gm and welcome to a fresh new year, with fresh new vibes in crypto—the industry, the culture, and the discourse, from what I can tell…
We’re kicking off the new year by sending a few things directly to your inbox that you might have missed amid the madness of the holidays:
First, our key takeaways and lessons for founders from an extensive hiring and compensation survey we conducted with our friends at USV. It was great to work with our chief of staff Tom (his first bylined piece on the site!), our strategic advisor Calder (head of recruiting at OpenSea), and USV’s Matt Cynamon on this post.
Next, from the Variant investment team, it’s our 2024 RFS (requests for startups), spanning consumer payments UX, DeFi tooling, gaming, prediction markets, and more.
Finally, a fun and smart new Jesse piece on memecoins and airdrops, and embracing “the game on the field” right now.
Happy reading, and happy building.
—Dan Roberts, Editor in Chief
Building Through the Crypto Cycle: A Variant/USV Portfolio Survey on Web3 Hiring and Compensation
Tom Dils, Calder Zwerling, Matt Cynamon
Earlier this year, Variant and USV conducted an extensive web3 compensation survey of our portfolio companies. Our goals were twofold: create a proprietary dataset exclusive to web3 startups, and capture a snapshot of the state of web3 compensation amid a hard year for the industry.
The survey’s key findings are encouraging for founders building amid a bear market. A majority of respondents said the prolonged bear market either did not have an impact on their hiring plans or did not change their plans for hiring engineers specifically. Moreover, the international nature of web3’s labor market is allowing startups to calibrate for different-sized budgets.
Builders looking to hire, however, should know that web3 talent comes at a premium—you may have to pay more than web2 firms in order to compete. Additionally, compensation structures are changing, with traditional equity becoming just as important a benefit as tokens.
The survey yielded over 1,000 data points from employees at 32 web3 startups across the Variant and USV portfolios. We received input from companies that cover the spectrum of web3 today: pre-seed to later stage; small (<10 employees) to large (>200); infrastructure, DeFi, and consumer; DAOs to SaaS business models and everywhere in between.
Based on the anonymized dataset, which we’ve shared with all survey participants, we’ve identified four key observation areas about the current state of web3 compensation and talent as we turn the page to 2024.
Web3 startups compete for talent mainly within web3
Approximately 50% of survey respondents say they compete almost entirely with other crypto startups for new hires, 25% say they compete primarily with web2 (mainly FAANGs and other mature/public companies), and 25% recruit equally from both realms.
This suggests that during a bear market, it’s easier to recruit from within web3 than attract first-timers to join the crypto space.
Engineers dominate crypto teams—in headcount and pay
Engineers account for 50% of headcount across web3 companies surveyed. In particular, Web3 values specialized engineers, e.g. those with these keywords in their titles: smart contract, solidity, rust, protocol, web3, ZK, or cryptography.
Web3 engineers are also paid more than the general engineering market: Senior-level web3 engineers earn a 23% premium, and early-career engineers earn 27% more than their counterparts in the general market. (All comparison data via Pave.)
The next-largest employee groups, product and marketing/community, lag far behind engineers, with neither exceeding 10% of average web3 org headcount. The relative lack of sales-focused roles is a reminder that web3 is still in its early building phase.
Web3 startups are growing more geographically decentralized
Across our data set, more than half of employees are located outside of the U.S.
70% of companies surveyed are headquartered in North America, but 50% of them have employees across three or more continents.
Employees in the U.S. earn 28% more than those outside of the U.S., and for engineers, that gap is 33%. (Interestingly, we did not see any strong correlation between engineer salary and specific location within the U.S.)
In our survey, 56% of employees hired in 2020 or before 2020 are based in the U.S. But for employees hired in the past three years (2021-2023), that falls to 46%.
Token compensation was a longtime staple of crypto firms—but that’s changing
Web3 companies have been compensating employees in the form of tokens since 2013, and none (in our survey) bestowed equity compensation prior to 2018.
Fewer than 40% of employees polled have received equity, while roughly 50% have received tokens. But in 2023, those numbers flipped: new hires were three times more likely to receive equity than tokens.
While it may be too early to describe this as a trend, the data suggests that startups are experimenting with new incentive mechanisms that may be less reliant on tokens than in previous crypto market cycles.
The data we’ve gathered suggest that crypto companies didn’t spend 2023 bemoaning the bear market. Rather, they used market limitations to further decentralize their operations, experiment with new compensation models, and add more engineers.
You can view open positions across Variant’s portfolio here. Special thanks to USV and The People Design House.
Requests for Startups: Crypto Projects We’d Like to See in 2024
As soon as we returned to the office in the new year, we started talking about the projects we’d be thrilled to fund in 2024. Here are our requests for startups (RFS), spanning consumer payments UX, DeFi tooling, gaming, betting and prediction markets, and much more.
We’re excited to see these areas get developed this year and beyond. And if you’re building in one of these areas—or working on other crypto ideas—please reach out: projects@variant.fund.
Crypto payments infrastructure
The opportunity to improve payments globally by leveraging crypto is large. Yet it remains challenging for users and developers to make payments with crypto and move between crypto and traditional payments rails. Within the crypto payments value chain there are many opportunities to eliminate friction for developers, users, and merchants.
Institutional-grade DeFi
In the medium term, the distinction between crypto and traditional finance will disappear as much of the two systems converge. There remain opportunities to build highly performant financial applications and infrastructure that take full advantage of the capabilities of crypto and serve existing crypto users while over time onboarding new users, including institutions.
Consumer-focused trading with amazing UX
There’s a very large design space for apps that build a hyper-engaging experience around buying and selling crypto. Current and future users would benefit from having more options for how they interact with crypto.
—Geoff Hamilton, investment partner
Information markets
Blockchains make two types of information markets significantly easier to create: markets to access existing information and markets to create new information. The former is about pricing access / removing information asymmetries; an example might be paying for attestations about selective consumer behaviors or demographics. The latter focuses on making previously unobservable information observable via unique aggregation of existing data or mechanisms to facilitate new rates of exchange. Examples in this category may look like novel structures for pricing risk, participation in onchain simulations, or prediction markets with real liquidity. The financialization of information has already been seen in systems like Friend.tech’s keyholder rooms, Polymarket, and Arkham’s Intel Exchange as a new way to assign value to information that has previously been difficult to uncover.
—Alana Levin, investment partner, and Jack Gorman, data scientist
Product-led payment apps, especially experiments with micropayments
These would be apps where leveraging crypto rails creates an opportunity to access a new or expanded market: a global audience that would normally be priced out by currency conversion fees, a large set of users who have lower willingness to pay than traditional subscribers (but make up for it in volume), etc. It could also look like something as simple as a reinvention of movie tickets with crypto rails under the hood.
New namespaces
Subdomains in particular feel underutilized. These are digital resources with verifiable ownership. Issuing subdomains from a trusted party (e.g. a parent organization) can help prove an entity’s legitimacy. Charities are a prime example: the FTC estimates that hundreds of millions are lost in charity fraud each year. A trusted issuer granting verifiable subdomains to registered charities could create a useful log of which organizations are actually legitimate.
—Alana Levin, investment partner
Privacy infrastructure
Privacy infrastructure is in an extremely early phase, still being built. The category is exciting from its sheer size. I firmly believe the majority of onchain state will be private in the long run, as it introduces advantages for market efficiency, security, and consumer preferences. Solutions leveraging FHE, ZK, MPC, and TEEs all come with different sets of trade-offs, making each ideal for different sets of applications. The design space at the infrastructure layer is vast, and the opportunity set is massive.
Uniswap V4 hook-enabled marketplaces
One of the most exciting new design spaces in DeFi has clearly emerged: Uniswap V4 hooks, which are plugins for designing pools with unique features and functions, such as new auction mechanisms, fee designs, and much more. Onchain and offchain liquidity is becoming increasingly blurred with the release of intents-based trading protocols such as UniswapX. Thus, hooks are becoming the new frontier of mechanism design in DeFi; they’re an effort to make onchain liquidity more competitive with CEX liquidity, which DEX traders can now tap into.
—Derek Walkush, investment partner
Attention betting apps
Top creators like Mr. Beast create videos with views that rival the eyeballs of NFL games. Fantasy games and betting already exist around sports, but now social media and players of “the great online game” (e.g. creators) are large enough to have their own betting and prediction experiences. Think of it as sports betting for social media, on crypto rails.
Real-world MMORPGs
Stepn showcased the potential of crypto lifestyle games that leverage mobile-first web2-esque experiences, gamified IRL activity (e.g. running), and subscription-based assets (e.g. degradable sneaker NFTs). However, Stepn had flaws—the game was mostly single player, used complex tokenomics, and was overly financialized. There’s room for new types of real-world games around social habits that combine incentives and verifiable offchain actions.
Onchain AI agent marketplaces
As crypto AI agents become more complex, developers will design agents that perform specific tasks. Rather than building an agent that has to know how to do everything, it will be easier for general agents to buy services from other specific agents. Marketplaces for crypto AI agents will allow people to purchase targeted agent services or trade trained consumer app agents within platforms or games (e.g. Parallel Colony NPCs, ASM brains, Frenrug, etc).
—Mason Nystrom, investment partner
Onchain reputation systems
While blockchains are trustless systems by design, it’s still very difficult to trust the various actors onchain. I see a large opportunity to build a reputation system that leverages onchain data to help us trust the contracts with which we interact and the participants with which we engage. A reputation system not only can easily prevent bad actors such as scammers or airdrop sybil attackers, but can also reward good behavior onchain, which can be leveraged in areas like under-collaterized lending or freelancer markets.
—Jack Gorman, data scientist
A Tale of Two Cryptos: Speculation vs Decentralization
Nearly a decade into smart contract platforms, many are huffed that as of late 2023, the most successful crypto products still feature crypto as the “what,” rather than the “how.”
Products where crypto is the “what” revolve around assets as investments: users buy, earn, trade, lend, borrow, lever assets including internet money, memecoins, and NFTs in hopes the number will go up. Fortunes are made and lost, sometimes quickly. The extremes are celebrated internally in crypto by self-proclaimed “degens” and derided externally by the establishment.
Many are disappointed that there has not been more innovation beyond crypto assets as investments, but this class of products has incredibly strong product-market fit, and I think that trend is likely going to intensify and grow. I’ll try to explain why I believe that; the reason is nuanced and also under-appreciated.
Our thesis at Variant is that the next generation of internet networks will turn users into owners—specifically asset owners. The internet enabled everyone to become a publisher, and similarly, crypto enables everyone to become an asset owner, and therefore, an investor. You don’t need capital to invest, you can invest your time or work by producing art, running machines, or doing physical work.
Through this lens, crypto can be viewed as the “democratization of investing.” Robinhood did it for stocks. Crypto does it for many other forms of internet-native value: money, digital art, memes, and early-stage technology projects.
Both in and outside of crypto, the democratization of investing has materialized in the most spectacularly speculative ways, giving credence to the saying “the most entertaining outcome is the most likely.” GameStop, Dogecoin, Bonk, Dogwifhat. What is going on?
The recent movie “Dumb Money” attempts to capture the cultural milieu underlying this trend. It offers a view into the world of modern retail investing that is marked by online accessibility, social media’s influence on information cascades, David vs. Goliath mentality, and a chance to get a piece of the action.
To the establishment, this kind of speculative investing seems like a joke, or maybe a weird form of entertainment. For participants, it’s a lottery ticket, a movement, a team sport played with friends online, or some combo thereof. Like all games, there is an expectation of winners and losers. And there are cheaters who try to gain unfair advantages (this should be refereed.)
I ask every crypto entrepreneur I meet how they got started in crypto. The most common story I hear is that they got started by making a speculative investment, usually BTC, ETH, ICOs, DeFi summer, or NFTs. And I’ve heard countless stories of people who made their first “real” money this way. That resonates, because that’s my story too. For many entrepreneurs, myself included, those early investments were life changing—they went from having little or no savings to having some, a cushion to take another risk.
And suddenly, they were also investors on the ground floor of some technologically optimistic project or community. That initial investment catalyzed their interest in the underlying technology or ideology, and many took jobs in crypto, or founded startups. Often, the investment didn’t work out. But nowhere else could anyone who was simply paying attention get that kind of access to bleeding edge financial opportunity.
At the extreme, memecoins still represent the same prospect to people who are paying attention today. The prospect of participating in economic growth is what has drawn in so many entrepreneurs and users—and it’s important because some portion of those users learn from those experiences, to think, and act, like investors. It often starts with things that look like toys (or dogs) but drives towards a serious shift in psychology, where money, effort, or skill are honed to contribute more seriously to the space. Many people also get hurt in the messy, volatile free market process. But despite that, speculative investing continues to drive crypto’s growth and in turn, technical progress towards non-speculative use cases.
Variant’s vision for crypto is a more equitable internet; the mission is to make a billion users into owners. Its a long term, ambitious goal. I believe the path there is forged by this cultural shift that is already underway, toward more users thinking like investors, and wanting to own things they believe in and know because they use them. That means embracing memecoins like we embrace memes: as part of internet native culture and an invitation through the front door to investing/using/contributing to projects that have legs (maybe four).
In late 2023, the speculative side of crypto is once again the game on the field. It has the most activity, users, and attention. In parallel, permissionless rails continue to develop and enable innovation around non-speculative use cases. Its not a question of if, but when the latter will make a dent that will validate the speculative fervor around the former.
Avoiding the speculative reality can seem “high status,” even in failure, while embracing speculation is considered a “low status” path to success. The reality is more nuanced: speculation can be a powerful tactic to get users through the front door and invested in the success of a project, and the space at large; it’s not only an end, it can also be a means.
Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated.
