Learn: Big Ideas in 2023
From entertainment franchise games to the precision delivery of medicines, small modular reactors to loads of AI applications, here are 40+ builder-worthy pursuits for 2023.
If “software is eating the world,” it has not yet taken a big enough bite out of compliance. Post-Dodd-Frank, financial services companies face more than 50k regulations across dozens of federal and state agencies (and that’s just in the United States). The existing and very manual compliance and risk processes are failing at both large financial institutions and at fintech startups supported by sponsor banks. Furthermore, while compliance is complex for businesses operating in just one geography, it’s even more difficult to manage across multiple countries. As more global companies embed fintech, the need for global compliance and risk infrastructure increases.
In 2023, companies of all sizes will turn to software to solve their challenges. We expect to see more tools for sponsor banks to manage third parties; for fintech companies and companies embedding financial services to manage all aspects of risk and compliance; and more compliance infrastructure serving default global companies.
—Angela Strange, general partner, and Joe Schmidt, partner, fintech team (@astrange) (@joeschmidtiv)
While we’ve seen significant focus and investment over the past 5+ years on innovating around the front-end of financial transactions, we’ll see a market shift in 2023 toward building tools to better manage the often unseen (yet vital) back-office functions of running a healthy financial services business. With the backdrop of a challenging macro environment, a renewed focus on cash management, equity efficiency, and preserving capital markets relationships will spawn both the adoption and proliferation of a host of new tools and services to help companies better manage their financial health. Stretching your dollar is back in vogue (as are the tools to make it happen)!
—David Haber, general partner, fintech team (@dhaber)
OpenAI — the ChatGPT interface in particular — is driving one of the most interesting new product cycles in fintech and financial services.
One way to think about this technology is that it unlocks labor supply at 10x a lower cost than humans. Previously, for example, the only cost-effective way to deliver credit counseling was to subsidize the human costs with high fees (either directly, or bundled into the cost of financial products) or to deliver a less personalized experience with an app. Since neither of these is a great solution, most folks have been left to fend for themselves.
The ability of ChatGPT to take input and deliver a near-human-quality credit counseling experience changes all of this. We expect to see this capability — and services like it — become available for subprime and early-credit consumers in particular. In that simple financial coaching could dramatically improve many consumers’ credit files, this technology could act as a counterweight to some of the negative macroeconomic factors currently affecting consumer credit, such as inflation, job loss, and depleted savings accounts.
—Anish Acharya, general partner, fintech team (@illscience)
As every company becomes a fintech company, we have seen an explosion of fintech infrastructure companies: KYC/AML, data APIs, bank accounts as a service, issuer/processors, etc. Thanks to these companies, it is much easier to launch a new fintech company, and for software companies to embed fintech.
However, many of these infrastructure companies cater to consumer use cases, forcing companies tackling business use cases to continue to build some of their own infrastructure. In 2023, we expect to see more companies tackling the infrastructure layers needed to bring business banking into the digital age (at most banks, the business owner is still required to show up in person just to open an account!). These infra tools will also accelerate B2B marketplaces and software platforms adding financial services for their business users.
—Angela Strange, general partner, and Marc Andrusko, partner, fintech team (@astrange) (@mandrusko1)
In 2023, both new founders and existing startups will continue to vie for the most coveted spot within fintech infrastructure: the one-stop-shop for identity verification and onboarding. To date, Know Your Customer (KYC) software has been more developed than Know Your Business (KYB). That said, given the latter’s obvious pain points — from onboarding to credit decisioning — we expect the KYB ecosystem to mature. Currently, the challenges are especially onerous for cross-border use cases, as different data sets across geographies can compound the verification process. This need for better identity tools has been exacerbated by increased regulatory scrutiny on fintech companies, particularly around AML and fraud.
What might we see? First, we expect the leading players in KYB and KYC to each offer the other service. Much of the subcomponents and data from the KYB process overlaps with KYC. This is particularly true for businesses attempting to serve SMBs — since most components of sole proprietorship registration are entirely self-reported by an individual, they require more extensive KYC checks. Second, we’ll see more proprietary analytics and identifiers. Many leading KYC startups aggregate hundreds of disparate data sources to provide comprehensive coverage, but few have been able to convert this data into a proprietary identifier. Finally, the identity verification players can vertically integrate by expanding more broadly into areas like onboarding and credit-related workflows. —Seema Amble and Marc Andrusko, partners, fintech team (@seema_amble) (@mandrusko1)
With deteriorating credit performance in 2022, capital providers have tightened their requirements, making it more challenging for marketplace lenders to grow originations. Digitally enabled lenders are increasingly focused on access to stable capital sources, such as long-term forward flow agreements, warehouse facilities, and customer deposits.
SoFi and LendingClub have highlighted their decision to purchase bank charters for providing certainty and lower cost of funding. With customer deposits on the balance sheet, they “control their own destiny” in an uncertain macro climate. By contrast, this environment has been less favorable to Upstart and other marketplace providers.
In 2023, we expect more digitally native lenders to pursue bank charters. In the current higher interest rate environment, marketplace lenders are offering high-yield accounts to collect deposits on behalf of their capital partners who in turn buy their loans. This strategy may be a first step toward building their own capital base. As these digital lenders look to become banks, what remains to be seen is how regulators will respond. That’s always an open question… —Alex Immerman and Justin Kahl, partners, growth team (@aleximm) (@justin_kahl)
Over the past decade, a wave of vertical SaaS companies — Toast, ServiceTitan, and Procore among them — empowered SMBs in the U.S. to run their operations more efficiently. Though the vertical SaaS revolution has not yet come to Latin America, we are seeing early indications that SMBs in the region understand the value of software.
For vertical SaaS companies in the U.S., offering integrated services such as payment processing and payroll was key to strengthening and monetizing their relationships with merchants. In Latin America, where there’s a low willingness among SMBs to pay for software, these integrated services play an even bigger role for vertical SaaS players.
Hence, I see an opportunity for a white-label payment processor in Latin America. Until now, there have been very few players offering such services with legacy technology; those that do are mainly focused on enterprises and large startups. However, there is currently an opening to serve high-growth, early-stage vertical software players (and later expand to a broader market). In addition, by taking advantage of new technologies such as NFC (near-field communication), which turns cell phones into point-of-sale terminals, startups can cut into the high cost of hardware that legacy players currently contend with. —Gabriel Vasquez, partner, fintech team (@GEVS94)
In 2023, fintech companies will need to strike a delicate balance between pushing the envelope by building with new technology rails such as Large Language Models (LLMs), but also maintaining customer trust. While potential use cases within fintech are still emerging, LLMs like GPT-3 and the upcoming GPT-4 may help businesses train datasets much more quickly and cheaply. In addition, they may finally be able to fully automate data-heavy and manual tasks, such as insurance claims processing or loan origination, that have only been semi-automated in the past.
But while LLMs can address some low-hanging fruit, more complex use cases will require reserves of user trust. When dealing with, say, fully automated investment decisions or automatic financial reporting for businesses with complex money flows, companies will need to balance these new services and experiences with potential skepticism from customers. —Sumeet Singh, partner, fintech team (@sumeet724)
Skeptics of the highly anticipated launch of the Federal Reserve’s real-time payment network, FedNow, point to the limited use of the existing networks in the U.S. The one key difference, however, is ownership: RTP and Zelle are owned by consortiums of the largest commercial banks in the U.S. Why will government ownership of a national real-time payment rail make a difference? It will incentivize third-party infrastructure built on top of payment rails, as has been the case across the world.
In Brazil, Nubank offers its customers the ability to pay via PIX with credit, creating an alternative to its own credit cards. In Australia, Zepto helps merchants issue and settle refunds in real-time, driving increased customer loyalty. And in Europe, Volt enables pay-by-bank (in real time) across national payment rails, a key necessity for cross-border ecommerce. These use cases and more are built on top of “public” payment infrastructure, which has not been possible in the U.S. until now.
A public payments infrastructure is an invitation to create new use cases, features, and functionality of real-time payments. Maybe now we can catch up to the rest of the world? —Santiago Rodriguez, partner, growth team
We’re on the cusp of unlocking a new generation of web3 native games that will be fun, broadly appealing, and uniquely enabled by blockchain technologies.
It usually takes a few tries for developers to learn to build on new platforms. Take mobile games: Pokémon Go was one of the first true mobile-native games, enabled through features unique to smartphones, such as GPS and the integrated camera. Yet its prototype, Ingress, didn’t launch until five years after the release of the iPhone in 2007. We can’t rush the product cycle. I believe we’ll see the first web3-native games emerge in the coming years, perhaps sooner than we think.
In the near term, there are also opportunities to extend existing game genres with open economies. In the past, the next big game often rose from player “mods” like DOTA (League of Legends) or DayZ (PUBG). Game modding is turbocharged with web3 composability, in which creators can leverage each other’s assets freely with ownership and financial rewards automated by code. —Jonathan Lai, general partner, games team (@tocelot)
The biggest revolution to hit gaming in 2023 will be the creation of production-ready generative AI models for all asset types needed to produce a modern game.
Games are currently the most complex form of entertainment, involving dozens of different types of creative assets combined in complex production pipelines. Asset types include 2D art, 3D models, textures, sound effects, music, characters, animations, level designs, cinematics, and more. And each of these asset types has its own highly specialized production process, with dedicated tools and artists.
Generative AI today is getting the most attention for creating 2D images. But there’s a quiet revolution happening: scientists are working on AI models for all asset types. 3D models. Music. Sound FX. Much of this work is still at the research stage, but we’re seeing startups quickly forming around each model type with an aim of productizing the work.
By the end of 2023, it’ll be possible to use a text prompt to generate virtually any asset needed to produce a game. “Sound effect of footsteps for a heavy woman in heels on gravel,” “3D model of a futuristic battle tank with a laser gun.” The effect of this will be to unlock creativity like we’ve never seen. —James Gwertzman, general partner, games team (@gwetz)
Game development is one of the first industries to experience significant disruption due to generative AI. New tools are already allowing artists and writers to offload the initial (and mechanical) spark of creation to generative models and to refocus their efforts on editing and refinement.
But the AI innovations impacting players will be even more exciting than those that are benefiting developers. AI has continuously redefined what is possible in game design and gameplay experiences. I will always remember the initial frenetic excitement of Unreal Tournament botmatches, exploring the endless frontiers of Minecraft, and the unique thrill of a perfect Hades run — both the awe they evoked and the impact they had inspiring the next generation of games.
What will be possible with a new generation of games designed natively for AI? We’ll see emergent, procedurally generated worlds, each populated with their own rich histories, inhabitants, and mysteries. There will be Interactive fiction where the stories continuously evolve through player choice, and are told through generative images, video, and audio. The possibilities are endless, and what is merely possible today will soon be ubiquitous. —Justin Paine, business development partner, games team (@justinspaine)
Given the longer development cycles of games—anywhere from two to seven years — I expect the current bear market will separate the builders from the tourists. The strong web3 studios have realized that financial rewards, great art, and tokenomics alone aren’t enough to drive a sustainable game over time. These games also need to be fun.
In the year ahead, developers will pinpoint what makes their games intrinsically fun — and why web3 is a necessary component. Speculation and trading is one form of entertainment (see Runescape or World of Warcraft or even Wall Street Bets), but the spectrum of fun in games is wide. Is your game focused on intense moment-to-moment team fights and strategic choices, like League of Legends? Or an extensive progression system, like Diablo? Simple, repetitive, yet enjoyable puzzles like Candy Crush, or a cozy decorative experience like Animal Crossing? Web3 game studios may go back to first principles as to what who game is serving, how to over-serve those players, and what role crypto has in their titles. Then they’ll test, test, test to see if they’ve found the fun. —Robin Guo, partner, games team (@zebird0)
Gamers know that character skins in games like League of Legends and Fortnite are an important form of self-expression as they become part of a player’s identity. That’s why character skins are big business, despite having no gameplay benefits.
Digital natives, Gen Z, and Gen Alpha demand that brands enable self-expression in the Metaverse. Of that group, 2 in 5 already believe that self-expression via fashion is more important in the digital world than the physical, and 3 in 4 say they will spend money on digital fashion.
Brands that lean in, like Gucci, will be rewarded by the hearts and wallets (both physical and digital) of consumers. And as physical brands go digital, more digital brands will go physical, creating even stronger competition and broader adoption. Brands that don’t go all in will be left behind.
Consumers will demand interoperability across experiences in the Metaverse, so over time brands will favor platforms that enable them to wear their Nike shoes in different games and virtual worlds. Gen Z and Gen Alpha move seamlessly between the physical and digital worlds. The fashion brands that embrace this will win. —Doug McCracken, marketing partner, games team (@dougmccracken)
How far or close are we to the “mobile moment” for crypto? There is a large group of blockchain users and others whose main access to the internet is through their smartphones, but which relies on centralized infrastructure — which is convenient, but also risky. Users have traditionally solved this problem by running their own nodes — a time- and resource-intensive endeavor that, at the very least, requires a constantly-online machine, hundreds of gigabytes of storage, and around a day to sync from scratch… not to mention special skills.
But more people are now starting to care about decentralizing access to blockchains for all users — even those who cannot run a node themselves. With the introduction of “light” clients that provide similar functionality to running a full node — such as Helios (released by a16z crypto), Kevlar, and Nimbus — users can now verify blockchain data directly from their devices. I’m hoping to see similar trust and decentralization improvements in other parts of the stack, such as event indexing and user data storage. Taken together, all of these can help achieve true decentralization for mobile frontends. —Noah Citron, engineering partner, crypto team (@noahcitron, @ncitron on Farcaster)
Zero knowledge systems are powerful, foundational technologies that hold the keys to blockchain scalability, privacy-preserving applications, and much more. But there are a lot of tradeoffs between prover efficiency, proof succinctness, and the need for a trusted setup. It would be fantastic to see more constructions for zk-proofs that fill the gaps in the multidimensional space of these tradeoffs. For me, it would be most interesting to see whether trusted setups are required for constant-size proofs (and constant-time verification), which would further justify the need for more transparent trusted setup ceremonies.
We also need better constructions for threshold ECDSA (elliptic curve digital signature algorithm) signatures. Attaining thresholds removes the need to trust a single signer, which is why threshold signatures are important for multi-party, distributed computation on private data and have several applications in web3. The most interesting threshold ECDSA signatures would be those that minimize the overall number of rounds — including the pre-signing rounds where the message is not known yet. Finally: As new post-quantum signatures near the end of standardization, per NIST, it would be great to explore which of these could be made friendly to aggregation or thresholdization. —Valeria Nikolaenko, research partner, crypto team (@lera_banda)
Zero knowledge systems have been a long time coming. In recent years, they moved from theory to practice, but in 2022 it felt like we turned the corner on developer onboarding for ZK. Specifically, we saw the proliferation of educational materials and the maturation of high-level programming languages (such as Noir and Leo) that made it easier than ever for engineers to start writing ZK applications. I expect these developments, along with continued theoretical advances, will lead to an influx of application developers, given how significant zero knowledge is to so many use cases. Putting things into the hands of developers often leads to unexpected new use cases; I’m excited to see what comes next. —Michael Zhu, engineering partner, crypto team (@moodlezoup)
Verifiable Delay Functions (VDFs) are an exciting cryptographic tool with many applications, from verifiable lotteries to leader election to preventing front-running. But the biggest catch has long been hardware implementations, which are needed to have confidence that attackers can’t compute the VDF faster. I’m excited for the first generation of VDF hardware to be available, paving the way for practical deployment. —Joseph Bonneau, research partner, crypto team (@josephbonneau)
What if you could create a game world that could not be taken down or censored, had no need for servers, and could live far beyond any of our individual (or even organizational) lifetimes? For the first time ever, we can. We are at the very beginning of crypto-native, fully “on-chain games,” or — as others prefer to call its superset — “autonomous worlds,” built on top of blockchain technology.
Whatever you call it (and the lexicon is still forming!), the nascent movement toward maximally decentralized games offers new affordances that make it possible to actually build these games online. Specifically, the ability to put a game’s entire state and logic on a publicly verifiable, censorship-resistant, and decentralized blockchain… as well as advances in on-chain procedural generation, which not only overcome constraints like storage, but are essentially “a trick to compress a complex world into an executable.” What new games, and gameplay, become possible that were never possible before? Are such games still… games? —Carra Wu, investing partner, crypto team (@carrawu, @carra on Farcaster)
I much prefer the term “non-transferable tokens” over “soulbound” tokens (a term borrowed from gaming by Vitalik Buterin for NFTs); these tokens are for cases where it doesn’t make sense to transfer NFTs. I’m excited to see the various web3 applications that will be built on top of not just this primitive, but also with decentralized identifiers and verifiable credentials. While the discussion of these primitives usually revolves around decentralized identity, there are many other applications to be explored as well: For instance, tickets, digital <> physical, reputation… and much more ahead. —Michael Blau, investing partner, crypto team (@blauyourmind, @michaelblau on Farcaster)
How can we apply the decentralization ethos to energy? For instance, power grids are dated, centralized, and face several other issues like high upfront capital expenditures and misaligned incentives. There are great opportunities to build microgrids and storage and transmissions networks, by solving issues such as high capital expenditures and disparate incentives solved through tokens. There are also burgeoning markets for renewable energy certificates (REC), and carbon credits on-chain. I’m excited to see builders continue to expand what’s possible in this category of decentralized energy coordinated by blockchains. —Guy Wuollet, investing partner, crypto team (@guywuolletjr, @guy on Farcaster)