Hashkey Capital Deng Chao: 10 Key Insights on Web3 Creation and Investment

Source: Wanwudao Three DAO

On September 24, Wanwudao Web3 Coach Cloud Salon "All Things Born" invited Deng Chao, Managing Director of HashKey Capital, to share his insights and experiences around "creation" and "investment." The session aimed to minimize the use of jargon, making it easier for Web2 friends to understand Web3.

Wanwudao, in collaboration with bfrenz DAO, organized the live broadcast content and summarized ten key points from Brother Chao (Deng Chao) regarding Web3 to share with everyone. The following content is exclusive, enjoy!

1. What mindset shifts do Web2 professionals need to embrace Web3?

Currently, the number of blockchain users has exceeded 300 million.

When more experienced, capable, and skilled individuals from Web2 enter Web3, there is an opportunity for Web3 to reach the next stage. Many people coming from Web2 carry the aura of success from that era, so it's essential to be mentally prepared for the differences between Web2 and Web3. The underlying logic and evaluation criteria differ significantly. The most obvious difference is centralization versus decentralization.

• Attributes: Web3 has financial and commercial attributes.
• Business Model: The two models may seem similar but are fundamentally different. For example, when we borrow from a bank, we must go through that intermediary, but on-chain, we operate without intermediaries, using protocols, which increases efficiency. Some people, after experiencing this, are reluctant to return to traditional banks. Web3 no longer favors platforms but begins to favor users, giving them more voice and decision-making power.
• Product Design: In Web3, the idea is paramount; you can have no equipment or even no company. Ethereum provides the platform, and a good idea will attract builders.
• Financing: Web3 does not rely on capital and traditional VCs; some projects even prefer not to have a dominant party.
• Relationship between Platform and Users: In gaming, traditional games find Web3 games difficult to use, while Web3 games feel that "you just treat me as a cash cow." This shows that Web2 games emphasize user experience, while Web3 games do not wish to treat users as machines but hope for mutual progress and sharing.
• Promotion: The promotion in Web3, known as "airdrop," essentially relinquishes ownership of the project. In other words, traditional marketing expenses were taken from the company's balance sheet, but now they come from the company's ownership.

2. Choosing the Right Track

From an entrepreneur's perspective, the current opportunities in public chains are not very significant, but this does not hinder the underlying technology of blockchain. The current blockchain is still not mature enough, and there are still many opportunities in Layer 1 and Layer 2.

The infrastructure is still in a very early stage. Just like banks capable of hosting digital finance are already mature in the U.S., they are not yet in Asia.

It's hard to generalize which tracks are worth investing in; analysis should be based on the team's own genes and areas of expertise.

3. Are there successful cases of large companies starting businesses in Web3?

Yes, there are many, including those in gaming, social networking, and underlying infrastructure… Companies like Tencent and Alibaba have projects as well. Entrepreneurship requires long-term thinking; one cannot judge based on a single cycle. Investors who entered the market when Bitcoin was at $60,000 might feel that there is a significant market bubble.

Many blockchain teams are now predominantly led by Chinese individuals. The Chinese are relatively low-key but have a strong presence in this industry. Asian teams are known for their strong execution and expertise in commercial implementation, while Western teams excel in creativity. Web3 is attracting more and more Web2 individuals, leading the industry into a phase of commercial application, with advantages becoming increasingly apparent. We should have faith in Asian teams; their potential is limitless.

4. Are there still innovative opportunities based on infrastructure functionalities?

There are still many opportunities in terms of chain performance. First: in terms of solutions, Ethereum's technical route and scalability are constantly changing and adjusting. Second: in execution, code development. Ethereum welcomes everyone to explore the technical route.

On the contrary, I believe that cross-chain demand may not be that significant in the end. From a user's perspective, once they are in one ecosystem, migrating out becomes very challenging. Therefore, it is likely that blockchains will eventually converge, making cross-chain less attractive.

In addition to performance, there are also underlying needs for secure computing, privacy, etc., which the industry requires.

5. Regarding Centralization and Decentralization

Whether to pursue centralization depends on the project.

If you are working on underlying infrastructure, such as public chains, it should be as decentralized as possible; the more decentralized the network, the stronger the trust.

If you are developing applications, the platform may require some centralization. The closer you are to regulation, the more centralized elements there will be. For example, some decentralized exchanges are already starting to receive licenses from regulators.

The underlying technology is decentralized, while commercial applications require centralization (to connect with reality, not purely idealistic), so it cannot be generalized.

6. What kind of founders do you favor?

This question is difficult to generalize; there is no typical profile.

Whether a project can succeed depends on many factors. The project itself is crucial, and the requirements will differ across various fields (underlying technology/middle layer/application layer/crypto finance). Founders need to understand the product and business itself (professional capability) and know how to commercialize the product (business design). Founders act as resource integrators, knowing how to create products, how to promote them, how to make them mainstream, and even how to communicate with regulators.

Crossing industries is like crossing mountains; if you are entering Web3 from a traditional field, a crucial point is to set aside the successful path dependencies from the traditional field and maintain an open mindset, observing the industry objectively.

7. Will domestic Web3 regulations be adjusted?

It is difficult to make predictions, as different regulators have different considerations.

Global blockchain regulation can be categorized into three tiers. The U.S. is at the forefront, leading by a wide margin, with the clearest framework and strictest requirements; many global regulators are looking to the U.S. The second tier includes Singapore, Hong Kong, Japan, Switzerland, France, and the U.K., which have clearer regulatory frameworks and are slightly ahead of the U.S. The third tier consists of places like Dubai and Malta, which aim to overtake.

Different places have different regulations; in places like Hong Kong, decisions are more commercially driven, developing the industry first and then pushing for regulation. In contrast, domestic regulations are top-down, with many macro considerations from above.

It is not advisable to engage in token-related businesses domestically, as any token-related activities in China will be met with caution from regulators.

8. What are some good channels and media for keeping up with the latest Web3 information?

"The Virtual Assets and Blockchain Investment Guide" summarizes industry knowledge maps, composition modules, project investment insights, and methodologies. If interested, you can take a look.

I recommend some industry figures who have greatly influenced me personally: Chris Dixon (a16z partner) has a forward-looking perspective on the industry; Matt Huang (Paradigm partner) has unique insights and deep research on projects; Ryan Selkis (founder of Messari) publishes over 100 pages of industry reports annually, allowing everyone to understand key industry figures and hotspots each year, facilitating the organization of industry connections.

Learning is like building a house; first, establish the structure (framework) and then lay the bricks (details) to achieve twice the result with half the effort.

9. The Application Value of Oracles in Web3

The main role is to connect on-chain data with applications. Chainlink has done well, but there is still a long way to go for large-scale commercialization. There are still many opportunities in most application areas or middle layers.

The current technological infrastructure cannot support large-scale commercial volumes, so more people are needed to work on the middle layer and technical layer. If you want to compete, you can either directly face competition by doing the same thing or differentiate your competition, like chains, whether general-purpose chains or industry-specific segmented chains. Opportunities exist; it depends on your direction and strategy.

10. Suggestions for Seed Round Financing Combinations in Entrepreneurship

It depends on where the project stands.

If it is particularly community-oriented, then raise funds within the community, starting with airdrops to attract users before discussing tokens. When the token has value, the project will have a price, and with a price, there will be funding sources.

If it leans towards traditional commercial applications, then equity financing is more appropriate. Previously, about 70%-80% was token financing, and 20%-30% was equity financing. Now we can see an increasing demand for equity financing, as more projects move towards applications and engage with reality.