Our Investment Thesis and Themes in Web3

For more than a decade, we at Science have moved to invest in and build the next generation of companies shaping the future. Since 2014, that investment strategy has included a focus on cryptocurrency and the platform it’s built on — blockchain — through a combination of our company’s innovative DNA, expansive network, technical depth, and regulatory strength.

In our eight years in the space, we’ve witnessed firsthand multiple hype cycles, crypto winters, and rebrands of the technologies powering the industry (today’s Web3 is yesterday’s blockchain; today’s metaverse is yesterday’s VR and AR). While there are waves of volatility, overall growth has exponentially been up and to the right, and we’re still just in the earliest stages. The strongest company building often happens in the bleakest markets — recent uncertainties will weed out those trying to chase easy money in a hype cycle (see: the NFT of Jack Dorsey’s screenshotted tweet) and lift up the founders with great ideas solving real problems.

Before we dive into our themes, I want to share our topline beliefs in the space:

• Consumers will use Web3 — we don’t know yet if they’ll care about it: Everyday consumers don’t have a strong opinion on how Amazon Web Services compares to Oracle Cloud Infrastructure — but consumers use sites powered by those products every day. We have strong conviction that blockchain will become foundational for many technologies. We think there’s a strong case to be made that consumers could care about certain aspects of Web3 — but the jury is still out on if and how consumers will change their behavior to adapt.
• Blockchain should ultimately be the foundation of our financial systems: If there were ever a world that needed a trustless system, it’s finance. While some fintech darlings like Robinhood and Chime have polished the customer experience in finance, we haven’t seen innovation at the foundational level in decades. SWIFT, the telecom system that banks around the world use to message each other, was created in 1973. The foundation of finance is overdue for an update.
• We see power in decentralization — but not everything should be decentralized: With every new tech model, there’s a temptation to blanket it over everything. In the early 2000s, that led to the dot com crash. In the 2010s, that led to a slew of “Uber for X” startups that are now largely shuttered. Not every aspect of every business needs to be decentralized. For some businesses, customers will want protections like FDIC insurance and customer service representatives to resolve their issues. We don’t envision a future with complete decentralization.

Read on for a deeper look into our themes.

Web3 x Fintech

Consumers feel left in the dark when it comes to their data, finances, and marketing. With the industry’s various shortcomings, we need to reinvent traditional finance products and place power back to the consumer.

Since digital assets are the building blocks of Web3, consumers can regain control of finance, data, and content.

With Web3, we will create complex financial products that have accessibility to individuals without going through banks, and we’ll also have the ability to produce new financial products and derivatives that traditional financial markets cannot generate or manage.

With Web3 we’ll be able to:

• Easily issue debt or value-based financial instruments on top of verified/tracked crypto assets
• Give people access to high-yield, high-risk products otherwise reserved for institutional investors
• Move assets at their own discretion, even in a peer-to-peer structure
• Leverage their own assets, therefore instead of depositing them into a bank, you can use your assets to compound greater returns
• Participate in perpetual secondary trading gains as asset creators
• Provide ownership, control, and value
• Democratize financial markets and give investors greater access to the financial infrastructure, tools and instruments that they otherwise would not have access to

We’ve invested in a few companies as part of our portfolio that operate in this space:

Protego Trust Bank is specifically for institutional clients seeking opportunities within the world of digital assets. It’s a fully regulated bank (only one of three nationwide) that allows clients to hold, trade, lend, and issue digital assets.

TokenBot is the world’s first Web3 algorithmic trading network. Its automated copy-trading platform is designed for social trading communities such as Telegram, Slack, and Discord.

RealBlocks is a tech platform that connects advisors and investors to the best alternative investment managers.

Web3 x Personal Data

With Web3, people can now reclaim their personal, private, and public data. These digital wallets held by individuals give access to control unique and transferable data.

Similar to a wallet with tokens and NFTs, other objects can sit in it, including cookies, dental records, credit scores, and banking info.

Those with digital wallet IDs can deposit value from companies as they reward them for usage, activity, and early adoption…the list is endless.

Objects in a digital wallet can include:

• Loyalty data
• Personal data
• Marketing preferences
• Identification
• Medical Records
• Credit Records
• Social profile data
• Professional data
• Legal contracts
• Medical records

The advantage here is that citizens and users have a place they can store personal information that they can then grant people access to as needed. Take a driver’s license for example; there is so much unnecessary information you have to divulge to a third party. It lists your address, your sex, your eye color, etc. just to prove that you can drive and that you are over a certain age. Having ownership of your personal information not only gives you control but also gives you the ability to protect yourself. Through this system, users can monetarily benefit from a platform’s growth and third parties can also benefit from a liability perspective since they are no longer responsible for storing user data.

Science companies include SpringWorks, a blockchain-based verified professional-profile platform, and VTagz, a GenZ gateway to NFTs and crypto.

Web3 x Communities

Web3 digital wallets allow community participation, as many more people (especially GenZ) spend more time in digital spaces. If you’re new to an app, social platform, or any online platform, early and active adopters can receive benefits from community participation in the form of non-equity, token-based value.

In Web2 communities, users created value that was ultimately sold as data by the operators to third parties like advertisers. In Web3, users will control access to that data and profit from it.

Digital community leaders can have a clear on-chain view of participants and participation, and on-chain community activity allows clear attribution to individuals participating in order to monitor for behavior and bad actors.

Since digital wallet identity is permanent, reputation transfers across communities, allowing for community guidelines and positive environments to remain intact. Utility-driven NFTs can be used as keys to access these communities and to create true ownership of new values and utilities for members.

And the systems that we interact in and make sure participants that add value can benefit from those communities.

A great example is if homeowners are benefiting from the day workers that are creating cities from the ground up but the day workers aren’t seeing the value in this growth because they are not homeowners, it creates friction. With these types of systems, growth can be returned to the community participants versus just the owners.

Science portfolio companies doing this include:

DAOLabs, a platform for building decentralized autonomous organizations, Open3, a network for artists, brands, and collectors bringing value to digital communities through NFT-based experiences, Biite, the crypto token of the food industry, and Superlocal, where users can earn crypto when they go places and check-in.

For those interested in investing in our funds, please contact investors@science-inc.com.