METACO TALKS EP. 24
Web3.0: the Investor Take w/ Kevin LIM
Fri, Oct 15th
Recording of live event
Hosted by Seamus Donoghue (VP Strategic Alliances, METACO)
Fri, Oct 15th
Recording of live event
Hosted by Seamus Donoghue (VP Strategic Alliances, METACO)
For this episode of METACO Talks, we were joined by Kevin Lim, Director for the Blockchain Team at Temasek. He is heavily involved in the team’s venture building and ecosystem development activities and leads a series of strategic initiatives.
Prior to joining Temasek, Kevin has worked in the Financial Institutions Coverage Team within Standard Chartered Bank with responsibilities over key accounts in the region. He is also a strong advocate for community led initiatives and is an active volunteer/advisor to various non-profit organizations including Leap201, TEDxSingapore and Project Chulia Street.
In this episode, we discussed, among others:
[00:01:13] How Kevin got in the crypto space;
[00:07:51] DeFi as an investable opportunity;
[00:12:19] The possibility of investing in DeFi without having a technology background;
[00:20:10] The challenges of managing the regulatory risk, volatility and constant change in custody.
Disclaimer: This is not investment advice.
[00:00:23] Seamus: Welcome to the 24th episode of METACO Talks, our series of live conversations with the people at the forefront of innovation around decentralized finance. Today, we’re very happy to say we’ve got another special guest. Please join me in welcoming, Kevin Lim, Director of the Temasek Blockchain team.
I’ll give a little background here. Kevin is heavily involved in blockchain teams, venture building ecosystem development activities, and leads a series of strategic initiatives, which we’ll touch on hopefully. Prior to joining Temasek, Kevin has worked at the Financial Institutions Coverage Team at Standard Chartered Bank, and had responsibilities over key accounts in the region. He is also a strong advocate for community-led initiatives. He is an active volunteer and advisor to various non-profit organizations including LEAP201, TEDxSingapore, and Project Chulia Street. Kevin, welcome to METACO Talks.
[00:01:11] Kevin: Thank you, Seamus. Thanks for having me.
[00:01:13] Seamus: Great to have you here. As an introduction, it would be great to hear when and how you got into and started investing in the crypto space.
[00:01:24] Kevin: Hi everyone, Kevin here. I work at Temasek blockchain team. I started in 2017. That was the point in time where I got involved in crypto mining on a personal basis.
Subsequent to that, I went into some of the ICO’s, did a lot of personal reflection in the post crypto winter. When Temasek started our blockchain team, sometimes two years back, I raised my hand here I am. Fast forward two years later, still very much active in the scene itself.
[00:01:54] Seamus: Sounds like we got into this at similar timeline. For those outside of Singapore that might not be familiar with Temasek, can you give us an overview of what it is?
[00:02:02] Kevin: We’re an investment firm headquartered in Singapore. We have an intergenerational horizon. Frankly, majority of our investments are in equities, with a longer term horizon. That’s where we do have some level of flexibility as compared to other professional institutions, where they have a much stricter fund mandate being stipulated by the end investor.
[00:02:24] Seamus: Interesting. We’ve seen that you’re part of the blockchain team there. We as a company ourselves, we deal with primarily with banks and we see it’s quite common to have innovation of blockchain teams at the banks. How unique is it for an investment firm to have a blockchain team?
[00:02:36] Kevin: Well, Temasek is always going to be somewhat unique in their profile. It’s interesting question, because if you think about it, there are various types of investment firms. Given how hot and exciting crypto has been in the last eight months to one year, there are a lot more investment activities in the scene itself. I think there’s a range of activities there, where you could invest as a venture capital firm a lot earlier. You could be a hedge fund taking positions in the market itself. You could be marketing. You could be traditional firms. I think one thing I’ve observed is that they have progressively started various digital asset teams. Think about portfolio allocation on behalf of the end clients.
Temasek is somewhat different because we, as I was saying earlier, have a much longer mandate. We’re quite excited about the underlying technology and the possibilities that this brings. In particularly the nature of the work that we do and activities that were involved, I think we’re in a unique position on.
[00:03:32] Seamus: You mentioned you have an intergenerational view. What does that mean in terms of your investment horizon, particularly you look at this space?
[00:03:39] Kevin: What we get excited about is not just about what’s going to happen in the next two to three years. It’s not just what’s going to be the next shiny thing in town and how much price appreciation we’re going to look across the next one year. We care about macro trends that could shape new business, new ways of doing things, new lifestyles and new ways where individual clients and companies are able to come together and interact with each other in a differentiated world.
Progressively, one of the things that we’re quite excited about within the blockchain and crypto spaces, it’s an enabler towards a wet tree point. It’s a concept where some audiences may be quite familiar with. The whole novelty around the idea, the new businesses they could create along that line, that’s something that’s quite attractive and exciting for us. But for that to take shape, for it to bear fruits, we’re not going to be talking about a mixed two-three years. It’s going to be about a decade-long journey. I think that’s where Temasek has some level of patience. We are keen about trying to better understand where the technology is today, what are its shortcomings, try to work together with the ecosystem players to overcome some of the barriers, and move to towards the collective vision whereby we are personally excited by.
[00:04:48] Seamus: You mentioned a foundation for Web3.0. To the degree we often hear in the market that crypto will eat finance, how disruptive is this technology for this space?
[00:04:58] Kevin: To be honest, I’m a bit of a convert. I’ve been in the scene earlier, and I think I was mentioning that I have borne the brunt of it as well during the previous crypto winters. There is a part of me that has always been skeptical about how much speculations, and how much of this is really a bubble. But in recent times, another part of me that has woken up is the fact that because you have a permissionless way for people to interact, innovate, transact and reward each other, for the contributions to underlying projects, there is a span the range of activities that to as a certain extent beyond behind precedence.
That’s something that has been exciting. We can talk further about all different trends in town, about DeFi, and all that. But a lot of these terms have just been invented in the recent month, less than about the last year or two years. The scene will continue to rapidly evolve. It’s important for a lot of people coming to this space to not get caught up by all the attractive terms or the speculative price movements, but to think deeper, about what the possibility of innovating together with different individuals across the globe on exciting stuff, on common vision that you believe in. That’s the part that we should spend more time and focus on.
[00:06:19] Seamus: It’s definitely a powerful concept, the decentralized power of bringing all the world and focus on a protocol or initiative. We’re no longer local, we are global. When you look at this space, how do you think about risk reward in absolute terms, and also relative to other asset classes you guys look at?
[00:06:39] Kevin: I was in webinar the other day with Fidelity. It depends on your underlying perspective. If you’re thinking about it from a portfolio allocation standpoint, if you’re adding crypto and digital assets to your overall portfolio, and it can be a small allocation to it – an aggregate a portfolio basis is not a bad at 51%. It probably smoothens out the underlying quality across the whole portfolio by improving the overall aggregator return, especially if you look at the past two years’ track-record. That’s one angle to think about that.
If you are being a more active investor in a scene, the question is what’s in it for you? From a Temasek standpoint, we are quite excited about the enablers, about the technology. It’s not just about the immediate P&L gains. That’s something that we keep tabs on. But more importantly, what can we learn about it? How can we get it early enough in certain things that have the true potential to be destructive, to have exponential upside in terms of the business possibilities that it can create? That’s where you need to be patient. If you are willing to be patient, from a longer term time horizon, generally the luck is on our side. It’s coming on top.
[00:07:51] Seamus: Interesting. You’ve just mentioned an active approach to this. Is it possible to look at DeFi with a passive allocation approach as well, or is that too early for that?
[00:08:00] Kevin: You can, but I would caution against it. The industry is nascent. We were just having an earlier conversation with some folks that DeFi 1.0 is hardly over, and now we’re talking about DeFi 2.0? If you’re passively allocating it, from the context of whether you can do it, you can. I don’t think liquidity is now going to be the problem, because there’s been a lot of industry interest, a lot of money coming through the scenes. But the problem is that you’ll be always behind. You’ll always be the one that’s waiting for when things happen and then you reacting to it, which I don’t think is ideal especially if you are committed to investing in bugger firms or trying to be more active in the scene.
[00:08:43] Seamus: No doubt. As you mentioned, there’s so much active self-disruption in this space, that if you’re not on the forefront you could get disrupted very quickly.
When you’re looking at investment opportunities, how do you source those opportunities? How do you get in once you’ve identified them?
[00:09:02] Kevin: From a Temasek standpoint, we believe that there’s a need for us to get our hands dirty. You have to be immersed on the ground. I’m not the best expert within the scene; there are other colleagues who are much more plugged in and I’m constantly trying to catch up myself. The scene itself evolves rapidly. While you may be a content specialist this month, two months down the road you could have been outdated. You need to keep yourself refreshed.
What the realization is then is that it is very fast-paced. We have seen exponential amount of innovation, collaborative opportunities between different groups of people, globally. If you want to continue to be in a space, if you’re to take meaningful positions or trying to find the right use of the scene, you have to be immersed in that ecosystem. That’s progressively something that we are spending a lot more. We’re trying to figure out where and what people are thinking, what thought leaders, what major projects are doing? What’s their thinking? What are they worried of? These are consistent themes that we have to continue to take back when we evaluate our stance between the wider range of opportunities out there.
[00:10:06] Seamus: As you get your hands dirty, what part of the DeFi universe gets you most excited at the moment?
[00:10:09] Kevin: I’m not privy to share details, but I would say it’s useful to look at a whole ecosystem from start to end. If you look at it from an infrastructure standpoint, if you look across the whole value chain, you start looking at what I generally term as the pinch point. I’ll be candid. DeFi has grown to a space whereby it’s big enough. It’s not just going to decrease and disappear tomorrow. It will evolve. It will change. I don’t think we’ve seen the last crypto winter. There’ll be pockets of all floozy.
But the question is: if you evaluate it from a total holistic basis, and you start looking at which are the core components of the value chain of infrastructure, it is important to be sustained and will scale as adoption continues to scale. Those are where meaningful opportunities will come up. It is about diving deeper, understanding how this whole space is going to look like and how it’s going to evolve. I think that’s where real opportunities will shine.
[00:11:17] Seamus: Interesting. There’s been a lot of stats about the VC money and just general venture money coming into the crypto spaces. I think we had huge numbers this quarter. What is Temasek’s edge in this space over other investors? What’s your position? What’s your profile? Are you an active investor; you get involved with the companies you’re with them? For the company’s perspective, what’s the advantage of having Temasek as an investor as well?
[00:11:48] Kevin: The key for ourselves is that Temasek has a much longer horizon there itself. We’re willing to work with partners on areas which we are quite excited about. From the partners’ perspective, Temasek generally doesn’t interfere with how our underlying investee companies go in their daily operations.
What we care about is whether we’re aligned in the collective vision of what this could bring upon. I think that’s where the common ground it.
[00:12:19] Seamus: Fascinating. You’ve mentioned you’ve got a team. For others that are looking to invest in this space, do you have to have a technology background? Or do you happen to have that strong technology resource of your team to possibly dive into this space?
[00:12:31] Kevin: No, I don’t think so. Back to my point earlier, I think one thing crypto has taught us is that you can have a collaborative model. You don’t need to have all the stars aligned or all the right pockets of talents within your team before you take any meaningful position or take any particular step forward.
It’s going to be useful to have certain technical perspective in evaluating certain elements and parts of the underlying investments where there’s a huge component of tech. But you don’t have to have those people within your team if that’s the constraint that you’re facing. You can book a partner externally. The realization that there’s a lot of talent globally, that you can tap on once you are plucked into ecosystem, that brings about a lot of avenues, where you can leverage off the learnings and qualities from others to help scale yourself.
The next point, if I may, is because the scene is moving so fast, whatever you have learned today, you somewhat need to unlearn it or have to have a paradigm shift sometime tomorrow. That makes it quite difficult if you think that just because you have the right tech players or the tech members on your ground, in your team itself, you’ll be fully on top of the problem. I think there’ll be naïve.
[00:13:44] Seamus: The obvious question: how do you keep up with this space? As you made reference, DeFi 1.0 came out and DeFi 2.0 came up it seems like weeks later. I’m exaggerating, but it’s iterating extremely rapidly. How do you keep up? Is that a challenge or an opportunity?
[00:13:59] Kevin: It is definitely a challenge, and I think it will continue to persist to be a challenge. We’ll be lying if we say otherwise. But there’s two sides to look at it. We don’t beat ourselves over it. There’ll be opportunities we’ll miss it, so be it. The key thing is to be able to pace ourselves, don’t burn out, focus on the things that really matter for us in the longest time horizon. I think that’s key.
[00:14:22] Seamus: I spent 10 years in Singapore, and I’ve always remarked at the long-term vision. I recently saw an interview with Sopnendu Mohanty, for those that know the FinTech officer at MAS (Monetary Authority of Singapore). I found that it was remarkable how methodical The approach has been about building the foundation for digital future. Do you think Singapore is a leader in this space globally?
[00:14:42] Kevin: I wouldn’t call us that, to be honest. Singapore is a small country. We know where we stand. We know our respective disadvantages, for sure, in the global stage, but we know our relative competitive advantage as well. I think what Singapore has always been quite open about is that we are open economy. We are a neutral party, and we are very keen to collaborate and work with many partners out there.
Look back to the point about blockchain and all the permissionless world. What COVID has taught us is that there’s blurring of lines between real geographical boundaries. You could collaborate digitally with anyone, any part of the world. I think what Singapore truly aspires to be is a place where you have a nexus of talents coming together, trying to drive and scale things together. This is something which I’m quite proud of to be part of the overall work that we’re doing in Singapore.
[00:15:36] Seamus: No doubt. We could be in the same city and we’d still be having to Zoom in this case. It’s gone very global, no question.
Looking at Temasek specifically, you’ve got roughly 400 billion in assets. I think 380 as of the March official report. You’re a fairly large asset manager in this space. Can you find investments that are large enough; opportunities that are large enough to make a difference to do the capital world?
[00:16:02] Kevin: This is funny because just the last two days, I saw two reports from the regulators and central banks. One was from IMF cautioning about the possible risks of cryptos. I think the other one was from the Bank of England. If I remember the numbers, they were stating that the crypto scene has now scaled up to about $120 billion. It is double the size of the 2008 financial housing crisis.
There’s various ways to look at it. Regulators are probably doing the right thing in terms of cautioning of all the potential risks. But what I was trying to highlight is, in this current market, my personal prediction is that in the years ahead, trying to make sizable bets within the scene is no longer going to be the constraint. The market is sizing up rapidly, for various reasons. The bigger question is, could you actually withstand the drawdowns as and when they do come? What is your expectations of trying to participate in the scene? If it’s just about making quick money and trying to have a quick upside, I think you better think twice because the scene moves fast, and the scene moves fast in both directions.
To the earlier point that we were discussing, if you are just thinking of coming in on a pure passive approach, then you have to be cautious in terms of your risk-reward ratio itself.
[00:17:22] Seamus: No doubt. Having a longer-term vision enables you to allocate more of the spaces, as opposed to a flip look to the market.
I’ve found it quite interesting because in the news this past week, we saw a similar sized fund last month in Quebec, Canada, which manages almost $400 billion as well. They announced an investment in the Celsius protocol. It’s a clear sign how fast the allocations rather are going mainstream. Will Temasek look not just at equity stakes in companies, but also protocol and token investments?
[00:17:55] Kevin: I’m not going to be a prophet. But on this front, I think Temasek generally has flexibility. We wouldn’t rule any of this out. It’s going to make sense in line with our longer-term strategy and focus between the scene itself.
[00:18:09] Seamus: What about innovative organizational structures? Is that on the radar as well?
[00:18:14] Kevin: That is something that I’ve been trying to keep myself updated on. We’re looking across all aspects. We wouldn’t rule one out over the other, but it’s going to make sense for us in the long term.
[00:18:26] Seamus: Absolutely. When we look at protocols and tokens, how would Temasek approach things like custody?
[00:18:35] Kevin: Well, this is METACO!
[00:18:38] Seamus: That’s the right answer, maybe we can end the conversation there!
[00:18:40] Kevin: I think it’s widely acknowledged, especially within the traditional players. There’s growing interest in the scene. Trying to manage the custody of such underlying assets is a key problem. There’s been a lot of range of solutions out there, but none yet perfect, to be honest. I think institutions themselves are also trying to figure out how best to manage this new asset class. This is what they’re used to in handling in the traditional space, especially if you are a larger financial institution with a wide range of mandate itself. You have to think about how do you manage your portfolio reporting on a regular basis, not just on your equity, bonds, derivatives. Now you have this new asset class.
I think there is a range of solutions. There are a lot of players coming in to try and provide infrastructure support. Your custodian banks, the traditional players, have all been trying to upskill themselves and improve their service product offering. Depending on where you sit as an investment firm, there us a range of solutions that you can evaluate out there. But the broader question is: aside from just custodising the assets that you have with the counterparties that you work with, how do you ensure that there’s sufficient security? How do you get your internal colleagues up to the same level of depth of knowledge, in terms of understanding the scene itself before they have the confidence of signing off to say as an institution they are ready to take possession of the underlying crypto assets?
[00:20:10] Seamus: I think you’ve absolutely nailed on it. There’s a huge education process required around how do you ensure there’s no centralized point of failure and everyone’s comfortable with the distribution of those risks. I think these are critical questions.
You touched on it earlier, but regulatory risks, how do you view that space? Again, I touched on that Celsius investment, by the case in Quebec. I was very surprised; they’re invested in a lending protocol that’s also been invested. There’s a number of regulatory actions in the US on it. How do you guys view the regulatory risks? Is there a risk that some sectors could be shut down from one day to the next?
[00:20:44] Kevin: I make no pretense; regulatory headwinds are definitely one of the big red lights flashing the scene now for obvious reasons. I think the audience can appreciate that.
If you’re trying to come into the scene, recent news has been somewhat concerning. You see China banning a lot of crypto activities. I was mentioning just now as well, the recent reports by different central banks and IMF all saying: what do we have here, is it a potential bubble that could blow up? It’s honestly difficult as an investor to say, no. It is, but how do you address it? That’s not going to be straightforward as well.
But investment by the nature of it is about taking bets. You have to evaluate the situation; you have to have an overall strategy. For us, it’s a longer term one. You have to ask; does this make sense for us? What is it that we’re going to get out of this? It cannot be just about the returns, for example, it has to be about something more – a long-term vision that we are genuinely excited by.
Beyond that, I think there’s always going to be some risks that we are going to be undertaking. But we are careful. We’re careful with situations where it’s going to be high. We will be watchful not to get ourselves in those situations. But while that’s the case, you can never omit regulatory risks. There’s always a very real possibility that a range of the governors could come together to have a coordinated action in terms of trying to regulate a lot more of the crypto activities.
But the key thing I would like to call, if I may, is it’s beyond looking at this from about the price movements and the potential speculative behavior and activities. It is to look beyond and think about the innovation that we have at hand. I think that’s what’s truly exciting. That’s where new possibilities and new ways of doing things – we have to be spending a lot more focused there instead of being sucked away by a lot of the conversation points about how XXX tokens have moved and so much percentage in prices. It is always easy to get sucked away by those pointers.
[00:22:49] Seamus: Without a doubt. You’re talking specifically to the volatility of the space. How do you address not just your own team, but in reporting to the broader portfolio of the issue of the volatility perspective, whether that’s regulatory driven or because of the uncertainty or the rapid change?
[00:23:04] Kevin: On that front, Temasek, we’re a long-term investor. We are used to alternatives, so probably less of an issue for us. But I could imagine there’s going to be much of a big problem for some of the other funds out there.
[00:23:20] Seamus: I suppose volatility also comes with returns. You don’t get the returns without volatility. Zero volatility probably means zero returns, or close to it.
Speaking about the regulators, some of the comments we’ve heard, they’re still trying to catch up with or learn about the space as well. As much as investors are learning, I think the regulatory have a long way to go. We’ve heard some comments that the lack of trusted counterparties in the space increases the risk of Black Swan events and things like DeFi. What are your thoughts on that?
[00:23:47] Kevin: I think so. But we need to give credit to the scene. It has evolved and innovated very fast as well. It’s still relatively new, especially the DeFi space, but I think the space will mature. One conversation I used to have, and I think it’s very real, it’s not a competition between DeFi and CeFi or traditional finance. While there is possible heightened Black Swan risk in the DeFi space, because of the fact that there’s regulatory activities, there’s less central stakeholders or intermediaries that you can hold accountable in the situations where there has been a huge drawdown or they’ve been a credit default event, what you really have in the DeFi space is that you have a more intuitive and transparent UI to facilitate transactions, hopefully at a low cost. That by itself has benefits. If you could marry that as the industry continues to innovate, with a lot of the willing players within traditional finance, I think you can reach some sort of a meaningful and optimal compromise. There’s a spectrum of thinking about how DeFi comes with CeFi. It’s about trying to find the right point within this spectrum. I think that’s where the industry progressively will move us to.
[00:25:11] Seamus: That’s a very new balanced view. There’s no doubt, one of the regulators’ roles has been to also bring more transparency to what exactly are banks holding on their balance sheets? What are the risks of CeFi? I think the one advantage of DeFi as well is they are open-source protocols. It’s pretty transparent, which is a big innovation. Transparency engenders trust in the end, I think.
How do you think the balance of CeFi versus DeFi will evolve? These will obviously co-exist in some capacity, how much?
[00:25:42] Kevin: The answer is I don’t know. I frankly don’t know. I think there’ll be a range of complex actions and initiatives that banks themselves are trying to innovate within the space. I was reading an article the other day, Subchain is trying do a borrowing on Macedon, if I’m not wrong. There’s a lot more activities in terms of trying to find that right balance between traditional financial players and how they could interact with the permissionless blockchain.
At Temasek, we’ve been involved in range of activities here in Singapore. For example, we’ve started the AGV on my end, that I’m spearheading together with my partners SGX. We are trying to build a digital asset platform, an end-to-end digital asset platform whereby part of this whole equation or this whole platform is thinking about how we could leverage off that blockchain technologies as one of the constituents to improve the distribution, reach and access to end investors.
I don’t have a perfect answer. I think there a lot of actors and a lot of activities within the scene, everyone trying to find a space. It’s quite difficult to predict what’s going to happen. But I think at some point the range of activities and innovation will gain momentum. With the right level of momentum, you could see a meaningful shift. Instead of a narrative of DeFi versus CeFi, you see a good collaboration between the two. That’s the moment that I personally am quite excited by and waiting for.
[00:27:11] Seamus: That’s a great point to wrap up on.
Listen, Kevin, it’s been a real inspiration having you on here. I appreciate you sharing your views, both personal and Temasek and where we are now, where we’re going. Thanks for your time. Is there anything else you want to tell our guests before we wrap up?
[00:27:27] Kevin: No, thank you. Thank you for having me.
[00:27:31] Seamus: Excellent. Thanks again. Well, our next METACO Talks will be in two weeks’ time. We’ll be hosting Rajeev Tummala, the Director of Digital and Data at HSBC. He’s a business technologist with a keen eye for exploring the effective use of emerging tech in the security services space.
Until then, wishing you all a great Friday. Don’t forget, you can always find all our recordings on your favorite podcasts as well as transcripts on our website www.MetacoTalks.com/talks.
Thanks, Kevin. Thanks everybody. See you next time.
[00:28:00] Kevin: Thank you, Seamus. Appreciate it.
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