Dialogue with Web3 founder Guo Yu and Sota Watanabe

The interview was conducted and moderated by Hideo Natsume from East Ventures, an early investor in Astar Network, and Li Lucheng from Z Venture Capital served as the translator.

Dialogue with Web3 founder Guo Yu and Sota Watanabe

Image: Foresight, Xinchao Club

“I firmly believe that the arrival of the Web3 era will promote the growth of Japan’s economy. ” This is a speech on Japan’s economic growth strategy delivered by Japanese Prime Minister Fumio Kishida at the House of Representatives meeting on May 26.

Probably the hottest new buzzword in the world right now, “Web3” refers to services that are not tied to a specific Internet service, platform or company. Web3, which carries the idea of ​​decentralization, is grasping the dividends of the times, and it is irresistible to completely subvert the epoch-making hegemony of the GAFAM platform. Countries such as the United States, Singapore, the United Kingdom, Portugal, and Dubai have also successively issued laws related to encrypted assets, all of which are promoting a new era that is about to emerge.

After entering 2022, compared with other countries in the world, Japan has launched a series of national strategies related to Web3 in a late-comer, first-come situation. The speech of Prime Minister Kishida mentioned in the preface and the “Digital Japan 2022” promoted by the Liberal Democratic Party’s Digital Society Promotion Headquarters also indicate that the trend of Web3 in Japan is unstoppable. However, tax issues and the regulation of crypto-asset exchange licenses have led to the flow of talent to countries outside Japan with more friendly regulations, which has become an urgent issue.

Meanwhile, China, once known as a virtual currency powerhouse, also made it illegal in 2017 for companies operating blockchain businesses to raise funds through token offerings (ICOs), and issued a ban on individuals and businesses. Since then, although the blockchain technology itself has been affirmed by the government, mining and virtual currency transactions have been banned, and the phenomenon of blockchain brain drain has also occurred in Japan.

In this conversation, we interviewed top Web3 entrepreneurs in China and Japan. One is Sota Watanabe, who is only 26 years old, the maker of the Japanese Web3 standard, and the founder of the Japanese public chain Astar Network ($ASTR); the other is 28 years old, from the world’s largest unicorn company ByteDance Guo Yu who announced FIRE (Financial Independence, Retire Early = financial freedom) and explored in the field of Web3. They chose to dance in shackles under the rules, trying to explore the cutting edge of Web3. We interviewed them about the future of Web3 and the future potential of the Japanese blockchain industry.

Natsume: Can you share the opportunity for the two of you to enter the web3 industry?

Guo: You may be surprised, but in fact, I just started to get in touch with Web3 in November 2021 half a year ago. At the time, I was chatting with a friend in Beijing who inadvertently said that he moved most of his assets to DeFi (decentralized finance). I was very interested in these new concepts at the time, and I immediately asked him about DeFi knowledge. After he introduced various projects to me, I had a basic concept of Web3, so I started Do your own research on other interesting new terms like NFTs (Non-Fungible Tokens) and DAOs (Decentralized Organizations). After I continued to gain a deeper understanding, I spent a few months thinking more deeply about what kind of changes and meanings Web3 could essentially bring to the world. Then I wrote an article titled “About Web3: The Latest Tech Trends I Missed During Two Years of FIRE” on “Mirror” (author’s note: a decentralized blogging platform), summarizing my thinking.

Natsume: This is really surprising. Because you are already quite well-known in the Web3 community in China, but you have only been in contact for half a year.

Guo: Yes. After spending half a year researching Web3 in depth, I started both Checks Finance and CodeforDAO by myself in March of this year. After I started writing that article on Mirror, it took me about a month or so to conceptualize the project. At the same time I found out that the Federal Reserve’s (FRB) decision to raise rates at the beginning of the year made me wonder what kind of projects could survive this bear cycle and bear fruit when the market recovers. So in the end, I took Checks Finance and CodeforDAO, which I think can best pass through the cycle, as my entrepreneurial direction. This excitement brought me back to the front line even after I had “retired” and rekindled my passion as a developer.

Sota: The first time I went abroad was in India during my freshman year. It was there that I felt the seriousness of poverty and environmental problems for the first time, and the desire to solve these problems sprouted. So, I started to look for technologies that can solve social problems, and in the process of searching, I came across blockchain unexpectedly. After learning about the blockchain, I joined a blockchain technology company in Silicon Valley in the United States and began to conduct in-depth research. Working there made me feel that people are not only concerned with the problems within their own country, but also about what value they can provide outside of their own country. So I was inspired and decided to start my own business. After returning to Japan, I became a blockchain researcher at the University of Tokyo and started developing public blockchain projects with friends I met at the University of Tokyo.

Natsume: When you started your business, it was actually a bear market of cryptocurrencies, and it changed after a period of dormancy. I believe it was not easy for you at that time. So from your experience, although the current environment is still not optimistic, I would like to know what kind of countermeasures entrepreneurs who are about to start a business in the Web3 field should take under such circumstances, and choose where to start a business.

Sota: Web3 is very different from Web2 in that it is not limited by geography. As long as you are connected to the Internet, you can participate in Web3 work whether you are in the North or South Pole. At the same time, because Web3 is a brand new field, the laws and regulations of many countries are not yet clear, but strict regulations may be introduced in the future, which will lead to losses for entrepreneurs. So it is important to go to a country with clear regulations for Web3 rather than geographic location. So far, there are still many unclear areas in Japan’s regulations, not to mention the very high tax points caused by the tax system, so more and more Japanese entrepreneurs are moving to countries such as Singapore, Dubai and Switzerland.

However, just as Guo Yu chose to come to Japan from China, I think Japan is a country with superior tourism resources and living environment. Although Japan still adopts strict laws and regulations on Web3-related issues, if Japan starts to actively improve laws and regulations Tax system, I believe that the entrepreneurial talents who once regretted giving up Japan will eventually return to Japan, and Japan will start the first spring of Web3 by that time.

Guo: As Sota said, the status of the legal and tax system is the most important point for entrepreneurs engaged in the Web3 cryptocurrency industry. I heard from a friend who is in venture capital in the UK that many Web3 based startups are now moving their companies to Dubai, Portugal and Eastern Europe. And what these countries have in common is that they have stable policies, are very friendly to the cryptocurrency industry and actively attract capital and talent. In contrast, China’s current policy on Web3 is still unclear, so many talents leave.

Natsume: What is the specific migration method? Are these Chinese entrepreneurs not only moving their headquarters but also their development teams overseas?

Guo: Not so. In some of the countries I mentioned earlier, in the field of Web2, the so-called traditional Internet industry, the density of talent is not as high as in the countries where cities like Beijing and Silicon Valley are located. From a common sense point of view, the development headquarters itself should be in a city with a high concentration of talents. So in the long run, China’s Web3 startups will be more inclined to move their headquarters to countries with better legislation, while the development team remains in China and uses the VIE structure that we Chinese entrepreneurs are familiar with. There is an example around me, their development team is in Shanghai and their headquarters is in Singapore.

(Author’s note: “VIE plan”. VIE refers to variable interest entities, i.e. companies established in tax havens such as the Cayman Islands or Virgin Islands, established to raise funds and go public, while foreign investors set up WFOEs in China (WFOE). The scheme involves setting up a Wholly Foreign Owned Enterprise (WFOE) in a tax haven jurisdiction like the Virgin Islands, where a foreign investor sets up a primarily funded and listed company in China, takes actual control of a domestic Chinese commercial company, and then withdraws Profit. This structure is often used by Chinese companies in the Internet business to accept foreign investment and list overseas in the United States and other countries.)

Guo: Regarding Japan, at first glance, people often have the impression that Japan is not a country of immigration, and its immigration policy must be very strict. But in fact, it is a country with a very friendly policy towards foreign talents. For example, in terms of highly talented visas, many Chinese (see Web3 development) can easily enter Japan in the form of highly talented visas. However, the lack of publicity about these policies, not only developers in China but even developers in Western countries, is unaware of these policies, leading many Web3 entrepreneurs to exclude Japan from their plans.

From a business point of view I think Japan is a place where culture and business coexist well. A marketplace where culture and commerce coexist is driven by creators, and a marketplace with a large number of creators is a good match for Web3, which emphasizes private ownership. Japan’s budding Web3 market will one day be bigger than any other country, as long as the tax system and low density of development talent can be addressed.

Natsume: According to Guo Yu’s answer, I would like to ask Sota, from a global perspective, what is Japan’s position in the Web3 market? Also, in your opinion, what are the advantages of Japan?

Sota: Globally, I think Japan has been catching up at an incredible rate recently. For example, on the government side, Prime Minister Kishida and other members of the Liberal Democratic Party, especially young people in the party, have been sending positive signals about Web3. It is rare globally for a political party to work so hard and promote it on Web3. In addition, the Youth Bureau of the Liberal Democratic Party has recently issued NFTs and Tokens, and these positive experiments have brought many positive effects. On the other hand, native Web3 services require a token system, and it is still very difficult to issue tokens in Japan today due to regulatory constraints. For example, like us (Astar Network), it is almost impossible to create a Layer 1 blockchain or DeFi under the current tax system. Therefore, the most feasible area at present is NFT.

Natsume: So at present, is NFT the only direction in Japan that can compete with other regions in your opinion?

Sota: Yes. There are a lot of content-related IP (intellectual property) in Japan that can be converted into obvious opportunities. But unfortunately, the ability of Japanese to communicate in English affects their ability to operate globally to a certain extent, limiting the speed of their overseas development. It is true that in addition to the hope that NFT can say, I think the island effect in Japan is still developing, that is, many Japanese projects are still only playing in their own small circles.

But it’s a chicken-and-egg problem, and if projects like ours don’t get stellar results around the world, policy won’t change. If policy does not change, there will be no more benign outcomes, like an unbreakable knot. Therefore, as entrepreneurs, we need to make achievements in the world as much as possible, provide various feedbacks and influences on the tax system and national policies with the results, and then promote the progress of the industry.

Guo: Since the beginning of the year, I have also been paying attention to the Web3 national strategy promoted by the Liberal Democratic Party. Many very positive measures have been put forward in the strategy, such as the legalization of DAOs, relaxation of visa requirements for overseas talents, revision of the fund settlement method, and improvement of the tax system, etc. Wait. However, these moves are just revisions to the framework, and it will still take at least a six-month cycle to fully hammer out the details. On the other hand, I also think Sota is right about NFTs.

In fact, it is almost impossible to do products involving tokens in China due to regulations, so in this case, Chinese entrepreneurs will also give priority to NFTs. Of course, Chinese start-ups are usually more flexible and will start trying various solutions when the legislation is not clear, so the VIE program I mentioned earlier will be the first choice for Chinese Web3 entrepreneurs.

And the last thing I want to talk about is Japan’s potential. Due to the natural moat formed by the language barrier, the Japanese market itself is a difficult market for foreign entrepreneurs to enter. Many Chinese products have tried to enter the Japanese market, but the only one that has succeeded is TikTok. The reason is that the attributes of its video platform allow it to overcome the language barrier, and people from all countries can easily understand the service. But in the upcoming Web3 revolution around the world, if start-ups from Japan can attract foreign development talents, take advantage of the domestic content industry to first gain share in the Japanese market and eventually expand globally, I think we can see a global Competitive Japanese start-ups in scope.

Sota: Totally agree. I think each of us has a role to play, so I’m not qualified to point fingers on government policy issues, and the best option is to leave that to the politicians. And what I need to do most as an entrepreneur is to raise the horizons of young people. In China, the birth of the world’s top unicorn companies like ByteDance has naturally inspired the entrepreneurial spirit of the same generation of entrepreneurs and raised everyone’s horizons. But unfortunately, there are very few such examples in the field of Web3 in Japan, and we still have a long way to go to realize our vision in Japan. So our mission is to build Astar Network into a first-class Layer1 Protocol, and we are eager to make it a good template for young people to encourage more people to enter this field.

Guo: Yes, Web3 is a very special field, and its development and trend started around the world at almost the same time. In this sense, Web3 has a strong ripple effect, and what Sota does can affect a large cultural circle, that is, not only Japanese people in Japan, but also Japanese people scattered around the world, they may be affected by Astar’s achievements. This is extremely meaningful for more Japanese who may want to join Web3 in the future.

Natsume: Both views are very interesting. The questions so far are all from a macro perspective, but I want to change it from a different perspective, please talk about it from the perspective of entrepreneurs, especially Sota, you have met many top investors in the United States and China, then Web3 How is it different from a Web2 investor, and what strategy should you take when raising capital as an entrepreneur.

Sota: I personally raised funds twice from Web2 investors and twice from Web3 investors. I will briefly discuss the similarities and differences between the two types of investors. First of all, Web3 investors observe global projects by default, so when I communicated with Web3 investors in China, I found that they almost never look at projects that only circulate in the Japanese market. Such judgment criteria can be attributed to the fact that Web3 is currently most concerned about how big a project can be on a global scale. In addition, Web2 and Web3 are fundamentally different in terms of financing logic, such as whether to invest in equity or tokens, the distribution of tokens and the locking involved, etc. Therefore, it is often feasible to directly import the Web2 investment decision-making method directly into the investment in Web3. No way. Personally, in Web2 investment, market share determines sales, and sales determine market value. In contrast to Web3 services, decentralization is the real value. Therefore, community-driven services are created and the total value of community-driven services is created. Quantity is very important to complete the value measurement. In this sense, the sources of value of the two are completely opposite, and entrepreneurs should carefully consider their project valuation logic when financing.

Guo: I think the same way. The Web2 investors I have contact with in Beijing are all investing in the TMT field. After many times of communication, I feel that they are still in the wait-and-see period of Web3 investment. They still use the traditional Web2 valuation model to evaluate Web3 startups, but in fact, Layer1 protocol, DeFi or NFT, etc., cannot simply be evaluated by key valuation indicators such as DAU (daily active users). Taking DeFi as an example, the indicators we usually look at are TVL (total value locked, amount of assets under custody) and so on. Investors in Web3 have a better understanding of Web3 products and are able to invest in tokens. At the same time, however, they tend to focus on short-term gains and are more susceptible to market trends.

Sota: Yes, after all, there are not as many established valuation model cases in Web3 as in Web2, so there are many opportunities (for entrepreneurs) in modeling the source of value in Web3. What are the most important metrics that define our project, such as TVL, community active users, monthly active wallets, etc. If entrepreneurs can give unique evaluation criteria and explain the logic clearly when talking about their projects with investors who do not have a clear methodology, it will be very good for entrepreneurs.

Guo: Yes, I think this is also directly related to the reason why the current Web3 project is easy to raise funds, because investors who are still investing in the primary market have not established specific evaluation indicators. Your own story can also provide some quantitative evidence, which can greatly enhance the persuasiveness of the project itself.

However, even after preparing a sound financing logic, there will be times when things go wrong. The best way to get financing as an entrepreneur still needs everyone to explore. So Web3 is still in the early unknown, and there is so much to research and learn that makes it fascinating. When the Web3 product has hundreds of millions of users across the gap of mass popularity, its valuation logic will be completely different and more mature, and the current stage is a necessary process to explore the unknown. This journey will illuminate not only the future Web3 VCs, but also the path ahead for Web2 VCs investing in TMT.

Sota: I feel like there will probably be quite a few failures from now on, but there is no success without failure. Both the government and entrepreneurs should see the positive. It is especially important to remain positive in a bear market like this.

Natsume: So what do you think about the current bear market number two?

Sota: Regarding this bear market in cryptocurrencies, I personally think it will last for a long time. There have also been numerous events that have led to bear markets in the past, such as the introduction of cryptocurrency regulations in China, etc., but they have mostly been one-off and short-term. However, this time around, the bear market, which will be driven by the macro economy, will be relatively longer. It’s not that I’m pessimistic about it, but I’m actually quite optimistic about the future.

Recently, a16z, a well-known Silicon Valley venture capital, commented that the current cryptocurrency shock may have many similarities with the dotcom bubble. The reasons to get out and flee in a bear market are endless, losing momentum, running out of cash, whatever. However, entrepreneurs who exited the dot-com bubble early ended up missing out on the most innovative decade in human history. a16z said: “If Web3 becomes the next mainstream, it is very likely that various inventions such as the mobile Internet will appear like the previous generation of Internet, so we can imagine that we are actually at the entrance of the golden age of cryptocurrency.” I Agree with what they said, looking forward to the next ten years, innovations will be born one after another, and the future is infinite, and even at this point in time, there are still endless opportunities to enter the Web3 field.

Guo: I personally think that the cold winter in the cryptocurrency industry, as Sota mentioned, is due to macroeconomic reasons. Stock indexes, including the U.S. Nasdaq, are in their biggest drop in a decade, which was nearly impossible before. The reasons behind it are due to the Federal Reserve raising interest rates, global supply chain issues, etc. that are not particularly relevant to Web3. This bear market has already led to the collapse of projects with operational problems, such as Luna UST. But this can also be seen as the biggest opportunity to improve the soundness of the Web3 industry.

Personal opinion, now that we are at the bottom of a down cycle, I am ready to convert most of my personal holdings to Ethereum. I believe that the services of the future will be built on Ethereum and other blockchains in the web3 space. I will overcome this cycle myself, believe in long-term development, and prepare for All in Web3.

Natsume: The passion for Web3 and the determination to All in Web3 are really amazing. Finally, can you give some opinions and suggestions to young people who want to enter the Web3 field in the future.

Guo: I want to tell them that this bear market is the biggest opportunity ever. For young people, there is no better opportunity than a bear market. When the economy is down, many start-ups want to hire people but don’t have enough cash, so when it’s time to replenish, it’s likely to hire young people who don’t have the proven skills and knowledge. If you work hard in this situation and hone your personal abilities and knowledge, then I believe you will have your day.

In fact, when I started learning programming in 2008, people around me teased and asked me why it was too late to learn programming, but then the mobile Internet era came, and I was completely on this train to witness China The rapid development of the Internet industry. So if I had given up programming back then, I wouldn’t be where I am today. So if you want to learn to program, learn Solidity and other software, and actively participate in projects. If you don’t know how to program, please join DAO and become a core user of your favorite Web3 product. I believe if you do this, you will eventually cross the cycle and win the next bull market.

Sota: In fact, facing a bear market is very difficult and frustrating for every entrepreneur. Even so, I still recommend that you keep your nerves tight and keep fighting. Under the economic recession, many entrepreneurs will choose to retreat, but only by maintaining output and growth for a long time can an entrepreneur maintain a competitive advantage in a certain field. For example, in the Web2 era, it was during the recession and bear market cycle that companies and products that changed the world, such as Amazon and Google, were born. Therefore, these economic changes can be regarded as noise, and we should focus and keep developing products.

Natsume: Thank you for the interview, the amount of information is really huge. In this era of harsh winter, I hope that together with our readers, I will continue to maintain an optimistic attitude and do my best to prepare for the era of Web3 that will one day come. Thanks again for your participation.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/dialogue-with-web3-founder-guo-yu-and-sota-watanabe/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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