As crypto-currencies and digital tokens mature, mainstream financial institutions and corporations continue to familiarize themselves with this next era of the internet: The Open Web. Since the launch of Ethereum, and the realization of programmable (fungible and non-fungible) value on-chain, blockchain’s have evolved as a new center of gravity for the creation and management of digital objects, assets, identities, and data. In short, blockchain is a new frontier for defining how we ‘live digitally’, and more specifically, ‘live on-blockchains’. This thesis, by Lyrik Ventures, is a snapshot of what ‘Living On-Chain’ truly means, and how that relates to the different types of products (current and upcoming) across the emergent internet of value.
Part 1: The World Accepts the Crypto Thesis
If you built or invested in Crypto before 2017, you know that the future viability of ‘blockchain’ and crypto-currencies was somewhat in doubt for a number of years. Blockchain-mania in 2017, brought on a heated discussion about regulation, public vs. private blockchains, and real-world use-cases that could actually find product market fit. We are now entering a ‘halving’ year (2024) in a very different environment: The World has Accepted the Crypto Thesis.
Specifically this means the following: (1) Digital tokens and currencies, maintained on a distributed ledger have found value in the eyes of governments, investors, entrepreneurs, and retail participants. (2) Web3, as a new layer of the internet where data, assets, and identities (both individual and organizational) can be independently programmed onto blockchains, has taken hold as a future direction of ‘digitization’ across industries. (3) There is less doubt on the potential for internet-native value (both fungible and non-fungible) to revolutionize existing industry, while also pioneering entirely novel forms of value hitherto impossible to create.
Nevertheless, in spite of a familiarity with the ‘value proposition’ of blockchain, there remains a strong disconnect between the future potential of this technology, and its current status. The following snapshot explains this disconnect more clearly:
Jurisdictionally:
Many nation-states remain ambivalent or unaware about the nuances and evolution of blockchain, with a spectrum of approaches: Some countries like El Salvador, Singapore, or Korea are positioning themselves as innovation hubs for both Bitcoin (BTC) and other distributed technologies, including tax-exemptions and national exposure to these assets. Most countries remain ‘in-between’ with very few jurisdictions outright banning digital assets (as was frequent in the past), and some countries such as Nigeria, walking back a prior ban.
The Global Base of HODLers:
More interesting for our thesis, is the state of current HODLers and users of digital tokens and cryptocurrencies. Most users today only hold digital assets - on exchanges. Until 2020, there were limited use cases for operating or interacting with blockchains beyond early primitives. In the last three years we have witnessed the development of NFT token infrastructure, DAO Tooling, and more advanced and scalable smart contract logics enabling micro-transactions, locked tokens, account abstraction and aggregation, wrapped items, and so forth. These new products and tools are offering users new opportunities by bringing the digital world (game items) and the physical world (financial products) into the ownership economy.
While the vast majority of users are not familiar with self-custody, or actually ‘interacting with dApps’ an increasing global populace remains engaged with the technology and its potential for their business success as well as value and wealth creation. This is important context in making sense of why ‘Living On-Chain’ is our Thesis for the evolution of blockchain.
The Global Base of Builders:
L1 Mania from 2018 to 2022, significantly expanded the selection pool of blockchains for builders and teams interested in the application layer. Improvements in fundamental blockchain design (Sharding, Modularity, Roll-Ups), enabled easier development on top, and more improved use cases.
While the number of ‘digital tokens’ issued on a blockchain has increased thousand-fold, since 2017, many builders struggle to understand how to design and launch a successful crypto-economic system for their product.
Blockchain ‘Ecosystems’ remain the new frontier, in which builders and investors are less concerned with ‘the design’ of an L1, but now focus more on the ‘state’ of the blockchain ecosystem: How many daily active users are interacting? How many transactions and fees are processed on the daily? Does essential infrastructure exist (on/off ramps, liquidity, bridging, exchange listings, etc.)? Is the blockchain easy to use (account abstraction, custody, etc.)? This specific topic is known as ‘Crypto-Geography’ and is the focus of Section 2. Ecosystem choice is no longer a matter of ‘bounty-hunting’ but rather a decision that impacts long term growth and token success.
Part 2: The Product Stack Matures: A Crypto-Geography Emerges
As Layer 1 Blockchains have saturated the market, more focus inside of crypto has been directed towards the ‘ecosystem’ of builders on top of a given blockchain. Very specifically, an ‘ecosystem’ refers to the world of dApps, infrastructure providers, and community members, operating and interacting within the smart-contract framework, and crypto-economic design of an L1 blockchain. This means, users have an ‘account’ on the L1 in question, while builders pay fees in the native L1’s utility token in order for their dApps to process transactions.
We use the term 'ecosystem-societies’ as a framework for understanding how to evaluate different blockchain ecosystems based on their level of development. While, a full thesis on this can be found in our research paper Crypto-Economic States, a general summary of an ecosystem-society can be provided as follows:
Layer 1 Blockchains have matured from 2017, to the point in which they are capable of managing a frequent throughput of transactions, they offer a programmable logic through smart contracts to create fungible and non-fungible value, and they have implemented fundamental infrastructure designs to allow for the sending and receiving of value with other blockchains (L1s), and on and off ramps (fiat to crypto providers).
As a result of this, every L1 is in the process of ‘developing’ their blockchain ecosystem, both for their own success, and also the success of all of their partners and builders hoping to create and capture value from the applications built on top. Haseeb Qureshi, Founding Partner of DragonFly Capital, has likened this evolution to different blockchain’s being representative of different ‘Cities’.
Ethereum is like New York, fancy, expensive, but the most known and famous of blockchains. Avalanche is like Chicago, financially focused.
Solana, like Los Angeles, is a hub for creatives and visible (degen) figures / voices.
NEAR, like San Francisco, tech-first with a focus on novelty and weirdos.
Our Crypto-Economic State design, upgrades this framework, and creates a reliable and repeatable model for evaluating different blockchains, much like we may evaluate the level of development in a given state or society.
Such ‘Ecosystem Societies’ build on Haseeb’s original innovation, by expanding every L1 ecosystem into a ‘state’ and evaluating each according to 3 Key Sectors:
With more than 50 L1’s emerging, and a robust product stack of dApps, fundamental infrastructure, and native tokens, we believe that future orientation into Web3 - from both a builder and an investor perspective, will begin with understanding the landscape of blockchain societies.
A blockchain ecosystem and our accompanying framework for evaluating it goes deeply into how to evaluate an ecosystem, its plumbing network, and the building blocks needed for the average user’s ability to live and operate on-chain. It is an analytical model for making sense of how ‘fit’ a given L1 Ecosystem is, to offer non-crypto native users easy access to the value propositions of Web3. It is also the fundamental context for understanding what ‘Living On-Chain’ is all about.
Part 3: How We All End Up ‘Living On-Chain’
The ‘Living On-Chain’ thesis, is a forecast as to how the underlying primitives of blockchain - tokenization, creation of fungible and non-fungible value, management of accounts, smart-contract based management of value - connect with the existing internet, and its increasing number of daily active users.
Living On-Chain means that in the coming five to ten years the crypto product stack will mature to a point where the majority of internet users will increasingly ‘live online’ between Web2 and Web3 systems: Similar to how desktop computing moved to mobile, and local storage moved into the cloud, users, applications, and services will likewise move onto blockchains. Improved self-custody wallets and rising interest in account abstraction offer users a ‘profile’ for their blockchain engagements - providing them sole ownership over their (digital) money, permissions, and interactions with other dApps. Soul Bound Tokens enable reputation, with a robust suite of tools now enabling users to manage payroll, messaging, communities, trading (Unibot), and content creation with on-chain components: In short, the many primitives required for ‘living on-chain’ in a new digital society of sorts. This time, and unlike any previous moment of the internet’s short history, every user is an equal at the table: With ownership over their assets, data, and identity.
The timeframe in which builders bring digital services into Web3, or conversely, create native Web3 solutions to unsolved problems, is the window of opportunity for both entrepreneurs and builders alike in this industry.
The Lyrik Ventures thesis about ‘Living On-Chain’ can be summarized as follows:
If blockchain ecosystems eventually develop to a point in which they offer a frictionless experience to average users of the internet, with the added benefit of internet-native ownership of data, assets, and identity, blockchain ecosystems become the foundation for a suite of distributed software as a service solutions (DSAAS), as well as the basis of a ‘digital society’ from which users interact, build, and co-create value equally.
The global, permissionless, and open nature of blockchain based applications, suggests that the growth potential and value capture of such systems is comparatively larger than Web2 SAAS Products: Once a system is up and running it builds its moat around its user-base, and stakeholders that make that system valuable. SAAS has done this privately, and with great efficiency and value capture. Crypto and decentralized protocols, can do this publicly and with significantly larger network effects and revenue accrual, at the cost of time.
‘Living On-Chain’ clarifies where opportunity emerges within crypto, over an extended period of time. It argues that the builder pool of opportunity in the coming five to ten years, is centered on two primary trends:
In both cases, the timing, success, and long-term growth potential of a given solution can be evaluated as part of the ‘Ecosystem Society’ framework as a basis for the potential of the product / investment in question.
As is clearly evident, the time function in this thesis is most important. Economic history is ripe with examples of delayed value creation from general purpose technologies (GPTs) due to social and political delays in their implementation. It is for this reason, that the closing section of the thesis When Do We All End Up Living On-Chain? Becomes relevant.
Part 4: When Do We All End Up ‘Living On-Chain’?
Unlike the prior sections of this thesis, the ‘time estimation’ in the current section, is the most difficult to seriously forecast or evaluate. In other words, we cannot predict exactly how or when our vision for the future of Web3 will unfold. It is possible however, to describe both the unfolding of the crypto-product stack, with the larger movement to ‘Live On-Chain’.
Many have speculated that ‘finance’ or ‘money’ is the first and most relevant industry to be disrupted by Web3 solutions. As the term ‘The Internet of Value’ suggests, everything from global payment rails, to on-chain investments, to global financial markets on distributed ledgers have captured the imagination of builders and investors alike. This is primarily because ‘value’ can be natively created on blockchains, with minimal external dependencies.
Yet, interestingly, the development of the crypto-product stack to re-imagine modern finance, has opened up unforeseen doorways for disruption of other industries (with much larger user bases). Non-Fungible tokenization, Oracle implementation, and account abstraction create low hanging possibilities for successful product market fit across Real World Asset (RWAs) markets, Game Design, Entertainment, Music and Social Innovation (so called GEMS), as well as the intersection of AI and blockchain.
In every case, the maturity of a given solution can be contextualized in line with the relevant Ecosystem Society Framework (to check for dependencies), and then in evaluating the existing industry for any major social, jurisdictional, or political hurdles.
Two catalysts may accelerate or diminish the march to ‘Living On-Chain’:
Ultimately, ‘When we begin to live on-chain’ is an aspirational question that we should continue asking ourselves in the coming decade. If the historical record for technological adoption and value creation is any indicator, the best we can conclude is that: Things take time - even at the speed of the internet.
Conclusion
Our unique approach to the ‘Living On-Chain Era’ is rooted in understanding the ‘tech-tree’ for the crypto product stack: How have DAOs, Non-Fungible Tokens, Token Standards, and Account Abstraction enabled new and compelling products for users to engage with? Charting this growth trajectory, we then evaluate how each major crypto vertical (DeFi, Gaming, Creator Economy, Governance, ReFi, DeSci, etc.) may evolve in the coming years with reference to its legacy industry, and the value proposition of Web3. Our vision at Lyrik Ventures is to pioneer the early infrastructure, protocols, token innovation, and consumer use-cases that enable a world where billions of people ‘live on-chain’ every day.
