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September 23, 2020

USV Bullish on the Blockchain. ConsenSys Preps for Ethereum 2.0

Union Square Ventures was an investor in the blockchain space, having backed companies like cryptocurrency exchange Coinbase. They are also directly invested in a number of protocol level projects. Albert Wenger, managing partner at Union Square Ventures, spoke with Nisa Amoils about why now is an exciting time in the blockchain space, saying, 

“There’s a couple of different things coming together. One is that, obviously there’s been a lot of activity on Ethereum, especially in the DeFi space. On the other hand, that very activity has shown some of the issues that Ethereum has today as people are encountering $50 gas fees, for example. And that in parallel there’s a whole set of new chains that have launched or are launching including some of the ones that we’ve invested in, such as Algorand launched over a year ago….So there is a lot of activity in this space.”  

Right on cue,  Emmanuel Marchal, managing director and global head of sales at ConsenSys, addressed the issues plaguing the Ethereum network and Ethereum 2.0’s ability to fix this issues, saying,  

“I’m very confident…not because we get the [corner] on technology but because Ethereum benefits from having the largest community adoption and support, the largest amount of research around it done not by a single company but by a combination of companies and independent developers. And [this has been proven] over the last five years. It’s capable of innovating yet maintaining the security and sovereignty of the ecosystem at work.” 

Marchal also noted the progress that is happening in the central bank digital currency space and ConsenSys’ role there, saying: 
“I think there’s also a very interesting trend in enterprise…not only in traditional enterprise consortiums but also with central bank digital currencies. ConsenSys is in discussion right now with four of these central banks for the issuance of digital currency. And so that’s another trend of the adoption of Ethereum in the space.”  

ConsenSys has been busy with enterprise projects in sectors like global trade and logistics. According to Marchal, many of these networks will be going live this  year, after which time a consolidation is likely to occur. He gives the example of one party with trade execution in the oil and gas market connecting to another party when it requires financing, saying that is “one form of interoperability.” And while it may not be as “sexy” as, say, DeFi, enterprise projects are “very real.” 

Meanwhile, Union Square Ventures’ Wenger noted that some projects in the crypto ecosystem need a reality check, saying: 

“I also would caution that at the same time, there are a lot of people operating in this space who seem to think that somehow the fundamental laws of reality can be rewritten. I just think a project that was premised on there being a 1% interest rate daily, and I think there’s some fundamental misunderstandings about why some things exist or can’t exist in the world. So I guess I would say there is a bit of magical thinking in some of the projects that are out there. So it’s an exciting time and certainly one that we’re following very, very closely.” 

As an early investor in the blockchain space, Union Square Ventures’ investment thesis has evolved over time. While at first its focus was on the infrastructure layer, considering that niche is coming along, it’s starting to look more at applications. Wenger stated, 

“And obviously we have some investments that have applications as well, something like Dapper for example. So it definitely feels like we are on the cusp of a shift toward where the infrastructure is there. I  don’t think we can say it’s there today, but I think we can see that it will be there. And so definitely now is a good time to really start thinking about applications and what’s happening at the application layer.”

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