Union Square Ventures & ConsenSys
Union Square Ventures managing partner Albert Wenger explained why now is an especially exciting time in the blockchain space, thanks in large part to the activity on Ethereum and in DeFi. He talked about some projects needing a reality check, how Union Square’s investment thesis…
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Union Square Ventures managing partner Albert Wenger explained why now is an especially exciting time in the blockchain space, thanks in large part to the activity on Ethereum and in DeFi. He talked about some projects needing a reality check, how Union Square’s investment thesis has shifted from infrastructure to applications and what role the blockchain can play in nipping climate change in the bud.
Meanwhile, last month ConsenSys announced a blockbuster deal in which it acquired JPMorgan’s Quorum project. Emmanuel Marchal, managing director and global head of sales at ConsenSys, provided insight on the deal and also discussed how Ethereum 2.0 will fix the network’s scaling issues.
In Conversation With Albert Wenger
Union Square Ventures has been one of the earliest investors in the blockchain space, backing 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, discussed how he feels about the industry right now, saying:
(5:51) “Well this is a particularly exciting time period I think because 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.”
Wenger also suggested that while there has been a lot of technological progress, some projects need a reality check, saying:
(6:43) “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.”
Union Square Ventures’ investment thesis has evolved over the past few years. Wenger explained,
(7:34) “I think we in the early investing were very focused on the infrastructure layer. So projects like Blockstack, or Algorand…or Helium, those are all sort of infrastructure layer projects; Arweave. We do think that the infrastructure is really now coming along and so we are starting to look more at applications. 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.”
Nisa asked about the wildfires that are spreading in the United States and also those that happened in Australia earlier in the year, asking if blockchain technology could be used to combat climate change. Wenger said,
(17:58) “I think the market for carbon offsets is a really interesting potential application for this. This is a market that has a lot of issues. And blockchain in and of itself doesn’t necessarily magically solve them, but it can form a new system where people can register offsets and where you can see, for example, let’s take a forest; where you could make it very clear that a certain set of trees has actually already been sold so I’m not selling the Brooklyn Bridge to seven different buyers. Now it doesn’t solve all problems because there’s still the issue of do I even own this forest and have the right to sell it? That’s one problem that one needs to understand. And the other thing is what’s the ongoing monitoring?…So there are certain problems here that I think blockchain can solve.”
Market Spotlight: ConsenSys
In August, blockchain startup ConsenSys acquired JPMorgan’s Quorum project while the Wall Street bank also became a strategic shareholder of ConsenSys. Teana Baker-Taylor spoke with Emmanuel Marchal, managing director and global head of sales at ConsenSys, about the deal. Marchal said,
(22:11) “On Aug. 27, our company ConsenSys acquired the Quorum platform from JPMorgan. Quorum as you probably know is the leading platform for private permissioned blockchain networks. And we merged the technical roadmap with our mainnet compatible client…And so combining these roadmaps will be a powerful offering in the enterprise Ethereum space, especially as we see more convergence from mainnet Ethereum.”
It is no secret that Ethereum has been plagued with scaling issues as the community awaits its migration to Ethereum 2.0 and a proof-of-stake algorithm. Marchal discussed his level of confidence in Ethereum 2.0 solving these problems.
(30:22) “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….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.”
Marchal also discussed his outlook for the evolution of enterprise blockchains over the next 12 months, saying:
(34:19) “Maybe enterprise projects are a bit less sexy than DeFi right now. But they’re very real. So for example, in the global trade and logistics space, there is a very significant project…going live in 2018, going now to hundreds of customers….All these projects have gathered hundreds of customers and have now effectively digitized the operation of the markets between counterparties and have become references in their respective markets. So this will continue. We will see many of these networks still coming live this year. And then I think gradually, you will see a consolidation of these networks or a connection of these networks. For example, [indisc] which trades with trade execution in the oil and gas market is connected to [indisc] when it requires financing. And so that’s one form of interoperability. Although both of them are built on private Ethereum, it is two separate chains and there is interoperability between the two.”
Onchain Reaction: Onchain Insights and Observations
Charlie Morris, chairman of Bytetree, provided a macro view of onchain data over the past week using a new method to capture transaction volume. He said that with the blockchain, transaction data is subjective for various reasons.
(39:30) Our new methodology strips out a lot of this fake traffic; well not fake traffic, but confusing, obfuscating traffic that’s been recurring over the summer and brings it back down. You can see that in the chart…It’s not just the fact that we’ve managed to get rid of some of this traffic, we’ve identified new types of traffic, which are also interesting.”
Morris also illustrated the difference between the complex and batch spend, saying:
(40:04) “The complex spend really is the attempt to look for privacy. So you’ve got these transactions that look much larger than they actually are economically. So there could be $100 million moving around but actually there’s only $5,000 in each and every transaction…And the other one is batching. So batching can be used by legitimate organizations like Coinbase, for example, to save their customers money they might put 100 different transactions together.”
Bitcoin’s highest returns are when the velocity is above 600%.
(43:05) “Whenever the velocity of the network is above 600%, you tend to make quite a lot of money. In this particular chart, bitcoin’s up 10x or a bit more since 2014…and it’s up another 5x if you’re invested when the network was above 600%. And whenever the bitcoin network velocity was below 600%, it was never profitable. Ever…The lesson is very simple: A lively network is a valuable network.”
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