Dev2Dev, a potential ambiguous technical arbitrage.

Original Title: "Dev2dev: A Potential Technobabble Arbitrage"

Original Author: Matti, Zee Prime Capital

Original Translation: Kaori, BlockBeats

At Zee Prime, we are one of the earliest teams to formally propose and publish a middleware paper in early 2021, and we released the second part in 2022. Middleware includes everything that is not an application or basic protocol, in other words, everything that falls between the two.

Another word used to represent middleware is infrastructure. Obviously, this is the land of today. All the magical space between L1 and applications is something we should be excited about. Infrastructure is the future. Modular technology is developing in parallel with AI and ZK, and there are many more industry terms.

Related reading: "Web3 Middleware and Infrastructure Overview"

Today, many large venture capital firms must prove their value while raising significant assets under management (AUM) from those who have little knowledge of the field. In fact, creativity in the cryptocurrency industry is very limited and innovation resources are scarce. This is why infrastructure has become a default response, which is a simple solution but a developer's purgatory.

In the encryption industry, apart from airdrop hunters, there are very few users. Therefore, they are looking to achieve self-redemption through B2B scenarios. This implies a warm and familiar thing to make money in Web2 - B2B SaaS. You are not selling to users (because there are no users), but to other businesses (which there are many of).

Therefore, when the pension fund board learns that homomorphic encryption is not actually a scientific term for "unpublished homosexuality," everyone will turn their attention to the cold technical terms represented by this infrastructure, but they will say "Follow the money."

「卖铲子」

translates to

"Selling Shovels"

in English.The B2B concept in the cryptocurrency industry has a small issue. Many cryptocurrency companies sell services to other cryptocurrency companies, but who are the customers of these other cryptocurrency companies? You guessed it - other cryptocurrency businesses.

One thing is missing, and that is money. Without money, there is no "B".

Unless a venture capital firm has a large amount of funds that cannot be invested in other fields and is willing to support the thriving developer ecosystem, or what we call dev2dev, there is no other way to fund the development of developers.

However, this situation cannot last forever, but it can last for a period of time. 2 years? Just in time for the four-year cycle (for those who believe in astrology). This is risky, but it has worked in the past.

Abbreviations and popular phrases are very popular because they can represent any meaning. In other words, you can use technical terms to make it so that no one really knows what you're talking about. This is why you will eventually fall into a circle driven by institutional funds and only focused on internal developers who praise each other.

If you can't see the actual product, then you are likely the product.

Therefore, in Web3, developers provide perfect product/market fit for venture capitalists, who can allocate capital and raise new funds because "we need new infrastructure" and "building infrastructure is difficult and time-consuming."

We ultimately end up with a "composable" infrastructure self-referential dev2dev ecosystem that is the same as the self-referential token production feedback loop, but this time it is expected that retail investors will purchase tokenized developers.

Resources and Creativity

The infrastructure does need improvement. But it is worth questioning whether it should be built from top to bottom before the arrival of users.

Amazon was the first user of AWS, which was built for internal use and was just a coincidence, not by design. It became the core infrastructure of Web 2.0.

The person who owns the user is most likely to develop downstream. I don't want to burst your ETH-maxi decentralized bubble, but if Metamask exclusively channels its order flow into its builder, they will build every block (which may have already happened, maybe check the chain?).

Lex Luthor does not want to inspire any deep tech media company to rebrand as Metamaskless, so this kind of re-centralized attack vector is unlikely to be realized in the near future. But this does highlight the vulnerability of the decentralized stack/infrastructure narrative.

However, insincere infrastructure narratives are still a seemingly conservative bet. This is a good analogy from the era of big technology, which the older generation is interested in because it is a familiar concept. Therefore, if you combine the sexy buzzword ZK with infrastructure SaaS, institutional investors will be attracted.

Predictable returns from selling "pickaxes" and "shovels" seem very attractive at the company's board of directors.

BlockBeats Note: In the field of cryptocurrency venture capital, "Selling Shovels" refers to companies that engage in infrastructure and services related to cryptocurrency, blockchain and other technologies, rather than directly investing in cryptocurrency. These companies may provide trading platforms, wallet services, blockchain technology development, etc. This phrase emphasizes that companies that provide infrastructure and tools for the entire industry may be more profitable than directly investing in cryptocurrency.

This is how to combine the narrative of a drip-style mechanism with unimaginative developers and serial entrepreneurs, to find lifestyle businesses wrapped in technology jargon.

It is difficult for large venture capital firms to sell the crazy doubling of cryptocurrency in the past cycle to their limited partners. In addition, funding creativity is cheap. Great ideas often do not require a lot of investment. That is why venture capital firms are obsessed with resources, and developers are the resources that need funding for them.

My prediction is that the next innovation trigger will be funded by the 1% of capital that has flowed into cryptocurrency startups over the past few years. This means that most of the guided funds will be surpassed by very few capital that support creativity.

The fact is, in the encryption industry, the problem with innovation is not money, but rather creativity and execution.

Despite the fierce competition in investing in infrastructure (and the significant resources required for this), the high-risk game is not being played at the infrastructure level today. The Sayer's Law applies here:

"In any dispute, the intensity of emotions is inversely proportional to the value of the issues involved."

How to creatively use stupid funds to support technology? Are there truly worthwhile infrastructure projects to support? The summary I propose will certainly have exceptions, and there are indeed interesting and important efforts in building Web 3 infrastructure.

Innovation often comes with a high cost, which is borne by large venture capital firms, and then quickly reduces in price after unlocking. Whether it is storage or decentralized RPC (what we actually need), account abstraction, indexing, and so on, there may be another way to play the infrastructure game.

The early winners of the 2020 DeFi Summer were not teams created by venture capital firms, but rather projects that had been innovating and executing for a long time, such as Synthethix and Aave.

If you dig deeper, people can find teams that have sufficient funds in the secondary market and purchase tokens at a significant discount. Not to mention, compared to private placement rounds, the distribution is more favorable. This is a risky bet, but it is not the first time that the public trading market has outperformed venture capital.

When this shiny new toy is not actually that shiny and comes with heavy venture capital baggage, it may be avoided. After all, the opportunity to invest in great technology companies is never a matter of a few rounds of private placement or a few months. It is at least a multi-year opportunity.

If you must bet on infrastructure, you may consider teams with experience and have been through bear market baptism for many years. After all, Hayes has bigger traps than most venture capital firms, and you know that big traps mean alpha returns.

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