Why web3 companies are hacked so often, according to crypto VC Grace Isford – TechCrunch

In this week’s Chain Reaction podcast, Lux Capital’s newest investor Grace Isford joined us to talk about the opaque yet crucial world of web3 infrastructure. At Lux, Isford invests in the companies that work behind the scenes to ensure crypto exchanges are safe and reliable enough to avoid being hacked.

Prior to joining Lux in February, Isford was an investor at Canvas Ventures, focused on enterprise software and fintech. An investment in data infrastructure she worked on at Canvas revealed to her the ability in the web3 space for businesses to “invariably share data at scale,” motivating her pivot to crypto, she said.

“That led me down the rabbit hole, and then I personally invested myself,” Isford said. “I started yield farming, which coincided with my move to New York, where many of my friends are also in the crypto and VC ecosystem.”

Isford says her investment approach in web3 is rooted in what she calls her “circle of competence,” or the area where it can compete against others in the space.

“NFT investing is very different from investing in DeFi, which is very different from investing in crypto data infrastructure, and I would argue that anyone who says they invest in web three should not invest in that – they probably should. should pick their sweet spot in their core competency,” said Isford.

Isford’s own ‘competence circle’, based on her previous experience, is in enterprise and fintech infrastructure, so we asked her what she thinks are some of the biggest challenges for web3 infrastructure providers.

Compared to web2, Isford said, web3 lacks enterprise-level security solutions. Alchemy and Infura are the only two major node service providers in the industry, meaning most cryptocurrencies rely on two infrastructure providers to manage their data.

“There seems to be a new security hack reported every week [in web3]Isford said, referring to the recent Metamask and Ethereum dApp outages that resulted from Infura and the Wormhole bridge hack of February.

While a number of startups are working to develop security solutions, Isford said, the technology is “still in its infancy” when it comes to developer tools, data infrastructure monitoring and storage.

Another major challenge is managing fraud and downside risk, Isford added.

“I think [that issue] is really keeping a lot of people out of the crypto world right now [because they’re] afraid of losing all their money if they venture too deep into crypto,” Isford said.

Isford is optimistic that with the massive influx of investment in web3 startups over the past year, companies will be able to build more reliable solutions.

“I think TRM Labs, Chainalysis and several other companies in this space have 10x potential in compliance and monitoring because you just don’t have that at scale yet in the same way that we made these advanced AML systems on the side. of the financial infrastructure in the web2 world,” Isford said, referring to the anti-money laundering technology of traditional financial institutions.

Better fraud and risk management systems foreshadow more institutional money flowing into crypto, Isford said. As companies like Fidelity, Goldman Sachs and JP Morgan continue to make strides in crypto, the market will mature, she added.

“I think one of the biggest opportunities in crypto right now is still security, if you can build more reliable smart contracts at scale… but you can’t have a reliable system if it’s not secure, right? And you can’t run a system securely if you don’t know who’s in that system, so I think security is probably one of the most important parts from a prioritization standpoint,” Isford said.

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