Dan Robinson

Head of Research, Paradigm

Web3 Landscape, Part I

September 2022

Some Disclosures•••••

Paradigm is invested in many of the projects we’ll discuss today.
But this talk is about the entrepreneur's perspective, not the investor's.
Nothing in this talk is investment or legal advice.​
Only representing my own views, not those of Paradigm or our investments.
Case studies are meant to demonstrate principles of entrepreneurship; specific examples
have been simplified.
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Web3 LandscapeLayer 1 Platforms (L1)
• Layer 2 Platforms (L2)• Infrastructure• Centralized Finance (CeFi)• Decentralized Finance (DeFi)•3

Problem

What pain point am I
addressing?

Key questions

Key differentiator

How is my solutiondifferent from others?

How do I decide what to build inweb3?

Customer

Who is this for?

Moat

How do I defend against
competitors?

Business model

How does this makemoney?
4Layer 1
Landscape• Most decentralized Web3 applications are built on one or more blockchains• Blockchains manage the state and core logic for those applications• Each blockchain typically has a native cryptocurrency

5Layer 1
Landscape• Special-purpose chains (Bitcoin, Stellar, ZCash, Cosmos Hub…)• Generally programmable chains• Ethereum Virtual Machine (EVM) chains (Ethereum, Polygon, Avalanche…)• Alternative VM chains (Solana, Sui, Aptos…)

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Case study

Solana,Polygon,
Avalanche
High-throughput proof-of-stake
blockchains.

ProblemHigh transaction fees on
smart contract
platforms like Ethereum

Key differentiator

Low transaction fees

Customer

Crypto applications andusers

MoatNetwork effect ofapplications and users

Business modelTransaction fees

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Layer 1Open Problems••••

Scaling: more transactions with lower fees
Privacy: lower public visibility into transactions
Programmability: better languages and virtual machines
Interoperability: easier portability of assets or applications8

Layer 2Landscape• One solution to scaling is to move some logic from the Layer 1 (L1) chain to a "Layer 2" (L2)• L2s depend on (and ideally inherit) the security of the L1• L2s can be specific applications or general-purpose platforms

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Layer 2Landscape• One popular L2 architecture is a "rollup"• Rollups post their raw data to the L1, but prove the results of execution more efficiently:• Optimistic rollups: execution proven via challenge-response game
• ZK rollups: execution proven via fancy cryptography

10Case study

Optimism,Arbitrum,Specular
EVM-equivalent smart contract
platforms built as an optimistic
rollup on Ethereum

ProblemHigh transaction fees on
Ethereum price out
many applications andusers

Key differentiator

Portability of existing
applications and tooling

Customer

Ethereum applications
and users

Moat

Network effects ofapplications and users

Business modelTransaction fees11Layer 2Open Problems• Efficiency: further reducing transaction costs• Programmability: making ZK rollups as easily programmable as L1s• Interoperability: making it easy to move assets between L2s, or between L2s and L1s

12Infrastructure
Landscape•
••
•
•
•
•

Wallets (Metamask, Phantom, Argent…)
Block explorers (Etherscan, Blockscout…)
Node infrastructure (Alchemy, Infura…)
Data indexers (Dune Analytics, The Graph, nxyz…)
Developer tooling (Tenderly, Foundry, Hardhat…)
Custody and key management (Fireblocks, Anchorage…)
Mempool and block building infrastructure (Flashbots, bloXroute, Blocknative…)
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Case study

Fireblocks
Digital asset custody, transfer,and settlement platform.

Problem

Securing private keys isdifficult for institutionalusers

Key differentiator

Supports complex
operations like DeFi
interactions

Customer

Institutional crypto
users

Moat

Trust; settlement
networkBusiness model

SaaS (monthly fees)
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Infrastructure
Open Problems• User experience: making web3 as painless as web2
• Decentralization: avoiding single points of failure in off-chain infrastructure• Monetization: capturing value from tools (especially open-source)

15Centralized FinanceLandscape• Exchanges (Coinbase, FTX, Binance…)• On- and off-ramps (Moonpay, Stripe, Ramp…)• Custodians (Coinbase, Anchorage)

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Case study

Coinbase,FTX,BinancePlatforms for buying, selling,transferring, and storing
cryptocurrency.

Problem

Crypto on-ramps andexchanges used to bereally sketchy

Key differentiator

Simple way to buy andsell crypto and not get
hackedCustomer

Crypto holders andtraders

Moat

Trust and complianceBusiness model

Trading fees
17Centralized FinanceOpen Problems• Institutional adoption: getting institutions comfortable using crypto• Interoperability: interacting seamlessly with both traditional finance and DeFi
• Regulatory compliance: supporting more products in more jurisdictions

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Decentralized FinanceLandscape••••••Decentralized exchange (Uniswap, SushiSwap, Curve…)
Stablecoins (DAI, USDC, USDT…)Lending (Compound, Aave, Yield…)
NFT marketplaces (OpenSea, Magic Eden…)
Yield aggregators (Yearn…)
Insurance (Nexus Mutual, Risk Harbor…)

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Case study

Uniswap,Curve,SushiSwap
Decentralized crypto trading
protocols.

Problem

Trading crypto on
centralized exchanges
requires deposit

Key differentiator

Trade or provide
liquidity without giving
up custody of assets

Customer

Crypto traders

MoatFeedback loop between
volume and liquidity

Business model

Trading fees
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Decentralized FinanceOpen Problems••••

User experience: making non-custodial finance easier than custodial
Efficiency: reducing transaction costs
Security: avoiding exploits and bugs as DeFi applications get more complex
Regulatory clarity: determining how DeFi should be regulated21

Questions?
@danrobinson on Twitter22Disclosures•

This presentation (the “Presentation”) is intended solely to provide general information. Any views expressed arethose of the individuals presenting and are not the views of Paradigm. Any opinions expressed on this Presentation
are subject to change.

•Nothing in this Presentation constitutes investment, accounting, tax or legal advice or is a recommendation thatyou purchase, sell or hold any security or other investment or that you pursue any investment style or strategy.

•Certain information contained herein has been obtained from third-party sources. While such information isbelieved to be reliable for the purposes used herein, Paradigm has not independently verified such information
and Paradigm makes no representation or warranty, express or implied, as to the accuracy or completeness of theinformation contained herein.

•

Any investments or portfolio companies described or referred to herein are not representative of all investments
made by Paradigm and there can be no assurance that the investments described are, or will be, profitable or that
other investments made in the future will have similar characteristics or results.

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