Institutional Staking in the post merge era

In today's episode, Aakash, Principle at Matrix Partners India, talks to Andrew Vranjes, GM, APAC at Blockdaemon, aboutthe future of Staking, selling and building a business in enterprise in the domain of Web3. Tune in to know more.

Aakash:

Hi, and welcome to Matrix Moments. I'm Aakash and today with me I have Andrew who is a VP at Blockdaemon. We’re going to talk a lot more about the future of staking, selling and building a business in enterprise in the domain of Web3. But before we start off with that let me introduce Andrew.

Hi, Andrew. Andrew and I had the pleasure of getting connected when he used to lead the Startup Ecosystem at AWS. Earlier this year you joined Blockdaemon?

Andrew:

January, this year.

Aakash:

January, this year. Pretty much the same time I joined Matrix.

Andrew:

Yeah, good timing.

Aakash:

We had some interesting exchanges before – we used to do a lot of collaboration backing early stage founders. So, Andrew, how was the move, like when you decided you’d been involved with crypto for a long time but what led to that final moment of decision of actually switching over from AWS.

Andrew:

Yeah. So first thing, thanks for having me, it’s good to catch up. It’s great to be back in Bangalore. So it’s actually an interesting story and so I do think Amazon, AWS is an amazing company and I do think the best MBA around is the MBA of Jeff Bezos. But I’d done five and a half years so I was starting to think about what’s next. And then I'm one of these guys, I'm not the smartest guy so I kind of work at what I know and I look for things that kind of fit well.

So I was speaking with a couple of close friends, a couple of them are very deep in crypto, one of them was like, hey, look, I'm going to get you something in crypto, like I know you, I know what you're good at, leave it with me. And then I’ve also got a friend in recruitment – I’ve known him for a long time. And I just said, look, start to have a look, I'm not a trader, I don’t have a finance background so I can't play on that side but I have an infrastructure tech leadership background so let’s see.

And then what happened is – two things happened, the recruiter came back and said I like this company Blockdaemon, you need to look at them. And then my friend came back and said one of my buddies is the advisor to the leadership team, you need to look at it. So I was like okay, I think I need to take this opportunity pretty seriously. And, yeah, I was fortunate enough last year to have conversations with the CEO and the leadership team and really Blockdaemon for me and my skillset in my career and also sort of like a bit of my personal investing where I'm sort of a buy and hold type of person, I'm not a trader.

And Blockdaemon presented this unique opportunity of Web3 that the infrastructure so infrastructure node block chain and something that I was personally interested in which is staking of Gen3 POS chains,and that sort of tooling, API, SDK developer kind of capabilities. So I think like I was lucky, it all just converged on multiple angles, you know, Blockdaemon is a category leader in what it does, fantastic conversations with the leadership team, so it was just really a no brainer.

Aakash:

Actually a little bit more on that one, so talk to us more about Blockdaemon, like what was the genesis and the beginning and then today what is it that Blockdaemon does for its customers?

Andrew:

Yeah, so Blockdaemon has been around for coming up to five years, four and a half. Started life in nodes as a service, so essentially a node is usually – not always, it’s a server virtual machineand it’s running the blockchain protocol. So it basically that's what a node is in essence. So it started life offering institutional grade nodes to people that needed high performance, high resolute enterprise grade nodes. And so it’s going along and selling a lot of nodes, it’s doing a lot of work, it’s doing some permission stuff for enterprise and hyper ledgers doing some Ethereum, you know, it’s doing this.

And then it’s caught very early caught the Gen3 chains, POS and then moved into staking for institutions as well. And then that’s helped really move its trajectory so nodes first line of business in a very much dedicated high end enterprise kind of model. Then staking and then it’s realized also on its journey through interactions with enterprise it needs an API centric model as well. Because some of the institutions are going to – I need a node, I'm going to smash millions of transactions a day, I want to control that, I want an SLA but, hey, these protocols I'm testing, I'm learning. It’s fluid, it’s dynamic, I'm not ready to lock in my commitment so then it’s built out in an API suite.

In addition what we’ve done is we actually acquired a company called Gem and that gave us fiat to crypto payment gateway as well and recently we’ve acquired a key management company out of Denmark called Sepior. So now we’ve got this ability to on ramp provide blockchain access dedicated or multi-tenant, provide staking infrastructure and we’ve got a rich suite at APIs and SDKs. So we’ve started to move from a product into a sort of the platform approach.

Aakash:

Got it. And you joined them to lead APAC and when you think of your last few months there what were the challenges in building this ecosystem out of APAC?

Andrew:

You know this, right, APAC is very diverse. We have – my mental mode of APAC is we’re one step into the future on many things and we’re also one step in the past and depending on what you’re working on it could be one or the other. So I think I was fortunate enough that Blockdaemon already had some fantastic APAC customers to build off. Some of the very established crypto firms like Fenbushi, Dragonfly, and Hash Key have been long time investors and partners for us.

So I came onboard there was a base, I want to be clear, I wasn't starting from zero. But, yeah, I started in January bringing in a laptop, we’re about a dozen people now and we’ve been able to talk to the largest players on the exchange side, the fund side, the traditional finance coming into crypto side. The foundation L1 L2 Oracle large D5 protocols and projects we’re really talking to the largest players across all those categories as well.

Aakash:

So across those categories and you mentioned the traditional players, right, in your experience is that a different go to market motion or is it not too different from when you're talking to crypto natives?

Andrew:

I think that's a loaded question, it’s very different. So crypto native is speed, speed and trust. So there’s a lot of things that they’re going to want to move quickly on. So they’re looking for the right partner, they’re looking for a social network validation but they’re not looking to go through like 100-page documents and these sorts of things. So I think they will look for validation on who else is working with somebody like Blockdaemon and you can move pretty fast.

You know, I’ve got to hand it to the traditional like FSI, they’ll make a decision and then they’ll be like here’s my compliance and risk team like please get through them but that has to be done. Right, it has to be done. So I think if you look at Blockdaemon we were the first with insurance, we had proper insurance, all the rewards on our staking side, we have insurance. We’re insured by Marsh who’re underwritten. These are some of the leading digital asset insurance companies, a lot of the custody players use them.

So we talk to them, we normally have the business conversation, then we spend a lot of time with the compliance people and they’ve got a job to do, they’re just assessing risk. So we very much then flip the conversation, hey, we have insurance, here’s the documents. We’re the first node and staking provider with process and controls, ISO 27001, then we show the document. Please meet my head of Secops, you talk to him. Please meet my head of key management like talk to this person. You go through the motions and these are leading financial services companies and we’ve been able to move through them and get it done.

But that does take some time so you still are spending two or three months in that process.

Aakash:

And when you're talking to these traditional financial companies what have you observed to be a key motivation for them and like in SaaS we used to talk about like an ideal customer profile, who has been sort of the champion at those companies in terms of moving forward on working with Blockdaemon and moving into Web3 or define what has that cycle been like?

Andrew:

So it really starts from the top like so publicly we can talk about SPI in Japan, like they’re a customer of ours and we have a few others that we can't name in APAC but globally we have Citi Bank, JP Morgan, Goldman Saks investors and customers. And so it’s really started either two ways like the leadership team is like hey, we need to be in here but we need to still be our own company. We need to not do anything unnatural but we need to learn this space.

So we found a couple of things, the ones that are investors what they’ve done and what I would recommend is that being they’ve invested in us then they put some money aside to build a small team and learn and build and work out what’s the future for them in Web3. I think that's a fantastic moment like they’ve put some money to work and that builds the team. So that's the 3 that we’ve just spoken about, that's what I’ve been busy doing.

And they’re all doing different things because they’re trying to work out where is the relevance for their business. They’re not just trying to jump in and so I think that's fantastic. I think then this and several institutions in APAC the leadership team has made public statements and then have asked that specific divisional leaders to work out what does the future look like for them in the space as well and kind of working to that.

Aakash:

And talking more about what does the future look like and if you were to where you’ve invested that on what does the future look like?

Andrew:

So I think we’ve witnessed one of the biggest events and I still think we don’t really understand what’s just happened. Ethereum moving to POS like architecture and consensus model like we’re going to look back on what’s just happened in September.

Aakash:

It’s monumental.

Andrew:

Yeah. So we’ve had a lot of institutions come to us in the last few years going, look, I want to work out access to Web3 which means access to a blockchain which means access to a node. So that's what --

Aakash:

That's the starting point.

Andrew:

Then we’ve had some institutions go, look, I like the look of Ethereum, I might like the look of a Polygon, Salona dot,I'm dipping my toe in the water. I don’t want to make it too public but I'm just trying. Now I think those institutions are able to take the next step forward. So because of the ESG elements of POS chains.

Aakash:

I actually wanted to ask a lot about that like how big and how critical has that been like before the merge was the ESG element or that lens holding these people back. And is that really making a dramatic shift in the pace at which they now want to move at?

Andrew:

So I would reshape the sentence to say, they were willing to test like we weren’t willing to make a big bet because they didn’t want somebody coming along and going hey, where is the ESG element. Right, so that we were testing and experimenting. So I think what we’re seeing now and we are seeing this is the institutions putting a larger quantum to work. It’s like, okay, this ticks a few extra boxes, I can put this to work. And as the event, yes, they were fantastic.

The thing is the flywheel works when you’ve got developers, you’ve got the investors, right, they’re building companies and you’ve got institutions pushing capital in, then that fuels more developers coming in to build more companies and there’s more capital coming in, that’s the flywheel.

Right, so I think on the outside we’re really excited that institutions are going to put both investing higher amount of capital work in the broader digital asset ecosystem which will then fuel the whole thing. And I think there’s a lot more confidence now that proof of stake is a thing – obviously at Blockdaemon we know it’s a thing. We know that Ethereum coming out and going – we’re doing this and have done this successfully there’s no negotiating. It’s here, this is it.

So I really think we’re going to look back at this month as a major, major milestone.

Aakash:

And talking about that flywheel that you just spoke of you’ve seen now at Blockdaemon and earlier also being so closely involved with the ecosystem you’ve seen multiple cycles. When you think of where we are today in terms of some would call it winter, some would say – basically this has been a huge drawdown, we’ve gone from like a 3 trillion like maybe 600-700.

Andrew:

Yeah.

Aakash:

Are you seeing that affecting institutions or the builder ecosystem from your vantage point how has that changed life?

Andrew:

Yeah, that's an interesting one that takes – there’s a little bit of layers to this and unpicking. So when you bring in institutions they’re actually tied to macros fundamental public markets. So if you bring that capital in and public markets go down it will affect digital assets where previously the last cycle institutions weren’t there. So I think some projects and some really crypto digital native OG types it’s taken them a little bit – being a bit of a surprise to them this cycle.

But when you bring in institutions that are in the public markets and the public markets go down that will actually have an effect in digital assets and that's what we’ve seen in this cycle now. And that's probably the not so positive side of bringing institutions in, you know, you're starting to tie these markets together a little bit more closely. I think then the other bit we’ve seen is in a more savvy founders they’ve timed their fundraising really well. Some of this is luck, some of this is like the actually deliberately seeing the cycle.

So there is so much capital in and there’s so much capital on the sidelines, unfortunately there’s been a few projects that got caught in the middle and that's unfortunate. But a lot of high quality founders and projects have timed this really well, very well capitalized that we’re really excited about.

Switching gears again, let me, personally I think the worst-case scenario is bitcoin halving.

Aakash:

Yeah, that's sure.

Andrew:

You know, it’s really an interesting thing, bitcoin halving reduces the supply and that doesn’t really mean it’s demand drive that drives the price but there’s something psychological about the reduction of supply that drives demand. It is what it is, technically it like reduces – the supply shouldn’t do that but historically it has. So I think where jumping back to Blockdaemon we’re really excited about the Ethereum front like in what’s happened here and we think this is going to be super positive.

On the personal side like I tell projects and founders and that looked worst cases probably bitcoin halving time and we’re whatever – 600, 580, 600 days away from that. But I surely think we’re going to get back to a really positive market momentum before that. So that's my personal back stop.

Aakash:

And you’ve mentioned that Gen3 chains Blockdaemon was early to Web and then we’ve had at least from India we’re had the companies like Polygon emerge. And then we’ve been looking at Solana also, the entire side chain L2 whatever you want to term it, that ecosystem has been growing. When Blockdaemon is working with its customers what is the sort of warming up that if Ethereum was here that's the future that's going to happen. But how what is the perception of institutions when they think of Solana, they think of Polygon, are they warming up, what’s happening?

Andrew:

I think it’s important to know so Blockdaemon we’re multi-channel. We’re currently supporting 63 different protocols, we have this amazing engineering function and we’ll add another 5-6 protocols kind of every quarter and this is very early. So we’re going to support a lot of protocols, we engage with each one. If we find this a mutual fit we like to support it, so we want to be really clear that we think it’s a multi-channel.

I think that then these personas on the kind of on the light sidepersonas bordering to sort of like semi religious beliefs and everyone’s kind of on the spectrum on that front as well. And then I think so we’re just super excited around the Polygon ecosystem. You know, I’ve got a personal bias for India like builders that come out of India are just operators and so I think what Polygon’s done have shown people in India, guys, we can do this, like this can be done. So I'm just super excited at the India ecosystem and I think it’s amazing what Sandeep and their team what they’ve done to just – look, we were talking about it before.

There’s a place in the digital asset market that’s really like up for India like they have to loosen, you know, so I think that infrastructure lies really interesting super exciting place to be for India and Indian founders, developers, engineers. I think also so that's that piece, I think on the institution side the Ethereum story is the easiest one for them to execute off. So when I talked to institutions there’s usually a difference between what they personally like and what they’re going to do, what’s the institution going to execute off. We’re back to a risk conversation, we’re back to risk and compliance, you know, how can I get my chief risk officer over the line on this one.

So I think we’ve seen definitely a large sudden interest in Ethereum and then whatever you want to call it I like to think of it as like the blue chip Gen3 chains. Right, then we’re seeing – we’re definitely seeing some Ethereum, then we’re seeing some Polkadot, some Salona, some of the L2s so like a Polygon. So these institutions are placing a basket bet because institutions won't just do one bet, largely they can't do that. So they’re doing a sort of basket approach and there’s definitely that sort of top 15 sort of channels.

Aakash:

The blue chip is pretty much qualified and built out.

Andrew:

Yeah, and then to their own personal preferences and risk profiles they’re choosing their allocation. And then what we’re saying is there’s institutions with trading DNA and we usually encourage them like what’s your DNA, what’s your ethos. If it’s trading, okay, we’ll encourage you to put a bit like lock up a little bit and put it at just staking and earn a yield that way.

And then we’re seeing some institutions that are more longer term buy and hold and so we’re actually seeing them coming to the ecosystem make a fairly large allocation by investment quantum and then work with us and then just stake it. And then that's how they’re thinking about things as well. So I don’t think – there’s no one size fits all here. But I definitely think these are the trend lines around probably they’re at the top sort of 15 chains, different allocations by institution and then what they’re doing. Is it largely staking, is it a small allocations are staking, but we’re definitely seeing that probably the common denominator is the top blue chip and a percentage of that put at stake.

Aakash:

And lastly talking about trend lines, I think you mentioned that you do have also an ecosystem fund Blockdaemon runs it, you’ve made some M&A also, we spoke about Sepior. When you think of -- and this is more to be able to help our founders to think through it. When they’re thinking of this staking node institutional ecosystem what are some interesting trend lines that you see now which you could play out and which could potentially be great trend lines for founders to go after?

Andrew:

Yeah, so couple of things. Blockdaemon has a very small ecosystem fund and we’ll use that to drive strategic alignment, very small cheques and very much only if the founders building something that aligns clearly to our vision and mission of connecting institutions to blockchain and helping institutions and rewards staking. So we want even if we see something that looks like a fantastic investment but does no longer we won't do it, it’s not for us.

And what we’re seeing now is a lot of founders, this is so early, there is so much to build at the infrastructure layer that will enable NFTs and gamify and trading and like the financialization of all this eco system that we’re just seeing projects come that are building either the Web3 equivalent function or they’re building something to drive higher availability of performance at the infrastructure layer.

So I just encourage founders to be thinking about like what does this ecosystem need truly like we should be going, there’s so many opportunities for pain killers over vitamins. Right, and how can you build a large business here and where is that fit going to be. Like that's the conversation. You know this on the SaaS side like there’s a lot of SaaS that's being built on Web 2. It’s very difficult now in the Web2 world to find a huge like broad kind of untapped market opportunity. There are some fantastic new SaaS companies that are super deep –

Aakash:

Point solutions.

Andrew:

Yeah, point solutions. I think if you jump back to Web3 you’ve gotthis opportunity for very large kind of market segment share kind of building opportunities. So I think that's what’s exciting a lot of founders, there’s just so much space to build here. And there are so many things that people need that don’t exist.

Aakash:

And, Andrew, lastly we’ll see each other in Singapore soon but last question as for you as an individual what is that one line if you were to put out for the Web3 ecosystem which excites you most like this is the one thing which I'm most excited about, what would that be?

Andrew:

There’s just so much to build and I think that what excites me is like for my career like there’s just so much opportunity, the best stuff is ahead of us. Like that's what I’m excited about and that's what gets me up in the morning and that's what I just love about this opportunity of Blockdaemon and the broader Web3 space. There’s just so much ahead of us.

Aakash:

And on that note we’ll wrap this up. Thanks, Andrew.

Andrew:

Thank you.

Aakash:

And I do agree there’s lots more ahead of us and we look forward to collaborating a lot more both with you and the Blockdaemon team and thank you for your trip in India.

Andrew:

Thanks for having us. Thanks a lot.

Aakash:

Thank you for tuning in. Bye.