Wang Yuehua, partner of De Ding Innovation Fund: RWA, DePIN, and AI have obvious attributes of breaking boundaries, and the opportunity for AI startups lies in the data barriers in specialized fields

"Investors Unplugged" is a dialogue program that delves into global investment trends, launched by Starlabs Consulting. The show creates a platform for entrepreneurs and investors to gain insights into the dynamics of innovative technology investments through in-depth discussions with renowned global investment institutions. In this series of dialogues, top investors share their thoughts and strategies, revealing paths to innovative financing and predicting future trends in the investment community, making it an indispensable reference resource for all parties in the tech ecosystem.

In this episode of "Investors Unplugged," we had a conversation with Mr. Wang Yuehua, Managing Partner of Draper Dragon Fund, discussing topics including Web 3.0, artificial intelligence, blockchain, technological innovations in the crypto industry, development stages and trends, regulatory environments, etc. This discussion is enlightening for our understanding of industry dynamics and clarifying investment contexts.

Draper Dragon originated from the DFJ Fund in Silicon Valley and was co-founded in 2005 by globally influential venture capitalists and the first generation of venture capital leaders in China. It has invested in and nurtured several tech unicorns globally, such as Coinbase (Nasdaq:COIN), HKbitEX, VirgoCX, CoinDCX, Ledger, Otter.ai, VeChain ($VET), IOTEX ($IOTX), YEEPAY, and Splashtop. Recently, Draper Dragon, in collaboration with Hong Kong Cyberport, established the "Hong Kong Cyberport Draper Dragon Web 3.0 Accelerator," leveraging Draper Dragon's startup incubation experience in Silicon Valley and combining it with Cyberport's thriving Web 3 ecosystem to accelerate the practical application of Web 3 in Hong Kong from multiple dimensions, including talent cultivation, project incubation, and investment, thus supporting Hong Kong's Web 3.0 innovation to align with international standards.

Here are the highlights from this episode of "Investors Unplugged":

Key Points

• The emerging hotspots such as RWA, DePIN, and AI have obvious attributes of breaking boundaries, and their prospects are promising. The current technological reserves are basically in place, but it will take some time for commercial innovation and ecosystem enrichment.
• General large models cannot generate in specialized fields; specialized fields require specialized large models, which presents opportunities for entrepreneurial teams. Blockchain can empower AI at three levels: computing power, data, and algorithms.
• In the past two years, there have been no phenomenal GameFi projects, but there has been significant progress in user-friendliness in mini-games within the Telegram ecosystem. In the future, as public chain performance improves, projects comparable to Web 2.0 games will certainly emerge, with Right Tigger being a potential contender.
• Draper Dragon has consistently invested in technological innovation and its application dividends because, among the many factors influencing corporate growth, only technological factors can transcend short- to medium-term economic cycles and provide long-term stable dividends to mitigate investment risks.
• In recent years, Europe has tightened regulations on cryptocurrency trading, while the regulations in the United States have become clearer. Unified rules and innovation are the trends for future regulation.

Starlabs: Mr. Wang, from the perspective of VC and primary market research, what are your insights on the current and future trends of Web 3.0 technological innovation and industry development?

Wang Yuehua: Technological innovation and application landing are always two sides of the same coin, interdependent and mutually reinforcing, and the main driving factors of each market cycle will differ. The last bull market saw hotspots like DeFi, NFT, and GameFi emerge after public chains, represented by Ethereum, reached a certain level of technological maturity, attracting attention from various developers and entrepreneurs, and only after the ecosystem gradually enriched did phenomenal application innovations appear. There is a time lag of about 2-3 years, similar to the period from Ethereum's mainnet launch to the ICO boom, which also took about 2-3 years.

Technological innovation needs to be combined with market resources, especially excellent entrepreneurs. The recent market is no exception; innovation in technology and applications is still progressing at its own pace, although this pace differs somewhat from market expectations. The lack of an explosive BTCFi is because existing technologies have not yet met market expectations in terms of safety and innovation; otherwise, how could the idle BTC worth trillions of dollars remain unmoved in the face of even a 5% annualized return?

The reason why only a few assets like BTC have performed well in this bull market is that BTC's technological safety has gained wider recognition, most notably with the launch of the BTC spot ETF in the U.S.

In fact, several new hotspot directions that have emerged this round are very promising. RWA, DePIN, and AI all share a common characteristic: they have obvious boundary-breaking attributes. Unlike BTC, which relies solely on safety and scarcity to break boundaries, RWA expands the basic assets of DeFi into the real economy according to financial logic, DePIN extends the sources of data into the physical world, and the combination of Web 3.0 and AI transforms AI from a data intelligence agent into an economic intelligence agent at the levels of computing power, data, and algorithms. These directions are very promising.

From the blockchain perspective, the current technological reserves are basically in place, but commercial innovation in these fields also requires entrepreneurial teams to complete, and unlike previous rounds, this time the commercial innovation requires teams with richer industry backgrounds to participate, so the needed time may be longer.

The prospects for Web 3.0 remain very promising. For investors, staying half a step ahead of the market is still the key to success.

Starlabs: Draper Dragon has participated in many AI projects. In your view, under the current landscape where major companies like OpenAI, Microsoft, Google, and Amazon dominate with their capital, technology, and talent, what opportunities do AI startups and SMEs have to seize niche markets? What are the opportunities and challenges of combining blockchain and AI? Which conceptual innovations do you find promising?

Wang Yuehua: From the perspective of AI alone, the opportunities for startup teams and SMEs mainly lie in the application layer, such as combining various scenarios to create specialized large models through knowledge graphs and general large models, because general large models mostly use public data, while proprietary data in specific scenarios cannot be accessed by large models. Therefore, general large models can generate types like text-to-image, text-to-video, and daily conversations, but cannot generate in specialized fields.

Specialized fields require specialized large models, which presents opportunities for entrepreneurial teams. However, this opportunity is not open to everyone; the key is whether the entrepreneurial team can obtain specific scenario data and continuously accumulate it to establish data barriers. Data barriers imply model barriers, which in turn imply market barriers.

A particularly unique area is smart hardware. In the last round of internet business models, hardware was a very marginal topic compared to search, social, and e-commerce, as the core of the last round of internet business models was information integration. However, in the era of large models, the role of hardware has changed; hardware can collect data in specific scenarios and cannot be replaced by software. Therefore, smart hardware is currently a very promising direction.

The combination of AI and blockchain sees AI as the dominant force, while blockchain plays a supportive role, but blockchain can empower AI at three levels: computing power, data, and algorithms.

• Data Level: The assetization of private domain data can greatly expand AI's data sources, but the difficulty lies in data standardization. Some projects focus on data collection, while others focus on data labeling and trading. From the perspective of DePIN, decentralized storage, trusted execution environments (TEE), and real-time data acquisition (RAG) can also be derived.
• Computing Power Level: The core logic of blockchain is to achieve ledger consensus through redundant computing, while AI's development approach is "code computing power, refine models, penetrate scenarios." Therefore, decentralized computing has become a typical application in this field, and permissionless computing based on blockchain architecture can greatly enhance the effectiveness of computing results.
• Algorithm Level: AI model architectures are self-contained, and blockchain cannot play any role, but it can link computation results on-chain and coordinate interests through on-chain transactions. For example, an Agent, NPC, or virtual person can transform from an intelligent entity to an economic entity based on blockchain technology, with some even proposing "decentralization + AI = immortality."

Starlabs: We noticed that Draper Dragon's portfolio includes game projects like RIGHT TRIGGER and CARV. In your view, how has the development of the GameFi industry matured and progressed compared to three or four years ago? Will future GameFi users and traffic come more from outside Web3 or from within Web3?

Wang Yuehua: So far, the innovation in GameFi's business model mainly reflects the balance between profitability and playability, but there has not been a phenomenal game project in the past two years. However, there has been significant progress in other areas, such as user-friendliness, particularly in mini-games within the Telegram ecosystem, where the lower participation threshold has led to high daily active users.

Different platforms prioritize the development of specific types of games based on their attributes, providing innovative opportunities for building industry infrastructure based on user identity. For example, CARV Protocol is a self-sovereign identity oracle that empowers users with control over their data through a decentralized incentive model, covering both Web2 and Web3 data.

▲ CARV's next-generation gaming platform

In my view, Web 3.0 games serve all users, and there should be no distinction between Web 2.0 and 3.0 at the user level. The reason for such a distinction is that the early development of Web 3.0 games was mainly constrained by technical factors, leading to significant gaps in user experience compared to traditional games. However, as public chain performance improves, projects comparable to Web 2.0 games will certainly emerge in terms of visual effects and game mechanics, with Right Tigger being a contender with such potential.

▲ The game "Lowlife Forms" developed by Right Trigger

Starlabs: Please share, based on the projects Draper Dragon has invested in, what key points institutions focus on when screening projects and sectors? How can secondary market investors learn from VC's investment research ideas and methods?

Wang Yuehua: Since its establishment, Draper Dragon has positioned itself as a dual-currency fund investing in the primary market, covering projects across the U.S., Europe, and Asia. We have consistently focused on investing in technological innovation and its application dividends.
▲ Draper Dragon's Portfolio

For a startup to succeed generally takes about 10 years; even institutions like OpenAI have been around for 10 years. Primary market investment is based on expertise, taking on high risks for high returns; among the many factors influencing corporate growth, only technological factors can transcend short- to medium-term economic cycles, such as inventory cycles and monetary cycles, and only technological factors can provide long-term stable dividends to mitigate investment risks. Therefore, based on our positioning, the innovativeness of technology is a very important evaluation criterion in our investment process.

Then, there will be corresponding excellent investment targets at each stage from technological innovation to application landing. We will invest according to the laws of industrial development and the ecological position of enterprises in the industrial chain. There are many cases in this regard, and I think the most typical is BTC, as BTC is still in a process of cognitive expansion and value realization.

Starlabs: Is regulatory policy an important consideration when you screen investment targets? What is your view on the overall regulatory trends for crypto in major regions in the future?

Wang Yuehua: Regulation is a very important factor to consider in all investments. In recent years, Europe has tightened regulations on cryptocurrency trading, while the regulatory rules in the United States have become clearer. Additionally, Hong Kong has been the first in the world to approve licenses for cryptocurrency exchanges.

The global shift in regulatory attitudes reflects a gradual rational process regarding emerging phenomena, as both regulation and society have gained clearer insights into digital assets, adopting a more pragmatic approach to embrace their benefits while trying to mitigate their risks.

A very important principle in Western regulatory theory is "same business, same risk, same regulation." The benefit of implementing this principle is that it can provide a relatively clear set of behavioral guidelines for market entities in specific business areas while also guiding market innovation. For example, the BTC spot ETF was pushed to market under such a regulatory framework.

Empirical research shows that the clearer and more operable a country's financial regulatory system is, the more developed its financial market becomes in terms of scale and products. Hong Kong's approach to regulating digital asset trading-related businesses also adopts similar regulatory principles.

It should be noted that DLT technology, represented by blockchain, fundamentally changes financial products and services and can be said to be disruptive. Existing financial regulatory systems cannot fully adapt to these changes. For instance, while countries can implement corresponding regulatory systems for CEX, no country has yet introduced regulatory measures for DEX because the entities, processes, and forms of service have completely changed. This necessitates regulatory innovation, a comprehensive innovation in regulatory principles and methods, with the prerequisite for regulatory innovation being industry practice.

Thus, unified rules and innovation are the trends for the next phase of regulation, which will have a significant impact on the development of the crypto asset industry in various countries and regions.

Starlabs: In your opinion, which sectors of Hong Kong's Web3 and blockchain industry are more encouraged by the Special Administrative Region government? What challenges does Hong Kong face in achieving the goal of "synchronizing Web3.0 innovation with international standards"? What comparative advantages does Hong Kong's Web3 industry have over regions like Europe, the U.S., Dubai, and Singapore?

Wang Yuehua: In our view, the Hong Kong government’s support for Web 3.0 is comprehensive, thorough, and exploratory (of course, all activities must be within the regulatory framework) because Web 3.0 is the next generation of the internet and is still in the early stages of a sunrise industry, making it difficult to preset too many frameworks. Therefore, this comprehensive and exploratory support is very important.

However, the development of the Web 3.0 industry in Hong Kong will also be constrained by its own resource endowments. Capital, talent, and a rule of law environment are its significant advantages, along with an efficient regulatory system. However, why did Hong Kong not gain much in terms of industrial division of labor and market share during the last internet wave? In my view, the main reason is that Hong Kong lacks industrial support, while the internet industry needs to integrate with various industries and supply chains; "Internet +" can expand a huge market space for the internet industry. For Web 3.0, although it has inherent financial attributes, it also needs to combine with industrial foundations.

If Hong Kong can leverage its advantage of being backed by the mainland market, combining Hong Kong's financial advantages with the mainland's industrial chain advantages, then its lack of industrial support will be reversed, turning into a significant advantage compared to Singapore, Dubai, and even the U.S. and Europe.

Starlabs: In light of the recent "going overseas" trend, what advice do you have for domestic companies? Given the differences in market and policy environments between domestic and international markets, what qualities do you think companies need to possess when going overseas, and what pitfalls should they be wary of?

Wang Yuehua: Going overseas is essentially a Web 2.0 business model; pure Web 3.0 is inherently cross-border and does not face the issue of going overseas. However, in reality, whether in Web 3.0 or Web 2.0, local market pain points must be taken seriously, and different demands naturally require different supplies to meet them. But I also want to emphasize that going overseas is not simply about replication; it is also an opportunity for business upgrading, which similarly requires entrepreneurial spirit and exploration of innovation.