Cross-Chain Ecosystem Fund Thesis
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As a firm that has been venture backing web3 ecosystems since 2018, Borderless Capital has cultivated a lot of insights. We have invested in over 200+ projects across the Algorand, Helium and the DePIN (aka EdgeFi) ecosystems through our prior VC Funds. In addition, the Borderless Managing Partners have personally invested their own capital in the Polygon Ventures and Avalanche “Blizzard” ecosystem funds.
From all these investments, we have earned some wins and made some mistakes…. but, importantly, we have learned a great deal about how blockchain ecosystems operate, their growing pains and the challenges they face at different stages. We have gained insights on how builders and founders should navigate these dynamics to make sure they build sustainable businesses and crypto protocols that thrive and become resilient to these externalities. Above all, one of those lessons stand out above the rest:
No one isolated ecosystem will win the entire web3 market — assets and applications should not be constrained and confined by any specific technological stack.
Just as technologies evolve, so do we. We have evolved our thinking and are enhancing our initial thesis. We look towards a larger horizon which derives from wider cross-chain adoption. For us:
The Web 3 ecosystem has a fragmentation problem
In the industry, we have identified a trend whereby ecosystems push a technological superiority narrative in order to attract attention and recruit developers and followers:
“our chain is the best in class technology available,”
“we have purpose-built this blockchain technology for use case x, y or z”
While some of them may be technically and factually correct, we have seen that this model serves as a temporary strategy to convert developers and followers into ambassadors and advocates (aka “maxis”). Unfortunately, this approach slowly starts to isolate the value of that ecosystem.
The problem with this short lived approach is that it unnecessarily constrains the true potential TAM (Total Addressable Market) of the builders that are deploying on top of that particular ecosystem.
After that “pink cloud” moment passes, founders and developers start to realize that working in one singular and stand-alone blockchain ecosystem will not actually work out over time because they cannot get new users or their TVL can not grow anymore because there is not enough value on-chain (this is also amplified by bear markets). It’s at that moment that people start to worry. But, by that time it’s too late to pivot, expand or find another way to survive and the KPIs and traction (usually flat or declining) tend to reduce interest from VCs and investors.
This is why fragmentation is a problem for the industry as a whole. To illustrate this issue in a Web2 context, think of a Gmail user not being able to send emails to an Outlook user or an Instagram user not being able to reshare their content in an external platform like Twitter. It sounds crazy and unnatural, but that is crypto and web3 today.
We believe that as an industry, we are evolving and, at Borderless, we are ready to start playing a key role in helping to build this new cross-chain future which should be the native feature of Web3.
Why a Cross-Chain Ecosystem Fund
A cross-chain ecosystem is the only way to transcend the limitation of an isolated blockchain container and allow developers, builders and entrepreneurs to focus on constructing value through the aggregation of users’ relationships across all / other crypto assets and making them composable horizontally rather than vertically. It is also the only way that blockchain applications and crypto protocols can have a true vision of reaching their full market potential and unlock the liquidity and value present on other chains. After all, the crypto market currently has a trillion dollar market cap and is on the way to reaching ten trillion in the coming years.
We want to invest in this cross-chain future (or present…). We want to invest in founders and teams that have the conviction to build category leading assets, products, applications, services, infrastructure and protocols. We want to invest in teams whose primary focus is their markets and users, not the programming language of their smart contracts.
We still believe that founders and teams should take advantage of initially launching natively on one particular blockchain ecosystem and partnering with that ecosystem to bootstrap their genesis go-to-market strategy, but it is essential that they have a clear roadmap, budget and mindset to expand beyond the borders of that ecosystem and increase the size of their TAM, user base and markets.
We have been researching and evaluating the scalable adoption of the technologies that are facilitating and enabling a cross-chain ecosystem; we also invested in some of them. So far, Wormhole seems to be the leading facilitator of major cross-chain use cases that we can define as genuinely “mainstream.”
Leading the way forward
Uniswap (the largest decentralized exchange) voted in favor of expanding from its native Ethereum version to the BNB Chain ecosystem using Wormhole:
The second largest stablecoin, USDC, is deploying a Cross Chain Transfer Protocol (CCTP) where the first connected bridge is Wormhole:
Coinbase new Layer2 technology “Base” using OP Stack based in the Optimism blockchain collaborating in cross-chain interoperability with Wormhole as a launching partner:
Aptos and Sui, two of the most popular next generation blockchains that were born from the labs of the Facebook / Libra / Diem project are choosing Wormhole as their canonical solution for a cross-chain Move ecosystem:
Threshold DAO voted to utilize Wormhole to make tBTC the canonical BTC asset that is truly decentralized and natively composable cross chain, launching with 26,000 tBTC.
Wormhole believes that strength comes from collaboration rather than isolation of chains, they believe that blockchains are stronger together… We at Borderless strongly believe this as well.
We recognize that for founders and teams the process of expanding to other ecosystems can be a costly, time consuming, and steep learning curve. The efficient and effective way to do this is by natively connecting from scratch to middleware tech like Wormhole that will 1) enable frictionless communication, interoperability and composability with other chains, and 2) serve users and interact with assets / value beyond the boundaries of any particular blockchain.
We think the shift towards cross-chain standardization is essential for moving away from web3 fragmentation towards web3 aggregation and abstraction from specific technology stacks.
We believe this move will unlock value by aggregating users, assets, experiences, apps, and developers across all crypto protocols and blockchain ecosystems, and reducing frictions (similar to web2). It allows builders to build more user-centric applications without having to onboard and navigate across different chains and ecosystems while allowing their assets and applications to be available, accessible, and composable instantly on any chain–instantly maximizing their TAM. It’s exciting to collaborate with founders and teams across the world making this a reality by joining the cross-chain ecosystem that we are looking to back and build.
Backers of the Fund
We are honored to have tier-1 blockchain protocols, infrastructure providers, market and trading firms and institutional investors who share our vision for a cross-chain future and are backing this fund.
If you believe that the future of Web3 is Borderless and there shouldn’t be limitations, constraints and friction for building a cross-chain future, we would love to hear from you: hello@borderlesscapital.io.
