(ambient music)
- So the next panel,
I'm gonna moderate.
My name is Ronan Kirsh, again.
It's a VC
and hedge fund panel
and I'll let each
individual to
introduce himself.
- Hey everyone.
I'm Spencer Bogart, with Blockchain Capital.
We're one of the
oldest venture firms dedicated to
investing exclusively in the
blockchain and crypto ecosystem.
Our firm's been around for
about six years now.
- Hi, my name's Jonathon Ellen.
I was an explosives disposal technician,
disarmed bombs for five years,
then pivoted into blockchain.
Really kind of made sense,
good transition.
Helped co-found Blockchain at Berkeley
and now I'm mainly focused on decrypt capital.
Also to crypt kind of token services
and building that kind of ecosystem
to advance the blockchain space.
- Hi, my name's Joey Kroog.
I'm co-chief investment officer at Pantera Capital.
We have a suite of funds that are
invested in the blockchain space.
- Hello, everyone, so I'm Dovey Wan
from DHVC, like Danhua Capital and
so we are running a half a billion fund here
investing in like anything blockchain, crypto,
and so what's very interesting about us is
we have investor,
like half of our capital coming from
Alibaba, Tencent,
Lenovo
and a lot of
major Chinese internet firm
and we have
and the other LPR,
Renaissance and First Manhattan,
so they're like Wall Street people
so it's a pretty good combination
so both from US and like China.
- Thank you.
So I think the first panel and the second panel
pretty much cover all the topics
that we wanna talk about.
But, I mean, let's maybe
kind of address a few of those
topics so
there's a lot of ethics arguments that
brought up,
what is right, what is wrong
from a VC
presale, et cetera.
It's very obvious that
VC's are getting some type of discounts,
whether they're dumping the market or not,
this is really
something that it's not publicly.
Maybe you guys can address that?
I believe our audience want to get your
opinion on it, what do you think about it,
et cetera.
- Yeah, I mean, I think
everybody kind of realizes that this
is a problem.
It is kind of the nature of the beast
when something is kind of the wild west
and it's kind of maturing.
I do think that, you know,
some of the things mentioned like
SAFT or these lockups are something
that's gonna be kind of changing.
If you
have these VC's or kind of investing in
these things, early stage,
before the utility is already built
or it is just a white paper,
it would make sense for them to kind of
get this like small discount,
you know, because they are taking that risk.
But you really have to kind of
pair that with a lockup.
You know, I've seen a lot of
these ICO's that are kind of having
some equity portion, or some token sale
or you know, these like year to two year lockups
and then that really kind of brings back
this alignment of, kind of, incentives.
Where if you're actually advising these things
in investing,
you should be doing it for the long term because
you believe in this company,
not because you're looking to kind of
flip those token sales and
that's really what we see going on.
I think it's really healthy
and I'm hoping that continues.
- Yeah, I'd also like to just
correct a few things that I heard earlier.
The first is that
the VC's just make free money out there
and it's just we're sitting around and
collecting cash from the sky.
Blockchain Capital's been around
for about six years and it's
hasn't been profitable until probably
12 or 18 months ago
and we continued to evangelize
and taking a lot of risk
on this industry
when nobody cared
and honestly when we were laughed off the stage
and when we were laughed out of Wall Street,
and really it's great to finally see things
working out in the industry.
The second thing is that
venture firms make returns off of discounts.
First of all, we're not even interested in
things like,
well, I heard things about like
1000 and 10000 percent discounts.
I'm not getting those deals so
if you are, please let me know.
But usually what we see is things like
30 percent discounts and to be honest
if you're a venture firm,
you don't get economics that way.
You're not there as a venture firm
to make 30 percent returns.
That's something that might be attractive
to a hedge fund but
your LP's are not gonna be happy
if you return 30 percent of your capital
after you lock them up for eight years.
I had another point,
but I'll pass it along.
- Yeah, I would say,
another thing is like,
the discounts.
There's two kind of reasons,
why they existed.
One reason is a bad reason,
and they shouldn't exist for this reason,
and the other reason's a good one.
So the good one is,
they originally designed as
an incentive for
entities to fund these projects early on,
help them, seriously help them,
build out their project
until they're ready to
actually do a regular sale.
The other reason is,
they do a discount
and they raise a bunch of money
three weeks before the public crowd sale.
The second one of those is just like,
pretty much useless in,
not like, an actual useful thing
for anyone in the market.
Another reason it's not useful is
if you look at the market,
those sales that have done that,
basically,
if everyone gets a discount,
you know, before the sale,
then the discount is meaningless
and so I think
if, as the market will cool off of it,
I think it will switch back to the way
things were before which is,
you'd get a reasonable discount for helping
one of these projects along,
you know, working with them, you know,
dozens and dozens of hours,
as you helped them kind of design their protocol
and helped them with any sort of technical
or business issues they face.
- So one thing I wanna add here is
we have seen a lot of founders.
So they just applied a discount for the sake of
like valuation,
because one relevant question here is like,
how do you value the token?
It's like the token valuation
is probably market cap about like
probably ten, twelve million.
And so they might give like
a discount, say, oh so I give you
50 percent discount and
so for like a total market cap of like
20 million
and so essentially
you're actually getting the same thing
but it's like
inflated discount
and like a pseudo discount, I would say,
as an investor,
I would watch out for that
and like the other thing is
as an entrepreneur like you
have to really watch out for
any potential, like, concentration offer so
like investment concentration
if like one potential investor,
so they're like getting 50 percent discount
and then
taking like 20 percent off your like total
token and then so that can be a big problem.
And so you would also have to watch out for
like any of the flipper
and like, just like, tumble it around.
- If I can just add one more thing on there,
it's just, I mean,
overall again,
if you go back to the venture model,
again, these 30 percent discounts and things
they don't make your money
and they're bad for, overall, the company
so when we look at a project and we're saying,
"Okay, you're gonna sell to a bunch of people
at a 30 percent discount, and then try to sell
to everyone else at a 30 percent higher price,"
that doesn't feel like a way to build
a good community, and so it's not something
we really like to see.
Instead, we'd much prefer to see
a valuation cap, the same way when you
invest in a seed or Series A round,
you typically cap the valuation of the company
at something that's very reasonable
that's commensurate with the risk involved
with the project.
When you're just a team with a white paper
and you're hoping to build a project
there is an incredible amount of risk involved
and so we typically expect to see
valuation ranges,
a typical seeder,
seed stage valuation might be anywhere from
two million, up to an extreme high end of
just a phenomenal team, all star,
tackling the biggest problem in the world,
maybe a 20 million, if they have part
of their product already built
and that's really the way thay you
ultimately make venture returns long term
and then also, the last thing is just,
I mean, from our perspective,
tokens aren't even that attractive.
We'd much rather own equity in a company,
for the simple fact that equity
tracks founders a lot better.
So, I mean, how many tech companies out there
are successful today?
But only because they're on their third or fourth pivot,
right, and if you make a token bet
on the very first product iteration
you might have the right team,
and the right idea,
tackling the right problem
but they might not be right in the first iteration.
If you own equity in the company
and they do a second token launch later
or they change the product
or they pivot to a different model,
you make sure that you have exposure to that
either way, and so it's about downside protection
and when there's a lot of risk involved.
- Yeah, and maybe
to continue on what you just said,
the strategy of your investment,
how do you hold teams accountable
with those ICO's, for example?
- Yeah, so, I think like the
way we really look at things is
we look for places where we can really be of value at,
places where we really kind of believe in the team,
and we wanna be kind of deeply integrated with this.
I think it's kind of interesting you have like
the venture capital, or you have a hedge fund
but really in this space,
there is this kind of this blend,
there's this overlap.
It's not really clear where that
delineation is,
because a lot of these teams, you know,
there's so much money flooding into this space,
aren't really looking for that dumb money.
They're looking for someone who's value add,
who can kind of guide them through this process.
There's so many different facets of the ICO process
in kind of building out a blockchain project,
that they really need help in kind of like diverse things.
So that's really then our focus, you know,
is building this kind of ecosystem
where we can kind of plug and play
all the different things that these companies need
and we can really hold them accountable because
we are offering those services and we are,
you know, actively involved in the team.
We're not really
investing for these 40 percent discounts
and quickly flipping it.
We're looking for this medium to long term play
where we can really be involved in the team and
keeping kind of checks on that.
- So from our perspective,
that's why, when we look at the founders,
we really like a founder that has been in this space
like for long enough and,
like if you haven't been through any cycle,
like so if you haven't been through
like the up and down of the token price,
and because it's a very distracted life for any
pre-product and pre-traction company founder
like to look at a token price just going up
and down, so like, that's why all the public market,
so just like, in the public sector,
and then all the public companies, so they have
a dedicated team,
for market cap management
and then for like,
so for IR as well.
So I think it's a very important
as a founder you have to be
psychologically prepared for that and
so it's very hard like just like to
enforce anything to hold a founder accountable
so like, so the founder has to be really
perseverate and has to
just like be, persistent.
- I think there's two sides of this too,
it's, you know, first of all
from an investor side of,
how do we make sure that the team
is accountable which I think is
much more difficult to do in a token model
than it is in an equity model.
As an equity owner you have actual rights,
you have basically no rights as an investor
in a token sale and that's very difficult
for us to deal with as far as
managing downside risk.
The other side is, you know, from
the perspective of the token project itself,
or your company, token project,
whatever you wanna call it,
which is making sure that your investors
are aligned with you long term
and again I think that one of the
smart things that was presented earlier
on stage today was just the idea of
lockups investing for your investors.
That helps weed out the people that are just there
to collect some discount or some
favorable valuation and then flip up out of it.
I mean, ultimately, you know,
a good investment partner is somebody that's
there for you in the long term to help you build
a company, a protocol, an application,
whatever it is that you're dong,
and not people that are gonna
abandon you in six months.
- Joey, do you wanna say anything?
- Yeah, I would say,
you know, I'm a bit more comfortable investing
in tokens than I think Spencer is.
I think part of the reason is
I think there are still a lot of those sorts.
You know, a lot of the protections you associate
with a company are
much more, kind of like,
sort of fiduciary duty sorts of things or
you know, very rarely,
as a venture fund,
do you actually like,
get down to like the letter of an agreement and
sue a company you invested in
because they screwed you over.
It's usually much more soft kind of
reputational things
and so I think if you look at token sales,
there are a lot of people in this space who say,
"Well, you know, they can just spend the money
on whatever they want."
I don't think that's actually true.
I think this will be challenged at some point,
probably in court.
So say you're a token project and you
create a non-profit in Switzerland,
and then say you launch a
you know, VC fund in a hedge fund
with the money you raised from
people who are trying to pay you to
build this protocol,
in that scenario, I don't think you're
fulfilling the fiduciary duty to your non-profit
that you kind of created.
You weren't supposed to create a venture fund
and a hedge fund,
you were supposed to build this protocol.
That was the kind of mission of it.
And so I think,
a lot of these sorts of things,
will be challenged as well.
I think, you know,
maybe now it's kind of wild wild west,
but I think,
as time goes on
you know, whilst token holders don't have
like rights like a shareholder does,
they do still have like
the company building this,
or the non-profit building this,
still does have like the obligation
to actually do their best efforts to
actually build it
and not just run away with your money.
I think that would still be
illegal in failing to fulfill
their responsibilities as a director.
If they just took the money and, you know,
bought a, say, Lamborghini,
just like it would if they did the same thing for
a company funded with your VC money.
- Thank you.
Yeah, I wanna touch on what Dovey said earlier.
There's a lot of entrepreneurs here,
developers who are interested to see more,
how do you guys pick your
projects,
so what does your deal flow look like,
what attracts you more
and how do you even value
those projects
or those tokens if you invest in them?
- I would say,
one very interesting finding is
so actually a lot of the blockchain founders and
they're not decentralization believer
so this is very interesting that
you might be thinking, "Oh, so if you are like,
building a blockchain product, so you must be
very decentralized person," but like actually
a lot of founders are still very,
like centralized mindset and
I think the biggest philosophical division
that, for the founder that I would invest in
and for a founder that I would not invest
and secondly, I would say,
like the founder has involved in this space for
long enough and they have been through cycles
and so they have a good community connection
because I, for any decentralization project,
it's always about building the ecosystem and
so you have to think about whether this project
is like a blockchain 'must' project,
and whether it has to be decentralized
because like if the experience is actually
10x better as like a centralized experience
so there's no need for decentralization.
The other thing I would say is,
being in a team,
what makes a really good crypto project like,
there are three elements,
the first one is,
there must be like a crypto expert,
and also, like a distributing system like
expert, and then,
so like, the last one is,
you need to have a really good
game theory designer,
and so the three domains actually like
previously, so they not usually collide
and then,
right now we have seen,
because of the ICO hype and then
so the big coin price insanity,
we have seen a lot more
qualified founders and like really good talents
like you should be from Academia, say for instance.
Like early this year, like a group of like
Scott Shenker students,
so who used to work on like networking protocol
and right now, they're actually devoting themself
in that blockchain,
like which is a very like good opportunity
and then,
so, like, that's why,
when it comes to deal flow and so
we work with Pantera a lot,
and like Blockchain Capital,
Polychain, and
so other than that,
so one of our unique deal flow is
say for instance, we invested in
like Brent Cohen's net share network
and so that is an actual referral from
Dan Boneh from Stanford,
and so,
we invested in like DAKLAB, and like QED,
so Qudit, and then so that's actually
a referral from Losango Chiasa,
from Berkeley's CS department
so I think why you need deal flow
we have, is that we have this
very good access from the Academia
and so they can help us to have like
some advantage when it comes to
deal sourcing.
- Yeah, I'd say on the
deal flow side,
most of it is either inbound or
introduced to us at some point.
A lot of the times,
they're either looking for
typical advice on say,
building on Ethereum or
some sort of game theory problem
they're trying to solve or
they just wanna talk to us because
we're well-connected in the space.
On the sorts of projects that we like to invest in
I think,
the kind of most interesting stuff is the way I start,
is I start with the tech, because
with the space is so kind of popular and
exuberant right now that
you see lots of people who are
have really good, you know,
backgrounds and the team looks great,
but their tech is just completely nonsensical
and it's because they're just jumping into the space
and don't really know what they're doing.
So I start with the techs,
it's fastest for me to just go
through the tech and see what there makes sense.
Basically, it's just looking for things that
you know, make sense.
A lot of projects are doing things in this space where,
if you were to solve the problem,
you'd, you know, win multiple trading awards
in computer science,
and then last year, you know,
one of the Academia people that she's talking about
it's probably not gonna happen.
Then after that, a lot of it's, you know,
whether the token model makes sense at all.
The sort of stuff that is exciting to me is where,
currently today, you have a central intermediary
who' sitting in the middle,
extracting a lot of rent,
charging a lot of fees,
without adding value proportional to the fees
that they charge
and if you can cut them out,
by replacing them with kind of a more
peer to peer cooperative model,
those are the sorts of things that we
like to participate in.
Those typically, kind of, tend to need a token
for kind of obscure technical reasons.
If you look at like, Omisego, or Ethereum,
they need the token for pretty kind of,
obscure technical reasons,
whereas stuff where you can kind of tell that
they've just slapped a token on top of it
because they wanted to do an ICO,
I think those won't be around five years from now
and so that's kind of how we're thinking about it
at a high level.
- Yeah, so I think what we really
pay attention to is like, kind of three things,
like team, tech and community.
Like, team was already mentioned before.
A lot of these things can pivot.
A lot of these things can kind of change,
but you really need a strong team
who has kind of a record of executing.
That'll be kind of usually indicative of
if they can execute in the future.
You really don't have to be
as actively involved in keeping them on track.
Obviously, having a really solid team
that has a basis in the space,
or like kind of an expertise
in the vertical they're developing on
is really great.
The tech, like here mentioned before,
is like extremely important.
If you look at Github, it's just
not very great,
that they don't have any blockchain expertise on the team.
That can be really problematic
and also one of the biggest drivers is community.
A lot of these teams get a lot of money
but they really can't get that kind of
community buy-in.
They can't get developers,
they can't get people to use the platform.
So really being able to kind of
organically source that community
is really important.
As far as deal flow,
we have really close ties with Berkeley.
There's a really huge community basis here.
There's a lot of developers.
Like I mentioned before,
that community factor,
having people who kind of contribute
to these platforms and are able to
actively develop on it and build it out,
is really valuable.
So that's where a lot of the deal flow comes
is because we offer a lot of utility from these teams.
We also have a real expertise in the privacy sector.
One of the individuals from our team, Howard Woo,
is one of the few people who kind of understands
you know, there's a zero knowledge proof
kind of zk-SNARK space,
and you know, actively helping to
research and develop it out so
a lot of these privacy-centric
things will kind of come to us
for our ties with Academia
as well as the expertise in that field.
- Yeah, I agree with most everything
that's been said here.
I mean, listen, this is not
completely changed in the way that
you deploy capital to early stage projects.
I mean, overall, the
features are very much the same.
I mean, it's team, tech, problem
and the market that you're looking at.
With probably the biggest shift just being
that tech is
probably
much more important than it has been
in other areas.
- Yeah, maybe you can say only,
one thing that you would never invest in today?
Like the project that like,
doesn't make sense at all
without naming it.
I mean, I know I talked to Joey before
and he said, like if you're like rent-seeking
for example, you're trying to stay away.
- Tokenized sand, I think we saw a project
for tokenized sand, right?
- I was gonna say, like,
I see a lot of projects that are
just kind of mimicking Ethereum.
They make something that kind of is replicating
something that's already existing,
especially Ethereum,
so that's one of the biggest things I look for,
you know,
is it trying to just do something,
in not a better way than
something that already exists?
- I'll go with the rent-seeking one.
Basically, the idea is
if you have someone who's,
so the whole idea of this space is
to disintermediate middleman
and make things have lower cost
because you're making things more efficient.
And so a lot of tokens that come to us,
I'd say like 99 percent of them,
actually insert themselves in the middle,
decide they're gonna charge a bunch of fees,
and there's no barrier,
there's no mote.
There's no reason someone won't just remove the fees,
and make a free version.
And so like,
in a nutshell, when you have a token
the sort of thing that you want people to be,
well, people are willing to pay for security
of the network,
so they're willing to pay for the security
that the network is secure,
like in say, Bitcoin, or your Ethereum,
they're not willing to pay, you know,
the founder five percent every transaction
or something like that,
which is a lot of what we see.
- Yeah, and
I remember
so I've seen one project which is
it's a friend of mine and
so he was working on
a pizza delivery company and
one day, he basically just pinged me
saying, so I'm thinking about
tokenize my business,
and I was like, how you can tokenize
a pizza delivery company and
I think like one thing I freak out is
because we have seen all these services
and products like both
online and offline,
like if your primary business is like
mostly offline,
so it's actually very hard to tokenize
because you first you need this like
digital representation of your business
and your current workflow,
like online first,
and then you can tokenize it
so I think for like
the Uber, like the AirBNB,
and like all this, probably we can,
for now stay away from it, and like,
before like the infrastructure is really ready for it.
- Yeah, I think that leads me also to
the next question,
more about how the industry and the trends,
you guys see the industry from a helicopter view.
2017 was very, obviously, the ICO rush,
of very interesting projects,
a lot of money involved, but
what do you think are the 2018 trends,
and where this industry is going this year?
- I think launching an ICO is gonna be
a lot harder, I think the people are thinking,
and becoming a lot more critical.
I mean, we've seen, you know, either
from the helicopter view or from
the first row seat,
the market cool off a lot
and I think that's probably healthy.
I mean, as with anything, I think we saw
kind of a natural Gartner hype cycle here.
So, you know, the market got way ahead of itself,
you know, is there something at the core that's
really, really interesting here and it's gonna
be part of a long term mega trend?
Yeah, I think so, absolutely, and we plan
to continue investing in it.
But definitely in the short term,
things got ahead of itself,
and a lot of projects don't make sense
so I think people are getting smarter about
how to think about projects that need a token
and ones that don't
and what makes sense as far as a
sale and valuation.
- Yeah, I'm definitely gonna piggyback on that.
I think we're gonna see these kind of like timelines
be elongated.
I think a lot of people are rushing a lot of these things
to kind of get on this hype, to kind of
cash out on it.
So I think we're gonna see,
you know, we've already seen in a lot of our deal flow
these, like, equity stakes
or these longer lock-ins or
these different kind of structures where
it really makes sense for individuals to
kind of get involved early
where they can actually be a value add.
It's not, you know,
you're getting into a presale and you're
immediately flipping your tokens or have that
liquidity in a month.
So I think we're gonna see, kind of like,
more rational
like presales and also
like equity stakes.
I also think it's really interesting, you know,
being at DevCon and a few other places,
privacy, I think, is really gonna take front row.
What's kind of like zk-SNARK breakout rooms,
and you know, people are asking developers
how many of you plan on incorporating privacy
and about half the room raise their hands.
So that's really promising.
You kind of see, right now, it's all
about scalability.
Scalability is interesting, it's sexy right now,
it's really kind of like this offense,
but you know, with offense you kind of need that
duality of defense,
and I really think that privacy is something that
is undervalued and under-represented currently
and I think 2018 it's really gonna take a
front row.
- I think in 2018 we'll start to see some
popular dapps on Ethereum go live.
Right now, people are just trading tokens
and that's basically it, on Ethereum,
and you can be able to do more interesting stuff
in 2018.
And then also, I think,
we'll start to see some of the first stable coins as well,
which I'm pretty excited about because
if you're entering into, you know,
some sort of financial contract on Ethereum
you don't wanna lose money due to
China announcing some news about Ether
and losing 30 percent overnight.
You want something that's, you know,
relatively stable.
I think some of those projects will go live
and then, yeah, as he said,
scalability is pretty important.
I think, in 2018, we'll start seeing
kind of, the first wave of low-hanging fruit
practical solutions to scale in Ethereum,
so Ethereum's developer community is
much less kind of abrasive than Bitcoin's
and they're willing to make changes to improve it.
And so,
I think the kind of first thing that will happen is
there'll be parallelized transaction processing,
so you'll be able to process transactions
in parallel on Ethereum.
So that's like a 8x performance increase.
If you imagine, most computers today have four cores,
each core has two threads, 8x,
and then, beyond that, you know,
it starts getting harder.
You can make the Ethereum virtual machine
more efficient.
It was originally just kind of slapped together
as a proof of concept, let's see if
this thing works at all.
Now that we know it works it's time
to make sure it's actually efficient,
and it's not.
There's stuff that on Ethereum takes,
you know, milliseconds, that takes microseconds
on my iPhone, as an example of a
simple computation.
And then, after that,
scalability gets a lot harder and it
becomes a multi-year process,
doing things like sharding and plasma
but I'm confident we'll get there.
- I think for the 2018, so I think,
right now, we have seen actually like a new model
of like fund-raising.
Essentially, it's like not a new model,
but previously we had like ICO and now we have
these IEO's, that's the Initial Exchange Offering.
So, I think the whole model, we're actually
rolling back more
into the venture model
and we have seen many of the
solid projects, so they basically
just got raised at presale and
just skip completely the crowd sale
and just list on exchange like
do so 100 percent
and so that's something that we
consider as IEO,
Initial Exchange Offering
and so that would become more and more often
and I think the
institution will play
a more important role here
when it comes to fund-raising
and because when
more veteran founders get into the space
and they have like previous access.
So first of all, they are veteran founder,
they're familiar how to raise funds,
and they have the existing access like
to VC or the other institutions
so I think the model, we're definitely
rolling back more to the
venture model and I want to
talk about China specifically, actually.
I think there's a misunderstanding about
China ban everything so it's like this
complete like, dapp space,
like actually like from what we have experienced
and because we directly involved in
the whole PBOC discussion is,
the PBOC discussion and then,
the China SEC, like VC et cetera and
so the whole thing, actually,
becoming even more vibrant than before
so there are actually two reasons for that.
First of all, the China ban is actually
the best publicity ever
for the average investor in China
because like,
they actually don't trust government
but they had no choice previously,
and then now, like, because of the
rebound of the Bitcoin price, actually
demonstrated the value of decentralization.
This is the first time ever in the history,
so they realized, oh, there's something that
the government cannot manipulate
and this gets them really excited
and so that's the first reason.
And then so the second reason is,
and if you actually monitor
all the transaction volume like,
even though the China government, like,
they ban all the centralized exchanges and, like,
pretty much the second day,
everything gravitate towards fastly to
over-the-counter transaction,
and the over-the-counter transaction there's
no control over
and as long as you have like Alipay
and then, like, Wechat Pay,
because we all know that
the digital payment, like, method
is very advanced right now in like China
and as long as you have those two payment methods
and like Alipay has 400 million user,
WeChat Pay has like 600 million user,
like which means immediately
over half a billion of like user,
average consumer have direct access
like to crypto currency and, like,
so that's why I think
it's actually even more vibrant than before.
Actually, we looked at one stat,
and so before the China ban,
there were about two million crypto currency holder
like, in mainland China, like,
which is actually, like so it's very small and
then like after the ban,
so, like, the overall number of
like crypto holder actual growth,
so it like grow, like quickly,
even than before,
and so that's why I see like,
like 2018, when it comes to
global economy gain,
China will still play a key role
in mining, in investing,
in entrepreneur.
And so if you are a blockchain founder,
or like crypto founder,
so you really need to have this
like, flat world mindset,
I think this is a sector probably,
it's the first time in history that
Silicon Valley has no unfair advantage
in accessing of talents and capital.
So you really have to be global from like day one.
- Thank you.
I wanna touch on one point that Joey said
about stable coins,
so
once stable coin is introduced,
what is the purpose of utility tokens?
- Before I answer that question, really quickly,
because stable coins are a really interesting issue
and I was hoping to follow on that as well,
you know, first of all, I'd say that
I really hope stable coins succeed.
I think they'd be a boon for the entire industry.
There are large applications that would be
really incredible that
might need stable coins in order for them to work.
That said,
there's a lot of things that I hope come
into the world, that don't.
I've wanted flying cars for a really long time
and we haven't gotten those either.
So, you know, it's okay, in a venture
to be both skeptical of something and then
even to hope that it succeeds, and maybe
even potentially invest in it.
When I think about stable coins overall,
it feels like a technical salute,
a technical solution to
a problem that is fundamentally economic.
At the core of what I see stable coins is,
you tell the market what the price is,
instead of the market telling you what the price is.
That goes against everything I've ever learned
in economics and seen
play out in markets.
But again, I really hope they succeed,
and even with a very low probability of success,
stable coin could be so large
that an investment could still make sense,
even at a, you know, one percent, or 0.01 percent
probability,
the market is potentially huge.
So it could still make sense.
- I think the probability is much higher,
and I'll give a reason why, so,
there's two types of stable coins.
There's some types where,
the money's not really backed by anything
and it's very similar to kind of the way
a central bank works,
and you increase the supply when the prices goes up,
when the prices goes down you
incentivize equal to decrease the supply.
Some projects do this by issuing bonds.
It's not that infamiliar.
The only difference is, of course,
there's no government backing it.
Whether that will work or not,
I don't know.
The other type of stable coin, though,
is backed by collateral
and in the short to mid terms,
like in the next five years,
it has a decent chance of not working
and the reason is,
the collateral that you would back it with,
other crypto currency
is super volatile,
however,
if you fast forward say, ten, 15 years,
and think in the future where,
traditional assets will be tokenized,
things like stocks, bonds, commodities et cetera,
you could very easily envision creating
you know, a sort of, kind of, like,
all weather portfolio, like Ray Dalio has,
you could vol target it to have, like,
four percent annualized fall
and then if you have a collateral backed
stable coin, say it's backed with, you know,
five to one collateral,
and your annualized fall is four percent,
that has a very, very slim chance of failing.
Like the Peso probably has a higher chance
of failing than that, you know, stable coin would.
And so I'm confident that those will work.
I think it, you know, it may be a long time though.
And so I do agree with that
and as far as the implications of them,
you know, why you need utility tokens,
that's a great question.
So,
a lot of them, you know,
there's kind of a few classes of utility tokens.
There's ones that aren't needed at all.
They're not needed today.
They won't be needed in the world
of stable coins either.
There's ones in the middle which are
you know, payment tokens
which are used to do payments
on these networks.
My thesis on those is that,
they might be able to succeed
if the application is popular enough
and has a large enough network effect
but when stable coins come out,
it's much harder to make a strong argument
that those will have really lasting value.
And then the kind of other type,
is things where the token's really needed,
and if you remove it the system just doesn't work.
So an example of this,
is a network that requires the ability to
split into two,
or it requires forking.
If you used a stable coin instead,
well, you can't just double the monetary supply,
when you have a fork,
so that obviously won't work.
And there are some computer science
consensus mechanisms that require the ability to
for a network to split into two universes
in the event of a disagreement to work.
So those are kind of very obscure
technical case where tokens are needed.
- Yeah, I think, like, stable coins are
really interesting, right, because it's all
like, you know, relative stable,
it's stable relative to what?
I think there's gonna be a lot of iterations on this,
I do think that China is kind of taking
the lead on this,
from a few entities that we've been working with,
digitizing, kind of the RMB,
or digitizing these things is really
something that's gonna be topped down.
Once you have, like, that much liquidity,
that kind of like, big of a float,
you have this relative stability, kind of,
you know, relative to your currency
that you're using.
I think it's kind of interesting that question,
you know, like, once you have stable coins,
what is the function of utility coins?
Even that kind of relation is problematic
because it shows you,
how much people relate crypto currency to value,
when if you have this utility token it should be,
kind of like implicit that you're using that token
for the utility provided,
not necessarily as like a store of value
or you know, something like that.
I would hope the utility token is kind of
utility-centric, rather than value.
- I think like, for like stable coin and so
there would be like multiple versions and
it can be a very interesting competition, like,
within the stable coin ecosystem and so
there might be, like,
coins like Basecoin and so
probably the other version of like Basecoin
and, like, similar with some more, like,
improvement of the economic design.
The other type of why the stable coin is
because all the governments out there
actually competing for
the fiat tether right?
And like, Japanese government, Chinese government,
like Russia, Korea, et cetera.
I think there would be the competition
both from the private sector,
so private sector so that's from
like start a team, and then,
the public sector, so that's the government backed,
like, collateral based,
so there are two specific fiat and
I think it can be a very interesting
game theory and competition,
with each of the players out there.
And when it comes to the utility token value
because when we, so,
if you think about how we value something right now,
and it's actually based on
the adoption and the utilization of that specific
product or service,
that is essentially how we should
value, like, utility token,
but, right now it's really hard, like,
before anything that has attraction
or like a good community around it.
I think we will figure out that
how we can value the utility token, like,
once we have like a few stable tokens
that can be the best options.
- Yeah, I agree.
One last thing from the trans is,
what, for the developers and entrepreneurs here,
who are thinking of starting a new company now,
what kind of initiatives or type of projects
are missing in the industry,
that people should start working now so
within in the next year or two,
they can be very relevant?
- Yeah,
I really can't kind of emphasize enough,
I think, like,
we really focus on that privacy kind of factor.
I think we're kind of at this
interesting kind of intersection,
now between like governments, you know,
between Academia,
and also between like corporations,
and we kind of really see that, you know,
with scalability,
we're doing these proof of concepts,
trying to build these things,
but they just kind of stay proof of concepts,
even if you can kind of meet those
scalability requirements
because they want to keep a lot of these things private
because of these other kind of requirements
and because of the legality around it.
So I would really say that
I think this is gonna be a huge push.
I think it's gonna be something that
you're gonna have to implement into a lot of
these platforms
to kind of take it from proof of concept
all the way to where you're actually
using it in production.
- I think, one thing, currently missing
in the space, is custodian,
so we haven't seen any good custodian project at all.
So that's something that I find missing right now.
So, the other thing is,
when it comes to our investment thesis, because
we have been primarily focused on,
four things, like, everything since like four,
five years ago,
so that's programmability, scalability,
anonymity and like eco-friendly
and so those are the four space
that we are thinking that, like,
we can constantly, like, make investments
because those are the infrastructure
and when it comes to platform
or like application layer
we identify CDN, VPN,
like prediction market
and decentralized exchange
and, like, those are the good space
to invest
I think that's it, yeah.
- I would agree.
I mean, I think that privacy is
definitely one of the big ones.
I'm glad that you emphasized that.
I think it's always been, I mean,
not to downplay how important scalability is,
it's obviously really important and
really, really challenging
but privacy is a little bit
under-appreciated relative to scalability.
People don't wanna have all of their contracts
exposed to the whole world.
It's just really not a desirable outcome so
privacy will be interesting.
Decentralized exchanges will be interesting
and we're investing into both those things,
as well as custody.
- So maybe,
we'll jump to the next topic,
is more advice to teams.
I'll just make it a free forum.
Each one can say like one,
the most important advice
that you can give to teams today,
to kind of get up to speed and
successful, hopefully.
- I mean, some of the stuff,
that we covered earlier I think makes
a lot of sense so, I mean,
helping make sure that you align yourself
with long term strategic partners that can
help add value and help you build out
whether it's a company, it's an application,
it's a protocol, it's a token,
you need people that
can help you do that,
doing things like lockups,
help from an investors side
and then just in general I mean
you know, doing things in stages,
is probably reasonable,
I mean that's the way that
people have built businesses and companies
over a very long period of time.
I mean, it's a relatively proven model and so
you know, going out and expecting to
raise 200 million dollars and build
the perfect product in the first iteration
might not be realistic and so
taking kind of a measured approach is
probably appropriate.
- Yeah, I mean, I that, like,
the difference between kind of being rushed
and just being driven.
I see a lot of teams that are willing to
put in tons and tons of hours to get these
things kind of implemented,
but I also see a lot of teams that are
kind of, rushing.
They really feel under the gun.
They feel like, you know,
there's a very short window,
they have to raise a ton of money
and figure it out later.
I think this legality issue that's coming up,
we been hearing about it all day,
we've been hearing about it currently,
something that's kind of a huge factor,
you know, do this, do this right.
That's what we're generally trying to support
in this space is,
to be responsible with the way that you raise
because every time something fails,
every time somebody raises an
obscene amount of money and
doesn't really deliver
that really generally hurts the ecosystem.
So that's what we're really kind of hoping,
you know, that people stop being rushed
and just, kind of, do things correctly,
the right way.
- I'd say,
so before you decide what you wanna do, like,
figure out, like, what sort of project or
product you're building
and only then, after that,
decide whether it makes sense to do
a token sale or not.
Don't go in and say,
"Oh, I'm gonna do an ICO,"
because that's how you see, like,
most of the projects in the space are bad,
and that's one of the primary reasons.
If you design, like, the thing you wanna build first
and it happens that,
it needs a token to work,
that's great.
You should hit any of us up,
but if you just like walk up and say,
"Oh, I'm gonna do an ICO,
and it's in this sector,
and I feel like doing an ICO,"
like, please don't.
And then I think,
the other thing is,
once you start a project,
some advice I have,
just things that are like super annoying
in the space that I see that you should avoid.
One, don't let anyone advise you
who asks to advise you,
most of the time.
Two, don't pay people to be listed
on apps or sites or anything like that,
if a wallet says they want, you know,
75 grand for you to be listed on it,
tell them to screw off.
Three, if you're doing a token sale,
you really should not,
99 percent of the time,
be using one of these kind of
token advisory, token services firms,
here's the reason.
If you're building something that actually needs
a token,
then doing the token sale,
writing the smart contract
to do an ERC20 token,
that's gonna be the easiest thing you'll do
for a long time.
Everything else,
is a 1000x harder than that.
So if you can't do that part on your own
then there's no reason that you should
even be in the business of building
one of these things
and the reason these
kind of advisory services,
are so dang annoying to me,
is they take around 10 to 15 percent
of the funds that you raise,
and they take 10 to 15 percent
of your entire token supply,
and they don't add value
in proportion to that.
They're worse rent-seekers than
even the worst bank you could possibly think of,
like 10x worse, or 100x worse,
so avoid that.
- [Audience Member] 10 percent, really?
- Yep.
- Yeah, so,
I think, my advice would be,
so first of all,
don't do ICO just for the sake of
like wasting money,
because,
so the token should be
naturally integrated with your
economic design and
like, the workflow and
the utilization and like
functionality.
Like it should be naturally blend into
what you're building so it shouldn't be
just for the sake of like
wasting money.
Purely for the sake of raising money,
it's a really bad idea.
And secondly,
just as Joey said,
those advisory firm and
they can do everything for you,
even writing the white paper for you.
So if you're an entrepreneur like that,
what is the value of you being an entrepreneur
and like being a founder of the company
and like the project?
So I think the other advice I would have is
be very adaptive,
because the whole environment evolving very fast
so we're investor of Brave,
so basic attention token,
and so we invested last year
and so somehow the whole concept,
of like ICO, just like,
because like Crowdsell has been around
for a while so it has been around
for like three or four years and
this year it's just like people
just repackaging the same idea of like
Crowdsell into ICO and then, which is
a very easily understandable concept
and then just like get a hit.
So when Brave did an ICO earlier this year
and then so,
they have made some mistakes,
say for instance,
so they don't have like a specific cap
for the individual, like, wallet address
and then so right now it's very, very
concentrated and so,
later on, like Zero Ax has a better model
so that
each individual investor can only invest
up to like a few thousand
and so like the whole mechanism
actually evolving very fast
and then so talking about
like, the contrast,
like different than SAFT,
and we have seen probably
20 different mutation of SAFT,
so like 20 different versions of like SAFT
or like the token sale agreement
and so, like, things
actually evolving very fast
and you have to be very, very adaptive
and like, the other thing is
that I'd be really patient
like Dfinity we invested in 2014,
early 2014, like back then it was not Dfinity.
So back then it was just Coinify
and so they actually pivoted probably
five, six, different times and now become so
so now it's Dfinity
and so you have to be very patient
and like if you're really thinking that
you want to dedicate it in like blockchain space
and it's a still very nation
and we are probably at the first
like three minutes of the whole like universe
of like blockchain
so be very, very patient
and then be like dedicated
and so I think eventually
you will actually see like
all your hard work like really paying off
and not just for like quick cash.
- Thank you.
We have time for about
two to three questions.
- [Audience Member] You mentioned custodian,
in one of the things that you said
that were lacking, today.
I didn't quite get it,
in the context of a decentralized blockchain
environment.
Can you please elaborate on
what you meant by custodian?
- Custodian lacks difference in
like, how we can ensure the security
of a specific proceed,
so right now no-one has a good solution
and like, basically I think, like,
if we are all a token,
or too many people are coin holders,
then we basically like doing battle, right?
And so, there's no such
service or like project out there
and so it can provide good custodian service
and then, like, custodian service and
so this very similar to insurance but like,
it's definitely more than insurance
so it can be a combination of like
technical challenge, plus like insurance,
like plus the regulatory question as well,
so it's a package of the whole deck,
how you can,
secure the transaction from
like one entity to another
and so that's something that I'm
currently seeing not.
There are like each individual
like service providers, different
and you can buy it like, nano ledger
for like cold storage, and
but like it's very, very silo
so we have to piece everything together by ourself
and I think especially when more and more
institution and like hedge funds
come into the space and like this can be
this can be critical.
- Some sort of decentralized private key management
solution itself, because
today the private keys themselves are
to be managed by each end user
or the exchanges.
- For decentralized at key management,
is just one element and so
you also have to think about like
auditing problem
- [Audience Member] Got it.
- And so,
that's why I think it's very, very complex.
- [Audience Member] Got it.
Thank you.
- [Audience Member] The VC model itself is like a
centralized cartel, right?
I mean they are like centralized mining entities.
So
how are you guys, like restructuring yourself, like,
I mean, it's a decentralized world,
capital has been decentralized,
become a commodity,
VC's role probably would diminish but
how would you structure yourself?
I mean, I do think there's a role to play,
because you've got decades of experiences,
to your earlier question,
we do not have flying cars,
I think it's because of VC's
because they're not interested in
building long term projects
that involves a lot of capital
that'll yield some
cutting edge projects, that's why
the government is involved in some of those
large size projects.
So where do you guys see
that once the capital
becomes commodity
and everyone else is able to raise it,
where is the role of venture funds and
or hedge funds?
- You're right, absolutely,
the model of venture capital I do think
is changing.
You know at the start of the year when we looked
out and realized that
some of the entrepreneurs in the space
were completely bypassing venture capital altogether
I mean, even prior to that we had noticed that
a lot of the companies in the space
didn't really wanna talk to the people
on Santo Road.
Fortunately I think a lot of the industry specific
investors had a little bit of an edge there
just because they could talk the same language
but, you know, starting at the
kind of beginning of the year, we started to notice
that some of them were just bypassing
all of the venture firms altogether.
One of the things that we did to
try and address that was to
raise a fund via an ICO and so allow
anybody to improve access, I mean,
normally to have access to
a venture firm you have to
become an elite institutional investor.
In our case, we were able to accept capital from
750 investors in
80 different countries around the world
and able to provide kind of an improved
liquidity profile for it as well.
So it's definitely changing, I agree.
- Anyone else?
- I'd say, commodities,
or money's been a commodity for a while,
like ever since kind of
low interest rate era
and I think
something more similar will happen
to kind of VC's, what happened to
VC's in the past, with Angel List.
If you look at Angel List,
tons of syndicates started popping up
and as an entrepreneur
if you're raising a seed round
or you're in a Series A sometimes
why would you go to a
BC or DT or VC firm to raise it?
You would instead raise it from
angels on Angel List.
The good A for A level firms that are
always gonna be around
because they're actually adding value
and helping
the companies and projects along,
helping them solve
real problems they face
but kind of, if you're not
in that level then
yeah, I think you will be disrupted.
- We'll take one more question.
- [Audience Member] How is the
enterprise blockchain,
how is it impacting your portfolios
and what is it use,
2017, 18, and 19?
- The enterprise projects.
- Yeah, I mean, so overall with
at least I'll speak from my perspective
at Blockchain Capital we're trying to provide
our LP's with diversified exposure
to the blockchain industry
so that does include
enterprise blockchain solutions
we have enough humility to recognize
that we don't know for sure
where all these technologies are gonna go
and where they're gonna be applied
and we wanna make sure that we
pick what we believe are winners
in every major category
and enterprise blockchain is definitely
been one of those.
It's not an area where I think I have
the strongest level of conviction
but it's definitely something that
we have invested in and
are not particularly exploring right now
but would continue to invest in it
if the opportunity was right.
- Anybody else?
- I guess, actually, to add on that as well,
probably one of the things the industry
could've done better early on
was defining what is a blockchain, right?
So instead we kind of have this spectrum from
a database to something that is actually like
decentralized like Bitcoin or Ethereum
and you know, I think in some cases
some of the enterprise blockchain projects
might just be databases, kind of,
repurposed and repackaged.
You know, on the one hand that's
a little bit unnerving but
on the other hand
the flip side of that is that
if it takes kind of a shiny new wrapper
to help people upgrade their database
and receive significant new efficiencies
then that's okay as well.
- Yeah, just to kind of add onto that,
so it's like doing projects for some of these
large enterprises, I'm not gonna name any names,
they're definitely like not the most interesting
kind of solutions.
Like a lot of them will want these kind of
proof of concepts, wanna kind of see
what's going on.
Like you mentioned before, like
really knowing the definition of a blockchain,
you know, you'll build this entire proof of concept
and they'll say,
"Alright, if one of our engineers makes a mistake,
how do we roll this back?"
and it's just like really frustrating,
to have to be kind of doing that.
If you spent months and months and months
building this out,
you think they understand.
So I would say that you know, like,
the things that we've seen so far,
that are coming from these large corporations,
they're kind of a little
slower to adapt.
They're really trying to shoehorn this technology
into existing verticals and use cases
and a lot of times that really isn't the best
kind of like way of doing this.
So I think some of these new
more agile companies are really
doing more interesting things.
That being said I think they're ready to
bring this mainstream, we're gonna have
enterprise adoption.
They're really gonna kind of like flush this out
but I haven't necessarily seen anything
super interesting but I
definitely agree, if there's something pops up
we're definitely interested.
- Yeah, we don't have any more time but
thank you to our panel.
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