Crypto Evolution Theory, Issue 3 | OKX Ventures & Polychain ...
Cycles and narratives have always been core topics in the global crypto market. Historically, the industry often referenced Bitcoin halving cycles to gauge trends and uncover major narratives. However, with the approval of Bitcoin and Ethereum spot ETFs, the crypto market has become highly coupled with global financial markets, and the variables affecting crypto market trends are increasing.
In this context of increased uncertainty, it’s crucial to have a clearer understanding of cycles and to identify future narrative trends. Investment institutions, as pioneers in capturing innovative narratives, have always had a keen sense of these developments. With this in mind, OKX created the Crypto Evolution Theory series, inviting leading global crypto investment institutions to discuss topics including current market cycles, emerging narratives, and popular sub-sectors, providing insights to explore further.
Integration of AI and Crypto
The following is our third issue in the series, where OKX Ventures, Polychain, and Delphi Digital discuss the integration of AI and crypto. We hope the insights and perspectives shared here inspire you.
OKX Ventures is the investment arm of OKX, a leading crypto asset trading platform and Web3 technology company, with an initial capital commitment of $100 million. OKX Ventures focuses on exploring the best blockchain projects globally, supporting cutting-edge blockchain technology innovation, promoting the healthy development of the global blockchain industry, and investing in long-term structural value. Through our commitment to supporting entrepreneurs who advance the blockchain industry, we help to build innovative companies and bring global resources and historical experience to blockchain projects.
Polychain is an investment firm committed to exceptional returns for investors through actively managed portfolios of these blockchain assets.
Delphi Digital is a research-driven firm dedicated to advancing the understanding and development of the growing digital asset market. The firm supports the ecosystem through four lines of business: Delphi Research, Delphi Ventures, Delphi Creative, and Delphi Labs.
The Development of AI Technology
OKX Ventures (Researcher): The development of AI technology is currently heavily reliant on a push from major players like OpenAI, Google, and Nvidia. Nvidia controls the "power" of the entire AI era, while OpenAI and Google hold the most crucial data and technological solutions. This centralized, heavily giant-dependent state can limit innovation and development in the industry. However, the decentralized, permissionless nature of crypto can break the shackles of these giants, potentially fostering technological innovation and bringing new prosperity to the industry. Currently, common focus areas include computing power, data, models, and applications.
Computing Power
Distributed or decentralized computing power markets like io.net and Prodia use idle computing power from global markets, breaking the giants' monopoly over computing power as a product. We’re eager to see what will happen if the total supply of distributed computing power surpasses that of centralized computing power in the future. Meanwhile, due to the scarcity and high profitability of AI computing power assets, RWA (real world asset) projects like Compute Labs have emerged. These projects tokenize computing power assets and develop related derivatives, creating an AI-Fi ecosystem.
Data
Crypto's economic models can effectively incentivize user participation in the AI data field. For example, various Depin projects can incentivize users to contribute, label, or validate data through token economic models, providing data sources for AI model training. Projects like 0g.ai have built a scalable data availability layer and storage system. Additionally, Crypto's privacy protection features can better preserve the security and privacy of user data. Projects like Flock.io and Privasea.ai emphasize the importance of protecting user data privacy during model training.
Models
Open model markets have the potential to break the monopoly tech giants hold over AI models. Users can not only provide computing resources to support AI model training and inference but also offer data or models for direct interaction via network protocols. However, distributed model training remains a challenging area, and we’re particularly eager to see technological breakthroughs in this space. We also hope to see entrepreneurial teams fill this gap in the near future.
Applications
Looking at applications, the combination of AI and crypto creates new opportunities for content creation. Users can independently build virtual characters and chatbots with customized personalities, like Myshell, where users train models by uploading data to create their own AI Smart Agents. This also allows data providers and model trainers to benefit from the platform's development, forming a positive data flywheel.
Polychain Capital: The landscape of AI is undergoing a significant transformation, moving from closed-source models to increasingly sophisticated open-source alternatives. While this shift has democratized access to AI capabilities, it’s also introduced new challenges, particularly in value capture for model creators.
Infrastructure and Innovation
Beyond financialization, the convergence of crypto and AI is driving innovation in public governance and system transparency. As concerns grow over potential biases and centralized control in AI models, blockchain-based solutions offer decentralized training, inference, and governance mechanisms. These systems can provide transparent decision-making processes and allow for community input in model development and deployment.
However, the true leading edge of innovation lies in the development of the underlying infrastructure. We're seeing advancements in distributed compute networks, training algorithms designed for distributed networks, novel data ownership mechanisms, and new token standards that enable model ownership with revenue sharing. These infrastructural developments are laying the groundwork for more sophisticated applications of crypto and AI.
One particularly promising direction is the emergence of AI agents and executable task systems. This concept envisions AI agents or networks of agents as extensions of individuals, capable of performing complex sequences of tasks autonomously. The potential applications range from personalized digital assistants to advanced automation in DeFi and ultimately fully autonomous beings that can create their own value. However, the realization of this vision hinges on several critical foundations, namely robust privacy protections for user data, verifiable computation systems, especially for tasks with governance or financial implications, and seamless integration with the infrastructure layers.
Future Developments
The development of projects that combine crypto and AI is still in its early stages. But, they’re making rapid progress through testing and improvements. While definitive best practices aren’t yet established, the potential for crypto to address some of AI's most pressing challenges is becoming increasingly evident.
As we move forward, we expect to see more refined applications that leverage the strengths of both crypto and AI. This convergence is likely to yield systems that are not only more transparent and accountable, but also significantly enhance the usability and functionality of both AI and blockchain technologies. The journey ahead promises exciting developments as we continue to explore and expand the boundaries of what's possible at the intersection of these transformative technologies.
Investment Logic
OKX Ventures: We can approach this topic by looking at the current development trends in this sector.
From Hype to Substance
The sector is currently moving from hype to substance. Over the past year, many crypto and AI projects have emerged, mostly in the infrastructure space, with fewer applications. The application layer has often been superficial, lacking innovation, and low in technical content, with a significant portion driven by hype rather than genuine progress. Hype and bubbles are typical in the early stages of technological innovation, but as market resources are optimized, we’ll see truly tech-savvy entrepreneurial teams enter the crypto and AI field. The market will begin to favor projects that can provide real value, scalability, and usability, rather than those relying solely on hype and marketing.
From Speculation to Demand
The market will shift from speculation-driven to demand-driven, with the focus moving from potential speculative value to actual usage and adoption. Entrepreneurs can no longer rely solely on narratives to attract investors. The market is now more careful and conservative towards purely narrative-driven projects. In the future, projects with real market demand and business revenue will become a necessity for investors. This is a fundamental logic we follow when investing in the crypto and AI sector.
Based on the trends above, we’ve organized our investment logic into three core points.
Market Demand Orientation
Many AI startups only realize after launching their product that the market doesn’t buy into it, meaning users have no demand for their product. This often stems from inadequate market research at the outset of the startup, where the product wasn’t oriented toward actual market demand or was based on an incorrect assumption of unverified pseudo-demands. Therefore, when positioning ourselves in the crypto and AI sector, we place great emphasis on meeting market demand. Firstly, we assess the general direction to determine which specific sub-sector of crypto and AI the project belongs to, the market size, the potential for future growth, and the competitive landscape. Secondly, we consider what problem the project solves and what demand it meets. Even if it addresses a small issue, solving a market pain point is a feasible approach.
Not Just Narratives
The crypto and AI field is often criticized for being overly narrative-driven with little real application. While we don’t entirely agree with this perspective, it’s true that the market is increasingly unwilling to buy into pure narratives. Therefore, real business scenarios and business models are particularly important. The startup must generate business revenue to be financially sustainable. Many startups rely solely on NFT or token sales as their only source of income, which is unsustainable. The team must have a clear business model, knowing exactly where their revenue will come from, rather than depending solely on narratives.
