See how investors and blockchain projects are envisioning the tech landscape, where they expect the value to accrue, and how they aim to catch it.

In Part 1 of this series we explored how the Bicameral Ventures blockchain investment fund articulated blockchain applications in concrete terms and identified use cases. In Part 2, we'll look at how it's building those applications out with targeted investments, and what the process looks like from inside the stack.

Needless to say, none of this is financial advice.

Being everywhere at once

So, you want to invest in blockchain? The good news is the technology represents a digital expanse of endless possibility. The bad news is that you only have a finite amount of money.

Faced with this problem, Bicameral Ventures devised a strategy it calls "interconnected investing", intended to bolster the effects of the good news and mitigate the bad.

In so many words, the goal of "interconnected investing" is to invest in an ecosystem that's greater than the sum of its parts, to make sure the investment itself is diversified across a range of different vehicles, including token holdings, equity, and a range of useful solutions, and to know that despite the interconnected nature of your investment, your investment is still diversified across a range of applications and entities with independent value of their own.

"We think of it as; no one really knows the value is going to accrue in blockchain," said Bicameral Ventures CIO Alex McDougall. [So] let's play at every level, every vehicle. Let's play in equity and tokens, let's play at all levels of it. Let's actively invest in things that actively work together to make that value."

Per the very purple Bicameral Ventures website, those levels look like this:

From bottom to top, we have:

Base layer: This is the actual public blockchain layer, Aion. It's built with an emphasis on interoperability and making things easy for developers, both of which directly contribute the principles of interconnected investing.

This is the actual public blockchain layer, Aion. It's built with an emphasis on interoperability and making things easy for developers, both of which directly contribute the principles of interconnected investing. Middleware service providers: Nodesmith is a node service provider for developers to quickly connect to different blockchains, including Aion, while Vault Wallet is a crypto wallet focused on intuitiveness.

Nodesmith is a node service provider for developers to quickly connect to different blockchains, including Aion, while Vault Wallet is a crypto wallet focused on intuitiveness. Blockchain protocols: metaMe is a blockchain identity solution, designed to let people securely hold their own data while also acting as a personalised assistant of sorts. Clan Play is a blockchain-based rewards and general support app for gamers, and Velocia is (more than just) a transport app.

metaMe is a blockchain identity solution, designed to let people securely hold their own data while also acting as a personalised assistant of sorts. Clan Play is a blockchain-based rewards and general support app for gamers, and Velocia is (more than just) a transport app. Consumer facing distributed applications: Metalyfe is a privacy-centric blockchain web browser, while Winminer is an easy-start auto crypto mining program that's currently in hibernation given the overall state of crypto mining profitability.

Note how these investments are able to support each other's development, and come together to form an end-to-end blockchain ecosystem. The bottom layers are geared towards making things easier for builders, while the top layers are geared towards bringing actual users into that blockchain pyramid.

To that end, you may have noticed that all the user-facing applications at the top of the pyramid have a little "extra mile" touch, designed to position them as independently desirable applications with selling points beyond simply being "on the blockchain".

metaMe isn't just a secure identity solution. It's a personalised assistant. Clan Play offers a combination of utility and valuable rewards for gamers, while also being designed to leverage network effects for massive growth. Velocia rewards people for taking the commutes they'd take anyway, and Metalyfe offers privacy as well as rewards for the searches people would be making anyway.

In all cases, these applications actively add something to the end user experience and are intended to standalone as desirable applications for the end user.

As McDougall said, "nobody's going to choose blockchain. Blockchain isn't a feature. Decentralisation isn't a feature."

There are no shortcuts; the key to adoption is to deliver real value to users. And once you have the users, they're delivering value to that entire blockchain stack. Someone who's invested in every level of that stack can enjoy magnified returns as the value accrues throughout that pyramid, even while remaining diversified across a relatively wide range of quite different blockchain projects.

That's the "interconnected investing" principle. But what's the best way to build that pyramid?

Creating value with shared incentives

One of the first points to note is that the pyramid inhabitants are independent entities.

McDougall contrasts this with his previous work in mergers and acquisitions where "they buy up a bunch of pieces and say 'I have the right idea,' and usually end up destroying value."

That's not a figure of speech. On average, mergers and acquisitions destroy shareholder value. So by keeping separate independent components, you have a system that statistically tends to preserve the value of its collective equity better than a single behemoth does. More importantly, it also lets you organically create that wider blockchain ecosystem, where other projects can more easily enter the mix and drive even more value into your pyramid, even without any direct investment from you.

At the same time, all the entities are incentivised towards mutual success through the seeding of Aion tokens throughout the ecosystem. Not only does this give everyone some skin in the game, but it also lets projects share in the success of each other.

If an end-user application becomes popular, it feeds value through the relevant middleware and down to the base Aion Protocol. And through those shared token holdings, an increasingly successful Aion Network theoretically feeds some of that value back up to the rest of the ecosystem. If things go well for one project, everyone in the ecosystem benefits. If things go poorly, the potential downside may be limited.

It helps that the definition of success looks the same for all participants. No matter where in the pyramid one sits, the constant northern star is always to create compelling end-user applications, either directly or indirectly, because that's when the value enters the system and starts trickling down the layers of the pyramid.

Voila. You now have a network of independent entities in your investment ecosystem, including a number of volunteers and external entities who organically decided to work for the glory of your portfolio. All are jointly motivated towards the success of all the others, and all share a similar definition of success. And luckily for you you're invested, directly or indirectly, in all of them.

The view from inside the pyramid

Once you step inside the pyramid, you get to experience the meta realisation that as an investor you're also a part of the ecosystem, and that your incentives are the same as all the other participants.

"Our team is about 55 people at the Aion Foundation. We're supplemented at the core engineering level by an equal number of people in the community," explained Aion Foundation CEO Matthew Spoke.

"That's at the base layer. The goal for us is to encourage adoption among application developers."

"We have application companies that organically stumble upon Aion and see something they like. We also have investment funds, one of which is Bicameral Ventures, who invest on the basis that they have a thesis tied to Aion as a maturing protocol. 'If I invest in this platform, I believe my portfolio grows in value.' Bicameral is definitely the most active in that respect."

"Our goal there is to encourage a large number of these [application developers, investors and other participants]. There's no legal link between us and any of these actors. We're the nonprofit. Our goal is to work with commercial entities."

"Bicameral Ventures - we'll use them as an example - will invest in a number of companies or applications who will use Aion as the base layer."

"On the other end, you have the users. Long term our hypothesis is that this will be the average consumer, or user, will interact with blockchain applications probably unknowingly. It's a novel way to build consumer applications."

Serving consumers

Like any self-respecting pyramid base, the main purpose of Aion as the foundational layer is to support all the smaller and pointier blocks that live above it, and create the biggest and best pyramid possible.

This naturally leads to middleware, the layer immediately above the base Aion protocol.

"A lot of the promise of these [blockchain] use cases is kind of restricted by the real frictions of things like private key management. That's a big one that people can obviously appreciate. This is where middleware and tooling starts coming into play," Spoke said. "We've seen a lot of companies build towards key management solutions that make it easy for users, but secure as well.

"There's ways of saying 'I want to manage my keys through biometric logins' or 'I want to use social security.' How do you simplify private key management so I don't remember or have to store private keys, without having to store data on someone else's servers?"

"There's a huge amount of money going towards that specifically... I've seen at least a dozen of those happen since the beginning of this year; companies focusing on key management."

"Key management, I would bucket into this idea of user interactions, or user onboarding. How do you allow users to interact with an app that has a blockchain component to it? Other things are less key management, more UX. A bunch of businesses are focused on solving the user experience."

The value of middleware

These middleware layers are primarily focused on serving developers of other applications, and Spoke names the complexity of crypto at the base layer as an obstacle for developers who want to enter the space. If every developer needs to buy some crypto to cover gas fees and spin up a node, that's a major obstacle. It simultaneously puts up cost, expertise and effort barriers for your ecosystem.

"How do developers plug in to a blockchain without knowing the complexities of crypto?" Spoke asks. "Historically, over the last couple of years, you needed to own crypto, pay for gas fees... A new category of developer tools are built to hide a lot of that complexity for the software development process."

"Another thing that's kind of unique: In its purest sense, if you want to build an app on top of a blockchain you need to be a node - you need to be an end point. An app usually requires that you're fetching data and submitting data from the blockchain. The really purist software stack would be 'I run an app, so I run a node that connects to the blockchain.' That's a really expensive and inefficient way of managing infrastructure."

"This is where the cloud industry has kind of emerged as a compelling alternative. 'I can manage this for you at a much more efficient scale.'"

And that's more or less your pyramid.

You have the base protocol layer, which is primarily geared towards growing an ecosystem in conjunction with the benefits of the middleware providers. It all feeds towards the pointy end, which is geared towards using the benefits of blockchain to create highly-desirable apps that you couldn't make without blockchain.

But how does any of that translate into cold, hard cash?

Now we come to the hard part.

As explained in Part One, the cumulative efficiency benefits of wide scale blockchain adoption are literally incalculable. But reliably diverting that value into your pocket is harder.

It's hard because even if you're confident that you've backed the correct pyramid, you also need to invest appropriately in different layers of that pyramid. Do you buy the protocol-level tokens, the various platform tokens that emerge higher up the pyramid or do you just go for equity?

The Bicameral Ventures thesis is that even if you can make some educated guesses, no one knows for sure so you're best off getting involved at every level of the pyramid in a range of different vehicles.

Spoke has a similar impression.

Token value

On the digital token front, he foresees most value accruing to the base protocol, while only the tokens with demonstrable use cases will remain, most likely in the form of some kind of stablecoin-like product.

"You've got coins powering these systems, you've got the Aion currency that fuels the network. Then you've got these applications that presumably can build their own tokens... I think there's still more proof here that needs to play out," he said. "My suspicion is that within the currencies themselves, most of the value is going to accrue down to the base protocol."

"The coins being built in the applications themselves are, over time going to have to take on the characteristics, more and more, of stable currencies. That means they're not great investment vehicles."

"There's a good argument why your app should just be fuelled by the currency of that network. It doesn't necessarily need a second layer coin unless it has some very specific design to it."

"There's a lot of apps that have launched over the last two years that are having a really hard time explaining why their currency is needed... I think the equity value of these businesses is going to be massive, but I think they will be in the way that software companies are; through stock value, not coin value."

Equity value

But even on the equity side of things, revenue models are still being explored and suffering from a severe lack of real world evidence on account of limited real world blockchain use.

"Depending on the use case, I'm not sure the economics have been flushed out well enough," Spoke said. "We don't know how the cost structure of these types of middleware are going to play out. People are just starting to test how to monetise things this year. What's an appropriate fee structure or economic model for this?"

"Right now, the trade off is that doing it yourself is significantly more expensive. Basic economics should apply to this industry. As people specialise, we'll find cost efficiencies at different layers of the tech stack."

But as always, the goal should be to look for providers that facilitate this without sacrificing the core benefits of blockchain.

"You just need to do it in a way that keeps in mind the core benefits of blockchain. How do I give you the efficiency of centralised infrastrucure without sacrificing decentralisation?"

Fortunately, this is quite doable, Spoke says.

"You're not trusting third parties to sign and approve transactions on your behalf," he said. "They are either managing a whole suite of nodes for public use, or are services that say 'hey, you can deploy your own node, just being held in a server centre rather than in an office."

"Invest in the protocols you believe in through coins, but invest the businesses you believe in through equity," Spoke suggested in a way that should not be construed as financial advice. "Middleware, solving problems on the consumer or developer layer... businesses that take on revenue models accrue value similarly to traditional software companies."

Choosing a pyramid

Of course, this particular pyramid with the Aion Protocol at its base is just one among many. You get similar pyramids naturally being built on top of Ethereum, EOS, Stellar, Cardano and so on, all of which have different qualities and stacks.

But as McDougall adds "the world is converging. Protocols are specialising and we're seeing other adjacent technologies like AI and IoT start more and more to be built with various blockchain backends. All of these converged technologies are the necessary building blocks for a true macro interconnected Web 3.0 stack, which is where we see the industry headed."

There's no rule book for calculating the future or current value of these protocol-level cryptocurrencies, but one of the best ways might be to assess them based on their suitability as a pyramid foundation, and how well they preserve the unique selling points of blockchain technology as a whole, as the world moves into the age of Web 3.0.

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Disclosure: The author holds BNB, BTC at the time of writing.

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