Jack Gorman believe that blockchain makes it easier to create two types of information markets: markets for accessing existing information and markets for generating new information. The former is about pricing access and eliminating information asymmetry; an example might be paying for proof regarding specific consumer behaviors or demographic statistics. The latter focuses on making previously unobservable information observable through unique existing data aggregation or facilitating new exchange mechanisms. Examples in this category may resemble new structures for pricing risk, participation in on-chain simulations, or prediction markets with genuine liquidity. The financialization of information has been manifested in systems like Friend.tech's keyholder rooms, Polymarket, and Arkham's Intel Exchange, offering new ways to assign value to previously undiscovered information.

Payment Applications

Future product-oriented payment applications, especially those catering to microtransactions, may present significant opportunities. These applications leverage cryptographic channels to create opportunities for entering new markets or expanding existing ones. They often target global audiences that are typically excluded by currency exchange fees and users with lower willingness to pay compared to traditional users, among other demographics.

New Namespace Opportunities

Investment partner Alana Levin believes that subdomains are underrated; these are digital assets with verifiable ownership. Issuing subdomains from a trusted entity (such as a parent organization) can help establish the legitimacy of an entity. Charities provide a typical example: according to the Federal Trade Commission in the United States, losses due to charity fraud amount to hundreds of millions of dollars annually. A credible issuer granting verifiable subdomains to registered charitable organizations can create a useful ledger, documenting which organizations are genuinely legitimate.

Privacy Infrastructure

Privacy infrastructure is currently in an extremely early stage. The potential of this category is exciting given its vast scale. We firmly believe that in the long term, the majority of on-chain states will be private, as it brings advantages for market efficiency, security, and consumer preferences. Solutions utilizing Fully Homomorphic Encryption (FHE), Zero-Knowledge Proofs (ZK), Multi-Party Computation (MPC), and Trusted Execution Environments (TEE) all come with different trade-offs, making each solution suitable for different applications. The design space at the infrastructure layer is vast, and the opportunities are immense.

Uniswap V4 Hook Marketplace

Investment partner Derek Walkush states that one of the most exciting new designs in DeFi has emerged: Uniswap V4 hooks. These are plugins for designing pools with unique features and functionalities, such as new auction mechanisms and fee structures. With the release of intention-based trading protocols like UniswapX, the distinction between on-chain and off-chain liquidity is becoming increasingly blurred. Therefore, hooks are becoming the new frontier in DeFi mechanism design; they are aimed at making on-chain liquidity more competitive than CEX liquidity, allowing DEX traders to leverage this liquidity.

Gambling Applications

Videos created by top creators like Mr. Beast can garner viewership comparable to the audience of NFL games. While sports betting applications have already been prevalent, the significant size of social media and players in the realm of “great online games” (such as creators) now enables them to have their own betting and prediction experiences. Consider it as cryptocurrency sports betting on social media platforms.

Real-world MMORPG

Stepn has demonstrated the potential of cryptocurrency lifestyle games, utilizing mobile-first web2 experiences, gamified real-world activities (such as running), and subscription-based assets (like degradable sneakers NFTs). However, Stepn also has its shortcomings: the games are mostly single-player, employ complex token economies, and tend to be overly financialized. There is significant potential for new-generation real-world games that revolve around social habits, combining incentive mechanisms with verifiable off-chain actions.

On-chain Artificial Intelligence Agent Marketplace

Investment partner Mason Nystrom believes that as cryptographic artificial intelligence agents become increasingly complex, developers will design agents to perform specific tasks. Rather than building an agent that needs to know how to do everything, it may be more practical to have a general agent purchase services from other specialized agents. The market for cryptographic AI agents will allow people to buy targeted agent services or trade well-trained consumer application agents in platforms or games (such as Parallel Colony NPCs, ASM Brain, Frenrug, etc.).

On-chain Reputation System

Data scientist Jack Gorman suggests that while blockchain designs are inherently trustless systems, trusting various participants on the blockchain remains challenging. He sees a significant opportunity in building a reputation system that utilizes blockchain data. Such a system could help us trust the contracts and participants with whom we interact. A reputation system could not only effectively prevent malicious actors like scammers or airdrop spammers but also reward positive behavior on the blockchain. This could have applications in areas such as uncollateralized loans or freelance markets.