Finally, Web3 technologies have gone mainstream!
Their popularity has become the stuff of legends.
So much so, family offices are the next frontier that have a space therein.
Enzo Villani, Chief Executive Officer of Alpha Transform Holdings and Chief Investment Officer at Alpha Sigma Capital (ASC) and Wes Levitt, Co-Chief Investment Officer, at Alpha Transform Holdings gave us their insights into the metaverse and the opportunities it presents.
Enzo Villani, Chief Executive Officer of Alpha Transform Holdings and Chief Investment Officer at Alpha Sigma Capital (ASC)
How have previous technology cycles affected capital flows?
Enzo Villani, Chief Executive Officer of Alpha Transform Holdings and Chief Investment Officer at Alpha Sigma Capital (ASC): I like to refer to Geoffrey Moore’s book on Business Cycles, Inflation and Forecasting, that explores the relationship between economic cycles, inflation, and forecasting, and argues that these factors are interrelated and dependent on both global and local trends. The adoption cycle typically consists of five phases: innovators, early adopters, early majority, late majority, and laggards and also the scammers. This is very similar to the technology cycle, whether it is blockchain or AI and machine learning.
The capital flow gets tighter.
The larger players take over. Binance was one of the earlier big players and we’ll see how regulation will pan out for them. The next wave was the Blackrock’s of this world coming in who want to set up a bitcoin ETF etc.
Moore presents a framework for understanding these dynamics, drawing on data analysis and historical case studies to illustrate key concepts and trends. Ultimately, he suggests that a proactive approach to forecasting and analysis is crucial to staying ahead of economic trends and proactively managing risk.
Why are technology cycles getting shorter?
Villani: The speed to technology innovation accelerates. Look at the space race. Development gets lighter and cheaper and makes the development cycle shorter. One of the goals in the space race is to create a type of assembly line of spaceX starships every 72 hours. Like the model T Ford of the space race. Which is interesting since there is a spacex ecosystem developing. Innovation creates extra speed. Now generative AI is assisting humans to go even faster. The change of pace is common in our lives. Just like the internet is becoming faster, AI is becoming faster.
What makes Web 3 different from previous technology cycle iterations?
Villani: This is the decentralization of the financial layer, like the internet was the decentralization of the information layer, now we are decentralizing the financial industry, taking friction out of the market. It also allows for settlement in real time.
There are things that can be utilized via blockchain and tokenization, that web3 can mitigate the risk while still accelerating the go to market speed.
What role will emerging technologies such as Artificial Intelligence (AI) , Internet of Things (IoT) and others play in Web 3 ecosystems?
Villani: This is a very broad question. Several significant things are going to happen. E.g. it’s going to be impossible for IoT to exist without Web3. And that’s probably one of the biggest ideas why the combined development will accelerate. Every car, every machine will be transacting with one another, you need massive networks that are decentralized in order to do so. You also have to get rid of the idea of owning where the machine sits. Right now if you want cell towers, you have to rent or buy cell towers with a significant amount of capital.
Smart cities will not be viable if you have to own the real estate where you want to put your IoT receiver. So if you want to create a competitive service in a smart city, optimizing the route from A to B. You could also create a sort of bidding system for the highest bidder to go on a sort of fast lane access. This type of scenario would only exist if you create an IoT system based on tokenization tied to a decentralized network. If you look at smart cities like Dubai and Abu Dhabi, tokenization and blockchain is deployed across the entire government.
Apple is creating digital IDs you can use for travel and so forth, but I think people will want to step away from this idea of using a centralized entity and have something more competitive from the Web3 space. We’ll see how this will develop, but in some respects the decentralized web 3 space is in competition with the Apple’s of this world and this will only increase over time.
Wes Levitt, Co-Chief Investment Officer, at Alpha Transform Holdings
What is the significance of the Total Value Locked (TVL) when it comes to Layer-1 blockchain utility?
Wes Levitt, Alpha Transform Co-Chief Investment Officer: TVL is one of the more reliable metrics of usage and adoption for L1s. While transaction volume and numbers of smart contracts can be faked/spoofed at relatively low cost (just the cost of gas for the onchain transactions), TVL measures the value of assets locked into a protocol, and is difficult to fake on blockchains since the assets can be verified. An analogy would be that a company can choose to make offsetting purchases with another company to boost revenue without creating any real value, but it’s harder for them to fake cash in their bank accounts.
What problems do Layer-2 blockchains solve?
Levitt: Layer-2 (L2) blockchains solve the issue of limited transaction throughput, which is still a limiting factor to adoption for most Layer-1 chains. By batching transactions off-chain and only pushing aggregated transactions on-chain on a regular basis, they can effectively increase a blockchain’s throughput by many times.
What are the industries that have adopted Web 3 technologies the most?
Levitt: Finance, Gaming, Supply Chain, and Government CBDCs are key industries that are seeing use cases move from proof of concept to production usage of blockchains and digital assets.
What is the significance of the emergence of Web 3 technologies investment-wise?
Levitt: As Web 3 technologies continue to mature and approach critical mass, there are significant investment opportunities. Web3 tech has made it much easier for anyone to launch their own digital asset, but that also comes with risk to investors because it can be daunting to identify which have real value in the long-term and which are simply built on vaporware. The Alpha Transform team examines the most promising Web3 investment opportunities, including startups, investments in cryptocurrencies and other digital assets, so that our LPs can gain exposure to best-in-class assets in the space.
As Web 3 technologies approach critical mass, what are the best ways for family offices to get involved?
Levitt: The best way for FOs to get involved is to invest in blue chip digital assets themselves, such as Bitcoin and Ethereum, as well as with experienced digital asset funds that can prudently invest in the emerging technologies in Web3 and give your Family Office exposure to this next generation of valuable digital assets.
How can family offices protect invested capital and mitigate volatility risks?
Levitt: To protect invested capital and mitigate volatility risks, family offices may want to consider diversifying their holdings across a mix of different assets, including both cryptocurrencies, digital assets and traditional assets. While digital themselves can be quite volatile, as part of a broader portfolio they can be a strong source of diversification and actually reduce overall portfolio volatility and risk, as noted in portfolio management reports by Societe Generale and WisdomTree.
How do you think things will change in the Web 3 space as the Gen Z population segment comes of age?
Levitt: We expect to see significant changes in the Web 3 space. This Gen Z generation is more open to new technologies and innovations, and therefore more inclined to adopt Web 3 technologies than previous generations. The students entering high school this fall were born after Bitcoin – they’ve never known a world where digital assets didn’t exist, so the adoption curve will naturally be much steeper than for those who see digital assets as an upstart challenger to the status quo.
Can you explain the technology adoption cycle phases?
Levitt: We position Alpha Transform in the innovator and early adopter space.
Just how far does the Metaverse rabbit hole go?
Levitt: The Metaverse concept is still evolving. However, as more users adopt Web 3 technologies and explore new digital environments, the metaverse is a logical environment to connect these technologies. While a nebulous term, metaverses generally can refer to any digital-first environment that users interact in, and naturally digital assets will be at the forefront of these spaces as the way to transfer value within them.
What role will Non-Fungible Tokens (NFTs) play in the upcoming Web3 explosion?
Levitt: Non-fungible tokens (NFTs) play a significant role in the Web 3 adoption and explosion. These tokens allow to create unique, one-of-a-kind digital assets and transact with them in new and innovative ways. Beyond simple digital collectibles, we are seeing more often NFTs being deployed in unique ways behind the scenes, such as representing immutable tickets to concerts and other events, or as transferable items in gaming that have shelf lives beyond any one single game and can have long-term value. As more and more people begin to experiment with NFTs and develop these frontier use cases, we can expect to see significant growth in this space.
Should we expect disruptions like the FTX and other situations that have recently occurred in the Web 3 space?
Levitt: We believe that the Web 3 space shows strong potential for continued growth and innovation, and significant opportunities for investment and entrepreneurship. Ponzi schemes have been around for decades and the rise of Web3 technologies does not necessarily make Ponzi schemes more likely to succeed. In fact, some experts have argued that the transparency and accountability provided by blockchain technology may actually make it more difficult for fraudsters to perpetrate Ponzi schemes and other scams – it’s worth noting that FTX’s fall was hastened by thought leaders in the Web3 space that raised concerns after tracking the exchange’s on-chain activity. More broadly, as with any investment opportunity, it is important to exercise caution. Part of our job is to do your due diligence to ensure that our family office clientele is not being taken in by a fraudulent or deceptive scheme.
What role can governments play in the effective regulation of the Web 3 industry and how can that encourage adoption?
Levitt: We have yet to see what regulation the US government will come up with, since to date they have focused on regulation by enforcement and attempting to fit blockchain into existing securities frameworks as-is. But by creating clear and predictable regulatory frameworks, governments can help to foster innovation and encourage investment in this rapidly evolving space. Other regions like the EU with MiCA legislation, and the frameworks put forward by Hong Kong, UAE, and the UK are stepping up to fill the void left by US regulators and are winning a larger share of the Web3 market as a result.