Beware the Innovation Gap – from Bitcoin to things like Gnosis, Augur, Golem, and Bancor

ah [Music] [Music] good evening and welcome to another episode of motor disclaimer I am NOT your financial advisor this is not financial advice number two I run a hedge fund we buy some of the things that I’m going to be talking about so I does not an advertisement or solicitation this isn’t just me being transparent with how I see the weird world of internet money today we spent most of the day talking with founders who are considering making a protocol and one topic that comes on that comes up often when you’re in the early stages of writing your white paper is identifying any what are called innovation gaps now what is an innovation gap and why should you care about it so the reason that you should care about an innovation gap is there are many protocols which have gone through an ICO that don’t work yet and the reason that they don’t work yet is that they depend on an innovation they require some new thing to happen that’s never been done before to work so let me give you a couple examples so any prediction market like gun OSIS or augur they rely on what’s called a distributed Oracle no one’s figured out how to do distributed Oracle’s yet so even though gnosis and auger have IC ode and you can buy their coins gnosis and auger don’t actually work yet and the reason is because there is an innovation gap if you have an innovation gap you can’t go to market right you can you can get developer Network effects you can have developers working on your stuff before you figured out the innovation gap and you can have capital network effects meaning speculators are buying your coin because they think there might be an increased future value but you can’t get marketplace network effects because you can’t go to the market because you’re relying on an innovation that doesn’t exist yet so whenever I’m considering an IC o—- I always look at the innovation gaps are there any innovation gaps and I personally tend to favor protocols that do not have innovation gaps protocols that can be used right away even if it’s just for a small market so I need scale right away but what I need is I need a protocol that can immediately address a market because in my mind you need all three of these network effects if you want to get to super dominance so because I’m an investor for the long term I’m not looking for like a short term flip of the 2x or 3x I’m looking for a long term very unusual thousand X or more which I know sounds strange but that’s what I’m looking for because I’ve been lucky to see it in Bitcoin and aetherium what I look for our technologies that right out of the gate can be used so Civic for example Civic had a recent ICO there are no innovation gaps if it can be used right away let’s take a step back on Bitcoin even though it had innovated even though Bitcoin did new things it could be used right away now it’s important to note that Bitcoin has lots of bugs but when Bitcoin came out when people started to use it even at the very beginning stages there were no gaps it could actually be used and it introduced a new technology instead of saying hey this will work when we figure this other thing out what Bitcoin said is hey we figured this thing out and we’re going to put this protocol out into the world aetherium similarly it worked out of the gate so if theory ‘im at its current version doesn’t exactly scale well there but for a small non scaled version of aetherium like there are no innovation gaps if you want a theorem the scale you’ve got some innovation gaps with sharding and figuring out how you’re going to do proof of stake that’s a different story for a different day so out of the gate Bitcoin works out of the gate aetherium worked I mean they’re not perfect they’re buggy and usually there’s lots of issues but they work there are no innovation gaps Amos Civic the protocol that just recently had an icy Ellen and works I mean at a very basic level but it works so there’s generally a spectrum in innovation gaps where you’ve got some things that you’re that you’re pretty optimistic about and then some things that you’re just like super pessimistic about so I’m going to give you two examples on the spectrum of things that generally people in the industry are pretty optimistic about and things that people are generally very pessimistic about so when you look at innovation gaps gholem is a great example where people are very optimistic so Gollum can’t work yet so it’s a distributed supercomputer really neat idea could be super useful but Gollum depends on this idea called new bits that we haven’t exactly gotten to work yet we all think it can work we all think someone will figure it out but it’s not there yet so Gollum is not actually useable going can’t really get marketplace and network effects until it figures this out on the other end of the spectrum you know a protocol which does not look like it’s going to work at all is Bank or so the problem with Bank or is that it fundamentally ignores how markets work and so if you ask anybody who understands how markets work what you’ll hear is that the way that they structure their market is really one-sided so markets generally have recalled market makers and what banker does is they have a bot a very simplistic bot that tries to make this market which requires lots of real-time information with a really simple bot and so it looks like it’s just not even remotely possible for Bank or to work so there’s this spectrum right we’re with innovation gaps where you’ve got stuff like Gollum which looks like it could work but there’s a gap and you’ve got this stuff on the other end of the spectrum like Bank or that just doesn’t look like it’s going to work at all now as long as a protocol is able to get to market and start actually solving a real problem we tend to feel pretty good about it so generally we favor protocols that have zero innovation gaps where not only can they get developer and in finance developer and capital network effects but they can also start getting those marketplace network effects right away because the problem with having a innovation gap is that you don’t know how long that gap is going to to fill they could take a little while or it could take forever and so there’s there’s an increased execution risk right so execution risk is the risk that you just cannot execute the complete project it’s just not possible for whatever reason and the more execution you risk that exists in a project the less likely it is to ever get to market and if it doesn’t get to market it can’t get market place and that reflects and it can’t cross that critical mass crossover point in Metcalfe’s law that we look for one thing to keep in mind as you’re looking at ICO is is trying to identify are there any other any innovation gaps so that’s it for today talking about innovation gaps and the importance of identifying them and understanding that protocols that have innovation gaps are a higher risk they’re less likely to ever get to market and if they don’t get to market it’s unlikely that they’ll ever get those super high multiple returns that we look for so in order to optimize for super high multiple returns we look for protocols that have little to no innovation gaps ideally they can go to market right away as is or we have or we have a clear understanding of how the developers will cross the gap and actually figure out how to bridge the innovation gap well that’s it for today if you have questions comments give them to us below as always stay in trouble okay [Music]

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