BUIDLING OUR WEB3 FUTURE

An engineer turned VC’s perspective on the state of development in the Ethereum ecosystem

I recently had the opportunity to participate in one of the largest and longest running Ethereum events in the world — ETHDenver.

This was certainly a year to remember for ETHDenver, the energy was palpable. Given the last in person Ethereum event was held two years ago due to Covid, there was a lot of pent up enthusiasm. Over 12k registered people attended the event, a 2x increase from 2020. The vast majority of those individuals were creators.

I headed out to Denver a week before the conference started, with the sole purpose of reconnecting with the source of energy and purpose that you can only get by talking with builders as they innovate and create in real-time.

The momentum I felt being present at the hackathon inspired me. Over the week, I contributed to two projects: one winning the DeFi track, and another winning a sponsored bounty. Most importantly, my time at ETHDenver and experience participating in the hackathon gave me some time to reflect a bit on the state of being a developer in the crypto space.

Here are some unvarnished thoughts:

The power of hackathons & hacker houses / communities

Communal building events are the lifeblood of the crypto ecosystem. You cannot replicate being able to jam in real-time with people on seemingly impossible ideas — and then, working feverishly in a constrained period of time to attempt to make them come to life through code.

ETHDenver is the ultimate showcase of the power of these events and their importance to the Ethereum community as a whole. Vitalik, the core creator of Ethereum, even showed up himself to pepper the development teams with questions (disguised in a Bufficorn costume, of course).

In my current role as a VC and Technical Lead at FinTech Collective’s DeFi Fund, participating in and supporting these events is a true differentiator. Engagement in these events is not just about finding alpha — it serves as a strong signal of value alignment to builders in an industry where “open contribution” is a core tenet.

Protocol and application development are becoming core value propositions for key players in the crypto venture ecosystem. A16z recently invested in Launch House, mtnDAO launched a Solana-focused hack house with $400K+ in rewards for developers, and Delphi & Jump assembled a Terra focused hacker house. We may even see some FinTech Collective sponsored events soon™️. Testing out new ideas at the earliest stages and working on the front lines of a startup’s journey is a core part of FinTech Collective and where I personally enjoy playing a role in helping.

People always ask how devs are. But what are they excited about & building?

Being both a builder and a VC gives me the unique opportunity to see founders’ activities from three very different vantage points:

1. What devs are building
2. How these devs are pitching their creations to VCs
3. And what are VCs actually funding

Across these three dimensions, crypto has the highest level of variation I’ve seen in any industry. The high level of variation in how innovation is communicated and perceived across parties can be attributed to two primary factors:

I. Creators must have a stronger direct connection to their end users than ever before

II. A lot of what is being hacked / built is fundamentally “uninvestable” (and is often done so on purpose).

I’ll touch on the former more later, but it cannot be stressed enough: the community element of Web3 is fundamentally different than anything we have seen before. It’s almost as if giving all participating stakeholders the proper incentives encourages contribution — a strange concept, I know. Another contributing factor is the time to liquidity for a Web3 project is dramatically shorter, decreasing the need for “long term aligned” investors.

And when I reference “uninvestable” tech being built on purpose; builders find themselves in a different world in Web3 — one where grants are seemingly limitless and oftentimes fundamentals do not matter. Gone are the days when someone would beg for donations to their passion project whenever you tried to use their code, or over-engineer for monetization so investors would find the project interesting. An example of this recent shift is the initiative Gitcoin Grants has taken to make it exponentially easier to identify, support, use, and share projects building in public. Now, builders can feel comfortable focusing on what they do best: creating cool products– and leave the monotonous task of monetization to others.

This year’s hacks at ETHDenver are a strong attestation to this. Nearly half of the projects at ETH Denver were public goods focused– products with no explicit monetization strategy and generally “free to use”, including developer tooling and “open-source” concepts. The other half of the projects were geared towards “investable” ideas. Regardless of focus, all of the projects painted a picture of what is coming next in Web3:

• Privacy and data protection
• Enhancing NFTs through financialization, ancillary data, etc
• Derivation of core DeFi primitives
• Lowering the barrier to entry for the next 1bn users of crypto
• Unlocking social & community using new incentive and governance designs
• SCALE — infrastructure to scale everything: companies (DAOs), networks, and tech stacks

Old theoretical ideas are now finding practical implementations

Another common theme throughout the conference and hackathon was applying old theories and ideas to new problems. This is the basic premise underlying the development of zk-proofs, and their implementations around coordination. It was also the main thesis behind my team’s hack for the DeFi track.

MEV (miner extractable value) is a massive industry-wide problem and the focus of research for many crypto protocols and applications, where front-runners can see transactions before they are submitted and perform arbitrage opportunities on top, such as sandwich attacks. Unfortunately, all currently known solutions seem to sacrifice either efficiency or decentralization.

My team’s approach was simple: apply well-known mathematical theory called VDF (verifiable delay function — a popular concept a few years back that fell out of favor from not demonstrating practical utility) to doing swaps on an AMM (automated market maker). VDFs work by becoming a “function of time” where no matter what, in order to produce the proof you have to spend t amount of time calculating it. A very useful idea for preventing front-running attacks, and they were originally applied to tamper-proof randomness generators. When we used that same logic for submitting swaps, we could control the speed you can submit a transaction by forcing each swap to include a proof that they calculated a VDF using parameters from the transaction.

So, how does it actually work in practice? When you try to conduct a swap on Uniswap, the application will compute a mini math problem. This results in just a minor wait time for you, but is a complete inhibitor for MEV attacks. The reason why is that since each user now needs to wait t seconds, a front-runner would not be able to perform a MEV attack as they too will have to wait t seconds before they can submit, at which time the user’s transaction would already be included in the block The idea worked, and we believe that it can similarly be applied to any situation where MEV is present (but more to come on that soon).

I believe reapplying old theory is a large area for innovation. I expect to see homomorphic encryption, old mechanism design principles, distributed key generation, prediction markets, futarchy, and more resurface soon in the future. Who knows — we may see token curated registries make a comeback 😎.

New innovations in developer tooling & what is still missing

If you are building anything to help scale crypto in a meaningful way, I want to talk to you! There is still massive room for growth, especially within dev tooling. That being said, it is mind-blowing how far we have come from the inception of smart contract development in 2015.

The past two years have produced a greater acceleration of change than ever before. We now have access to environments that allow you to simulate your protocol in the “real-world”, robust smart contract testing frameworks, and in-depth analytics and data. Most importantly, many of the intricacies related to smart contract development are becoming abstracted at the higher level code (web and mobile applications). All of that abstraction greatly reduces build times and increases the possibilities for composability. We are slowly getting to the point where for a product / front-end developer, blockchain data is just like any other backend (h/t to FinTech Collective portfolio company The Graph for their pivotal work in this area). Products like Boto, another FinTech Collective portfolio company, are similarly pushing the ecosystem further into ubiquitous, composable, and no-code solutions for interacting with blockchain data.

Still, there is much work to do before we can fully unlock the power of Web3 — both for the general user and for the builder. This year’s ETHDenver reminded me of the many pain points I had first hand when I first started 6 years ago and still have now. In no particular order, these are some of the things I would personally love to see that would make my life -or any Web3 dev’s life- easier:

▹ Anything related to smart contract security. This is such a well-known problem space. We are at the limits of what smart contract auditor companies can do. There is simply too much to check and too little time. Status quo auditing has always been a temporary solution to a permanent problem. What I envision includes (but is definitely not limited to):

• Insurance products
• Applied AI for attack vector detection
• Black swan simulation tests
• Standardization stacks for common state flows
• “Front-running-as-a-service” for anomalous transactions
• Much stronger logging and tracking system for on chain protocols in general

▹ New models for directly baking in security into your dApp (decentralized application) UI. Not only for managing private keys, but for creating guardrails for users within Web3

▹ Visualization tools for bridging technical/product gaps. This was the idea behind my other team’s hack at ETH Denver — Ice Vision, how to track what is actually happening visually in your smart contracts, especially as they become more composable

▹ A more robust and decentralized way to “upgrade” smart contracts without painful migrations

▹ Creating better value alignment incentives for community contributions and testing

Open-source and community can be your best friend (if you let it)

Web3 is changing our experience with technology in almost every way imaginable. This is a truth that extends from the end user all the way down to the developer enabling the experience.

One of the most powerful changes from Web2 to Web3 is how we all interact with what is built. Web2 was about protecting and siloing your proprietary innovation — while Web3 is all about open-access, transparency, and composability.

This transition brings up two important considerations for a builder:

1. A highly engaged community in the building process = greater long-term success. While it’s easy to assume that leaving everything open-source risks greater inefficiencies, it’ll only continue to become clear just how inconsequential individual contributions are in comparison to the efforts of the collective. Creating with a community not only builds a better overall product, but makes it much easier to see what is coming next.
2. Open source is a survival mechanism. If you don’t conform, you will be left behind. Nobody is saying you can’t be protective before launch or create proprietary software, or that you can’t profit off of what you’ve made. But, ultimately the rate of innovation will far outpace your own contributions. You either need to accept the fact that people will fork and build off of you (and find a way to capitalize off of that), or fail. I highly recommend watching this movie to understand why.

As a builder in crypto, you should also be expecting a far more symbiotic relationship from any VC you partner with. We need to do better as an industry to catch up to the realities of what Web3 means, and adopt our own model to fit.

Investors must do their part as well. This means actively participating in governance, contributing to the building process, and coming to the table with clear and tangible ways to help.

Some closing thoughts: Blood in the streets, time to build

While the rest of the market is worrying about the price of tokens, creators are furiously building out the next wave of tech to advance Web3.

The only constant within crypto is that it’s impossible to keep up with the fervor of innovation that people dream up and that the rate of change only seems to be increasing. The reason why is quite simple — everyone cares deeply. This is the fundamental basis behind Web3’s meteoric success, and the source of my own personal excitement. As a community, we are all united by a common goal to create something better than what came before us.

All in all, it has never been a better time to create, and I’ve never been more excited to be involved in crypto as an investor and builder.