Thinking through AI as the next new platform opportunity - Version One: Why NFX Invested in Carapace: The Protocol Making Crypto Lending Safer

Thinking through AI as the next new platform opportunity - Version One: Why NFX Invested in Carapace: The Protocol Making Crypto Lending Safer

In the world of technology, platforms have always played a crucial role in shaping the industry landscape. From the rise of cloud computing with AWS, Azure, and GCP to the dominance of social media platforms like Facebook, platforms have proven to be powerful drivers of innovation and profitability. With the emergence of artificial intelligence (AI) as the next big platform opportunity, it raises important questions about value distribution and the potential for new players to disrupt the market.

When it comes to AI platforms, the first question that comes to mind is how much value the underlying platform will keep for itself. History has shown that most platforms tend to extract the bulk of the value, leaving only crumbs for the companies and developers building on top. However, in the case of AI, there is a good chance that multiple companies will offer similar platforms, just like we see with cloud computing. OpenAI, Google, and Facebook are leading contenders in this space, but competition between them and potentially more players should limit a single company's ability to maximize profits at the expense of others.

The second question that arises is who will capture most of the new value being generated: incumbents or start-ups? Incumbents have the advantage of leveraging their unique data sets, large user bases, and balance sheets to gain an edge, especially on the consumer side. However, when it comes to enterprise software, there is an opening for start-ups to create more value for their customers with vertical-specific AI products. By designing interaction models that minimize friction and risk, start-ups can differentiate themselves in the market. They can also insert proprietary data into AI models and address regulatory and privacy constraints to protect their brands.

While AI platforms present immense opportunities, there are also challenges to overcome in other areas of technology. One such challenge is the lack of infrastructure for insuring loans against default in the decentralized finance (DeFi) space. This missing piece of infrastructure has hindered the growth of DeFi, as participants are hesitant to offer loans and debt products without proper risk protection. However, a protocol called Carapace is aiming to solve this problem and make crypto lending safer.

Carapace creates a two-sided marketplace where traders can swap their default risk. Protection buyers pay a premium for the right to claim protection when an underlying loan defaults, while protection sellers provide pooled capital for cover in exchange for a premium. The protocol constantly adjusts based on supply and demand, ensuring that protection sellers have capital for risk protection. In the event of a default, a payout is made to the protection buyers. This innovative protocol enables safer lending in the DeFi space and provides participants with more confidence and risk protection.

As an embeddable piece of DeFi infrastructure, Carapace has already formed partnerships with leading DeFi credit protocol Goldfinch. With nearly $100 million in active loans, Goldfinch is keen on testing the Carapace protocol. This partnership highlights the potential for Carapace to become an integral part of the DeFi ecosystem. Co-founded by Rohit Sabnis and Taisuke Mino, Carapace is backed by their extensive experience in the crypto industry. Taisuke, in particular, has been a crypto hacker since 2013 and has built various projects in DeFi.

In conclusion, the rise of AI as the next big platform opportunity brings about important questions regarding value distribution and the potential for disruption. While incumbents may have an advantage with their data and user bases, start-ups can still create value with vertical-specific AI products. Furthermore, the lack of infrastructure for insuring loans against default has hindered the growth of DeFi, but protocols like Carapace are stepping in to address this issue. By creating a two-sided marketplace for swapping default risk, Carapace enables safer lending in the DeFi space. This protocol has already formed partnerships and is poised to make a significant impact in the industry.

Actionable Advice:

1. For companies building on AI platforms, focus on differentiating through unique data and addressing regulatory constraints. This will not only protect your brand but also create more value for your customers.
2. For start-ups in the AI space, consider vertical-specific AI products for the enterprise software market. This presents an opportunity to compete with incumbents and provide tailored solutions to customers.
3. In the DeFi space, explore the use of protocols like Carapace to insure loans against default. This will enable safer lending and attract more participants to the DeFi ecosystem.

By considering these actionable advice and staying ahead of industry trends, companies and individuals can position themselves for success in the evolving landscape of AI and blockchain technology.