# 8 - Which protocols to invest in, as an investor

From a16z Podcast and summarised by Untethered.email - capturing the uncaptured

TL; DL (Too Long; Didn't Listen)

“Instead of investing in companies, that are building on top of these protocols, Polychain invests directly into the protocols” - Olaf Carlson-Wee

“The difference now is that, you can invest for example, in directly in company like Coinbase or you can invest directly in the protocol” - Chris Dixon

“We’ve already seen the creators of many of these open source protocols make lots of money on this like the creator of Bitcoin, whoever he or she or they are has over a billion dollars in Bitcoin. So I think we’re already seeing this play out a little bit and it creates the same economic incentives for these projects that you might get as a start-up.” – Olaf Carlson-Wee

“Most people should not be investing in individual stock , you should buy ETF and someday hopefully they'll be a crypto ETF they could buy too but for now they should stay away unless you really know what your doing.” - Chris Dixon


Insights

Olaf’s View on investing in this space (Protocols):

  • It’s a more of a pure play is the way I like to think about so instead of investing on the application layer, which your taking a bet on a specific team, a specific business model… And we’re betting a layer below that.”

What is an App Coin?

  • When you think about Bitcoin, we think about money or currency and think about this broad base way to generate value and transfer value.

    • People nowadays are creating the so called: Applications Specific Tokens

    • These are basically a monetary layer, added on top of the specific type of application

Project Golem

  • A peer to peer marketplace for computation

  • This means that instead of shouting his computer at night, he can rent out the CPU and GPU cycles to some developers in all parts of the world

  • It is not really money, it is just a monetary layer to this once specific peer-to-peer network

  • Doesn’t exist in the current investment world. So the only means to gain exposure to this new ecosystem is to buy Cryptographic tokens or Cryptocurrencies

Benefits to people investing in these at the protocol layer

  • We’ve seen the creators of many of these open source protocols makes lots of money on this like the creator of Bitcoin

  • People who launch Golem Token Network, they had raised a total of 9 million dollars in 9 minutes

What is the flipside of this Protocols?

  • Flipside is that now there are so many of these protocol launching right now and it means that they will have competitions in the coming years.

Open vs Closed platforms

  • Open protocols have great user experience nowadays than the outdated and centralized management form of closed protocols in the last 15 years. - Chris Dixon

How do we solve the problem of trust without having a central authority in the middle?

  • You must not trust any individual party.

  • Trust no one

  • All sorts of bad people out there trying to steal, trying to dupe the network, trying to convince the network that they have a valid transaction when they do not

People may have heard of Bitcoin and Ethereum. Can you talk about some of the other coins were accepted?

  • Tezos - uses a proof of stake consensus mechanism instead of mining or proof of work. It is also proof of stake system is that the governance is also pushed to the coin holders at the protocol level

  • Maker or MKR - a sort of whole governance and insurance system for a separate coin that is pegged to the USD dollar value. One Dai equals one dollar

    • Dai. Long considered the “holy grail” of the cryptocurrency ecosystem, a decentralized stablecoin with minimal volatility will introduce a new era of usability and mainstream adoption

    “I think there is a need for a stable coin and basically the idea is a coin that doesn't change in value.” – Olaf Carlson-Wee

  • SWARM - which is a kind of a similar project on Ethereum that helps you build decentralized apps like the domain name system or DNS, there’s ENS or Ethereum Name System that maps ETH (Ethereum domain names) to Smart contract cryptographic addresses

  • Olaf also invested in a lot of these things that are part of the low levels of that Internet stack as well as the so called “The Middleware”

Challenges and Obstacles

  • The challenges are the brand new technologies nowadays. So these aren't facing just a market challenge. These are hard technology challenges

  • Olaf and Chris agrees and says that large groups of people have politics and disagreements

  • The only difference is that the arguments happen in public corporate board might have just as large an argument and one side fails but the shareholders never hear about that

Olaf’s view on the competition in inventing Protocols:

  • By the time there's lots of competition that means that the Polychain fund has done well but the long term vision for him that really matters is a web that is owned by the users of the web

Anticipation vs reality

  • Going to have emergent behaviors that show up that we have no way to predict

  • It's very easy to compare what's happening right now to the centralized web platforms because it's what we know

  • He anticipates that these protocols and economic incentive structures that create sort of swarm intelligence, will generate things that we could never have imagined

Links mentioned:


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