Q&A with Yubo Ruan: Prospecting the Blockchain Landscape for The Future’s Hidden Gems
The Crypto bubble has popped but like the .com bubble that produced Google, Amazon, and others – we are now seeing the survivors emerge from the ashes. We sat down with one asset manager in an exclusively Crypto fund from Asia to hear his thoughts on the market and we asked him some pointed questions. Although that US readers are skeptical about Crypto as it has pretty much crashed and burned to the ground here, we must remember the world is a big place and in Asia and Europe there still is a budding Crypto community. In fact, readers of our past posts may think we are skeptical about Crypto as an asset class but that’s not the case. The problem has been that 99% of ICOs went down by 99% and that’s an indisputable fact. But even in our mandate for we maintain that we will evolve niche markets, one of them being Crypto.
The blockchain and crypto ecosystem globally has long since grown out of its Wild West phase and has started to resemble something more akin to the broader tech sector.
One of the biggest milestones in this evolution is the enthusiastic entrance of institutional capital into the market. As traditional venture capital firms turn to crypto, the sector has started cultivating its own VC funds, helping blockchain expand its reach and thrive.
Even so, the past year has been rough for crypto. An extended bear market continues to sap the sector of many promising projects and has weighed heavily on crypto’s overall value. Nevertheless, things are not as bleak as they may seem, according to some industry experts.
Since we have founded we have been inundated with requests of all kinds, but we have often crossed the VC community – and that community is hot into Crypto.
So we had a unique opportunity to sit down with Yubo Ruan, the founder of 8 Decimal Capital, a VC fund that invests in both blockchain equity and tokens. He shared his views on the current state of the market as well as where he believes it’s headed.
Can you share a little about your investment strategy? How do you determine the projects which are worthy of capital allocations?
Generally, the team behind a project is our most important criteria. Some of the backgrounds we look for include previous experience at tier 1 tech companies like Facebook or Google, as well as tier 1 crypto firms like Coinbase, Ethereum, and EOS. We also look for entrepreneurs who have successfully exited previous endeavors, or who simply exhibit strong knowledge and familiarity (what we would call “geniuses”).
The second criteria we look for is the size of the market being disrupted—the larger the potential, the better for us. Of course, there are other factors we consider: market fit, competitive advantage, business model, “painkiller vs. vitamin”, forward projections, and so on. Overall, we look to invest in projects that could shape the industry’s future, and eventually, the world.
Are you concerned about the viability of blockchain projects as the current bear market drags on?
There’s no doubt that the bear market is a formidable challenge for many blockchain and crypto-related projects, but it is also an opportunity for entrepreneurs and investors to really focus on fundamentals and uncover the use cases that are truly viable. This is an interesting period in which the successful use cases and proofs-of-concept in blockchain will begin to emerge and drive innovation in the period ahead. We are anticipating the release of several more dApps over the coming years, with some representing true breakthroughs. That will help gradually restore faith in the sector and drive adoption back to positive levels.
How do you view the current coin ecosystem? Who are some winners and losers?
The losers in the sector are those that have completely shut down, either due to failure to deliver the product, a lack of viable use cases, or simply a poor business model. The winners are more often those that follow their roadmap, delivered their products and expended or even produced significant revenues during the bear market. Binance is a great example of a company that released multiple products and kept expanding through the current down period. Other examples include protocols that promised a mainnet and delivered, such as Cosmos and Ziliqa.
Which five coins do you believe, with good certainty, will still exist in five years?
First and foremost, Bitcoin—it’s the first cryptocurrency and has received the most PR over the past decade. Even if it fails to reach real adoption, people would still probably collect and trade it as an artifact. Ethereum is too big to fail and is also the most mature and widely used blockchain in the industry. It already has a thriving ecosystem of tools, developers, L2 solutions, and protocols. It is also backed by a large number of supporters, including Consensys, and will likely keep expanding its reach while concurrently upgrading its tech.
Stablecoins are also likely to survive, as they are purposeful and necessary for the ecosystem. I can’t really comment on specific coins as they all involve some degree of risk due to their centralization or failure to peg their price close enough to $1. Even so, stablecoins are an essential component for traders to mitigate volatility, and in dApps to be used as programmable payment currency (for instance, many DeFi apps already use Dai for transactions).
It’s hard to pick out other ones. Looking at it historically, Litecoin and Ripple have steadily been among the top 10 coins in terms of market capitalization since 2013, while several others have lost their position. From this perspective, they may remain popular five years from now.
How is the Silicon Valley investor community reacting to the stream of wrongdoings and ethical violations that emerged at the peak of the ICO craze?
Many of the projects that popped up during the ICO craze were pure marketing ploys—they were based simply on ideas and whitepapers. Naturally, this created an opportunity for bad actors to enter the market and hide their wrongdoings and violations, as most retail investors stopped questioning teams’ legitimacy at the height of the ICO rush. Silicon Valley has largely focused on building the technology and adoption, instead of pure marketing.
Talk about your current portfolio—which projects are you most excited about?
We’re equity token holders—along with Pantera Capital, DHVC, Breyer Labs, and a few others—of Coinsuper, and we recently invested in the company’s exchange token (CEN). We’re excited about our investment as CEN has transitioned from an inflationary (transmining system) to a deflationary (burning mechanism) model. This fundamentally alters the token’s value, especially as more utilities and scarcity are introduced to CEN over time.
Additionally, Coinsuper CEO Karen Chen comes from a strong financial background (she’s the former president of UBS China, CEO of the Commonwealth Bank of Australia in China, and the Managing Director of Standard Chartered Bank), and she’s’ currently working on making Coinsuper one of the first and most heavily regulated digital asset exchanges in Asia.
Considering the team, the backers, and the company’s roadmap, we think CEN token is undervalued compared to several other exchange tokens in the space, and we see significant potential for future appreciation.
What is the most exciting blockchain project, currently?
We think Cosmos is an interesting project, as it utilizes Tendermint’s BFT consensus protocol, allows for staking, and is a potential solution for cross-chain transactions through a peg zone. Binance built their DEX using Tendermint and the Cosmos SDK to provide near-instant finality and potentially allow for cross-chain exchanges in the future. If the solution proves to be viable, it could be a game-changer for the DEX world, but could make other DEX’s, protocols, and even some DeFi projects obsolete.
What are blockchain’s remaining challenges in terms of mass adoption?
Crypto currently has less than 1% global adoption (there are between 50 and 100 million crypto users worldwide), which puts the sector closer to the “innovators” bracket than the “early adopters” bracket. The main challenges preventing adoption include education, user experience, scalability, and killer use cases.
In terms of education, the general population may have heard of Bitcoin, but they rarely understand blockchain as a concept. Moreover, cryptos have received a lot of negative coverage over the past few years, and there is a real need to educate the broader population on the benefits and positives the technology is capable of delivering. Already, companies like Coinbase and Binance are actively creating content to educate and convert the next wave of crypto users.
User experience still varies too much from project to project. The technology still needs to be abstracted to be more accessible for mainstream users. The current process of interacting with blockchain creates a lot of friction and requires a deep well of foundational knowledge (what are public and private keys, terms like gas and transaction fees, and more). Compared to traditional payment methods like Venmo or PayPal, they still pose too many roadblocks, and have significantly higher risks that accompany key management and transactions.
When it comes to scalability, blockchain remains a tough puzzle. The technology needs to expand more rapidly and effectively to handle the amount of transactions needed for mass adoption, and to allow more complex use cases to realistically emerge. Finally, the sector needs a killer use case. We need a project or product that is ten times better than any existing solution to truly incentivize users to learn and eventually adapt their behaviors.