Interview with Matthew Graham from Sino Global Capital
What Westerns get wrong about China, the potential upside in SOL, and some of his favorite projects in the Solana ecosystem
Matthew Graham is the CEO of Sino Global Capital, one of the leading crypto venture capital firms, based in China. Matty and his team have been early investors in FTX, Solana, Serum, and several other top Solana-based projects.
Since you guys are based in China, maybe we can start with what you believe is going on in China's crypto scene, and what Westerners most get wrong?
To start - Westerners often have the idea that China is against all crypto/blockchain, but in reality it is much more nuanced. China is actually very pro-blockchain and actively promotes R&D as well as the development of real-world applications in the blockchain space. Many cities and regional governments even have blockchain incubators.
However, when tokens or cryptocurrencies are involved, regulators are more skeptical as there is a potential threat to financial stability in their view. This is one of the reasons for the mining crackdown in China.
What projects and tools are you most excited about, in the Solana ecosystem? Are there ones you like where they wouldn't even be possible on other chains, due to high fees?
Serum is a project we are excited about because we see numerous projects composing with their orderbook. Given the TPS needed to support Serum’s central limit orderbook model (CLOB), the CLOB model would not be replicable on slower and more expensive chains.
Parrot and Mercurial are innovating in the synthetic debt and stablecoin vault space. They both have strong working versions of their products and their vision is quite large.
Jet Protocol is a next generation borrowing and lending platform that is building with composability in mind. They are using Solana’s extra “design space” to maximize efficiency and unlock new products in the future.
Then of course we also have awesome teams innovating at COPE, Raydium, Psyoptions, Bonfida, Oxygen, Maps.me, Sonar.Watch, Zeta Markets and many more (this list is not exhaustive!). The pace of innovation on Solana is truly astounding.
With the growth in Solana, do you see Ethereum projects launching Solana versions? Or do you think the Solana ecosystem will continue to be mostly home-grown?
We will see more and more Ethereum projects rewrite their code in Rust and launch on Solana. This will increase as we see DeFi use cases with robust requirements cluster around the Solana ecosystem. However, the most interesting projects to us are the Solana home-grown projects that take advantage of the extra “design space” that Solana offers by removing limitations that other chains may have (related to TPS, finality, composability, etc.).
By using this extra space, these projects are offering a product that can likely not be replicated on another chain at a similar quality. The Serum CLOB is a good example of a new type of primitive/building block that is highly differentiated and takes advantage of the high performance of Solana.
If the readers are curious, we created a graphic of the positive feedback loop that Solana has created with its high performance and how this could set the stage for mass appeal on-chain products.
We at Solar are of course very bullish on Solana and its ecosystem. However, we see one potential risk to SOL, the token: Solana's super-low fees, which while great for user experience, could lead to value not being accrued to SOL holders. What are your thoughts?
A couple general thoughts on this:
First, the low fees are one of the reasons that the positive feedback loop we show above can start (i.e. removing limitations that projects face on other chains). That loop, after many iterations, could and hopefully will result in 1B+ users on-chain. Therefore, low fees become essential for a mass user base. If we do reach 1B+ on-chain, then early SOL holders will be very well rewarded.
Second, reducing friction in a transaction, in this case from fees, can increase the amount of transactions that users are willing to perform. We have seen similar patterns in traditional markets of increased transaction volume as friction decreases. A recent example in tradfi might be the increasing digitization of the fixed income markets.
The two examples above show how low fees result in 1) more users and 2) more active users which is good for SOL holders.
How do you do valuations of cryptocurrencies and tokens? Do you use fully-diluted, momentum, value?
It depends on the project design, tokenomics, vertical, etc. When evaluating projects from different parts of the industry, there is no “one-size fits all” metric even if the investible instrument is a token for both. What is important to us is that we understand the supply and demand dynamics. This means having a good handle on the emissions schedule, utility, potential revenue generation if using a buy/burn, etc.
In some cases we might even try to adapt some tradfi methods in order to triangulate an opinion. The more data points we have the better. It is our job as VCs to synthesize those data points correctly.
There are some tokens, like Serum, with a total supply market cap in the tens of billions; are those overpriced? Should Serum be worth more than SOL and FTX?
In the case of the Serum, the total supply market cap is high because, among other things, the size of the prize is massive. Serum is a really ambitious project and many projects will compose with Serum leading to burns and value accrual to $SRM.
We wrote a post specifically addressing Serum here: (https://sinoglobalcap.medium.com/why-we-invested-in-project-serum-b6c9fa57e0a2).
Talking more broadly about market conditions, how do you see crypto markets today? Are we going into a 4-year cycle again?
On a daily basis we talk to projects, VCs, financial institutions, power users, etc. Institutions are still interested in allocating to cryptocurrencies and are exploring DeFi, VCs are deploying large and increasing amounts of capital in the space, projects are building products that users want and use. We don’t speculate on where we are in a certain cycle, because our timeline is extremely long, but we do think the ecosystem is healthy and attractive from an investment standpoint.
Should Solana introduce a cap on its supply, as Bitcoin has? Say at 1 billion coins?
A main reason why a supply cap is introduced is to mitigate against an inflationary supply. There are other monetary policies that can effectively balance token emissions. In Solana’s case, the burning of transaction fees should be sufficient to exert a deflationary effect on supply as adoption increases.
Solana's base layer doesn't have privacy features like Monero or Beam. What are your thoughts on that? Are there projects you like building privacy on Solana?
Privacy exists along a spectrum, Solana does offer privacy of identity where transactions occur without users needing to reveal their identity. This is often an innovation that people overlook. If proper operational security measures are implemented, users can make it very difficult to ascertain identity.
If privacy of data (a transaction’s contents) is sought, then that will require further innovation via zero-knowledge implementations to effectively achieve a “data privacy layer”.
Solana is a young blockchain and we believe that privacy features will be an area where there is a lot of innovation.
Finally, to ask the Peter Thiel question, what is the most important thing you believe in, that most people in crypto disagree with?
We hear this multi-chain narrative on a daily basis. Yes, we believe in a multi-chain future, BUT we think different use cases will naturally and organically cluster around different chains. For example, NFT use is increasing on NEAR and high performance DeFi products are coming to Solana.
So while we believe in a multi-chain ecosystem, we don’t believe it will unfold like many in the crypto community expect it to.
Thank you Matty for participating! You can learn more about him on Twitter (@mattysino) or on Sino's website.