Building Web3: Reinventing the Internet? - TOKEN2049 Singapore 2022

okay this is very exciting so we even managed to keep a pretty good audience for a later panel so you know let's get right to it um so rebuilding or building web 3 Reinventing the internet um you know it's kind of interesting title so let's look at since we um are in a little bit of a crypto winter how do you think web3 is doing as of now and where has the crypto winter affected it most or at least W do you want to start personally see is her mic on okay yeah so Santiago do you want to go I guess is this yeah um so the state of Warp 3 I mean I think uh the nice thing about bear markets is it gives us time to reflect on the things that we didn't get right in the last cycle and I think it gives us time to patch up certain deficits uh including a lot of infrastructure that had to be built hasn't been built and I think we're in a state where you know we've found some killer use cases I think D5 early on was the first killer use case of ethereum then really encouraging to see gaming like Axion is very rudimentary form I think really showed probably like the email moment of this industry which is like a lot of people kind of don't really use D5 don't want to use it directly it's kind of daunting but everyone understands collecting everyone loves collecting so nfts and gaming I think are really the killer use case the email moment of this industry where it really sets us up to onboard Millions potentially billions of users now the nice thing about now is it gives us time to build that infrastructure structure the scalability solutions to support you know the next wave of users that are going to come on in the next cycle since Joey what did the infrastructure Point um I think if you look at kind of what we're going to go into for the next bull market I think we'll kind of finally have the infrastructure to actually scale in private markets we're kind of always just like hitting up against capacity limits and if you look at the stuff that's built today whether it's you know things like Solana things like layer 2's on top of ethereum like arbitrum or starkware you have all these different solutions for different kind of potential use cases where this will be the first cycle you know over the coming years where you can launch a decentralized app and not really face scalability limits obviously if you're a game and you get like 10 million users you're still going to hit scale limits but that's a good problem to have okay Alex what do you think yeah yeah I mean I think it's sort of A Tale of Two Cities on the one hand I'll say the negative part like if you look at the numbers uh all the charts on in um like dollar terms uh defy tvl transaction volumes on nft marketplaces obviously everything is is like down horrendous right uh the one the one thing I think is pretty uh interesting is on the other side of the house if you look at a lot of these same charts um but in like crypto denominations so you look like the amount of eth or stable coins in defy uh you look at like just the raw amounts that are going into stable coins we actually are you know we're not the growth levels of last year or something like that right where D5 grew like 30X in 2020 and you know another 10 or 15 and x and 21 but we're up like we're we're sort of moderately up actually and what that tells me which is which is nice like I've been I've been investing a lot of us we've been investing in crypto for like years and years like nine years or so uh for me it's this is the first time I think where we're in this bear market and at least like actual usage of crypto as opposed to just people holding it uh is up so you know the wealth obviously has gone down significantly but the number of people I think are really using the stuff is is uh is still up on the year which I I find quite reassuring yeah yep yeah so um so I personally really don't lied about the term like Wesley um so I probably talk about it on Twitter a lot because I think the underlying tone when we talk about web3 is like okay just think about when the beginning of the internet are we referring to internet as telecommunication 2.0 like even though internet is actually built on telecommunication right um so like that's why when like people use this terminology web 3 so I really don't have no idea like what they're talking about to be honest because uh for me like the native crypto institution organization application uh it's like a technological enabled social movement other than just Dau like time span and like all these like very like just a very cool Matrix right and and then so if we really look at the mattress so I would like to consider our industry like like definitely explanation growth like over a past Cycles so this is my third I go right and I remember like the first token uh the first token 2049 so I was there was back in 2018 uh we have about um like a thousand registration and like this year Outlets were saying there's like almost like a 8 000 and then just thinking about all these like peripheral and just like the Outer Circle and it must be more than like a uh so it must be more than 10K and it's just in Singapore they said Tiny thoughts right and and yeah so I so like first of all just like to answer the question and I think I really don't like the term of like web3 because like we have to embrace what is the native term of like building the actual institution and like um and um application so like so like so only in that way we are not going to compare ourselves with anything internet scale and because when I talk with Founders and they would be very frustrated because like they have been building things that's pretty usable and like practical but like cannot compare with anything that's that internet scale so what so what I have been telling my portfolio Founders is just like the early stage of internet or like early stage of any technological um so like upheaval basically it's like a total Revolution thing and you have to first build things that only a hundred or even just handful people love right and then just say let them play and let them really enjoy and let them become the core seed of the community and then so they will become your Salesforce um and and then it's a co-community driven thing and we are we are all in for the future of like self-solverty and self-solventy is like web free is not self-solventy right so like web Suite is like uh so I think we all Watch the movie The Matrix I think like web3 is like uh agent Smith and but like the actual crypto native thing is the Neo like even though agent Smith like looks like a real human but it's just like like a stream of like digital bits right so it is not real human so it's like um yeah so like that's my point okay thank you um so let's get into what's the environment like for VC funds kind of in the the web 3 and crypto Arena right now are they still out there taking shelter what are you seeing Dobby um because for primitive Ventures we are not a VC fund per se because we don't have external money we don't have LP it just said teams money um and it's a completely prop shop so we can do whatever we want uh so from our perspective I think we're actually more active like than like the first half of like 2022 because uh so I consider a lot of this that founder founder they're not Founders but they're just a tourist opportunistic players uh so when the weather is good so they just come over and they just hyped in and bandwagon um so I think we have seen a lot of them in late last year and like early this year and because now we are pretty much like 12 months into the bear market and then we have washed out all design uh djans and then by the king of djans like used to be here in La Singapore um and and so like those uh very adversary force and uh I consider like that negative light to the space has been washed out and also a lot of this two nested players so who are remaining of very committee ones so like that's why we spend a lot of time helping them uh talking with them and then just like helping them to like navigate through yeah okay Alex what are you seeing yeah no I totally agree with uh a lot of the sort of tourists and including like traditional VC firms and hedge funds and stuff they're all the toppings that knows too yeah and the djends that you mentioned you know uh yeah they were top signals I mean the other thing that is true is it is so the crypto native funds have also uh scaled back and the reason is just because of our like we have to fundraise as well um and what's interesting though is it is uh like for us and like Pantera we have like outside institutional capital and most of our investors are you know they have billions or hundreds of billions of dollars under management and most of them actually they have internally some sense that they want to own like one or two percent of their assets uh in crypto and they're they're of course like almost nobody is is anywhere close to that um the problem is these institutions uh are like have been absolutely wrecked uh by like the the decline in Venture like late State adventure and tech stocks so you know you're you're in Zoom stock because you backed Sequoia and and you have zoom or snowflake or PayPal or whatever and you're down like 70 80 on the year and so you you just have way less money to deploy into into anything um and the sort of the sort of next the frontier stuff like crypto takes a back seat so even for funds like like uh you know like the big VCS in the space it's just the amount of money coming in is smaller and that's that's I think why we're seeing you know valuations are going down and it's just the raw dollar amounts are going down across the board okay Joey do you have anything done yeah yeah I think I think that's totally true um your point about tech stocks is actually really interesting because in the prior crypto cycle crypto went down way more than tech stocks did there was kind of this like little mini series of rate hikes the FED did in late 2018 and crypto went down a huge amount um and this time crypto is still down a good amount but it's actually not really down more than like the comparative like tech stocks you would use at the equivalent stage or their lifespan of the company which is really interesting it's the first time I've seen that in in the crypto markets and then I would say from like the VC deployment standpoint like what we're doing anyways is um you know earlier in the year we kind of went through our portfolio and and kind of re-upped and tried to kind of preempt rounds and a lot of the companies were very excited about and then you know where I see the market right now I think there's you know still a good amount of value in like seed in series A's um but as you go later stage I would say the valuations still haven't quite caught up to like what actually makes sense um it even like they haven't even found like even like half as much as the equivalent Public Market companies um and I think a lot of it's just that there's still a lot of that late stage Capital um even though again late stage VCS have pulled back they're still just far more of them chasing a small number of deals so like we've definitely pulled back a lot on anything after series a um but we're still definitely doing you know seed in series a when as I'm sure you guys are when when you come across really exciting founders interesting okay Santiago yeah from my perspective I think um we have to understand that a lot of the larger institutional pools of capital take a long time to to understand this asset class they've been doing the homework for the last five six seven years and you know certainly it grew the point like yeah when their traditional portfolio has gone crushed on the tech side of things they do look at this asset class increasingly as does Tech in the next Frontier of tech um and you start to see that in the towards the end of the last cycle you saw the Tigers of the world that historically been very much investing in Tech Venture into crypto and I think um you know you can look at the private markets have been massive fundraisers of you know the a16s of the world variants I mean there's just a lot of capital in the private markets and those really good founder like really good teams funds wise are are still raising large larger and larger funds and that Capital much different than like last cycle which was a lot of Ico kind of money that kind of evaporated now you have more law longer term pools of liquidity that are looking to capture the salsa class over the next 10 years and I think they understand that and they're willing to be more patient and so from my perspective a lot of larger institutional Capital uh pools of capital are looking to deploy into the south of clause the the biggest hold up now is um you know regulatory Clarity which I'm hopeful we'll probably get over the next 12 months and that's probably the the number one reason why larger allocators are still on the sidelines valuations of companies as kind of elevated or depressed at this point Santiago it was a great question because then that you have to assume that we have some sort of reasonable framework to Value these things which is a big assumption uh I think we're still I mean it took traditional markets like 80 years like since like Benjamin Graham to like understand what a PE ratio is in EV to ebitda multiples and all this stuff I think some of these metrics are applicable to certain cash flowing businesses and web3 but it will take time for the market to kind of understand how to Value these networks um and so for now you know is ethereum worth what it is like 300 billion or so like you know the next settlement layer of the internet well you could argue that it's grossly undervalued or you could argue that it's very overvalued uh based on users or what what have you but um I think uh it will probably take the next 10 20 years to like construct certain valuation Frameworks for this asset class and looking at like the peak valuations for a lot of these businesses is also kind of anchoring to that is probably not the right uh way to think about this because a lot of them will probably not recover to the Peaks that we saw in the last cycle uh where I where I tend to look at mostly is um utility and I think that's very that's very distinct then prior Cycles I was talking to Joey like we've seen four Cycles in crypto now which is crazy um but I think now we're starting to see more attraction like you you walk around right and you see people in this Shopping Center or whatever probably most of them have heard about crypto but like less than probably one percent less than five percent have actually used it that number is growing and as long as that number continues to grow I can't think of a Network that has gotten meaningful attraction and not accrued a ton of value and so that's kind of what I that's probably the the main kpi that I'm looking at okay Joy Joy yeah I mean I think I think like even if there's no like way to kind of objectively value like say what each is worth I do think you can kind of you know like like one statement that I think I believe is that if you look at you know Eve back in 2017 2018 you know depending on how you count it you know I'd say it's it's at least a thousand X less you know usage like D5 barely even existed then all that really existed was basically maker Dao um and a handful of other projects today there's a lot of real world usage um but prices are still pretty similar to the late 2017 early 2018 prices and then you can kind of debate whether like eth is overvalued or not but I but I do think like at least from my vantage point you know I kind of look at that and you know we're very net buyers that you said at current prices um I think it's much it's much more difficult to Value the public markets than the private markets and crypto because if you're looking at like an equity deal a lot of these look much more like traditional businesses where you kind of can do a lot of traditional valuation valuing tokens is a different ball game and it's much more difficult but on the on the equity side I'd say we've we've seen valuations for seed deals come down a lot um evaluations for series a deals have come down a lot as well you still you'll still do see these kind of like pockets of deals where they raise like a 50 million dollar round you know pre-revenue and and you're like what's going on like this doesn't make any sense um you know it's like when Elon raised money for neuralink he actually had trouble raising money in Silicon Valley and did a lot of the round himself and that's like Elon Musk who's you know if you think repeat founder who you want to back again elon's probably the first one that would come to mind um and you have you know so much overcrowding I'd say still on the equity side in crypto especially on the later stage deals where it's like easy to understand like it's like a cookie cutter SAS business you still have a lot of traditional VCS just writing huge checks into it because they're like we got to get some crypto exposure it's only 30 basis points of our fund and it's you know a great way to get exposure but yeah they're probably overpaying and my view is a portfolio those assets would probably underperform but that's just my two cents yeah I mean to that point like one thing that was interesting is that there was this massive overhang of capital which I don't know how you guys have been like trying to play it but for us like you know like 10 billion dollars was raised in like a month like right before Tara collat and all the all the bat you know the bottom fell out of the market so there was this like couple month period which I think really only just ended recently where it's like 10 billion dollars of capital that needs to find something to invest in and uh you know you had these big monster rounds like Aptos and sweet and layer zero and probably a bunch more than I'm forgetting uh FTX and stuff uh and uh and yet while like crypto was just like like Bitcoin was falling in half or falling in like a third uh so we just I mean we basically like like we kind of took the early spring summer off like we just we're building a lot of internal tooling and we're doing research and stuff and uh but in the last month or two like our firm is aggressively um increased our uh uh like investment Pace uh because it sort of finally falling out I also think by the way the fact that you said your guys are a net buyer of Eve like I have a suspicion that one of the reasons why eth sort of has surged so much in the last few months is because there's like a lot of capital that uh raised recently and would like to buy some eath with it uh you know evc's tend to be a little bit more bullish on Ethan Bitcoin so there's like a lot of weird like upshots of this sort of mass amount of capital that came in like nine months ago basically yeah yeah um I think in order to answer the valuation question and we have to think about like what push up or down the valuation right so it's always about supply and demand um so a few data that we all know first of all VC MPE dry powder all-time high um just historically wise and um like the second thing and I I want to share a few interesting um GSI observation online learning here in just here in Asia and I think like that's definitely different than what's happening right now in like U.S and like the rest of the world um let's say for example here in Singapore the Founding Father like like you like so they have a family office like one pole and two of my really good buddy and so they are going to lead the crypto Venture arm of wampo um so I think that's a very bullish site like even though gonna be very small at the very beginning like like 100 million whatever like not gonna be interested in part of the world um but it's so it's a very good signal so it's a very good signal for the whole Asian or like East Asian or like Southeast Asian entrepreneur that um this is like so this is like a gesture right so um like that's one thing and then like the other thing is also Sequoia China like Sequoia China raised a independent fund of like 9 billion dollar and then one billion out of the 9 billion gonna be dedicated in early stage uh startups and like given the current China uh regulatory like political which is a political landscape because there's a lot of like uncertain non-marky forces right um so that will naturally drive away a busy investment like especially like Sequoia China and also who used to be double down in like China all the time but like but like now they're also expanding quite a bit and then so expanding in domain is so like expanding in like territory uh just like um and just like I think so I'm very bullish for the East Asian Founders and Lifestyles is it so like Southeast Asian Founders here because they have uh less of this regulatory baggage than like U.S Founders um and also from like Capital wise like they have very um so they have like so they have a very Frontier capital from just just from all the backgrounds right um so they have from like all these um very experienced like family offices and who are willing to experiment with this very new sector um like as well as like very professional VC investor like Sequoia China and like many other local Chinese VC um because like the growth Outlook of the mainland China is not as what so it's not as good as what it had before for like 30 years right because China has like close to double digit GDP growth for like almost 30 years which means living standard double every seven to five years and then which is a miracle and then which will eventually hit the plateau and then all this money needs to figure out the outlet so I think if we think about the supply and demand and then okay back to the valuation question um um I think the money remaining in the space are smarter money so just like just comparing with uh comparing with the peak so I think smarter money there are definitely more value insensitive uh and also they have like more negrogen power when it comes to talking with the founder right now because of the because of the Capital Market climate um so I think valuation definitely on average went down quite a bit especially for earlier stage but there's definitely outliers and so if it's super strong team super experienced founder and like good narrative like whatever so a lot of people are still pouring money in but I think as an investor especially we are managing our own money the best risk management is always about the cost management uh so we never a being overvaluation like startups or like projects out there because I think if you cannot manage your costs well like there's no point in like talking about risk management okay thank you so now we have four very smart people who know the space really well here so let's ask that's that's a big assumption but yeah okay so what's a project in web 3 or whatever you want to call it that has you really excited a project or a technology dovey um yeah so I will probably go for a sector like the sector is not about like a technological steps so it's not about like a tax sector or like an application sector I'm very bullish about Anonymous developers and my Founders um so I've been talking this app for last two three years and I think I'm the very few one uh like and also I'm not in U.S so like I have to go to so to actually speak this out loud um because I think at the end of the day so if we think about our current solvent just like solvent power right you said Nations day and we are currently in like a macro cycle that the rise of populism like nationalism uh and then like the rights of like strong-handed leaders um and so the solvent power will definitely goes after just like the Techno power right like the technopower can come from crypto or like non-crypto so like that's how we have seen the soccer verse here in front of Congress and all that and then so we have um like the Chinese government going out to Alibaba dancing DD whatsoever so I think we are definitely in this cycle that um the traditional weight of like doing business like basically you have to leverage your uh Social Capital pedigree and then to do fundraise etc etc um I think we'll eventually face this uh just a sovereign power squeeze so if you become big and you will eventually become quasi is their own company so in any way um so I think the only way to fight that is not fight so it's so it's basically not fight in front of it it's basically become a ghost so whenever they try to puncture they're like punching you in the air right so like that's why I think an anomaly is not a so it's basically like a fundamental rights so it's a fundamental rights like to build things and then to make Discovery and then so like me and like a few of my Bitcoin and friends and so we were like just like we are actually planning when Bitcoin hits like a million dollar per Bitcoin we are going to have this Nakamoto price so tribute to the Nobel Prize and then only for the founder or scientist who can make Anonymous Discovery and then make it open source some of my Anonymous portfolio has been doing really well for the past few years like GMX and now is the biggest L2 Perpetual Swap and directed trading platform and generating fees more than Bitcoin Ave like even uni swaps and and they're only Built by two developers it looks rare right now is the second largest nft Marketplace and only 20 and only 20 full-time employees no like 10 full-time and then 10 community members and versus the openc probably has 500 300 I guess at least yeah so I think if you can play this Anonymous game really well and then so you will know how to get rid of all this like friction like friction in that parallel and deteriorating Universe yeah so like that's something I'm super bullish about yeah stay hardcore now nice Alex I'm that was inspiring I'm gonna do the I'm gonna say the opposite unfortunately I mean those are great but uh I do think uh we're sort of moving into like the the deployment phase of crypto where we've built all this infrastructure and we're ready to sort of move it into the real world so I do a bunch of defy I've been investing in it for like you know way before there was a name for it and a big category there that I like is like the sort of bringing real world assets on chain in various ways so I like a lot of these like sort of credit creation protocols like goldfin Finance or Maple Finance or trufi uh We've invested in all of them um that are basically these like platforms where you can put money into uh like Emerging Market lending like smbs uh crypto lending things like that and that's cool because like the market size for uh today everything in crypto lending is basically overcloud or like compound and Ave and maker it's all over clatterized the market size of over clonderized loans is like it's like pawn shops or something you know it's like way smaller than the market size for like all like under collateralized loans so that's great like if that works you know we we 100 exercise of uh of like the crypto defy lending markets um unfortunately you can't really do that uh yeah efficiency right is that the trust efficiency versus like the capital efficiency yeah yeah uh You Gotta Be You got to be we are we are yeah so we also investor in some of those like X margin and left field others yeah yeah yeah okay thank you Joey um I I would say maybe two categories uh I think decentralized perks are really interesting uh GMX is really interesting protocol in that space um and I think I think there'll be more so that's good space that I'm super interested um another one would be decentralized Insurance uh so we're investors in like Risk Harbor um and I just think from an Institutional Capital like allocator perspective uh if you're you know deploying very large sums of money into stuff in the D5 space and you can buy insurance on it um you know if you're as long as like if you're if you're trading me anything that's not prop money like you probably want to buy insurance and so I think long term that's going to be a an interesting Market um and theoretically you can also ensure stuff that's not even on chain um you know long term so I think that's an interesting area that that we're super bullish on okay yeah I think um like I was an early investor in D5 and verify I think was the first Focus fund like thematically in D5 which I think is still very much a killer use case the problem is most people don't come and you know are using these protocols and so that really turned me on to what I'm most excited about now that I'm just managing my own Capital which is gaming um because I think gaming makes crypto very relatable if you know I think it's a massive markets massive category and if you look at a game like axi you know it's not very immersive it's not great in many ways and credit I love what they they're doing but a game like that and the traction that it got over you know really is telling you how big this category is going to be and I think that similar to how tencent has built a massive businesses becoming like the everything app uh in China at least I think that's my thesis is there's going to be a game out there that is very immersive that has all the elements of web3 that is a feature parody with web 2 game like you know a World of Warcraft or Call of Duty and onboards millions of potentially billions of users into the space and I think the the operating assumption is like humans will not change their behavior and and it and will not like set up metamask and like you know fund the wallet and do all this stuff that we ought beta testers here are doing but in many ways I think a lot of these games are like the Trojan Horse strategy where a user just goes there because the game is fun to play um which we haven't really seen to date a lot of people that are playing these games are earning are doing it to earn uh but I think really immersive games are fun to play and attract Spenders which balance out the economy and so I think there's going to be a game in the next three five years that is very immersive and very fun to play and I think on boards you know the next wave of users in a crypto and then you know on the the back end is powered by defy has all the nice Elements which have already been built this entire ecosystem but they may never even realize that they're using web3 much to like the point that Dobby was saying you know this idea that we talk about crypto is kind of gonna go away at some point where before you would have thought oh it's an internet business and it's a non-internet business well now every business that leverages the internet that's kind of the operating standard for their communication for email what have you and I think in a similar matter you can look at your smartphone now and probably the same apps that you have now many of which don't use crypto we'll use it at some point why because the only reason why Tech gets adopted it's faster it's better it's cheaper we're fulfilling two out of three properties now um but I think that's where you know the value prop and the selling point to users right now is is broken you know no one is going to use metamask manage their own Keys be their own bank that's not realistic um I think there are really nice properties of web3 that will be appreciated by aggregators by users but they not may not even realize that they're using crypto and I think that's kind of the end state where we as a Founder as investors should work towards which is we need to build killer applications and I think games are uh in my estimation kind of the the fastest scaling most interesting business models out there that probably will be like the email moment of this industry okay thank you and now we have very little time so I'm gonna put you all on the spot and ask for sort of a one sentence takeaway for the audience on web3 Santiago um it is the next operating standard for any business and the most exciting socio-economic transformation since the Industrial Revolution wow nice Joey um I I would kind of echo um your comments at the beginning you know I think I think like a lot of the stuff people associate with web3 is actually probably not gonna like get traction or work um like a lot of the decentralized Social Media stuff like I'm relatively bearish on that um but I do think you know crypto more broadly and you know things like the stuff in the gaming space um you know the D5 space like these are areas where the use cases and the benefits are very obvious like D5 lets you do Financial transactions 24 7 globally no bank holidays very low fees um if you're playing a game like Final Fantasy or World of Warcraft and it's a massive MMO it just makes inherent sense for that in-game economy which is already like sort of pseudo financialized anyways um to to exist as part of you know crypto rails long term and so that that would be my answer is I think it's going to kind of permeate everything but people will probably drop the term web3 okay Alex yeah I mean when I think back to like when I was on like speaking at panels like four years ago in 1819 it was it was a lot more desperate than now like you were talking about the merge which took years and all this infrastructure yes versus pow yeah we're like hopefully there'll be some use cases of crypto like look at all this cool Tech we've invested billions into and uh you know now there are there's like dozens of use cases of crypto that have real traction um and a lot of the prices I think is is coming from sort of macro factors uh just crashes of tech stocks and things like that uh whereas you know people people still build and there's like dozens of tokens out there that have like genuine traction and network effects and things like that so it's pretty impressive you know okay last word yeah and I think for me like that so I'm still like I myself I'm still exploring like what like web3 is like even though I really hate the term and but I want to just share some learning with the founders uh just that if you are going to build something crypto native or like whatever web3 right um so I still remember the feeling that I got my first iPhone 3GS I bet 12 13 years ago when I was a sophomore in like college and the feeling is weird it's weird but fun right so I think for anything that's a super super early stage and just like you have to build something just like that so it's just the same experience so I had a very similar feeling when I had my first Bitcoin transaction and I had first UMass like installation and I had my first like uni swap like swap right and then so it's the same feeling deck just like that clicks me that weird and fun feeling and so like that's why my just like key learning for the Founders and who are committed for the spaces stay low ego high aspirational and then beware and then have fun okay great thank you all so much and now we'll give it back to our moderator