How VCs Are Deploying Capital in 2024 | James Wo, Felix Machart, Solene Feuillu & Ren

okay hi um I'm Ren I'm an engineer at Electro capital and today we're going to be talking about some Trends in crypto from from VC and more from an investing perspective in terms of following developers within the crypto industry um I'll let the others have a chance to introduce themselves uh maybe try and keep it to 30 seconds each Thank You Ren uh hi I'm Seline principal at borderless Capital borderless inves in uh mostly crypto infrastructure um and also a lot in deepin hello everyone uh James founder and CEO of DFG so we are crypto investment firm so I start a company back to 2015 so we right now manage a billion dollar so we are long-term believer for crypto hi there I'm Felix part part at Greenfield Capital we are European crypto fund uh 135 million EUR in our latest fund and we invest across defi infrastructure and consumer within crypto great thanks um so I thought maybe a good place to start given the approval of the BTC ETF and the strength of the inflows into the ETF over the past few weeks that we've seen maybe we can start with talking about the impact of mainstream capital entering crypto I know James you spend a lot of time looking at public markets and liquid markets in crypto so would you mind maybe starting us off with your take on the impact of mainstream Capital entering crypto sure thanks for the question so I I feel like uh the ETF approv is pretty big cuz right now we have the approved gting in generary right now it's the end of February we already have more than S7 billion dollar foll to their uh Bitcoin ETF people are seeing that you know uh the GB uh the great scale Bitcoin ETF is selling the tokens well that doesn't necessary saying that the gbtc holder selling maybe they just want to uh buying a selling gbtc and exchange for ibid right they are looking for like a lower management fee for that because gbtc is 1.5% the other is like a0 2.3% so they're just looking for lower fees so the net inflow for Bitcoin EF right now let uh probably uh less than two months is uh seven more than seven billion dollar so I think uh this is way better data than than gold again gold ETF so which means that the mainstream capital is very ballish on bitcoin and uh we have we will have also the deadline for certain ETF in May right so that will also trigger some more Capital FL into crypto space and trying to hold in uh buying Easter basically so we will see over for I guess my prediction will be somewhere between 30 to $40 billion coming to the industry this year and buying Bitcoin or or eer so this is actually pretty pretty important data because we are not just coun under uh capital in the crypto industry to trigger the ball market right so we also have much more mainstream Capital coming in coming to the industry to buy this mainam asset so this is actually very important to the industry from the Builder perspective have any of you seen Builders thinking about building projects in a different way um on on kind of the assumption that more and more mainstream capital and trafi rails get built out around crypto curious if either Felix or Seline you've seen cases where Builders are thinking a little bit differently about the types of products that they're taking the market I think generally Builders just maybe to some extent expect uh prices to increase and and and therefore also like whenever we see crypto prices increase and kind of the the market sentiment turning more bullish we see defa yields increase based on uh increased leverage and I think like one of the the big opportunities here and what what what I'm seeing uh projects uh building towards is like building much uh simpler ux for uh kind of new defi users and as B basically there is much more mainstream attention again on crypto since like the Bitcoin ETF I think heavily legitimizes the industry actually uh and maybe the an ethereum ETF coming up and that uh I think that yeah draws in a lot more attention and then should I think also trickle down towards kind of more Crypt native products yeah you agree I think um you know now they know that they can go beyond just the crypto audience so knowing like from a communication perspective how can you actually like expand your pro your project to a more um you know traditional mainstream retail that is now coming back uh we're still not at that stage of the curve where I had a couple conversation during e Denver is like are you know me friends calling you back yet some said yes some said no um but it's also some um companies going towards not only crypto VCS uh depending on what they're building and being a little bit less shy about splitting their a cap table between crypto vs and also vs that might be tackling uh whatever category they're doing so overall it's very good for the market I think it's reaching the next kind of stage uh we definitely need to be careful about you know valuations as like a lot of capital is coming again and um making sure that we stay like humble and and focus on development um but overall it's good to have that validation um and you know that stamp from the bigger guys so yeah Switching gears a bit and thinking about as more and more users enter enter the crypto space today we have ethereum ethereum's layer 2s we we have many many layer one networks competing with with ethereum and smart contract chains as well kind of curious to hear your take on how that competitive Dynamic might shake out and whether and how the cross chain uh type of ecosystem that we have today might play out yeah I think like I guess there's a lot of debate around like the I guess two different kind of Visions towards how to scale like the the modular thesis with many layer twos coming up app chains in the cosmos ecosystem I guess other ecosystem also having like their I guess different technology stack with like multiple parallel uh kind of separate chains and then like the the monolithic or integrated stack um and I think one of the the major tradeoffs and one of the is and one of the kind of I think big uh advantages of of public blockchains or of ethereum generally is composability and we are sacrificing that with uh the L2 ecosystem currently um and I guess that would speak more for like the the integrated stack making it much easier for for developers to build build composable applications that build on top of each other and I think that's really the superpower however uh I think yeah more recently um there's a lot of bus and developer circles around uh shared sequencing uh where where basically um it should be possible to have synchronous composability across layer twos uh and kind of reducing that tradeoff uh to some extent and uh I think another very interesting trend is is chain abstraction where basically you could as a user you could have like one account on on a chain that then um opens you up access to multiple different chains and as an end user you don't really need to know which chain you're interacting with uh and maybe there's like some curation layer of like what what what what are the chains that have like sufficient so yeah like trust guarantees for that specific end user and then using um intent infrastructure to basically so users only need to sign messages about what they what they want to do and then you have solver networks also across chains serving the user uh uh in an automated way giving and like those solers competing even and giving like the best deals and execution across the across uh different um chains and and layer tws and I think yeah I'm I'm excited about that and I guess we need to see how that plays out yeah I see totally agree with you and I think crushing is actually pretty important because we have all the different layer one protocol here trying to basically solving the scalability issues I say I'm fast I'm secure which is great but it cause a problem is like the liquidity is a little bit isolated here of course Insurance do dominate Market uh the TV forur run like 40 uh sorry 53 billion but you still have more than $30 billion TBL elsewhere in salana in aan in all these kind of layer one protocols and we can see liquidity once liquidity become isolated then it Crea problem about you know if you don't solve the question then it it would be a big problem basically you know uh I just want to buy a son F then you know or I just want to trade on on the Dax in Avalanche or whatever that liquidity is not uh good enough if you aggregate all the liquidity C it would be a much more efficient market so that's why cross solution here you know and also we can see a lot of big project related to question haven't got listed right warhole um uh layer zero they are not listed but I calculate a little bit about the market cap about listed token of uh croch solution Somewhere Only like a little bit more than4 billion dollar so that's that's way too small for me we should have a market with a market cap more than probably at least 20 30 billion dollar for crushing could be bigger so that is actually what I see is really crush and have really good kind of potential to grow in the future as DFG also invest into some of their uh cross solution like Z chain just getting L on coas and okx we are definitely looking for more good you know cross solutions to invest um yeah agree with you both and love that question um b l like the the thesis for this year is uh very much focused on Crossing infrastructure uh we do believe that fr m mation is a massive issue and each blockchain whether they layer ones layer twos they all have you know their advantages and their challenges and I think there is a beauty in being able to AG aggregate the liquidity as well as the users and having a most seamless experience and so as James mentioned there is a um a lot of you know tools acrossing messaging protocol and bridges that have gone through kind of the cycles of like and being both robust right now so there is a massive opportunity so well Les we have a strong partnership with warhole and uh and it's really helping a lot of existing companies as well as new companies kind of thinking about how can they expand so they might start with one ecosystem and then they want to broaden Horizon to unlock different features or having more users um and then there's also solutions that enable better cross chain infrastructure so just to give a couple example uh one would be movement Labs you guys might have gone to modular day that's that happened a couple days ago here um and so they enable to code using the move language on different blockchains so um it's a network of of move blockchains and they have also different things like shareed sequencer Etc um and then another example would be Noble assets um which enables to bring liquidity directly um Native usdc on Cosmos which has been like a big um step for the cosmos ecosystem so they have more than 150 million um usdc on Cosmos right now and so Solutions like that that really help kind of uh aggregating all different ecosystems together we think are very important and then we'll see long term what sticks most but as of today um how can we be stronger as a crypto ecosystem in general thanks another Point may be also related to to the topic of fragmentation is also the fragmentation and diversification of both crypto users and developers not only within the us but abroad I'm also I'm a bit curious to hear your take on what is the difference in terms of the crypto Industries within your respective uh regions it's it's quite rare because we have representation from Europe from Asia from the US so maybe providing a different perspective to the builders and developers and Founders out there about some insights from your from your respective regions that they might not necessarily hear dayto day yeah I think I mean generally we've seen actually a lot of developer influx in in Europe from the US specifically uh especially southern Europe like I'm I'm based in Lisbon for example like generally as a fun we kind of spread out all over Europe Eastern Europe as well specifically traditionally there was like Berlin has been a pretty strong Hot Spot Paris as well I think like Berlin specifically like being very strong in in terms of privacy and and having like that ethos uh based also kind of from like I guess the older days of like spies and kind of um protecting against surveillance uh and and generally I guess Europe has is is a yeah it's a very important value also being reflected in regulation in the in the gdpr uh for data protection and um I guess maybe that's also one reason why Europe has been lagging a little bit in terms of tech traditionally compared to the US because Europeans a bit more concerned about uh data privacy um and uh I think with with crypto we we we do have a chance basically to have like these like distributed uh organizations that are basically built in in many spots uh at the same time versus like having like this one Center that was Silicon Valley for for Tech um and yeah I think it's it's a big chance for Europe and and also with um MAA regulation um I think it's a step in the right direction to have uniform regulation in in in Europe at least and that's one of the big like we did a survey for example uh across uh Builders last year and the number one barrier that was being me mentioned is is regulatory uncertainty and um I think yeah if we have regulatory certainty or more regulatory certainty then a lot more Builders are actually willing to take the leap I think and also corporates and and institutions and yeah I think that will be a big enable yeah I see we overall we're in a open decentralized world so basically crypto you know every project all investors people are doing crypto adoptions everywhere in every country but think on a on like a marketing perspective if you are being localized enough in one in one country then you just can do great adoption in this country it would definitely benefit the project as well as the whole industry I just give you an example of one of our portfolio called AAR so the founder is Japanese it is basically um I would say the the probably the blockchain of Japan so that's what they defend thems so the the founder I saw actually he's uh uh giving a speech at at Japan you know in Japanese which I don't understand what he's saying but I can feel the passion about it and how Japanese people love our star so that's one great example is you know if you really you know uh if you a project then make sure that you know you are going to uh be focused on the jurisdiction that you are good at just do marketing and Do adoption that's that's going to benefit your project then later on once you have a solid foundation I guess you can try to expand and go to other jurisdictions and uh yeah do more adoption there so I think that would be a good kind of uh marketing strategy and uh yeah that's also my advice to the to the project just make sure you have a you know a solid base then you can expand um yeah on our side I think so more than 50% uh of borderless is investment are abroad so we have a very strong base in Latin America uh David Garcia the co-founder is also co-founder of re which is the corn base of latam if we want um and so it's interesting because realized talking to a lot of people that there's a lot of very very powerful projects in that region that might not be known um from like a US perspective I think this is going to keep going we could see a lot of um companies but before thought they had to go to Silicon Valley or to the US to actually find funding and now you see reverse it's like actually um VCS begging to have access to places is like theam like India we have a great team in the audience actually the building on the data side uh coming from there so I think it's definitely important to have you know that communication in person and um have that part of like the travel but um but yeah we seeing a lot of that more Acceptance in those region and um Asia also obviously um you know Hong Kong and all of those places are the regulations are friendlier and friendlier but I think there's big shifts especially uh you know Argentina uh the there was one of the most like watch like speech at Davos this year and uh really dabbling down on like those markets that we've seen like for a long time that had this high potential due to just um how big the population is and the problem that they have with inflation Etc and how fast uh people can adopt new technologies but I think this year with all the new regulations um it's actually really having a a true true change so so yeah from our side we're really trying to expand dable down on the zones and location that we actually have access to and trying to have that on gate like that that dialogue with also team in the US that might want to expand in those regions uh to help them actually have offices there Etc yeah yeah that makes sense um I want to spend spend and maybe the rest of of the panel talking about some of the areas that you all think are coming next so whether it's something like dpin crypto AI BT cl2s maybe what's one area that you're you're looking into currently or you think will be the next wave of either on the protoco side the infrastructure side or the application side for this year next year and the year after I can start I guess I I briefly touched uh upon it earlier I think one uh one big enabler for better user experience um and also actually bringing new or like better business models towards interfaces and aggregators is is intense where uh yeah we we are invest we have been investing in that segment looking uh further into it basically where um I guess there there's there's a big opportunity I think that like currently there's a lot of I guess value being leaked to the the infrastructure layer to the layer ones through kind of um me and um uh like block spaces is kind of increasingly build it up for and um and if you have if you can have like orderflow auctions and and similar things like that um at the solver layer kind of towards the the the front ends and interface in aggregators then you can return actually much more of that value towards the end user and and I think aggregators can capture some of that value and um like overall I would say like we we're building or I guess from from a getg go we're kind of committed to have building defi as a new Financial system that's more resilient that's more transparent you can verify uh inputs and outputs in a much clearer way that's to reduce counterparty risk systemic risk in in in General and so far we we've seen some realwood assets being onboarded onto crypto rails but I think yeah that that will be for me personally that's like the end game um that that we uh we basically represent realwood assets to a much greater extent on chain and and leverage that infrastructure that has been built over the years and has continued to be built uh ultimately to provide a lower cost of capital to businesses and uh better risk adjusted returns to investors based on uh just the efficiency gains more transparency automation lower account risk what I mentioned uh and yeah that's one of the segments that we investing yeah I see overall speaking we have a pretty healthy competition here with the new Narrative of about DP and a become very popular it actually force uh some of the mainstream project belongs to so-called old narratives make a lot of positive change for example we see uh make it using the tras r to buy back the tokens we also see recently the unit swap deploying really you know uh actually Shar their uh protocol fees to all the token holders when they do staking so actually I'm not sure whether if we don't have this kind of new narrative then the capital don't flow into them maybe it will at least not at least that not not that quick for this kind of mainstream project to make this positive change so over overall speaking I think we are in a pretty uh you know healthy competition models uh I I'm pretty sure in the next kind of uh I mean this year probably next year we will see also the girls about old narrative So-Cal old narrative like D5 uh because they making positive change also uh nft and gaming as well and uh taking Mt as an example uh there's one company we invest called py Penguins they do very very good kind of adoptions and B seems to me a little bit stuck there so then you know it refers to the second Market then you know the actually the the price per uh P payment is flip just flip B like a month ago so that's actually you know it's actually you know about uh old narrative like D5 gaming AF these kind of things you need to have either Innovation or making positive change for this to grow right so with the new uh narrative pushing you for that I will pretty pretty much sure we will still see the growth of this old narrative with the new narrative beyond the DP and AI as I think there could be something we we may not even think about that you know right now then could become super popular like six months later we we just don't know about it I'm thinking about whether we can put in for example like biotech data on chain or things like that right so it's it's should be something that people haven't think about then you know which probably are not entirely right and then you know this could be the potential next narrative but I'm not just sure about what that is but I'm pretty sure there will be a new narrative Beyond deepin and AI as well um yeah to dabble down on deepin I think is really interesting because of the launch of you know helium mobile this year that has really kind of uh made a big splash and now you can get this like $ five plan in the US which is unseen um and that's really breakthrough innovation in the Telecom space d is something that's helping going back to mainstream adoption and what is the capital and just the acceptance of mainstream go to do I think this is something that's very easy to understand for people it's not easy in terms of uh the application and how do you create the toomics ETC they've gone through a lot of iteration and the meat and burn and this equ equilibrium for different companies that they have to think about that very deeply before launching a deepin project um so when you look at you know some of whether it's Hive mapper or helium it's like how do you think about about deploying different hotspot or different devices um in different locations and how do you make sure that there's not too much in one location and then you have um you know an over Supply in one location and you need to give all those tokens and then there's all those problems uh all of that is being thought through very deeply right now uh and this is making like Breakthrough changes there's so many other interesting application um decentralized gnns for GE flight trackers um and yeah a lot of them that we don't even think about that are very industry specific uh something else um that is also is going to take longer but FH like f fully homomorphic encryption is something that we're looking at um I think it's still quite early and we're learning uh in that category but that's quite interesting also development on the Privacy side with uh Evolution on the ZK side uh that that's something that's quite interesting and then uh yeah there's always the we don't know what we don't know and there's always a narrative that pops up and that's taking all over Twitter that or act that we never thought about before so that's good that we're going to have that um yeah to dig a bit deeper so crypto as an industry oftentimes gravitates towards things that are net new we always have these new narratives that always seem to take the industry by storm when thinking much longer term sometimes it's easier to think about the aspects of either human psychology or the industry or the underlying technology that are inv variant so what might be some aspects of crypto whether it's user Behavior whether it's something about the underlying uh blockchain technologies that you think will not change or that type of behavior will not change over 5 10 years I think yeah I touched upon it briefly I think what will not change is that uh investors will always want to optimize risk adjusted returns and businesses will always want to raise Capital at the lowest cost of capital and as fast as possible and I think uh defi ultimately can uh optimize that and then bring different parties uh together in on a global Marketplace and um maybe one one more thing in in in that in that respect and also relating to privacy what you mentioned I think um compliance is a really important puzzle piece and we have been investing in in that segment as well uh but I think it's super important that that we still kind of can yeah square that with privacy uh as as far as possible and for I think it privacy is important for everyone but I think especially for businesses and institutions it's super important because you don't want to reveal all your activity on chain to your competitors and I think that's also not going to change and I like I really like the quote privacy Tech is collaboration Tech because if you can uh yeah keep your data private but still kind of prove certain aspects about uh what what you're what you're willing to do or even contribute to privacy preserving machine learning that's yeah that's super powerful I think yeah I think overall speaking The Innovation is the only thing that I think one changing in the crypto industry because uh the the industry changed so fast and uh if if if you do very good in the last ballun it doesn't make make any you know if you get stuck there and lying on what you have achieved then you probably won't do anything good in the next border right so this is really important because Innovation always happen in this industry so uh so you just cannot stop building not stop thinking about the new things to build and problems to solve I think that's the beauty of the industry um nothing specific to add it was yeah PR complete maybe the second last topic um when there's obviously a lot happening crypto a lot of different sectors and areas that Builders are building for what are some of the ways that you keep on top of developers in terms of following developers where development activity is going and just trying to hone in different areas that you want to spend time on we're definitely grateful for electric capitals reports first of all and I think it's just having ongoing conversations with uh portfolio companies they're the best reporters of what's going on in different ecosystem from a tech perspective and also political perspective cuz um there's always some of that you know in terms of the tech um one thing that might not change is also yeah the fact that there always as in any industry any company there's always some political aspect but that's also the beauty of Open Source there's always room for um for change on that side and so yeah I think having you know making sure you have enough um bandwidth whether it's a person internally that's wearing the platform hat uh in terms of the platform role so portfolio management or having one of the partners in charge making sure they allocate that time is very very important and yeah all the best information we have is really from the portfolio company so there's obviously onchain data and you can look at doing dashboard Etc to just have kind of raw data and then to kind of understand a little bit more in terms of the depth um is just having this kind of off the record conversation with Builders and um and also protocols so we likey at B has to collaborate with so many protocols that actually invest in funds and that we invested in the ecosystem whether it's you know anything from Aptos polygon Monet I mentioned move earlier and so um kind of having that and also talking to other um fellow VC firms uh that we do a lot of collaboration with and sharing those perspectives on what they're seeing on their side on um different uh parts of the world so I think just like communication is key uh and everything that you know you should keep the best deals for yourself and that once you put a check in the company that's it and hope it's going to 10x or 100x or a THX it's just uh keep success is really um communication plays a big part yeah I totally agree for us I mean we also want to make sure we use all the product so once we have you know use of the product we know definitely the update and also what is what things to improve what things are already been good and our now I'm not a tech background but our CTO you know he do a lot of DS on the GitHub account you know check their update of GitHub you know that's also important I learned a lot from him uh yeah I think just like a being uh more practical and usering the product check the tech check the code is really the most realist realistic ways for you to learn more information and also as as you mentioned that you know talking to different people talking to different VCS different Builders also help us a lot help us learn a lot about the new ideas new narrative uh new thinkings about industry so yeah on one hand I I think just stay at home do more D using the product on the other hand just go out talk to more people I think both both strategy are actually very useful for getting new info yeah I will just very briefly comment uh also portfolio Founders they make the best introductions usually and like events like if Denver they're super cool like immersing yourself uh with developers like talking to hackers and uh I guess you can you can do your research online but like I guess just um randomly stumbling into some interesting people at at a conference Al is always good great um we have one minute left for the folks who stuck around for for the whole panel uh definitely appreciate it um maybe in 15 seconds each what's one contrarian or spicy take to to end the panel on just hold I think we need better governance in crypto that goes beyond CODIS law and token hold of voting and multisig and uh I think yeah having like we have invested into one project called q that does uh arbitration rooted in International Private law uh where you can have basically Nuance judgment for overseeing governance and providing shared governance security uh and I think yeah that that's going to be a big unlock to yeah bring uh The credibility for mainstream adoption yeah um on our side just the big bet that we're making on interoperability could sometimes see be seen as contrar and usually it's kind of uh P your ecosystem or at least a couple of them uh we staying pretty agnostic so that could be seen contr great thanks um thank you panelist for your time today um definitely not easy to take 35 minutes out of out of out of the busy conference week so definitely appreciate it thank you thank you thank you thank