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Web3's oldest product remains its most compelling PMF. Why does nobody invest in it anymore?
Guerrilla infrastructure has obvious product market fit to a sector constantly in search of PMF beyond pure gambling.
What is guerrilla infrastructure? Well, in its strictest sense, it means “creating an operating infrastructure which can’t be shut down by a lawsuit or a small number of lawsuits, or oligopolistic collusion by suppliers/customers.” It can mean anything from hosting a darknet drug marketplace to opening up new use-cases around gray markets which are currently suppressed by antiquated legal norms. This latter set of use cases is an intriguing opportunity to me that I think crypto is uniquely equipped to serve, yet extremely under-explored.
Here is one random example: video-game titles associated with blockbuster sagas.
If you are an on-and-off avid RTS gamer like me, you have probably noticed that most of the epic Western strategy sagas (Game of Thrones, Lord of the Rings, Foundation, Avatar), counterintuitively, have no video-game franchise associated with them. (Star Wars is the only exception I can think of.)
It’s easy to see why, if you stop and think about it. Negotiating rights to the owners of this IP is a complicated, expensive process with a
very high financial barrier to entry,
very uncertain time component that 99% of gamedev teams don’t have,
“ticking time bomb” where the longer negotiations drag on, the more incentive the counterparty has to keep bleeding you dry, and
very very low certainty of payoff.
What usually happens, assuming any type of deal occurs, is that some team pays a hefty upfront price for the IP, shortchanges the investment required to put that videogame on the same level as the expensive IP it has wrapped around itself. The videogame associated with the tentpole Hollywood content fails miserably in the marketplace, but sells enough copies of its crap that its sponsors make out OK.
TLDR: Western intellectual-property law has created a weird market failure here, where possession of rich IP strongly discourages creating adjacent content associated with that IP.
What if there were a better path available, where an agile video game team could do all the work necessary to create an LOTR game (borrow Creative Assembly’s Total War engine, build a Lord of the Rings game around that engine with LOTR-specific mechanics, and then market and distribute that game and get paid for their work?
This infrastructure doesn’t exist on the Web2 supply chain (game studio → Steam marketplace, or game studio → B&M videogame store) because of legal deadweight costs, and because the videogame keiretsus (Microsoft, Sega, Nintendo) are themselves some of the biggest beneficiaries of the existing IP regime. The development team would get sued. The appstore(s) distributing the “illegal” game would get sued, and would also be cut off by the videogame keiretsus. Anyone getting paid to market the game might potentially get sued, although in practice that would probably be too widely distributed to be enforceable. If Creative Assembly allowed its engine to be licensed for this, they’d probably be sued too. Lawsuits would fly at every centralized parts of the offchain supply chain for the game.
However, if you had an anon team ship the game, and an appstore using decentralized infrastructure hosting the game, you could actually ship this kind of product and compensate its creators without problems. (You could also put out some standardized framework to share revenues with IP owners above a certain threshold of users, which would help shield validators from longer-term legal liability.) By creating some distance between legal enforcement, you would create financial due process for a universe of use-cases which currently don’t have any financial due process. You would thus incentivize a new set of games which previously are not really allowed to exist in the Western marketplace.
If that example is too esoteric, here is a more relatable one: the market for ridesharing apps.
Uber’s arc of success and failure as a public company was, imo, mostly a function of legal and regulatory arbitrage. Uber’s growth strategy in 2012-2016 amounted to growing very quickly in new markets to the point that slapping onerous regulations upon it was a major political risk for corrupt municipal governments. In the process, Uber injected much-needed competition into corrupt local taxi markets.
This strategy was insanely successful for some time. However, after a few years, major global cities started a coordinated counterattack against Uber, slapping it with unique taxes and harassment, in addition to forcing Uber to pay the same taxes that licensed taxis paid. Uber was very likely threatened with sanctions by appstores as well as banks if they refused to bend the knee. Eventually, Uber drowned in litigation. Travis Kalanick, Uber’s founder and the soul of Uber’s anti-establishment streak, was thrown out by leading Uber VCs under a meritless sexual-harassment pretext. The gritty Kalanick was replaced by the compliantly mediocre Dara Khosrowshahi, who had made $500 million driving Expedia into a distant third place in ten years of competition with Booking.com, but who could virtue-signal with the best of them.
However, if Uber’s app had decentralized payment and distribution infrastructure, it could have theoretically ignored these demands, and stayed true to Travis Kalanick’s original vision (a better, cheaper, more efficient, on-demand taxi) instead of the “black-car service with an app” that Uber slouched into, under Khosrowshahi’s leadership.
Today, there is clearly a market for taxis and Uber/Lyft rideshares. But there is also probably a market for zero-tax, zero-fee, ‘bootleg’ taxi rides, whose public good would be to a) cap the level of taxes and fees that a city could impose upon the taxi market, and b) make taxi rides more accessible to more types of users.
These are two examples of how guerrilla infrastructure could open the door to a new universe of lower-cost, higher-quality use cases that would make consumers better off, and bring utility to a specific hosting chain.
I think crypto VC has lost sight of the “guerrilla infrastructure” component of the crypto value proposition. VCs hate the idea of fighting the government, and insist on “1000x returns” on “1 trillion dollar TAMs” (total addressable markets). This leads to massive over-funding of intrinsically flawed concepts like play-to-earn, and a glut of new dappchains with little competitive differentiation.
Anything that revolves around guerrilla infrastructure sounds, by definition, stunted, suboptimal, and complicated. But in today’s world, where government distortions are taking over everything, I’d argue that that’s actually where outsized returns will actually be found, and where crypto is uniquely positioned to reap the benefits.
If you look at where crypto has generated sustainable returns around real use cases (token speculation, NFT speculation, darknet markets, gamblefi) it seems to me that crypto should be spending a lot more time toiling in the gray area adjacent to legality, yet rife with positive-sum use cases–and a lot less time on building the next Mach 5 superfast dappchain.
I can think of other use cases too. Any industry that has been deplatformed from the US financial industry, like the cannabis industry, should have crypto VCs pounding down its doors to build an electronic finance chain to mirror that industry’s real-world demand. But crypto VCs don’t seem to want to go there.
There are many other markets which could make use of crypto’s guerrilla infrastructure. Some of them exist today. Some don’t exist yet, but can easily be visualized with a bit of logic and imagination.
We don’t need more superfast chains trying to out-AWS AWS. We need to add value in the real world in a way that web2 architecture, and all the legal baggage that necessarily comes with it, cannot.
Picking apart artificial micro-monopolies created by an antiquated, conflicted IP regime seems like a compelling market of many small opportunities which could scale themselves into much bigger opportunities over time. Such a “bootleg app store” could be the foundational cornerstone for the impossibly distant web3 holy grail: an appstore that can compete toe-to-toe with Google Play and the iTunes Store.
Is anyone building this?