Blockwall's Thesis 3.0

Blockwall has been a thesis-driven firm from the very beginning. What started off as a fund-specific thesis for our first fund has evolved into a firm-wide thesis that reflects our point of view of how the Internet and our digital world will evolve over time. As a result, our thesis guides us in our investment decisions, what themes we focus on, how we build the portfolio of our funds, and how we envision Blockwall evolving as a venture firm.

We first published our investment thesis for Fund 1 (BWC I) for our investors in 2018 (Blockwall Capital I Thesis), when the fund began investing. In it, we tried to describe the evolution of the internet from Web1 through Web2 to Web3. We also shared our views on the assets that are evolving within Web 3.0 through our Asset Classification Framework (ACF) and our Analysis of the Web 3 Stack. This was important to understand where in Web3 value is being created and captured. 

In 2018, the state of technological development of crypto assets was still in its infancy. This meant that the foundation (infrastructure protocols) for Apps to be built was not yet in place, or was limited in scope. There were several items we focused on finding a solution for, such as the topic of scalability, which was and is a prerequisite for mass adoption. This issue was derived from a framework called the “scalability trilemma”, which describes that a crypto asset can only have two of the following three qualities: (1) decentralization, (2) security, and (3) scalability.

We also strongly believed in our hypothesis that most of the innovation and progress was still happening on the infrastructure layer, with a clear need to consider the necessities of the developer community and their use cases (i.e., dApps). Therefore, it was Blockwall’s conviction that investments should be focused on projects at the infrastructure layer, which led us to be one of the first investors in Solana, Hedera, Fetch.AI or Ocean Protocol.

Investing in such a volatile liquid crypto asset environment also required a more long-term, fundamental, and value-oriented approach to allow for the technology to evolve and gain acceptance over time. For this reason, we were and are confident in taking a long-term investment approach to this asset class by offering closed-ended funds and taking a venture capital rather than a hedge fund approach.

In the years following the launch of Fund 1, we’ve seen a significant increase in the adoption and use of infrastructure protocols by both businesses and individuals, as well as significant advances in technology development. A state of maturity had been reached that sufficiently enabled entrepreneurs to use this infrastructure to enhance current business models and create entirely new ones, leading to a surge of applications and services.

These are services that are critical to the crypto industry and applications that use the technology but do not necessarily require their own token. From this observation, we developed the Thesis for our second fund BWC II, to support the emergence of these applications and services. The investment opportunities were no longer limited to token investments and therefore included traditional early stage equity investments, leading to investments such as Nilos, Validation Cloud, Spiko and Spherity within our Blockwall Capital II portfolio.

Today, we can definitely say that the infrastructure has improved, and has reached initial scalability (e.g. Ethereum - 15 transactions per second (tps) vs. Solana >60k tps), there have been breakthrough innovations that revolutionized the financial industry (e.g. Decentralized Finance (DeFi), Tokenization) and the payment industry (e.g. Stablecoins). The last decade has been proof that the technology works, that it can be used and that tokens are a powerful tool to incentivize communities and bring back the original vision of the Internet - a more decentralized Internet controlled and owned by its participants rather than a few corporations. The industry has also spawned powerful companies in the service/ application layer, such as Coinbase, MetaMask, OpenSea, or Ledger. 

But why should we care about how our Internet will evolve in the future? 

As always, technology can be used for “good” or “bad”. However, technology is inherently neutral and its impact depends heavily on its creators and users. Therefore, as we look to the future, we must ask ourselves what businesses are worth building?!

We live in a world where “access” has become synonymous with a good standard of living and prosperity – access to banking, access to healthcare and medical products, access to a good education and, sadly, in some parts of the world still access to the basic things we need to survive. Often a common denominator and a first step (not to all problems of course) is simple - access to our digital world.

Access to the Internet has become a prerequisite for participating in our global economy and defines how we share information and connect with other people.

Why does this matter?

Two-thirds of the world’s population, or 5.4 billion people, have access to the Internet, one-third don’t - adoption is growing. We have about 15 billion devices connected to the Internet, which is expected to double by 2030 - that’s 30 billion devices in just a few years. At the same time, our devices are becoming more powerful and the objects of our daily lives are becoming smarter; our cars, our homes, and even our cities. Massive amounts of data, information, and value (e.g. in the form of online transactions) are being exchanged digitally.

Unfortunately, our digital way of life comes with certain risks. Because of that value, because of the amount of time we spend online. We are seeing more and more privacy abuses (e.g. GDPR fines of EUR 4.9 billion, the list is led by Meta, Amazon, TikTok, WhatsApp, Google), corporate fraud (on average, 10% of large publicly traded companies commit fraud each year), and data hacks (“At the current rate of growth, damages from cyberattacks will amount to about USD 10.5 trillion annually by 2025 - a 300 percent increase from 2015 levels”). In general, we are seeing a lack of transparency and a steady increase in data monopolies.

In fact, the Internet as we know it today was not originally designed for today’s use. This is why the evolution of our Internet and the transition to Web3 is so important. To improve the status quo and lay the foundation for the future of our digital world – preparing for more users, more devices, more data being exchanged. Just as we need secure, transparent, trustworthy infrastructure and systems in the real world, we need to make sure that our digital world is treated with the same principles. And as the real world becomes more intertwined with our digital world, it becomes even more important that we care about how our digital world is built.

This is why we at Blockwall are so committed to Web3 and why we want to use our funds to contribute to a transparent and secure digital future for all generations.

Technological innovation is the best chance we have to find solutions to the world’s greatest challenges. For example, providing access to healthcare and medical products that aren’t counterfeit (1 million patients die each year from toxic counterfeit medicines), or enabling a frictionless, efficient financial system without having to pay horrendous transaction fees (in exotic corridors e.g. 15-20% transaction fees) or being bound to official bank opening hours (USD 857 billion in global remittances in 2023 - people sending money across borders to their families).

We believe that our Internet of the future will be a feature set and combination of different technologies, such as:

• Web3 & Blockchain (the economic layer)
• Web3 & Extended Reality (the interface layer)
• Web3 & Artificial Intelligence (the productivity and efficiency layer)
• Web3 & Internet of Things (the machine and smart infrastructure layer) 

We are at an interesting inflection point in history where several technologies that will shape our future Internet are simultaneously emerging and maturing. This will create opportunities for new business models we can’t even imagine today, and enable founders to create solutions to some of the most challenging problems of our time. We see a future where these technologies intersect, working together and not separately, additionally enhancing our digital future.

We believe that in order to capture the full potential of these technological innovations, we need to focus on early-stage founders and cover the entire Web3 stack, looking at all verticals as well as at the intersection with other foundational technologies such as AI or XR.

While we have historically separated token and equity investment strategies, this all-in-one investment thesis requires a hybrid fund structure. Consequently, we are combining early stage token and equity investments going forward in a holistic, pre-seed and seed, Web3 focused venture fund, providing access to early stage founders shaping our digital future. This is Blockwall’s guiding thesis for the future and defines the strategy for our next fund, Blockwall Capital III - doubling down on Web3 - doubling down on our venture capital approach!

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