Union Square Ventures (USV) is a New York-based venture capital firm known for backing trusted brands that extend access to knowledge, capital, and well-being. Their investment strategy focuses on companies that build lasting trust through consistent delivery on promises, creating defensible and scalable businesses. This approach is especially relevant in crypto and Web3, where trust often determines adoption and growth.

The concept of the Compounding Trust Loop captures how trust builds over time, accelerating value creation through repeated positive interactions. In the context of blockchain and AI, this means investments that not only benefit from technology but also strengthen user confidence, leading to higher engagement and adoption. USV’s thesis centers on how this compounding effect drives sustainable value in emerging decentralized projects.

In this post, you'll learn how USV applies this idea to select projects, why trust matters more than ever in Web3, and what founders and investors can gain by focusing on trust as a core asset. How does trust compound in decentralized ecosystems? What does this mean for the future of crypto investments? These are some of the questions we'll address.

USV’s Investment Thesis: Trust as a Core Asset

At the heart of Union Square Ventures’ investment approach lies a simple but powerful idea: trust is not just a nice-to-have; it’s a core asset. For projects built on emerging technologies like AI and blockchain, trust is the foundation on which value compounds over time. This isn’t about promises made and forgotten but delivering consistent proof that users control their data, decisions are transparent, and systems act with integrity.

USV looks beyond hype and technology trends. It looks for platforms where trust grows organically through openness and repeated positive experiences. Trust isn’t a fixed commodity but something earned and validated continuously. This section examines the role of trust in some of the key sectors USV invests in and how projects build that trust step by step.

The Role of Trust in AI and Blockchain

Trust shows up differently depending on the technology, yet some principles remain constant. In AI-driven platforms, trust means users can rely on systems to act fairly, transparently, and with respect for their data. In blockchain projects, trust emerges from decentralization, immutability, and transparent control over assets or identities.

Key factors that establish trust in these fields include:

  • Data ownership: Users want clear rights over their data—how it’s collected, shared, and monetized. With AI models, owning data protects against biased or unauthorized use. Blockchain provides cryptographically secured ownership that can’t be taken away without consent.
  • Transparency: Both AI and blockchain systems benefit from openness. AI models often lack transparency, leading to mistrust in their decisions. Projects that embed explainability—like on-chain AI where model inputs, outputs, and updates are recorded on blockchain—boost confidence in how decisions happen.
  • User agency: Trust requires that users keep control over their actions and access to services. In blockchain, user keys and wallets enable direct control without intermediaries. AI platforms that give users actionable options, instead of black-box outputs, respect agency and foster trust.

For example, on-chain AI combines blockchain’s auditability with advanced cryptographic techniques such as zero-knowledge proofs. This means AI behavior can be independently verified without exposing sensitive data. The result is a system that users don’t just hope they can trust—they can verify trust mathematically and transparently.

Validating Trust Through Incremental Proofs and Third-party Validation

How does a platform prove it’s trustworthy enough to scale? Trust isn’t built in a single leap but through measurable, incremental steps that users and outside parties can validate.

USV-backed projects often rely on these techniques:

  1. Incremental proofs: Similar to how blockchains add blocks one by one to build trust across a network, projects produce ongoing verifiable proofs of correctness or performance. For example, automated proofs in AI that model transformations or decisions were executed correctly. These proofs build confidence steadily.
  2. Third-party validation: External audits, certifications, bug bounties, or open-source review provide independent confirmation that a system is honest and secure. This impartial validation is critical in reducing skepticism around complex technologies.
  3. Transparency through open data: Public ledgers or open logs that let anyone inspect a system’s behavior offer continuous validation. It’s like keeping a store window clear so customers can see what’s going on inside at all times.
  4. Zero-knowledge proofs (ZKPs): These cutting-edge cryptographic methods prove a statement true without revealing sensitive information. ZKPs enable privacy-preserving validation at scale, foundational for confidential transactions or AI inference proofs on-chain.

By combining these layers of validation, projects minimize blind trust. They replace it with testable, ongoing evidence. This creates a compounding effect—once trust starts growing, it accelerates because every new user interaction or audit adds another layer of verified confidence.

USV’s investment thesis depends heavily on these mechanisms because they turn trust into a defensible moat. Rather than relying on brand names or marketing alone, projects demonstrate their trustworthiness through transparent, incremental validation. This approach aligns incentives and gives users confidence in long-term engagement.

Many USV portfolio companies illustrate these principles, from decentralized finance protocols that use formal verification and external code audits to AI startups embedding traceable model updates on blockchain. This strategic focus on trust as an asset shapes the future value and resilience of investments in the Web3 era.

Key USV Projects Leveraging the Compounding Trust Loop

Union Square Ventures picks projects where trust doesn't just attract users—it grows stronger with every interaction. This section highlights two top USV-backed projects, Coinbase and Polygon, showing how each builds trust step by step while scaling their networks. Their paths reveal how trust acts like compound interest in finance—it multiplies as more users join and engage under solid, transparent foundations.

Case Study: Coinbase’s Evolution and Network Effects

Coinbase's story is a clear example of the compounding trust loop in action. Starting as a simple crypto exchange, Coinbase rapidly grew because it put user trust and regulatory compliance front and center. Over time, it transformed into a more complex financial infrastructure platform.

Several factors fuel Coinbase’s trust advantage:

  • Strong regulatory adherence: The passing of laws like the GENIUS Act set clear standards for stablecoins, requiring full backing and regular audits. Coinbase-backed USDC stablecoins benefit from this clarity, giving users and institutions confidence in their stability.
  • Transparent operations: Coinbase commits to regular disclosures, external audits, and predictable governance. These practices lower doubts and build steady faith in its platform.
  • Network effects: As more users trust and use Coinbase, it attracts more liquidity and services. This makes the platform harder to replace, and the compound effect builds as new users find a reliable ecosystem already in place.
  • Layer 2 scaling: Coinbase's Base Protocol, their layer-2 blockchain, slashes fees by up to 90% and speeds up transactions. This opens doors for more tokenization of real-world assets and DeFi products, attracting users who need a trustworthy, efficient platform.

The question now is: how does this trust sustain growth? When users know Coinbase meets regulatory rules and acts with transparency, they keep trading, tokenizing assets, and trusting it as an on-ramp to crypto and DeFi. This cyclic trust fuels Coinbase’s growth beyond just trading—it becomes a backbone for more financial activity.

Polygon and Layer 2 Scaling: Extending Trust to Scale

Polygon approaches scalability by making Ethereum faster and cheaper without sacrificing security or decentralization. It achieves this balance through multiple layer-2 solutions that keep user trust intact.

Polygon’s approach includes:

  • Layer 2 rollups: Technologies such as zk-rollups and optimistic rollups bundle many transactions off-chain then submit proofs on Ethereum. This preserves Ethereum’s security while speeding up transactions and lowering costs.
  • Secure validation: Polygon’s security layers rely on a network of validators and cryptographic proofs. This architecture ensures transaction integrity without needing users to blindly trust a single party.
  • Modular framework: Polygon’s SDK allows developers to build custom blockchains that fit use cases without compromising interoperability or security.
  • Active community and transparency: With over 130 million addresses and thousands of dApps, Polygon maintains open audit trails and robust governance, showing consistent commitment to trust.

By combining these elements, Polygon scales Ethereum’s capabilities while multiplying the confidence users have in transactions and smart contracts executed on its network. This trust encourages more developers and users to join, creating a loop where trust fuels scale and scale reinforces trust.

Polygon’s use of zero-knowledge proofs to validate transactions privately yet transparently offers a compelling model for many decentralized apps. This design preserves user control and confidentiality while backing every transaction with public security assurances.

These two projects reveal how trust compounds through technical integrity, regulatory respect, and community confidence. Coinbase leverages legal clarity and network effects to build a dependable financial hub. Polygon provides scalable infrastructure that balances speed and security to foster trust in decentralized applications. Both demonstrate that sustainable growth depends on consistently earning and expanding trust—not just adding users.

The Concept and Power of the Compounding Trust Loop

Trust is not just an abstract feeling in networks like crypto and Web3; it behaves like a force that grows stronger every time it’s earned and reinforced. This section explores how trust fuels exponential growth in networks and how small trust-building steps in technology adoption snowball into widespread usage. Understanding these dynamics helps explain why some projects scale successfully while others falter.

How Trust Creates Exponential Growth in Networks

Trust is the engine behind many network effects, especially in decentralized ecosystems. When users trust a network or platform, they invite others to join, creating a snowball effect. This isn’t simple addition—it’s exponential growth powered by word of mouth, positive experiences, and shared confidence.

In crypto ecosystems, trust often starts with the protocol’s technical integrity—security, transparency, and immutability. But it quickly evolves into social trust: trust in the developers, validators, or governance models. Consider these elements:

  • Security and transparency lay the foundation. Protocols like Bitcoin and Ethereum earned trust through open-source code and clear, public rules. Users know the system is verifiable and resistant to tampering.
  • Reputation builds social bridges. Exchanges such as Coinbase grew by proving regulatory compliance and safeguarding assets, which reassured users beyond just technology.
  • Feedback loops accelerate growth. As more users join and transact, their activity validates trust further. This attracts third-party developers, services, and institutional investors. It’s a positive cycle.

Why does this matter? Because growth isn’t just about adding users; it’s about creating an environment where each new user strengthens the network’s reliability and appeal. In decentralized finance (DeFi), for example, protocols with transparent liquidity pools and audited smart contracts gain more users quickly. If you trust your peers in the network, you’re more willing to engage deeply, stake assets, or build on those platforms.

The compounding trust loop turns trust into a resource that is both self-sustaining and expanding. Each act of trust encourages another, making it harder for competitors to match the growing network’s momentum.

Everyday Applications of Compounding Trust in Tech Adoption

Trust doesn’t only happen at the network level; it grows through small, consistent actions users experience day to day. The repeated proof that a product “does what it says” builds trust gradually, turning hesitant users into loyal advocates.

Here’s how small trust-building steps add up in tech adoption:

  • Clear and honest communication. Explaining how data is used, what security measures exist, and what users can expect from updates keeps confidence high. For example, apps that notify users about permissions or changes transparently avoid surprise and distrust.
  • Consistent performance. Technology that works reliably every time gains user faith. Even small bugs can damage trust if they happen repeatedly. Continuous stress testing and prompt fixes show commitment.
  • User control and privacy respect. Giving users direct control over their data or assets signals respect for autonomy. Features like opt-ins, easy account recovery, and privacy settings reinforce trust with each interaction.
  • Open feedback channels. Listening to user concerns and responding visibly shows that developers value their community. Open-source projects often benefit here as users see behind the curtain and contribute themselves.

Take blockchain wallets as an example. Early versions were complex and risked user error, eroding trust. Over time, wallets that simplified onboarding, included security tutorials, and allowed users to verify transactions strengthened trust significantly, leading to wider adoption.

When you think about it, trust compounds like interest in a savings account. Each positive experience adds a little more; over time, these build into a strong foundation users depend on. This is why many tech giants invest heavily in customer support, transparent policies, and community-building — every small interaction nudges trust higher.

By designing technology with trust as a continuous thread, founders and teams ensure their products don’t just attract users, but keep them engaged and advocate for wider adoption. It takes patience and persistence, but the payoff is sustainable growth grounded in genuine confidence.

This focus on how trust compounds through network effects and everyday interactions reveals why USV emphasizes projects that don’t just have good tech, but those that deliver repeated, verifiable proof of trustworthiness. The compounding trust loop is the hidden force powering lasting success in crypto and Web3.

Challenges and Strategies in Sustaining the Compounding Trust Loop

Sustaining the compounding trust loop in crypto and Web3 projects involves balancing complex demands. Trust grows only when users feel confident their data and interactions are safe while enjoying transparency in platform actions. Equally crucial is adapting to shifting regulations and market forces, ensuring users remain informed and protected as the environment evolves. Successfully managing these challenges prevents trust from eroding and keeps the positive cycle moving forward.

Balancing Transparency and Privacy

How can projects be open without putting sensitive information at risk? Striking the right balance is tough but vital. Users want clarity on how their data is managed, who can access it, and how decisions are made. Yet too much exposure can invite attacks or expose private details.

Projects maintain this balance by:

  • Privacy by design: Embed privacy safeguards from the start rather than patching them later. This means minimizing data collection to what is essential and using cryptographic methods to protect information.
  • Data encryption and access controls: Secure data both at rest and in transit, and restrict access using role-based permissions and multi-factor authentication. This keeps sensitive data shielded from unauthorized use.
  • Clear communication: Be upfront about data policies, sharing understandable explanations rather than dense legal jargon. Transparency builds trust when users know what is collected and why.
  • Anonymous or pseudonymous usage: Promote methods that let users engage without revealing identity unnecessarily. Blockchain features like zero-knowledge proofs enable verification without exposing private details.
  • Regular audits and updates: Conduct security reviews and update protocols consistently to address emerging threats. Sharing audit results publicly reassures users their data remains protected.

This push-pull between transparency and privacy is like walking a tightrope. Too opaque, and users suspect hidden risks. Too exposed, and privacy is compromised. Projects that get this balance right create a stable foundation for long-term trust.

Adapting to Regulatory and Market Changes

Regulations around crypto, data, and AI continuously evolve. Compliance isn’t simply a checkbox—it’s a trust signal. Ignoring or lagging on legal requirements damages reputation and risks user loss.

Key strategies include:

  • Proactive compliance: Stay ahead by anticipating regulatory shifts, engaging with lawmakers, and implementing necessary changes early. This shows a commitment to operate responsibly.
  • Education and transparency: Keep users informed about how rules affect their data and interactions. Simple updates, FAQs, and community channels demystify complex legalities and reduce confusion or fear.
  • Flexible design: Build systems adaptable to multiple jurisdictions and new rules. Modular architectures enable faster pivots without compromising service quality.
  • Clear policies and enforcement: Publish firm guidelines on user conduct, data handling, and content. Transparent enforcement fosters fairness and builds confidence.
  • Engaging the community: Listen closely to user concerns and involve them in compliance discussions where possible. This collaborative approach deepens trust beyond mere regulatory adherence.

Being nimble in response to regulations and market expectations turns compliance from a burden into an asset. Investors and users alike reward projects that act responsibly and transparently, ensuring the trust loop continues to grow despite changing external pressures.

By carefully balancing openness with privacy and staying on top of legal requirements, projects lay down a resilient path for the compounding trust loop. This blend of honesty, respect for user rights, and proactive governance helps build a community that believes in both the technology and the team behind it. Trust isn’t static—it’s earned continuously through thoughtful, consistent action.

Conclusion

Trust is the foundation powering USV’s projects and the Compounding Trust Loop. In both blockchain and AI, trust grows through clear validation, consistent transparency, and respect for user control. This steady accumulation of trust multiplies value, creating lasting networks and stronger communities.

For founders and investors, making trust a priority is essential. It’s not a quick boost but a long-term value driver that supports sustainable growth and resilience. Each verified interaction reinforces confidence, opening doors for adoption and innovation.

Which trust-building practices will define your project’s future? Keep transparency visible, embrace incremental proof, and stay adaptable to user needs and regulations. That’s how trust keeps compounding and shaping the next generation of crypto and Web3 ecosystems.