Y Combinator: The Future of Stablecoins, Metaverse, and AI
Compared to well-known investment firms in the crypto industry such as a16z, Paradigm, and Binance Labs, Y Combinator may not focus solely on cryptocurrencies, but as a veteran Silicon Valley accelerator and incubator, YC is undoubtedly one of the most low-key players in the crypto industry. It has played a significant role behind companies like Coinbase, OpenSea, TRM Labs, Quantstamp, and even WorldCoin.
Last week, Y Combinator released its annual “Requests for Startups” report, and this year, it explicitly stated that stablecoins, metaverse, and artificial intelligence (AI) are the most promising areas for innovation in the future.
Stablecoins, as an economically efficient cross-border payment option, have tremendous potential. Y Combinator recognizes the prospects in the augmented reality (AR) and virtual reality (VR) fields, as metaverse applications have begun to surpass gaming applications. Additionally, AI has the ability to customize enterprise software and simplify “back-end processes.”
Why is Y Combinator bullish on the stablecoin economy?
According to Y Combinator partner Brad Flora, “Stablecoins will become an integral part of the future of currency.” In fact, Y Combinator has effectively incorporated stablecoins into its operations over the years, including cross-border payments, reducing transaction costs and fraud, and helping users protect their savings from malicious inflation.
Many people in the past believed that blockchain technology lacked practicality, but stablecoins happen to be the simplest and most efficient application of blockchain technology. Traditional finance inevitably follows suit.
First: Stablecoin market reaching a breakthrough stage
Firstly, historical trends indicate that the stablecoin market is reaching a breakthrough stage. Y Combinator has witnessed rapid development in stablecoins, with a notable example being PayPal’s recent launch of its self-issued stablecoin, PYUSD. Major banks have also begun offering custody services and increasing their promotion efforts. These shifts resemble the transformation of the digital music industry in the early 21st century. At that time, the MP3 market seemed to be filled with “illegally” shared downloads, but it eventually transitioned onto a legitimate path with the entry of players like Apple and Spotify.
Second: Significant growth potential for stablecoin users
Secondly, there is still significant room for growth in stablecoin users. Data shows that the global issuance of stablecoins is currently around $136 billion, harboring immense development potential. So far, only around 7 million people have traded/used stablecoins, while over 500 million people worldwide live in countries and regions with an inflation rate exceeding 30%. This means that there is substantial depth and growth potential for stablecoin users.
Third: Insufficient BUIDLers
Additionally, although stablecoin technology has clear advantages, there is a shortage of BUIDLers. Y Combinator hopes to find and invest in promising teams focused on building stablecoin solutions and platforms.
Stablecoins are digital currencies that are pegged to a stable asset (usually the US dollar or other fiat currencies/assets). Stablecoin transactions are recorded on a blockchain digital ledger, allowing wallets on the same network to complete transactions within seconds. Furthermore, transaction costs are significantly lower compared to traditional financial transfers. Despite these evident technological advantages, there are only a few stablecoin issuers such as Tether and Circle, and the number of main market liquidity providers can be counted on one hand.
Therefore, Y Combinator aims to find exceptional teams building B2B and consumer products on top of stablecoins and their tools and platforms. These tools and platforms can enable stablecoin finance and more stablecoin protocols. As of now, Y Combinator’s alternative investment portfolio in stablecoins includes:
– Stablecoin payment service provider Apollo First
– Stablecoin cross-border payment service provider Kapstar
– Stablecoin payment Web3 application Paymobil
– Stablecoin protocol Algofi based on the Algorand blockchain
– Meson, a low-cost stablecoin cross-chain trading platform based on L2 Rollup.
Why is Y Combinator bullish on the metaverse and AI?
Metaverse applications surpassing gaming applications
With the recent releases of Apple’s Vision Pro and Meta’s Quest 3, the metaverse market has regained momentum. Y Combinator partner Diana Hu points out that although augmented reality (AR) and virtual reality (VR) are constantly advancing, there are still many challenges to be addressed in terms of the best use cases and user experience/user interface practices.
Diana Hu adds, “User experience is getting better, rendering capabilities are improving, and hand/eye tracking has significantly improved—but there is still work to be done.”
Therefore, if a startup explores applications based on metaverse devices in areas such as “super gaming,” it is likely to attract Y Combinator’s investment focus.
AI simplifying “back-end processes”
In addition, Y Combinator’s “Requests for Startups” report includes mentions of enterprise software built with artificial intelligence, large language models (LLMs), and “intelligent AI.”
According to Harj Taggar, Y Combinator’s Managing Director, compared to traditional “one-size-fits-all” enterprise software, AI can help companies create their own customized customer relationship management, human resources, and planning systems. Large language models can greatly simplify many historically manual “back-end processes” performed by large teams, including application evaluation, document submission, transaction monitoring, and compliance reviews.
The following image shows Y Combinator’s AI-related investments since 2015. It is evident that the number of AI projects has increased significantly since the launch of ChatGPT:
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Data shows that Y Combinator had 88 and 99 AI-related projects during the Winter Batch (January to March) and Summer Batch (June to August) of the 23rd year. In addition to the increase in the number of investments, Y Combinator is more focused on applied landing projects such as enterprise services and software development compared to the Winter Batch of the 23rd year. AI applications have become more diverse, with a significant increase in AI investments related to healthcare services and finance. Currently, Y Combinator seems to be more interested in projects that utilize AI technology to improve development efficiency, such as:
– CodeStory, supporting automatic code writing
– Tempo Labs, generating 60%-80% of the required frontend code for any feature
– Autotab, an Autotab tool that automatically generates corresponding programs based on natural language instructions
– Ten.dev, generating code annotation documents and supporting developers’ queries through chat
– Kapa.ai, providing AI support bots for the programming community
– Magic Loops, supporting the writing of computer programs in natural language.
Conclusion
In the venture capital industry, there are not many institutions that have a greater positive impact than Y Combinator. This veteran and low-key incubator and accelerator has quietly made significant investments in the crypto industry. For anyone with innovation and entrepreneurial spirit, the significance of Y Combinator is evident. By analyzing and interpreting the areas they focus on, it may be helpful for Web3 entrepreneurs.
This article is authorized and reprinted from PANews.
Editor: Gao Jingyuan