Dialogue with Sui founder Evan Cheng: No plans for Series C funding yet, crypto startups are facing pressure from AI in financing

Author: Forkast.news

Compiled by: Felix, PANews

According to Evan Cheng, founder of Mysten Labs, the development organization behind Sui, blockchain and cryptocurrency startups have struggled to raise funds following the collapse of FTX, and artificial intelligence is now capturing a larger share of venture capital funding.

Despite the challenges, Cheng believes this situation provides an opportunity for developers to create open and transparent infrastructure. However, late-stage funding for startups has become increasingly difficult, with only outstanding companies able to secure support.

In an interview with Forkast, Cheng explained the issues facing the blockchain industry, the potential to support Web3 developers, and the sustainability challenges of play-to-earn games.

Interview Transcript:

Angie Lau (Forkast Editor-in-Chief): Many people know Mysten Labs, which has received a lot of investment and, of course, faced events like the FTX collapse. What has the experience been like over the past few months?

Cheng: The FTX incident was unfortunate, and there have been various comments and concerns surrounding it. However, it needs to be clarified that we were not financially impacted by the $300 million Series B funding involving FTX; we hold only cash or cash equivalents, and our funds are very secure. Our team is quite experienced, and we know what we want to do. We have never relied heavily on our investor partners to meet key needs like listing tokens. (Note from PANews: Recently, Mysten Labs paid $96 million to buy back equity held by FTX, which also included "all warrants for FTX to purchase Sui tokens.")

Lau: It’s now 2023, and the FTX incident still affects the entire ecosystem. But there is still a lot of interest in the crypto industry. I hear many conversations about how blockchain technology can solve real-world problems, including discussions with experts, investors, and policymakers about sustainable growth, trust, and transparency. It really feels like the focus has returned to the technical issues that many in the industry care about.**

Cheng: Hope has always been there. Previously, infrastructure and technology hindered development. For example, there were some issues with the underlying layers, and in the previous narrative-driven waves, some things were either impossible or very difficult to achieve. But every time a wave dissipates, people look around and ask, what has the entire industry achieved? Perhaps just some concepts? What will happen? What can be done? What are the benefits? None of these have been validated. The NFT market was very lively, many people entered, and then they disappeared. Most people were just observing trades or speculative activities. It is very difficult to build a truly useful product that has a real impact on consumers. Given this, the blockchain industry struggles to sustain itself.

Lau: I completely agree with your view. This speculative hype has indeed inflated the entire industry, and even after the Terra-Luna collapse, the data transparency in this industry is still not ideal. Without good infrastructure services and indexing, it is really hard to discern value. This is what we consider in terms of infrastructure. I’m curious about your thoughts.**

Cheng: We believe infrastructure is about "what do developers need?" Ultimately, blockchain platforms are developer platforms. What problems are developers trying to solve? This goes back to the spirit behind Web3. People intuitively understand that when you package things in tokens, they can be easily transferred among parties. Web3 is great for financial products, but its significance goes far beyond that.

If you look at today’s internet companies, you will find that they are basically built on the work of users, like Instagram, Facebook, Twitter, and YouTube. These large internet companies have extracted a lot of profit from this. More importantly, these companies lack transparency and fairness. If you understand this, you understand the spirit of Web3. What we are trying to provide is infrastructure that allows developers to challenge existing enterprises. What will the next content-sharing site like YouTube and Instagram look like? How can it be fairer, especially for creators? How can they fairly know the value of their work? Can they freely and flexibly utilize their assets? That is the key.

Blockchain will essentially become a great open database, a medium for creating and controlling assets. Smart contracts should provide many functionalities. Centralized entities should provide custody for assets and facilitate transactions. With these, a fairer competitive environment can exist. But challenging those big internet companies is very difficult right now.

Lau: Now people are starting to shift from blockchain to AI. Has this affected investment institutions?**

Cheng: What we see in the market today is that it is much harder for startups in this field and even in the software industry to raise funds. From my observation, early-stage funding still exists, but valuations have been affected. However, once it reaches the later stages of Series A and B, it becomes very difficult to secure funding. It must be an outstanding startup to obtain funding, and unless you are currently in the generative AI bubble, any startup will find it much harder to raise funds. AI is now capturing a larger share of venture capital funding.

Lau: When did you enter the blockchain field?**

Cheng: I have been working in technology for over twenty years. I worked at Apple for ten years, where I developed some important technologies that are used in almost all smart devices today. The focus of my career has always been to push technology forward. That is the only thing that truly drives me. Around 2016, I started paying attention to blockchain. I had developed several projects at Apple, then at Facebook. By 2018, I had the opportunity to do my own thing during the startup phase. Facebook also had the ambition to launch what was then called the Libra project. I felt this was a great opportunity for me, so I learned a lot from that project. My team developed the Move programming language and all related components. There were some very rigorous technical aspects involved, such as cryptography, and a lot of system design and consensus. Much of this was completed during the three and a half years I led the company’s R&D department.

At the end of 2021, when the project was not progressing well, I decided to leave. If you have a great idea, you cannot wait for others to make it a reality; it’s better to get out and do it yourself.

Lau: That’s an incredible experience. I notice that many people come from Libra or Diem, like Circle's Chief Strategy Officer Dante Disparte, yourself, and many others still in this field. This must have been a very painful experience, watching a technology you were building and truly investing in falter due to policy and politics. How do you bring all of this to Mysten now?**

Cheng: Hope and excitement still exist; we see a lot of developer activity. In fact, we see a lot of more mature developer activity. Before entering this field and building products, they have already built products serving hundreds of thousands or millions of customers. That’s the exciting part and aligns with what we are trying to do. They will be younger, smaller, more agile, and more experimental teams trying out new ideas, but many of them will fail. Some of them will succeed, and our foundation will support them. Although the bear market has many disadvantages, we also see a lot of great things.

Lau: You are building the Layer 1 blockchain network Sui. In your words, it will achieve a leap in blockchain functionality. How is Sui different from Ethereum?**

Cheng: Today's blockchains have been upgraded to track the movement of static assets. The first principle we built with Sui is that every object representing an asset can track the historical changes in state. The blockchain model essentially breaks the ownership model. There is a smart contract that sells me a virtual car, but I can provide services through another smart contract that meets the same specifications because it offers better service. This is about the ownership part.

Another aspect is when it comes to composability; if you cannot control an asset, can you really combine things together? The smart contract that creates an NFT still has complete control over it. How do you access the data in the smart contract? Take Bored Ape as an example. If others want to use Bored Ape, is that possible? Or if you want to see if two products from different companies can come together and combine. Even if you want to, the product builders won’t allow it. When your actual data is in a private database rather than on-chain, updating these assets is really expensive. Do you really have interoperability? Do you really have composability? Can you really have a program to replace the centralized intermediary and autonomously execute this function?

Lau: We are stuck on this technology. I want to learn more about your thoughts on Web3 gaming.**

Cheng: What I mean is that there are many potential tools or things to try. Let’s focus on gaming. Let me give you an example. Suppose there is a multiplayer game with many different players, all owning the same magic sword. A famous game streamer’s magic sword is used to defeat the final boss. If you want to represent it as an NFT, its value should be much higher than that of an ordinary player, who may have only defeated a few minions. The value of the magic sword is not just 'this is a sword, level 10.' It is also about history and what achievements it has accomplished. This history makes it more valuable. If you think about it carefully, you will understand why many gaming companies are excited about this. This is something that truly has value and belongs to the consumer.

If I have an esports game, I want to publish the results of all matches on-chain. Blockchain can make the history of every character’s participation more transparent and trustworthy. That’s the point of blockchain; you don’t have to worry about cheating. You can use currency within the game, and you can use currency in the market; you can do all these things, but that’s where the excitement lies.

When you are doing something different and new, that’s the key. If you are just simply copying something that was successful before, there usually won’t be breakthroughs.

Lau: You have said that P2E is unsustainable. Why do you think so?**

Cheng: Play-to-Earn is a very interesting experiment. How do you reward players who put in sweat and time for the game? The general concept of Play-to-Earn is not wrong, but it is unsustainable. Players want to keep making money, so they mint more and more tokens until the ecosystem is destroyed due to excessive minting. You know what happens when too much money is printed.

Our job is to share some ideas and cases and show that this is something you can do. There are some things you might be interested in. We created a fun game to show people the true meaning of composability. Before we realized this, another startup said, 'Well, if you use our prediction market during the World Cup, and you get it right, you will receive a small flag representing that country.' They followed an open standard. This is just a real thing, but it shows what composability is. This was impossible before and completely not allowed.

Lau: The testnet Wave 2 has recently launched. You are expected to launch the mainnet in the first quarter of this year. Are you on track?**

Cheng: An interesting feature of the Sui blockchain is that it provides this resilience for end users, this stability of gas fees, even when token prices are volatile. A lot of things are in testing, whether we ultimately launch at the end of the first quarter or the second quarter. We will only launch when we are very, very clearly ready. Not just us; all our partners will feel ready. We also hope to launch when there is clear utility on-chain.

Lau: Last question, what do you think will happen in the blockchain industry in 2023?**

Cheng: Sui will change a lot of things. We have been working hard to do some very different things. We don’t want to do foundational things that other blockchains have already done or designed. We want to see how we can go further and truly solve developers' problems. We believe we can do it. This is very exciting for us. Clearly, we should be excited about many things our partners will launch in 2023.

Lau: Will you be doing a Series C funding round?**

Cheng: We don’t need to. We have funding for many years of operations. There are no plans for that yet. So far, we have no needs or considerations for another round of funding.