Foresight Ventures: Cooking a Feast For Crows

Mike@Foresight Venture

Dining Rules

You may find the Web3 is filled with various asset standards for users to trade, and it could even be argued that most of the current Web3 applications are based on them.

The most prevalent is the token standard.

ERC-20, for example, can be used by people to issue all sorts of coins that can have all sorts of narratives and utilities, such as equitization, bonding, playing Defi, DAO governance, and so on. One can also follow the AMM curve of trading these tokens to accomplish speculative behavior.

Or ERC-721, which people can use to issue NFTs, carrying the value of NFTs is what is known as consensus, speculative speculation, and untapped utility.

Another example is friend.tech, where each user is a key-based Ponzi plate that follows a bonding curve to trade. This includes the recent firestorm of Ordinals ecosystems, BRC-20 and various inscriptions, as well as being used to distribute a wide variety of gold-mining games Web3 Game Engine …… ostensibly to provide new utility, but essentially a new asset standard with a different vehicle.

It is like a person who designs a casino game, the rules are set by him, he can open his own casino, and other people can open their own casinos by picking up his rules, and he can offer the rules to other casinos as a public good free of charge, such as the ERC-20 and ERC-721 standards. There can also be pumping, such as Opensea taking fees for various series of NFT transactions, or Uniswap charging fees for agreements on transactions and liquidity pools.

We don’t trust people, we trust code

The advantage of Web3 over Web2 is that once a model is conceived, the permissionless nature of the blockchain allows the model to be quickly deployed into the marketplace in the form of smart contracts, with feedback from the marketplace validating the validity of the model, while the transparency of the smart contracts allows participants to identify their own risks. Issuing assets is often a simple pump and dump, but sometimes it’s also a quick way to get a product up and running, launching, inflating, bubbling, and converging, a cycle that can be greatly shortened. A lot of projects have been able to get off the ground quickly with a controlled and attractive model, attracting a lot of users and liquidity, and building infrastructure and networks with them. Filecoin and Polkadot are classic examples of this.

Degen are like crows, smart and greedy, the Web3 world is like a feast for crows, where the capital projects are like a plate of dishes consisting of all kinds of ingredients, the smart and strong crows can have a good meal, the slow and weak crows will be defeated in the competition for food and starve, or may eat poisonous dishes and fall into a dangerous situation. The programmers play the role of chefs, manipulating the crows to their own ends by creating items from asset standards.

Narrative as cookware

We humans are wired to understand the world not in terms of facts and figures, but in terms of narratives

Narrative refers to stories and information conveyed through verbal, written, visual, or other forms. It is a form of expression used to describe events, experiences, or concepts designed to convey a particular message, point of view, or value to the listener.BTC is a very appealing narrative: decentralized digital gold, an alternative way to make payments and transfers, financial inclusion, a tool to rebel against the system.BTC has the potential to transform the modern financial system, and the breadth and depth of this narrative’s impact is immense.AI, BTC ecology, modularity, etc. are some of the more popular narratives in Web3 right now.

Narrative is the vehicle of the project, like a pot that determines the upper limit of value. As long as the logic cannot be disproved, a sexy enough narrative can theoretically make the cake very, very big. Like going to a temple to buy incense, or going to a shaman for good luck, people will pay for visions that are unproven. It’s not only a way for projects to communicate their vision, values and goals, but it’s also an important means of attracting and sustaining the interest of communities, investors and users. Here are a few dimensions to explore the importance of narrative in building a funding board:

1. Influencing Participant Emotions

• Emotionally Driven: In a funding board, the emotions of the participants are an important factor. A compelling narrative can inspire excitement, confidence, or fear, which can influence participant behavior.
• Story Appeal: Humans are naturally attracted to stories. A good narrative can make complex concepts more understandable and engaging, which is especially important for engaging participants.

2. Facilitating Understanding and Dissemination

• Simplify complexity: Web3 gameplay and strategy are often complex and difficult to understand. An effective narrative can simplify complex information into an easy-to-understand story, helping participants quickly grasp key messages.
• Enhances Communication: A compelling story is more likely to be remembered and spread. In the age of social media and the internet, the speed and scope of storytelling can greatly influence the popularity and appeal of a funding board.

3. Trust and brand building

• Trust Building: Through narrative, a funding board can build a sense of trust. Historical data, success stories, or a leader’s vision in a story can increase trust among participants.
• Brand Identity: stories help funding boards build a unique brand identity. This not only engages participants, but also helps to stand out in a competitive market.

4. Influencing Market Expectations

• Market Dynamics: Markets are not only driven by data and facts, they are also influenced by expectations and forecasts. A strong narrative can shape market expectations, which in turn affects money flows and prices.
• Self-fulfilling prophecies: In some cases, strong narratives can even lead to self-fulfilling prophecies, where the market acts because it believes in a certain narrative, thus making that narrative come true.

With the market as firewood

Standing on the wind and pigs can fly

There is a big enough flame to cook a ripe and tasty dish quickly. If the flame is too small, the dish may be raw or the feast may fall apart before the dish is cooked.

Narratives and markets need to be matched in time and space. The key to choosing a market is to meet the needs of existing potential participants, how many people are willing to participate, who are the participants, what is the amount of money, in what way does the product meet their needs, and what does their participation in turn bring to the project.

Product-Market Fit is the key to the success of a program. It not only determines whether the product will survive in the marketplace, but is also the basis for sustainable growth and development:

1. Demand Confirmation: Product-Market Fit ensures that your product or service meets the actual demand in the marketplace. If the product does not match the market demand, then it may fail even if the product itself is of high quality.
2. User Retention and Word of Mouth: When a product is closely matched to market demand, user satisfaction is higher and is more likely to generate word of mouth. Satisfied users are the best marketers.
3. More Effective Marketing: Having a product market fit can make marketing campaigns more efficient because you’ll be targeting the consumers who are most likely to benefit from your product.
4. Foundation for growth and expansion: Product-Market Fit is the foundation for sustainable growth. Only when the product is adapted to the market can the program side expand and grow effectively.
5. Resource Optimization: Understanding market demand can help companies better allocate resources and avoid wasting time and money on features that do not meet market demand.
6. Competitive Advantage: In a competitive market, products that accurately meet consumer needs are more likely to gain a competitive advantage.
7. Risk Reduction: Understanding and meeting market needs reduces the risk of business failure. Product market fit means that the product is accepted by the market, which reduces the uncertainty of new product launches in the market.
8. Attracting Investment: For startups seeking funding, being able to demonstrate that they have achieved or are approaching product market fit greatly increases the likelihood of attracting investors.

In the Web3 space, an example of a company that has demonstrated good product market fit (PMF) is the familiar Uniswap:

1. Addresses the need for decentralized trading: Uniswap enables users to exchange cryptocurrencies directly between each other without the need for traditional intermediaries such as banks or exchanges by creating a decentralized trading platform that also allows for license-free issuance of assets.
2. Smooth trading process: Uniswap simplifies the trading process using a model called Automated Market Maker (AMM). Instead of matching trades with specific buyers or sellers, users interact directly with smart contracts, which increases efficiency.
3. Providing liquidity incentives: Uniswap encourages users to lock their assets on the platform to provide liquidity and rewards them with a share of the transaction fees. This mechanism attracts a large number of liquidity providers to provide liquidity for newly issued tokens (tokens).
4. Trustless environment: Being based on the blockchain, Uniswap allows users to conduct transactions without having to trust each other or a third-party intermediary, reducing transaction risk.
5. Facilitates the development of the DeFi ecosystem: the emergence of Uniswap facilitates the development of the entire decentralized financial ecosystem and provides the basis for the development of other DeFi projects and services.

With desire as ingredients

Okay, there’s a pot and a fire, time to put in our ingredients.

The Seven Deadly Sins are a group of sins considered particularly serious in the Christian tradition, and they stem from early Christian thinking and teaching on human behavior. The concept of the Seven Deadly Sins was originally developed by early Christian thinkers, notably the 4th century monk Evagrius of Pontus in Egypt. He listed eight major sins of mankind, which became known as the “Eight Souls”. In the 6th century, Pope Gregory I revised and streamlined this list, reducing it to seven, resulting in what is now known as the Seven Deadly Sins. The seven deadly sins are now identified as pride, envy, wrath, sloth, greed, gluttony, and lust. These sins are considered to be the root causes of other sins. The Seven Deadly Sins occupy an important place in Christian moral and spiritual teaching and are used to teach believers to recognize and avoid these sins for the health and salvation of the soul.

Avoid? No, we need to capitalize on people’s desires. Don’t underestimate the wisdom of our forefathers, the code of wealth is plainly written in the ancient scrolls. The essence of business is to discover or create a need and fulfill it. Needs are hidden behind desires, and often a good business ends up with two outcomes, or both: amplifying or fulfilling the user’s desires.

While narratives and market winds may change over time, people have gone through countless cycles of civilization evolution and technological advancement over thousands of years, and desires have remained constant. Smart people are often able to manipulate groups of people through the laws of human nature to fulfill the needs of the group and incorporate them as part of a money board system of their own design in order to achieve their own goals. The following is a list of mechanisms (business models) and examples that can make crows rush to them, regardless of Web2 or Web3, they can play the role of ingredients to stimulate the appetite of crows. It’s just that with Web3’s license-free conditions, their composability and deployment efficiency are improved, opening up even more possibilities.

Providing a marketplace for trading assets

The very existence of trading implies speculative attributes, the possibility of buying low and selling high, the uncertainty and the potential for high returns combine to form a get-rich-quick vision that appeals to the quest for immediate and enormous wealth growth. Liquidity and volatility are especially important in trading, and in a casino, every chip reversal means a drawdown for the dealer. A big part of why token fundamentals are better than NFT is because token liquidity is better, token can be divided into countless portions and everyone can participate in it, regardless of the volume of funds, and trading is more flexible. While NFT is mostly traded as a single unit, even though an NFT can be divided into many parts by fragmentation, it adds up to only one value, the threshold for trading is higher and less flexible. Volatility, on the other hand, implies the possibility of high profits, providing a sense of excitement and even satisfaction.

Successful trading brings not only financial rewards, but also the psychological satisfaction of victory and achievement. Even if in reality there is more luck involved, successful trading is often seen as a reflection of intelligence, analytical skills and predictive ability.

Keywords: greed, pride

Endorsements

Getting endorsements from head investment organizations or KOLs can also inspire followers to participate, however, in turn, these investment organizations or KOLs can use their authority and influence to dump the users, DYOR:

1. Trust and Credibility

• Brand Trust: large organizations usually have a good reputation and brand awareness, which adds trust and credibility to their recommendations or endorsements.
• Professional endorsement: Large organizations are seen as experts and authorities in the marketplace and their decisions are usually perceived to be well thought out and based on sound information.

2. Perceived security and risk reduction

• Reduced Perceived Risk: Followers tend to believe that if a project or asset is backed by a large institution, then the risk of investing in that project or asset is likely to be lower.
• Following the Pros: Followers tend to mimic the behavior of what they perceive to be more knowledgeable and experienced investors.

3. Social proof and herd mentality

• Social Identity: The investment decisions of large institutions are seen as a form of social proof, i.e. “if these professional and successful institutions are investing, then this must be a good opportunity”.
• Group dynamics: the natural human tendency to follow the herd, especially when faced with complex decisions.

4. Market Influence

• Market Leadership: the investment behavior of large institutions tends to be market leading and can influence the overall trend of a particular sector or asset.
• Demonstration effect: the decisions of these institutions may initiate a demonstration effect that attracts more investors to follow.

Keywords: laziness

“Market Making”

Controlling the market is the act of manipulating the price and trading volume of an asset through a range of means and strategies. News, pulling, smashing, bookmaking, and convincing people by going up are all talking about controlling the market. Here are a few key reasons why market control attracts participants:

1. The lure of quick profits

• Promise of high returns: Controlled trading activities are usually accompanied by a rapid rise in asset prices, creating the illusion of quick and high returns for retail investors.
• Greed: The natural tendency of human beings to seek to grow wealth, especially when it appears to be easily obtainable.

2. Fear of Missing Out (FOMO)

• Follow-the-leader mentality: When seeing other people seemingly making huge profits in a short period of time, retail investors are often afraid of missing out on similar opportunities.
• Social Proof: The investment behavior of others is seen as a “proof”, implying the correctness of the investment decision.

3. Market Sentiment and Group Behavior

• Market Boom: During a market boom or bubble, retail investors are easily attracted to the general optimism.
• Herd mentality: People tend to imitate the behavior of the majority of people around them, especially when there is asymmetric information.

To give one of the most common examples, the familiar pump and dump:

1.Pump (speculation):

• Creating a phenomenon: investors or groups artificially speculate on an asset (usually less liquid) through various means (news, statements, social media, community shout-outs) to create the illusion that the asset is about to go up, or to enrich early participants by pulling in the market, creating a wealth effect and attracting people who are not yet in the market.
• Elevates price: This speculation attracts the attention and interest of other investors, causing them to buy the asset. As demand increases, the price of the asset rises.

2.Dump:

• High Dump: when the price of an asset reaches a relatively high level, the investor or group that initially engaged in the speculation sells the asset in their possession at the high price.
• Price Crash: With a large amount of selling, asset prices begin to fall sharply and later investors face losses, especially those who bought at high prices.

Whether it’s to make money by shipping high or to gain attention, or to quickly attract participants to provide liquidity or build infrastructure, controlling the market is an effective way to achieve one’s own goals through the behavior of users.

Keywords: greed, pride

Proxy

The crypto world is like a gold mine with countless gold waiting to be mined, but complex mechanisms and operations make the mining process difficult.

Human nature is lazy, which gave birth to the shovel. The market has a variety of shovels, wooden shovels, shovels, stainless steel shovels, excavators. Efficiency, cost, application scenarios vary, the user wants nothing more than to use the least cost: a certain risk on the maximization of revenue, or in a certain expectation of revenue within the minimization of risk. Each shovel is a bet, and the shovels themselves are able to profit from the bets they place, either by taking a cut or by splitting the profits. There are two types of agents, one is to provide a variety of betting strategies for the user to choose according to their own preferences, such as call trading, liquidity mining pool aggregator, the other is to help users directly hosting resources.

For example, the recent relatively hot Clore.ai, Clore has a very convenient mechanism for miners, is to help miners in the network to find the highest yield mine to dig, there is a specific arithmetic service demand, to complete the tasks assigned by the network; if there is no arithmetic service demand, the network to find the cryptocurrencies that have the highest mining yields at that time, to participate in the mining. This allows GPU miners to just drop their miners into the network and automatically maximize their returns.

Various trading bots, ERC-4337, intent-centric apps, AI agents are all such shovels that help users cut out the tedious steps and get to their goal more quickly and efficiently, which is the key point of enhanced user experience (UX).

Give you a mine directly, or give you a shovel after giving you a mine, and also help you set up the sales channel, and then get a fully automated assembly line, which one do you choose?

Key word: laziness

Arbitrage

Although arbitrage sounds like a speculator’s game, the existence of arbitrage mechanisms is actually sometimes a way to ensure the health of the system. Arbitrage of the same asset in different trading markets allows the price of the asset to stabilize between each market, and the cost to the user of purchasing it will be closer to the actual market price, which reduces the risk to the user. Or if the program wants to anchor a certain asset, setting up a spread arbitrage is a good way to do this, using the perpetual contract and Luna/UST math stabilization as an example:

Perpetual Contracts

When the price of a perpetual contract is higher than the spot price (i.e. when the contract is overvalued), the long side pays a funding fee to the short side and vice versa. The funding rate is usually adjusted at regular intervals (e.g. every 8 hours). The adjustment of the funding rate reflects the market’s expectations and sentiment about the future price of the asset. Through this payment mechanism, traders are incentivized to trade in a direction that brings the price of the perpetual contract closer to the spot market price, helping the market to self-regulate so that the price of the perpetual contract does not deviate from the spot price over time.

Luna/UST

Basic concepts

• UST: TerraUSD (UST) is an algorithmic stablecoin designed to maintain a 1:1 value with the US dollar.
• Luna: Luna is the native token of the Terra ecosystem used to govern and maintain the stablecoin system.

Anchoring Mechanisms

• Algorithmic Adjustment: When the market value of UST deviates from the 1:1 ratio of USD, the system restores equilibrium through an algorithmic adjustment mechanism.
• Bidirectional Conversion: Users are free to convert between UST and Luna at a fixed value of 1 USD.

Price stabilization operations

1.When UST > $1:

• Mechanism: the user is incentivized to cast UST with $1 value of Luna, because in the market the value of UST is more than $1.
• Result: This increases the supply of USTs, thus lowering their market price.

2.When UST < $1:

• Mechanism: the user can purchase UST for less than $1 and convert it to Luna at a value of $1.
• Result: This reduces the amount of UST in circulation and thus increases its market price.

Arbitrageurs unknowingly become tools of the project while gaining revenue, arbitrageurs game the market while maximizing risk-free returns, but in turn maintain the stability of the market, MEV is another interesting example in the crypto world.

Keywords: greed

Competition and gaming

Let the users game themselves, cajole, and inflate naturally.

Wins and losses, ranks and rankings are set up so that people in the same scenario are competing against each other, with those at the top trying to keep their positions, and those at the bottom trying to kick out those at the top to move up, inadvertently serving the purpose of the rule-builders.

Examples abound in Web2, there are many games that have ladder lists or segment rankings, and often many players will go crazy with kryptonite to increase their strength in order to be at the top of the ladder or play non-stop in order to improve their segment rankings. The kryptonite money, however, unknowingly flows into the pockets of the game company, and unknowingly contributes to the game’s faithful activity and game time when players are scoring day and night.

Tik Tok has a PK reward function, two bloggers PK in a limited time to see who gets more rewards in this time, bloggers want their rewards to be better than each other, then they will do their best to let their fans reward, fans will also want their favorite blogger to win, usually before the time cut-off time reward activities will be very frequent, without the need for Tik Tok’s own publicity, the reward volume will be raised by the blogger and fans themselves. Without any promotion by Tik Tok itself, the amount of bounties will be raised by the bloggers and fans themselves, and a large portion of the bounties will become profits for Tik Tok.

A project called Alpha Club uses a similar logic:

A successful KOL wants to share his wealth code, so he decides to open a space. information has value, space location is limited, so space has a price. How to decide the price? A bonding curve, in increasing order.

Space position is limited, how to do when the number of people is full? Adopt Sliding Bids, the later one pays a high price to the first person in the current seat according to the bonding curve, and so on.

The first to come automatically profits, and the later continuously increases in value. Everyone becomes the market liquidity itself.

Users have two motivations to participate in bidding: the need for alpha information and knowledge, and the need to speculate. Serious crypto investors, and speculation-seeking degen, together become participants in market pricing under such a pricing model. alpha Club’s Slogan: You either earn or learn, is a true reflection of the first principle of the market.

Keywords: Envy

Summary

There are all sorts of ways to play the game that can be invented under desire, and by combining these models and extending them to different narratives and market scenarios, countless funding disk models can be born. When a far-reaching enough narrative, with its matching market, attractive model to achieve a complementary state, a delicious dish will be born, do not necessarily need to match the strict supply and demand segment and application scenarios, the crows will come uninvited.

Human nature drives price, and price returns to value — the game of consumers and speculators, together constitute the essence of the economic world. In the product mechanism, we may be able to glimpse the truth of the game, price and market.

Chaos and order coexist in Web3, you and I are both cooks and crows.

About Foresight Ventures

Foresight Ventures is dedicated to backing the disruptive innovation of blockchain for the next few decades. We manage multiple funds: a VC fund, an actively-managed secondary fund, a multi-strategy FOF, and a private market secondary fund, with AUM exceeding $400 million. Foresight Ventures adheres to the belief of “Unique, Independent, Aggressive, Long-Term mindset” and provides extensive support for portfolio companies within a growing ecosystem. Our team is composed of veterans from top financial and technology companies like Sequoia Capital, CICC, Google, Bitmain and many others.

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