Chain Venturer: Edward Tan of Hashed

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Edward Tan from Hashed.

Edward does research and investments at Hashed, a global crypto investment firm that originally started in South Korea but has since expanded into multiple regions.

As arguably the most well-known crypto investment firm in South Korea, Hashed has since expanded into numerous divisions (more on that below).

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Edward Tan, Research & Investments at Hashed

Edward Tan does research & investments at Hashed, a global early-stage venture fund focused on backing founders who are pioneering the future of blockchain and cryptocurrency.

Hashed’s team is a collective of blockchain experts and builders based in Seoul, Singapore, Bengaluru, and Silicon Valley. 

Edward studied accounting and finance at the London School of Economics & Political Science (LSE) and went into the real estate private equity industry via his two-year tenure at Fraser Property Limited.

Before joining Hashed in 2021, Edward also held a position in fund management at LOGOS, an expanding logistics specialist with a presence across 10 Asia Pacific countries.

Eventually, Edward jumped into the crypto space in 2021

Here’s my conversation with Edward Tan.

Quick takeaways:

• A decisive factor in Edward's deepening interest in crypto was DeFi's approach to capital efficiency.

• Hashed now has five divisions with more than 250 professionals.

• East Asia and Southeast Asia's crypto landscapes are vastly different, with the former’s retail presence significantly stronger than the latter.

• It's necessary to refine the balance between equity and token, ensuring that each serves its purpose in aligning with the broader business objectives and providing clear pathways for investor returns.

• Contrarian view: crypto gaming won't drive the next billion users.

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What was the defining moment that drew you into the world of crypto?

Edward's journey into the world of cryptocurrency marked a significant departure from his background in traditional finance, where he was accustomed to the stability and relatively moderate rewards of real estate private equity. In this field, a strong deal might yield a 15% internal rate of return (IRR), reflecting a balance of low risk and moderate gains.

However, the landscape shifted dramatically for Edward in late 2020 when the high Annual Percentage Yield (APY) of cryptocurrency caught his eye. This was a stark contrast to the familiar territories of low-risk real estate and higher-risk equities. Crypto introduced an entirely different risk-return spectrum, not just higher returns, but exponentially greater ones, promising returns far surpassing those of traditional investments.

At a point in his life where he was ready to embrace greater risks, the asymmetric potential of crypto appeared increasingly alluring to Edward. This inclination towards crypto was further influenced by discussions with a close friend and former university classmate, an accomplished finance graduate with a career at JPMorgan, who was contemplating a shift to a crypto fund. Their conversations, once centered around traditional equity and investment analysis, began to incorporate topics like Decentralized Finance (DeFi), liquidity mining, and yield farming.

The middle to late months of 2020, known as the DeFi summer, marked a pivotal period. The crypto community was buzzing with the rise of new DeFi protocols such as Uniswap, Curve, and SushiSwap, each offering substantial liquidity incentives. The allure of triple-digit APYs was strong, despite the nascent and evolving nature of the space.

One defining moment: A decisive factor in Edward's deepening interest in crypto was DeFi's approach to capital efficiency. This involved using digital assets like Bitcoin and Ethereum as collateral without the need to sell them—a concept alien to traditional assets like stocks. This innovative method of leveraging capital was a revolutionary concept for Edward, leading him further down “the rabbit hole”.

What is Hashed?

Hashed has undergone significant transformation since its inception in 2016, starting with a compact team led by three founders with engineering backgrounds. These founders, transitioning from their successful Web2 startups, began investing their returns into ETH, laying the groundwork with proprietary capital.

Their early forays involved channeling this capital into ICOs, which was the predominant fundraising method during 2017-2018, before eventually evolving into venture capital.

By 2018 and 2019, Hashed had begun investing in some of the early protocols such as Sky Mavis, becoming seed-check investors, and participating in projects that would give rise to Axie Infinity and Ronin Chain, securing both equity and token stakes. Their portfolio expanded to include names like Sandbox, Mythical Games, and dYdX.

Initially based in Korea, Hashed saw the importance of connecting with the Western market. This realization led to the establishment of teams in San Francisco and Los Angeles in 2019.

In 2021, Hashed broadened its reach to Singapore, where Edward, the first non-Korean member, joined the team. With this expansion, Hashed is now focusing on making Singapore the central hub for its Southeast Asia operations. Furthermore, Hashed has portfolio companies across Vietnam, Thailand, and the Philippines.

From its humble beginnings with a team of 30, Hashed has grown into a robust group of 250 professionals, organized into five main business units:

1. Investment Vehicle: With teams in the US, Seoul, and other global locations, this unit operates three entities: a proprietary capital vehicle for token deals, an LP fund for equity deals that started with $100M and was quickly deployed, and a subsequent $200M fund raised in 2021 targeting entertainment, NFTs, and the metaverse, which is currently 70% deployed.

2. India Division: Launched in 2022, the India team is a diverse group of fewer than 15 people handling various aspects of fund management, including research, investment, marketing, community management, HR, and legal. This expansion was driven by India's rich talent pool and the need for capital and scaling support, which led to the founding of Hashed Emergent by a partner with deep ties to the region. 

3. Factomind: This is Hashed’s asset management subsidiary, offering services from consultancy to data visualization and liquidity provision. This was born out of the need to actively manage Hashed's significant asset base, led by a team of former quant finance traders and engineers.

4. UNOPND Incubation Studio: As the largest segment of Hashed, UNOPND is currently fostering three projects in the NFT, metaverse, and K-pop arenas. Notably, they are innovating a decentralized K-pop label, Modhaus, which empowers fans to participate in decision-making through voting on various aspects of music production, utilizing NFTs to gamify consumer engagement.

5. Hashed Open Research: A unit dedicated to policy and framework research. This arm is a liaison between the public sector's blockchain ambitions and the private sector's objectives, including venture capitalists and investors, aiming to harmonize government plans with private initiatives in the crypto space.

What is the difference between East Asia’s and Southeast Asia's crypto landscape?

In the East Asia retail market, with South Korea as an example, the country showcases a massive retail presence, evidenced by significant volumes on centralized spot exchanges like Upbit and Bithumb.

• South Korea's market is so robust that any new crypto pair listing can result in substantial price surges, reflecting a strong retail demand for trading and ownership in the crypto space, backed by a large and active community.

In contrast, Southeast Asia presents a varied picture.

In Singapore, for instance, the retail participation rate is notably lower and it's not as commonplace to encounter crypto as a topic of casual conversation as it would be in Korean social settings, with investors exhibiting more risk-averse and disciplined investment behaviors. However, in countries like Thailand and Vietnam, enthusiasm for crypto may rival that of Korea.

• Regarding institutional involvement, Southeast Asia sees a growing influx of capital into crypto, mostly through fund investments rather than direct engagement.

• Unlike Korea, where conglomerates like Samsung and Kakao are actively involved in developing blockchain infrastructures, Southeast Asian institutions prefer investing through funds, likely due to limited capacity for direct involvement in the sector.

However, there are notable initiatives like SCBX in Thailand, which is collaborating with Hashed on a venture builder model to test blockchain-based financial instruments in the local market. Similarly, FPT Group in Vietnam, a significant tech conglomerate, has launched Aura Network, a blockchain aiming for adoption in emerging markets.

Overall, crypto adoption in Southeast Asia tends to be more structured and cautious compared to South Korea’s direct and enthusiastic engagement.

With the rise of new stablecoin projects such as Ethena Labs and Mountain Protocol, what are your thoughts on newer stablecoin models?

Edward notes that while the concepts may not be novel, success hinges on the refinement of infrastructure and the foundational rationale behind their creation.

• He examines Ethena's delta-neutral stablecoin model, where users provide ETH, which the protocol then shorts on a centralized exchange (CEX) to maintain delta neutrality. This strategy issues receipt tokens to users for their ETH, while aiming to provide a risk-mitigated, yield-generating stablecoin.

In assessing Ethena's implementation, Edward underscores the importance of having the right team and financial backing to realize such an ambitious project.

Edward points to inherent risks, including smart contract vulnerabilities associated with staking ETH and the challenges in maintaining true delta neutrality due to timing discrepancies between receiving and shorting ETH. He notes the innovative solution of using a mirroring model with custodial wallets like Fireblocks to mitigate centralized exchange risks and manage short funding rates.

Additionally, he touches on Mountain Protocol's model of tokenizing on-chain treasury bills and redistributing yields to holders, acknowledging it's not a unique concept but emphasizing the potential for scaling when integrated within the DeFi ecosystem.

Overall, Edward is receptive to innovative stablecoin models. He considers their integration and risk management strategies extremely critical for these stablecoins to achieve success.

What are your thoughts on value accrual in the next cycle and what are the things that we need to fix?

Edward underscores the importance of clarity in investment strategy, both from an equity and token perspective, and emphasizes alignment between investors and projects on long-term goals, such as growth, scaling, and community development, leading to a successful exit, be it through a token launch or an IPO.

Edward said that at the investment stage, it's crucial to discern the primary source of value accrual—whether it's through equity for traditional business models or tokens for incentivizing and tracking user engagement.

Using the example of a hypothetical payment infrastructure project, Edward illustrates that not every blockchain company needs a token to facilitate user transactions.

• For instance, a project focused on creating on-chain payment solutions like a non-custodial debit card may not require a token for the user journey. Instead, the project should evaluate how the equity can accrue value, potentially leading to a buyout or IPO.

However, Edward also recognizes the potential role of tokens in enhancing user experience and loyalty.

He suggests that reward points earned through the use of a blockchain-based card could equate to a token system, incentivizing high engagement and allowing for user activity tracking, akin to leaderboards in gaming or activity points in platforms like Friend Tech.

In discussing the next cycle of value accrual, Edward believes it's necessary to refine the balance between equity and token models, ensuring that each serves its purpose in aligning with the broader business objectives and providing clear pathways for investor returns.

Fixing this balance will require thoughtful integration of equity and tokens, recognizing when each is warranted and how they can complement each other in the ecosystem's growth and value distribution.

Rapid Fire Questions

1. What’s one content that any aspiring investment professional should read/watch?

   • Finematics on YouTube and Economic Design Newsletter.

2. What’s your biggest investment mistake?

   • Lacking in risk management to switch bias when the time calls for it.

3. What’s the most underrated use case of crypto?

   • Payments or privacy.

4. What’s your most contrarian view in crypto right now?

   • Gaming won't drive the next billion users.

5. What’s the biggest risk that the crypto space is facing?

   • Regulatory risk.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.