Investing Across the On-Chain Economy - TOKEN2049 Dubai 2024

I hope everyone is as excited as I am to learn about investing across onchain economy today I'm gathered with four Legends and the investment ecosystem um should we do some quick intros do you want to start goam yeah sure uh this is Goan I'm with iosu Ventures I'm a managing director there ios2 Ventures itself is a web Tre Master based in Asia we've been investing in this space since 2017 uh we do Investments on the both primary market and the liquidity Market uh that's pretty much all yeah yeah so um yeah co-founder and partner HH H like we originally from Korea and uh we are position as a a bridge between US market and Asian market we are officing and everywhere and like uh we're more investing to uh application layer mhm yeah akshad uh yeah my name is akad Bia I'm a head of Investments for the Arthur Hayes family office Ryan hi everyone I'm also Ryan uh nice to see you I'm a partner at pant Capital we've been investing this space since 2013 across both liquid markets and uh private markets which is where I primarily Focus so tokens and Equity I want to start with a fun question so if you could have anyone um any historic figure Dead or Alive starting a fund with you who would you choose and why maybe based on their attributes their skills I'm I'm happy to take this one first um in this madeup world I would I would start my new fund with whoever the future chair of the SEC will be uh just be great to know where the puck is going and I think that'd be a huge competitive Advantage oh that's perfect yeah I think I'm going to go with like uh probably Nica Tesla and the reason for that is like when you're doing primary Market Investments there are two things that matters the most one of them is actually you have to just imagine a world how it's going to unfold in the next 5 to 10 years and I think this guy had it right maybe even longer L uh time Horizons and the second one is it was himself the underdog for such a long time and like having this founder experience when you're investing I think it helps a lot to guide the projects that you're investing in so yeah I'm going to go with him than you Ryan yeah uh this is just fun fun question so I will just know casually just answer like I will uh have a fun with nost damus which is like Fusion is because no basically the investment is like a uh no how no like no uh expecting how the future will come and know we have to uh make a high resolution of the future so uh maybe NOS can can make a the more like you know uh what what would be uh next future and what will be a next Trend so maybe it'll be fun to have investment together uh yeah I think in in that same spirit I would probably pick someone who I thought had one of the best predictions for the future based on the historical information he had at the time which was Carl marks I think given the information he had at the time he probably had one of the best broad macro structural predictions for how for the direction mankind would go um and that would be really useful to have on the investment team has great answers how do you guys balance between investing on foundational blockchain Technologies versus application focused projects go do you want to start yeah sure um so at iosu ventures I think around 70% of our investments are in the infrastructure part and we did historic 30% investment on the application part and the reason we were heavily investing on infrastructure is just simple that the infrastructure for blockchains is just not ready right it's been I think the main problem that people were facing was the scaling of the blockchains and there has been a lot of investments into this modular framework uh from all the way to like from the data availability layers to rollups that are building on top of it and then now you have l2s and l3s that are coming up in the market uh but then I think this was a must and still today we haven't scaled the blockchains while keeping certain qualities of them that is security and decentralization part of it so I think we still have a way to go when we're mesing on infrastructure but then eventually there must be some sort of a transition into applications right and then I think we mastered in for example couple of games couple of social F projects in the space and obviously the D5 projects themselves so what what's happening there is you have to find the applications that fit the current throughput of the blockchains so I think what happens there is like you have to find the applications that have high stakes so that people would be willing to pay high fees because they have to you know like serve for some high stakes games or uh value in the on the blockchain and those are the use cases that makes a lot of sense on the application part but then as we transition as a blockchain scale I think there will be more and more Investments that are being made into applications then we're going to see more games coming in more social F projects coming in as it's just a process but it's it's difficult to switch the Hat I think as investors in both of the stack uh but then in the next couple of years we expect to invest maybe like around 50% on the apps rather than the 70% we we did in the past Ryan bourney do you want to comment sure that's a great question I think to be really good in this space you need to be thinking about both at the same time like at pent we think about investing in blockchain specifically as those that are solving both engineering and computer science problems for developers and like if that is not a core like kind of use case I think we typically stay away from it because if you don't have those core computer science and engineering problems solved like faster cheaper smarter Etc Great appli applications can't be built on top similarly if applications are using a blockchain that that don't necessarily need to because like the Insight of the engineering problem isn't important you know we kind of look at it in a different light so I think keeping both in mind at the same time is super important for us Brian Kim yeah so um your basic is Asia so you know if you think about like Asian population is like massive users are using binance okx even you in Korean market it's up bit if you think about you know the registered user in Korea 10 million user are registered user now if you know the the total population is 50 million So 20% of the users are exposed to uh crypto that means the density is really really high that means like no even though like not not even like uh the developer uh are joining to crypto space but so many retail uh investors are very into of course the investment uh activities but actually know once know a lot of of gaming application come comes out then like so many users are are on boarded to the application layer in other hand like a US market is more like know VC centering Market that means like a lot of developers building uh infrastructure and when when they unbo uh the mega VCS then uh they just build the infrastructure for three to five years without any uh concern of fundraise so I I Feel Like Us is more like infrastructure Centric Asia is more like a application Centric so we are more like a combining this like a market characteristic so we are help them each other like you know for example like uh us Pro uh infrastructure we introduced a lot of application in Asia to onboard their infrastructure on the other hand like application layer in in Asia if they want to un Bo a lot of us uh like funds that we connect them to them so like there's a like a person cost in each market a yeah yeah I think it it depends on what part of the cycle you're looking at so often you know uh a meaningful infrastructure uh stepwise jump will Kickstart a Cambrian explosion that then ushers in the new wave of apps I think more value accurs on those apps but there's an opportunity in that dislocation initially to to make a lot of money um investing in the infrastructure but then you kind of got to Pivot um as you said right it's hard to like separate these but it's almost somewhat of a razor in Blade kind of model but to investing where um yeah you pivot quickly to the to the apps because that's where most of the value is going to crew until the next uh wave of you know infrastructure Improvement what do you consider the most promising areas of investment this year um well I guess our our culture so Arthur is is very much an apps kind of guy U so we're going ham on defi this year defi on bitcoin defi on you know the old old stuff just like anything defi gok um I think maybe one one thing that's super hot on the Asian part maybe not necessarily so in the western part is the Bitcoin ecosystem recently right like a lot of um investment research is being done where you could actually stake your Bitcoin and earn a yield on top of it or you could use your Bitcoin to secure the l2s that are building on top of it so there are questions in terms of how realistic that Technologies how long it's going to take to go to market uh but I think we see a lot of start people get uh smart people started working on these problems and trying to solve them so there's a light at the end of the tunnel uh this is the area that we've been checking a lot recently Ryan Kim yeah so um if you look if you look back to web two area uh at the beginning um know gaming sector came out and then advertisement and then like a e-commerce uh and then like a SAS and B2B a lot of know buses uh came out so back to 2019 we invested like uh X infin and SBX because we believe uh the gaming sector should be a first sector of course Dy came uh together with gaming but still we believe uh gaming and contents area it's very easy to aboard a lot of retail investors and Retail users everybody is like know like like saying like uh what is the who is a real user and who what is the uh Mass adapted application but eventually I think the gaming is the the thing and next year I guess no actually we are putting a lot of effort to find out the IP area IP means like a Kpop or Japanese anime because everybody want to own the uh own own the IP because no fan engagement platform or like know they really uh want to involve not just the consumer but as a owner so they want to participate so uh we are incubating a lot of project like that and believe it's a very easy to scare out Ryan yeah I mean following up to to what these guys said timing of Investments matter so right now we're absolutely looking at Defi and we're ton of like the app usage is happening um we also take a pretty long-term view of the world and one thing we're super excited about right now is stable coins and stable coin infra specifically how it enables like better remittance and better trade Finance internationally it's like an amazing use case of crypto that I think will be sustained regardless of you know overall crypto volatility in prices so we're going really deep there and excited about that regardless of the point in the time the cycle we're in with a global perspective on blockchain investments what differences do you see in the blockchain adoption and Innovation between different regions like Asia Europe and US goom sure um so we have offices in Hong Kong and shenen and Singapore so we have a little bit more insight into the Asian ecosystem in that sense uh but I think a lot of people usually underestimate what sort of an ecosystem their community there in Asia uh and if you look at it historically like these guys are one of the first adopters of Bitcoin some of the first exchanges got invested by squ China back in 2013 they were one of the first ones to actually Implement and bring volume to pers uh like one of The def5 Primitives over there um so I think Asian Community is super strong and you have all these different sorts of people there the exchanges the market makers you have the Bitcoin miners the stakers um many of the applications have on defi or nfts the power users are actually a lot of them are coming from Asian part as well so the community itself regardless of what the governments are taking in terms of the action and regulation is super strong in Asia and I think that has a couple of implications in terms of what sort of adoption or innovation you see on the Asian side and one of the things I think I just said is Bitcoin l2's Bitcoin staking is super important because Asia in general has much more Bitcoin friendly uh whales and community over there and this is something that interests them a lot on the other hand I think uh historically on the infrastructure part West has been more stronger I think if you look at like the top infr projects they're all coming from the west but then as we move into the abst we're going to start seeing more and more Asian people coming and building on the you know the gaming part on the social part this is something that we're expecting and preparing for uh we have an office in shinen right next to tensent building tensent is one of the biggest gaming companies in the world and we already know that a lot of people from tensent have started building games and like they're coming Us in like trying to discuss this game fire projects uh so I think asj is going to be a little bit more abstack and like um in this case like gaming and social oriented and then West has been historically very strong on the infrastructure part action uh yeah I mean I would Echo that I think the only thing I would add is um you're also seeing a lot of Western teams relocate abroad uh which is I mean it's it's kind it's not it's neither a good thing or a bad thing but I think it is a failing on the part of the western regulatory environment that's forcing people to do that because that those could be you know homegrown companies and and like national champions that are being sent to go be based in you know like Portugal so yeah yeah um Ryan honestly not much more to add I think crypto's unique in the fact that it really is like Global and crosses borders more than other Technologies so I think there's learnings from every go and yeah I would I would Echo what's been said it's I actually view it as unfortunate that people are leaving the West to build elsewhere like I want it to be homegrown um so hoping that changes yeah yeah go ahead actually um yeah I think this trend is more I mean stronger in uh Emerging Market I believe for example like if you think about the binance top five volume Korea China of course Vietnam India turkey and uh Brazil so basically like um uh once like a the currency is croping then it just huge demand to come into a web Street ecosystem so if you think about turkey now leader is coming down like like almost like going down uh very extremely so a lot of guys just came into a crypto space and building and making money with the mining or staking whatever they want like just like very actively they're participating and also like for example like long time ago I met a decentralized desent land Ari and his story is like know 2013 when Argentina corrupted very quickly know he he at the time he was uh studying in the California he had to send money to uh Argentina but there's no way because the the the local currency was corrupting so that's how did he involved to the Bitcoin so this reason that reason you know very easily the the Emerging Market found or retails they are all exposed to uh crypto very quickly and I feel like especially Asia region is more like uh I mean expedite this trend very quickly mhm we just touched regulation but feel free to expand beyond that how has has your investment strategy evolved uh throughout the years Ryan yeah well I think 40% of our investments today have been outside the US I think a lot of that is regulation driven uh primarily because like in other GEOS there's just a lot more openness and that you know therefore creates experimentation which is what new Ventures are all about so we spend a lot of time there I think specifically like Hong Kong Singapore are really amazing because they are more regulated than the us but they're clear in their regulations is what I mean and that's important because it gives people kind of like the lines to build great projects in I think us and Western specific Investments like the number thing one thing that drives our investments is the team and we along with the team hope that they you know are building for where we think the world's going to be in five years not where we are today so we're kind of not ignoring regulations of course you know we're working within the the very murky you know gray area in the US but still really bullish there and I think that's that's proved out we've had portfolio companies that have you know been successful in SEC you know lawsuits um that that are pretty public and you know we hope that continues to be the case and hopefully regulations do change so we're investing in the future not what the regulations currently do or don't say yeah yeah I mean as a you know our team Arthur is based in Singapore and based in Hong Kong and the rest of the teams in the US we kind of straddled Both Worlds and uh I think they're pros and cons right to the to the model in Hong Kong Regulators wake up one day and they say ah now this is kosher they wake up the next day they say no this is all banned there's no like like legitimate process there it's just kind of how do they feel one day um at least in the US you do have um case law you have a court system you can you can kind of predict the trajectory um so I think that's that's a plus but but slower as a result so I don't know it's it's hard to say how that really impacts our investment strategy but we're kind of the same way vast majority of the deals we've done are us or european Founders abroad serving Asian mostly Asian clients and that's just I wonder how long that's going to be that way yeah Brian yeah already know us and Hong Kong side uh mention so maybe Korea Japan and maybe Abu Dhabi um I can talk so Korea is more like know following the US role us gu you know very uh dependent on uh us guideline so they're wearing for it they're not that hostile to crypto uh retail or founder but they want to prevent um the scammer and fra so uh and Mony laundry so um basically they are following the travel rule if you look at the the current exchange like up bit with some everybody all the crypto Founders want to list on up bit now but um the problem is like you know the listing Pro listing process is getting very very slow and like uh the Korean government perspective they want to consolate all the listing process out of the current exchanges for example like now it's like no binance okx they have a separate uh listing process so founder have to approach like each exchange separately but Korea now is like from the government guide gu guideline like once no they uh decide to list then the coin will list to uh up bem and corate all separate I mean exchanges at at once um so like the Korean market is getting more regulated and Japan recently they are opening up for the webstream market the government like recently like announced we're going to web Street and uh like recommend all the like institutions to do uh web stre activities so also we are meeting a lot of uh Japanese companies and they're all eager to uh do a web stream I mean for example wallet nft Marketplace exchanges custody services Etc so um and if you see a Japanese stock market they're like alltime high so I feel like energy that like they're eager to do something they want to recover the last 35 years like you know bare market so uh we're help them out to do something else and Abu Dhabi perspective not Singapore is getting very slow after uh fex collapse Hong Kong already a lot a lot of talents and capital uh move out so they they want to cap know bring back them on to uh Hong Kong and out of a sudden just know UA came out and they're taking all the capital and talents so also we are um looking at I mean meeting a lot of regulator here and what's going on and maybe uh recently I we recommend a lot uh Founders to establish uh company in Abu Dhabi okay and also Dubai yeah okay yeah for us it's similar U I think historically around 55% of our portfolio they are the US base Founders 25% is coming from Europe and then the rest is the spread around the world uh but crypto itself is such a like a global accessible Market I think the founders also ad up to it very quickly like as people have mentioned like um when China banned crypto you immediately started seeing the founders moving to Singapore Hong Kong or the US it is still the Chinese community building but based in different countries in this sense I think the same happened when us was much more strict about crypto then you have us Founders moving to other countries where they could still serve This Global crypto Market um so I think it doesn't really affect specifically our investment strategy but it just affects where the founders are based and let's do a quick round uh quick answer uh for um a recent investment that didn't go as planned and what lessons you learn from their experience starting here it's a tough question um well there was a deal we did recently um that tge and I'd say it it went well quote unquote but uh faced a lot of flak so the the deal in question is Athena a synthetic dollar um pretty I you know I think it's a great product great founder there's been a lot of chatter and crypto Twitter of people you know just kind of questioning the safety um of that uh project and stability I think uh what that kind of taught us was you know it what's objectively a pretty straightforward trade that's tokenized essentially um to create the synthetic dollar um you know seems like a very intimidating thing because of the the scars of the past um you know couple years so I think just getting ahead and really teaching the the market um about the product before you know anything is live is is probably key something that we we're going to make sure to do in future projects Ryan Kim yeah um know if you think about like a web two area like you know if you go to web to fund then they all like advise you have to focus on uh product good product will bring good user and they will be scared off but crypto is more like hyping first and make make product later uh this formula always work but we want to change eventually because like uh it's too much speculative and eventually know I think the project have to deliver the product properly but I can see so many Founders know they already making hype they already uh list on binance okay whatever and they don't deliver the product forever like a 3 years five years so uh I want to change that Trend but still uh the hype is 80% product is 10 to 20% it's getting more the ratio is getting more uh a little bit changing to uh product but still current market is uh more way on the hyping so uh we need to educate our Founders current situation they have to do more like know uh Mark to put more marketing and uh education and making a community make more like uh bullishness in the Comm Community is helpful for the project um we m in Volvo Finance back in I think 2021 it's a defi options protocol and the founder was great and I think what happened was he returned the money almost like a majority of the money just last year um I think there were two things the founder was not web3 native and web3 nativeness is something that we actually value a lot because those fers were getting into the space from web 2 I think crypto has so many different characters ICS that doesn't really fit a web to founder or it takes time to adjust to it and sometimes this adjustment takes you know gives a lot of pressure to the founders and some other times it just doesn't happen so the founder on the one hand I think adjusting to web 3 was tough on the other hand the options protocols in web 3 it hasn't really taken off except for one or two projects in the space so it was the market not moving forward it was him actually struggling there he decided to give back the money to investors um like great investors but sometimes it doesn't work yeah yeah Ryan yeah for us uh I think that the lesson and theug to the company is um being aware of companies with concentration risk in the thing that is currently super hyped so last cycle that was nfts and we invested in one or two software companies that only sold the nft companies of which there's only a few large companies in this space so when those companies don't do well customers turn and that company goes out of business so one specifically is called the optic they were kind of doing nft authenticity on open see great business they're doing awesome um they've since pivoted and now they're doing their biotech now we're biotech investors um so the lesson is invest in great teams because they always figure out a path but yeah con customer concentration is is a a problem in a market with discovering assets how do you filter through genuine Innovation and just mere hype what are some of the red flogs I'm going to start here actually Shan um well yeah I mean there's a lot lot of red flags in this industry I think um you know there's definitely projects that try to focus on very minor technical attributes um as their primary form of differentiation versus ones that understand that uh even a b to B to C or even a b to B to D whatever business model um requires a very strong and robust go to market Strat so um I think you know you see for example the plethora of l2s uh there's just like so many and uh now there's Bitcoin l2s coming you know every single VC's desk there's a dozen of them now and um it's yeah it's just it the differentiation cannot just be technical um it's also got to be what kind of ecosystem what kind of community can you Galvanize to build on your platform um and so I think like that's that's probably the first one when there's just too much um yeah emphasis on very minor technical differentiation um well I think I just leave it at that uh goam yeah I think like another thing I would add is maybe it is the within specifically within crypto there are different hats that you have to wear like on the one hand there's this like a very breakthrough Innovation happening on the technological site let's say on infrastructure on the ZK space on FHA space Etc but then as a crypto founder you have to combine it with the community hat like you have to wear that hat and build the community around what you're building I think the founders the greatest Founders in the space are the ones that have actually successfully combined these two things together right uh whenever we see a Founder who's just focusing on either of these and just trying to cover the other part with one of these I think that's that shows itself as a red flag to us um orange flag let's call it uh but then we try to find the ones that combine the the both of them best Ryan yeah well I mean our primary job is to return money to our LPS and I think we we know you can do that both with really hyped projects maybe with not great technology and also with with not hyped and we reflect that in our fund which allows us to take long-term bets in private Investments and also trade in and out of liquid positions so I think we we are think we know how to play both games and do it well I think structurally there's some things we do to make sure we're investing in something that kind of has a long-term view I think the first and foremost is being aligned on on Founder vesting and when the team vests like as investors we also want to be either ahead or on the same schedule most often the latter super important um yeah that's like the biggest um just from a you know binary kind of structural thing have to be a line there Ryan yeah um I already uh talk that like know the founder Focus too much product but uh they're not like talking with Community or resonate with the the the Community then I think that is a red sign and always they have to like know bring I mean onboard the users and uh have to talk about like you know how uh they can evolve a better way and maybe they can make a balance between a product and a visioning I think that that's very important the other side is like know sometimes like Founders like they're changing the item very quickly very frequently like like 3 months later a def5 is very hard they're going to make going to make a D5 or like three six months later oh like uh game five is house they to make a game five so we want more like know we want to see uh this product not just this bull market but maybe it can be a very uh hype in the next po market so I want to make uh this founder to focus on on the like long-term uh vision and build a relationship with uh the community and investors uh with with in on on top of a very very strong foundation for everyone here in the room if they want to keep up with you guys where can they find you starting here uh Twitter it's akatore HK yeah the telegram Ryan sh k yeah better way yeah Twitter telegram my surname name surname or hello atgc also works also on Twitter first name Ryan I think it's twocor Barney um you'll know when you find me I guess any of you on the web three socials no no I'm not okay um I'm going to wrap it over here uh thank you so much thank you thank you thanks thanks everyone