Interview with Earn.com Co-Founder Lily Liu on How Blockchain is Evolving in the East and West, China’s Blockchain Strategy and Her Investing Approach
Earn.com was sold to Coinbase in early 2018 in a deal worth more than $120mn, Coinbase’s largest acquisition to date. The company allowed users to send and receive digital currency for replying to emails and completing tasks. Prior to Earn.com, Lily was the CFO of the first foreign-funded, private, mass market hospital in China. Prior to that, she spent time working at Mckinsey and then later KKR Capstone. Lily graduated from Stanford and Harvard.
In our conversation, we talked about Lily’s inside views on how crypto is evolving between the East and West, what China may be doing with Crypto and Blockchain, and also how she thinks about investing in blockchain globally.
Timestamps and Topics discussed on the Podcast
1:53- Introduction to Lily Liu
2:40- Lily’s hypothesis on what is happening in the Blockchain industry vs. what has happened historically to technology developments in Silicon Valley
6:10- How regulations will limit US Projects from an Innovation Perspective
12:35- Why the preexisting frameworks for technology and product developments that Silicon Valley espoused will no longer work as well in a decentralized world
15:50- Why governments should like blockchains
18:10- China’s Blockchains Strategy
21:18- How Lily thinks about adoption and distribution for blockchain- would we eventually see a digital rivalry between Bitcoin vs Facebook vs Country blockchains
30:17- How does Lily think about investing in Blockchain in the current environment?
Listen to it on iTunes or here on Soundcloud:
Welcome to the Global Coin Podcast. A Podcast where we hear from leading global operators and investors in crypto with their thoughts on the Asia Blockchain and cryptocurrency space. Asia is really a cryptocurrency hub, and understanding the region is as important as understanding what’s going on locally. We also have a newsletter that highlights all the important crypto news coming out of Asia with many translated by our staff directly from the local media. Check it out at [globalcoinresearch.com]
I’m your host, Joyce Yang, and I am delighted to be joined by our guest today, Lily Liu, cofounder and former CFO of Earn.com. Earn.com was sold to Coinbase in early 2018 in a deal worth more than $120mn, Coinbase’s largest acquisition to date. The company allowed users to send and receive digital currency for replying to emails and completing tasks. Prior to Earn.com, Lily was the CFO of the first foreign-funded, private, mass market hospital in China. Prior to that, she spent time working at Mckinsey and then later KKR Capstone. Lily graduated from Stanford and Harvard.
In my conversation with Lily, I’ve founder her to be one of the smartest, sharpest people I’ve met and I am so honored to have her on the podcast talking about her past experience working in China and her outlook on the blockchain industry on a global level. In our conversation, we talked about Lily’s inside views on how crypto is evolving between the East and West, what China may be doing with Crypto and Blockchain, and also how she thinks about investing in blockchain globally.
Thanks for coming on the show Lily. Would you please our listeners a quick introduction of yourself?
Sure. I’m Lily Liu. I most recently was CFO and co-founder of Earn.com which was acquired by Coinbase earlier this year. Previous to that, I built a big private hospital in China outside of Shanghai. And then prior to that, I worked at the KKR private equity firms and also McKinsey, which is a global consulting firm. And prior to that, I studied at Harvard and Stanford.
I love talking about this stuff. I could be completely wrong, and I’m absolutely open to being completely wrong and I would love to have a debate on all these various things since I’m just trying to seek a perspective that I believe in like anyone else. Well, let’s see. What were we talking about? Well, I’ll tell you my general thesis. My general thesis is that in the past, nearly every major technology trend has been disowned by Silicon Valley.
If you think about the core layer technology, if you just sort of break it into 3 general parts, the core Layer 1 technologies as we call it today, but if you think about that originally, silicon, was really like the sort of the base layer technology. It’s kind of down south in San Jose, let’s say. And then the business models have more or less Mountain View, Palo Alto, and then that was for example, of course, Google, Facebook, whatever else. And of course, there’s an iterative process between the business model and most of the underlying supporting technology or infrastructure. And then the consumer experiments, consumer adoption experiments more recently like Uber and Airbnb, they were all basically executed here at San Francisco. And so this whole sort of experimentation cycle all happened really within like 20-30 miles of one another. And so you can say it’s centralized, it’s vertically integrated, some people might even say it’s monopoly whatever, but it’s also efficient. It’s also efficient because everyone’s in the same ecosystem and everyone understands that it’s an iterative game and you know work together because even if you don’t win this round, there’s going to be the next one. And there’s also you know the similarity of culture and there is kind of shared values and in fact, it actually works very well and you know we see the results of that.
What I think is happening in Blockchain is I think if you take those three parts, I think it’s being broken apart. And so I think that the base layer of Technology is mostly being executed in the West, and that’s a big priority for Silicon Valley, and that’s what Silicon Valley really loves to invest in. And I think that’s partially driven by people’s values and preferences and their skillset. And then also the narrative around the fat protocol has been really dominant for the last 18 months. And this whole idea of “wow, it’s tantalizing. What if we could have monetized HTTP or TCP/IP, it’s a really amazing thought. And there seems to be enough going on in Blockchain and that’s at least kind is worth experimenting. And so I think that that’s really going to be the focus in this market.
I think the business models are likely to come out of East Asia because in East Asia, that’s where you have very sophisticated consumer internet, companies, entire kind of ecosystems, and people are very sophisticated when it comes to various aspects of whether its e-commerce or gaming or whatever it might be. And also frankly, and I mean that really in a good way, people are a little bit more short-term greedy. And so that’s where I think you’re going to get like a faster iteration of these new business models and people will figure out, try to experiment and figure out a way to really make money with this. And I think you see a number of experiments so far. Some of them more successful than others, but there are elements in some of these experiments that are actually pretty interesting.
So say what you will about F-coin, if you get past all the rhetoric around “oh, it’s a scam” whatever else, it’s actually kind of interesting this concept of you do an action and your earn tokens. And so I’m a little bit biased towards that perspective of earning cryptocurrency money, buying it or trying to mine it, for obvious reasons, but I think that’s pretty interesting. Now their tokenomics weren’t so clever because their supply of F-coin far outstripped any demand they could generate, and so they basically crashed the prices of their token and therefore it wasn’t great for further typed product. If that happens to your tokenomics.
But I think there’s a core point there which is interesting which is how do you create a consumer environment where consumers are potentially earning coins for taking an action on your network? And how that can be implemented in different contents in the future. So maybe that’s a primitive, I don’t know, but it’s possible. So that’s like all the business models potentially coming out of East Asia.
Now, the issue with both United States and also a place like China is that from a regulatory standpoint, they’re not so friendly. So the U.S. is going to heed to this accredited investor framework, which means that only roughly 5% of Americans are accredited investors. The rest aren’t, and so it’s going to be really hard to sell this stuff to the 95% of Americans.
And then if they are deemed securities and that’s still being figured out, but if they are deemed securities, then it’s also illegal to give away these tokens to people, because people thought about this in the 90s and it’s incumbent upon the issuer to really very disciplined about that. So people are definitely not even going to want to give it away. So there goes the airdrop idea, if they’re all securities. So essentially in the U.S, it’s not looking great when it comes to consumer adoption because you can’t sell it to most people and you can’t really give it away. And so the only sort of a couple of channels that are left in there is; one eventually will be that the Bitcoin be listed as an ETF, probably in a few years, I hope. But then, the rest of the ecosystem is not going to be readily accessible to the retail capital market, and then the whole airdrop thing is probably going to diminish a little bit or sort of be made a little bit more peripheral. And then, I think that the only way that you can make this broadly accessible to people is for people to earn it. And so that to me is a little bit an open question.
But that’s not a massive consumer adoption channel today. So, therefore, I think consumer adoption of cryptocurrencies in the United States is going to be likely… it’s just not going to be that rapid. I don’t think we’re going to have a hockey stick type of thing. And I think it’s a matter of perspective because some folks would say “oh, we’ve done so well. We probably have 25 million wallets on Coinbase or something like that.” It’s not that it’s not really great for adoption. Well, I think that’s a positive, but if you look at that compared to internet adoption, broadband adoption. And if you look at the usage of cryptocurrency within those wallets, I think it’s really quite insignificant in comparison. So from my perspective, I don’t think that we have anything that we really call broad scale consumer adoption anywhere close today.
Okay, sorry to interrupt. When you mentioned that eventually people may earn it. What do you mean by earn?
That is as a mode of payment potentially, but then also some form of what we’re trying to do at Earn.com. So for example, a stranger comes and does the task on the market, some sort of task market place, and then you get paid in tokens. Where I engage with your application like imagine I take some rights on Uber and I pay $10 for a ride and I get some rebate in tokens. So I think that could potentially be interesting if you got the tokenomics right, or at least it’s worth experimenting with. But then that is not so much a fully decentralized network. It’s more of an application that incorporates an aspect of Blockchain in order to you know make the network, make the experience even better for consumers.
So I think that’s potentially something that might happen. I’ve love to have people to experiment with it. I think that right now, it’s difficult for people to experiment with that at least in this market for two reasons. One is because people are uncertain as to whether that’s going to be security or utility token or what exactly is going to be and what are the rules around it. And then the other is, I think maybe as a result of the first one, but also just investors are less excited about utility tokens in this market. And for a good reason, very few of the so-called utility tokens have retained any value whatsoever. I think the one that’s done the best is Brave, BAT, and I think there are $250 million or so market cap. I mean, it’s gone up recently because of their new liquidity profile (Editor’s note: Coinbase recently listed BAT on its exchange). But you know, that’s like a proper application with 4 or 5 million monthly actives or something like that right. And so that’s helped sort of retain the value of that the utility token, but most other utility tokens cannot boast anywhere close to that sort of usage. for their attached application for which they’re supposed to have utility.
So I think that in the U.S. it’s going to be fairly limited for consumer adoption, to be fairly limited for those reasons, and then I think in obviously in East Asia or specifically China, it’s also going to be very limited because the government wants it to be limited, for myriad reasons we could talk about. So therefore I think that when it comes to consumer adoption, the most kind of fertile ground for that is in developing regions. So I think Southeast Asia is probably number one where you have fairly well-functioning economies and then also, and like you know the rule of law, but then you also have more of a need for this stuff for solving everyday things. So payments don’t work very well, or they don’t work as well in in some of these countries as they do you know here. Here, we don’t really have a problem….
Right, we don’t need any of these things.
We don’t need payments, remittance you know, just the rails of everyday life, they work very well here. And so therefore in this market, I think a lot of energy is going towards something like security tokens because there is a huge amount of value that you can imagine being unlocked with security tokens if you can securitize offline assets. Starting you know, real estate would be an obvious one. I just bought a house and paid you know, thousands and thousands of dollars to a title company to issue me a piece of paper. There’s a lot of trust that I have to I have to have in order to know that like this valuable asset is now mine. And so things like that, I can absolutely see the value and things like tokenizing artwork and other valuable assets that heretofore were entirely offline, I can see a lot of new markets that are made out of that. And so I think that crypto in this market is likely to go in the direction of more financialization, and that’s certainly sort of aided by the fact that crypto is likely to be seen as some combination of security and or commodity in different contexts, and is going to be regulated as such.
And so I think that’s really going to be the focus in this market and less so on the consumer side because right now there isn’t a clear sort of application of crypto into consumer contexts. And then furthermore you know, the most obvious ones which are around money and payments are just not necessary here. In fact, they’re notably worse because if you have massive volatility, you just can’t use it on an everyday basis for we’re paying for goods because you don’t want your coffee to be $4 now and $6 later, like literally in minutes in some cases.
So therefore I think that you know this market really great a base layer, consumer business models like the traders thought out and experimented with in East Asia. And then the experimentation is probably going to take place in places like Southeast Asia, Africa, Latin America, where there’s sufficient digital penetration so you can experiment with not just the payment stuff but then also potentially sort of consumer outstanding a great aspect of crypto. I don’t know exactly what that looks like, but I think that that’s going to get figured out in the next couple of years. So that’s my observation, that’s my perspective, I could be entirely wrong, but then what I think is interesting about that is it’s actually not so efficient, it is decentralized, it is distributed. And so you kind of check that box and you come to the whole ethos of this of this ecosystem, but it might actually be difficult to sort of create this those closed loops of feedback such that the infrastructure service application and then you sort of have that have that iterative sort of development process, because if you’re a building Layer 1 protocol here and you sort of prioritize certain features but then your users are sitting halfway across the world in a cultural everyday whatever context which is completely foreign to you, does that matter? I think it does, because I think that ultimately these protocols still have to be sort of tailored towards whatever their use case is, or at least have to sort of evolved over time to fit that use case. And if the people behind them, which were between sort of beginning protocol and then users are so different, I just wonder what that means for the development cycle, efficiency of adoption, and relevance. So that’s just one thought that I have.
So it sounds like it’s a challenge for US based companies who are trying to produce applicable products that could potentially be adopted at least in the East?
Yeah, it’s kind of like if you’re going to develop let’s say you Layer 1/Layer 2 protocol. Yes, it’s open-source development and everything, but even so the core team of developers has to prioritize some features over others. And what is that, what drives that prioritization…
Like how globally minded are the product managers who are actually taken into account the users….
Yea, they are called product managers of course, are called lead developers or..
Or just missing that role…
But like ultimately, the open-source protocols is still a product of sorts. And it’s designed in a certain way to prioritize some features over others, and the question is just what drives that project prioritization, and how is that made relevant or not to a different cohorts of end users around the world. And some of them want payments and remittances, others want more performance for smart contracts platform that prioritized privacy or don’t prioritize privacy, you know, TPS versus privacy and all sorts of other features.
And so to me that’s an open question which I think is being worked out right now, and it certainly will be worked out over the next couple of years. I think that you know outside in, it seems like one of the efforts to sort of try to scale something globally is for example what EOS is doing where they have, probably too much money, and they’re using that to seed all these ecosystem funds in every region around the world. And so maybe that’s modern how replicable it is, because it presumes you have 4 billion dollars to start with, but that’s a separate matter.
So that just kind of makes me wonder when it comes to Blockchain adoption because it is distributed. Typically, we accept that decentralization and distribution makes you like more anti fragile, and it makes you more robust in a certain sense but then it also it also makes you a little bit slower and less efficient in other sense. And I just think that’s going to be interesting how that plays out when it comes to sort of adoption.
Now, what I’m a little bit more pessimistic about is you know, public blockchains. Blockchain is just a technology, it’s just a distributed ledger, it doesn’t have to be sort of decentralized and distributed amongst untrusted actors. It’s a technology that the governments can very well use in order to strengthen, and better promote their interests. But I think this is already happening, you’re starting to see it on the periphery today with Venezuela and the Petro, which many of us think is maybe not the highest quality coin out there and has a number of problems with it. And then you’re seeing potentially North Korea either hacking or stealth mining, or spreading viruses in order to try to get outside of the US correspondent bank system. And you know now, that there’s new sanctions on Iran, I expect that Iran it’s going to get a little bit interested in this as well, and I think there was also like Iraq issuing their ow, some form their own Blockchain currency, I could be wrong on that one.
And then the Marshall Islands adopted SOV (sovereign Coin) and basically took it as their currency. And then there’s also been sort of interest from a number of other nation and states, which may be closer to… or not so much on the OFAC list or on periphery thinking about doing this as well. And so to me it’s just really a matter of time before countries tokenize their currency. And then maybe mandate that all of their citizens use a digital wallet, which is based around the digital Fiat. And then that digital wallet could very easily be also how people hold their digital identity. And so actually there’s a number of aspects of the technology, which could kind of enable a surveillance state. And that to me is pretty, it’s inevitable, it’s just a matter of time.
And I think that the country for which is most capable of accomplishing this and for whom it’s the most strategic is obviously China, because China understand that the unfettered digital world is in competition with the nation-state. So as you know, increasingly it’s not just information that’s going online, but to the extent that we can take money online. If we take money online in truly digital format, which is Blockchain, which is Bitcoin, then economies move online and with money comes power and decision making and so you basically have people moving from living almost the entirety of their lives in the nation-state to moving into at least part of the time into the digital stage. And every person, every hour that moves into the digital state is an hour or person that’s moving away for the nation state. And for countries, if they don’t talk, if they don’t appreciate that already, they will. And China absolutely appreciates this, they get it. And they’ve been appreciating that with the internet for many years now. And so this is really just sort of a continuation of that, that also needs to be sort of circumscribed and moderated in relation to the rest of the Chinese citizens experience.
And so what’s interesting to me is digital Fiat for China was actually highly strategic because not only is it a fantastic input into you know their social credit system, but then also it allows the government to both have a reserve currency as well as a controlled, domestic sort of currency. By which I mean you know, right now the Renminbi is somewhat free-floating, but it’s free floating within sort of like a pegged band. And so it’s like sort of pegged floating. And one of the reasons they do that is because the priority is always to maintain sort of internal stability. And that’s more important than anything else because these social contract has always been you know, as a Chinese citizen you sort of “stand line and I will make you rich.” It’s fundamentally an economic contract, the social contract fundamentally an economic one. And so therefore, it’s very important to sort of maintain this ability to the economy in order to maintain neutral stability and a big part of that is maintaining, is having a firm control on not just fiscal policy but also monetary policy.
Now, that comes at a cost of monetizing the whole sort of economic sphere of influence that China has invested in over the last 20 or 30 years. Now, initially when they were building roads in Africa in order to sort of you know build a pipeline to natural resources as part of it, but then also sort of develop the relationship with local governments. And then you know, they didn’t stop at Africa, they for a period of time where a massive investors in Venezuela and then also sort of in other economies in Latin America, Central America, South America you know, certainly developing relationships and the least. And then more recently sort of building that bridge through the One Belt One Road policy trying to connect to Europe. And then on top of that, if they’ve of course invested a lot in the economies and also the security in Southeast Asia, and so they’ve invested everywhere. And now they also own like a what 7500-year lease on the port in Sri Lanka as well. And so they’re developing like this whole sort of network effect around the Chinese economy. But without a reserve currency that basically links all that together, it’s hard to fully monetize that in the same way that the US has, because the US is a massive network effect; the dollar. And from what I understand right now, the tradeoff has basically been, they don’t want to have a free-floating reserve currency because then that makes it harder for them to sort of control monetary policy if needed at home. but potentially with the Blockchain, you can real-time in a very low friction way sort of say Joyce can do something and Lily can’t. And so Lily, your address is white listed and so you know Lily I can transfer millions of dollars whereas Joyce, I’m sorry you’re stuck with your $50 000 here you know, and transfer in and out of the country. Basically, this way they can have their cake and eat it too, have the reserve currency and also the internal sort of monitoring and control. And that’s why I think it’s highly strategic and it’s just a matter of years before it’s going to be done.
And so therefore, when I think about Blockchain and you know adoption and distribution, to me I think that it’s really countries and companies that have to own distribution. So larger countries; China and India. 1.3-1.4 billion people, and you can basically require that folks use your digital identity solution. So that’s pretty powerful. And the second best of that would be like a Facebook where they’ve got probably 2 billion people but they don’t have as much of their timeshare or mindshare. But they can still sort of probably command distribution and adoption amongst a good portion of those two billion people. And so those are I think the two most powerful actors when it comes to distribution of this stuff. And you know, public Blockchain with its ethos and it’s like core values around distribution and censorship assistants are antithetical to both of those very large distribution platforms, both essentially want to retain power, sort of contain their moats. So I think that’s going to be an interesting…. I actually see this being a little bit of a race. I think that it’s probably a matter of 3-5 years before one of these large countries or companies successfully launches a very large Blockchain and that sort of becomes the reference experience with Blockchain, say what you will about being centralized or decentralized. And I think that’s going to be kind of the reference experience in those people’s lives, and then the fully decentralized public Blockchain I think is going to be fairly small in comparison to that. So that’s what I see right now, I could be completely wrong.
That’s fascinating. And I agree with you and so many things you’ve said of you know, what China is doing and controlling that information, and really having the foresight to start paving the road for the future, about digital currencies and also that influence globally.
Even the non-monetary applications of Blockchain are really great for the Chinese government, as for that matter, any government. Because if the role of the government is to essentially regulate markets and to provide and to be that trusted actor. What happens is when stuff goes wrong, so for example like the whole vaccine problem, the whole milk powder problem in China. When that goes wrong, everyone gets mad at you because you’re supposed to be the trusted actor, like you as a government is supposed to keep me safe. Now, to the extent they can take some of this and offloaded onto a Blockchain, they’ve sort of protected their own position as being the regulator, they’ve taken a nasty problem let’s say a vaccine supply chain, and as I said “Hey guys, it’s all open token now” if something goes wrong, they’re no longer than the only person we get mad at. So it’s certainly good for consumers because now you have more transparency and all that kind of stuff, but another beneficiary is the government, it makes their job easier.
Yeah, that is true. It’s already very hard to manage a large country that’s so large in land mass as well. So I think they….
And so diverse.
So I think they already have more experience than anyone managing a decentralized kind of society and communities.
Right, which is oftentimes like a Western misconception of China being a a heavily centrally controlled country. To an extent to this, but it actually isn’t really. Because how could it possibly be with 1.4 billion people and a land mass as larger as the United States and arguably even more cultural diverse in some aspects? And so China is really interesting that they have very central power or very strong central power, and so it like all roads lead to Beijing at the end of the day, but at the same time they’re actually very permissive with local experimentation. And the central government actually fosters a kind of local competition. And so what I was telling you about sort of rural health insurance programs I was looking at back in 2000 and 2003, I was in Yunnan Province. And was interesting to me there, it actually took like an incredible sort of rational approach to it, where they had clusters of different counties and they had 4 or 5 ideas as to how to implement rural health insurance programs, and they basically piloted it, did 4 or 5 different pilots with different clusters of counties, and kind of have to had them compete a little bit. And I thought that was very clever. And so they’re all about local experimentation.
Yeah, exactly. That is so true and I think that’s something that a lot of people are looking to learn more about as they’re going to market in China. There are some projects that are already looking to build up presence there and form that communication with the local government. And having them to be able to form that relationship is super important. Do you have thoughts on how projects like the US should be doing that?
I don’t know as much as I haven’t been doing Blockchain specifically in China, so I don’t think I have as much insight into exactly how you build community and how you build, and how you sort of involve different stakeholders. And the regulators are absolutely a very important stakeholder. So I think people are figuring it out right now, I’m curious how it goes.
And do you think, would the West and the East diverge from what we’re seeing now?
I think there will be divergence. I think that what’s probably going to happen is Layer 1 protocols or I don’t know, some really amazing technology, is probably seeing a too high evaluation for seed stage, pre-launch, essentially seed stage technology to have at most multi-hundred million validations, it’s probably on the high side. Anyway, the other way of looking at that is that finally there’s a way of funding this type of really cool research outside of the university, not just writing papers about it, but actually experimenting with it in practice. So I think that’s the positive view that I try to take even if the valuations are a little bit scary sometimes.
But most of that stuff is open source, and if it’s open source, then it means that you can…. If it’s an open source repo, let’s say on GitHub, you can literally clone it in seconds; you just type in “Gitclone” and then put in the URL of the repo and there you go.
And so that’s not…. I mean, you can’t just do that and then hit production and then sort of have an app running in like seconds necessarily, but that gets you a lot of the way there. And so for funding all of this really cool research, but it’s largely open-source. I just wondered how defensible that is for value creation, and value captured by the folks who funded it when folks in other teams say that’s a really great idea, why don’t I take this idea through these snippets and integrated, and thanks. And so I think that’s potentially where the divergence may come from. So even if the underlying technology is kind of built here, that value capture may not reside here. And I don’t know that there’s a very good solution to that.
It’s interesting because in China, a lot of the projects want to build their own Blockchain, like there’s a competition, but you don’t see as much in the US where people are probably building more on top of the existing Blockchains, but in China it feels like they could just be copies of the existing Blockchains and building their own. And then if they are able to capture that relationship with the government or local governors, and implement that and have more users immediately.
That’s right. And so how the distribution first versus technology first. And I think that’s one way, that’s maybe one simple way to capture the difference in perspective. And so folks here are very much about their technology first. Really sort of beautiful very pure, very novel technology. Unfortunately, most of it is open source, so it’s very difficult to defend.
And I think the most likely way to monetize that is to basically have a for-profit services company around the open-source technology, or applications which may you know, AWS, for example, uses a lot of open source technology but then it provides an incredibly valuable service on top of that, which is the business. I think eventually, something like Consensys is probably going to migrate into a services and consulting type of an application.
Consensys is doing that exactly, by working with the government and helping them implement Blockchain.
But basically, provide services and therefore actually have a positive P&L. And that is not a novel business model. It’s very good business model, but that actually used much more to the well-worn paths of how technology companies monetize. And so that’s not great if you’re holding tokens rather than equity and the sort of services company.
So I actually think a lot of this is going to converge upon existing business models, and then I think that folks whether in Asia or elsewhere, they’re just going to look around and be like okay, well here is some really interesting aspects of Blockchain technology other people have built, let me put it together and make it my own. And to an extent, it’s not it’s not even just Asia that’s doing that, even if you look in Silicon Valley, there’s one part of Silicon Valley, which is investing very actively in the fat protocol thesis. And there’s the other half that did the Telegram ICO. And to an extent, they can’t really both be right.
Essentially the story behind Telegram is we’ve got 200 million users and growing, many of them really really love crypto, and we’ll figure out exactly what technology we’re going to put behind TON. Because we’ll look around and see what works really well, and then kind of tailor it to fit us. And it’s all open source anyways. To an extent, like the fat protocol thesis and then the sort of the telegram ICO has value type of thesis and I think are kind of mutually exclusive. So it’s not just in Asia where people have this kind of you know we’ll go for adoption first before we build full technology.
Yeah, that’s a very good example within the US where people think about whether this distribution or technology would win. I guess from an investing point of view; how do you think about investing globally within crypto?
The reason why I think that is because I think distribution is actually the more defensible moat in the situation, where you can’t really patent a lot of this stuff. And so therefore relatively distribution is more common. That’s my thesis right now actually, and I again I could be completely wrong.
And most of the I would say Silicon Valley investors have been looking at quality of the team, and just how good is the team, and how much better is a team. It’s never really about distribution. I mean, community matters but not necessarily the same way, and the team is increasingly more technical as well.
And that’s a perfectly fine way to be doing seed investing. That is how one should be doing seed investing, like founders, market fit, that type of thing. The question is just whether those seed stage projects should be commanding 8-9 figure valuation to hold a token, which has no governance rights, and has no real recourse, and is a whole lot of money.
That seed stage when there’s a certain logic in traditional investing where you invest more and more money as you see people hit more and more milestones. It’s like fairly rational. So you prove, usually fund company enough for 2 or 3 years, they do what they said they were going to do 2 or 3 years or not, and if they did, then create something valuable then you continue to invest; that makes a lot of sense.
What it’s a little bit more of a head scratcher here is okay, so this is a seed product in a very competitive space and its worth hundreds millions of dollars and they’re going to have potentially tens if not hundreds of millions of dollars on their balance sheet to do… what? But I think thankfully those times seem to be cooling down a little bit, it wasn’t really sustainable.
But in terms of investing, I think that most of the stuff that happens in this space is especially driven by speculation today. There are billions of dollars of transaction volume every day and there are probably thousands of transactions. You just look at the volume of transactions on Ethereum, and then if you take out of that the number of transactions, which are going between exchanges, it’s really not significant in terms of real use. You know, all speculation, it’s not use. And there’s nothing wrong with speculation; trading is a perfectly fine business, it’s very profitable business, people do gain value out of it, but I think that’s really where most of the kind of use if you will be going on today. If it’s all speculation no use or very little use, without use, I think there is limited value which is being created. If there’s limited value which is being created and it’s hard to say you’re investing, really what you’re doing is trading. And I think that that’s the most kind of substantial business, which is actually happening in crypto today which is trading. And so therefore, I think there’s a number of…. I can see there being a need for a number of Blockchain specific services that the non-blockchain tech companies and certainly other incumbents are not well placed to provide. So for example, Blockchain simulation is something, which is very specific of Blockchain and this kind of got to build it Blockchain native first.
I can see a need for things like that, I can see a need for a number of different sort of trading tools, and so I there’s a number of people who are building portfolio management systems (OMS), and also word execution a kind of routing solutions, and I think that makes a lot of sense because when you look at just the fragmentation like ever-increasing fragmentation of different markets as well as different asset pairs, that you don’t have in the world of crypto trading, there just need to be new in different ways to marshal all of that and to make those markets more efficient.
And so I can see very much you know value being created there because it’s new enough and it’s different enough, and therefore it makes sense to have new solutions. And also similarly, Chainanalysis has been around for a while, but that’s also a very unique business that you have to build crypto first. So I see you need for companies like that.
Now, the question for me is sometimes people think or are asking what’s the next like Google or Facebook of Blockchain. I mean frankly, to me it’s just Bitcoin. Like we already have it, it is called Bitcoin.
Or just Facebook.
So the next sort of network effect killer, obviously can’t call it a company in the system, it’s already here, it’s Bitcoin. But then what I’ve been thinking about is what is like the big behavior change that crypto could bring? Because that’s where incredible value gets created, if you just think about the behavior change that we’ve now all sort of slowly migrated to with all the Google services that we use, it’s events, and similarly, social media and the way that’s fundamentally transformed the way that we socialize with one another.
What is the way in which watching technology is going to sort of create some massive shift in behavior, and well I mean, the question first of all is, will there be? Is it going to be sort of a base layer sort of abstracted way the level of layer of technology which is there to power real estate on the Blockchain and things like that, but more or less is facilitating an easier way for us to live our lives as we already live them, or is there some…. That I think is necessary to really think about whether this has consumer applications, to think about whether and how Blockchain is going to facilitate behavior change.
So my takeaway from this competition, is who will win the Blockchain war? Would it be a Bitcoin, Facebook or China?
I think that people are going to engage in different types of Blockchain. I don’t think there’s just going to be one Blockchain. I think so many different blockchains for different purposes. I think that if you just look at it in terms of like pure numbers, a country chain, or a Facebook chain, is probably, might have more people on it, but there’s always going to be a need for something like Bitcoin or ZCash or a Grin eventually, private scalable and self-custody, self-sovereign coin. You know, I don’t think it’s for everyone because I don’t think self-custody is for everyone necessarily; obviously not, but I think that that’s just always going to be very important option for people to have, and it’s probably going to become more valuable over time.
Do you have any resources that you recommend people to learn more about what’s going on globally and in crypto? How do you keep updated with?
Global coin research and Token Daily are two of the newsletters that I read every day.
I spend some time on Twitter but you know, Twitter I think this is a good representation of kind of like Western Blockchain. Outside of that, I don’t know, I’ll let you know.
Thanks so much Lily
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