APIs vs Composability In Web3

What will be the core infrastructure leveraged to build the technology of the future?

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Before we get into it, let’s define a term that’s been thrown around a lot — ‘composability’. In a blog post titled, ‘Composability is Innovation’ Linda Xie the co-founder of Scalar Capital defines composability as such:

"Composability allows anyone in a network to take existing programs and adapt or build on top of them, it unlocks completely new use cases that don’t exist in our world."

Web3 has the promise of making the internet composable, but what part of that democratization is done through APIs, and what part of it is done through open source?

It might not seem like a big deal, but it actually makes a big difference in what the infrastructure of the future will rely on to become interoperable. With open-source, technologies can be formed by cutting out APIs as a middleman. But APIs give companies and technologies incentives to create connections that bridge technological gaps.

Now let’s explore the future of Web3 foundation and infrastructure.

What Naval has to say

In the now-infamous conversation between Tim Ferris, Naval Ravikant, and Chris Dixon the trio discussed everything from the wonders of Web3, to how to pick the right hill to climb, to finding the right amount of crypto regulation, to the untapped potential of NFTs.

If you don’t know who Naval is, here’s a brief background:

Naval Ravikant (@naval) is the co-founder and chairman of AngelList. He is an angel investor and has invested in more than 100 companies, including many mega-successes, such as Twitter, Uber, Notion, Opendoor, Postmates, and Wish.

Source: The Tim Ferris Show

Surprisingly, a deep discussion on APIs and their place in Web3 emerged during the conversation. Tim Ferris asked: “Naval, could you define a word, which comes up a lot in Web3 composable and what that means, how people use it?” Naval responded:

The beauty is this is all open source, right? So it’s not even APIs anymore. I don’t have to access through the very limited APIs that Twitter might impose or expose and then take away later on as they’ve famously done. I can literally connect to the code at any point that I want to. 

Then, in open source, you only solve each problem once. So if somebody has built a good version of how to solve a certain problem, I’m just going to reuse that and reuse it again. Maybe I’ll fork it, maybe I’ll improve it a little bit, maybe I’ll put it to a slightly different system, but essentially at the fundamental level, each problem only has to be solved once. 

So composable means that it’s like LEGOs or it’s actually digital LEGOs, where I can just copy the LEGO and then build on top of it. So to the effect to a competitor is like a composable type thing, where all of a sudden all the apps and Web3 can sort of team up to create any app needed. 

Example is, there was an innovation in DeFi called automatic market makers, which is instead of having to have an exchange where you have paid market makers and firms on the other side ensuring liquidity in any market, you go on the stock market and you buy a stock. There’s someone else on the other side, who is paid to provide liquidity to sell you the stock at the exact moment that you want to buy the stock.

But in Web3, we created this innovation with DeFi actually called automated market makers where you can just do it through code. Now, once you’ve done that in code and most famous company is Uniswap, which is of course an Andressen investment. So congratulations Chris. 

But once it’s done, then anybody else can copy it. Then it can just be plugged into any new application. So if you look at, for example, games that are going to come out that are Web3 based, they’re going to have entire market economies in them. They will have custody solutions. They will have NFTs built inside of them. 

There’ll be completely composable in that any piece from any other app can plug into any other app permissionlessly. And so you’re building an edifice. It’s almost like building a civilization or a city of interconnected apps instead of these silos in which the data’s not portable, the code isn’t portable, users aren’t portable.

In true Naval fashion, these ideas are a lot to digest. For me, it prompts a lot of follow up questions, such as: 

• Does Web3’s default to open source really make APIs irrelevant? 

• Will the code in Web3 be portable enough to leverage in every environment? 

• If all of this is true, then why are APIs so widely leveraged today in Web3?

Later in the conversation, Naval elaborates on the topic further by adding:

“When the stated goals of regulators are actually, they want users to own and control their own data, data privacy, and data protection is a big thing regulators care about. 

Well, crypto enables that. Uniquely, you own your private keys. Another thing they care about is interoperability. They want there to be open API. So there’s a single monopolist sitting in the middle. Well, that’s compossibility. Compossibility is the ultimate open API. 

So I think there is a model here for an enlightened regulator to do the right thing and get just as much credit for letting Web3 flourish as the original set of regulators did for Web1. And frankly, they should have been more celebrated, more recognized.”

So is everything Naval said realistic? I think we can all agree it’s preferred & practical but can Web3 really be built without APIs?

Let’s break down APIs vs composability in Web3 to try and understand what all this means.

What’s the future of APIs in Web3?

A recent a16z essay shared some specific models and principles of decentralization gleaned from their extensive experience working closely with crypto founders, to guide web3 builders in tackling what decentralization means in practice, across several use cases.

Let’s use some of the models they created to start discussing whether we’ll need APIs in Web3 or not:

When web3 systems are designed well, decentralization becomes a virtuous, not vicious circle. Now that we have a framework for the design challenge of decentralization, let’s quickly review how builders can use the below novel components of web3 systems to drive decentralization in practice:

Source: Decentralization for Web3 Builders: Principles, Models, How

For the above example, within each ‘decentralized system’, there are different points of integration where systems, data, users, etc need to be connected.

See the ‘points of integration’ below:

In these examples, will all of these ‘points of integrations’ need an API to connect things? Or will Web3 make all of this composable and available through open source?

Before we answer, let’s talk about three scenarios with the assumed application of open-sourced code:

1. Code that needs to be built

2. Code that has already been built

3. Code that has already been built, but needs enhancements

Build, use, or improve

In the scenario where code still needs to be built (which still comprises the vast majority of Web3), we’re stuck at a crossroads.

Down one road, there’s a path of opportunity to build, establish, and enhance possibilities in Web3 that have only been dreamed of. Making these dreams a reality and then open sourcing it to the world is part of the dream of Web3.

It’s not like Web3 technology has been adopted by the masses. From a ‘crossing the chasm’ perspective, we’re still in the earliest parts of the chasm meaning it’s only being used by ‘innovators’ otherwise known as the 2.5% of people who constantly try the newest thing.

So while a lot of the technology and infrastructure is still being built, as Mirror details in their essay ‘Web3 Interoperability: The Hard Parts’’:

Blockchain technology is still in it’s infancy. It’s easy to point to the last decade’s improvement in mobile and ask why crypto hasn’t achieved half as much. But we forget that mobile was built on the compounded development of the web. And if you look at the beginning of the web, the first message board Usenet was built in 1979. Iterations of modern social media (with profiles, friending, groups) started in 1997 with SixDegrees, along with a handful of competitors. But it wasn’t until the 2000s that enough people were on the Internet and using platforms such as Friendster (2002) and Myspace (2003). That’s 24 years from the first message board to the launch of the first widely used social network. It would be another 5 years for Facebook to become the mainstream giant it is today.

You could say that web3 is in it’s Usenet era. We’ve only recently developed the building blocks for programmable transactions, token primitives, and interoperability of projects.

But given the fact we’re claiming to be early in the space, with a few years under our belt building Web3 — are we on the right track? Is Web3 on course to achieve interoperability and composability nirvana?

To get some thoughts from skeptics on the matter, I think it’s helpful to refer to some writing by Nassim Nicholas Taleb who has commented on cryptocurrency at length saying, “It is indeed desirable to have at least one real currency without a government,” he wrote in his paper. “But the new currency just needs to be more appealing as a store of value by tracking a weighted basket of goods and services with minimum error.” (Note: stablecoins like USDC have become a much more viable option since Taleb made these comments.)

Taleb has criticized the risk management methods used by the finance industry and warned about the financial crisis, subsequently profiting from the late-2000s financial crisis. He advocates what he calls a "black swan robust" society, meaning a society that can withstand difficult-to-predict events. He proposes what he has termed "antifragility" in systems; that is, an ability to benefit and grow from a certain class of random events, errors, and volatility as well as "convex tinkering" as a method of scientific discovery, by which he means that decentralized experimentation outperforms directed research.

In' Taleb’s essay on the criticism of Bitcoin and blockchain he ends the essay with the following paragraphs:

The customary standard argument is that "bitcoin has its flaws but we are getting a great technology; we will do wonders with the blockchain". No, there is no evidence that we are getting a great technology — unless "great technology" doesn’t mean "useful". And at the time of writing —in spite of all the fanfare — we have done still close to nothing with the blockchain.

So we close with a Damascus joke. One vendor was selling the exact same variety of cucumbers at two different prices. "Why is this one twice the price?", the merchant was asked. "They came on higher quality mules" was the answer.

We only judge a technology by how it solves problems, not by what technological attributes it has.

We have yet to see the limitless collaboration opportunities that Web3 has promised, but big problems take a long time to conquer.

Today, there’s only a niche group of people getting value out of blockchain technology beyond trading and speculation use cases. We can token gate membership into certain communities or access tools enabled by Ethereum and similar programmable chains. But the vision of the world logging into a rich, social metaverse still seems far away. Critics of blockchain technology point to this slow progression to justify why the tech will never come to practical fruition.

But we’re starting to see rapid innovation based on the underlying tech that’s been built to date.

Polygon (a 2-3-year-old blockchain technology) announced recently they were partnering with Stripe to enable crypto payments at scale. The payments giant (Stripe) is adding crypto payouts to Connect, its programmatic (API-based) payouts platform; and Twitter will be the first platform to let people get payouts in crypto using it.

This is a concrete example of technology built in the past 5-10 years finally converging to enable rapid innovation.

You have Polygon who is enabling payments using USDC. You have Circle which has built out USDC and evangelized the adoption. You have Stripe which is leaning into crypto payments and leveraging crypto companies like Polygon & Circle to power their crypto payouts. And finally, you have Twitter, one of the largest networks in the world for creators, adopting crypto payout options.

This rapid pace of development with innovative blockchain technology is what we’ve been waiting for in the space. It speaks to the interoperable nature of Web3 and the progress we’re finally starting to see.

But it’s done through APIs, not open-sourced code.

(Presumed workflow for how Stripe leverages Polygon & Circle to power Twitter Connect)

In my opinion, this is how the ecosystem comes together. Companies/people with motivation to build/connect to better unlock financial accessibility/compatibility.

So while the dream is composability through open-source, the reality seems to be interoperability through APIs.

Another sign that APIs won’t die (at least any time soon) in Web3 is the rise in funding amongst API-first blockchain companies like:

• Circle, who recently raised $400 million in funding after being valued at $9 billion recently.

• Alchemy, who is valued at $10.2 billion after its latest funding round.

• Noname Security, who raised $135 million in their Series C valuing them at $1b+.

• TrueLayer, who closed a $130 million fundraise led by Tiger Global Management.

• Privy, who recently raised an $8.3 million seed round led by Sequoia & Blueyard.

• Fidel API, who raised their $65 million series b in April.

• API3, who quietly raised $3 million in 2020.

• Stitch, who raised $21M in their series a.

• Conduit Financial, who raised $17 million led by Portage Ventures.

• Polyweave, who’s still in stealth.

TL;DR

So to summarize some thoughts on compostability & interoperability in Web3, we’re basically claiming:

1. The space is still early

2. The foundation is being built

3. We’re seeing early innovation leveraging APIs

Thanks for reading — until our next adventure.

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