Investment Funds panel #backtothecryptofuture



all right everybody good a lot of lunch a lot of networking a lot of chatting a lot of resting and now we're all back and I got to say that after each break it gets better the group that just comes back everybody gets back so this is great hey this is a great panel we're gonna be talking with some investment funds here Johnson be leading a discussion with this group again as we said before you'll see a lot of the themes get revisited but again the perspectives these folks are bringing to it are very different and so it'll be really interesting to hear how their what their take is on a lot of the topics and themes we've hit on with other panels all right with that Jon over to you great thank you sir appreciate it Bart right dear oh that's part of it yeah all right hey John Boyd not here longtime journalist in San Francisco as well as content creator for different companies so talk to me later if you're interested in anything related to content creation or marketing for your company okay so my little thinking for myself there all right now let's do a thing for all four of you guys so take about 30 seconds to a minute and just sort of go in order and starting with you show and talk about yourself what you do where you're at etc hey everyone my name is ROH I am the general partner at agile we see were mainly focused on enterprise early-stage enterprise solutions which is a little bit different but to give you a little bit more background on my relationship with the whole blockchain crypto world I started my career as a fin tech entrepreneur and actually got involved into the conversation remote crypto in the very early days my business partner had always had a deep history with math and machine learning and so he first learned about Bitcoin towards essentially end of 2009 early 2010 when it was really in the early days and he was like you know I don't know where this is gonna go but anything for math and so he started investing in Bitcoin all the way back then and I got involved in conversations there and our startup eventually got aqua hired and I was with Goldman Sachs for many years and I was involved in a lot of the enterprise layer conversations that we had around what blockchain could do potentially for us as a firm and since about three years ago my business partner and I started our fund now again focused on enterprise obviously if there is a startup that works on leveraging blockchain tech to build a great enterprise solution that is something that we look at so happy to talk more about that later Thanks thank you my name is Bart Stevens I'm one of the co-founders and managing partner at blockchain capital Bachchan capital has been financing startups in the Box chain in crypto ecosystem for over five years we've raised and deployed for venture funds we have a portfolio of 77 companies we touch over a hundred companies in the blockchain encrypt of ecosystem either through our advisory relationships or people that are on our advisory board or ceos of crypto companies that are actually limited partners in our fund and so we've reviewed over 3,500 deals in the last five years so we've seen the good and the bad and the ugly and crypto and I'm happy to talk a little bit later on in the panel hi i'm gellick job and put you're a founder of future perfect ventures we launched in 2014 to invest in decentralization blockchain was obviously a big part of the thesis we have 30 portfolio companies in our fund we're based in New York and currently investing out of her second fun good afternoon my name is Mark Ahmadi I'm a partner various capital and really I believe basically planet profit people I look at creating jobs and that's kind of how I look at it I looked into the blockchain for the simple fact of I wanted to get rid of child trafficking and sex slavery that's a hundred billion dollar industry so I thought that was some way that can be done and I have a little Maltese dog that I love and I got him a lot of Bitcoin and set him up for life because he's the only one that loves me unconditionally for nothing and my my fund we've done a deal at that was 4.2 billion we've done 25 deals between 30 to 60 percent and I got into venture fund because when I operated five bankrupt companies and I enjoyed it I like that so they said well if you want to work with different companies do a fund so I tried that and so far it's worked that's it okay great nice to hear about your Maltese let's ask okay so let's dive in just a little bit different deeper rather and start with you mark about sort of you're kind of getting into it there for a second with the with the with the human trafficking subject and everything sort of your ethos around the current state of investing in in tokenized assets in crypto right now so let's just sort of go through the four of you and talk about sort of your current outlook on it and sort of your personal ethos and in how you determine which companies to invest in etc I mostly fall in love with people instead of the tokens or so forth but I look at value creation is there something behind the token and if there is then I'm interested but that's really kind of it's all about it's all about value creation and that takes work Golic yeah we are actually a very thesis driven so with the first fund you know when I went to my first Bitcoin conference in 2013 I got the same family I got when I started investing in the internet which was in 1995 and you know I very much look at the evolution of new technologies and kind of the the building blocks that need to be in place before you can have widespread adoption and so very much like you know we couldn't have Boober and arab' and be without mobile broadband and a certain amount of adoption around mobile technology and so I view us in the very very early stages of watching tech and so the first fun we focused on a lot of infrastructure build-out and companies like block stream blockchain opera and then as well as emerging market applications like Pesa where i was born in nairobi i've spent half of my life in the emerging markets and that's where I actually see a lot of the new business models evolving from and from this technology however I mean we we still you know I think the ico boom kind of set us behind some of the infrastructure build out because there is a lot of capital going to companies that probably shouldn't have gotten that capital this year has been a lot of recalibration which i think is good to see where we're returning to building and teams understand that a lot of this is longer-term build-out so infrastructure middleware are both areas we're very interested in and I'd say applications and some of the emerging markets this is a jock and I have been on probably dozens of panels together over the last five years so it's it's a pleasure to be up here with you again I often get asked about what's going on and crypt out 2018 and and I have to just remind people that it's pretty simple 2017 was like a raging party it was awesome everything went up like two to a hundred acts and 2018 is the hangover that's what's going on here you can't have an asset class go up 20 X 30 X in the case of etherium and Bitcoin and not have some sort of retracement it's just the nature of cycles it's psychology it's a nature of capital formation and speculation and so it's a challenging time if you're an entrepreneur right now it's a challenging time if you're an investor primarily due to acute regulatory uncertainty what we saw last year was that aetherium zrc 20 standard really captured the imagination of both investors and entrepreneurs worldwide with two lines of code you could create your own crypto asset whether that be a utility token or a security token and there's real questions on whether that category utility token even exists in the mind of the SEC so and we saw 18 billion dollars of capital being raised kind of Kickstarter on steroids that was an incredibly exciting development to me it proved aetherium as a platform for at a minimum global crowd sourcing where entrepreneurs can go and not go up and down Sand Hill Road and raise capital from the traditional venture capitalists but rather to offer an incentive for other entrepreneurs and protocol developers engineers open-source software developers to hopefully build on top of your blockchain so you turn the concept is to turn your your customers into evangelist because they have a stake hole that there are stakeholders in a given crypto Network it was a very exciting time and and now what we see is is profound regulatory uncertainty the SEC has told the industry what they can't do and I'd like to you know delineate between the SEC going after fraud and bad actors that is important there's fraud in the stock market there's fraud in the bond market there's fraud in the in the regular currency market the fiat currency market and there's fraud in the in the crypto market as well it's important for the SEC to go after all that stuff especially at a the birth of a brand-new industry like blockchain technology and crypto but what we're seeing is there's essentially no path forward so if you are a token issuer if you're an entrepreneur and you want to do an IC o—- the best law firms are essentially saying you have to avoid the u.s. you have to avoid the u.s. people you have to avoid US customers you have to avoid US developers even so if you're developers in the US so basically if you touch the US and in any way it's a contagion and it can basically turn you into a security whether or not your your token you believe to be a utility token so we're at an important time from a regulatory point of view and that's in my view that's the primary besides kind of market cycles the other major effect that's going on in terms of capital formation and entrepreneurs at least here in the u.s. is there's essentially no path forward for a lot of entrepreneurs or so it's it's a frustrating environment for investors and entrepreneurs alike so I think Bart already gave a wonderful overview of where the industry stands so I'll try to add onto it from a slightly different perspective I think obviously there's been an explosion of capital and a lot of entrepreneurs coming into the blockchain space but I think the benefit of what happened last year was that it pushed a lot more kind of traditional players faster along than they otherwise would have been so at least when I was at Goldman we started looking into this space really as early as kind of 2011-2012 but those conversations weren't very serious it was just like this is something that's coming let's explore the space I've never practiced law but I have a JD and so while I was at Goldman I had a lot of contacts from the SEC that I would regularly catch up with and have count stations on and back then it wasn't really called blockchain I had a lot of international clients I was covering and was traveling a lot so as early as kind of 2010 the New York Stock Exchange Hong Kong Stock Exchange in Australia Stock Exchange already had an internal project that they were prototyping using decentralized leisure to help them better identify for insider trading so it wasn't a completely new concept but there wasn't much progress made in the space at all until last year everybody was talking about it and a lot more nonprofits organizations think tanks reforms and I think that really pushed a lot more traditional corporates and players faster along and I think that also helped encourage a lot more corporate and startup partnerships that we didn't see as much before in other industries which i think is a really healthy way forward and outside of that I think what Bart mentioned about as well as what rollick mentioned about emerging economies is really interesting because of the regulatory environment that's now in the u.s. I think I've seen a lot more innovation emerging from other countries around the world whereas I think traditionally Silicon Valley we don't see nearly as much international influence whereas in the blockchain space I think for the very first time we see a lot of Chinese influence we see a lot of Korean influence a lot of Japanese influence and I think that's particularly interesting I actually just got back from a trip abroad where I was in India for a teaching engagement and I see a lot more initiatives from a government perspective from very traditional corporates I was actually teaching for a company that's now well over a hundred years old in India in a very traditional retail space and for the very first time they're actually opening up conversations with the government to explore what they can do how they can adopt blockchain tech to help them better facilitate their manufacturing process and so I think there's been a lot more of these conversations coming along that is actually quite healthy for the industry as a whole so if we're looking beyond how much capital has been flowing into the industry if we look beyond regulatory changes I think fundamentally speaking there's been a lot more value add great let's talk about regulatory changes in the next several months two years we'll start with you and just go back in the other direction what are some of the ways that regulation is going to be applied and what effect do you think or do you hope it have so I think for the US it's very hard to speak on behalf of the SEC to forecast what they might or miserable but let me start with international markets what has been interesting was I well obviously it was really big news when China first banned the whole concept of icy OHS but actually it was around that same month when we actually hosted a delegation from the central government in China here in Silicon Valley when they were visiting just when that news was first coming out and I think what they shared then still remains to be true nowadays where they said really it has to do with a couple of fundamental principles that they were approaching that regulatory change one is I'll start with something that's different about China as opposed to any other market in the world as a state policy they really want controls over inflow and outflow of capital and that's different than the u.s. I don't think we worry here in the US as much about capital outflow controls and so they want to be able to see where that capital is flowing to right now obviously Chinese citizens have control will have limitations as to how much capital they are allowed to send abroad and previously through crypto channels essentially you could send money abroad without government regulation so that's a fundamental difference to what we're looking at here but otherwise for them it's a very simple question of fraud I think for a lot of IC O's in China you see unprecedented cases of fraud that we just simply don't see here in the US obviously that's starting to change but a lot of the cases if you guys are interested we can talk about how there's been a lot of icy O's that are raised in very creative ways that actually kind of skirt aside regulation and controls and information disclosure but that aside I think as a result of that ban one positive and one negative outcome the positive outcome I think has been that if it weren't for that ban I think the industry or even the crypto markets as a whole may potentially have crashed earlier just because of a lack of confidence around regulation and guidance and information disclosure I think the kind of potential negative is that it's actually directing a flow of talent into specific markets around the world that are more open to that so for example one of the partners that we worked very closely with in the past couple years you stone the largest bitcoin mine in the world he was based in China but he moved out here into Silicon Valley and has been living here for the past year and so we definitely see a lot more entrepreneurs coming flowing into Silicon Valley and I think outside of the flow of talent I'm sure other panelists will share more about flow of capital as well so I'll stop there those are great comments and I think it's really important to situate this industry in a global context some of the largest market cap companies and projects actually happen to be based in San Francisco whether you're talking about companies like coinbase or or ripple or others or kraken you can go coinless time on and on there's some folks here from the audience so there's a tremendous amount of innovation happening here but I think it's incredibly important for investors and entrepreneurs and especially regulators to realize this is a global phenomenon the markets of China and Korea and Japan that you mentioned are incredibly important from a regulatory point of view the u.s. is effectively offshoring innovation they're saying the u.s. is closed for business go to Malta go to Singapore go to Switzerland week ago I sat at a conference with President Clinton speaking and he talked about I think some important kind of stories are anecdotes when he was president United States during the 90s and he basically said that we took a hands-off approach we wanted to let innovation flourish before coming down with too hard of a regulatory hand and so federal regulatory entities like the Federal Trade Commission the Federal Communication Commission even the IRS said no sales tax on your eye on your Amazon order and so as a result both entrepreneurs and providers of capital venture capitalists they kind of knew the rules of the road and when you know the rules of the road the magic of US capitalism can happen which is the efficient allocation of capital to the world's most promising entrepreneurs that is no longer happening here I think the crypto industry has been dangerously naive over the last three years they've assumed that many US regulators have this kind of balanced approach to innovation on one side and consumer protection on the other and things have changed markedly in the last six months there are hundreds of subpoenas out in the crypto industry right now this is not well known whether there are exchanges or law firms or you know investors and icos startup companies as little as three people and so as a result what we're seeing is capital formation is freezing because both investors and entrepreneurs they don't know the rules of the road they know what they can't do you know you can't steal you can't cheat you can't lie but there it's very unclear on how for example a protocol would conduct a public sale of a utility token to US investors so there's there's kind of no guidance from appropriate regulatory authorities on that and so you know there's the risk here is that the the scales the balance between fostering innovation which is incredibly important for our economy to create jobs and tax revenue and GDP growth and also protecting investors on the one side I would I would argue that this is not the fault of the SEC per se they are applying the laws that are on the books the laws that were on the books were written in 1933 1934 and 1940 so I would argue that crypto assets are a new asset class and they're ill-equipped to be dealt with with security laws that are getting close to almost 100 years old and so it's it's a problem in the industry and it's an important one and it's hard to look out two or three years because right now I would say things are getting worse at least for US investors and entrepreneurs not better so where I have a question for you where do you think the regulation other than like small jurisdictions like you know in the Caribbean or Malta aren't there any major economies where you think we should follow Singapore and Switzerland for sure what are they doing it's different in terms of protecting investors or what have you they're giving queer rules to the road they're saying if you do X Y & Z then you are a non security token and here's the regulatory regime that you need to do in order to sell your tokens in an IC o—- process to residents of Switzerland versus rest of world we don't have that from our regulatory authorities namely the SEC but by the way there are nine regulators that claim jurisdiction over crypto the Department of Justice is involved Department of Treasury is involved Federal Reserve dia SEC CFTC IRS FINRA and and that's not even including the state regulators like the New York Attorney General under the well Zac have sweeping powers in the financial services industry so if you're two kids out of Stanford and an awesome protocol idea or utility token good luck you know navigating through those nine regulators not including the states where money transmission laws are different in all 50 states so I guess what I'm saying is we need to take a holistic approach to fostering innovation that recognizes that this is a new decentralized technology this genies out of the bottle its global and also perhaps writing new legislation that is better crafted and that's not 80 90 years old that would be my recommendation and to provide a safe harbors safe harbor for entrepreneurs that are really trying to innovate that are trying to create new things look at Asia it's business first regulation second were regulation and then business second but where's the regulation right where is the regulation so we're we're letting innovation die and go out and that's that I really feel like I'm in the middle of Silicon Valley now I mean I lived here yeah I've lived here many times before but you know my view is what we're seeing is is an effect of the industry's inability to self-regulate last year and I'm not you know I'm not like for you know I'd say I'm more libertarian than not but we saw a ton of fraud last year I mean there was no way you could justify just issuing you know tokens that were obviously meant for fundraising purposes with no utility under the guise of you know the the current securities regulations so and I had caution entrepreneurs because look I believe in tokenization I want to say this industry take off I want to see people have access to assets they haven't had access to before I want to see broader distribution of upside you know that's why I got into this industry but what we saw last year was just widespread fraud and and you know the crypto industry didn't do anything to self-regulate until this year when these subpoenas started getting issued and and so you know I think we went to the other extreme and and that's unfortunate and and I actually you know I travel around the world traveling talking to regulators including in Switzerland including India including China Singapore and at the end of the day a lot of them are still looking at what the US is going to do and and so I agree that we need to have more clarity and and I think this a utility token new asset class is something that we do need to address it at some point very soon and I actually do think we're making some movements there the the reality is the US has a lot more to lose versus some of these other jurisdictions we're talking about and China banned I mean you know banned in quotes in India has made it very difficult to to to bank exchanges trading there's– down so so we've seen a harsher regulations in a lot of these places and and so yeah I think it's up to us as an industry to make sure that we start to see and we have to get engaged and we didn't we didn't have engagement last year and hopefully we'll start to see more of that going forward mark your thoughts on on where regulation might might not be headed in the next several months to two years here well I mean you know I agree that there was too much fraud right I mean there was a guy actually who went and got chuck-e-cheese coins but Bitcoin on it and got to that point eight million dollars and people paid him that so I mean it's ridiculous but I think on one end banking is this way kryptos on this end we gotta meet halfway okay we got him what is that like like what does that look like I mean look I don't think I SEOs are bad I think the companies they funded were bad and that's the issue so it's really looking at the white paper looking at that technology and seeing is it gonna go somewhere and then protecting investors by telling them okay hey this is this is something let's do something so and that's you know we do that for regular investments so we need to do that for you know blockchain and crypto because we can create a lot of jobs there's a lot of great things that can happen with this industry that's the exciting part so we have to push the regulators really but you know the government is slow unfortunately so obviously you're still bullish on blockchain I know that why I'm bullish on on great people if you have great people they create great things and you know proof of concept are you you know like I had cancer right and how did I get rid of cancer I got rid of my pain there's a pain in different industries and blockchain can help solve that pain and that's what's exciting about it any other thoughts from you guys on blockchain why that's uh something that's gonna last we see I'd say 90% of the 200-plus business plans that come into our office a month blockchain is not a good application for the startup or the customer problem they're trying to solve Joaquin's are essentially a new data architecture it's distributed and decentralized database where data is replicated over hundreds thousands sometimes hundreds of thousands of No that is costly it's inefficient and so you need botching technology if you are trying to ensure that there's not tampering with a given data set or a gate or a given value transfer and so Bitcoin has got a proven use case for kind of a gold 2.0 some people see it more as PayPal 2.0 and that was kind of the the guts of the Bitcoin cash for first Bitcoin hard fork and you know aetherium has proved itself I think as Kickstarter 2.0 or maybe Nasdaq 2.0 a lot of these other block chains are building interesting technology whether it's z/os or telegram or Definity or others but what we haven't seen is a lot of these things live and in the wild yet what we haven't seen is their organic unmet demand on the customer side so because block chains are expensive and because the data set is redundant and replicated you have to have a good reason for having tamper resistance and so all you really need to ask yourself if you're an entrepreneur does an Oracle database work ok because if so you should go with the Oracle database it's much cheaper if the answer is no because you need to ensure the veracity of a wide of a data set or a transaction or title transfer set for example in an untrusted environment then block chains are probably a good solution for you but just kind of tacking blockchain on to your business plan generally won't get you an investment from sophisticated investors that have domain expertise I think those days are long gone and we remain excited about tokenized technology we actually tokenized our third venture fund we we did nice geo we raised 10 million dollars in our third venture fund we took something that was previously illiquid that is a private equity fund and we made it liquid by fractional izing it and tokenizing it we created the world's first security token it's called the B cap and so that was that was an example of tokenized technology allowing for something new to be created which is we brought liquidity to a previously illiquid asset class private equity companies like securitized and harbor are looking at doing the same for the traditionally illiquid asset class of real estate which is the largest single asset class and the so if this technology if you're an entrepreneur in this technology whether it's blockchain technology or thinking about an IC o—- or creating a token if it is enabling you to do something that the world has never seen before you're probably in the right spot if a regular database will do just fine for whatever you're thinking of and you're just adding a token for fundraising you're very likely introducing friction into the customer experience we call this a friction token so if you're making someone buy a token just to get to your product or service and there's not a good reason for it to be decentralized or it's not operating in an untrusted environment you very likely have a friction token and friction tokens I think are a real tough experience for users you know we don't have to go out and buy Starbucks dollars to buy our Starbucks we don't have to go buy DocuSign tokens we're speaking here in the DocuSign office to use the DocuSign service if that is the assumption that you're making that users are going to have hundreds of hundreds of tokens to do different services that work just fine like DocuSign or buying coffee you're probably barking up the wrong tree as an entrepreneur so these are good questions to kind of ask yourself and I think so far we've had a lot of really great perspectives and tokens and I think it's just important to also realize the fact that we could completely not talk about tokens as well because there's plenty of applications are being built or infrastructure platforms that are being built that don't necessarily have tokens involved and I think that perspective is important because often times we only think about the application layer but we forget the fact that this is a very new industry if we're looking at AI for example the algorithms that people are still using now albeit with better compute and better data they've been around for decades right they've been around for 60 years but the thing is with blockchain it's a very new piece of technology so the developers environment that they're working in right now is still actually very new so for a new crypto or just pure blockchain company to want to start a project they don't necessarily have all the infrastructure in place that makes it as easy for us to say build another mobile application or build another website and so I think from a purely infrastructure standpoint especially since we look at a lot at enterprise solutions I think that aspect of it is quite interesting instead of b2c what are some of the interesting b2b opportunities that are available in this space gellick anything yeah I mean we look at as I said we're we're mainly looking at infrastructure and middleware right now I actually started my investment career out in 99 out here for Intel investing in middleware and so I think until we get some of these rails built we're not going to see widespread consumer applications now I think there's some great experiments happening right now around consumer but I mean if you look at what Google just announced today that there is a major data breach they're shutting down Google+ and they kept it from their consumers and those affected for for many months and you know these web 2.0 companies have accumulated so much power that I'd say the average person is kind of doesn't care anymore how their data is being used and and so that is actually one of the most I think you know that consumer adoption is going to take some time unless we come up with some applications that may not be as as focused on privacy or other things or or create a vastly better consumer experience than what exists right now with our with our interactions now if you start to look at emerging markets who don't mean two billion people who don't have banking accounts people you know billions without any health insurance or car insurance they're starting from zero and and so that's some of the places where I think we'll start to see some of these consumer applications emerge just like so I invested in telemedicine in Africa in India about ten years ago we are just during the state talent medicine takeoff here in the United States and so I think we're going to see some of that reverse innovation happening on the consumer side on the enterprise side I'm actually seeing some really interesting like KYC you know these pain points fraud detection that you know that that's making some of these industries start to look at alternative technologies or what what blockchain can offer I think not just a chime in real quick I think Jacque makes some great points about data breaches and privacy and it's important to kind of rewind the clock back ten years why did Satoshi Nakamoto create Bitcoin and blockchain technology well because in 2008 the global financial system as we know it failed us in a galactic way we had trillions of dollars of bailout so we've had fifteen trillion dollars of money printing and that is a result of the interconnectedness and over levered nosov existing financial incumbents Satoshi himher they was disgusted by that they said what if we could create a system where you don't have to trust a center counterparty for to execute a transactions what if you could basically put in a proof-of-work system that aligned people's incentives in a elegant way to form a consensus that will allow the transfer value between two entities or two individuals that was a profound idea I still am in love with it but it was essentially a reaction right it was the 2008 financial crisis showed us the incumbents were incapable of protecting the system that they had created they had gotten to over lever they had gotten to interconnected I think we could see a similar reaction to the types of things that you lock mentions which is if you're using Facebook and Instagram and Google and you think their products are cool and you haven't paid them means your privacy is the product they are selling that their advertisers targeted advertisers now we find out that the Russians and Chinese also have your data and so I think we could see a similar moment at some period of time where blockchain technology is potentially an answer to the large centralized Internet monopolies that dominate our life online Amazon Apple Facebook Google I think this is a ways out but decentralized approaches to centralized trust problems are the promise of blockchain technology but this is these are hard problems to solve incumbents don't go away easily that's that's why Jamie Dimon really hates Bitcoin he sees that that ultimately has an existential threat to his business and it's why we're seeing deafening silence out of Google and Facebook in terms of blockchain technology if you have a monopoly you just be quiet and cash the checks it's a great business you don't want to rock the boat man and so a lot of these technologies whether we're talking about ICO technology or blockchain technology they're incredibly disruptive and they're disruptive to the status quo so the maintainer zuv the status quo are gonna fight like hell to keep their advantages shwoo thoughts so I I absolutely agree with that a slightly different perspective so outside of my investing role I've been teaching at Berkeley for the past couple years and the under so I teach both undergrad as well as graduate classes and for the undergrads I'm teaching it still blows my mind that kids now are born after the year 2000 and so that I would have thought you know they're babies but now they're in college and taking classes and whenever I chat with them I realize that they have a very different value system I think for us it's very disruptive the fact that blockchain companies could potentially rock the boat and change this whole economy around that's really focused around monetizing your privacy but when I talk to kids now I don't think they grew up with the whole concept of being concerned about privacy fundamentally because they grew up being so used to giving away data that they're very willing to trade away data for access to these products and services and so to that extent I don't know to what extent blockchain tech could really change the whole concept being able to monetize data and privacy fundamentally but I think what is interesting is that especially at Berkeley it's always been very much a hippie culture and people are very anti institutions and anti-establishment I think from that perspective they are very interested in terms of what does they mean if we have more power of we can distribute democracy more equitably and if we can distribute wealth more equitably so I really like some of our conversation earlier about the potential for blockchain to really make an impact in terms of creating social value in terms of thinking about how can we better distribute services and information in a way that's beneficial to refugees for example the United Nations has been collecting donations in bitcoin in certain economies around the world where locally they're experiencing hyperinflation and so they just store their value in crypto currencies like Bitcoin until they actually need to distribute and also save money and the transfer of this capital rather than going through banking institutions they're just going through crypto which is cheaper and fees so I think a lot of those opportunities are really interesting as well but really coming back to applications and infrastructure again I really like what gellick was saying about infrastructure and middleware because I think that's where it's really gonna first start mark any thoughts on I'll just agree more on with Bart and on the sense that I think Millennials do you know they'll appreciate their once your privacy is stolen and you really appreciate it but until it was a blockchain come and save us from losing our privacy seven eight years from now yeah I mean it can it definitely can and I think like with Facebook and Google and what's going on I mean it's it's pretty bad I've had mine every week oh we have any privacy left to lose at that point I don't know but it's it's it's pretty bad I mean you know when your credit cards are taken and your identity and so forth until unless until you've gone through it it's a horrible feeling you know by the way I agree with you I would absolutely feel the same way I'm just surprised by what I hear from students nowadays who don't seem to share that same concern as me and I don't know that's just the groups of students that I've been teaching or that's more of a widespread phenomenon when you're stuck in a different country with nothing your phone isn't going somebody else has it you have zero money when you thought you had money and you're really borrowing money on the street to make a phone call and you don't know the language it's really difficult alright let's move on to no no it's good points let's move on to questions from the audience I know you guys probably have had a chance to think of a few er you have some thoughts and so for the remainder of the time let's mostly do that let's take some questions from the audience go forward Jason sorry everyone I'm pretty loud anyway but talking about middleware and really building these protocols from the ground up but they're useless unless people are actually using them and there's a lot of developer activity it's really exciting I'm wondering with all the amazing deal flow that you've seen have you seen some really killer apps that we don't know about that have some consumers using them and then thus using this middleware that you've invested in that's a great point it's an astute observation we've seen a lot of development entrepreneurial for solving problems that don't yet exist so they're saying let's build a 3.0 what's just called a 4.0 blockchain that will do two trillion transactions per second there's no demand environment for that right now I'm unaware of any large-scale enterprises that have a decentralized application that is working in production and so if you're some of these enterprise focus block chains and your main metric is transactions per second you are building kind of a 80 story skyscraper to house all your employees in you're like a one-person startup so it's great to have grand plans but maybe that's not a wise expenditure of capital you might want to just go – we work for a couple years and see how it goes so one of the areas that we are seeing organic demand and some interesting startup activity and end-user activity is the intersection of video games in crypto non fungible tokens so where you have an investment in a company called open sea it's kind of a marketplace for digital assets or video game assets it's interesting so if you play a video game like World of Warcraft or Second Life there are tens of millions and if you want to include Asia over a hundred million users that basically play or live in these virtual worlds in these virtual worlds have virtual economies in the economies have virtual currencies and you could have digital objects but at the end of the day until about this year all those objects weren't owned by you you might have spent like you know a year of your life getting some super special fire sword but it turns out that in World of Warcraft you don't own that fire sword Blizzard Entertainment owned by Activision a publicly traded company owns that fire sword so if you go try to sell it for US dollars you are out of luck as a gamer that is changing now persistent worlds even casual video games where you can earn something in-game by slaying a dragon and you get a magical coat of armor you can actually pull that out of the game go to open sea and sell it for Bitcoin you can go to coin base and sell your Bitcoin for US dollars so as a lifelong gamer that's incredibly interesting it's also worth noting that crypto is it unfortunately but the data proves us out overwhelmingly male dominated and it's 1/10 it's a young person's asset class it's primarily of interest to people in 18 to 35 year old demographic there's a little few people in their 40s like myself they don't a bunch but what that happens to be the same exact demographic as video gamers so there's like a 1 to 1 demographic crossover between video games and crypto so crypto kiddies was the first example of that I think there'll be many more games that capture this notion of video game players owning the experience owning the work product or the results of some endeavor online so that is an area where we're actually seeing organic demand environment unlike some of the other areas that are still early stage of whether it's enterprise adoption those are still for the most part still kind of proof of concept type stages so out of out of our pipeline I'd say at least half of it involves the gaming industry so and it's very similar to what we saw with mobile and and the internet in terms of adoption I also think as we look at scalability issues right and going back to infrastructure and and middleware I you know I think it could be gaming that actually leads the charge in terms of solving you know some of these challenges that are that are kind of inherent in the more generalized you know protocols that we see out there so I mean I'm looking at protocol middleware as well as application within the gaming blockchain space right now but otherwise you know I have to go back to financial services and emerging markets right an example is by Pesa I mean they've seen a lot of growth just handling that FX transaction using the Bitcoin blockchain platform and and they're now primarily b2b versus you know starting off on the consumer remittance side because even multinationals need to figure out more efficient ways or or want more efficient ways to move their capital to places like Africa as these regions start to grow but other than that you know I'm not as much consumer focused it's to me it's really about the infrastructure and making sure that when consumers or enabling developers to create applications that can scale because if they can't scale and we've seen this with crypto kitties right like then and then it's not it's going to go away I mean and and and a lot of consumer is very fickle and and so I think you you need to have that infrastructure in place to be able to support these consumer applications so it's funny what you just said you like because I also my question was um I wanted to ask if you also agree that in order to get a customer blockchain solution going we get we need to get to a point where the customers don't even realize that they're necessarily using the blockchain where as for interest infrastructure it's pretty good to be more transparent so do you think we're gonna see a trend where we see a mixture of centralization and decentralization where the infrastructure and the important data is decentralized whereas the application management is more centralized for the customers yeah I think it'll be a long time before we get to completely you know decentralized applications and we're seeing this in finance too right there a ton like I was seeing a decentralized exchange business plan you know once a week or twice a week that's six months ago and and the reality is you know people people still want to be able to trust a source and and and and and the other flip side is the infrastructure and and scalability that we we just discussed so I I look at the next five years is we're gonna live in this high at least the next five years we're gonna live in a very hybrid world and you know I'm not turned off by applications that are using a mixture of the two because I think that will get us to that ultimate decentralization but we can't get there overnight and if we try to get there too quickly then I think it bodes you know poorly for the adoption down the road so so I think we're gonna learn a lot I'm so excited about the next year we're going to see a lot of these projects and protocols get to market see what what's working out in the wild I mean you know you can only do so much diligence on a white paper and and you got to put it out in the wild and and so this next year is going to prove out a lot and then and and we'll start to see you know what that path to fuller decentralization looks like yeah hi just containing what Sherlock and Bart was saying so scalability still seems like a fundamental issue resolved or to be sold in this in this space what do you guys think in the next how do you evaluate people or projects making traction when you say hey we do not need a project doing hundred thousand transactions at the same time you need developers coming and building applications so if you were to evaluate scalability projects in the next six months how would you see progress or how would you define progress I think it's important to talk to customers be surprised how many entrepreneurs that we meet with that are building technology that they think is really cool and then as part of our job in doing due diligence in a prospective investment we go talk to a bunch of customers and they said we don't think that's cool or we have no need for that or that's item 20 on my pinpoint list let me tell you what pain point one is and so you know it's difficult if you're building a de novo blockchain to jump five or ten years into the future and know what the demand environment is like but a good way to start is to go talk to your customers so if you're building a blockchain that is focused on international trade and Finance and logistics go talk to the large largest shipping companies in the world go truck to the large manufacturers in China and see if they need to track title of goods from all the various people that are involved in their supply chain right down to the guys at the dock so that's that's a good place to start and it's something that I think a lot of entrepreneurs perhaps don't do enough of in the early days because you want to vet all of your assumptions before you go spend tens of thousands of man-hours on building something that maybe ultimately the customer doesn't really want and you want to solve people's most acute pain point whether it's a consumer or an enterprise and I think I'm back to the scalability question it's different use cases are going to have different scalability requirements and and that's you know what we've looked at in our first set of investments over the last five years was you know where do we not need to have you know a huge group put and and where can we start seeing you know whether this technology work and Pesa was an example of that where you didn't have to do millions of transactions or thousands of transactions or hundreds of transactions a second and and and so it's as an investor very much looking at and and you know the other extreme is high-frequency trading right it's gonna be a long time before we get there on on the blockchain and and and so figuring out what different applications and and matching it up and I think we'll continue to see I mean we have so many smart developers working on these these protocols and and more and more coming into the fold so we'll continue to see massive development on scalability in the next few years Benge it's a really good point so even though it's a frustrating environment if you're a US entrepreneur or a u.s. investor on the regulatory front I'm sure the rest of the panelists are seeing the same thing but we're seeing an incredible amount of super high quality engineers and entrepreneurs that are kind of leaving their day job to go start a new blockchain infrastructure project or consider a new protocol or to build a relayer on top of 0x sort of weave Electronic Arts and start a nft company and one of the things you want to see as an investor is not just a large total available market that's something that all venture capitals look for but you really want to see people not just voting with their their pocketbook that's kind of our job but voting with their feet taking a career risk and just to use coin Basin as an example which is the best-known company in the sector one of the largest and is here in San Francisco you know they are recruiting executives from the New York Stock Exchange from Goldman Sachs from Salesforce from Facebook from LinkedIn and if you look at companies that are maybe not quite as mature they are also seeing incredible engineers and operators that are leaving whether it's Twitter or Foursquare or drop boxes they're all in kind of resumes of founders I've seen just in the last week and so what you want to see our big ideas people that can be a part of something that they feel is bigger than themselves large total available markets and high quality people and capital all coming together at the same time and that's pretty much what's happening in the blockchain technology industry that's where I think regulation is as soon as the SEC is trying to do some regulation it's just going so fast it's going so fast and things are changing so much so you can't say okay well this is how it is let's regulate this because it keeps option adoption and changing sherwani thoughts so actually I was gonna add on a little bit to Bart's point about really doing the due diligence as an entrepreneur and talking to all of the right people so I think I've seen a lot of pitches where entrepreneurs are talking about how exciting it is to be able to reduce costs and improve transparency in the shipping industry and a lot of them like to quote the murse IBM essentially trial and to say well thou managed to be able to save save 20% of the shipping costs but on my last trip in China I was talking to some of the largest shippers and there were like 20% of the shipping cost I don't give a damn about 20% of the shipping cost like that's not a very big portion of my overall costs because a lot of the shipping that they do is on specialized products for example where their largest margins isn't where it comes to shipping and so I think those conversations are really important to figure out I mean whether or not you're a blockchain company I think it's important to really understand and what pain you're actually solving great other questions from the audience all right here we go so if you think at the end at the end of next year what do you think are going to be the biggest applications that are adopted and what kind of scale do you think is gonna be possible and sort of the next 12 to 12 to 18 months well I guess I'll start with something that's more top-level I think what needs to happen in the next year to year and a half is real business value I think as a start-up it's really important to think about do you have a real revenue model are you actually saving costs for your customers or are you improving the experience or making things easier faster cheaper for people I think for a lot of blockchain applications that were started last year especially given the hype it was solving for problems that don't necessarily yet exist and so a lot of the companies don't necessarily have real business models and so they incentivized a lot of great talent to join by basically saying what we're doing an ICO will share tokens with you and so people had income that way but now that there's more regulation around tokens I think there is a little bit of a question mark for certain companies as to well where is our stable cash flow going to come from so I think that's something that people are gonna have to work on some areas that were pretty excited about in the next year to two years would be kind of the decentralized financial services stack one of the great promises of blockchain technology is to reduce the risk of a counterparty failure so one of there's a lot of ironies in the crypto and Box chain industry and and one of them is there you know there's a series of themes or use that pervade the industry themes like decentralization transparency paying open source software developers aligning incentives these are all great big ideas but in the case of financial services what we what we really want to see is can we build a new decentralized kind of financial stack that allows for decentralized derivative decentralized exchanges and relays because that fulfills the promise and the values of this stuff but the you know the irony of a bunch of people in a room that are talking about decentralization then they turn around and they go to centralized exchange to trade their crypto assets which is a single point of failure so I think we're gonna see a lot of innovation in financial services just taking a new decentralized approach to things that have traditionally been done in a centralized fashion I think we'll see as I mentioned earlier the kind of intersection of crypto and video games will be a big market we're also very constructive on security tokens security tokens that allow for the fractionalization and tokenization of traditional assets right now if you're a large hedge fund or a family office and you want to trade a credit derivative you're waiting like 30 days for something to settle or if you're an investment bank or a money center bank and so there's still most of the back office of investment banks and banks and insurance companies is stuck in the 1970s with IBM mainframes these things are at the end of their natural life actually the end of the natural life was about a decade ago so there's there's a really good opportunity to kind of swap in some new infrastructure if some of the the hype kind of gets dialed down if some of the real use cases show a compelling return on investment not 20% of some line item that they don't care about that's a great point and so security tokens decentralized financial services n FTS and video games are some of the areas that we actually think are interesting at baktun capital scale I wish I you know one thing I don't do is predict scaling issues or the price of crypto assets because it's just impossible to do I think we are seeing some interesting blockchain kind of middleware solutions scaling solution coming out of the etherium ecosystem other kind of 3.0 projects or OSINT affinity or and you know others that we've looked at that have are taking a scaling first approach even though there's not the demand environment yet or the other number of users so this industry moves at a velocity that is really difficult to comprehend I mean we have 13 people here in San Francisco that are focus full-time on crypto and blockchain technology and it is really really hard to stay up on this industry it moves very fast yeah I am very interested in in the next year around financial services and and really the friction points around like I'm a believer in tokenization as I said but what are the friction points in making it happen compliance is one of them as much as you know the industry wishes that didn't exist that's the reality so looking at compliance solutions looking at data analytics around you know exchanges and I mean we also invested in harbor and and so different you know platforms that allow fractionalization and tokenization but do it within you know regulatory frameworks that exist and I think once we start to see some of that play out we'll we'll get to a point where we can see more decentralization I think we have to prove that that actually the technology can be used for compliance and techne I had it it was on a panel with Valerie who heads up you know the SCC's crypto program and you know one of the things she keeps telling entrepreneurs is like show us that you can actually use technology to to address some of our compliance question marks and and I think that's an important guidance that they're putting out there that they're open and and that's why I invest in Harbor I think they're if they're doing exactly that and there are a number of entrepreneurs who are so before we can get to like this free trade of tokens around the world we have to show that we'll work within you know current regulatory frameworks mark your turn any areas that you're particularly excited about the entrepreneur nor the use case and really solving a pain and just showing it and then the customer needing that pain you know and again if that's done you're creating jobs and that's really ultimately what it's about we're down to our last couple minutes have time for probably one last question is there anyone who would like to ask the panel anything all right we also hear about tokenized assets some of the sort of you sent an article mark to me earlier this week the first ever condo luxury condo property you can invest in it using Bitcoin can you believe it was Bitcoin can you just tell me a little bit more about that and then maybe you guys can also comment on future sort of tokenized assets whether it's art whether it's revenue streams being monetized or you know block chained weight talk about some of those start with you Martin well I mean I think you know if you have a token backed by something tangible it's great and I think with real estate obviously the traditional way it's really a pain in the butt from a private equity standpoint or so forth so that fractional your able to do that so I you know I don't know if that's actually the first one but it it's a good one and so I think that's where a token is a little bit more real instead of a token for an influencer token any other tokenized asset sort of future ideas that exist now that people wouldn't think of that are interesting to you yeah I mean I I don't want to sound like I don't know how many of you know pom but you know he's he's Twitter ago he talks about like tokenizing the world but I do see a world where we can give you know we can fractionalize assets in a more efficient way so that more people around the world can have more investment opportunities laying it you know in Africa there's very little that people can they can't access stock markets they they can't really access real estate unless they have a lot of money I mean there's very little you know titles the government can take things away so if you're able and that's why frankly bit coin and crypto has captured the imagination of so many people in emerging markets in Asia and in these fast-growing economies because their ability to invest their new you know capital is severely limited and and so I see being able to tokenize real-world assets as well as digital assets down the road I you know but I go back to kind of our investment thesis over the next couple of years is we have to reduce the friction points to allow us to actually get to that point tokenization will happen where there's a broken problem or there's something that that's not working well so credit products and financial services are notoriously long to to settle we've talked about real estate up here we've talked about private equity funds which we were the first to tokenize and I think we'll actually see the the category of security tokens be quite large just because the large illiquid asset classes now that they can be fractionalized in tokenized they will be done the technology's already been unleashed on the world and it solves a real problem there's no reason why only Blackstone can own this building if it can be fractionalized and tokenized in a smart contract disperses the pro rata portion of the rent that your token represents that is an exciting novel use case of blockchain technology or tokenization technology I think it'll be the regulatory environment that guides how fast that happens but it will happen what I where I don't see it happening is where things work pretty well like common stock in the stock market I don't see a need for tokenizing common stock in Apple half the room in here is probably trade bought or sold Apple at one point so you don't need a token for that but so I'm unlike pump I'm working we're constructive on certain sub sectors if you will our use cases that enable something new that hasn't been done before or alleviates acute pain point if it works pretty well like trading stock on Robin Hood or each trade it probably doesn't need to be tokens that I think well could be really interesting in terms of use of tokens as in terms of realigning incentives so we heard a lot about bike sharing companies for example coming out of China and then expanding into the US and going into Europe what's really interesting is actually on my last trip I was catching up with a couple of friends who are co-founders and one of the largest well there's two large bike sharing companies in China one of them is working on a prototype that's basically designing a game within the app just say well previously they had really expensive operational costs in terms of constantly having to move bikes from one location to another so for example a really good example here in San Francisco is that people always leave their bikes at the bottom of the hill and nobody bikes all the way up the hill and so they pay a lot of money to get people to constantly move these bikes and just ship it up the hill right so what they're prototyping on is essentially to say well this is a game challenge if you're able to ride your bike from the bottom of the hill all the way up to the top of the hill you get rewarded in points or tokens which then you can then use for free ride to the bike at a later point in time and so that's one of the ways in which you can realign incentives that's actually saving operational costs for the company so I think it's really in examples like that where you can find a clever way to design the system to realign incentives that's most interesting okay and with that let's give our panel a nice round of applause [Applause]

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