Why Web3 Companies Get Hacked So Often, According to Crypto VC Grace Isford – TechCrunch

On this week’s Chain Reaction podcast, Lux Capital’s newest investor, Grace Isford, spoke to us about the opaque but critical world of Web3 infrastructure. At Lux, Isford invests in the companies that work behind the scenes to ensure crypto exchanges are secure and reliable enough not to be hacked.

Before joining Lux in February, Isford was an investor at Canvas Ventures focusing on enterprise software and fintech. An investment in the data infrastructure she was working on at Canvas revealed to her the opportunity in the Web3 space for enterprises to “invariably share data at scale,” which motivated her move to crypto, she said.

“That led me down the rabbit hole, and then I made a personal investment,” Isford said. “I got into yield farming to coincide with my move to New York, where many of my friends are also active in the crypto and VC ecosystem.”

Isford says her approach to investing in web3 is rooted in what she calls her “circle of competence,” or the area in which she can be competitive relative to others in the industry.

“NFT investing is very different from DeFi investing, which is very different from investing in crypto data infrastructure, and I would argue that any person who says they’re investing in Web 3 shouldn’t be investing in all of that – they should probably pick their sweet spot in their core competency,” Isford said.

Isford’s own ‘circle of expertise’, based on her previous experience, is in enterprise and fintech infrastructure, so we asked her what she thought were some of the biggest challenges facing Web3 infrastructure vendors.

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

“It seems that a new security hack is reported every week [in web3]Isford said, citing the recent Metamask and Ethereum dApp outage, which was attributed to Infura and the wormhole bridge hack in February.

While a number of startups are working to develop security solutions, Isford says the technology is “quite nascent” when it comes to developer tools, data infrastructure monitoring and storage.

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

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

Isford is optimistic that with the massive investment inflows into web3 startups over the past year, companies will be able to develop more reliable solutions.

“I think TRM Labs, Chainalysis and several other companies in this space have a 10x potential in terms of compliance and monitoring because they just don’t have that yet at the scale that we’ve built these sophisticated AML systems that are Financial infrastructure side in the Web2 world,” Isford said, referring to the anti-money laundering technology of traditional financial institutions.

Better fraud and risk management systems are a precursor to 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, being able to 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 safely operate a system if you don’t know who’s on that system. So I think security is probably one of the most important parts from a prioritization standpoint,” Isford said.

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