new research, global report, 3 takeaways on market design for builders

🔎 Trends in academic/ industry research with applications to web3

with Tim Roughgarden, Valeria Nikolaenko, Joseph Bonneau, Justin Thaler

With the goal of advancing the science and technology of the next generation of the internet, the a16z crypto research multidisciplinary lab also helps bridge the worlds of academic theory with industry practice. Every year, as part of its immersive summer programs at the a16z crypto office, the team brings together both established and emerging researchers to present work, sharpen each other’s ideas, and collaborate together (along with our portfolio) on some of the hardest problems in the ecosystem. 

Now in its third summer, which just ended last month, we have begun releasing the 2024 cohort talks curated by the a16z crypto research team. The first batches cover cryptography themes to “SNARK week”:

• The journey from academic research to industry deployment of cryptography — Yehuda Lindell, Head of Cryptography, Coinbase

• The past, present, and future of threshold Schnorr signatures — Chelsea Komlo, University of Waterloo

• Threshold ECDSA in 3 rounds — Abhi Shelat, Northeastern University

• Exponent-VRFs and their applications — Yehuda Lindell, Head of Cryptography, Coinbase

• Distributed randomness using weighted VRFs — Benny Pinkas, Aptos Labs, Bar-Ilan University

• Toward succinct proofs of solvency — Jeremy Clark, Concordia Institute for Information Systems Engineering

• Perpetual encryption — Yevgeniy Dodis, NYU and The International Association for Cryptologic Research

• Toward practical zero-knowledge virtual machines: HyperNova — Abhiram Kothapalli, Carnegie Mellon University

• Advanced security for SNARKs: A survey — Quang Dao, Carnegie Mellon University

• A novel approach to proof-of-replication via polynomial evaluation — Foteini Baldimtsi, George Mason University, Mysten Labs
  

🛠️ 3 takeaways on market design for web3 builders

with Scott Kominers

Some quick takeaways from a16z crypto research’s Scott Kominers, shared with the most recent cohort of our CSX startup accelerator program:

1. Web 2 platforms and web3 protocols leverage network effects in different ways. Platforms have historically benefited from creating “walled gardens” to lock in their advantage over competitors. Protocols, by contrast, establish competitive advantage by becoming embedded in as many applications as possible — and that means they should explicitly support third-party development.

2. With marketplaces and protocols alike, the optimal strategy is often to start broad, then narrow, and then broaden again. Starting broad gives you the space to find product-market fit — identifying the users who have the strongest demand for the category of transaction you enable (measured in terms of value creation). But then once you find those early adopters, focusing on them lets you optimize the business model, after which you can scale by expanding scope to adjacent use cases.

3. With token design, monetary policy evolving over time should be the default. Owing in part to the Bitcoin precedent, many projects try to fix their entire tokenomic design (e.g., token supply, emission schedule, and so forth) up front. But that’s rarely the right path. Not only is it really hard to fully calibrate an economic system before you’ve seen it in use, but in practice: Token supply and associated design parameters should generally evolve along with the project ecosystem, as new uses and users change the dynamics of money demand.

see also: “Network effects, moats, & the business of web3”

🎧 From bridges to interoperability: Out of the mess, into the meshnet

with Bryan Pellegrino, Ali Yahya, and Robert Hackett

Blockchain bridges are essential tools for moving cross-chain, but they have a history of succumbing to big hacks. Why? This episode of web3 with a16z (with Bryan Pellegrino of LayerZero) dives deep into the history and evolution of bridges; discusses the tradeoffs of various approaches; and explores more on scaling blockchains and the importance of interoperability.

listen here

🌐 Around the web: weekend reads

The World Economic Forum just published their new report, “Digital Assets Regulation: Insights from Jurisdictional Approaches”. While not perfect, a16z crypto Head of Policy Quintenz observes, here are some positive takeaways from the report: 

1. On DeFi, the report makes clear that “entity-centric” frameworks don’t work for decentralized systems and calls for calibrated, risk-based regulation to realize the benefits of decentralization. Specifically, the report acknowledges the value of implementing tailored licensing models that account for decentralization where there is no centralized entity. [see also: “Regulate apps, not protocols”]

2. The report calls out the pitfalls of regulation-by-enforcement. [see also: "What regulators can learn from the aftermath of the Titanic”]

3. The report identifies the breadth of decentralized innovation far beyond finance, from social media to identity management. 

4. Like many jurisdictions around the world, the World Economic Forum reinforces the importance of crafting clear, effective rules of the road that account for the unique nature of decentralized protocols and applications. Since sensible policy can protect consumers and foster innovation, it’s encouraging to see an institution with 1,000+ firms globally advocating for pro-decentralization policies. read the full report

see also: the full “regulate apps not protocols” series

How and when does “onchain” usurp the primacy of the offchain world? The answer lies in bootstrapping blockchains via the systems that currently dominate our world, observes Jason Zhao of Story Protocol. He argues we need to leverage traditional institutions as a catalyst for mainstream adoption, not sidestep them as a hurdle to be avoided.

Instead of attempting to create a parallel world from scratch, more blockchain applications should extend the offchain environment — offering the composability, neutrality, and lower take rates that are only possible via crypto. This is the tool stage (cf “come for the tool, stay for the network”), where blockchain-powered applications can acquire users by simply working better than their offchain counterparts. Once these applications reach critical mass, they can then meaningfully evolve user behaviors in ways that are unique to fully onchain networks. Blockchains must first extend, and then evolve, observes Zhao. read more

bandwidth

-- a16z crypto editorial team

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