Investing in the Future of Web 3.0 with Shawn Cheng from ConsenSys MeshAug 06, 2021
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HOST: Hey, everybody. Welcome back to the Unstoppable Podcast. I’m your host, Diana Chen. And I’m here today with our guest, Shawn Cheng. He is a partner at ConsenSys Mesh, which is the investment arm of ConsenSys. And I’m really excited to talk to him, all about investing, and about his background in media as well. He used to work at VaynerMedia. So how does he combine his thinking around branding, and media, and all of that good stuff, with the crypto world? So welcome, Shawn. Thank you so much for being here.
SHAWN CHENG: Thanks for having me.
HOST: Great. So before we dive into everything that you’re doing at ConsenSys, I would love to know a little bit more about your background. I know you started in the traditional media sector. You started in ad tech, I believe, at Razorfish in New York, and then moved your way up to VaynerMedia, and then somehow from there got into crypto. So I’d love to hear about how that transition happened.
SHAWN CHENG: Yeah, I actually think my path, maybe not role by role, but my path in traditional Web2 companies that are built off of the major business model at advertising for Web 2.0 is probably going to be the same path that the next 95% or the next buildings kind of follow because so many of them are relying on that model.
And then in contrast, I like to say that I’ve never had the same job twice, which is kind of odd, or the exact same job. I think I’ve always been interested in how the internet specifically ends up changing our behaviors, and just being a part of the rise of social media influence in marketing and how brands play a role in our day to day lives.
That’s kind of what led me to crypto and wanting to see how tokens and Web 3 could actually transform how value is invested, generated, shared, and kind of where it might evolve to in the future. But yes, before Razorfish, which was a part of a parent company called aQuantive, that got acquired by Microsoft for about $6 billion. At the time it was the largest acquisition in New York. And ad tech was really the darling of New York and was the only other market that—actually, that’s not true.
There are a few other markets that have the potential of rivaling - -, Seattle, Boston. And New York and Austin were some of the ones that people were talking about. But New York genuinely solidified itself when you started to see some interesting companies like aQuantive being financed, and then also a lot of ad tech companies really being built here, and then a lot of Silicon Valley companies starting to build out their business development teams out here, the customer success teams out here, and then just the city being a magnet for all the great institutions and schools out here.
Yeah, from Razorfish, went to VBDO, which was one of the world’s largest creative shops that is kind of like the origin or the bad man origin story for where shows like Madmen were created, so 24 sets of executive creative directors, and many of them asking, how do I use social? How do I actually incorporate this into my product or service?
And it was amazing, working with so many creative people that wanted to do more than just send a banner ad or a search ad. And while at VaynerMedia, I joined the company to work for Gary V. And Gary himself was starting an agency just that understood social from the onset, and understood that audiences and communities were at the center. And so it was the first place to really hire people under the role of community manager. So you’re being paid full time to interact with the community.
And at the time, that was novel. People were like this makes no sense. Why would I pay money for something that’s like a cost center? But it worked out extremely well because we were the first to buy, just like at BVDO and at Razorfish, the first to buy the ads from Facebook, Twitter, Tumbler, Snap, Vine, and kind of lead the way with how do audiences pay nothing, but with time and their data, and get a free, valuable service of free cat photos and hilarious sub-reddits.
And Gary had started a venture fund there. And I joined the team, and ended up focusing all my time on frontier tech. So I spent a lot of time in PR, AR, AI and e-sports, voice, and also subsequently blockchain, where Phil and Gary did an investment in Coinbase, which kind of, essentially awoke my curiosity as to what else could be done in the crypto sector.
And then, after four years there, I decided to push all-in on crypto, after taking a hiatus, after having my first kid, and then I joined ConsenSys about almost four years ago. So I’m I guess what industry folks would call a two cycler. So I’ve been here for a couple of the booms, and one of the major busts.
HOST: For sure. So much to unpack there. But I’m curious. When you first found out about crypto and blockchain, you said you sort of got interested in it through social tokens. There’s no way you just heard about social tokens one day, and you’re like, oh yes, this makes total sense. It clicks. I’m all in for it. So what was that learning process for you like? And was there fud along the way and times when you were like, I don’t know if this is going to work out, especially as you experienced some of the dips back during the first cycle.
Walk me through that journey of how did you start to wrap your mind around this, because a lot of people are going through this journey today, where they’re just getting exposed to crypto today. And some of it makes sense. Some of it doesn’t make sense. There’s a lot of questions. So I’d love to hear about how that was for you.
SHAWN CHENG: For me, I think when I started to see an analogous comparison to that of Web2 companies that started to use virtual currencies. Growing up, I loved real-time strategy games. I loved things like StarCraft, and Warcraft, and loved to geek out on those networks, and those virtual currencies being used to buy and sell skins, and items was something that always stuck with me.
And New York tech also had one of the ultimate darlings out here during the Web2 social media era of Foursquare. And I still use Foursquare as apps more to check into places, and it’s become my digital diary for now probably 11, 12 years. And they have tokens associated with their badges. And they’re one of the first places to game-ify elements of physical world and digital world.
I’ve always felt like Foursquare and Swarm’s tokens or coins could be tokens, and how people were meeting in real life, based upon a GPS coordinate that was plotted on a map. And then you had things like Snap Map, where you could see like very serendipitous meetups at a park, and have drinks with friends, and then just leave to a dinner.
And so when I started to see tokens as something that started to allude to not just the speculative aspect of owning the next Instagram, or the next Vine, I started to also see, wow, what would it look like for not just the first 1,000 early believers that invested into Facebook, or Uber, or Twitter like Proseca but maybe the first 100,000 users of a platform that are part of its fair launch, that are part of a token sale, and start to be early contributors to a network, similar to how people like Little Nas X have really started to use viral platforms like Tik Tok to popularize - -.
Things like that, you’re just blurring the line between creator, and user, and developer, creators on a platform. You saw a very vibrant ecosystem within Tumblr that also started to see things like that. But I start to see them as being synonymous. And I still don’t think a lot of people realize just how similar that they are when you’re launching these end-sided networks.
And so when we’re talking about tokens, and people are excited that they’re famous on either Twitter or they’ve been on Defiant or they’ve been on one of these awesome newsletters, like The Block or whatever, that’s great. But like the audience is literally like this big, right, when in comparison.
If you look at regular Web2 companies and oftentimes, when you launch an app, you, as a founder in the Web2 side, don’t even think that you’ve made it until you’ve hit like a million multi active users. You don’t even feel comfortable to approach a VC, because the total app store and play store is like 1.5 billion people.
So if you can’t get a million people, you’re not even close to 1% yet. So those are some of the things that kind of led me to get really excited about switching from Web2 to Web3, and kind of how I see some of the relationship between the two.
HOST: Got you. That makes a lot of sense. And I’m curious, too. I always ask, what are your sources of truth or what are your go-to places for learning more in the space? This can be like people on crypto, Twitter. It can be blogs, books, podcasts, like anything.
SHAWN CHENG: Yes, I lurk a lot on crypto Twitter. I definitely like to read maybe 100x more than I write. I do think that the best places for learning are by using. And also, within the communities themselves. So Discord boards are fascinating to watch the most invested people in platforms talk about new proposals because doing is not theoretical anymore. It’s not just someone randomly posting a general meme. But it’s someone that’s taken time and effort to craft a bill or a - - proposal.
And then within Discords, it’s fascinating to watch polls. Same within Telegram, what is getting energy? And then I learned this a lot from Gary V. is just like listen 10 times as much as you speak. And from that, having a direct conversation with users and audience members, you’ll be able to sus out what are the things that actually should be bubbling up to the top and really check your biases at the door.
So those communication platforms are probably my favorite. And then to contrast myself against my contemporaries in the space, I really do try to talk to a lot of no-pointers and continue to check people that are experts in their own fields and animators at Disney, people that are heads of product at Spotify, or Shopify.
I continue to stay and nurture strong Web2 connections because until they see crypto as a de-risked no-brainer, to join the space, I don’t think my job is done. I don’t think the job of ConsenSys Mesh is done either, trying to build those bridges to bring the next million amazing builders into the space.
HOST: Yes, for sure. I think that’s a really good point. So I want to get into ConsenSys Mesh and talk a little bit more about what that is. So I’m pretty sure almost everybody listening has heard of ConsenSys, if they don’t know what it is. But for anybody who is unfamiliar, can you just give a quick overview of what is ConsenSys, and then tell us the genesis story of how ConsenSys Mesh spun out of that.
SHAWN CHENG: Yeah, sure. So ConsenSys Net Mesh, I would say, is one of the key nexus events of crypto. Shout out to my Loki fans out there at MCU. I think Joe Lubin, as one of the cofounders of Ethereum really built a playground for brilliant minds, people that were ex-Goldman and JP Morgan, and crypto anarchists that don’t have a proper identification or even a bank account, to really sit together at the lunch table and have a fight or play a game.
And I feel like that’s been fascinating to watch. Now Mesh is kind of the sister company of ConsenSys Software, but it really is kind of like a flywheel of basically each type of investment program for the type of founder that we’re at. One thing that I like to say is that we like to meet founders where they’re at.
So we’ve done incubation, where we own a larger percentage of the companies, but then we oftentimes offer a runway that’s 1, 2, 10x longer than a traditional pre-seed investor, which is super unconventional, especially when you’re talking about market timing, crypto winners, volatility.
Very few people have that level of risk appetite. And ConsenSys Mesh has been one of those people that have weathered that storm. And then we’ve also done things like accelerators, in collaboration with IPFS and File Coin. We’re on our fifth one led by Gabriel Anderson, 20 companies in that, and trying to build at the intersection of two transformative technologies, like decentralized storage, as well as a smart contract platform, like Ethereum.
Traditional venture, which will be led by Praneeth and Min, they’ll be doing meeting finders, where a lot of them are traditionally more familiar with that sort of direct investment structure. And we’ve been also seeing folks on my team, like Mike Kriak, and also Thomas Rush, Frederico Soddu, and Rob Solomon deeply partner with founders through our incubator, in doing things around token design, staking, also helping provide the regulatory guidance around what they should be doing.
So yes, Mesh is now really these investment programs, and kind of sits at the intersection of trying to help all the contributors that have built Ethereum to what it is today become even greater. So even though we are Ethereum first, we’re not Ethereum only. But we do believe that it ends up being one of the key contributors to where the decentralized web leads us, in the mid and long term.
HOST: Yes, for sure. So this is your first time, I believe at least formally, working as an investor. I don’t know if you would call ConsenSys Mesh a VC, but it’s sort of like that. I’m wondering. What was it that made you decide to move from working at a media company and VaynerMedia, to basically being an investor, and taking on sort of like getting involved in many different projects at the same time, like really getting your hands dirty? What made you decide to do that?
SHAWN CHENG: Actually, right before ConsenSys, I was more of a generalist VC. So at Vayner, I was only on the agency side for about a year and a year and a half. And then Gary had launched a $25 million seed fund with RC Ventures. So Vayner-RC was the fund that I was a part of before that, as a principal. And so that, as a generalist VC, we had been working with founders from all sorts of different sectors.
So our largest investment from that fund was Snap. And a lot of my customers and clients on the agency side ended up being the first customers of their ad products. So it was very symbiotic of being able to sell a very nascent product, where there were very few actual incentives or clear analytics, or data, especially for a platform like Snap.
But it worked significantly, in terms of brand lift, and conversion, and so at the time, at Vayner, Gary, and Phil, and AJ, and the rest of the crew met. Higgens and Cary, I think oftentimes were already at the forefront of sports technology, at the forefront of every hot social deal, directly investing into multiple different projects.
Gary himself, things like Slack, things that really touched our everyday lives. And so I ended up spending most of my time on Frontier Tech, primarily because we were so strong on all the other areas. And so in going from Frontier Tech into crypto, I think investing with a slant with tokens was the thing that attracted me the most, as to how it changed because the role at ConsenSys now, around pioneering our investments as taking DAO membership seats, and now we’re on our fifth DAO membership seat as an investor.
But we’re one of 75 members of a lot of these DAOs. So it’s not like we’re one of two investors, like a top-tier blue chip, and then you have board meetings with us, and no one else. We’re taking a more federated approach, an approach that now is now more about working with the community and setting up processes and systems that really help to connect more of these networks together.
And so this is an investment of money, but it’s also an investment of time and building these systems that can be much more virtuous and create flywheels, in and of themselves, so that they can take advantage even more so of network effects and use smart contracts and crypto as a way to do it, because it’s trustless, information-less, and the best thing since sliced bread.
HOST: Very cool. So with your investment now, is it a combination of investing capital up front, plus then maybe taking a DAO seat or something like what Seed Club does. Is it like a mix of those different things, and is it just really dependent on which project you’re investing in and what they’re looking for, and what you’re looking to get out of it?
SHAWN CHENG: It is a mix. I think ConsenSys Mesh is allocating capital to different subsidiaries through these different programs. But we also are doing direct investments. I would say more and more of my time is being eaten up in terms of—I guess I would call it like participatory investing. So what does it look like for us not just to sit in an ivory tower and approve or disapprove various motions by the founding team or the board, itself?
And now this is really getting our hands dirty, and saying hey, it’s not just about preferential shares versus common shares. It’s not just about who gets the loan first. It’s now about being shoulder to shoulder with the men and women that really have taken the most risk at the very beginning, and believed in a protocol, believed in a project that we want to cocreate together.
And I do think that we, ourselves, are some of the ones that might be best suited to do that in the long run.
HOST: Yeah, 100%. I was going to ask, too, like when you decide at ConsenSys Mesh like which companies to work with, what is the thought process that goes into that? Are you investing in a lot of social tokens? I know you’ve spoken about that a few times. Or is it really just like any Web3 crypto native project that you guys believe in?
SHAWN CHENG: We invest up and down the entire stack, so we’ve done everything from layer zero around hardware, all the way to the DApp layer and various L2s through integrations. I would say our focus now is really focused—our focus now is really on things which continue to push the envelope and fill in any sort of gaps that the market absolutely wants.
So we have contributors that are building towards a lot of the L2s and contributing to ETH 2 itself. And that’s just through a hub R&D, led by Joseph Chow and Robert Drost. And I think those are other ways that we’re investing. But other things that we’re interested in now are actually DAO tooling, so DAO to DAO governance, DAO to DAO automation.
And then in social tokens, we have not actually invested in any social tokens directly, ourselves. But more than likely, we’ll end up getting more exposure to social tokens through perhaps a social token DAO. Through the DAO, we do have exposure to friends with benefits, and then also other sort of social tokens that are more art oriented, like Museo, through the Flamingo DAO. So those are some of the initial ones, but we really do expect to see a dozen or so other projects launch tokens that may have social token elements or two-token models, which is also interesting.
There are projects that use pure governance tokens, but there may be pure social tokens that end up playing a curation role, or a role that helps to bring in like-minded members as an affiliate token. I’m really excited about what that looks like for a lot of projects.
HOST: Awesome. And then you also said that one thing that ConsenSys Mesh does a little differently is you don’t just say, “Here is this money,” and then we’re going to sit at the top and just like check or approve or disapprove. You actually get your hands dirty and work with these companies. What are some ways in which you can help the companies?
I assume on your end, personally, it’s probably a lot of like branding stuff, media, things like that. But yeah, which aspects do you tend to help companies with?
SHAWN CHENG: I’m most excited about product, oftentimes, even though I think as a user of many - - protocols and a lot of early social media tools, I as an end user really do enjoy getting my hands on it and trying it out, and then also trying it with various stakeholder hats on.
So yes, product feedback, coms and go to market feedback, token model feedback, especially around whether or not it’s a sustainable or long-term incentive, are some of the ways that we like to help out with. And then we have other like crypto and consensus affiliates that we like to point towards that are amazing and world class, like ConsenSys Diligence which does both smart contract and system-based audits, which is something that a lot of Web2 founders don’t always think of from the onset.
But that’s an industry standard for a lot of Web3 companies that you publish your code, and then also you publish your audits because everybody wants to be able to interact with your vertical in a trustless manner.
And then also regulatory feedback so - - and Christina from our legal team oftentimes are working with dozens and dozens of our founders, around how to structure themselves, their token model, and also thinking about how the company grows over time, and then also how to see and think about their value realized through acquisitions or even secondary sales.
Yeah, our legal team is world class, and has been working with founders to really help them navigate those paths from day 1, in a lot of instances. So those are all the ways that we kind of have been working with teams.
And then I would say the last one that I’ll highlight is that we ended up being users. So Rob, who leads our finance team is a finance guru and geek, and has been trying all of the treasury management tools, the accounting tools as well. So how do we automate each of the forms that we need during tax season? This stuff is exciting if you think about all of the wasted hours that a CEO or a CFO ends up wasting on.
Rob and team are actively working towards using these various treasury solutions and accounting based solutions, so that we can find the playbook, and then the ones that we see having the most upside and the least amount of - - at risk, we like to highlight and point our founders towards, to save them time, so that they don’t have to start from scratch and go hunting for a new solution.
HOST: Right. And I think anybody who has used a number of crypto products can probably agree that the UX is still very much lacking in crypto. From your experience, have you thought of any ways that projects and protocols can improve their UX and make it easier for people to actually use, so that we can onboard the masses, because until it’s easy to use, people just aren’t going to get onboard with it.
SHAWN CHENG: Absolutely. There’s definitely a couple schools of thought. One of my personal investment thesis is a silly one that I like to call no blockchain, blockchain. And there are definitely social elements in social media, things that we can learn from traditional Web2 social media that can bring people into crypto and teach them in a more progressive manner.
So instead of trying to teach everybody about seed phrases, signing. What does it mean to be a part of a group of state network or group of work network? I understand all of those things are very valuable for people to understand why would you use a blockchain that’s slow and inefficient, versus just a very beautiful, centralized AWS, like Instance. But I do think that more and more people might take some of the pages and playbooks out of - - like Instagram, for example.
I think their flow, especially when you’re talking about when networks were slow, and when we only had iPhone 3G. And I believe Mike, of the two cofounders, was the one that helped to sequence the uploading of your photo in cash form, while you were writing the description and selecting a lens. And the very first few versions of - - and Instagram.
Now you had Hipstamatic. You had a variety of other camera companies out there that were also just as interesting and dominant. But that simple design choice of sequencing something like caching your photo simultaneously while writing and picking your lens, made them feel zippy and won them the war.
And I think in the same way, when we’re talking about Web3 DApps and also wallets, that people are getting to the point where they realize like, wow, how do I progressively educate my audience so that I make it impossibly hard to create something ugly or something that harms myself, or something that just doesn’t work.
And I think the best examples of that are wallets like - - quality and Darma, and ones—and Argen—ones whereby which they almost make it difficult for you to not do something that’s wow, I’m so glad that I had that functionality built right within.
Single sign on, that’s also kind of like the - - Web3 wallets. Like there have been a number of awesome players in the past like Horus and Magic, and a variety of those that continue to help lead the way there. But projects like Wallet Connect I think are amazing because they’ve been helping to standardize interconnectivity between the wallets for years now, before anyone noticed, before anyone paid attention.
And it’s more done out of a public good than actually getting all the value accrued to - - and his team. And so yes, sequencing is definitely one big theme that I would say UX and UI developers and developers are seeing as one key differentiator.
And then progressive education is the other one that I would - - examples of I just mentioned. So shout out to things like Rabbit Hole and obviously the DAOs themselves are creating documentation around how do you entertain and educate simultaneously, but not try to teach everybody about everything from the beginning because that clearly doesn’t work.
And we’ve had a lot of failed projects that tried to make it very philosophical, make it much more about these ideals than it was just about creating simple sticky feedback loops, like in Web2 land, Product Time, - - Fever, and all of the habit related books. Web2 has this in spades. Like this isn’t stuff that we need to reinvent.
Web2 folks that are world class product folks have figured out, hmm, what do I prioritize, and what emotions do I invoke in a user when they first touch my product? Like world-class product people are thinking that way. And oftentimes I think in Web3, a lot of the builders are thinking about how novel can I make it? A flash - - that combines five other pieces of functionality and - - the NFT and increases the - - collateral.
You’ve already lost 99% of people. Start with a question that’s provocative. Start with something that they couldn’t do before, and I think you’ll get people, more and more people interested because they’ll come back, doing something that they couldn’t do before, like a single sign on through a Web3 wallet, which sounds super simple but it is absolutely going to disrupt the sign-in space and the amount of data that users and - - collect from the outside.
HOST: For sure. I’m curious to hear your perspective on how things are going to change as we shift from Web2 to Web3. And I’ve got some specific questions for you as well. But I guess to start, I’d love to hear your overarching thoughts, like just riffing off of your last point of think about what users couldn’t do before and use that as your provocative hook.
And so what are some things that people, anyone, companies, people, anybody couldn’t do in Web2 that they will be able to do in Web3 that you’re really excited about?
SHAWN CHENG: One of the ones that I think that makes the most sense is have exposure to the economic upside of a company from day one that isn’t just the investor and isn’t just the founding few. That’s something that you could never do before. So if you’re talking about looking up on a highly active smart contract on ether scan, and you see 1,000, 10,000—if you discover an amazing artist, a new act that you’re just like this person is insane.
They are absolutely going to sell - -. They’re absolutely going to sell out MSU in a day, and be able to participate in the upside as they grow in popularity because you’re creating content around that song. You’re creating content around each of the stops along their tour.
I think that similarly, as a product, or a protocol, or a - - grows and grows that instead of a give-get affiliate model, where you give 50 bucks, and you get 50 bucks for sharing your sponsorship code for a Casper mattress, you are hyper incentivized if you have 1,000 friends with benefits tokens to share with your friends.
And if let’s say FWB quadruples in price and it gives you direct access to a concert, to an exclusive room, to specialized digital goods that you can actually dress up your crypto wallet, those are all things that Web2 systems are not really set up to do. I’m particularly interested in doing this in the gaming space. What does it mean to blend fungible and non-fungible assets, Crypto Kitties with hats, cats with hats?
If you made hats, as an example, as a fungible asset that could be worn by any cat, and you can buy and sell them, and trade them. But what if these hats could also be worn by Crypto Punks? What if they could also be worn by Hashmasks or Apes. Shout outs to my Bored Ape Club members.
That’s something that I don’t think cross—that sort of cross pollination has been done to the extent that it could be done because so much of the control and value accrual within the gaming space is within the engines, like Axie Infinity, or the publishers, like Bethesda, or Blizzard. And because they control the keys, they face a little bit of the innovator’s dilemma. They’re not going to kill their cash cow to do something novel, just for the sake of it.
So for the near term, they’re going to see companies like Sky Apes take over and eat their lunch, and say hey, not only are we growing our market cap, but the users of our product are growing rich with us. So it’s not just the first 100 investors and builders. It’s all of us. We’re all going to make it.
HOST: Yeah, we are all going to make it, as they say on Twitter. Okay. So another question I have for you, as we think about moving from Web2 to Web3 is ads. I know you started your career in the ad tech space. And obviously I think we’re all—we can all agree that ads have taken a turn for the worse. And I’m not saying that everything about ads is bad today. There are definitely good aspects of ads too.
And I don’t think we’ll ever live in a world without ads nor should we. But I’m curious to hear your thoughts on how we’re going to see ads change and the ad model change as we move into Web 3.
SHAWN CHENG: I love this question because it’s so hard to answer. Advertising in general, it just receives so much hate, if you will, so even more vitriol than you might have faced with Web1, with popup ads. If you thought Web2 was bad, how about a totally irrelevant, full screen, interstitial that like took up your entire AOL. Like that’s the world we were living in before.
And as an advertiser, it was a terrible experience, too. You didn’t have options between cost per click or cost per 1,000 impressions. You didn’t have behavioral targeting. You didn’t have relevancy. So not only did you have annoying ads, but you had irrelevant ads. And at least now, with Google and Facebook, the two most powerful advertising products in the face of human history that actually can change governments, that actually can shape policy, that actually can spread disinformation, this is not a toy.
This is a weapon that can be used for good. I actually think a lot of Web3 founders don’t use search engine marketing or social ads enough. Oftentimes, they’re only sponsoring podcasts in crypto only audiences, which again is like this big. And so I think how it changes every time is that the most sophisticated brands and advertisers are not just going to be talking at people. But they’re going to talk with people.
And so you may see the best and most progressive brands buy real estate in Sandbox or Decentraland. And then they might actually partner with a real estate company that actually builds out a space that actually hundreds of thousands of their fans can actually come to a simulcast audience or concert for Taylor Swift and Kanye.
And then they’re going to issue not just NFTs that are kitschy tokens to say like I was there. My ticket turned into an NFT, yay. But now you’ve got a crazy ass mask and a red leather jacket that looks just like Kanye, and you can wear it in every single Somnium, Decentraland, Sandbox, and you can dip and out of whatever the hell you want to do - - because you were there.
And if you see someone with a crazy ass mask and a red leather jacket, that’s some awesome digital clout. And I think the best entertainers and the best brands will do that, right? Brands will get more sophisticated and think about can I issue NFTs with true utility or a pay to earn model where there’s symbiosis and there’s a direct relationship.
Consumer product goods oftentimes don’t have a direct relationship with their fans and their customers. They’re selling through Walmart. They’re selling through a drug store. They’re selling through Amazon. So Bezos and Wally are oftentimes sitting between you and that fan or that customer. But brands, the best ones, the most sophisticate ones, are going to be able to say, “We’re going to issue a token. We’re going to issue virtual goods. We’re going to actually partner with our lead sponsors.”
Nike might have like both an online and offline presence that brokers a deal between not only the shoe, but maybe the best NBA venues, to actually ensure that the fans themselves have a touchpoint across multiple parts of their - - life. And so I think simply put, people might call that just advertorial or sponsorships, which that’s super old school madness stuff.
That’s like ‘80s, ‘70s. But digital goods is just that in digital form. And I think people that see brands doing that at a high level and do it at a degree where people can actually earn a living off of it, like Sky Mavis, that’s what the model needs to change, especially when you come to new content creator platforms that are creator first, not audience first and not advertiser first, but creator first, which I then see companies like Substack and Only Fans that are Web2 native. They are absolutely Web2 but they put the creator first.
Like in the past, folks like Tumblr, Facebook, they are oftentimes putting advertiser first, and then you have creator, curator, and like user kind of on equal footing. But when you change that triangle to be okay, now we’re going to put creators and/or users on the same footing, that leads you to very, very different product decisions, very, very different experiences when someone enters into a space. So that’s how I think advertising changes.
HOST: Yes, I think it will be a lot genuine and a lot more natural too because if I’m a Taylor Swift fan, and I’m going to the concert and I’m paying all this money, and I buy this skin that I wear all over the Metaverse.
SHAWN CHENG: Cardigan.
HOST: The people that are exposed to me that I’m going to be running into on Decentraland or Somnium, or whatever, are probably people that follow me or they’re going to see that. They’re going to think it’s super cool. And I think it will be a much more natural reach. And then another thing about ads that I’m curious about is like right now with social media as we know it today, the users are sort of the products.
So these companies are collecting data about how we behave on social media, who we follow, what we like, all of these things. In the future, I’m wondering—
SHAWN CHENG: Yes, I’ve bought all that data by the way. I’ve purchased that data.
HOST: Okay, yes.
SHAWN CHENG: It’s a scary amount.
HOST: That’s your job, or that was your job. In the future, where do you see this data coming from? If you’re working at Razorfish or whatever, you’re purchasing data, are you still purchasing data from these big companies, like the platforms, or are you going to individual influencers and purchasing data from the individual creators who have generated all of the data that you want, and I think deserve to be paid for the data that they’ve worked hard to generate?
SHAWN CHENG: I think it will be a blend of all those things. I don’t think most people will want to know that they’re getting 10 cents or 50 cents per thousand impressions. I think wallets will be the interface that people can toggle on or toggle off what they share. You already see this in examples in—do you know what the most popular app is right now that’s kind of allowing for you to do this?
SHAWN CHENG: I would say it’s probably Brave Browser. I think Brave has 30 or 35 million monthly active users. And then second to them is Metamask. So the wallet in Opera and in Brave is kind of acting as like a dashboard command center to give you the option, do you want to be paid in BAT?
And in the same way, I think once we get to larger network effects around brands that want—the only way that they’ll switch I think is if the data is leading to true conversions and higher loyalty. I think people will be able to create profiles that will be more monetizable.
So high consideration, low-frequency purchase might be the beginning. So examples of that might be insurance or buying a car. You buy a car how often, 3, 5, 10 years? Insurance, how often do you buy it? Is it home insurance? Is it life insurance? Usually those things happen up on a big life event or a death.
So you have a kid. Someone dies. Those are usually the things that are emotional triggers that allow for you to say, hey, I’m starting to shop for these things. And I think for crypto people, when by default the user is the one in control of this data and information, if you opt in for something that you’re actively shopping for and you say, “I want the best life insurance because now I feel responsible to ensure that upon my passing that my kids are taken care of.”
That’s like a responsible adult thing. And I hope some of the folks that are listening to this go out and buy some boring ass life insurance, and share your data because it’s a good thing to do, right? But I think, from a Web3 perspective, the tools will get more sophisticated in sharing some of those things that will just be about everyday life.
And we’ll have to rely on the tools that enrich our lives. So if the tooling isn’t just about making a few extra bucks, but it really does start to automate and enrich our lives, and make our lives easier because we’ve shared that data, we were intentional about that data, we were okay with that data being used.
And then when it’s used for the way that I want it to be used, by default I’ll want it back. That’s something that couldn’t be done before. The data that you might have shared on a YouTube video or every time you’re on Facebook, all the passive data, I think it’s upwards of like 500 or 600 unique data points that people track on Facebook across the different platforms.
People are like, 500? What are 500 things you could even track?
HOST: I know. That’s exactly what I was just thinking.
SHAWN CHENG: Yes, I’m excited for the world whereby which Web3 products are the ones that will allow for you to take that data back, once it’s used for however you want it to be used, even if you wanted to be used for monetization. And then also, to have greater degrees of civil liberties around privacy, for who you are at work, versus who you are at home.
And maybe you’re from multiple different geographies. You have the right to be forgotten. Legislation like that, that’s being issued in Europe, and a lot of progressive companies I think are coming to that realization that if you have control of that and we, as a society, and as tech builders and product creators start to educate people on how to use their data to wield their data, to store their data, it’s going to take a lot of time.
But at the end of it all, I do think that we’ll end up in a better place that hopefully isn’t about purely around active management of all this data, but passively we can use toggles like a Betterment or Wealthfront. If it’s just the financial aspect of your life, you answer 10 questions. It periodically does it on a monthly basis. You know your risk profile, and it automatically invests as a robo-investor.
And in the same way, maybe you have a similar type of setup, where it’s making decisions for you. And that’s the power of Smart contracts, right? It’s condensing and automating all these things that—do I want to make every single decision about every piece of data that I create? Probably not.
But I do think that generally will I want to give advertising dollars to someone that I’m ideologically aligned with? Yes. So instead of cancelling a brand and saying, oh, I’ll never use New Balances ever again because they said one thing wrong, how about smart contracts tell me exactly what their balance sheet makeup is, who their partners are, and whether or not ESG is a key element to how I spend my money or invest my money.
And then a smart contract automatically executes that. That sort of accountability is coming closer and closer. But I do think that it will take time to figure out what is the customized approach and what is the more passive approach? And I think there’s going to be a little bit of room for both, depending upon your life situation.
HOST: Yeah. That’s fascinating. And then one last aspect of traditional Web2. It’s something that everybody on Web2 can relate to that I think will shift a lot in Web3 is the other side of marketing that’s more focused on brand and content, and things like that. And one thing that I’ve seen really change in this crypto space is that there’s a much heavier focus on community.
What you said, VaynerMedia was actually one of the first companies to really put an emphasis on community managers as like a key role in the organization. And I think every crypto company has a community manager position. And that position is very integral to the success of the company. And so I’m curious to hear, first of all, why do you think this is. And do you think that this is going to last into Web3?
Like do you think this is a Web3 thing or do you think it’s just a thing right now, because the community is still so small and there’s so much education needed still?
SHAWN CHENG: I think there will always be a role for a human element for community management, especially when it comes to managing very diverse communities, whether it’s a D5 protocol, or a social token. I do think that the people that are intentional, especially when you look at different creator platforms, ecosystems where you have a high composition of developers that contribute to its marketplace, they act as shepherds.
And I think they’re so invaluable. I can’t tell you how many times where I feel like someone that raises their hand to take ownership and responsibility ends up helping to solve the problem faster than a bunch of people talking at each other, I think because human beings, the social coordination costs will be there because human beings are complex, which is why actually—I don’t know if it’s a hot take, but a lot of these DAOs that end up trying to do too much might throw everything and the kitchen sink in there, and that might be the thing that is problematic.
And it might be the ones that are a little bit single serving and focused on just one or two key elements whereby which there’s an active shepherd or someone that helps to guide and act as a therapist in a lot of instances, around this is what I’m hearing that you’re saying. I’ve read all 45 comments in this thread of this discord or discourse. And I’m hearing that no, you do not want to diversify this treasury. It does take a little bit of synthesizing.
And Web3, I think also should be much more inclusive of AI in general, so everything from natural language processing, machine learning, and robotics, like these things kind of naturally lend themselves to smart contracts. I don’t want to scare folks but they kind of like are of the same DNA. So when you’re talking about decentralized storage, decentralized compute, and all of the amazing automation in AI land, and then you think about the power of a decentralized, unstoppable network in crypto, they should be married.
And we’re going to see things that you’re just like oh my gosh. I think Vitalik has talked multiple times about autonomous agents and how Shawnbot 103 can go out there and essentially say, “Hey, based upon this risk profile, Shawnbot 103 is going to look for these types of farms and participate. And it will be 5% of his portfolio. And if there’s daily games, it will report back to me in a text message. And I’ll be like great. Thank you.
But AI, parts of AI and machine learning, and natural language processing is what is going to be used as a Chainlink oracle, informing those decisions, right, a random number generator informing those decisions. Like those elements are going to be used to free me up to enjoy life in a way, and organize my life in a way that works for me. Yes, I do think that those are some of the other elements that are necessary to see the—I don’t want to say right evolution, but a possible evolution or a possible outcome of this work.
HOST: Fascinating. Shawn, I have so many more questions for you, but in the interest of time—I’m trying to be respectful of your time, I’m going to go ahead and wrap it up here. We like to end every segment of the podcast—or every podcast episode with a segment that I call explain your tweet, which is where I go through your Twitter and dig up some interesting or cryptic tweets.
Your Twitter is a lot of retweets. And I think it comes out very clear that you do 10 times more listening than you do talking, which is great. But I’ve just got one quick tweet for you. This one is from July 11th, 2021. You said, “Parenting young children is basically redirecting different levels of chaos.” And I have never parented young children, but I read this, and I was like is this also like running a startup?
SHAWN CHENG: Yeah, I think the allegory of a startup being a child and your baby is so appropriate. Every week, just like human beings, they’re changing. And as founders, you never know what’s going to happen, what developmental milestone or setback is going to happen. And you just have to adjust on the fly.
And so I think the best founders in the world are flexible and able to anticipate and have foresight. Foresight is my number one value in a founder. So if I can find someone that can be like a professor X or Jane Gray, and think about what is a premonition of what is about to happen, that anticipatory muscle is incredible, especially when you’re talking about an ecosystem like Web3, where everybody that has committed their entire life to this and decided to work in this space has already made a concession to be working on unstable ground.
And so in that unstable ground, because we have to think in a very probabilistic sense, like what is the over/under on E2 launching on the date that it’s set to launch, or 1559, or a bridge between your favorite - -. Those are all things, just like being a parent. You’re like well how will my daughter adjust to this new school because it’s a Mandarin emergent school, and now her entire day is in Chinese. Surprise, honey. We love you. It’s all in Mandarin.
Your users, my daughter, may react differently versus my son, who may just be in user testing with like dinosaurs. So every day I kind of think about how your inputs and your outputs hopefully lead you to a better end result. And hopefully both your startup and your children are flourishing in the environment that you helped to create around them.
HOST: I love that analogy. Do you feel more well equipped to be a parent, since you’ve worked at startups?
SHAWN CHENG: Oh, a hundred percent. If I was reliant on a consistent structured day, I think I would go crazy or be very discouraged as a parent, and vice versa. I actually think that being a parent has made me a better operator and investor because it’s made me deeply empathetic to various stakeholders in a process, and growing as a human being.
And also, seeing that just because I see things a certain way doesn’t always mean that my startup or my other stakeholders are going to see it that way. So it’s always important to keep an open mind and really continue to have that open dialog and ensure that the people involved have a shared understanding, and always recheck that, just because it was the way that it was a week ago, does not always mean that it’s going to be that same way two weeks, three weeks, a month later.
So there’s definitely a symbiotic relationship between those two. I definitely think about - - or gaming crypto CEOs that have two, three, four kids, and it’s just hilarious hearing their stories and hearing about like wow, it’s awesome to hear how training—how to potty train a kid informs how to build a product.
SHAWN CHENG: No details there, but anyway, that’s a story for another time.
HOST: I love it. All right. Well the last thing, Shawn, before you go, tell people where they can find you if they want to connect with you personally, have follow-up questions for you. And then also, tell people where they can go to learn more about ConsenSys Mesh or if they’re building a cool product and they want your support on that?
SHAWN CHENG: Yes, absolutely. You can find me on Twitter @shacheng, S-H-A-C-H-E-N-D, or you can just email directly at firstname.lastname@example.org. Yes, we are an xyz top-level domain owner, just like many other crypto companies. And if you want to learn more about Mesh and all the things that we’re doing, you can check out mesh.xyz. We’re publishing more on our medium and our social channels.
We’re excited to meet founders, especially strong Web2 founders that want to enter into the space but just don’t know where to start. And so we’re excited to really help usher and shepherd those folks in, and hopefully give them a playbook in a shorthand to say these are some of the things that they should consider, while they’re thinking about building their product or service in the space, so very much looking forward to all of you that might reach out, after having me on this great podcast. So thank you so much for having me, Diana.
HOST: Amazing. Of course. Thank you so much for taking the time to come on the podcast. Thank you, listeners, for tuning in. And we’ll be back again soon with another episode of the Unstoppable Podcast.