Blockchain Explorations in Asia — Summer 2018

We recently completed our first overseas reconnaissance as we look to give our portfolio greater geographical diversification. Given the summer lull in the Americas and Europe, it seemed an opportune time to connect with a part of the world that does not slow down much in July and August: Asia.

First stop, India!

The choice of Mumbai as a stop on this tour was one of convenience rather than necessity. Having procured an incredible airfare to Mumbai, I set up meetings in an ecosystem where I have deep connections, given my previous investing experience in this part of the world.

Going in, having heard of scams in the market, regulatory restrictions, and limited local tech talent at the protocol level, I was skeptical about blockchain deals here. But I was pleasantly surprised.

Some notes from meetings with key market participants:

• India is a stifled market for crypto. Just 600,000 traders/wallets account for about 0.3% to 0.4% of global trading volumes. For a country with 1/6 the population of the planet and one of the fastest growing / largest economies, that is warped even with PPP adjustments.
• Regulation stings crypto. Regulators have taken a dim view of crypto and blocked all access to fiat-crypto exchanges. As elsewhere, regulators are still trying to understand what is going on in crypto. The knee-jerk reaction has been to clamp down on exchanges and fiat/crypto conversions with an eye to national security. One hilarious anecdote recounted to me involved a regulator who thought a public blockchain had to be run by the government (as in “public sector”) and a private blockchain is run by private enterprise. There is a ruling due on Sept. 11, 2018, where the industry tried to make a case for liberalization and the regulators seem to want to create some sort of regulated framework. But for now, this is a market of crypto-crypto traders who somehow managed to get crypto.
• Corruption taints crypto law enforcement. Even while struggling with managing crypto in criminal activities, some corrupt officials have mastered the art of siphoning of seized crypto into their own wallets.
• Regulation stings beyond crypto. There is a tax on angel investment that paradoxically creates disincentives for early investors.
• Angels who persist are seeing consistent but small exits. India’s corporates have stepped up M&A activities, and small tuck-in acquisitions are becoming the norm.

Onto Dubai in the UAE

Dubai is turning out to be a hotbed of blockchain activity. This is largely due to Russian and other Middle-Eastern expats choosing it as a base for crypto operations and the attraction of technical talent from the Indian subcontinent and Middle East. Major projects like Telegram are based in Dubai, and under the guidance of Consensys, the government has made blockchain a priority for its economy and governance.

Although it was 120F outside, I met some interesting entrepreneurs as I moved from thankfully air-conditioned cars into air-conditioned glass buildings in a surreal city sticking out of the desert sand beside an exceptionally calm sea.

• Discovered a remarkable passion project. I met the passionate team behind the Dhonor.org effort to put organ donors and organ provenance on the blockchain. The project has gained a lot of traction regionally and globally.
• Leapfrogging to blockchain. Several GCC governments have started rolling out blockchains for healthcare and defense. It helps to not have a legacy system in place as we do in the West, which prevents easy migration to EMR on blockchain.
• Developer talent surprisingly good. With a Consensys Academy in Dubai and ample foundational skills, there are more smart contract coders here than in some American cities.
• It’s a regional opportunity. Although there are just 10M people in the UAE, most entrepreneurs view the market to include Saudi (40M people), Egypt (100M people), Turkey (80M people).
• All eyes are on Saudi Arabia. With a dynamic new Prince spearheading change, most entrepreneurs consider Saudi Arabia as the growth engine in the region. The Saudis also have the resources to make initial investments in technology infrastructure, with Egypt providing room for scale and expansion.

Showstopper: Singapore

A friendly regulator has made Singapore the de-facto capital of blockchain ecosystems. I met with large venture funds, investment bankers, entrepreneurs, and media influencers in the blockchain ecosystem here.

• Liquidity rules. There is a trading mindset here — and investors seem to prize liquidity above all else. The bull run in ICOs continues as far as they are concerned, so trading post-listing is on everybody’s minds.
• Yet there is no OTC market. Trades are achieved via escrow mechanisms, usually via reputable law firms. The thinking goes that lawyers with revenue over $1B are unlikely to abscond with $500M of bitcoin in escrow holdings.
• Disproportionately large blockchain VC funds. For a small island nation, it boasts several $500M+ AUM funds.
• Local blockchain media is thriving. I grabbed a beer with Shashwat “Shash” Gupta of Altcoinbuzz.io. He works out of a very cool space downtown, which resembles a WeWork set-up in Silicon Alley. It was fascinating hearing about the local scene from him. Other outlets like Block Asia and Bits On Blocks are also keeping us well informed on the blockchain scene from Singapore.

The travel was hectic, and in the summer months quite uncomfortable, with high desert temperatures in Dubai, monsoon rains in India, and equatorial muggy days in Singapore. But I returned with a slew of new relationships and interesting investment opportunities which will help us round out our fund’s geographical diversification.