Exclusive interview with Saison Capital: Ethereum will not be the basis for mass adoption
Original - Odaily
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Editor - Hao Fangzhou
Started trading commodities and stocks at the age of 14; worked in a venture capital firm at the age of 17; during his two-year break from joining the army, he was still helping some family offices and institutions conduct early-stage transactions, with each transaction size up to $50 million...and most Web3 funds Unlike the chief staff of Saison Capital, Sharvin of Saison Capital was not optimistic about the encryption industry before. He also shorted the encryption industry in 2017 and held the position until the 2018 crash.
What made Sharvin change his view on the encryption industry? What unique perspectives does Sharvin have on the future development of Web3? Odaily hereby conducts an exclusive interview.
In this interview, Sharvin used the perspective of data availability to prove that the development of Web3 requires high-performance public chains to support it, and briefly described the limitations of the development of Ethereums multi-chain; and from the perspective of user acquisition, he explained the limitations of todays Web3 application development; Finally, Sharvin introduced to us his organizations focus on the future development of Web3.
The following is the original text of the interview.
Odaily: Sharvin, I’m glad to have the opportunity to communicate with you about Web3 investment and industry trends. Since many Chinese readers may not be familiar with Saison Capital, could you briefly introduce the background of Saison Capital’s establishment, the representative Web3 projects it has invested in, the overall investment strategy, and how you personally entered the field of Web3 investment?
Sharvin：Saison Capital is the investment arm of Japanese financial institution Credit Saison, one of Japans largest credit card companies and one of the largest wholesale lenders in Japan, Southeast Asia and India. We are still currently actively investing in early-stage projects (from idea stage to Series A), as well as investing as limited partners in other levels of crypto-native VC funds.
To date, we have invested in over 40 cryptocurrency-related startups. Our focus is mainly on various fields such as DeFi, RWA credit, privacy plug-and-play and insurance. Some of the projects we have supported since last year include Thala Labs, Concordia Finance, Helix, Open Eden, D 3 Labs, and Safary, among others.
In 2017, I was very new to the concepts and applications of cryptocurrencies at the time, and then I started researching the concepts and use cases of cryptocurrencies, but people in the ecosystem at that time didn’t really discuss the actual use cases, just came up with some sounding A nice but unrealistic philosophical statement. So I started shorting cryptocurrencies and held those positions until the market crashed in 2018.
I started to become more bullish on the development of cryptocurrency applications in mid-2018, meeting a founder of the project and making an early investment in the project that has now become the main DeFi protocol in the space. Later, due to Ethereums on-chain speed and other reasons, I got tired of using Ethereum and invested in two other faster blockchain projects early on. I am also personally a core contributor to the largest central order book (CLOB) on a fast chain, and have been fortunate to invest in SOL, BNB, and other ecosystem projects in the early stages.
Odaily: In terms of underlying infrastructure, you seem to be particularly optimistic about modularity and high performance L1. This does not seem to coincide with the current trend of taking Ethereum as the security center and collaboratively developing L2. Please expand on your judgment on L1 or L2. The key factors to its rise?
Sharvin：Indeed, I don’t believe Ethereum is the future of finance or any mass adoption infrastructure. Having said that, Ethereum is indeed the only platform that is truly innovative and hosts more smart contract-based applications. But at some point we need to move to solutions that can actually handle sudden transaction/activity loads, which is why from an infrastructure perspective, I like to focus on and support high performance, low cost, and have an active developer ecosystem platform.
Scaling solutions like Rollup require data availability; assuming Solana, Aptos, or Monad are Ethereums Rollups, they will be limited by calldata capacity. EIP-4844 proposes adding 250 KB of blob data, which would add a total of 200 TPS across all rollups. The calculation formula is: 250 KB/block x 1 block/12 seconds x 1 transaction/100 bytes = 200 TPS. This is the sum of all Rollups.
EIP-4488 proposes reducing the cost of calldata to 3 Gas per byte, while maintaining the 1 MB/block limit. Rollup throughput (sum) is still 800 TPS. The calculation formula is: 1 MB/block x 1 block/12 seconds x 1 transaction/100 bytes = 800 TPS, which is the sum of all rollups.
In addition to actual capacity issues, Rollup on Ethereum is also affected by Ethereums slower settlement cycle (2 epochs, or 12.8 minutes); in addition, they currently have a centralized orderer, which is different from OG Ethereum users have a conflicting philosophy.
So, if we think about mass adoption on this type of infrastructure, it is almost impossible. Ultimately, I want to support applications that are built over fiber optic networks rather than dial-up. Its like someone saying that just because you can get from point A to point B on a bicycle that you dont need a car, obviously thats not true because innovation needs to happen.
Odaily: At the application layer, what characteristics of projects are most likely to bring a large number of users and funds to Web3, and which areas are most likely to breed the next generation of urgently needed products?
Sharvin：This is a really big topic because what were seeing in this space right now is,There are more infrastructure protocols than applications, which is quite strange,Many infrastructure companies seem to be more focused on fundraising rather than supporting applications as their core business, and not much focus is placed on talented application-side founders, most founders believe that starting an infrastructure company is more profitable for them personally, unless we see something like Solana, Aptos, or Monad This is the infrastructure that can have a real impact or change on the development of Web3.
Regarding user acquisition, the approach in this field is basically B2C. Obviously this approach didn’t work, because the game “League of Legends” has more users than all blockchains combined.Looking back at other new technologies, their mass adoption was achieved by introducing technology into people’s working lives, so it gained greater attention. When this happens, the phenomenon of human-to-human transmission can be achieved, which will help achieve exponential user growth. Additionally, seeing large companies now using new technologies that are familiar to people helps build trust for the first users of the technology.
Some key points I think the application needs include:
● Each industry contains multiple sub-sectors. As early-stage startups, they are more likely to focus on a niche area of their product and be able to explain why this area has market potential at the start-up stage. For early-stage businesses, building a product that appeals to everyone is often unrealistic because it may not meet the needs of specific users.
● After focusing on the first point, take a good look at successful companies like Facebook, LinkedIn, etc. that focused on a niche user base before the company was successful and could then drive a narrative that could appeal to adjacent markets.
● Understand the value proposition from the user’s perspective. For example, why would financial institutions be interested in using cryptocurrencies? One of the main reasons is that most financial institutions tend to have low revenue ratios and want to complete tasks in a real-time, efficient and cost-effective manner. Operating on a private blockchain is more expensive than using a high-throughput, low-cost, and trust-neutral chain, which can reduce costs in the double-digit percentage range.
● In a Web3 project, the real value/moat is not in the technology or the token, but in the stickiness of its user base.
Odaily: What are your main responsibilities at Saison Capital? How do you assess the potential and valuation of a crypto project? What frameworks and methodologies do you rely on when making investment decisions?
Sharvin：At Saison Capital, in addition to sourcing deal opportunities, my role includes ensuring the quality of research is exceptional to inform the firm’s fund and strategic decisions.
When evaluating projects, some of the key points we look at include:
● Founder Dynamics: We prefer teams with two founders, one of whom has experience launching a successful startup in a highly regulated Web2 environment, and the other founder is very familiar with the crypto space, because as As regulations loom, we need our teams to be flexible and able to quickly adjust strategies when necessary.
● Market size: Capturing 1% of a $1 trillion market may seem like an attractive $10 billion opportunity, but without providing unique value to a subsegment of a huge market, that “big” The opportunity may have already been taken and the company needs to find a smaller opportunity with equally potential.
● What is the marketing strategy? This assessment is based entirely on each companys specific circumstances.
● Understand your competitors. Ideally, wed always like to back fringe companies that are early stage, havent raised much money, but have the potential to dominate at least 1-2 sub-industries, and are financially viable for us as investors.
Odaily: Which directions will Saison Capital focus on next, and what are the reasons behind it?
Sharvin：We will support founders solving problems and introducing solutions in the following areas:
● Institutional-level “decentralized finance”
● Zero-knowledge proof plug-in
● Insurance
● MEV (miner early transaction interest) or VEV (validator node early transaction interest), because most blockchains are proof-of-stake (POS) mechanisms.
I can say that the crypto industry is a very capitalist industry, even more capitalist than the Web2 industry, because every interaction of every user leads to the extraction of value. Therefore, in this dynamic, pure decentralization is difficult to achieve, and the current possible path is through security, scalability and having a high Nash equilibrium number (such as Solana is currently 33, while Ethereum is 2) To achieve credible neutrality (Odaily note: Nash equilibrium coefficient is a concept in game theory that describes the stable state of participants strategy choices). That said, the crux of the problem our industry is seeing is not a lack of hundreds of millions of dollars in liquidity, but a lack of projects focused on solving real problems to attract more users and enable more use cases. We believe the above areas are absolutely necessary because together these entities (whether they are traditional finance subsidiaries or traditional finance/Web2 and crypto joint ventures) solve a real pain point, which is the lack of trust.
I know the MEV part might be a little weird, but if you guys look at an article I wroteEmbracing MEV? Why we shouldn’t be afraid to define economic value. A common question is should people stop wasting brainpower trying to eliminate MEV? This largely depends on the context of the specific MEV type and the goals of the associated L1/L2 or DApps.
For some networks, high MEV may not be a significant issue and focusing on other issues may be more important. For other networks, especially app chains, the negative impact of malicious MEV may outweigh any potential benefits, making it worth investing resources to control it. Eliminating MEV on the blockchain is technically impossible, and if there are some companies or protocols that promote this, they are completely wrong.
Overall, it’s important for the community and developers to explore how to harness the potential benefits of benign MEVs and mitigate the negative impacts of malicious MEVs. This can be achieved through the design of consensus mechanisms and economic incentives, as well as the development of tools and techniques to detect and prevent malicious MEV.
