Blockchain Innovations and Investments: Entrepreneurs’ Take

On the occasion of San Francisco Tech Week 2023, ServiceNow and HederaHashgraph co-hosted an event where many Web3 VCs, investors and angels held a discussion on Web3’s shifting standpoints. The 6-member panel consisted of distinguished industry names— Chris Kelly, Christian Hasker, Shuchi Rana, Yaroslav Ivanov, Paige Xu and Manmeet Singh Bhasin.

Chris Kelly is a lawyer-turned-investor who recently purchased the NBA team Sacramento Kings as a co-owner, and serves on the executive board. He has worked as the first General Counsel and VP of corporate development at Facebook. In 2010, he was the Democratic party’s candidate for Attorney General. Now, he is venturing into Web3 with his investment in the development platform, Alchemy.

Christian Hasker is the CMO of Swirlds Labs, the marketing arm of HederaHashgraph, a public blockchain network.

Shuchi Rana is the Chief Strategy executive at the VC fund ServiceNow Ventures and has also been on the governing council of Hedera blockchain.

Yaroslav Ivanov is the co-founder and CEO of Alta, a blockchain laboratory and accelerator. He has long-time experience in DLT as the head of strategy and marketing at blockchain consultancy firms Blockchain Asia, Blockchain.com and EDC Blockchain.

Paige Xu is an investment manager at OKX Ventures, the investment arm of OKX, a leading crypto exchange.

Manmeet Singh Bhasin is another seasoned entrepreneur with 30-year experience  in the tech industry. He is the founder and managing partner of Punja Global Ventures (PunjaVC), a VC fund focusing on blockchain-and-AI startups. He has invested in 10 blockchain projects.

Changes in the Blockchain Investment Landscape

The investors shared their opinion on what the VCs are now looking for. They all consense that there is a stark difference in the current scenario, as compared to the initial developmental phase of Web3.

Hasker starts by stating how the token model and DAO generate value based on real-time progress of the project— “Layer-1 protocols have a foundation that has a treasury held in its cryptocurrency. These foundations help bootstrap their ecosystems.The beautiful thing about a foundation model is they are not equity-based or token-based, so you don’t have to give up anything. They are metrics-based.

So it’s not that you get a bunch of tokens upfront and then you’re left to your own devices. It’s more like you get a small amount of tokens, you hit a milestone, and if you’re able to demonstrate this ongoing, accelerated progress, then there’s more funding.

In 2021, you could raise money on any idea. If your idea could bring 100,000 users, the money flowed to you. Those days are gone. But the money hasn’t dried up. It really is now going to solve real problems.”

According to Hasker, “Bear market is where stuff gets built.”

Kelly factored-in the regulatory frameworks cracking down on crypto— “Problems with Coinbase, FTX, and others have changed the overall outlook. With some of its regulatory requirements, I think, the SEC is being overzealous. So I’m looking for ventures that are figuring out compliance early on.

And I’m looking at infrastructure plays. Alchemy, for example, does not have its own token, or a foundation, and has been focused on operating and supporting others.”

Paige emphasizes on procuring funds step-by-step along the way— “Ecosystem Grants is free money because it doesn’t really dilute your equity. Incubation programs from, say, a16z, Techstars, YC, DeFi Alliance, we look at this almost like an approval (standard). It proves that you’re technically sound, you have a great team, you’re proof-of-concept… In a bear market, it doesn’t mean you have to raise 1 million overnight. There are a lot of steps you can take in between the process.”

She then talks about the sectoral entry for a startup, where market competition is an important factor. Giving an example of ZK technology, which she believes is somewhat less profitable, she says, “ZK space has so many great players inside. So does that mean that I will be bearish about ZK? I’m not, but I will probably be more strict about any new ZK project (in terms of investing).”

Talking about market share of the top player, she says, “(Blockchain) oracles, for example, Chainlink right now has probably 80% of market share. So I think this is a space that has a lot of opportunities.”

She also suggests some other areas needing attention of the entrepreneurs— “Scalability, security, privacy, these things still have a long way to go. And the UI-UX of some protocols is not that great.”

Ivanov talks about the significance of the underlying blockchain network— “It’s very important to choose the blockchain where you want to grow because it’s like a country where a lot of your business is. Take time to understand all benefits, and all opportunities.”

Hype Cycles in the Web3 Landscape

Bhasin talks about the hype cycle of new tech— “Web3 and crypto is going through that curve of disillusion in the hype cycle right now. Then this AI thing came up and now there’s a big hype cycle on AI. Everyone is changing their model— marriage of Web3 and AI… Enterprises are looking at AI as a solution and blockchain as an immutable database. This consolidation will happen (again). A lot of dollars will go away, (but only) two or three will succeed, maybe five.”

Kelly feels that cryptocurrencies were a hype cycle but the blockchain technology always held potential by itself— “The core appeal of blockchain is a distributed trust model. From the first time that I saw the Bitcoin white paper, I was like, the underlying technology is more important than the currency. Then there was NFT hype cycle. We’ve had a huge shift to understanding that after there was a hype bubble about a number of different currencies…”

The Future of Web3: Other Technologies Stealing the Spotlight

Some people worry that blockchain innovations will get relegated in light of certain other systemic advances such as AI, data science, quantum computers etc. This could render blockchain as just another instance of a hype cycle fad.

Kelly explains how it is vital to think about other technological advancements as well, for the sustenance of blockchains itself— “I don’t think that blockchain-based businesses will fade over time. Quantum computing is going to affect a lot of things having to do with blockchains; they’re based on cryptography that’s not (easily) crackable.

And the fact that you’re going to need thousand times computing power when you actually factor-in the math that the crypto, the blockchains are based on, you got to be ready for that world, and have security businesses around it.”

Bhasin talks about new technologies, like AI, making it possible to incorporate Web2 use-cases with Web3 for solving enterprise problems— “Currently, we will be investing in real solutions for problems being solved for an enterprise…

There are great use-cases in pharma. For example, the COVID vaccine had to be maintained at a certain temperature. But they have to shift all over the place. How many times were you able to keep the temperature lower or higher, or it went out and the medicine is useless? Those things (are) maintained by sensors, and recorded in blockchain. It’s an immutable database and it’s live.

Banks also want to jump in. They are saying, keep us in off-ramp and on-ramp maybe. They too want liquidity because people are taking out money from them. There are investments in shipping and logistics also, many other use-cases there.”

Hasker shares great use-cases of applying AI with blockchain— “If you find areas where there’s mistrust, there you have a blockchain application. How are these Large Language Models telling the truth? What is the data behind them? Are they biased? What is the way that you can monetize AI outputs? What’s the intellectual property of you giving a prompt to an AI and then putting it out there? These are all the database problems that can be solved by blockchain.”

Bhasin also shared an example of his own investment— “We just made an investment. It is basically figuring out if an audio, video, text was generated by AI, or if it was a real thing. Law enforcement needs that, everybody needs that. Those are really important cases which actually are going to create problems.”

Ivanov agrees and gives examples of where his company— “Our clients now invest in (Web3) gaming and pharmacy.” He quips— “Downtrend is your friend.”

Cryptocurrencies and DeFi protocols are at a point of saturation now. It’s time to shift focus towards practically utilizing DLT. Investors are always eyeing the next big thing. It’s on builders to keep coming up with innovations to meet ever-evolving demands. The key is to go build and rebuild opportunities, and find newer avenues in this ever-changing new internet.

Disclaimer: The article is a transcription of the interview conducted by RJ Soniya Ahuja. No statement or comment in the article is a direct or indirect portrayal of the writer’s views or opinions. The interview does not intend to promote, demote or demean any organization or community. It also does not intend to give the readers any financial or investment advice.