a16z is one of the world’s largest venture funds — pouring billions into crypto startups. Last week, they announced a massive $600M crypto gaming fund and released their State of Crypto report.

a16z’s optimistic view of the industry…

1/ In the past 13 years, we’ve had four innovation cycles… We’re currently in the fourth one. Here are the commonalities in each of the past three:

• Rising crypto prices drove interest, new ideas and innovation.
• Social media, developer and startup activity surged — before an eventual collapse.

Rinse and repeat. In the second (2013 peak) and third (2017 peak) cycle, there were ~10x more developers and startups.

2/ Web3 platforms are better for creators: Apple’s App Store takes up to 30% of revenue, YouTube takes 45% and social media platforms take nearly 100%. Users of Instagram, TikTok and Facebook create the content but share in none of their revenue (excluding creator funds).

• Imagine a web3 social media platform that rewards you for usage or content creation.
• The fee structure reverses in web3 — with OpenSea taking 2.5% — and AudiusAUDIO
  , a Spotify competitor, taking 10%.

3/ Still early: a16z estimates 7-50M active Ethereum users — which puts us near 1995 compared to the internets’ early days. The internet reached 1B users in 2005 — close to Facebook and YouTube’s founding.

Terra’s blowup was a wakeup call for regulators

We’ve seen many lawmakers and regulatory bodies worldwide speak up in the past week, highlighting the urgency for crypto regulation.

• On Thursday, the G7 group of countries urged the Financial Stability Board to advance “consistent and comprehensive regulation.”
• Ashley Alder, the Chair of IOSCO — an association of market regulators — said a joint body coordinating crypto regulation globally could come next year.

The lack of regulation is deterring institutions from entering the industry. Yesterday, Australia’s largest bank, Commonwealth Bank, paused plans to launch crypto trading. They cited last week’s events (Terra), saying more regulation is needed first.

Investors: Regulations are good

There are plus sides to regulations, according to Bill Dudley, former President of the Federal Reserve Bank of New York (BBG):

• Why the delay in regulation? The regulatory system is fragmented across various entities — and lacks the expertise to understand and make decisions about “new business models and technologies.”
• Why do we need regulations sooner? Regulations protect investors while reducing the chances of lawmakers putting in place innovation-killing regulations — in reaction to market crashes.

It’s easy to lose the big picture — focusing only on the near-term prices — especially when your crypto portfolio is down over 50%.

But heed this warning from a16z: Those who stayed away from tech after the dot-com crash missed the best opportunities of the decade.