How to Invest in the Intents Economy with Haseeb Qureshi, Avichal Garg, & Matt Kummel

The Fragmentation of Payment Methodologies

Overview of Current Payment Systems

• Discussion on the fragmentation in payment methodologies, highlighting that value is concentrated at either the bottom or top of the system, with a lack of benefit for those in the middle.

• Personal anecdote about transferring funds between ETH and arbitrage, illustrating the delays and complications involved in legacy systems.

Market Evolution and Scaling

• Inquiry into how market dynamics will change as it scales from $10 billion to trillions, raising questions about market structure evolution.

• Introduction of hosts Robbie and Andy, who share their backgrounds in digital assets since 2017.

Introduction to Matt Kmel

Background Information

• Matt Kmel introduces himself as Chief Commercial Officer for Near Foundation, having joined in July after experience at DCG and traditional finance sectors.

• Expresses excitement about discussing "intents" within the context of interoperability and payments.

The Concept of Intents

Interoperability Insights

• Discussion on how intents are viewed as crucial for interoperability across various applications, marking them as a significant advancement since multi-chain inception.

• Examination of current challenges faced by applications within the interoperability stack, particularly those positioned between base layers (L1's) and user-facing applications.

Investment Perspectives

• Commentary on investment strategies focusing on middleware solutions versus direct application or base layer investments.

• Reflection on past investments in Near since 2019 and its evolution over time towards developing intents.

Value Accrual Dynamics

Understanding Value Distribution

• Analysis indicating that most value accrues either at foundational levels or through user-facing applications rather than middleware solutions.

• Mention of Zcash's rise attributed to both its own performance and external applications like Zashi that drive user demand.

Role Clarification Among Stakeholders

• Identification of four key players involved in intent processes: end-user apps/wallet providers, intent protocols, solvers, and other L1 protocols.

• Emphasis on the importance of apps owning user relationships while also recognizing value captured by efficient solvers operating within this ecosystem.

Understanding Market Dynamics in Blockchain

The Role of Layer 1 Protocols

• Discussion on the limited value capture by Layer 1 (L1) protocols, primarily receiving gas fees rather than substantial revenue.

• Emphasis on the solver network's role in managing and routing transactions, which is distinct from the chains involved in transfers.

Market Structure Insights

• Introduction of a U-shaped curve model illustrating how value is captured across different market participants, with examples like Nvidia and AWS leading in value capture.

• Importance of market size: even middle-tier companies can be significant if the overall market is large enough, potentially worth billions despite their relative position.

Fragmentation and Value Capture

• Noting that fragmentation on both ends of a market can lead to unique opportunities for middleware solutions to capture value effectively.

• Example of Stripe as a successful case due to its ability to navigate fragmented markets with numerous app developers and payment methodologies.

Comparison with Traditional Middleware

• Argument that blockchain intents may resemble Stripe or Twilio more than traditional middleware due to potential fragmentation among developers and chains.

• Suggestion that Near's routing mechanism could similarly capitalize on this fragmentation, positioning it favorably within the market.

Monetization Challenges

• Inquiry into how Near can monetize its superior chain routing infrastructure amidst competition from similar applications offering lower fees.

• Discussion about whether user interactions will change significantly with added fees, raising questions about sustainable revenue models for cross-chain services.

Competitive Landscape Analysis

• Reflection on scaling strategies where businesses often rely on volume rather than high margins; comparison made with major exchanges like Binance competing primarily on low fees.

• Acknowledgment that while DEXes have limitations regarding asset listings, there remains strong demand for cross-chain asset movement.

Understanding the Trading Landscape in Crypto

The Limitations of DeFi Trading

• Binance allows trading across a wide range of crypto assets, while DeFi platforms like Uniswap limit trades to Ethereum-based tokens, creating liquidity challenges.

• Users often prefer centralized exchanges for their simplicity and direct access to underlying assets, which enhances the trading experience.

Innovations in User Experience

• Havachi offers fast and private trading secured by zero-knowledge proofs (ZK), emphasizing user privacy and security.

• The maturation of crypto infrastructure is crucial as legacy finance faces pressure to innovate due to regulatory changes and market disruptors.

Market Dynamics and Volume Insights

• Near Intents has seen significant activity with $10-$11 billion in volume generating $18 million in fees from over 500,000 unique users within 30 days.

• The evolving market structure raises questions about negotiation processes between protocols and solvers, hinting at potential auction systems or B2B negotiations.

Negotiation Strategies in Crypto Ecosystems

• Current negotiations are largely one-on-one; there’s a desire for more standardized relationships that ensure fair value sharing among ecosystem participants.

• Transparency in revenue generation is essential; stakeholders should be able to assess the financial health of protocols like Near through clear metrics.

Competing on Value Delivery

• Decisions on routing trades are driven by price and value delivered rather than brand loyalty; users prioritize getting the best deal available.

• Future discussions will focus on enhancing product-market fit while ensuring that user experiences are seamless, particularly during asset bridging processes.

Competitive Landscape and Market Dynamics

Overview of Competitive Strategies

• Vance from Framework discusses "T-U copycats," referring to companies that mimic successful applications to attract venture capital, aiming for a small share of an established market.

• The conversation shifts to the competitive landscape surrounding Intense, highlighting concerns about potential market entrants as the industry scales significantly.

Network Effects and Market Share

• Emphasis is placed on the importance of network effects in fragmented markets; achieving scale is crucial for locking in these effects.

• A true network effect can lead to significant efficiencies such as improved liquidity, pricing advantages, and faster settlement times across various chains.

Winner-Takes-Most Dynamics

• The discussion suggests a power law distribution where one dominant player could capture 70-80% of the market, similar to trends seen in social networking and payments.

• The focus should be on maximizing market share early on, as future growth could expand the market size exponentially.

Pricing Strategy Considerations

• A hypothetical scenario is presented where high margins could attract competition; thus, starting with low or zero margins may deter competitors by dominating the market first.

• This strategy aligns with historical lessons from social networks that thrived by prioritizing scale over immediate profits.

User Demand and Asset Ownership

• The rise in on-chain trading is noted; however, there are limitations regarding actual asset ownership versus merely trading prices.

• Users often seek specific properties (e.g., privacy with Zcash), indicating that simply trading derivatives does not fulfill all user needs within DeFi.

Structural Risks in Market Adoption

• Concerns are raised about whether users truly value owning assets like Zcash rather than just trading them; this represents a significant risk for platforms like Intense.

• Despite these risks, there appears to be strong underlying demand for actual assets across different chains.

Structural Risks in Investment Perspectives

Exploring Structural Risks Beyond Competition

• The discussion opens with a question about structural risks in the investment landscape for intents, beyond competitive pressures and asset issuance.

• Potential risks include the emergence of superior bridge designs or a consolidation of activity into fewer chains, which could impact the multi-chain ecosystem.

• There is speculation on third-party risks, such as solvers potentially going on strike, indicating concerns over reliance on external entities.

Growth of DeFi and Future Visions

• The speaker emphasizes that DeFi has grown significantly, now accounting for 25-26% of daily trading volume, suggesting an ongoing trend towards more users entering this space.

• Intents are envisioned to evolve from simple swapping mechanisms to facilitating complex transactions involving artificial intelligence agents and physical goods.

Fragmentation and Opportunities in the Market

• The rise of tokenization across various sectors is anticipated, with many competing interests leading to a fragmented market rather than a single dominant chain.

• This fragmentation is seen as an opportunity for intents to thrive within a diverse ecosystem of multiple chains and layers.

The Rise of Agentic Economy

• A shift towards algorithm-driven interactions in financial markets is predicted, moving away from human-operated transactions towards automated systems using bots.

• The potential expansion of total addressable market (TAM) due to agentic interfaces suggests that user engagement will increase significantly over the next few years.

Counterparty Risk Considerations

• Individuals seeking exposure to assets like Bitcoin may prefer direct ownership over derivatives due to concerns about counterparty risk associated with exchanges.

• Trust in the intent network's functionality becomes paramount; users desire straightforward ownership without ongoing obligations or uncertainties related to exchange operations.

Conclusion Remarks

• The session wraps up with acknowledgments among participants regarding their insights into intents and their implications for future investments.