Chain Venturer: Jacob Ko of Superscrypt

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. For this week’s issue, we have Jacob Ko from Superscrypt.

Jacob is an investor and founding member of Superscrypt, an early-stage Web3 company, founded by Temasek, that invests in and supports innovative founders and projects across the entire ecosystem.

If you would like to participate in a future episode, DM me here.

-Marco

The Lido decentralization drama perfectly highlights the dichotomy that crypto needs to face: business vs decentralization ethos.

No good business will ever decentralize itself. Period.

"Lido is not a business, it's a protocol".

Keep telling that to yourself.

At the end of the day, Lido provides services for a fee. Its "shareholders" are a combination of LDO holders and the set of validators that help the protocol function. For Lido to truly be more "decentralized", it needs to act in a manner that is against the core interest of the DAO and token holders.

No "company" (or protocol, or whatever that provides a service for some type of fee) will self-limit its growth without external forces. For non-crypto companies, this is the role of regulators.

Any entity that:

• provides services

• generates fees

• has shareholders

…will eventually try to try to amass as much power as possible.

By telling Lido to self-limit itself, you're asking those who have an interest in maximizing profit and power to "self-limit" themselves. Which... never happens

Is it okay for the Ethereum community to voice concern and possibly even "fork" or do whatever they can to limit Lido?

Is Lido's dominance reflective of the state of the Ethereum staking incentives design + market forces?

The answer is yes.

So what’s next? Well, Hasu just proposed a pretty damn good proposal.

This is great work because it offers practical solutions that:

• acknowledge market forces will lead to a winner-take-all for ETH liquid staking

• understand that Lido's "insiders" can't be blamed if they want the protocol to be the biggest

• outline the way to mitigate centralization risk even when stETH is the most used LST

Anyway, enjoy this week’s conversation!

This week in governance shenanigans.

Jacob Ko, Founding Member of Superscrypt

Jacob Ko is an investor and founding member of Superscrypt, an early-stage Web3 company, founded by Temasek, that invests in and supports innovative founders and projects across the entire ecosystem.

He began his career at Kearney as a strategy consultant, then moved to Citi’s Investment Bank from 2010 to 2013. In 2013, he joined Temasek, where he helped them build out their Australia & New Zealand investments and also covered deep tech and agritech investments.

In July 2022, he helped found Superscrypt, a company dedicated to supporting innovative founders and projects across L1 blockchains, web3 infrastructure, identity & credentials, and other emerging use cases. Besides providing capital, Superscrypt is a hands-on investor, working closely with portfolio companies to support them on strategy, product, GTM, marketing, community tech/developer relations, and hiring.

Here’s my conversation with Jacob Ko.

Quick takeaways:

• Superscrypt’s thesis is that blockchain technology is the backbone of the new internet. Good infrastructure ‘just works’ and should fade into the background.

• Many RWA protocols might overlook the success of protocols attributed to their decentralized nature, which allows for seamless transactions without stringent requirements. However, for RWA platforms, legal compliance necessitates identity verifications, which limits immediate leaps in users, value, and liquidity.

• RWA tokenization makes more sense for asset classes that are not tied to physical counterparts, such as treasury bills and private credit.

• One key area of opportunity that Web3 needs to solve for is identity, reputation, and credentials — which will provide users greater control over their data.

• Most investors who invest in crypto and VC don’t fully understand whether a project needs tokens or not and do it for the short-term price movements that liquid tokens can provide rather than focusing on the long-term benefits of building something novel.

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Launchy

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

Jacob was relatively late to the crypto game having started his journey in 2020. With COVID-19 enforcing a global lockdown, and limited options for fun activities outside of work, he decided it was time to explore & research Bitcoin & Ethereum.

Bitcoin shifted his perspective on the concept of money, while Ethereum and smart contracts opened up a whole new world of possibilities for anyone with an internet connection.

The open, global nature of smart contracts was a reminder of the early days of the Internet and really resonated with him and he began actively participating in DeFi on Ethereum, Polygon, Binance Smart Chain, and Solana.

On the Solana blockchain, he went further down the rabbit hole, engaging with NFTs and becoming part of several communities and ecosystems.

What is Superscrypt and what is the relation with Temasek?

After a few years of developing his knowledge in the space, Jacob transitioned full-time into crypto, helping to set up Superscrypt, an early-stage Web3 company seeded by Temasek.

Superscrypt is research-driven and focuses on investing in and supporting early-stage Web3 builders to develop protocols, tools, and emerging applications. The team believes that deep user & community engagement is core to success and provides hands-on support to their portfolio companies.

Superscrypt’s thesis is that blockchain technology is infrastructure and forms the backbone of the new internet. Blockchain’s ability to assign ownership rights on almost anything through a distributed ledger is the key innovation. Like most good infrastructure, blockchain tech should ‘just work’ and fade into the background. As such, they invest in infrastructure solutions that make blockchain easy, faster, and more cost-effective to use. At the application layer, they have been looking out for teams that build good products that make life better or are fun for users.

One key area of opportunity they’ve identified is identity, reputation, and credentials. This underdeveloped area is a key unlock for web3: solutions built with blockchain tech will give us greater control over our data, drive product innovation, and create better overall user experiences.

What sectors and types of projects are you or Superscrypt currently interested in?

Superscrypt invests in Web3 Infrastructure that helps scale and make blockchains more useful like rollups, sequencers, MEV, and interoperability solutions. They’ve also made strategic investments are also made in wallets and developer tools as they are gateways for consumers and developers to interact with and build on blockchain tech.

As mentioned before, identity, reputation, and credential solutions are of particular interest. Identity solutions can help provide a more context-rich identifier of who we are based on our on-chain activity and also assign us control over what data we want to share.

With respect to emerging use cases, the team has selected Web3 Social and real-world assets tokenization as interesting areas and has made a few investments in these embryonic sectors. It is still early though so they continue to carry out thorough research and monitoring before making investments in these areas.

Lastly, Superscrypt does not focus on gaming. While promising, isn’t a primary area for Superscrypt due to the inherent challenges in selecting winning ventures and the hefty capital investment required to make a successful title.

With respect to DeFi, Superscrypt prefers to be selective, preferring to assess projects with a unique innovation angle (e.g. cross-chain DeFi).

What kind of nuance or details that you see sometimes people might overlook when they approach real-world assets?

Jacob observes that real-world assets (RWAs), previously known as securitized token offerings, are regaining popularity as institutions slowly acclimate to crypto. However, he notes that the anticipated mass adoption by institutions hasn’t occurred, possibly due to market crashes deterring their involvement. Despite this, there’s a recognition of the efficiencies blockchain can introduce to transactions and asset management.

In the face of emerging paradigms, there's often hype, but Jacob cautions that currently, only specific RWAs make practical sense for blockchain integration due to technological, regulatory, and practical constraints. Nevertheless, this presents an opportunity as assets like treasury bills and private credit, not tied to tangible counterparts, seem more readily suitable for tokenization.

Jacob highlights that many might overlook the success of protocols attributed to their decentralized nature, allowing accessible transactions without stringent requirements. However, for platforms dealing with RWAs, legal compliance necessitates verifications, limiting immediate leaps in users, value, and liquidity.

In his view, RWAs should not be hyped as the latest crypto sector but rather evaluated within the fintech space due to their inherent constraints and different opportunities.

On RWAs’ KYC: What are your thoughts on the future of KYC systems on RWAs?

Jacob anticipates a complex future for KYC systems on RWAs. Currently, the acceptance of privacy-preserving crypto solutions like zkID as KYC standards for regulated RWAs seems unlikely. The ideal scenario would have regulatory bodies understanding and accepting these technologies as valid for authenticating individuals without disclosing excessive details.

However, gaining government trust for these emerging zero-knowledge proof (zk) solutions is a significant hurdle, as authorities may not see the need to adopt new technology when they can directly demand personal information under existing systems. Despite the work of many teams on ZK solutions, they haven't yet reached a level where governments might consider them a standard requirement.

Jacob foresees a range of identity solutions evolving. This spectrum might start from more nebulous identifiers - e.g. attestations, profiles based on a user’s on-chain activity to more math-based solutions (e.g. zk technology) all the way up to the strictest identity solutions (traditional KYC and AML (anti-money laundering) processes).

Depending on the product in question, any one of these identity solutions could satisfy regulators, with the strictest being reserved for securities and requiring KYC. Should regulators start understanding technologies and solutions like zk better they may be sufficient to meet their requirements, though reaching this point may take decades given how nascent the technologies are.

Based on your experience and how you're seeing the space so far, do you have any thoughts on the best fund structure model for crypto assets?

Jacob shares insights based on his transition from traditional VC to crypto investing, emphasizing the unique liquidity of tokens as investment vehicles. Tokens vest much faster (within a year), in contrast to the prolonged 5-10 year period associated with VC investments. This dynamic has sometimes led to short-term focus amongst early investors, causing price fluctuations and influencing public perception of VCs.

The prevalent investment structure today combines SAFE (Standard Agreement for Future Equity) for initial seed rounds with token warrants. This structure aligns with Superscrypt's approach to long-term investing. While early liquidity from token launches is acknowledged, the primary focus is on supporting teams that create long-term value, potentially leading to trade sales or even IPOs.

Regarding investment strategies, Jacob highlights the distinction between VC investors and liquid funds. The former are long-term backers taking on risks for eventual payoffs, while the latter requires different skills, focusing more on entry and exit points and liquidity management. Superscrypt is primarily VC-focused, but Jacob sees the merit in the liquid strategy, especially in bear markets where significant price drops create attractive valuation opportunities for top-tier teams and tokens.

Rapid Fire Questions

1. What’s one book that any aspiring investment professional should read?

   • Any content around that is really important to set a solid foundation and framework (on Bitcoin and Ethereum).

2. What’s your biggest investment mistake?

   • NFTs, but it opened Jacob’s mind to a lot more aspects and concepts of crypto, Web3, and the galvanizing force that digital ownership can engender in people.

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

   • NFTs: they are unloved now because of the rampant speculation and subsequent price movements - but the technology of being able to assign property rights to intangibles is a mechanism to unlock a lot more value creation & new business models.

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

   • Most investors who invest in crypto and VC don’t fully understand whether a project needs tokens or not and do it for the short-term price movements that liquid tokens can provide rather than focusing on the long-term benefits of building something novel.

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

   • The absence of regulation.

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