Interview with Superscrypts Founding Partner: Bull markets are always price-driven, infrastructure is all about user experience

TechFlow: Sunny

Superscrypt: Jacob Ko

"About 70% of what we focus on is infrastructure, but we are increasingly focusing on applications and gaming cases." ---Jacob Ko

On Friday, in the headquarters of Superscrypt in Singapore, I had a brief conversation with Jacob about the differences in crypto culture between Hong Kong and Singapore. Jacob is the founder and principal of Superscrypt, a crypto fund affiliated with the Singapore's investment management company Temasek. Being based in Singapore, he naturally has a preference for the local crypto atmosphere. Compared to Hong Kong, Singapore has a smaller land area and scarcer natural resources, so the country tends to overinvest in human resources to achieve economies of scale and innovation.

"We maintain a highly open attitude towards any form of innovation," Jacob mentioned. Understanding this, it might not be difficult to comprehend why he, who had been involved in investments at Temasek for 9 years, transitioned into the field of crypto investments in 2022. In these two different verticals of innovation, for developed Singapore, creating new foods and creating new currencies, as well as the next generation of the internet, hold significant positions.

We interviewed Jacob Ko, one of the founding partners of Superscrypt. We discuss his journey and story, why he entered the Web3 industry and what are the core benefits of building with blockchain technology. We also cover their investment approach, what areas they find exciting in Web3 and how early stage teams should navigate building in a less favourable funding environment.

Highlights

• In Web3 there is a greater emphasis on the community and users as stakeholders, value is shared with them, tokens result in generally faster liquidity and higher valuations - but there is also the possibility that protocols get adopted extremely fast since they are permissionless and on the open internet.

• I don't think blockchain will be the basis of everything. Think about why you need blockchain in the first place?

• Ownership, coordination & incentivisation and tracking and provenance are blockchain-unique traits.

• When you think a bull market is price-driven, that's why I mentioned two things: ETFs and the emergence of traditional investors. However, the reason people will continue to use and truly use blockchain will be better infrastructure improvements, such as wallet labels or identity verification.

• About 70% of what we focus on is infrastructure, but we are increasingly focusing on applications and gaming cases. In fact, we believe gaming will be massive. Gaming is already huge now. Traditional gaming is bigger than the music and entertainment industries combined.

The Origins of Superscrypt

TechFlow：Thank you for joining the interview. Today, we aim to delve into Web3 investment and your background. Let's begin with Superscrypt's founding story and its relationship with Temasek.

Jacob：

Superscrypt was founded by Temasek in 2022. We're an early stage Web3 company that operates independently and invests to support innovative builders in the Web3 space. Part of our model is to ensure that we add value and accelerate our portfolio companies. We help all our founder companies with go-to-market strategy, evaluating their technology stack, hiring and building their community as well.

Part of our team are builders and entrepreneurs that themselves in previous lives - we combine some of that expertise plus my background in investing & web3 nativity to help find the best opportunities and also support the best builders who are building our products and protocols using blockchain technology.

Operating at the early stage allows us to gain insights into how the future of the internet will develop. The Web3 space moves extremely rapidly and operating in the early-stage investments provides you with the best learning opportunities. You meet such great founders and some of those lessons could be applied to where the internet is going or what might be disrupted or even if there are new business models that are emerging..

Jacob's transition from agri-tech/deep tech investment to blockchain

TechFlow：Given your financial background and experience in agricultural technology investment at Temasek, what motivated your transition from deep tech investment to the Web3 space in July 2022?

Jacob：

Before starting up Supercrypt, I spent some years of my Temasek career investing into growth stage deep tech and agritech. What is common is that you are investing into frontier technology, learning about new business models & trying to understand their potential for disrupting traditional industries.

There's quite a lot of parallels in terms of looking at new technology, making an assessment on whether a team is the right one to build out the future of something and then taking an investment position. Early stage venture investing involves a lot of risk, but also a lot of reward. Along the way, hopefully you find people creating new things and maybe even sparking the formation of new primitives or industries. Bitcoin spawned digital money, DeFi took off in the summer of 2020 and NFTs took off during the last cycle. In Web3 , there are constant experiments into protocols and use cases.

As for why I pivoted from agriculture to Web3 - I’ve always been an internet native. I grew up on the internet and saw the world change as soon as people could start interacting and sharing knowledge with each other from their computer. I saw the promise & really enjoyed participating in it.

Over the last 3 years I started doing a lot of deep research into blockchains in my spare time (which I had a lot of during that time thanks to COVID lockdowns). I began my journey learning about Bitcoin and then started learning about Ethereum and smart contracts. When I saw Smart Contracts, I realised that it looked very much like Web 1.0 where there was a dissemination of information. Anyone could build anything, write code and put it online. I think at some point Web 2 became big, more organized, and we lost some of that early internet culture where it felt like everything was possible.

When I started looking at smart contracts & Web3, that feeling of boundless opportunity from Web1 came back to me. I got very excited about what I was seeing. It was still very early on and so I decided there and then that I wanted to take some of my investment background and use something in the Web3 space.

Now outside of that, I also started writing, experimenting with building communities and using the blockchain itself (DeFi, social) to see what it was all about. And that's really what sparked my passion. From there, I decided this was my passion (agritech being a close second) and went ahead to help build Superscrypt.

TechFlow：With a background in biochemistry, I see parallels between agritech and Web3 in terms of complex terminology. Concepts like molecular agriculture or cultured meat in agritech, initially perceived as unconventional, resemble the current unfamiliarity of Web3 jargon to most people.

Jacob：

A lot of interesting parallels.

Some things that you didn't think were possible are actually quite possible on the agritech side like making proteins from non-meat alternatives. In the same way that one can use blockchain technology and protocols to create new primitives - e.g. a decentralized exchange; a lending platform; Web3 social where you own your posts and even assigning IP ownership with a token. Blockchain technology is basically a decentralized ledger that can assign digital property rights using a token. With this mechanism, you can create new paradigms and value models.

Before this, it was difficult, less efficient & more inconvenient to do so.

I'll give you an example. We've seen something like friend.tech recently where people have value to their keys and their keys are just a representation of their social graph or their knowledge or that access to them is intangible. Somebody's social graph, knowledge and expertise is somewhat intangible and then using blockchain technology to have ownership assigned to that intangible concept is something that is quite new.

You couldn’t necessarily get value for this on previous Web2 platforms. Of course there are questions as to whether something like friend.tech is sustainable, but the fact is that new value has been ascribed to this intangible concept. So many things spring out of the things that you don't think are possible.

TechFlow：At the core of emerging technologies lies uncertainty and novel approaches. Given the nascent nature of Web3, what, in your perspective, sets Web3 investment apart from agritech/deep tech investments in terms of its distinctiveness?

Jacob：

I think that core of what Web3 is about is community. That word gets used a lot, but usually what it means it's the users, the people who use your protocol, who use your product. They are stakeholders because they will champion what you do, they will spread word of mouth and the more they use your product, the more they might fall in love with it. This is your community and they are rewarded or incentivized to support you via ownership in the community, product or protocol.

This is what is unique about Web3: you have decentralised architecture and tokens that can be used to coordinate and incentivize the community. The value a Web3 product or protocol creates doesn't need to only go to just the protocol or application like it did mostly in Web2, it goes to the users as well. So I think that's one of the big differences between Web3 versus traditional investing blends. Because you really have the community at the centre of things. Of course, tokens as a form of coordination or stakeholder reward are not really a concept in traditional investing , especially because there are rules and securities regulations around that.

The last difference to highlight between traditional investing and Web3 is the speed and liquidity. Tokens tend to be more liquid faster than traditional equity investments. Even when a protocol is still at the early stages of its operation, there tends to be a bit more of a premium associated with investing in Web3 because liquidity happens a bit earlier, whereas in Web2 on the venture capital side, it could take 5 to 10 years for you to have an exit event, whether it's a acquisition or an IPO, etc. Valuations tend to be lower in Web2 and there are more ‘typical’ metrics observable vs Web3. That said, because Web3 is fundamentally about investing in the internet, adoption can skyrocket very quickly since anyone can connect to protocols and start using them.

So to summarize, these are some of the differences between Web3 investing and Web2. In Web3 there is a greater emphasis on the community and users as stakeholders, value is shared with them, tokens result in generally faster liquidity and higher valuations - but there is also the possibility that protocols get adopted extremely fast since they are permissionless and on the open internet.

Blockchain of Everything?

TechFlow：Let me ask you this. One day, do you think blockchains are going to converge with the traditional sector like agriculture? Because now we can see many projects, they're using blockchain for supply chain management, for IoT devices, and doing all kinds of stuff. And you also mentioned that in the traditional sector we have regulations and basically a lot of barriers for innovations to grow as fast as Web3, but one day do you think blockchain would be the basis of everything？

Jacob：

I think it will trend toward that. I don't think blockchain will be the basis of everything and the reason why I say this is because when assessing projects you have to think very carefully about why you need a blockchain in the first place?

We see this with a lot of projects that we and teams that we speak to sometimes it's very clear that a project does not need a blockchain.

Why do you need blockchain? Well, typically for a few reasons. Firstly, when you need a system that can have ownership rights given to an asset, which can be tangible (a protocol token or real world asset) or intangible (e.g. IP rights to a content, a social graph).

Or secondly, you need a coordination mechanism to incentivize users and stakeholders to do something, such as to run nodes and secure a decentralized network.

Lastly if the problem you’re solving requires some need for tracking and provenance, to prove authenticity or a history of activity e.g. supply chains. So if you need to track that some crop came through a proper supply chain, and you need to have the verification that it really went through all of these stages, then a blockchain is useful for that. That's what blockchains and tokens are good for. Again, ownership, coordination & incentivisation and tracking and provenance.

If these three kinds of qualities are needed in what people are building, then there's no reason why they shouldn't use blockchain. But if they're not needed, they shouldn't use blockchain because that can sometimes distract them from what innovation is. Perhaps they are lured by how quickly tokens become liquid and gain value in the early stages.

So I think there will be real world use cases that require these things and we will see more uses of blockchain for that. But there will be a lot of use cases that don't need it. And if that's the case, then they shouldn't use it.

Investment Methodology

TechFlow：In the context of breaking down data silos and creating a genuine web, it's intriguing that you highlighted blockchain's effectiveness in three areas and its role in financialization. Transitioning from Web 2 to Web 3 investments can be quicker in this sector. I'm curious. Does Supercrypt have a specific methodology for investment decisions? Drawing on our earlier interview with Kaito's founder, Hu Yu, and considering projects like theirs in AI large language models in Web3, could you shed light on the approach Supercrypt and you typically employ to evaluate such initiatives?

Jacob：

I think the first thing to say is our DNA. I spent 9 years at Temasek previously and we take some of the core principles of investing sustainably and with a long-term vision.

At Superscrypt we like to back protocols, businesses & founders who are building a sustainable future. Of course there are a lot of experiments in Web3 and not everything will work out, but we like to over index on founders and businesses that create value no matter whether it is equity or tokens. Where exciting for us is finding founders who can build a business that grow over five years, 10 years, and well beyond. Where what they create in value becomes exponential over time. So that's probably one of the things that we look at. We really try to find those sorts of sustainable and long term opportunities.

Then the second part of the framework is really around a relentless founder that finds ways to deliver outcomes. In early stage investing it is common for founders to pivot and experiment depending on how the market reacts to find proper product market fit. So we look for a founder that is relentless in what they do and they will just do everything that needs to be done to deliver outcomes. Whether that's onboarding customers, building a product that delights them, solving crucial problems, forming strong bonds and partnerships - or whether that's pivoting if they have to pivot into something different that will be more sustinable.

The third thing is their go-to-market approach. We like teams that have a very thoughtful & strategic approach to their market and have a good understanding of who their customer is and how to serve them. They must be obsessed with serving their customers, users & community. In Web3, you either have a product where you have a customer to serve or your customer is a community, especially if you build a protocol. So how good are you at developing your community and ensuring that all of them have incentives to support you and also value can go back to them as well because community is something that helps you scale rapidly. Go-to-market and communities are important.

Fourth is the discipline of the team. That means ensuring that they have a mind about what metrics they should be tracking: for example volume, users, revenue (if they are making money), how are they managing their burn rates, ensuring that their team stays lean.

Finally, we also focus on valuation discipline, thinking about our entry evaluation if we are going to achieve strong venture returns.

TechFlow：Are there any particular trends or areas that your team are interested and focused on?

Jacob：

We spend about two thirds of our time looking at Web3 infrastructure which is a very large and complex space. It covers many things: Layer 1s, Layer 2 scaling solutions, MEV architecture, rollup sequencing, data indexing. But wait there’s more… there’s identity, messaging and blockchain interoperability.

Interoperability: One area we do a bit of work in is interoperability. We see a lot of different blockchains emerging - both Layer 1s and Layer 2s that are helping Ethereum scale. We feel that the future will be multi chain and multi layout and so if that's going to work then there need to be interoperability solutions between layer 1s and layer 2s it is gonna be called because it's such a technical task and it is very difficult and also it's subject to a lot of risk with respect to bridges sometimes being hacked as well so any solution that can get around that or make it easier is really key to making all of this work for better user experience and for developers to actually even want to use a blockchain or Web3. So we feel that interoperability is a very big problem space and opportunity space to both invest in and support and develop. We've co-led round into Li.Fi a while back and they're doing bridging aggregation for example create liquidity aggregation across multiple avenues and try to simplify it for people so we like things like that

Identity, Reputation & Credentials: The second area that we think is really interesting is identity, reputation and credentials in Web3. Today in Web2 we log in with WeChat, Facebook, Google and other web 2 verticals. This is very convenient - it’s fast to use and we are not going to replace those tomorrow - though we give up some freedom and value from this as they benefit from our information and social graph. Perhaps, however, the next generation, or our children will login with their wallet or decentralized ID. They can control the information they’d like to give out to businesses, products or protocols who want access to them and perhaps even directly benefit from that in a way they couldn’t with Web2.

So we think the ID & reputation space is a big unlock for the user experience going forward because right now it's not very sophisticated for wallets but imagine what could happen if it was more sophisticated you would unlock a lot of use cases.

Decentralised IDs and Interoperability

TechFlow：Why is DID unsophisticated right now? Is it because of the poor user base or is it because there is just not much talent in the space building?

Jacob：

There are a lot of talents in space building. The difficulty with DID, and this is something you see with Web2, is at the moment that certain people have scale, that's competitive advantage and they want to lock that in and not share the user outside. They won't want to give open access to that stack - it’s more lucrative to have control over it. The difficult part of building decentralised ID is getting people to use your verified credential in the first place - people don’t want 1000 different logins.

So teams that build DID will need to find ways to incentivize people to sign up and create verifiable credentials in their system. For example, WorldCoin does it with a retina scan and maybe they do an airdrop at a later point in time and maybe that's how they will get to scale.

WIth verifiable credentials, it's an uphill battle. You have to convince people to use your system. And I think that is difficult to do. In the past, Google provided free search and free services and products like Gmail and slides and people signed up to Google and that's how they bootstrap their Google ID using your email. The same thing with Facebook, except they use social media as their wedge and then they get more and more people using it and now you can log in with Facebook. So I think the reason why we haven't seen as much of that happen on the decentralised side yet is that it's quite difficult to sometimes get people to use a new ID solution. And I think the answer is that there will probably be multiple solutions that come together and maybe one or two big ones to take off.

TechFlow：Are these solutions supposed to be interoperable? Because Web3 is supposed to break the silos, but now it's like there are so many projects betting or/and competing against each other and people have to choose one in order to start their service on blockchain. And how is this interoperability solved in this context?

Jacob：

For ID and verifiable credentials to be very useful they would need to be interoperable. But as I mentioned before, the value accrues to the silos that create the verifiable credentials so they are less incentivized to make it interoperable. So I think that's where we need to have multiple sources of indications or attestation. We invested into a company called Intuition who are building a reputation and attestation protocol where anyone can make an attestation to say that this wallet belongs to person A or this wallet belongs to person B. And then it's not just one person, it's multiple people making that attestation.

How does this solve identity? Well, someone could have a WeChat account, a Facebook account, a decentralized ID provided by disco.xyz and multiple wallets. If enough people use Intuition's service or a reputation system and attest that all of these things are connected, then we can in fact know that they all belong to one particular person, bringing all of this together.

Drivers for the next bull round

TechFlow：Do you think decentralised IDs and also interoperable infrastructures are going to be the gravity that's gonna hold the next wave of the bull market or do you think it's ZK, AA or AI?

Jacob：

I don't know if they will be by themselves what will drive the full market. What I do know is that they will make it smoother to onboard more people because the more features you have, the more it feels like things are seamless. Is it easier to get someone to use a wallet or use an application? And that's where identity and all of these things and connecting your identity and information come in. Will that be a catalyst to the bull market?

I think there's other things that are much more direct. There's been a lot of news about the Bitcoin ETF getting approved in January 2024. That's positive in the sense that if it does get approved, which most people are expecting that it will, then that's an easy way for non-crypto native people to take a position or have exposure to crypto and bitcoin movements. Remember, most people - 9 out of 10 - don't know how to sign up for a wallet, don't know how to, don't want to manage their private keys, but might be interested in alternate forms of assets. And something like an ETF could be helpful for bringing more external capital and interest into space. And that is probably what's gonna drive a bull market.

We also sometimes hear the narrative that institutions and traditional finance are coming. I think they're very interested in the space and they see the benefits of blockchain like the speed, the lower cost compared to traditional systems, the ability to do cross chain, cross border payments. We’ve seen JP Morgan pilot a few trials on private blockchains with Axelar and LayerZero, we’ve seen Citi pilot an FX market on Avalanche. Franklin Templeton released the OnChain US Government Money Fund, an SEC-approved, tokenized money market fund. They know that web3 infrastructure makes sense and is coming but end of day they also have risks that they need to manage meaning it might take a little bit more time.

I think we shouldn't be overly bullish and expect that it will happen overnight. They will take years to get there and it will happen in small experiments. I think once we see some of that capital come on board, and again, then we might see a bit more of a full market right and more they'll be more interesting. So when you think the bull market really prices will drive that, which is why I mention those two things: ETFs and traditional investors. But what will keep people staying and actually using blockchain will be much better infrastructure improvements like wallet tag or identity. I don't think they themselves will drive the full market, but they will make it smoother and onboard more people over time.

Enterprise-based Project Vs. Crypto Native Project

TechFlow：In Web3, an intriguing phenomenon emerges. I interviewed a layer 1 chain backed by major Korean tech giants like Kakao Talk, excelling in user experience with a dedicated team. Contrasting this with the native Web3 landscape, which is decentralized and organically contributed to by people worldwide, reveals a disparity. The majority of native projects, lacking the centralized support seen in state-backed initiatives, face challenges in delivering user-friendly experiences.

What is your perspective on the future of remote work, especially in comparison to the roles played by major companies supporting the blockchain movement?

Jacob：

Anytime something is enterprise driven there is some suspicion by typical Web3 natives. “Is it real?”, “Does it have real community and organic take up?”, “Do we want to recreate Google & Facebook?”.

I said community is core to everything so that means things that benefit users as well as community not just enterprises so in general I think that Web3 communities today is a bit more suspicious when there is enterprise involvement in a blockchain. This will change over time as technology has more use cases and as we start to see more value being created from intangibles and ownership tokens.

Currently, I think we're so early that there are question marks around when an enterprise gets involved. It is not bad when an enterprise gets involved because they can hopefully drive some sort of volume and use cases. But I think there need to be more use cases to push people on that front.

The other thing also is that a successful product or application will be successful because it solves somebody's everyday problem or it's just fun to use. And when you think about the definition, that's not like it's successful because it involves blockchain, crypto or tokens.

The best apps we use in our every day life don't use blockchain. In order for a successful blockchain application to succeed users must be able to use it seamlessly - maybe even without even realising the application uses blockchain infrastructure in the background. That is what I feel we need for mass adoption.

I think creating things for the sake of bringing people on board of blockchain doesn't really always work. And the solution and use case needs to have some of those qualities we discussed before where you need to assign ownership and digital property rights where you might wanna track and have the provenance where you might want to incentivize or coordinate people to do something. So I think until you have those and many use cases, things that enterprises push might not be as organic.

Gaming

TechFlow：You mentioned infrastructures and Web3, social and AI. And then you seem to be very bearish on the gaming side. Why is that?

Jacob：

I think about 70% of what we focus on is infrastructure, but we're increasingly looking more at applications and use cases.

We have been since the start. Early on, we decided not to focus on gaming. That's not to say that we don't think there's opportunity. In actual fact, we think gaming is gonna be huge. Gaming right now is already huge. Traditional gaming is bigger than music and entertainment combined. Every generation born becomes more and more gaming-native. It's much more interactive and people are very passionate. But I think our team doesn't necessarily come from a gaming background other than some of us playing games. The ability to assess what will work, what will go viral, what people will love to play is sometimes very difficult. The reward is very high if you get it right, but more often than not, it doesn't quite work out. So I think our perspective was not to take that risk or bet.

It's not to say that we would never look at gaming, but it's to say that we decided to focus more on sort of the infrastructure elements that need to be built out TO enable games and good products. I think there are gonna be some really good games coming out on Web3 soon. Not all of them will work, but they take a long time to create and you're never really sure whether they will take off or not.

So while we made the conscious effort not to focus too much on gaming, we're still constantly observing how users react to it because it's a very popular medium that people love to play. Our view is similar to with how we view applications: if you build something fun to play or an application that will solve people's problem that's where you will succeed. It shouldn't have blockchain unless it's something that's really called the function.

TechFlow：We're currently experiencing a variable transition in the market . Also, you're in the primary market and I guess you feel the same as us in the secondary market. So what advice would you give to the founders we're raising at this moment?

Jacob：

So we have been in a bear market for a while. There are some signs of life but it's still unclear even the macro that we're seeing how fast and how quickly things will heat up and whether there's fundamentals behind that.

One of the key things to focus on is that bare numbers and metrics actually matter a lot more. And what that means is showing and tracking what volumes you have, maybe it's monthly active users for your protocol or product, maybe it's revenue if you're generating revenue.

Now you need to have a keen eye on this. And if you want to raise capital, having a numbers driven approach is helpful. A lot of people will not be wanting to invest if there's none of that at the moment. Maybe in the bull market, their views shift, but fundamentals matter in a bad market. So that's the first thing.

The second thing, is discipline & cash management. Obviously, you just have to be very conservative, manage your cash position well. Balance building out that new feature that will give you volume, users and metrics vs the cash you will burn to hire and build it. Given that valuations will be much more rational and lower depending on what you can get by with, you may want to raise less capital, but enough to tie you over for at least a couple of years because, and as soon as your runway gets to 12 months, you'll we have to start raising capital because it can be a very long process.

So I think those are probably the two key things that I would say to really focus on the last thing I would say, and this is how we look at it as a VC in terms of valuation, be realistic about your offering and your valuation. If you do not require a token or blockchain in what you're building, then people will assess you as an equity investment. And when they assess you as an equity investment, the holding period is longer and returns usually come if there is an acquisition and that will take longer as well. So then people will obviously value you at a lower valuation when it comes to something that small equity. That's not safe, but it's bad. Absolutely not. I think it shows a long term view, but don't just throw a token in there just for the sake of it because people will see through that.

Do we need tokens at all?

TechFlow：In what project do we need a token compared to an equity -based project?

Jacob：

So I think and if we think back to first principles of things like Bitcoin and Ethereum, the whole point of the token there is to reward people for running nodes for securing the network. So anytime you need to secure something and have validators and nodes for the network, that is one argument for why you might need it.

The second thing obviously as you mention before is coordination mechanism. Anytime you need to incentivize people to do things. And then the other thing is just about utility, like what function do you need where there is utility that a token can bring. The other flip side of this is that you don't necessarily need a token. And when you look at things like SAAS businesses or developer tools, it's a little harder to argue that you might need a token because of what network you need to secure.

Research by Superscrypt: https://www.superscrypt.xyz/research/