Dialogue with Superscrypt Founding Partner: Bull markets are always price-driven, while infrastructure is only about user experience

*Questioner: Sunny, *TechFlow**

*Responder: Jacob Ko, *Superscrypt**

"We focus about 70% on infrastructure, but we are increasingly paying attention to application and gaming use cases."

--- Jacob Ko

On Friday, I had a light chat with Jacob at the Superscrypt headquarters office in Singapore about the differences in crypto culture between Hong Kong and Singapore. Jacob is the founder and managing partner of Superscrypt, a crypto fund under Temasek. Being in Singapore, he naturally favors the local crypto atmosphere. Compared to Hong Kong, Singapore has a smaller land area and scarcer natural resources, so the country tends to over-invest in human resources to achieve economies of scale and innovation.

"We maintain a very high level of openness to any form of innovation," Jacob mentioned. Understanding this may help explain why he, who spent nearly a decade in agricultural technology investment at Temasek, transitioned to the crypto investment field in 2022. In these two different innovation verticals, for developed Singapore, creating new food and new currency and the next generation of the internet holds a very important position.

We interviewed Jacob Ko, one of the founding partners of Superscrypt. We discussed his journey and story, why he entered the Web3 industry, and the core benefits of building with blockchain technology. We also talked about their investment approach, what areas they find exciting in Web3, and how early teams should build in a less favorable financing environment.

Key Takeaways

• Web3 places greater emphasis on community and users as stakeholders, sharing value.
• Tokens often bring faster liquidity and higher valuations.
• Protocols are adopted very quickly because they are permissionless and operate on the open internet.
• I don't think blockchain will be the foundation of everything. Because first, we need to consider why we need blockchain?
• Ownership, coordination and incentives, as well as tracking and traceability, are unique features of blockchain.
• When you think of a bull market as price-driven, that's why I mentioned two things: ETFs and the emergence of traditional investors. But the reason people will continue to use blockchain and actually use it will be better infrastructure improvements, such as wallet labels or identity verification.
• We focus about 70% on infrastructure, but we are increasingly paying attention to application and gaming use cases. In fact, we believe gaming will be huge. Gaming is already very big. Traditional gaming is larger than the music and entertainment industries combined.

The Origin of Superscrypt

TechFlow: Thank you for participating in this interview. Today, our goal is to gain insights into Web3 investment and your background. Let's start with the founding story of Superscrypt and its connection to Temasek.

Jacob:

Superscrypt was founded by Temasek in July 2022. We are a startup-stage Web3 company, operating independently and investing in innovative builders in the Web3 space. Part of our operational model is to ensure we add value to our portfolio companies and accelerate their growth. We help all our founding companies develop market entry strategies, assess their tech stacks, recruit, and build their communities, among other things.

Some members of our team are former builders and entrepreneurs—we combine this expertise with my investment background and Web3 talent to find the best opportunities and support the best builders who are using blockchain technology to build our products and protocols.

Operating at an early stage allows us to gain insights into the future development of the internet. The Web3 space is changing extremely rapidly, so early-stage investments provide you with the best learning opportunities. You meet amazing founders, and these experiences may apply to the direction of the internet, or they may be disruptive, or even give rise to new business models.

Jacob's Transition from AgTech/Deep Tech Investment to Blockchain

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

Jacob:

Before founding Superscrypt, I invested in some growth-stage deep tech and agricultural technology during my career at Temasek. Web3 and its commonalities lie in investing in frontier technologies, understanding new business models, and trying to grasp their potential to disrupt traditional industries.

There are many similarities in new technologies, such as assessing whether a team is the right choice to build something for the future and then taking an investment stance. Early-stage venture capital involves a lot of risks but also a lot of rewards. Along the way, we hope to find people who can create new things, potentially even sparking the formation of new primitives or industries. Bitcoin gave rise to digital currencies, DeFi surged in the summer of 2020, and NFTs gained popularity in the last cycle. In Web3, there is constant experimentation with protocols and use cases.

As for why I transitioned from agriculture to Web3—I have always been a participant in the internet. I grew up on the internet and saw how the world changed when people began interacting and sharing knowledge through computers. I saw the promise and was very excited to be part of it.

In the past three years, I did a lot of deep research on blockchain in my spare time (I had a lot of free time during the COVID lockdowns). I started with Bitcoin, then moved on to Ethereum and smart contracts. When I saw smart contracts, I realized they were very similar to Web 1.0, when information was spreading. Anyone could build anything, write code, and put it online. I think in some ways Web 2 became bigger and more organized, but we lost some of the early internet culture where everything seemed possible.

When I started researching smart contracts and Web3, that sense of infinite opportunity from Web 1 came back to me. I was very excited about what I saw. It was still early, so I decided to leverage my investment background to do something in the Web3 space.

In addition, I started writing, trying to build a community, and using blockchain itself (DeFi, social) to understand everything about it. This really ignited my passion. Since then, I decided this was my passion (AgTech being my second choice), and I began to help build Superscrypt.

TechFlow: As someone with a background in biochemistry, I see many similarities in complex terminology between AgTech and Web3. Concepts in AgTech, such as molecular agriculture or cultured meat, were initially seen as non-traditional food manufacturing methods, similar to the current unfamiliarity of Web3 terminology for most people.

Jacob:

There are many interesting similarities.

Some things you think are impossible in AgTech are actually possible, such as producing protein from non-meat alternatives. Similarly, people can use blockchain technology and protocols to create new primitives—for example, a decentralized exchange; a lending platform; Web3 social, where you own your posts, and even use tokens to allocate intellectual property. Blockchain technology is essentially a distributed ledger that can allocate digital ownership using tokens. With this mechanism, you can create new paradigms and value models.

Before, doing this was difficult, inefficient, and more inconvenient.

Let me give you an example. We recently saw projects like friend.tech, where people's keys have value, and these keys are just representations of their social graphs, knowledge, or their intangible access. Someone's social graph, knowledge, and expertise are somewhat intangible, and then using blockchain technology to allocate ownership of this intangible concept is a fairly new thing.

On previous Web2 platforms, you couldn't gain value from this. Of course, there are questions about whether projects like friend.tech are sustainable, but the fact is that new value has been assigned to this intangible concept.

Many things stem from what you think is impossible.

TechFlow: At the core of emerging technologies is uncertainty and novelty. Given the nascent nature of Web3, how do you see the differences between Web3 investment and AgTech/deep tech investment from your perspective?

Jacob:

I think the core of Web3 is community.

This term is used frequently, but it usually refers to users, the people who use your protocol, who use your product. They are stakeholders because they support what you do, they spread the word, and the more they use your product, the more they may fall in love with it. That's your community, and they incentivize or reward your support by owning a stake in the community, product, or protocol.

This is what makes Web3 unique: you have a decentralized architecture and tokens that can be used to coordinate and incentivize the community. The value created by Web3 products or protocols doesn't just belong to the protocol or application, as is often the case in Web2; it also belongs to the users. So I think this is a big difference between Web3 and traditional investments. Because you truly place the community at the core. Of course, tokens as a form of coordination or stakeholder rewards are not common in traditional investments, especially since there are rules and securities regulations surrounding such things.

The final difference between Web3 and traditional investments is speed and liquidity. Tokens often become liquid faster than traditional equity investments. Even when protocols are still in their early operational stages, investing in Web3 often comes with some premium because liquidity appears sooner, whereas in Web2 venture capital, you might need 5 to 10 years to exit, whether through acquisition or IPO, etc. Web2 valuations tend to be lower, with more "typical" observable metrics compared to Web3. That said, since Web3 is essentially an investment in the internet, and anyone can connect to protocols and start using them, the adoption speed can be very fast.

So to summarize, these are some differences between Web3 investment and Web2. In Web3, there is a greater emphasis on community and users as stakeholders, value shared with them, and liquidity driven by tokens is often faster, with higher valuations—but at the same time, there is also the possibility of protocols being adopted very quickly because they are permissionless and open on the internet.

Full Blockchain Integration?

TechFlow: I want to ask you this question. Do you think one day blockchain will integrate with traditional industries like agriculture? Because we can now see many projects using blockchain for supply chain management, IoT devices, and various other things. You also mentioned that in traditional industries, we have regulations that essentially set many barriers to the growth of innovation, but do you think one day blockchain will become the foundation of everything?

Jacob:

I think it will move in that direction. I don't think blockchain will become the foundation of everything; I say this because when evaluating projects, you must carefully consider why you need a blockchain in the first place?

We see many projects and teams, and sometimes it's clear that a project doesn't need a blockchain.

Why do you need a blockchain? There are usually a few reasons. First, when you need a system that can assign ownership to an asset, whether tangible (protocol tokens or real-world assets) or intangible (for example, intellectual property of content, social graphs).

Second, you need a coordination mechanism to incentivize users and stakeholders to do something, like running nodes and protecting a decentralized network.

Finally, if the problem you are trying to solve requires some form of tracking and traceability to prove authenticity or activity history, such as in supply chains. So if you need to track whether a crop has gone through the correct supply chain and need to verify that it really went through all those stages, then blockchain is useful for that. This is the use case for blockchain and tokens.

To reiterate, ownership, coordination and incentives, and tracking and traceability.

If what people are building requires these three characteristics, then using blockchain makes perfect sense. But if it doesn't, they shouldn't use blockchain, as it can sometimes distract them from focusing on innovation. Perhaps they are attracted by the rapid liquidity and appreciation of tokens in the early stages.

So I think there will be some real use cases that require these things, and we will see more situations where blockchain is used. But there will be many use cases that do not need it. 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 true network, you emphasized the effectiveness of blockchain in three areas and its role in financialization, which is very interesting. The investment shift from Web2 to Web3 in this area may happen faster. I'm curious. Does Superscrypt have a specific investment decision methodology? Considering our earlier interview with Kaito's founder Yu Hu, and given their projects like large language models in Web3, could you elaborate on Superscrypt and the typical approach you take to evaluate such projects?

Jacob:

First, let me talk about our DNA. I worked at Temasek for 9 years, and we adopted some core principles of sustainable investment and long-term vision.

At Superscrypt, we like to support protocols, companies, and founders that are building a sustainable future. Of course, there are many experiments in Web3, and not all will succeed, but we tend to focus on founders and companies that can create value, whether through equity or tokens. For us, what excites us is finding founders who can grow their businesses over five, ten, or even longer. The value they create will grow exponentially over time. So this may be one aspect we focus on. We really strive to find these sustainable and long-term opportunities.

The second part of the framework is around relentless founders who will find ways to achieve results. In early-stage investments, this is based on market reactions to product-market fit. In the early stages of a project, it's common for founders to pivot and experiment. So we look for those relentless founders who will do whatever it takes to achieve results. Whether it's attracting customers, building products they love, solving key problems, forming strong bonds and partnerships, or pivoting to more sustainable alternatives when necessary.

The third thing is their market entry approach. We like teams that have a thoughtful and strategic approach to the market and understand who their customers are and how to serve them well. They must be obsessed with serving their customers, users, and community. In Web3, you either have a product that needs to serve customers, or your customers are a community, especially if you are building a protocol. So how well you develop the community and ensure they have incentives to support you, and the ability for value to flow back to them, is crucial because the community is what helps you scale rapidly. Market entry and community are important.

The fourth is the discipline of the team. This means ensuring they have metrics to track: for example, transaction volume, users, revenue (if they are making money), how they manage their burn rate, and ensuring their team remains lean.

Finally, we also focus on valuation discipline, thinking about our entry valuation and how we can achieve strong venture capital returns.

TechFlow: Is your team interested in and focused on any specific trends or areas?

Jacob:

We spend about two-thirds of our time researching Web3 infrastructure, which is a very large and complex field. It encompasses many things: Layer 1, Layer 2 scaling solutions, MEV architecture, convolution sorting, data indexing. There are also identity, communication protocols, and blockchain interoperability.

Interoperability: We have done some work in interoperability. We see many different blockchains emerging—both Layer 1 and Layer 2 that help scale Ethereum. We believe the future will be multi-chain and multi-layer, so if this is to be realized, then interoperability solutions between Layer 1 and Layer 2 are a very technical task and very challenging, while also facing many risks, such as bridges sometimes being hacked. So any solution that can solve this problem or make it easier is key to supporting a better user experience and enabling developers to truly want to use blockchain or Web3. Therefore, we see interoperability as a very large problem space and an opportunity for investment and support. We previously co-led an investment in LI.FI with Coinfund, which is working on bridge aggregation, for example, creating liquidity aggregation across multiple channels and trying to simplify it for people, so we like things like that.

Identity, Reputation, and Credentials: We find the area of identity, reputation, and credentials in Web3 very interesting. Today in Web2, we log in using WeChat, Facebook, Google, and other Web 2 verticals. This is very convenient—it’s quick to use, and we won’t replace them tomorrow—even though we give up some freedom and value because they benefit from our information and social graphs. However, perhaps the next generation, or our children, will log in using their wallets or decentralized IDs. They can control what information they are willing to provide to businesses, products, or protocols, and potentially benefit directly in ways they cannot achieve in Web2.

So we believe the ID and reputation space is a major unlock for future user experiences because wallets are not very mature yet, but imagine what would happen if they were more mature; you would unlock many use cases.

Decentralized ID and Interoperability

TechFlow: Why is decentralized ID (DID) still not mature now? Is it due to a poor user base, or is there a lack of talent building in this field?

Jacob:

There are many talents building in this field. The difficulty with DID, as we can see in Web2, is that certain companies currently have scale advantages, which is a competitive advantage, and they want to lock it in and not share users with the outside world. They don’t want to open access to their tech stack—controlling it is more profitable. The challenging part of building decentralized IDs is getting people to use your verifiable credentials in the first place—people don’t want thousands of different logins.

Therefore, teams building DIDs need to find ways to incentivize people to sign up and create verifiable credentials in their systems. For example, WorldCoin does this through retinal scans; perhaps they will airdrop at some point in the future, maybe that’s how they achieve scale.

For verifiable credentials, it’s a tough battle. You have to convince people to use your system. I think that’s hard to do. In the past, Google offered free search and free services like Gmail and Slides, and people signed up for Google, which is how they used their email to guide their Google ID. Facebook was similar, except they used social media as a wedge, and then more and more people used it, and now you can log in with Facebook. So I think we haven’t seen too much of this happening in the decentralized space yet, because getting people to use new ID solutions can sometimes be difficult. I think the answer may be that there will be multiple solutions converging, and perhaps one or two large solutions will emerge.

TechFlow: Should these solutions be interoperable? Because Web3 is supposed to break down data silos, but now it seems there are many homogeneous DID projects competing or betting, and people must choose one network to use services on that chain. In this context, how is interoperability addressed?

Jacob:

For identity and verifiable credentials to be very useful, they need to be interoperable. But as I mentioned earlier, the value created by verifiable credentials belongs to the silos that create them, so they are less motivated to make them interoperable. So I think there needs to be indications or proofs from multiple sources. We invested in a company called Intuition, which is building a reputation and proof protocol where anyone can provide proof, saying this wallet belongs to A or this wallet belongs to B. Then it’s not just one person, but multiple people providing this proof.

How does this solve the identity issue? Well, someone might have a WeChat account, a Facebook account, a decentralized ID from disco.xyz, and multiple wallets. If enough people use Intuition’s services or reputation system and prove that all these things are connected, then we can actually know that they all belong to a specific person, tying all these together.

Drivers of the Next Bull Market

TechFlow: Do you think decentralized ID and interoperability infrastructure will be the attraction of the next bull market, or do you think it will be ZK, AA, or AI?

Jacob:

I don’t know if they themselves will be the driving factors for the entire market. What I do know is that they will make it smoother for more people to use blockchain because the more features you have, the more seamless it feels. Is it easier for someone to use a wallet or an application? Identity and all these things and connecting your identity and information come into play. But will this be a catalyst for a bull market?

I think there are other more direct things. Recently, there has been a lot of news about the anticipated approval of Bitcoin ETFs in January 2024. This is positive because if it does get approved, as most people expect it will, then it provides a way for non-crypto natives to hold or gain exposure to cryptocurrency and Bitcoin movements easily. Remember, most people—90%—don’t know how to register a wallet, don’t know how to or don’t want to manage their private keys, but may be interested in alternative asset forms. Things like ETFs could help attract more external capital and interest into the space. This could be a driving force for the bull market.

We also sometimes hear that institutions and traditional finance are entering. I think they are very interested in this space and see the benefits of blockchain, such as speed, lower costs compared to traditional systems, and the ability for cross-chain and cross-border payments.

• We see JPMorgan piloting with Axelar and LayerZero on private blockchains,
• We see Citibank piloting a foreign exchange market on Avalanche,
• Franklin Templeton launched the OnChain U.S. Government Money Fund, a tokenized money market fund approved by the SEC.

They know that Web3 infrastructure makes sense and is coming, but they also need to manage risks, which means it may take more time.

We shouldn’t be overly optimistic and expect everything to happen overnight. Traditional institutions will take years to get there, and it will happen in small experimental forms. I think once we see some capital onboard again, then we may see more bull markets, and they will be more interested. So, the real bull market is price-driven, which is why I mentioned these two things: ETFs and traditional investors. But keeping users around and actually using blockchain will be better infrastructure improvements, like wallet labels or identity. I don’t think the infrastructure itself will drive the entire market, but it will make it smoother for more people to join and attract more over time.

Enterprise-Driven Projects vs. Crypto Native Projects

TechFlow: An interesting phenomenon has emerged in Web3. I interviewed a Layer 1 chain supported by major Korean tech giants like Kakao Talk, which performs excellently in user experience and has a dedicated engineering team. In contrast, the native Web3 landscape is decentralized, contributed spontaneously by people worldwide. Most native projects lack the centralized support seen in state-backed initiatives, facing challenges in providing user-friendly experiences.

What are your thoughts on the future of remote work, especially compared to the role major companies supporting the blockchain movement play?

Jacob:

Anytime something is enterprise-driven, there will be some skepticism from Web3 natives. "Is this real?" "Does it have a real community and organic acceptance?" "Do we want to rebuild Google and Facebook?"

I’ve said before that community is at the core of everything, which means things should benefit users and the community, not just enterprises. So overall, I think today’s native Web3 community holds some skepticism towards enterprise involvement in blockchain. Over time, as technology has more use cases and we start to see more value generated from intangibles and ownership tokens, this attitude will change.

Currently, I think we are still in the early stages, and when enterprises get involved, there will be some questions. Enterprise involvement is not a bad thing because they can hope to drive some traffic and use cases. But I think more use cases are needed to drive acceptance in this area.

Another thing is that a successful product or application succeeds because it solves someone’s everyday problem or is fun to use. When you think about the definition, it doesn’t mean it succeeds because it involves blockchain, cryptocurrency, or tokens.

The best applications we use in our daily lives do not use blockchain. For a successful blockchain application to succeed, users must be able to use it seamlessly—even possibly without realizing that the application is using blockchain infrastructure in the background. That’s what I think we need for mass adoption.

I think creating things to get people to accept blockchain doesn’t always work. Solutions and use cases need to have some of the characteristics we discussed earlier; you may need to allocate ownership and digital rights, you may want to track and have traceability, and you may want to incentivize or coordinate people to do something. So I think unless you have these and many use cases, enterprise-driven things may not be as organic.

Gaming

TechFlow: You mentioned infrastructure, Web3, social, and AI. Then you seem quite bearish on the gaming aspect. Why is that?

Jacob:

We focus about 70% on infrastructure, but we are increasingly paying attention to application and gaming use cases.

From the beginning, we had this direction. Early on, we decided not to focus on gaming. That’s not to say we think there are no opportunities. In fact, we believe gaming will be huge. Gaming is already very big. Traditional gaming is larger than the music and entertainment industries combined. Every generation born is increasingly becoming gaming natives. It’s more interactive, and people are very passionate about it. But I think our team doesn’t necessarily come from a gaming background, apart from some of us who play games. Assessing what will succeed, what will go viral, and what people will enjoy playing can sometimes be very difficult. If you get it right, the rewards are very high, but more often than not, it doesn’t go that smoothly. So I think our view is to not take that risk or make that bet.

That’s not to say we will never look at gaming, but we decided to focus more on the infrastructure elements that need to be built to enable gaming and good products. I think we will soon see some very good games on Web3. Not all games will succeed, but they take a long time to create, and you never know if they will succeed.

So while we consciously try not to focus too much on gaming, we are still constantly observing user reactions to gaming because it is a very popular medium that people enjoy playing. Our view is similar to our view on applications: if you build an interesting game or an application that solves people’s problems, then you will succeed. There shouldn’t be blockchain functionality unless it’s truly necessary.

TechFlow: We are currently experiencing a variable shift in the market. And you are in the primary market; I think what you feel is the same as what we feel in the secondary market. So what advice would you give to founders currently raising funds?

Jacob:

We have been in a bear market for a while. There are some signs of life, but even what we see in the macro environment, it’s still unclear how quickly and rapidly things will warm up and whether there are fundamentals behind it.

One of the key points to focus on is that purely digital and metrics are actually more important. This means showcasing and tracking the amount of data you have, perhaps the monthly active users of your protocol or product, or perhaps the revenue you are generating.

Now you need to pay close attention to this. If you want to raise capital, taking a data-driven approach is helpful. Many people are reluctant to invest without this data. Perhaps their views will shift in a bull market, but in a bad market, fundamentals matter. So that’s the first point.

The second point is team discipline and cash management. Obviously, you need to be very conservative and manage your cash position well. Balance building new features to gain data, users, and metrics with the cash burn required for hiring and building it. Given that valuations will be more rational and lower, you may want to raise less capital but enough to sustain you for at least a few years, because once your runway drops to 12 months, you will need to start raising capital, as it can be a long process.

Lastly, I want to say this is our view as a venture capital firm on valuation, be realistic about your product and valuation. If what you are building doesn’t need tokens or blockchain, then people will see you as an equity investment. When they see you as an equity investment, the holding period is longer, and returns typically come from acquisitions, which also takes longer. So then people will obviously give you a lower valuation when it comes to smaller equity. That’s not to say it’s bad, absolutely not. I think it shows a long-term vision, but don’t just casually add a token for the sake of it, because people will see through that.

Do We Need Tokens?

TechFlow: How do we determine in which projects we need tokens and which are equity-based projects?

Jacob:

I think if we look back at the first principles of things like Bitcoin and Ethereum, the whole point of tokens is to reward people for running nodes to secure the network. So whenever you need to secure something and have validators and nodes for the network, that’s one reason you might need it.

The second thing is obviously the coordination mechanism you mentioned earlier. Whenever you need to incentivize people to do things. Then another thing is utility—what kind of functionality do you need, and what kind of utility can tokens bring? On the other hand, you don’t necessarily need tokens. When you look at things like SaaS businesses or developer tools, it’s harder to argue that you might need tokens because you need to secure what network.