Is this the only conference of its kind where the room stays full all day like this.

It's fantastic right wonderful Thank you guys for for appearing on the panel Maybe we could just go from closest to me and just you can introduce yourselves and say who you're with and what you do there

Well, hello everyone glad to be here today I'm Ludovic or Ludo for short from Sony ventures as you can maybe guess from the name So eventually is the venture capital arm of Sony group.

We have about 150 portfolio companies We restarted corporate ventures at Sony almost 7 years ago.

In mid-2016, first fully off-balance sheet, and we still do that for early-stage investments.

Total AUM is about 500 million, or the equivalent in Japanese yen.

And we do invest very actively across many sectors, including the web-to-side of FinTech, InsurTech, medical, mobility, and so forth, and also increasingly active into the web free space.

I run Citi's strategic investment unit in the Americas.

So we invest on behalf of our institutional businesses within cities, so that includes our capital markets, which is our trading business, security services, investment banking, as well as treasury and trade solutions.

We do call ourselves strategic, and the way we define that is not only do we become an equity investor, we become a paying client of our portfolio companies as well.

And when we do that, we give our portfolio companies access to not just our internal subject matter experts, but our clients, our network, basically the whole breadth of our franchise.

And we're minority balance sheet investors, stage agnostic.

So we invest all the way from pre-seed to pre-IPO.

It's the venture capital arm of Mubadala.

Mubadala is a sovereign wealth fund based out of Abu Dhabi and it manages about 280 billion globally.

The fund that I manage is a 450 million fund based in London, based out of Europe.

Mubadala is 1 of our LPs, but we've got a range of other LPs.

And we operate at the early stage, right?

Our typical first investment check is somewhere between 10 and 20 million.

So maybe you could at least, we'll start with you, Fred.

You could just talk a little bit about how long you've been looking at blockchain and investing in blockchain and how that kind of started inside your organization.

So personally, I've been in the blockchain space since

I was at a different VC fund at the time and I led the seed round of a company called Elliptic which does on-chain analytics.

It's similar to a company called Chain Analysis which is better known in the US.

So I've been in the space for a long time and so I've been through the ups and downs of this industry and when I joined Mubadala 4 years ago I've been the 1 who's been you know pushing the the crypto agenda essentially.

It requires a lot of education right so the the first thing you have to do before taking a crypto investment to your investment committee is first you have to make sure that the investment committee agrees that we should be investing in crypto companies.

Because I made that mistake once, I will not do it again.

And so on the back of the you know the first crypto investment was essentially declined by the investment committee on the back of that we took a step back and say okay hang on this you know we need to agree on this first.

So we put together, you know, a full deck that we took around the organization for a period of 6 months, you know, trying to educate everybody at every level, your investment committee members, the lawyers, the compliance officers, everybody has to get really comfortable with the space.

So it does take time, but you can get there.

So now we are 2 people working on crypto full time at Mubadala.

And then around us, there's a set of investors as well, about 5 or 6 people who have some degree of blockchain understanding who can do blockchain related deals.

So that in total is about 7 or 8 people across the whole organization now that understands crypto.

Yeah, so we've been, and I personally have been involved in crypto since early 2013 when the first Nakamoto paper came out.

I remember I printed it out and gave it to my then boss at Citi, who looked at me like I had 10 heads.

But I told him, look, sooner or later, this will become important.

And after a couple of years, we were flooded with business plans related to crypto and whatnot in our inbox.

But even back then, we knew we weren't going to do anything directly related to things like Bitcoin or Ethereum.

But there was a lot of power in the technology that was powering it.

So we invested in a lot of the DLT platforms that we are live on with today.

And over time, our investment thesis in this space has expanded to invest in crypto infrastructure companies as well.

So we have invested in crypto data companies, crypto EMS, OMS platforms, things that give us AML and AI capabilities on top of this.

So there's been a lot of education that went internally, and now we're on the precipice of reaping the investments for both.

Yeah so from the investment side I would say we started most by coincidence to invest in at that time blockchain.

2 of our most earliest portfolio companies in the US pivoted pretty quickly from being kind of entertainment tech focused or video streaming focused to being a blockchain based.

So 1 example is a Teta based here in the Bay Area which started as a eSports streaming platform.

And pretty quickly they realized, well, this is great service, but it uses a lot of data, obviously.

So they ended up pivoting and developing their own tokenized and decentralized content delivery network.

So think like a decentralized Akamai, basically.

And now this is their main and bread and butter service.

Another example, also from very early on in our fund is a company used to be called Little Star and now it's called ARA, which has morphed from being like a video on demand for VR content to an NFT-powered video streaming platform.

So we've had a few already examples on the entertainment tech side, and now looking much more broadly at much more the middleware analytics side of Web3.

In parallel and joining my colleagues in terms of the education and awareness raising, another hat we collectively wear at Sony Ventures is really to raise the awareness about these emerging technologies throughout the group.

So back, I think in 2016, we started to evangelize in our way, blockchain innovation through our business units, through headquarters, including in Japan, and so that in a way helped to start some blockchain activities within the group, whether these are some of the blockchain credentials at our education related business units, some more recent activities around even partnering with some of our portfolio companies like today, or display technology, holographic display is used by some of the NFTs to showcase them in a much more vibrant and lively way.

So it's a very much an ongoing effort between our dedicated investment focus which has evolved obviously for the years, we've also how we can leverage and provide added value through the broader Sony organization.

So from your perspective in each of your positions, what do you think, we'll start with you Ludo, what do you think are the most intriguing use cases that are going to affect consumers?

I can obviously think about like PlayStation, it could be a very different item in a few years, given

And is there anything, any kind of use case about which you're very negative, where you've sort of looked at something and felt like it probably isn't gonna be applicable.

I mean, if we open Twitter or any article today, these days, it's all about, mostly about generative AI and how it can also deeply affect a relationship with media and trust in terms of these deep fake synthetic contents.

So I think there is a very interesting and intriguing role that blockchain can play, or web free can play, to bring another layer of transparency and accountability for both consumers but also for brands and content creators.

So I think obviously self-sovereign identity and decentralized authentication have existed for years but I think probably today more than 5 or 6 years ago there is more awareness from both consumers and probably regulators as well that this must be happening differently compared to a fully decentralized way.

Now in terms of negative views I would rather say that I've seen a lot of changes in the past 2 3 years in terms of the pitches we get from startups.

There's much less dogma that, oh, it can all be solved by blockchain and web-free.

It's much more about creating bridges between web-to kind of IT world with the web-free world, especially if you think about the more institutional or enterprise-grade platforms, it's probably not that likely that it would be a clean slate approach where everything will be thrown out of the water and then recreated from scratch using blockchain.

So I think these more adaptable layers are probably quite powerful to explore.

Yeah, from a global bank perspective, the most intriguing use case tend to be around tokenization and custody.

So as an example, in 2021, Citi was selected by Bondivalio, which is a Singapore-based fintech company to provide custody for traditional underlying bonds that are traded on its digital exchanges' fractionalized asset.

And last year, we partnered with Medeco to build out our end-to-end digital asset capabilities, in which we combine Medeco's technology expertise with our expansive custody network.

But along the lines of what we see don't necessarily work in this space, has to be around, there's been a rise of companies and platforms that offer tokenization solution and end-to-end platform where you can issue assets and actually trade on them.

But if you take a few steps back and realize 1 of the core value propositions of blockchain in TratFi was to increase transparency and competition into the ecosystem.

But some of these platforms really do run counter to that.

Because from a market structure perspective, what they want you to do is issue the assets on the same platform, trade them on the same platform, clear them on the same platform, and settle them on the same platform.

So what they're doing essentially is creating these vertically integrated monopolies.

So without things like cross-chain connectivity or interoperability or even fungibility of assets, it becomes really challenging to support some of these models and platforms.

Yeah, 1 sector that really gets me excited actually is the tokenization of real world assets.

And so, more specifically recently I've been looking at the real estate space and how people are able to buy properties and they buy a token that essentially represents ownership of the property.

And the property is then rented out on the market and the rental cash flow stream goes back to the token.

And I think it's quite fascinating because what that does is that it creates tokens on the blockchain which 1 should have a relatively stable price, right, because it represents the price of the property so as long as the price of the property is stable the price of the token shouldn't be moving too much.

And then on top of this it has a stream of real-life cash flows that are attributed to this.

And obviously, that's something that in the crypto ecosystem, we don't have today.

A lot of these tokens don't have any cash flows or any value attached to them.

So for me, I'm really excited to see more of this kind of use cases coming to the blockchain With real-life cash flows coming to this, you know tokens because there's lots of things that can be done on top of this Right.

So once you have this on the blockchain, what can you do with it?

You know, there must be tons of use cases that we haven't thought about just yet.

And anything that you're seeing that you really just don't think is gonna work?

I think centralized lenders, I think they disappeared in 2022.

It's been impossible for us to invest in those because you never know exactly what were the assets.

It could be another FTX tomorrow and everything could collapse again.

So I think that category is really hard to invest in today.

So Fred, if you look ahead, part of the whole theme of the conference is the future and thinking about what things look like 10 years from now.

What's your timeline for when people will stop asking you, where's the adoption?

Yes, so I think we're all looking probably at the billion users, right?

That's where you can claim that you've got a technology which has mass adoption.

Today, the number of crypto users is around 400 million and people still debate is there a use case.

So I think you have to reach the billion user to get there.

The way we think about it is that by the end of this decade, 2030, we should be able to get there.

My hope is that there will be some kind of mass market drive or appeal that really happens before that, and that could even accelerate this.

Everybody's trying different things, but there's a lot of innovation around that space.

And my hope is that it will be the mass market, the consumers who actually have 0 idea that they're actually playing with crypto, that will actually drive the adoption.

Yeah, in terms of adoption for tokenization, I think that has definitely accelerated in the past year or so, and whether it's things like tokenization of 40 Act private market funds or even listed funds such as money market funds.

So we do see the tokenization of illiquid assets to come first.

There's a lot of digital bond activity that's concentrated in Europe these days, so that's another area for us to follow on.

But for tokenization to have widespread adoption, the cash leg for this needs to be tokenized as well.

And without that, we really think that it's going to be a challenge to see widespread adoption.

I think it's also important to look at the reasons why it's not gotten that as quickly as possible in terms of consumer adoption.

I think 1 of the reasons is about the ease of use and also how to make it more streamlined in terms of consumer experience, in terms of wallet onboarding, in terms of even forgetting that there is blockchain involved.

And I think to your point Fred, crypto gaming could be very interesting where all our team was at the GDC, the Game Developers Conference here in San Francisco earlier this month.

There's such an explosion of concepts of crypto native games, games that are kind of bolting on some tokenomics on top of it, still the reality is that for most games these are still only mildly fun to play.

At the end of the day for let's say the average consumers it's probably less about the excitement to have a wallet and a token inside a screen, but more about how entertaining, how engaging it is.

But I think we're getting there, definitely.

Yeah, there's no the last of us for this world yet.

How does regulatory uncertainty, and it's been a big topic today, how does that affect the kinds of things that you'll look at?

And what will most likely kind of get through the process?

Yeah, so before we offer any products to our clients, we carefully review the evolving regulatory landscape and the risks associated with it, so that we ensure that we understand that it not only meets our own regulatory frameworks with city supervisory expectations as well.

But it's really clear to us that adoption of digital asset has really expanded and things like 24 7 global frictionless payments are in the near term future.

And digital currencies may be part of that future as well so we continue to work with our clients in that regard to advance the development of these digital currencies through our own work, work with our clients and partnerships and investments.

Yeah, so we are quite keen on regulation, right?

We think regulation is going to come and we actually think it's going to be positive for the ecosystem over the medium to long term, right?

So over the short term, it may be a bit frustrating.

But over the long term, that's something that I very much welcome.

So when we think about our investments thesis, we very much look for teams that have understood that and who operate in that way.

So if I can give a concrete example, we were talking about you know the number of crypto users getting to a billion.

If you want to get to a billion relatively quickly you're gonna have to onboard a lot of people at mass scale and this is not gonna necessarily be done through the centralized exchange, which has been their role so far.

So we've invested in a fiat on ramping solution called Ramp Network, a team based out of Europe.

And the reason we picked them is because they put regulation at the heart of everything that they do.

When we do our product sessions as to how the product should look and feel, we start with regulation in everything that we do.

So they are very strong on AYC and KML, KYC and AML, and all of these things.

So that's the kind of approach that we like, something which we think is future-proof.

If the regulation comes in and everything becomes a security, these guys are ready.

Yeah, I mean, for us at Sony, we have a live example, which is Japan.

So on the venture side we are very active in terms of investment in Japan, about 1 third of our portfolio all across industries is in Japan.

And if you look at Japan for the past 10-15 years It was early on very much strict on regulations, some would say even overly strict, especially after the Mongox and coin check, kind of debacles in 2014 and 2018.

And if you do fast forward today, the country has been mostly unfazed by the FTX and other, you know, crisis happening elsewhere in the world.

And what we see on the venture side, we've also a local team in Tokyo, is that there is a very vibrant startup ecosystem in Japan.

Also very quickly growing set of incubators, accelerators, and even the country itself is now trying to embrace Web3 as a way to leverage what Japan is good at, which is the manufacturing, the content IP, and megabanks, obviously, being there.

So we think it has probably going to have a positive impact at least for Japan so maybe this can be translated in other parts of the world.

So earlier on 1 of the other panels, Ollie Harris from Goldman was foreseeing a day where His job at the head of digital wouldn't exist because it would just be part of everything You know that it would just be part of what you have to deal with in all your business units When you look at you know your company today How much is you know are people who are dealing with blockchain sort of distinct and how is that going to evolve, you think, so that from a staffing perspective it becomes more a part of everybody's, you know, a part of each person's business?

probably there were just a few handful of Bitcoin or blockchain aware engineers mostly in our R&D divisions really tinkering with the core cryptographic nature of the algorithms or the consensus and so forth.

Now fast forward today I can think of at least a dozen projects, most of them publicly announced on different groups, trying to experiment with blockchain.

So I think we are still at the experimentation stage, but it's now much more deeply ingrained into our businesses.

And for us as well on the venture side, if you look at many of the industries we have been investing actively, like web to era fintech, intro tech, entertainment, and so forth, even deep tech, they are very logical bridges where web free is not an end by itself, but much more an enabler for this type of next generation startups coming.

I see that maybe in a very similar way as cloud technology.

Now probably no startup will come to any investor and say, I'm a cloud based startup.

Maybe in 5 years, nobody will say I'm an AI enabled startup.

I think it's probably going to be sooner than we may think, or we may have thought in the past.

Yeah, I second that analogy around the cloud startup.

Blockchain and digital assets, at least at Citi, we've been tinkering with it ever since the early 2013-2014 time frame and each businesses had their own sort of subject matter experts to see how they can future-proof the business to be in the right spot 3 to 5 years from now.

But now it's a much more centralized function for us where the central layer not only provides subject matter expertise, but also outlines a distinct strategy on where and how each business unit should pursue opportunities related to blockchain and digital assets, whether it's in terms of new clients, new products, new services, or even new partnerships and investments.

So I do agree with Ollie's earlier statement that you know there is a world a few years from now where the header digital and header blockchain doesn't really exist.

And it becomes ingrained and innate to each business on how they think about not only what they do today, but how they future-proof themselves in a shorter time frame.

It's not immediate for me in my mind, right?

We have to be honest about the setbacks of the industry as well, it does set us back, right?

When 1 of the largest crypto exchange completely explodes in a matter of weeks obviously people are skeptical right so it's gonna take a while to you know convince everybody within an organization that everything should be on the blockchain and everything should be digital, right?

So I think the industry still has to prove itself on that dimension.

Do you feel like since FTX, you're encountering more skepticism inside your organization and how do you deal with that?

Look, what we have to do is we have to carry on the education we have to explain that it was a case of fraud nothing to do with crypto the guy could have been a fraudster selling carpets or whatever it was right so so they are bad actors everywhere I think in crypto we tend to attract a lot of them and and we try to find them out really quickly you know so and exploding in spectacular fashion I think is the is the difference but the reality is you know Bernie Madoff didn't have blockchain to you know, give for people hundreds of people of millions and millions right so blockchain is no different from this.

there's the slight counter to that I think given the recent events we have come across a very peculiar phenomenon where about 2 years ago, there would be so many different companies that would be approaching us that were sort of solutions in search of a problem rather than the other way around.

But after the recent events, I think they've been a lot more selective just in terms of stating the problem they're looking to solve, how they want to solve it, and how a partnership with an institution like ours could be mutually beneficial.

So it's no longer, innovation in this space is no longer seen as a zero-sum game, but essentially a collaborative effort.

And that is in some regards to the recent events as well.

Even earlier stage startups in the seed, so they're in pre-seed stage, now emphasize much more clearly about their path to compliance.

Even they are staffing up much earlier on in terms of compliance expert from the banking or regulatory industry.

And also in terms of the types of startups that is what we look at, we've seen quite an increase in startups looking differently at AML, analytics, anti-fraud, including again for NFT use cases and others.

So in a way this is maybe just a small narrow silver lining but I think it exists.

So in a way it forces some of the earlier stage entrepreneurs to be from the very early on ready to answer these very valid questions we all ask or should ask as Investors about compliance how they handle even just simple cyber security practices

So we we had a chart in the opening that was the number of developers over time and it's sort of generally moving up despite maybe some of the ups and downs in market prices.

How do you feel like the quality level, you know, to sort of what Sirius was pointing out, how do you feel like the quality level of the people that are coming forward with projects is evolving?

Not only are there more people in the space, but do you feel like you're seeing things that are better thought out, better developed, more likely to be commercial, or is it still just kind of like a random walk?

Yeah, I mean we've seen the quality of the entrepreneurs grow over time, no questions about this.

What we like is people who actually come from non crypto industry.

So I'm based in London, we see a lot of people coming from TradFi with like a very specific expertise, you know, on options trading or derivatives or whatever it is and they say okay, I can see that is a like it is a There's a clear miss in the market.

There's a Hold that I can feel with my product, right?

So we like this kind of people with the relevant experience, right?

So we see more and more of those, that's for sure.

I think we have seen a lot of companies not only take advantage of the available talent, but a mixture of crypto-native DNA into their management team, as well as traditional finance there as well.

So they do understand that it's not always 100% a technology problem within financial services.

You know, And once they start to understand that, they come up with solutions that are going to be a little bit iterative rather than completely rip and replace.

And those type of approaches work really, really well when you're trying to educate an industry that is not only dealing with the evolving regulatory landscape but internal and external education as well on the multifaceted nature of this technology and what it can really do.

We see also very much seconding my 2 colleagues very step up in the talent including this kind of next wave of web free entrepreneurs that may have cut their teeth at some existing blockchain unicorn, Coinbase, or Fireblocks, Anchorage, or also some blockchain VCs.

And so they have, in a way, already some experience into, of course, the innovation, but also trying now to rethink, maybe more critically, and thinking differently, how to both develop and expand their platform so We think it's a very interesting time to see this pool of talent also coming from all the web to tech side, obviously with all the job situation happening.

I think it could be also potentially positive for the web-free startup ecosystem.

Just versus a year ago, are you more or less optimistic?

I'm way more optimistic about the adoption of things like tokenization and real-time payments than what I was even a year or so ago.

And this is just reflected in the amount of institutional client demand that we're seeing.

So it's not just us saying that as an institution, it's largely driven by tokenization themes that we see across different asset classes, which is driven by client demand.

So whether that's things like tokenization of private market funds seeking secondary liquidity, or even tokenization of listed funds, such as money market funds that are being tokenized to be used as collateral.

There's been client interest in getting esoteric investment exposures by tokenizing payments and receivables and companies that are interested in tokenizing deposits as an alternative to stable coins and CBDCs.

So absolutely a lot more activity this year.

It's been a main theme and main focus topic for us this year as well from an investment perspective.

But still a little bit ways to go before it becomes a bit more widespread.

If you look at what we've been through in 2022, right?

So the Luna ecosystem collapsed, that was worth about 60 billion, then 4 or 5, you know, centralized and less collapse, and then 1 of the largest crypto exchange collapse, right?

So if Bitcoin still exists after that, like, okay, we've been tested, it can go for a long time.

All right, well, thank you guys very much.

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Pantera Blockchain Summit 2023 | Panel: Institutional Investor Perspectives