Day 1: William Mougayar (JM3 Capital)

Transcript

[Music] next up I'd like to invite to the stage the producer and host of the token summit and also managing partner at JM tree capital William mu gaya thank you hi everybody it's great to be here again on this stage exactly seven months ago I was hearing at the blockchain summit how many of you were here seven months ago at the blockchain summit in November just a few great some of you know me as

well as the author of the business blockchain which came out two years ago as a first major book on that topic has been translated into ten languages since then and recently I have a new position I'm going to be running a an investment division a blockchain specific out of Switzerland so I am planning to move here as well and just by way of disclosures I need to tell you about my market activities which are many I am involved in a number of companies so if I do mention a company as an example I may be an investor or an advisor with it and that comes with the territory so what I want to talk to you about is the first question that I've been asking

people now is there's a lot of talk about tokens obviously and the question is our talk is really right now a distraction or are they a catalyst to decentralization so what do you think in your mind is there too many tokens and not enough blockchain which is how I ended my talk seven months ago and I still saying the same thing currently and the way I answer the question is it depends if you are doing tokens 1.0 which is a distraction or if you are doing tokens 2.0 which is applying tokens in ways that we could not see before that we could not do before without the blockchain so when I segment

the activity of tokens and the blockchain right now in the first segment at the bottom you see a lot of startups right now and I was there this afternoon listening to some of them across the street that they are startups there are new companies but they are trying to implement the old and existing processes on the blockchain just because you can't do it on the blockchain doesn't mean that there is a need to do that like doing tickets on the blockchain I ask why what is the value add and I'm not sure that everything that you see today on the web necessarily has a place on the blockchain unless it is innovative in the middle sector you have old companies existing companies that we know of today

big companies usually and they all have new projects that are blockchain related for them that is the innovation but in reality they cannot innovate too much because everything stops at their business model they will not change and they will not disrupt their business models they will change it a little bit they will save money improve a process make something faster but they are not really doing the big innovation of the big I the companies that are most excited about and the ones that I'm involved with the most are the new companies the startups that are doing new things that we could not do before without the blockchain and that is really what we need to be focused on and that's really where a lot of the

innovation and a lot of the successes will come from unfortunately a lot of the companies in the first quadrant are going to fail unless they change things dramatically why because it's very important to stay very very true to what the blockchain has given us the fundamentals have the blockchain have to be implemented otherwise you are just faking it with the blockchain are you really replacing intermediaries but not only that not because you said in your white paper I'm gonna replace intermediaries that I'm gonna believe you is the value proposition really strong enough that replacing an intermediary with something new is going to bring users in that is a key part are

you providing some kind of liquidity in a new asset of some form because that's what the blockchain and Abel's peer-to-peer value liquidity are you doing something where there is now a way to record something on the blockchain so there's a proof mechanism that you can go back and check are you automatically enabling the blockchain to enact the consequences of a business decision or a condition that is where smart contracts come in because all they are is if this then that is business logic with money attached to it are we letting the blockchain doing that is there a p2p a peer-to-peer infrastructure down there are there nodes are there some is there some

infrastructure that is really relying on the blockchain underneath the implementation whether it's a protocol or whether it's an application are you using some form of decentralized governance and I'm going to talk more about that in a minute and are you finally using new protocols that may be replacing the web protocols that we know of today and finally are you enabling the owners the users to have ownership themselves of the general value of digital assets of cryptocurrency of tokus whether it is a right for them to do something of course you can look at the marketplace and say well hey we have raised and this numbers already outdated we have raised 26 billion dollars and as

you can see in this graph the u.s. is not anymore a dominant region for for funding the globe the blockchain is a very global phenomena if you look at this graph Europe is bigger as a single entity specifically and looking at it as of now it is still going very strong approximately a billion dollars a month this is as of the middle of June so it is on track to continue this kind of funding going forward at least as as far as we can see it today you can look at that and say well here's a lot of funding but I am starting to look more

at the new metrics now I am NOT looking as much at these big numbers because you can say this is just activity raising money is only the beginning it's only the beginning what are the new metrics that we are seeing now some of them are well look at this 200 to 300 tokens are being created every day more than a million people around the world have participated consumers into crowd sales that are crypto related to 20,000 smart contracts are being created every day and you know how many are being used every day today smart contracts 1 million 1 million smart quarters are being used today that is a real sign of

activity for example in the ethereum blockchain specifically 53 percent of the transaction types are coming from smart contracts it means there is a function there's an application there is something going on there besides just passing money from one person to another I mean that is really a good sign of utility crypto kitty's as an example the top application that is going on today in the digital asset space has done 2.8 million transactions in the first six months since they started last December this is real activity so I'm not tracking anymore the macro view yes we

can track it but what's more important now is what I'm looking at what I'm focused on is the traction view where is the traction and the traction is really boils down to in users monthly weekly daily active users total transactions value of these transactions the balances in the smart contracts the balances in the in the wallets blockchain rewards to users this is an emerging model steam it as a blockchain has already rewarded 42 million dollars to users there are other applications coming up that are starting to reward users for doing something if

you think about it the mining was the first reward but mining is a reward that computers get and the owners of the computers of course but this kind of reward aspect is really in native function of the blockchain but the rewards are not just to computers and to owners of computers the rewards are going to go to individuals because that is the future of work if we do work and work means attention spending time giving data doing something that is real work we should be getting compensated in cryptocurrency you can also look at other activity in terms of what's going on if you're a technical implementation how many downloads github activity how many nodes

do you have API calls how many developers commits repositories and so on this is all about the centralization yes but this centralization is a very unusual beast it is challenging there's an ideal scenario where if you talk to the idealist they want everything to be decentralized and they want everything to be on chain but if you do that what happens then we have traffic jams that's what happens with crypto kitties in December it was the equivalent of a rush hour everybody wanted to go at the same time to validate transactions on the blockchain and today no single

blockchain is fast enough to allow full decentralization and full-on chain transactions so in reality we have to compromise and that is the key thing right now in architecting the right applications to have a right balance between on chain and off chain and to have enough decentralization not more and not less than we can understand it if you try to decentralize things that you don't understand we get accidents like the Dow accident they try to do too many things so let's take the first baby steps let's walk before we can run in terms of decentralization there are some principles and ideals if you are writing a decentralized application also known as DAP and you can check up the boxes

you have only this one or two or three or four and you don't have to use all of them but you may have to use at least one or two or three of them and the more you use these the more decentralized your application is is the content tool distributed does the end-user have ownership content not just ownership of the content but do they have empowerment over what they can do with this content can they decide but who sees the content under what conditions do they own their identity is there some kind of autonomy in the decentralized way of making decisions is the blockchain giving rewards and benefits to everybody not just to a central entity like Facebook today is a central entity that is the

only one that takes the rewards on average a person spends an hour a day on Facebook and what do we get in return not much they take our eyeballs they aggregate it and they resell it as advertising and they make the billions of dollars if Facebook were to be reinvented in the day of the blockchain we would all be rewarded for giving them attention giving him our data giving them what we know these are some examples obviously now that we have horizontal and vertical protocols that are specific to a function like open Bazaar is a decentralized photo call for e-commerce specifically specifically we have trading of native assets on the

blockchain we have decentralized exchanges like zero X we have this centralized storage computing content and so on the list goes on and that list is gonna get bigger and bigger and longer I wrote a recent blog post two weeks ago where I was highlighting all the directories now it's kind of ironic to find all the decentralized apps we have to go to central directories to find them because that is a dilemma this centralization is great but it's a difficult thing for searching because it's all over the place and we need to eventually get better at that in the meantime we are relying on some centralized directories nothing wrong with that because it helps you to

discover them it helps you to be more aware about them and I encourage you to go and consult these directories you can go to my blog and start up management org slash blog and see and refer to those I even tweeted some new ones yesterday but we need to be using all these decentralized applications we need to start getting into the consumer blockchain I wrote the business blockchain and somebody was something last week when is the consumer blockchain book gonna come out well we need to now get the blockchain into the hands of the consumers but for them they may not know that there's a blockchain behind the scenes and that will be the best thing we can do but in the future a

lot of the apps that you currently have on your smartphones are going to have wallets and we're going to be gravitating to maybe six or seven or ten that we use every day that have wallets that have some value in those applications I'm going to go into a segment of my presentation where I talk about three areas what needs to work what needs more work and what I think won't work at least yet what needs to work is standards standards are very important in the era of the blockchain and we need to see more of them why because standards bring adoption this is why the ERC 20 has been adopted because

it has been seen as a standard it's easier to adopt and implement standards where everybody is using them so we need more of that scalability lots of engineers working on scalability interoperability we have to be able to now interoperate between different block chains where in the future you may not care or know what blockchain or block chains are behind the scenes passing the state from one to another doing computation on one block chain and maybe storage on another and maybe validation on a third one and so on we're going to see the rise of new exchanges new clearinghouses this is about a new financial system we don't have to rely on the existing one every time the the

new system we are creating has to interact with the old system that we know of today there is friction and we don't want too much friction right now native assets are gonna have many forms whether they are in the creative aspects and the finance or in the physical like fractional izing a building or a real estate I see a lot of token type within a particular application steam it did that two and a half years ago they had three types of tokens in the same application and they were criticized everything is too complicated no now this is becoming a trend I'm seeing the trend you can call it hybrid tokens and some companies are putting stable coins inside of the marketplace and another token outside and there will be a

linkage to both of them the economics models have to be understood better that is something we have to figure out we're still in the very very early stages of figuring out now that the token is an operation how do we model this economy I'm seeing a lot of spreadsheets on that but the reality is gonna be one it goes to the market what needs more work I think killer features I keep hearing I get two pitches and they say yeah well we have this killer feature this blockchain has this feature that's better than etherium or better than this well it's not any more about features now it's really about ecosystems and I said this when I would talk to the etherium group and I tell them what is the most important

feature about aetherium and it's a trick question the answer well the most important feature about a theorem is not a feature it is their ecosystem it is the number of developers the number of startups how much capital is going behind it and that is in the community and the support they get all over the world and that is what is important more than a killer feature stable coins I think needs more work we're in the early stages of that and accidents are probably gonna happen before we can figure it out there's too much risk built into the stable core models that I've seen so far today on chain governance I hear a lot about it a lot of companies are trying to do that with Paragon and others I think it needs

more work when in the early stages I hope that we start to walk before we can run on those initiatives and then I'll say it again we have to understand the economic models what won't work is all the ocean approaches again I get a lot of pictures they say well we're gonna change the holes we're going to improve the supply chain market it's a trillion dollar market and it has so many problems and we're gonna do that we're gonna change it with the blocks all we're gonna bank the three billion and banked or we gonna this industry is billions of dollars and we're gonna change about it don't start by doing that head-on no startups become successful by attacking the incumbent head on startups go under they go around they go over

they go in different areas where nobody is looking at them and that's how they attack the market when I get a pitch and they say well we have this one thing that we're gonna do and this is how it's gonna allow us to enter the market and then we're gonna do this and so on that I get more excited about because you cannot escape the product to market fit no startup comes out the gate with a hundred percent accurate business model they have to iterate to get to the right thing and now we have tokens on top of the product to market fit so not only you have to iterate on your product to market fit you also have to iterate on your token to market fit and that takes sometimes two years so that's

important Halon disruption does not work white papers are just theory there is no skin in the game no plan survives the battleground you have a plan and then you go on the battleground you get wounded you get killed and you have to change your plan a lot of desktop websites with a lot of advisors more than the team my red flag pops up cool ideas qualities are not enough cool ideas is what crashed the web in 99 we tried to rush things accident happens when you speed right same thing here and I've been saying this recently three years ago the

technologists the blockchain technologists were a bit ahead they were promising us things about what the blockchain could do but we did not have them now we have that today is the flip side today is the startup entrepreneurs and the business people are over promising what the blockchain can do and they are telling us things that may not happen for the next five to ten years so we have to be careful about that and a lot of these projects today have no governance no accountability you cannot escape the startup laws you need real mentors you need real people that have had experience with startups to

help you lots of support is required and I'm seeing now more and more high valuations too early putting the cart before the horse wanting to I'm hearing the term Wally this is the token variation they say they're gonna call market cap they say well this company is valued at this so we should be the ballot at the same from day one that doesn't make sense to me the sky is not the limit eventually a reality will set let us start small and grow you will give more returns to your early investors let's talk about regulation for a little bit because I've been

thinking a lot about this topic for the couple of years and interacting with regulators both here and in the US and in Canada and there's this big thing about classifying tokens and I was one of the first ones that started to classify them last year by a new blog post I call token ah mcc's and since then there's been a lot of attempts to classify tokens but I am telling you right now classifying tokens is not a good idea for regulating them it is a good idea for understanding them because right now the regulator's are in the mindset of security everything is security security and of course filmer has said well you can have a utility but they will give you a judgment on when

the issuance happens but then you have to have real utility at that time token utility is very simple it's really a right and ownership some kind of work reward or it's a clemency but a cruisee is also utility there's nothing wrong with that so what I'm saying here is that we cannot apply the existing regulation and just interpret it because that's the easiest thing to do and I want to remind you about that the regulator's job is not to invent and create new regulation that is the legislators that do that the regulators their job is to interpret them and to apply them the best they can

that is why in the u.s. the SEC sees everything like a security sothanks they're trying to fit a square peg into a round hole and and that is a slippery slope right now I wish there was more clarity about defining token utility what this has done in the u.s. because SEC has been very tough on public eye cos it has pushed a lot of these projects into private placement offerings meaning that they can sell these i ciose to accredited investors and this is not a very good thing right now because first that it's doing two things it's pushing up the numbers so they are saying well we can raise now 50 million not ten million from the public and we can raise up to a hundred and we

can give ourselves any in evaluation we want as long as we filed direct red t and there's nothing there that says you cannot value yourself at whatever you want so I'm seeing some very high valuations and you're setting yourself up for failure unfortunately I would have loved to see more updating of the existing regulations and maybe allowing some self regulation in Japan there's more self regulation going on there the government trusts more the industry I like to see more government to industry cross working groups may be freezing regulation giving some safe harbors for about a year under certain conditions and recognizing that eventually eventually it's going this thing is going to have to be recognized as a new

asset class because a token is very different right now a token has both capital appreciation properties and it has payment properties there's no other asset today that has this same those same properties it's like imagine if you if you were to go to an Apple store and buy an iPhone with Apple stock we can't do that we use dollars or Euros or francs to do that but this kind of token that we are talking about today is at the same time a payment and something that I appreciate so what is it it's a new kind of Beast let's let's say it is and let's try to define it better more clearly what this

is going what's going on right now is we have the four spheres of regulation North America is doing it on one side Europe obviously and then Asia is doing their own thing and then there's the alternative places there are becoming very creatively since time Gibraltar I'm going there next week to see really what's going on Malta came in and so on and there's a balkanization of regulation already here I wish there was more harmony but maybe it's a dream so if your startup you have to figure out understand am I better off doing it here or there or this and I better hear a bit there and it's becoming a challenge where are we today in terms of this evolution I think we are still here in

the installation phase and this is no different than any major technological phases this is the model that Carlota Perez has written about for many years and the idea is when there is a new technology that comes in everybody rushes to install the technology this is what happened with the web and then we overshoot we installed too much we try to hype it up and then there is a usually a crash or a break but then we go into a long period of prosperity in the deployment phase and and we are just towards still the installation phase today and you can look at this from a infrastructure middleware application

perspective where are we and now we can look at real usage and these are just some examples these companies these projects have real uses you can go and say well if the room is doing so many transactions per day so much is going to smart contracts you can go to column to maker if block stack you can see the at real activity you can go to Crystal kitties you see the activity of Amazon has had more than 100,000 downloads could kick could become the next most use token by the end of the year steam it has already deployed and given real dollars users whatever you do in your projects we should not forget what is the reason for the blockchain really why is this

generating so much excitement it's because there is a promise here there's a promise that the blockchain can give us a better world than the one that we have today in the same way that the web has given us a better world than the one we had before it so let's not forget that in closing this watching economy is becoming is taking shape now whether you look at it from a technical perspective the data are the content the storage all of this is becoming be centralized you can look at it from a functional perspective what we are doing now we are earning things we are spending things on the blockchain our work is being rewarded we are

sharing the benefits we are getting rewards and if you look at every industry every industry is being disrupted whether it's finance it's law governance of Nations industry specifically trading this is really happening right now and we have to be proactive and doing it because the Stone Age did not end for a lack of stones right it was new technology that moved us further and so we have to have the new technology the new decentralized technology has to be more proactive we're not going to wait for the central entities to die they're not gonna die we still have stones today but we are

more advanced so let's do that thank you very much you