Author: Jordan, PANews
Compared with a16z, Paradigm, Binance Labs and other well-known investment institutions in the crypto industry, although Y Combinator is not focused on the crypto industry, as a long-established Silicon Valley technology accelerator and incubator, YC is definitely the most low-key "planner" in the crypto industry. It is behind Coinbase, OpenSea, TRM Labs, Quantstamp, and even WorldCoin.
Last week, Y Combinator released its annual "Requests for Startups" report. Unlike previous years, this year Y Combinator clearly pointed out that stablecoins, the metaverse and artificial intelligence (AI) will be the most promising areas of innovation in the future: stablecoins have great potential as a cost-effective cross-border payment option. At the same time, Y Combinator also sees prospects in the fields of augmented reality (AR) and virtual reality (VR), and metaverse applications have begun to surpass gaming applications; at the same time, artificial intelligence has been able to customize enterprise software and simplify "back-end processes."
Why is Y Combinator optimistic about the stablecoin economy?
In the words of Brad Flora, a partner at Y Combinator, "stablecoins will become an important part of the future of currency." In fact, Y Combinator has been effectively incorporating stablecoins into its operations for many years, including cross-border payments, reducing transaction fees and fraud, and helping users protect their savings from hyperinflation. In the past, many people believed that blockchain technology lacked practicality, and stablecoins happened to be the simplest and most efficient application of blockchain technology, and traditional finance would inevitably "follow suit."
First, historical trajectories suggest that the stablecoin market has reached a breakthrough stage. Y Combinator has seen signs of rapid development of stablecoins, the most typical example of which is PayPal's recently launched self-issued US dollar stablecoin PYUSD, and major banks have also begun to provide custody services and increased publicity. All these changes are very similar to the transformation of the digital music industry at the beginning of this century, when the MP3 market seemed to be full of "illegal" shared downloads, but began to get on track with the entry of "regular forces" such as Apple and Spotify.
Secondly, there is still a lot of room for growth in the number of stablecoin users. At the data level, the global issuance of stablecoins is about 136 billion US dollars so far, which contains huge development potential, because only about 7 million people have traded/used stablecoins so far, and there are more than 500 million people living in countries and regions with inflation rates exceeding 30% worldwide, which means that the depth and growth space of stablecoin users is very large.
In addition, the technical advantages of stablecoins are obvious, but the number of BUIDLers is insufficient. Y Combinator hopes to find and invest in teams with potential. Stablecoins are digital currencies that link their value to an anchor (usually the US dollar, but may also be other legal currencies and assets). Stablecoin transactions are recorded on the blockchain digital ledger. Any two wallets on the same network can conduct and complete transactions at any time within seconds, and the transaction fees are much lower than traditional financial transfers. These technical advantages are actually very obvious, but the number of BUIDLers currently focusing on building stablecoin technology in the market is very small. There are only a few stablecoin issuers such as Tether and Circle, and the main market liquidity providers can be counted on one hand. Therefore, Y Combinator hopes to find and invest in excellent teams that build B2B and consumer products on stablecoins, tools and platforms, because these tools and platforms themselves can realize stablecoin finance and more stablecoin protocols. As of now, Y Combinator's stablecoin alternative investment portfolio includes:
Apollo First, a stablecoin payment service provider
Kapstar, a stablecoin cross-border payment service provider
Stablecoin payment Web3 application Paymobil
Algofi, a stablecoin protocol based on the Algorand blockchain
L2 Rollup low-cost stablecoin cross-chain trading platform Meson, etc.
Why is Y Combinator optimistic about the Metaverse and AI?
As Apple and Meta released Apple Vision Pro and Meta Quest 3, the Metaverse market has regained its popularity. Diana Hu, a partner at Y Combinator, pointed out that despite the continuous development of augmented reality (AR) and virtual reality (VR), there are still many challenges to be solved in terms of best use cases, best user experience/user interface practices, etc. Diana Hu added:
“The user experience is getting better, rendering capabilities are increasing, and hand/eye tracking has improved dramatically — but there’s still work to be done.”
Therefore, if there are startups exploring applications based on metaverse devices in areas such as "super games", they are likely to be included in Y Combinator's investment scope.
At the same time, enterprise software built by artificial intelligence, large language models (LLMs) and "AI with understanding" also appeared in Y Combinator's "Requests for Startups" report. Harj Taggar, managing director of Y Combinator, believes that compared to traditional "one-size-fits-all" enterprise software, artificial intelligence can help companies create their own customized customer relationship management, human resources and planning systems, and large language models can greatly simplify many "back-office processes" that have historically been manually performed by "large teams of people", including evaluating applications, submitting documents, monitoring transactions and compliance reviews.
The following figure shows Y Combinator's investments in the field of AI since 2015. It can be clearly seen that since the launch of ChatGPT, the number of its investment projects in the field of AI has increased significantly:
Data shows that in Y Combinator's 23rd Winter Camp (January-March) and Summer Camp (June-August), the number of AI-related projects reached 88 and 99 respectively. In addition to the increase in the number of investments, compared with the 23rd Winter Camp, Y Combinator paid more attention to application projects such as enterprise services and software development. AI applications are also more diversified, and the number of AI investments related to medical services and financial projects has increased significantly. For now, Y Combinator seems to be more concerned with projects that use AI technology to improve development efficiency, such as:
CodeStory supports automatic code writing;
Tempo Labs, which can generate 60%-80% of the front-end code required for any function;
The ZTool tool can automatically generate the Autotab of the corresponding program by describing the instructions in natural language;
Ten.dev, which generates annotation files for code and supports developers to query via chat;
Kapa.ai, which provides AI-powered bots to the programming community;
Magic Loops, which supports writing computer programs in natural language, etc.
Summarize
In the venture capital circle, there are not many institutions that have a greater positive impact than Y Combinator. Today, this old and low-key incubator and acceleration organization has unknowingly made a lot of arrangements in the crypto industry. For anyone with innovation and entrepreneurial spirit, the significance of Y Combinator is obvious. By analyzing and interpreting the areas they focus on, it may be helpful to Web3 entrepreneurs.