On the Chain Reaction podcast this week, Lux Capital’s latest investor, Grace Isford, joined us to speak in regards to the opaque however essential world of web3 infrastructure. At Lux, Isford invests within the firms working behind the scenes to verify crypto exchanges are safe and dependable sufficient to keep away from being hacked.
Earlier than becoming a member of Lux this February, Isford was an investor at Canvas Ventures targeted on enterprise software program and fintech. A knowledge infrastructure funding she labored on at Canvas revealed to her the chance within the web3 area for firms to “share information immutably at scale,” motivating her pivot to crypto, she mentioned.
“That led me down the rabbit gap, after which I ended up investing myself personally,” Isford mentioned. “I acquired into yield farming, which coincided with my transfer to New York, the place a lot of my mates are additionally within the crypto and VC ecosystem.”
Isford says her investing strategy in web3 is rooted in what she calls her “circle of competence,” or the world the place she may be aggressive in comparison with others within the area.
“NFT investing is kind of completely different than DeFi investing, which is kind of completely different than crypto information infrastructure investing, and I might argue that any one who says they put money into net three shouldn’t put money into all of that — they need to in all probability select their candy spot of their core competency,” Isford mentioned.
Isford’s personal “circle of competence,” based mostly on her prior expertise, is in enterprise and fintech infrastructure, so we requested her what she thinks among the greatest challenges are for web3 infrastructure suppliers.
In comparison with web2, Isford mentioned, web3 lacks enterprise-level safety options. Alchemy and Infura are the one two main node service suppliers within the business, which means that almost all of crypto is reliant on two infrastructure suppliers to handle their information.
“There appears to be a brand new safety hack reported each week [in web3],” Isford mentioned, citing the latest Metamask and Ethereum dApp outage that originated from Infura and February’s Wormhole bridge hack.
Whereas numerous startups are engaged on creating safety options, Isford mentioned, the tech is “nonetheless fairly nascent” in the case of developer instruments, information infrastructure monitoring, and storage.
One other main problem is managing fraud and draw back threat, Isford added.
“I feel [that issue] is admittedly protecting a whole lot of of us out of the crypto world proper now [because they’re] afraid of shedding all their cash in the event that they enterprise too deeply into crypto,” Isford mentioned.
Isford is optimistic that by the large inflows of funding into web3 startups prior to now 12 months, firms will be capable of construct extra dependable options.
“I feel TRM Labs, Chainalysis, and a number of other different firms on this area have 10x potential when it comes to compliance and monitoring since you simply should not have that but at scale in the identical approach that we’ve form of created these refined AML techniques on the monetary infrastructure aspect within the web2 world,” Isford mentioned, referring to conventional monetary establishments’ anti-money laundering expertise.
Higher fraud and threat administration techniques are a precursor to extra institutional cash flowing into crypto, Isford mentioned. As firms like Constancy, Goldman Sachs, and JP Morgan proceed to make strides into crypto, the market will mature she added.
“I feel one of many greatest alternatives in crypto proper now remains to be safety, if you happen to can construct extra dependable sensible contracts at scale … however you’ll be able to’t have a dependable system if it’s not safe, proper? And you may’t run a system securely if you happen to don’t know who’s inside that system, so I feel safety might be one of the crucial essential items from a prioritization standpoint,” Isford mentioned.
