“Dim Sum Talks” - A Conversation with Top Web3 Investors: An Interview with Gate Ventures Partner Kevin Yang
At a time when the crypto market is bearish, Gate Ventures recently closed a $200 million funding round. Gate Ventures has been committed to investing in layer 1 (layer 1) and layer 2 (layer 2) protocols. The first layer protocol is an underlying public chain similar to Ethereum, and the second layer is a multi-chain protocol similar to Boca. Managing partner Kevin Yang said in an exclusive interview with “Comparative” that Gate Ventures' vision is a multi-chain, multi-level future.
Gate Ventures's investment in tier 1 and tier 2 agreements has paid off a lot, and Kevin believes the next phase will be the best time to invest in advanced tiers, such as the middle tier and application tier. Not exactly Layer 2; there may also be Layer 3 or Layer 4 in the future. Moreover, investments in the crypto market must adhere to fundamentals, that is, evaluate the team's trustworthiness, technical framework, and solutions.
Comparative: Gate Ventures was founded in 2021 and raised nearly $200 million this year. This is rare in a bear market. Is there any story behind the financing? How did you guys do that?
Kevin Yang: The time is ripe for us. Everyone is aware that this is a bear market, but we have to invest in innovation, and this year is the right time for us to do so. Macro conditions do influence people's thinking, but when it comes to crypto venture capital, everyone is very optimistic about this field, not just crypto narratives, hype, and fluctuations in the secondary market. I think more and more serious institutional investors are looking into this area, and they think it is necessary to invest in this area. So although the current market is average, the timing is right. Not just us, you can see that some crypto VCs have raised over $500 million.
Comparative: Are there large institutional investors involved in the financing?
Kevin Yang: They have all been institutional investors until now, but I can't reveal their names right now, but I can say that they are all large institutional investors.
Comparative note: Gate Ventures mainly invests in Tier 1 (L1) and Tier 2 (L2) agreements. Can you elaborate?
Kevin Yang: This is an infrastructure investment. This has made a lot of sense for the past few years. For example, focusing on infrastructure investment can bring high returns, because on the one hand, everyone in the crypto space invests in “fat protocol” (a concept introduced by Union Square Ventures in 2016), and people realize that most of the value in the crypto market comes from the infrastructure space, while most of Web2's gains occur in the application layer. Another point is that if you look at the results, you'll find that if you invest in L1 and L2, the portfolio will perform amazingly. Fundamentally, why investments in L1 or L2 and other infrastructure can drive high value/high returns because the main focus in this area is scalability. Many competitive L1s are competing with Ethereum because they are more efficient at executing transactions and running applications and protocols. Over the past few years, our entire industry was still too young, and the infrastructure wasn't perfect enough. That's why investing in L1 can provide a lot of valuable returns.
But we'll see in the next few years, for example in the next ten years, and I think another theory called “fat apps” may emerge because more and more infrastructure has been developed. Whether blockchain is valuable requires a large number of users to prove it.
So that's why we think the next phase will be the best time to invest in the upper layers, such as the middle tier and the application layer. And it's not exactly L2 because there might be L3 or L4, but of course, we're also continuing to invest in infrastructure, and we want to focus on the broader portfolio. One thing we really think is right is that the crypto market will be a multi-chain, multi-tiered ecosystem.
Comparative: Can you talk about your investment philosophy? I've done a lot of coverage on traditional financial markets and have interviewed Warren Buffett 5 times. As we all know, Buffett is known for value investing. What is your investment philosophy?
Kevin Yang: I think for the crypto market, one thing is that you have to stick to the fundamentals. As a venture investor, you shouldn't bet on some kind of narrative and hype. The hype doesn't always work, and in a bear market, this would be a difficult strategy. That's why, for me, sustainable investing is the way to go. Even if you're just buying BTC or ETH from the open market, I recommend that you evaluate the quality and fundamentals of these tokens and protocols as if you were a venture investor.
Comparative: What are the fundamentals for a crypto project?
Kevin Yang: Generally speaking, you want to evaluate the team's credibility; are they capable of developing something? How much delivery capacity has the team promised? Of course, we have to check the technical framework, although not line by line, but in general, you have to evaluate whether this solution makes sense, or if there's a better solution, if it's a token project, so you probably also need to check tokenomics.
Comparative note: How did you get into the crypto world? What makes you fascinated with crypto investing?
Kevin Yang: To be honest, I'm not from a technical background. From 2013 to 2017, I worked for a listed company in Asia, mainly responsible for overseas mergers and acquisitions. In mid-2017, I decided to switch professional tracks and quit my job to join a crypto venture capital firm called Competent Labs, and I was one of the earliest employees at the time. I led the investment in Coinbase when I was Director of Investments in 2018. This investment may actually set us apart from other Asian VCs because we're one of the few Asian crypto VCs that have invested in Coinbase so far. In the middle of last year, I decided to leave Remain to join Gates to help launch this new venture capital division, Gate Ventures.
Comparative: You mentioned jumping into the “crypto rabbit hole” in 2017. Is there a moment for you like “Wow, this is the industry, this is a new world, I want to join”?
Kevin Yang: Actually, I've been learning about cryptocurrencies and BTC since 2013, but it was just my personal curiosity at the time. But later, I noticed Ethereum. It has huge potential because it allows smart contracts to run on blockchain protocols. In reality, all kinds of applications are coded in smart contracts.
So this is completely different; Bitcoin can only be used as a payment or transaction on the Internet. And Ethereum is more than just a payment transaction. It's more about functionality and how to build applications on blockchain technology.
At this point, I think I need to take it seriously, not just buy and sell BTC. The potential for smart contracts and the entire industry ecosystem surrounding Ethereum is endless. That's why I decided to join the crypto space in 2017, and the timing was perfect. There were lots of ICO projects at the time, and the prices of BTC and ETH were rising, especially Bitcoin. At the end of that year, the price was $20,000, and we had already started investing in Fundamentals Labs at that time.
Comparative: As a professional and highly successful investor, do you have any advice for ordinary investors in a bear market?
Kevin Yang: That's a great question. At the beginning of January, I warned on my personal Twitter that a bear market was coming. My advice is that no investor should be driven by narrative and hype. Basic investment methods should always be respected, as I mentioned, focusing on fundamentals, and checking the team's background, technical solutions, or whether there are any real users or funding on their agreements. So it's more like you have to do your own research. Do your own due diligence on your bets.
Comparative note: For some investors who are new to the crypto market, they might want to try out BTC and ETH, which seems like a safer option. Do you think Bitcoin and all cryptocurrency markets will follow a 4-year cycle as usual?
Kevin Yang: The 4-year cycle theory is still valid until now. We have to respect this because it's completely different from traditional financial markets because it's a unique crypto market.
In the middle of last year, I wrote an article saying that Bitcoin's share of market capitalization will decline over the next few years. So far, however, Bitcoin's market capitalization still accounts for around 40% of the entire crypto market. So Bitcoin itself does have a strong influence on the entire industry; you can think of Bitcoin as a cryptographic index. And I hope it will change over the next few years, because if you look at the fundamentals of ETH, it's something completely different; you can use Bitcoin as a store of value, or you can pay your friends with Bitcoin like fiat money, but ETH is something more interesting, and smart contracts can run on Ethereum, so it's completely different from Bitcoin, with more applications or more developments in the ETH ecosystem.
I personally do expect Bitcoin's dominance in market capitalization to decline further, say to 20% or 30%, which is healthier for the entire space.
Analogy: Currently, macroeconomic policies enacted by the Federal Reserve and global central bank governors have had a huge impact on the crypto market. So as an investor, how do you assess the impact of monetary policy on the crypto market?
Kevin Yang: That's why I warned everyone that a bear market was coming at the beginning of this year, because we've been tracking the price of gold since the middle of last year, because the price of gold actually reflects short-term and long-term interest rate trends. If you look at last year's short-term interest rate, you'll see that it has been trending upward since the second quarter of 2021.
In the cryptocurrency sector, we saw the first peak in Bitcoin's price in mid-April last year, and I remember it was because Coinbase went public on the same day, and BTC peaked on the same day. In November of last year, we saw another peak BTC price close to $70,000. In fact, if you look at the market, you'll notice that while Bitcoin reached new highs, altcoins didn't welcome the market. This is really dangerous for the entire market because it shows that the cryptocurrency sector lacks sufficient liquidity. So in general, macro-monetary policies do have a big impact on the pricing of crypto assets.
As I mentioned, most of us felt the bear market before most of us realized it. This is actually part of our investment strategy. Although it makes some sense to determine the investment pace based on the Fed's interest rate hike and market cycle, investing in the crypto space requires establishing one's own investment fundamentals. For example, people are optimistic about ETH. I think this is a correct investment argument in the long run. The market value of ETH may surpass Bitcoin. If you're a retail investor, you don't need to focus on analyzing what the central bank, Goldman Sachs, or Morgan Stanley are talking about; one principle is that you only focus on fundamental checks, that is, the fundamentals of the assets you're going to invest in.
I really think a great asset can survive multiple cycles because only long-term investments are sustainable.
Comparative: Your investment strategy is bottom-up (bottom up), right?
Kevin Yang: From the bottom up or the top down, you can choose the method that suits you to develop an investment strategy.
The top down is more like if you think something is valuable, such as a smart contract or blockchain, if it's valuable, only utility can bring value. You have to get more and more users to use them, then you look for what kind of apps or protocols in this market are getting more and more users, and then you bet on this hard asset, which is more like a top-down strategy.
A bottom-up strategy might look like this: you know little about cryptography or anything, but you're always trading or using your wallet. And you realise there might be a need because you're looking for a feature, but no one has developed such a solution until now, so you can look for this potential asset or opportunity and invest in it.
Author: BitPushNews Susan Feng, Mary Liu
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