Killing it softly or regulating to innovate? India at the crypto crossroads

Transcript

Angie Lau: Web 3.0 is calling. But is India — a country of almost 1.4 billion people — listening? And will its lawmakers and powers be able to understand the potential embedded in digital assets?

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. I’m Forkast Editor-in-Chief Angie Lau.

Well, today we’re in conversation with Jaynti Kanani, co-founder of Polygon, a decentralized Ethereum scaling platform that originated in India. Lots of things to discuss. Thanks for joining in, Jaynti. It’s great to have you.

Jaynti Kanani: Thank you for having me, Angie. It’s a pleasure to be here. Thank you.

Lau: Ok, let’s dive right in. There is just so much drama — can I just say drama happening in India from both an innovation angle, where you’re spearheading the incredible take up of cryptocurrency, and then you’ve got the legislators and the policymakers kind of trying to press on the brakes?

The Indian government’s recent decision to impose a 30% tax on all crypto and digital asset transfers got investors worried a little bit. Couple that with the recent regulatory uncertainty, and a lot of people are concerned that it will lead to investors and crypto talent flocking overseas, getting out of India. How do you see the crypto tax affecting Indian blockchain builders like yourself?

Kanani: The government has been working on regulations, policies on cryptocurrencies, for a while now. We’ve seen people talking about taxation, banning cryptocurrencies in India, and we have seen some drafts in parliament going through, so definitely people had been expecting some kind of regulation for a while now. Having taxation on cryptocurrencies is obviously the starting point. If you see the U.S., Singapore… every country is thinking about how to regulate this market effectively.

There are two ways to do that: either you just ban it outright, suppress the whole cryptocurrency market and don’t regulate and expand it, or the second one is you regulate it, regulate it in such a way that you actually promote innovation through cryptocurrency, because obviously cryptocurrency is a crypto/blockchain. Web 3.0 is definitely a big market, a big opportunity for the future for every technology you’ve seen so far.

So, definitely, the second point will make sense for India, because India is a big country in a way in technology. Definitely, India has the potential to become kind of a lead in cryptocurrency or blockchain, or any tech. So, the government obviously will figure it out, like how to regulate it, starting with imposing their taxation, but definitely it is a little bit concerning for everyone in crypto.

Lau: To your point, it’s a very fine line. There needs to be some regulatory imposition on a space that is growing fast and furious. But ‘How much?’ is really the question. You’re really one of the talent stories coming out of India. Polygon is one of those ideas that took shape very, very quickly. Tell us about just what you’re building at Polygon. What vision do you have for this space, and what kinds of challenges and what kinds of frustrations are you experiencing now?

Kanani: Yeah, so we started in 2017. Our goal was to scale blockchain. So, if you see the current blockchain space — Ethereum, Bitcoin, the biggest blockchains out there — it cannot scale. They have some technical challenges versus security, versus decentralization, where they’re actually lacking on the scalability part. So that’s where we come in. We scale those blockchains.

So, for example, if you want to build some protocol, some finance applications, some gaming or NFT applications on the blockchain, it will cost you a lot of money to send a transaction to maintain NFTs, or simply transfer money to one person from another person. So, we solve that problem. We make the transfer very easy, very cheap for people to use. Now, anyone can go and create their own NFTs, artists can create their own NFTs on the Polygon blockchain, for really kind of a fraction of the (price). Our goal is to scale blockchain for everyone, and if you see, like, on Polygon, we have 7,000-plus applications right now live on Polygon. We’re making 4 million transactions per day, and what it goes, like, it’s just US$0.001 to make a transaction on Polygon, so it’s very cheap, very easy, so we kind of wanted to scale this.

Lau: And I think that speed and, quite frankly, the low cost, which actually does help you scale what has fundamentally and classically been experienced by developers, is high gas fees on Ethereum, so that’s clear.

How much did India have a role to play in your ability to aggregate your team and to build that business from the people’s point of view? 

Kanani: When we started, we were struggling to get funding from India, by the way, so we went out there, we got the funding from Coinbase and Binance, which are the biggest exchanges right now in the cryptocurrency space, in the blockchain space. We talked with a few applications outside India — in Argentina, which was Decentraland, which is a metaverse platform right now. They basically agreed to build on Polygon when we launched it.

So, we had customers, we had money. Now we had a little bit less money, to be honest. We wanted to expand our team to everywhere. Currently, we have decentralized 300 people on the team, but when we started, we had very small funding. Our core center belongs to India right now. We have a few people in India building the protocol. When we started, we hired a few interns in India from colleges and trained them to build a protocol. 

We have a bunch of people from the U.S., from Serbia, from Barcelona, Spain, and, of course, Vietnam. So, all those people came together and created this protocol. So definitely, obviously, Indian people contributed to that, but I don’t want to disregard other people across the area.

Lau: Absolutely. I guess the point is that there’s an opportunity to expand Polygon in terms of talent and reach out to talents. So, when you put a 30% tax on digital assets, what does that mean for just how supportive — or not supportive — that move might be, and what the real-life implications would be for someone who works on your team in India?

Kanani: Currently, we’re not doing any kind of cryptocurrency-related transfers in India. We pay them fiat currency because we think that regulations are not supportive of crypto right now. If the government imposes the 30% tax, then definitely the tax is needed, but it also needs some kind of different rules, like where it should apply. For example, if you’re building a company out of India right now — let’s say if you start your company, your crypto, your Web 3.0 company in India, what will happen is that as founders, you get the tokens from shares from the company, and if every transfer imposes 30% on top of that, and 1% on the source, it will basically be very, very unfair for creators.

Lau: I want to hear all about what you’re building, Jaynti. It’s incredible what we have seen so far from Polygon, but there’s so much more … We talk about just the potential that you saw, how to scale Ethereum, how to get it to developers and builders, as you’ve said, and really accelerate the innovation. Well, now the institutions are coming in, and it’s almost as if they’re not waiting for regulatory clarity, either. Do you think Indian banks are likely to speed into DeFi (decentralized finance) products in 2022?

Kanani: Very unlikely, to be honest, because it’s very hard to understand DeFi products, first of all, and to understand how blockchain works — what are the tokens people are using, how it affects community-based products, how Web 2.0 is different from Web 3.0… They need to understand how all those things work.

I want to go back a few months, where RBI (the Reserve Bank of India) hadn’t banned any kinds of cryptocurrency-related transactions (involving) bank accounts, and still banks were banning and blocking the accounts of users without any notification from RBI. So, I think they will wait for the government to create the draft of the regulations before they can jump into the cryptocurrency market.

Lau:  When you take a look at what’s happening externally around the world, we’re increasingly seeing financial institutions like JP Morgan, for example, launching a metaverse branch for its customers. We’re seeing a lot of interest in the DeFi space, centralized finance, looking into DeFi and trying to figure out where the play is. There’s a lot of people looking into it. And, to your point, do you think that they’ve got the talent and the ideas that could possibly propel them into DeFi? 

Kanani: So, there are two things. For normal Web 2.0 banks, or for the legacy banking system, they have two paths for them. One is to deny cryptocurrencies — ‘they’re not going to work,’ etc. Or they just adopt cryptocurrencies and go ahead with that and adapt to them.

My point is that cryptocurrency is here to stay. Blockchain, Web 3.0 are here to stay. So either you just ignore them, like Nokia did to smartphones, or you just go ahead, like Samsung started making their own smartphones. I think they have to understand that their stubbornness won’t work in this space, because this is basically the whole revolution going on around Web 3.0 and crypto, so they have to adapt. I think JP Morgan did an amazing job where they started with the metaverse hype, and kind of started with how their bank can play a part in the metaverse. So, I think banks, financial systems should also start looking into cryptocurrency, Web 3.0, the blockchain market, otherwise, they will go out of the market very soon.

Lau: That’s absolutely right. If you can’t join them, it’s probably too late — which goes back to the talent in India, which is extraordinary. What do you think is also India’s contribution to building DeFi, to the vision that you see for decentralized finance, as it could shape the future of finance?

Kanani: India has talent, no doubt about it. We have big IT companies in India. We have many unicorns. If you see in the last year, we had 50-plus unicorns in India, so definitely India has an edge there. But India missed out the internet hype, smart-contract hype. India missed that. And I think with cryptocurrency, this is another chance for India. Why? Because this is very new. Cryptocurrency, crypto, Web 3.0 is very new for everyone in the world. People are still figuring out what the opportunities are.

And the second thing is that crypto, Web 3.0 gives everyone the same opportunity. You don’t have to come from a wealthy family or a wealthy country. You don’t need to raise billions of dollars, millions of dollars to create operation-heavy startups — nothing. You just need a laptop. You just need the internet and Twitter. You just go on Twitter, you find people, they’ll respond to you no matter where they are in the world and they can help you. So, that’s the power of the crypto, Web 3.0 world.

Lau: I want to hear more about this origin story, Jaynti. This is an incredible trajectory that we’ve been seeing … Let’s talk about Polygon here. Polygon raised about US$450 million through the private sale of your MATIC token … You’ve raised this huge chunk of money. But to your point, once upon a time, it was just an idea, a dream, a laptop and an internet connection. I want to hear about the origin story of Polygon. In your personal story, why did you see this opportunity? Why did you go for it? And how did you go about doing it?

Kanani: So, in 2017, I was in Housing.com, a previous company of mine. I was an employee there as a data scientist, and then I was also doing side projects when I was in the company. One of them was to create a betting platform for Game of Thrones. So, I’m not sure if everyone knows that nowadays, but Game of Thrones was a big hit series on HBO where after each episode, people went out there on the internet and said, ‘OK, who will die? What will happen to certain characters?’ etc.

Lau: The Red Wedding?

Kanani: Yes. So, I wanted to create a platform where people can go and bet, like small amounts of US$10, US$15, and if you win, you get the money. I wanted to create that platform, and what happened was that I wanted to integrate payment. And to do that, I need to establish the entity in a particular region, for example, in India, then I’m limited by the regulations and debating things in India. If I do it outside India, it would be very complicated, so I thought, ‘Let me look at this thing called Bitcoin, which is a global currency people are talking about, and maybe I can integrate that so anyone in the world can use my platform,’ as a side project.

So, I thought about that. I said, OK, let me look at Bitcoin, how do I integrate it?’ And then when I looked at Bitcoin, people were also discussing scalability there, and, at the same time, there were famous applications, an Ethereum blockchain game called CryptoKitties. It became a jam on the whole Ethereum blockchain. 

Lau: It nearly brought Ethereum down.

Kanani: So, I thought this was amazing technology, by the way. If you want to build something on top of that, it should scale. In late 2017, we started with the idea of scaling blockchain, and then, later, Mihailo (Bjelic) also joined our team as a co-founder, and we started the whole multi-suite of products on top of blockchain to scale in different ways where people can use different technologies to scale their applications.

So, that’s how we started Polygon, and initially it was very difficult to raise. Almost everyone rejected us, saying, ‘OK, you’re from India, you don’t know how to build products, you’ve never built products before.’ 

But I think Coinbase and Binance put a bet on us. We raised US$5 million, and yeah, I think we’re here right now for US$450 million. It’s crazy.

Lau: Well, that was a great bet, and I’m sure there are a lot of people kicking themselves that they could have been in on the ground floor and they just didn’t know talent when they saw it. As you said, you’ve raised nearly half a billion dollars now, through private sales of the MATIC Token, and the investment has now come from some of the biggest names out there. They’re chasing you. It’s Sequoia… SoftBank… You even have Shark Tank’s Kevin O’Leary buying in. So, the question is, that’s great and all, you have half a billion dollars — what are you going to do with this war chest? What are you planning to build and expand into?

Kanani: So, first of all, this is purely strategic ground. We never needed the money, because we have a token with a very high valuation, but what we needed was guidance on the next step. We are here. We started with a bit lower than what we expected, and then we reached here. But what we want is to reach the top. So, for that, what we need is support from investors, advice from investors, and now we’re seeing Web 2.0 startups, projects, companies are also moving into the Web 3.0 ecosystem, so we needed some good names who could back us when we needed support. 

And having SoftBank, Sequoia and multiple other people at our back — it makes us powerful in terms of on paper, on everywhere. I can go to some big, big companies and say, ‘OK, we’ve built this product.’ We have a bunch of people betting on us. They have also increased their confidence, in a way.

The second part is that, obviously, we’ve acquired multiple companies recently. If you see in the ZK (zero-knowledge) space, we acquired (ZK cryptography-based scaling project) Hermez to make our tech sec[urity] very solid. And for them, we’re expanding the team a lot. So, we wanted to have some money on the side to use in the bear [phase] of the cryptocurrency market. 

And the third thing is that, obviously, now we’re hiring very key positions. For example, we recently got Ryan (Sean Adams), former head of gaming at YouTube, as our Polygon Studio CEO. So, that kind of hiring needs also support from investors, backing from investors. 

Lau: What’s the best advice that you’ve gotten? And you can keep it anonymous, or you could share credit, but what’s the best advice that you’ve gotten so far from the investors that you’ve sought out for guidance and mentorship?

Kanani: Investors always give us their advice on multiple fronts, but the best advice in my life, to be honest, was given to me when I was in college. There was a hostel I was staying at, and a monk was there, and he said, ‘Aim higher.’ If you aim higher, and if you miss, this is fine, but a lower target is not acceptable at all. 

Lau: Once upon a time, we were wondering if there was going to be a protocol to rule them all. Now there’s a recognition that it’s a multichain universe, that there’s just going to be a number of protocols that are out there that are going to coexist with each other. Each has a different function. You’re talking about creating the ecosystem. Is that a little bit arrogant, or central thinking? What are your thoughts? Have you ever been accused of that?

Kanani: So, first of all, what we want is that, why are we building that … First of all, we started with a simple chain on top of Ethereum. We wanted to build only that, because it was a big target for us to do at the time, because we were small, we had limited funding, we were a newbie in crypto. So, it was a big target for us to keep it simple layer-2 solution on top of Ethereum.

And we built that, and we realized that, ‘This is OK, but this is not going to scale if you want to build or bring billions of people on top of that.’ But what we are targeting in blockchain is everything else, like finance, everything like lending, borrowing, finance, gaming, NFTs and multiple other use cases, which are not possible out of blockchain. So, we’re targeting all those things on blockchain. And if you think about very small things, like, there’s one chain that will solve everything, it won’t.

So we kept thinking about it… ‘How do we do that? How do we create a chain, multiple chain, multi-universe of blockchains which scale the need of blockchain for every application in the world?’ A little bit arrogant there. We went out of our heads, but I think that was our goal, for sure.

Lau: You’re doing a lot of investment in ZK right now. Do you think that’s the key to onboarding the next billion users, as you’ve said, to Web 3.0? What is ZK technology, zero-knowledge proof, for those sitting back right now in our metaverse, in our audience? They’re excited to learn more. 

Kanani: So, I’ll just give you an example of ZK tech. It’s a mathematical proof that you can say something is there without showing the data. For example, let’s say I transfer a bunch of money to Angie without revealing how much, without revealing to anyone else, like, how it worked, where I transported it, etc. It just proves, ‘There, OK, I’ve done that transfer,’ without revealing anything, and it’s valid. I’m not lying, we’re not lying, you’re not lying. It’s verifiable with proof on the blockchain. You can do that. So it can solve many problems. 

And why it can scale blockchain is because blockchain has many limitations. For example, if I make a transaction to you, all the nodes in the blockchain have to verify that. So, if you want to increase the volume of transactions, the system will go slower. Now with ZK, what you can do is that you can just provide a proof to everyone, everyone just verified it with it. They don’t have to verify all the transactions — they just have to verify one simple proof. That’s it, and it’s a millisecond.

Lau: I’d love to understand where you see Polygon going — why you introduced a decentralized governance structure for the protocol’s development. You’re introducing a DAO (decentralized autonomous organization), I understand. How do you see this really fueling your next stage of growth?

Kanani: There are many DAOs building on Polygon. Polygon is a platform, so you can build your own NFTs, DAOs, games, DeFi products on Polygon. Our goal is to make sure the whole project runs on the community base. People can come without us, without our permission, go and deploy on the blockchain, and that’s happening right now. 

So, whatever blockchain applications you use in the future, our target is to bring them on Polygon. 

Lau: And you’re also planning to launch Avail. Tell us about the Avail project and when it’s expected to launch.

Kanani: Well, it’s basically part of our rollup product, and we’re launching it very soon. We’re going to launch in three months. And after, we’ll test it out and then turn it into a mainnet in the next quarter or so. 

Lau: Yeah, it goes back to your DNA. Always aim higher, and from the heart, and the brain of a true data scientist, thinking and valuing. In my business, content is king, in your business, data is king, so this is absolutely part of your DNA. I truly appreciate it and I’ve thoroughly enjoyed this conversation. Jaynti. It was a pleasure to have you on Word on the Block.

Kanani: Thank you, Angie.

Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. We talk to the blockchain industry leaders, the brilliant minds that shape this emerging technology. I’m Angie Lau, Forkast Editor-in-Chief, until the next time.