CI recently connected with Layne Haber, Co-founder at Connext, which claims to be the HTTP of Web3.
Haber touched on how crypto and digital assets are becoming increasingly popular investments for governments as well as private investors. She discussed investors’ top priorities as assets such as tokens and stablecoins disrupt the landscape of traditional finance. She also talked about the growth opportunities crypto/blockchain/web3 companies have in the next few years, especially in an unpredictable market.
While web3 promises security and efficiency for numerous use cases from financial trades to gaming, users remain frustrated by the fragmented experience of transferring assets across blockchain networks.
Connext reportedly resolves this issue by simplifying the layer 2 experience: providing web3 developers with an open cross-chain protocol and the xERC20 token for enhanced liquidity and uncompromised security. The company has received support from the web3 community, last raising $7.5MM at a $250MM valuation from backers, including Polychain Capital, NGC Ventures, and Polygon Ventures. Current partner projects include those from Metamask, Alchemix, and Gelato, among other names in web3.
Our conversation with Layne Haber is shared below.
In what ways have investors’ priorities evolved over the past few years as crypto/digital assets/blockchain have become more mainstream?
Layne Haber: The crypto industry as a whole is subject to an extremely fast application-infrastructure cycle, with the applications becoming progressively more mainstream. With this transition, investors focus more on the business fundamentals and are less swayed by pre-released tokens than by ARR. As the industry continues to mature this trend will continue, and companies will have a heavy focus on sustainability. That being said, I still think meme coins will be around for the next cycle.
Crowdfund Insider: What factors are investors weighing as they consider the potential for a blockchain/web3/crypto company to financially succeed (i.e., be profitable) as web3 and web2 converge in TradFi?
Layne Haber: Investors are focused more on token models that have proven returns, rather than complex mechanisms to drive value. They should keep in mind that this shift in focus is cycle-dependent. As the web3 and web2 worlds converge, so will the standards of success expected of companies within each niche.
Crowdfund Insider: What aspects of blockchain/web3 do you think investors are overlooking or misunderstanding as they make decisions about which companies to fund?
Layne Haber: I think investors can be eager to fund protocols and companies without fully appreciating the shifting ground the companies are building on. As the infrastructure improves and changes, the competitive landscape at the application layer shifts dramatically.
Further, the open-source nature of the industry is unforgiving towards companies able to garner a technical edge. Investors have to look for companies that have the ability to adapt quickly on the technical level, but have strong foundational offerings at their core and follow a narrative.
Crowdfund Insider: Why is private investment essential for expanding blockchain and web3 on a commercial scale?
Layne Haber: Web3 is inherently risky in numerous aspects—e.g., security enforcement, viable products, interoperability—and is naturally structured to fit with private investment that is designed to take on and absorb those types of risks. At this stage of the industry, and especially for earlier stage companies, milestone-based private investment is necessary to de-risk the venture.
Crowdfund Insider: Where are the areas that blockchain/crypto companies have the most potential to receive private investor funding in now? Over the next few years?
Layne Haber: I think the infrastructure has finally reached a place where we can start to see applications built for real-world users. These will be clunky for the next 2-3 years as we fine-tune the underlying rails, but will be sufficient for a large portion of basic use cases (i.e. cross-border settlements, games running web3 in the background to facilitate their marketplace). With this growth in end-user accessibility, more companies revolving around displaying and digesting on-chain information (i.e. explorers, mobile wallets, etc.) will also flourish.
Crowdfund Insider: What issues are blockchain companies overlooking as they fundraise?
Layne Haber: I think the largest issue companies overlook is the perniciousness of bull- and bear-market psychology. In bull markets, companies happily raise at high valuations that can be difficult to match if the hype isn’t sustained. In bear markets, companies are less aggressive with growth and investments as they switch into cockroach mode.
Crowdfund Insider: What are currently the biggest challenges in fundraising for companies in the industry?
Layne Haber: The current biggest challenge is the lack of users within the ecosystem. For existing players looking to raise ongoing rounds, this environment can make it difficult to show promising metrics. For new players, it can represent a hurdle in onboarding unless their product fundamentally attracts new user groups.
Crowdfund Insider: What competitive advantages do disruptive finance start-ups in the web3 space have over incumbent TradFi institutions that are entering the crypto/digital assets space?
Layne Haber: The biggest technical advantages web3 has over traditional finance are instant settlement and auditability. TradFi startups have an inherent lag time for settlement, built in both by the settlement systems and regulations themselves.
This is not an inherent limitation for digital assets, where settlement is on the order of minutes (conservatively). Similarly, crypto has built-in auditability and traceability, which is a huge efficiency gain over TradFi.
Crowdfund Insider: Beyond financial investment, what is needed to enable the seamless adoption and use of digital assets on a commercial scale?
Layne Haber: To use digital assets on a commercial scale, there needs to be better infrastructure for between chains and account management. The scalability required to achieve seamless adoption necessitates multiple chains, and users must be able to easily interact with any of these without a break in service.
Further, account management needs to be far less intimidating. Most users will never feel comfortable putting value in these systems without a strong account recovery, and that’s to say nothing of the tax and reporting overhead.
Crowdfund Insider: How have your previous experiences as an entrepreneur in the healthcare space affected your approach to growing a company in the blockchain space?
Layne Haber Working in the healthcare space taught me a lot about building technology in highly complex and highly risk domains.
In both healthcare and blockchain, the technology you deploy could have tremendous impacts on the lives of users. While web3 does not have the same regulatory infrastructure as the healthcare industry, the defensive posture towards constructing systems is the same.