The Great Repricing — Value Capture in the Onchain Economy | EBC12

Welcome to your panel discussion " panel discussion " The Great Reckoning and Value Capture in the On-Chain Value Capture in the On-Chain Economy." This panel will bring together leading investment professionals and developers in the on-chain developers in the on-chain ecosystem to discuss how value is created, captured, and perhaps revalued. As blockchain blockchain infrastructure and applications evolve applications evolve , we will explore where sustainable value is being accumulated within the on-chain stack and what this means for founders, investors, and the digital economy at large. We are here, of course, for practical knowledge, connections, and inspiration connections, and inspiration , and we are very fortunate to host our two panelists today . I will say a few words about you, but feel free to add to what I say later regarding your activities.

So, we have Christopher. Christopher Geiman is a founding partner at 1KX, an investment firm specializing in crypto networks and applications, with extensive experience investing in and supporting early- stage projects in the blockchain stage projects in the blockchain ecosystem, and we have Matthew Shossau. Matthew is the Matthew Shossau. Matthew is the founder and general partner of Very Early Ventures, which actively supports early-stage technology and crypto founders. So he can bring an investor's and an entrepreneur's perspective, and if I remember correctly, also a bit of academic experience at the beginning.

Who am I ? I am Bernard Nicolai. I am passionate about finance and education. I don't know exactly in what order, because it depends on the different stages of my career. I was a banker, worked in insurance in management positions, and when I left my duties, I started teaching.

I've been doing this for the last 7-8 years, teaching finance, first corporate finance, and then technology and finance, fintech; That's why I'm so interested in this field, not only as a teacher, but also as an advisor and investor. But we're not here to talk about me. We're going to talk about the topic of revaluation, and if I may, we'll start with you, Christopher, and then Matthew, as an opening question with a short answer. What is one thing today that you think the market is still mispricing? Well, we went through a pretty long pretty long bear market, or, you know, I don't know, maybe we're still in it.

It depends on who you ask. But I still think that level one block space in general is still quite overvalued. In terms of the valuation multiples that we see, we started, let's say, creating a revenue report online last year. And we're doing another iteration, which, you know, will be released in October of this year. And yes, the valuation multipliers for valuation multipliers for layer ones across the sector are, by far, the highest in the industry .

But they just kept going down and down, and they still have a long way to go before they reach similar, very inflated valuation multiples. So yeah, for me it would be level 1 and level 2. Okay. What do you say Okay. What do you say , Matthew?

So, the most overrated in the sense that the price is too high. Well, misjudged. I think maybe so. Yes, yes, yes. So, my opinion is the opposite.

I would say you can choose. In fact, Ethereum is undervalued. You know, in a venture capital planning horizon of 10 years, right? I think of 10 years, right? I think all other L1s, or most of them, should probably depreciate to almost zero, as it is very difficult to build a decentralized network that is truly reliably neutral and with expected institutional adoption.

The only reason to use much worse computer technology, like these complex systems that are slow and expensive, is for reliable neutrality. And I think Ethereum is the think Ethereum is the only one that has managed to provide this in a way that it can be used for application development. And right now the overall market is quite bearish on this, and maybe the mechanism for deriving the value of the token is unclear, but that could easily change in 10 years. And the token is needed to support that network, and if we believe that a trusted neutral network has value, then I'm also very optimistic that the changes in token value capture that are supposed to happen will actually happen. So, in the long term, I'm very optimistic about this.

Is this the most mispriced asset? Not sure. There are probably others. Good. Thank you very much for these ideas.

And by the way, there is absolutely no problem in disagreeing during a discussion. At least, that's how I prefer it. So, one of us will be right. That's great, you know. Going back to ideas from another panel I was on that afternoon with big asset managers, one manager said, " manager said, " You know, the problem is that a lot of managers become passive in the market."

But what is the role of an active manager? This is pricing. In the early stages, well, you have people like you investing in early- stage companies, and after that you also participate in the pricing process. And obviously, consensus is sometimes good, but sometimes it is also very bad. So no problem.

Okay no problem. Okay , going a little deeper, Christopher, on volume capture, do you believe we're entering a period where applications will capture more value than infrastructure? Or maybe the opposite. Let's see if we have another disagreement here. I think so.

Well, at least we believe that most of the value will accumulate in the applications themselves. Again , referring to the on-chain on-chain revenue report: every year, starting in 2021, the share of, for example, DeFi in total on-chain revenue has been increasing every year, while the share of blockchain in on-chain blockchain in on-chain revenue has been decreasing every year. So we still believe that applications will capture a lot of value. I think distribution is what think distribution is what really matters the most. Isn't that right?

If you ultimately own the user relationship, then because everything is open source and everything is permissionless, it's relatively easy to vertically integrate. So we're seeing fewer and fewer really big opportunities for infrastructure startups. This does not mean that they do not exist. They still exist. But they are harder to find than they were a few years ago.

OK. What do you say, Matthew? Where do you think sustainable competitive advantage can be found in the projects you are currently seeing? So, I think we have some agreement here that customer relationships, you know, like in the traditional non-crypto world, have been very important for a long time. This is also a reliable protective barrier here.

I think it will even grow as we move from retail customers who change products more quickly to institutions, B2B schemes, where customer relationships are longer- term. So, I think this advantage will become even stronger. Now, the distinction between application and infrastructure, it's a little hard for me to define, right? When people ask me, "Are you investing in applications or infrastructure?" I tell them, "Well, you know, these are examples of what I invest in.

What do you think of that?" And I'm very optimistic about companies that operate at both levels, that own and develop customer relationships at a deep level, but also have a technology part of the business where they can develop their service at zero marginal cost and globally, very efficiently. So yes, Ethereum doesn't have clients, but something that is built on top of Ethereum and has a relationship with clients has its own set of smart own set of smart contracts or some contracts or some other protocol that automates a lot of the work. I find this really interesting. OK.

Thank you very much for your thoughts. Is there any other reaction to this topic, or can we move on to the topic of stablecoins and tokenization? No? Ahem. I mean, not too much.

I mean much. I mean , I totally agree, right? You know, with Ethereum having value as a neutral level, right? But I'm also pretty skeptical about protocol management, right? You know, yes.

Yes, I agree. Truth? And that's why none of these funds are managed properly, they are outbid by the competition every time. Some kind of normal business. And so I would like, you know, for Ethereum, for a world where Ethereum, like other protocols, really thrive.

But, um, yeah, I'm not particularly thrilled with how they're, um, acting so far. Well, okay. Now, regarding stablecoins, tokenization, the institutional wave around this, Matthew, what would be the most underrated investment opportunity here? Yes, definitely. So maybe let me start with what is overrated here.

Um, I think it's stablecoin number 733, which is being created for some region, etc. This, this, this is overrated This, this, this is overrated . All it takes to hire a bunch of people to meet all these compliance needs compliance needs is fintech, which we've had for 10 years. So I think it's not that interesting. I find it interesting when you start automating processes from traditional finance traditional finance using stablecoins.

So, yes, that fascinates me. Christopher and I were just talking about a company. It's called Glider. I'm not an investor, but this is just a good example of what they, for example, allow you to do— allow you to do— this is the whole process of launching a fund in traditional finance traditional finance . You can do all this automatically on-chain if all assets are present on the network.

So I think these are interesting possibilities. Okay, and maybe Christopher, on the same topic: if stablecoins become the default level of settlement, who then will benefit economically from it ? There are players in this area , but what about the value chain? Going back to my previous thesis, I think it's distribution. You know, they'll probably be in the best position to charge a fee.

Especially with this stablecoin act, which makes it relatively easy for anyone to issue their own stablecoins. There is not much value in actually issuing these stablecoins. I mean, obviously Tether or USDC isn't going anywhere, they're so big that they have liquidity network effects. But for many of these “ these “ long tail” stablecoins, as Matthew noted, we don’t really see a very strong market. And you know, the really big interesting investment opportunity for me is , how would I think about this if I were a bank, or a Revolut or a neobank or something like that?

I mean, the next thing I would do is launch my own stablecoin, right? So, every deposit at my own bank would be in my own stablecoin, and I would get all these treasury profits, right? Ahem. OK. Could a stablecoin then become a kind of utility business ?

To some extent, yes. Matthew, what do you think? What exactly do you mean by utility business utility business ? Well, I think like an energy or raw materials business. Raw material.

Yes, I think launching a stablecoin launching a stablecoin is like a commodity, right? There are providers that actually offer this, and as Christopher said, many fintechs are launching their own stablecoins. Revolut is still integrating other stablecoins. Let's see how long they will do this, because a large amount of money passes through their platform. That's over a billion a month.

This is quite significant. But other startups or scaleups, like Klarna, have already announced their own stablecoins. So I think just launching it won't mean anything. The only thing that matters is distribution. But these stablecoins are different, they have income associated with them income associated with them , and therein lies the great value.

So great value. So , in that sense, it's not a commodity, because it actually generates a profit for whoever owns it, right owns it, right ? OK. And because this use case looks attractive , some players, like banks, could benefit if they integrate it correctly. Um, okay.

Now let 's move on to the potential major revaluation of tokens or projects. Christopher, are we moving towards a valuation system that is based more on real fundamentals? I think so. This is actually very nice. I mean, when we invested 5-6 years ago, most pitches were based solely on narratives.

Nobody really had any traction or income. And now they really are. This is great. Now you can compare companies based on revenue growth rates, customer churn, and other similar things. So, yeah, I think ultimately it matters a lot more, we're reaching a certain stage of maturity as an industry, right?

Um, yes, revenue matters just as much as it does in any other industry. Hmm, that's great. Um, yes, we are definitely moving in the right direction right direction . This is also what I see in the market, but at a very, very early stage. Matthew, what metrics are most important to you today?

When do you invest in startups? Yes. Oh, yes. I mean, at my stage there are no indicators, right? I invest, I make the first check, so there are one, two, three founders and a presentation.

So the most important thing is the team, almost 90 or 100%, and how they see the opportunities. And I'm looking for people who provide insights, because, you know, there's not much that can be built in the digital asset environment. And so Christopher and I saw pitches for the same opportunity 10, 100 times. And yet sometimes it's the 12th or 50th team that presents you with a new insight, a different perspective on approaching an opportunity or how they read the market, etc. So, this is one important signal.

Um, of course, drive and all that kind of stuff. And in my case, it's also my unique perspective on startup underwriting. It could be that another firm is investing and they can assess the risk- reward ratio very well, and I can't because I don't have a particular perspective. But maybe I've known the founder for a long time, or worked in that particular niche, or, you know, one of my LPs works in something very similar, so I have an advantage in underwriting. And it has nothing to do with a startup.

It's just about how well I approach this opportunity. And since I only make 25 investments in 4 years 25 investments in 4 years , I have the luxury of waiting for opportunities that are a good fit for me. If you are a large firm, this is probably a pretty bad approach. Yes, okay. This, this is understandable.

So, at a very early stage, of course, the indicators, well, they are absent or very difficult to assess very difficult to assess . But later you notice that valuations are now more based on fundamentals than they were three, four or five years ago. OK. So, from a bird's eye view of the on-chain economy or the ecosystem as a whole, who do you see as the main winners and who are the winners and who are the potential losers? Who would like...

who wants to start? Um, I think the main winners will be the third world economies, actually. Well, look, for us in the West, stablecoins don't have much of an advantage, right? We advantage, right? We can, you know, open a bank account now, right?

We can transfer money now, right? We can now pay with credit cards everywhere. And in third world countries, you know, most of this infrastructure is just not there, right? There is no regulatory framework that would make something like this possible. And so, you know, blockchain here you know, blockchain here is a real transition from zero to one, right?

Because suddenly you can give people ownership of their own money, you can charge them interest, you can essentially let them make payments. And for me, these are really great opportunities. So yeah, I would say, hopefully, it's the population of third world countries. For my part, I look at it from a business perspective business perspective : anything that automates complex financial processes online is going to be a big winner, right? That is, companies that automate money transfers, and I agree that this is important mainly in certain jurisdictions.

But in our jurisdictions, regulation has made the creation of new financial products and their distribution a very expensive and slow process. And I believe that when a new technology comes along , we get a clean slate to start over. Making it easier to launch a fund and distribute it to people in the West, where a lot of money is concentrated , is an interesting business opportunity. Okay, time flies really fast. So, it's time to wrap things up a little.

Let me ask you one question: Could you give an example of something the industry believes today that you think will turn out to be wrong? Um, do you want to be the first to answer? Well, I've been a bit controversial, haven't I ? So I can come back to that. Most industry representatives believe that decentralization is not that important, and many big players are mostly investing in fintech 2.

0 and highly centralized businesses. I think this is a mistake. The only thing we have invented thanks to blockchains is the automation of finance and the delegation of financial processes to the blockchain. And this is only possible with a high level of automation and decentralization for regulatory reasons, right? So I think that's what's uniquely driving value creation in this environment.

Okay, thank you. I think I'll take the opposite position to what I just said. Well, you know, it seems to me know, it seems to me that everyone expects stablecoins to completely replace fiat. I do n't believe it, you know? I mean, we have Fedwire, right?

We have ACH Fedwire, right? We have ACH transfers, credit cards, and all these other payment methods that already exist in the West already exist in the West . And I believe that, at least in the West, stablecoins will be just another addition to this set. But I don't think set. But I don't think they will completely replace everything else.

Yes, that's probably my vision of what the industry believes. Ahem. So, for cross-border payments it's a different story, but for local or domestic payments I don't see stablecoins replacing everything else. Do you believe they will become the dominant channel for agency payments? There is also a lot of debate around this.

I think that makes 40 percent sense. Well, for agency payments, that also makes sense, right? But now you can easily create credit cards and bank IBAN accounts, right? For your agent too. And that's why.

It depends on who accepts your stablecoins, you know? You know, right? It also depends more on who you're actually targeting, right? If it's retail, then what? Retail customers just want to pay with their credit card.

In some online some online store or something like that, right? And I do n't really see how a stablecoin will make this process more efficient. Yes. Does this answer your question? Yes.

I guess the question is how agents acting economically independently can make payments, right? There are different ways, you can, uh ways, you can, uh , they, they, they can just have tokens of whatever is underlying. But if I tell my agent, "Hey, uh, look at the best bikes, uh, watch the price. If it drops below this level, buy it." Uh, I can give him my credit card number and he can do it that way.

But if things get a little more complicated, and one agent needs to run two dozen other agents, and they all need money, accounts, etc., until, you know, the banks in Switzerland, UBS or PostFinance, have APIs that allow these agents, like, I can, I can tell you about some companies that do this and are already providing this. We are reviewing them right now. OK. Thank you very much, Christopher Aymann and Mathieu Chanson for your ideas.

Uh, you, you deserve a round of applause. Thank you very much . Thank you.