David Shengart: TON and Libra are Next Big Thing
What is the current investment situation in the blockchain industry and does Wall Street really need bitcoin? David Shengart, blockchain investor and co-founder of SWIDOM business consulting agency, answered these and other questions in an interview for LetKnow.News.
- Over the past few years, the cryptocurrency market has experienced ups and downs. Do you think Bitcoin exchange rate affects investments in the blockchain industry?
- I think that the situation on the cryptocurrency market affects 80% of the influx of investment in new blockchain projects. It’s an industry that has led some percentage of active people over the past two years. And in fact, those who in 2016-2017 managed to jump in during the
ICO race, most of them continue to stay and work here.
You need to understand that when the projects are the same, then the set of investors is about the same. Those who managed to invest in EOS, IOTA after 2017, in the end lost their money, and as a result the limited number of investors has become even more limited. Those who distributed risks well - managed to save their money, but here are mainly enthusiasts in the market, and they either hodl or stay in long positions.
Therefore, one way or another, you are attached to bitcoin rate, simply because bitcoin is the daddy, and everyone else follows it. And your capital looks like a bitcoin chart. I can say that investors have definitely become more educated and 80% of them are not looking for market’s hype anymore, they understand that it’s a combinations of hype, effective team and technology. Now investors in this market are the same as in any other technology startup market. In fact, the Wild West is already over, and the market is "heading" in the direction of the classic startup game.
- Previously, funds such as Pantera Capital and Sequoia Capital invested in infrastructure projects, and now we have Coinbase, Binance, Circle and Ledger. In which area blockchain projects are currently attracting the most of investment?
- There are good protocol projects that continue to attract the attention of investors, i.e. Matic Network, Certik, Perlin, Polkadot to name a few. Right now, products with blockchain as underline technology are in trends. In other words, it does not add any value from the point of view of finances, but at the same time it solves some technological problem, such as the Shelf Network. It’s a blockchain marketplace for selling cars, and the technology solves certain problems of mediation and transactions, while at the same time it does not show anyone that there is a blockchain.
- Now the fin-tech industry is actively developing. What are the most attractive blockchain cases for investors?
- Now it is really very fashionable. And when I first entered the market in 2016, it seemed to me that the blockchain was exclusively fin-tech and projects that solve problems using the blockchain, but which at the same time do not use aggressive marketing, really have the right to live.
Now I'm looking at Digital Identity projects, especially products like Stepan Gershuni’s Credentia, and all that has anything to do with databases - their distribution into nodes, for example, the Mykola Minchenko’s Sixa.io project - those are cloud services for developers. It’s one of two Ukrainian projects that won Y Combinator and now they are making blockchain for gamers. That’s basically, a network where you can play your games with other people and at the same time use a computer without a video card at all. That’s what Google Stadia does, but on a blockchain with high data processing speed.
- Apart from the blockchain, what other technologies and industries do venture investors believe in?
- Now agro tech is actively developing, for example, the Sensilize project, which helps to increase the harvest with smart farming, using surveys from a drone, a satellite. In general, it’s a spectral analysis that allows you to control the quality of the crop.
Medical cannabis is also gaining hype in the US and Canada. Now it’s tight to geography - namely California, Colorado, Denver. Another 24 states legalized medical weed. In 2017, the total legal cannabis market valuation was at $9.2 billion, while upto $32 billion is expected by 2022. At the moment it is on the verge of a gold rush.
Market that uses marijuana in cosmetics and food is also developing. At the same time, it has been proven that THC works effectively with Alzheimer's disease, for post-traumatic syndromes, depressive states and other ailments. In addition, there is a law according to which everyone has the right to choose their own medicine and, possibly, we will get to it in
Ukraine over time. Unfortunately, while Ukraine is a country where all those in power are sitting on scheams, and most likely this process will continue.
- Investments in companies developing artificial intelligence reached $11 billion, which is many times more than investments in cryptocurrency projects. What causes such a hype around AI?
- In fact, there are some projects that solve existing problems. For example, Minect.ai, which has already received investments from the Ukrainian government. This development is engaged in mine clearing based on artificial intelligence. Therefore, all this will live and will solve some problems. Of course, half of the projects will disappear for good, but that’s a natural process.
- What is the probability that among companies involved in the development of AI there will be no scammers where instead of AI it will be people, who will do the job? And how can a venture capitalist insure himself against possible losses?
- I suspect that’s a real issue for many projects. This problem is solved through Due Diligence, which can be multilevel. First, there is a general run, i.e., the structure of the company, the financial part, and marketing are checked. Then the game begins, where you have to show how it all works in practice, and you have to give out more than necessary from the point of view of intellectual property. Moreover, if you really want the fund to invest in you, you need to give out some secrets, which is achieved when drafting non-disclosure agreements. In addition, investors can highlight issues where, for example, it is not clear how this or that part of the technology works. And the venture capital fund may attract third-party companies for audit, warning the startup at the same time.
Moreover, it happens sometimes, when a startup lied by saying that 100% of the product is ready, but in fact - just 80%. And this suits investors, because there is such a thing as Fake it until you make it. Fortunately, the rules are changing in the Silicon Valley, and they are likely to change for us as well.
The point is that the focus is not on project evaluation, but on income, not on cultivation, but on project profitability. I’m talking about the fact that the first stage of a startup’s conditional development is the achievement of some indicators: annual turnover, influx of customers, clear metrics. And only when a stable working model is achieved, you do cultivate it. It happens, however, when the model is not completely stable, but the project still continues to cultivate it, such as Netflix, which laid the minus model for its development for many years to come. Now they say that until you reach profit, there will be no next stage of investment.
- One of the significant events of this year was the launch of supply futures from Bakkt. However, that did not affect the market in any way, contrary to the expectations of the crypto community. What was the reason for that situation?
- I do not believe that future contracts are going to save the entire industry. That’s why, institutional money did not come and most likely will not come. Since, e.g., IBM builds all systems internally, JPMorgan builds all systems internally. And why would anybody saw one’s own legs and invest in other projects if it’s still easier to hire employees inside the company? Now I’m observing the problem of Polkadot - that’s a very promising project that makes a quality product, however, so far they lack power in the business. I’m sure that in the future they will live successfully, because they solve the essential problems of the blockchain industry.
- Is Wall Street in need of bitcoin?
- Probably yes, they need it. However, most people have bitcoin to some extend. Do you think the Winklevoss brothers did not sell bitcoins through OTC to some royal families? Everyone who wanted to have some - did buy them long ago, and we won’t know that for sure. That’s the happiness of Bitcoin that you can be anyone: McCafe, Warren Buffet, or just a thief, and still keep Bitcoin in your Trezor.
- What trends are we going to see in the near future in the crypto industry, in particular, in connection with the launch of such projects as TON and Libra?
- TON and Libra is the Next Big Thing. Those are projects with a huge prospect, but they will have to survive tens of thousands of stresses before doing well in the market. While their fate is vague, I keep my fingers crossed for them. Perhaps, in 10 years we will see that there are only two platforms left - namely TON and Libra, and a little of EOS in Korea, which is still selling its $4 billion.