Singapore’s Temasek, one of the world’s largest sovereign wealth funds, has been looking at blockchain technology since the crypto winter of 2018. How much of its US$270 million portfolio is geared towards crypto & blockchain projects? Have they invested in Bitcoin? And how do they pick & choose businesses they’d like to be a part of? Get the answers to all these questions and more as Forkast’s Editor-in-Chief Angie Lau meets Pradyumna Agrawal of Temasek in Singapore.
Angie Lau: Crypto projects are a dime a dozen, but finding the right one to back. Well, that's key. Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm Editor-in-Chief, Angie Lau.
Today we are in conversation with Pradyumna Agrawal. He's managing director of blockchain investments at Temasek, one of three financial institutions in Singapore backed by the city state's government. And the question is, what is Temasek betting on, are they just an investment arm or are they something more. And Temasek well, it's not just an investment arm. It is something a whole lot more.
Prady Welcome to Word on the Block and thank you for welcoming us to your Lion City.
Prady Agrawal:Thank you for this opportunity. Welcome to Singapore.
Angie Lau: Singapore is one of those cities that always hits above its weight class. And, you know, for a lot of people, Temasek is one of its champions. What you're doing in this space in global investment is really interesting. And specifically, I want to ask you about blockchain. When did you start the investment arm in blockchain for Temasek and why?
Prady Agrawal: Yeah. So our efforts took seed in 2018, quite appropriately, the last crypto winter. As we speak, the judgment is out, but we might be at the onset of the next one. The thinking at our end has been driven primarily by what we've seen in the technology world in the last decade plus of global activity. Historically we've applied 2 lens.
One is a geographic lens, so there are markets that we want to focus on. In addition, we've always looked at vertical industries. What we found over time, though, is the lines are blurred. Let's take examples like GoJek or Grab in the region and Airbnb be more globally. It's difficult to put that under one vertical. We also realize the acceleration of a number of horizontal technology. Um, so we've been focusing for the last four or five years on areas like A.I., blockchain, cybersecurity. So this effort is actually part of this broader effort at Temasek to look horizontally across industries, in addition to geographic focus.
In the blockchain area in particular, we've been fascinated by the pace of innovation, both from a technical perspective, but also the emergence of new business models in a sense Web 3.0 that is now become the term which is being used more commonly. But really we see this as an iteration of the i nternet where a move away from very centralized business models therefore are tools. And we'll talk about it more today. How can we accelerate the building of businesses in this area? So we've gone beyond simply being investors. So you've actually been building ventures?
Angie Lau: Yeah. You're also an incubator.
Prady Agrawal: So, a little bit more than incubator. I’m happy to add more into that. And of course, looking to support some of the best projects on the investment side, which as you can imagine, is not an easy task given how early the space is and we discuss this internally, we think of it increasingly as a new form factor as opposed to an asset class. So that's really what our focus is.
Angie Lau: I want to dig into that a little bit more because it's absolutely true. You can be a venture hub or an incubator, whatever you want to call it, but if you're going to look internally and start building. I mean, that's a different business proposition. It's slightly different than just allocating capital to teams that, you know, are talented.
Prady Agrawal: We look at ideas which we think are game changing. Which we meeting can have massive impact. Our first focus is to see the existing projects or teams working on it. If projects exist, teams are already working on it. We don't want to reinvent the wheel, either directly or through our partners. We will go and back these projects. There's absolutely no need for us to come in. But there are areas where we actually find that teams are not building and it actually needs institutions like ourselves to either come in by ourselves or in most cases pull in other like minded partners to move things forward.
I'll give you a concrete example. Let's take payments. Everybody knows that we need a real time payment solution as far as both institutional payments and retail payments are concerned. On the retail side, we found interesting projects like the Diem project, which since has folded. And we had strong conviction driven by the fact that today if I want to send money to a friend in any part be it the States be in China or in India or Indonesia, I actually cannot do it on a real time basis. I have to go through traditional banking channels. Now, obviously I can do that with crypto. But if I'm trying to go to the regulated channels, it was just not possible historically.
So we didn't reinvent the wheel, we actually backed Diem as a strategic investor. But when it comes to wholesale payments, we didn't come across any solution. So we co-created a platform called Partior, along with JP Morgan, with DBS and a number of industry participants to create a real time wholesale payments network as start. And tehnwe are going to layer on additional use cases which were not possible using traditional technology. So it's just an example of how we think about the space. So we don't really see this as differen, we just see it as what's the problem statement and how do we, as Temasek play a role in solving for some real customer needs and put capital behind it.
Angie Lau: Look, it took a lot of insight to even start a blockchain Web 3.0 investment arm in Temasek in 2018. Arguably, Singapore, very conservative. Temasek, obviously very revered, but also very conservative. So why are you opening up an investment arm in a space that at the time and I know this intimately, where everybody thought this space was over, crypto winter.
Prady Agrawal: So we you could say be conservative or you could say we are claiberated. It depends how you want to classify us. Four years back, it was a bold move. I will not take credit for that. I got it for our then senior management C-suite led by Benard, in particular who have driven that effort and asked us to sort of nudge into this area. Therefore, when we first started, we didn't go all in. The approach we generated in areas like this, especially in the crypto and blockchain space, was to build a deep understanding.
First, do we understand the technology? Do we have conviction? And then we slowly build our way into – we now have built five startups in the product data portability, open infrastructure space. We started by doing small investing initiatives, mainly through fund structures. And as we found projects of interest and actually saw real innovation, we've now stepped up to saying a pretty broad fund investment portfolio, but also direct investing.
Angie Lau: So you started out funding funds, was there one startup that you remember going, “oh my gosh, we're so lucky, we that was one of our first and now it's this’. What would that be?
Prady Agrawal:Yeah. So we usually don't talk about the underlying fund investments but I mean I've maybe called out a couple of interesting projects are.
Angie Lau: Sure.
Prady Agrawal:So suddenly there was a big amount of news flow around NBA top shots. And it was interesting because for the first time you had seen the evolution of something like the CryptoKitties into something more mainstream and useful. And that was the first incident of NFTs, non-fungible tokens, which really came into play. One of the funds had exposure to the Flow Protocol, which is the underlying protocol which was a right that equally became across projects which was solving for wallets. A lot of the issues are today around key infrastructure.
If I'm holding digital assets, what happens if I lose the key as a consumer? So we found, for example, an Israeli company which has been focusing on how do I create a keyless wallet infrastructure and so on and so forth. So real world problems, really interesting, scalable infrastructure. And then of course, blooming of applications. So it's been fascinating, I mean, we're very clear. We don't want to be head in the sand just in the few ideas that we believe in and are executing against. But we are able to see now a very wide range of interesting opportunities. In fact, I think the the key thing for us on the end is how do we prioritize that time? Yeah, because in this space you could almost be like a kid in a candy store. There's so much happening that you could kind of look here, look there, and there's a lot of opportunity.
Angie Lau: But sometimes they forget that you are the managing director of blockchain investments in Temasek because you are creating companies and businesses. And so you're kind of like putting on your different hat as a startup founder almost.
Prady Agrawal: Yeah, we're just having fun. I'm just having fun while the rest of the firm pays the bills.
Angie Lau: So you've done everything from, make sure HR is happy and your staff is happy to, tell us some more stories here.
Prady Agrawal: Yeah. So that's a we we've taken a very different path where we've essentially said we want to build businesses in white spaces. In doing so, I've done everything from actually picking office space to opening bank accounts to date, uh, authorizing transactions, going into my bank account, had situations where someone said, if you don't get, you know, uh, part of your software up and running in the next 30 minutes, we're going to sort of withdraw contract and all sorts of situations. It's great fun.
It's, it's also great for us to look under the hood and really see what it takes to build these amazing businesses. And most people only look at the successful outcomes. Yeah, and it's been fascinating, but most importantly, it's been amazing working with some of the best talent who have coalesced around these really difficult problem statements that you've taken everything from movement of money to organize in capital markets to help in the data portability. These are really difficult problem statements and the kind of talent that's come together to solve these problems. Just being an absolute riot and all of these are COVID babies.
Angie Lau: They are Covid babies.
Prady Agrawal: All come up on Zoom calls. And in many instances, people have recently not even met each other. So it's fascinating what the human spirit can achieve and what's actually possible and. A good mix of talent and orientation.
Angie Lau: I mean, in this way, we've experienced that ourselves. 2020 was such an accelerator for this space and truly a disruptor. But I would say that not necessarily the people already participating in this space, but everybody else who wasn't and realized, oh, wait a second. I got to get there really fast. And that was the accelerator.
Prady Agrawal: Most certainly and it's been fascinating to see certain trends accelerated pace, which have not been possible in the last two years. There's so many variables that have changed, so many assumptions that you are making as a given. For so many years have just been thrown out of the window and it's be interesting to see what happens in the next few years as hopefully the world normalizes. I hope we don't go back into a little bit of a status quo.
Angie Lau: So if somebody were to look at the venture space, the VC space, the investment space, what are you doing that they should be doing as well in terms of you've been in this space for a while, the things that you have learned that are new, that are innovative. That is game changer for you. What is it best practice that you you can kind of share?
Prady Agrawal: What I would share by way of observation is, the pace of innovation now, none of us can keep up. Basically, it is becoming truly distributed and I don't mean this in a crypto context only. There is this newfound confidence not just in the valley, but in entrepreneurs talent on a global basis. Therefore, I guess one thing we are doing as a fund is, very, very focused on staying up to speed on trends on a sector agnostic basis. I started by talking about us taking a horizontal view increasingly. And then really figuring out that how do we adjust our strategies in order to gain exposure? I mean, fundamentally as a capex provider, we have to direct our capital in the most efficient and impactful manner possible.
A few years back when we started talking about sustainability, I would say included, there was some degree of skepticism internally as to why are we talking so much about sustainability? Is this lip service? The passage of time you've come to realize that it is goes beyond just investing in a particular opportunity actually is an existential risk to our portfolio. And if you don't take the right steps, just purely being economic minded, leaving aside the need to make contributions to society, we will fall behind.
If you don't understand and act on the need for climate change and sustainability, so this applies across any number of areas. So I would put our activities in blockchain and crypto in that context of making sure that we are acting with both humility and awareness on what's happening around us and then making sure we have the right exposure and contributing in the best way possible.
Angie Lau: Capital allocation ratio of your portfoli, it is close to $400 billion right now. Your net portfolio, how much of that is bet in blockchain and crypto?
Prady Agrawal: We actually don't do top down allocations irrespective of which what horizontal or geography. We let the portfolio develop over a period of time. What I would say today is that it's not a very large component of our portfolio, simply because it's a relatively new area. Over time, we are committed to continue making investments in the space and grow along with the companies and the partners. It's one of the most promising areas and it's definitely getting a lot of attention from within the firm. And we will continue to grow both the venture building side of our business as we hopefully deliver more and more successful outcomes as well as the investing side.
Angie Lau: And word on the street is that you are also buying Bitcoin.
Prady Agrawal: So it is one of those, um, misinformation which we have chosen not to comment on because I don't think it was part of the mainstream media. We don't comment on our direct investing activities. We are very focused on backing the best projects. That's really where we are spending a lot of time and activity today. Today Temsek does not own Bitcoin, since you asked me this very pointed question, but that is not a statement on whether we like Bitcoin or whether we want to own Bitcoin or not. I mean, that is just a factual statement of fact for today. Where we are very, very focused is looking at which are the emerging protocols, where is the utility that is central to all of our activity.
Angie Lau: But part of that is tokenization. And a lot of protocols don't have equity they raise through tokens. So de facto you are or your funds owning crypto in some of these protocols is that that's within your realm.
Prady Agrawal: So Temasek has a flexible mandate. We can gain exposure or seek to gain exposure to areas which we think are of interest to us and will deliver appropriate risk adjusted returns. So yes, it's within our mandate to be able to own tokens, but to be able to own and hold and act on tokens, you need a completely different set of infrastructure.
Angie Lau: Yeah. I mean, you don't want to necessarily be in the Treasury management space.
Prady Agrawal: One is that, second is that is a new sort of risk that comes with owning this new form factor. And therefore we are getting ready in terms of being able to deal with tokenized assets. But I would say it would need some time to ensure that it meets our operating risk requirements and that we can do it at scale, something that we focused on. In the meantime, we're more focused right now on cracking down and supporting projects in this space.
Angie Lau: Everybody wants to know. So we understand the thinking, the experience, how you're applying this knowledge into blockchain Web 3.0 crypto bets. So what are the bets in this space? A lot of people are just really interested to hear what your future thesis is for Web 3.0.
Prady Agrawal: More than happy to share. Two broad areas coming back to the framework that we operate in. The first is in the area of building ventures. What we've been working on for the last two years, which is fairly public, is in three broad areas. I wouldn't strictly put that on the blockchain of Web 3.0. It is more around decentralization, I increasingly describe it as making the Internet we know better. It's something that a number of farmers have been working on.
The first area is just about money. How do you make money move more efficiently? How do you introduce new programmatic use cases around that use cases which are not possible using today's infrastructure? Um, an entity called Partior, which I referred to earlier in this conversation a second is in the area of capital markets. Trillions of dollars of assets with creating inefficiencies, silos, and eventually hoping to create more liquidity on this as we digitize capital market flows. So far we've had with Singapore exchange called Market Node. That one is more regionally focused initially, but it's a big opportunity in Asia as a start. And the third one, which is extremely ambitious around data portability. Think of it as helping information to travel with individuals, businesses making it verifiable. A group of companies called Affinity Good Work Astana, which are working on these problem statements in many different ways. Um, and then, now the next wave of ventures that we are dabbling in potentially creating everything from the creator economy, visions, virtual worlds. Those are very early stage thinking about it.
And you know, if you find validated opportunities, we will launch those interventions. So that's the building side of our business side.
On the investing side. I wouldn't use the word big bets that's very calibrated in our approach. We are going after big ideas. We are very focused on deepening our understanding of the protocol layer because these are really the primitives of the space on which people are building. Over time, we hope to build exposure in this area both directly and through our funds already have exposure. We've been looking at centralized financial institutions infrastructure. So we've done investments like FTX and Amber, but also access points into the infrastructure, things like consensus with Metamask and Infinera. But more broadly, looking at applications in the decentralized finance defi area, things in the NFT space. So we've looked at companies like Immutable where we are invested in, but looking at other projects which can help make these more mainstream, including gaming.
It's been one of my pet ideas for the last three years. How do you actually take a digital skin or an asset in one gaming environment and seamlessly utilize it in some other game, which is coming from a different publisher? So these are some of the concepts which are not possible today, but as projects make these things a reality, we would want to be investing in this area. So I would say that these themes are probably not unique to themselves, but these are fairly early and some very interesting work happening in the space and we're looking to get behind.
Angie Lau: You led the round for Amber, this is the this is one of the big crypto investment crypto exchange firms that are coming out of Asia. Is it a Asia bid? Is it a Singapore bet?
Prady Agrawal: So Temsaek is always operated with a global mandate. We don't anchor our activities in one particular region. Singapore's naturally home turf and so we have an advantage here, but we've globally diversify our portfolio. So the reason we've gone after investments in FDX or Amber is because we like what the management teams are building. And in most instances, these are actually regional or global businesses. Yes, of course, if something is anchored in Singapore, albeit with a contract, why would we not want innovation in our backyard? We would love to support more and more teams here. We do look at crypto and blockchain as a truly, truly global opportunity. So actually, if you look at our portfolio right now, we've got exposure from the Americas to Europe, Israel, South Asia, Southeast Asia, Greater China, Australia. We've got a pretty global coverage in terms of exposure.
Angie Lau: There's a little bit of a regulatory disconnect though when it comes to Singapore and how it regards crypto activities and how it how it regards the access for retail investors into crypto. Does that hurt some of your investments? Does that that hurt some of the growth exponential that you hope for this region and beyond?
Prady Agrawal: No, it doesn't really impact our activities. Can't really comment the government here. But what I would say is that every emerging space is going to have a lot of friction and noise around regulation. It's safe to say that most industry participants will like the regulation, but it takes time for even the authorities to really understand the underlying trend of what's happening and adjust and frame rules. I mean, I recall the early days when e-commerce and ride hailing businesses were emerging. You suddenly didn't know how to deal with these businesses. And it took some time and we had to ask ourselves the hard questions as to are these businesses breaking any laws? And the view we've always taken is that as long as there's a clear set of rules and regulations, our portfolio company should comply with them. And we hold a very high standard on that. And in areas where there are emerging rules and regulations, we're happy to work with various stakeholders to move that agenda forward. And the crypto space is still very new. It gets actually disproportionate news cycles, I would argue almost. But in many instances rules and regulations don't exist. So businesses are being built in that vacuum, and we're really confident and hopeful that regulations will develop and projects will comply with the applicable rules and regulations, something to keep track of.
Angie Lau: And finally bringing it back full circle 2018 crypto winter. And now everybody is talking about. Is this that time, the bottom of the market? How low is it going to go, in your view? Is this an exciting time? Is this a scary time? How would you see this?
Prady Agrawal: So very exciting times. I wouldn't comment on the specific events, but generally any correction when you've had such big run ups ahead. It's a generic statement that would apply across market sectors. For us, it's a very exciting time. It will give everyone breathing space, including founders, to just step back and focus on the problems they were trying to solve for creating some great companies, creating some great projects, and we are very excited. It may be a short winter, it may be a long winter. Can't really tell, but very excited by the amount of talent that's coming into the place. I just came back from a grueling trip in different parts of the world and. Was absolutely wild and amazed by what they were seeing in terms of the movement of talent in the space. And inevitably, whether it's in the region here in Singapore or Southeast Asia or globally, that means that you will see some very, very interesting work happening. So we're very excited, irrespective of price movements, if anything, actually, that could give a breather and maybe have some good sensible conversations on innovative techniques.
Angie Lau: And for everyone else who is as visionary in this space in hopes to be, it's also at a discount. And that's another view of what's happening right now. But the enormous amount of talent in this space is extraordinary, I agree.
Prady Agrawal: It's exciting and it's only the beginning, actually. If you look at the number of developers who are Web 3.0, developers are still very small. So this has a long, long runway
Angie Lau: The long the long runway is longer than both of us. So to actually be able to see the inception of what this journey could look like from your point of view, it's been fantastic. Thank you so much.
Prady Agrawal: No, thank you I really enjoyed this conversation.
Angie Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I'm Editor-in-Chief, Angie Lau. Until the next time.