On the shoulders of a giant: How a huge state fund is nurturing Web3

Singapore investment behemoth Temasek has been in the digital asset space for several years, and it’s doubling down on its commitment, says its blockchain chief.

The capitalization of the cryptocurrency market has plummeted almost 58% over the past seven months, and digital assets have come under closer scrutiny around the world, spawning much talk of a crypto winter. But for businesses with a vision for Web3 and blockchain technology, the currently subdued state of the market presents an opportunity for reflection and innovation. 

As incongruous as it may sound to some in the crypto community, Singapore state-owned investment giant Temasek is among those enterprises.

One of Singapore’s three deep-pocketed state investment vehicles, Temasek currently manages a portfolio worth almost US$400 billion, and it is nurturing a growing interest in the crypto space, despite the sense of doom and gloom that has stalked the market in recent months.

“For us, it’s a very exciting time,” Pradyumna Agrawal, Temasek’s managing director of blockchain investments, told Forkast in an exclusive video interview. “It’ll give everyone breathing space — including founders — to just step back a little bit, focus on the problems they were trying to solve for creating some great companies, creating some great projects … So we’re very excited, irrespective of price movements, if anything actually will give a breather and maybe have some good, sensible conversations on where to take this project.” 

Temasek made its first foray into crypto in late 2018, investing in blockchain technology firm R3, while the Temasek-backed Vertex Ventures invested in crypto exchange Binance. For Temasek, blockchain technology is more than an investment opportunity — it’s the basis for new business models and a must-have for the future.

“Web3 has now become the term which is being used more commonly. But really we see this as an iteration of the internet, a move away from very centralized business models … 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’re able to see now a very wide range of interesting opportunities. In fact, I think the key thing for us from here is how we prioritize, because in this space, you could almost be like a kid in a candy store.”

Over the past three years, Temasek’s appetite for crypto has only grown. In February, it led a US$200 million funding round for Amber Group, boosting the digital asset trading, product and infrastructure firm’s valuation to US$3 billion. And beyond direct and indirect investment, Temasek has been hands-on with blockchain technology. In 2021, with DBS Bank and JPMorgan, it co-created Partior, an open blockchain-based clearing and settlement platform for real-time wholesale payments.

Accordingly, Agrawal’s vision is that Temasek’s interest in Web3 should continue involving more than investment, and include incubating big ideas that will disrupt industries. 

“We don’t really see this as different. We just see it as a ‘what’s the problem’ statement, and how do we, as Temasek, play a role in solving some real customer needs and put our capital behind it? … So, we’ve gone beyond simply being investors. We’ve actually been building ventures.”

The fact remains, however, that as a state-owned enterprise, Temasek’s engagement with the crypto economy requires great caution and scrupulous attention to regulatory clarity. Watch Agrawal’s full interview with Forkast Editor-in-Chief Angie Lau to learn more about how Temasek is navigating the crypto universe, how Singapore’s tightening regulatory oversight may affect the crypto industry, and what changes Web3 might bring to the economy.

Highlights

  • Getting hands-on in Web3: “So we’ve been focusing for the last four to five years on areas like AI, blockchain, cybersecurity … 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, Web3 has now become the term which is being used more commonly. But really we see this as an iteration of the internet, a move away from very centralized business models … So, we’ve gone beyond simply being investors. We’ve actually been building ventures.”
  • Disrupting finance: “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 of the world … 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 regulated channels, it was just not possible historically … (So) we actually backed Diem as a strategic investor.” 
  • Strategic approach: “When we first started, we didn’t go all in. The approach we generally take 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. We’ve now built five startups in the broader data portability, open infrastructure space. We started by doing small investing initially, mainly through fund structures. And as we found projects of interest and actually saw real innovation, we’ve now stepped up to … a pretty broad fund investment portfolio, but also direct investing.”
  • Winter as a window: “For us, (the current moment is) a very exciting time. It’ll give everyone breathing space — including founders — to just step back a little bit, focus on the problems they were trying to solve for creating some great companies, creating some great projects … It may be a short-lived winter, it may be a long winter, I can’t really tell, but (we’re) very excited by the amount of talent that’s coming into the place … And, inevitably — whether it’s in the region, here in Singapore or Southeast Asia, or globally — that means that you’ll see some very, very interesting work happening.” 
  • Rules of the road: “The view we’ve always taken is that as long as there’s a clear set of rules and regulations, our portfolio companies should comply with them … 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 we keep very close track of.”

Transcript

Angie Lau: Crypto projects are a dime a dozen, but finding the right one to back is 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. I’m Editor-in-Chief Angie Lau.

Today we’re in conversation with Pradyumna Agrawal. He’s managing director of blockchain investments at Temasek, one of the three financial institutions that are backed by Singapore, 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? Prady, welcome to Word on the Block, and thank you for welcoming us to the Lion City.

Pradyumna Agrawal: Thank you for this opportunity, and welcome to Singapore.

Lau: Singapore is one of those cities that always hits above its weight class. And 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?

Agrawal: 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 applied two lenses. One is a geographical 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 that the lines are blurred. Let’s take examples like (ride-hailing services) Gojek or Grab in the region, or Airbnb more globally. It’s difficult to put that under one vertical.

We also realize the acceleration of a number of horizontal technology areas. So we’ve been focusing for the last four to five years on areas like AI, blockchain, cybersecurity. So this effort is actually part of this broader effort at Temasek to look horizontally across industries, in addition to the geographical 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, Web3 has now become the term which is being used more commonly. But really we see this as an iteration of the internet, a move away from very centralized business models — therefore, two lenses, 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. We’ve actually been building ventures.

Lau: Yeah. You’re also an incubator.

Agrawal: It’s a little bit more than an incubator. I’m happy to elaborate on 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 discussed 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.

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, that’s a different business proposition. It’s slightly different than just allocating capital to teams that you know are talented.

Agrawal: We look at ideas which we think are game changing, which we think can have massive impact. Our first focus is to see if there are existing projects or teams working on it. If projects exist, (and) teams are already working on it, we don’t want to reinvent the wheel. Either directly or through our fund partners, we’ll go and back these projects. There’s absolutely no need for us to come in and build in those areas. But there are areas where we actually find that teams are not building. 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 of the world, be it the States, or be it 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 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’ve co-created a platform called Partior, along with JPMorgan, DBS and a number of industry participants to create a real-time wholesale payments network as a start. And then we’re going to lay out additional use cases which were not possible using traditional technology. So, this is just an example of how we think about the space. So, we don’t really see this as different. We just see it as a ‘what’s the problem’ statement, and how do we, as Temasek, play a role in solving some real customer needs and put our capital behind it?

Lau: Look, it took a lot of insight to even start a blockchain, Web3 investment arm in Temasek in 2018. Arguably, Singapore is very conservative, Temasek is 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.

Agrawal: You could say we’re conservative or you could say we’re calibrated. It depends how you want to sort of classify us. Four years back, it was a bold move. I’ll not take credit for that. I called it for our then-senior management, C-suite, led by (Executive Director and Chief Executive) Dilhan (Pillay Sandrasegara) and (Deputy Chief Executive Chia) Song Hwee, 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 generally take 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. We’ve now built five startups in the broader data portability, open infrastructure space. We started by doing small investing initially, mainly through fund structures. And as we found projects of interest and actually saw real innovation, we’ve now stepped up to … a pretty broad fund investment portfolio, but also direct investing.

Lau: So you started out funding funds. Was there one startup that you remember going, ‘Oh my gosh, we’re so lucky that that was one of our first and now it’s this’? What would that be?

Agrawal: We usually don’t talk about the underlying fund investments, but I’ve maybe called out a couple of interesting projects that I came across. So, suddenly there was a big amount of news flow around NBA (U.S. National Basketball Association) Top Shot. And it was interesting, because for the first time you had seen the evolution of something like a CryptoKitties into something more mainstream and useful. And that was the first incident of NFTs Top Shots — non-fungible tokens — which really came into play. One of the funds had exposure to the Flow protocol, which is the underlying protocol which will sort of drive that.

Equally, we came across projects which were 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?’ … so on and so forth. So, real-world problems, really interesting, scalable infrastructure. And then, of course, the blooming of applications.

So it’s been fascinating. I mean, very 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’re able to see now a very wide range of interesting opportunities. In fact, I think the key thing for us from here is how we prioritize, 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 any number of opportunities.

Lau: Well, this is a very unique peek under the hood of Temasek. What exactly are they making their next big bet on in blockchain with a US$381 billion net portfolio? How much of that is going to go into crypto? Sometimes they forget that you’re the managing director of blockchain investments in Temasek, because you’re creating companies and businesses. And so you’re kind of, like, putting on your different hat as a startup founder, almost.

Agrawal: Yeah, we’re just having fun. I’m just having fun while the rest of the firm pays the bills.

Lau: So you’ve done everything from make sure HR is happy and your staff is happy to … I mean, tell us some more stories here.

Agrawal: 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, I’m authorizing transactions by going into my bank account. I’ve had situations where someone said, ‘If you don’t get part of your software up and running in the next 30 minutes, we’re going to sort of withdraw our contract,’ and all sorts of situations. It’s great fun.

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 these successful outcomes. And it’s been fascinating. But most importantly, it’s been amazing working with some of the best talents who have coalesced around these really difficult problem statements that we’ve taken. Everything from the movement of money to tokenizing capital markets to helping with data portability. These are really difficult problem statements, and the kind of talent that’s come together to solve these problems has just been an absolute ride. And all of these are Covid babies. We’ve all come up on Zoom calls and, in many instances, people have until recently not even met each other, so it’s fascinating what the human spirit can achieve and what’s actually possible with a good mix of talent and mission orientation.

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’d say that (it was) not necessarily the people already participating in this space, but everybody else who wasn’t and realized, ‘Oh, wait a second, I’ve got to get there really fast.’ And that was the accelerator.

Agrawal: Most certainly. And it’s been fascinating to see certain trends accelerated at a pace which would have not been possible in the last two years. There’s so many variables that have changed, so many assumptions that we were all making as a given for so many years have just been thrown out of the window. And it’ll 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.

Lau: 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 (the fact that) you’ve been in the space for a while, the things that you’ve learned that are new, that are innovative, that are game changers for you? What’s the best practice that you can kind of share?

Agrawal: What I would share by way of observation is the pace of innovation now — none of us can keep pace with it. It’s becoming truly distributed. And I don’t mean this in a crypto context only. There’s this newfound confidence not just in (Silicon) Valley but in entrepreneur talent on a global basis. Therefore, I guess one thing we’re doing as a firm is very, very focused on staying up to speed on trends on a sector-agnostic basis. And I started by talking about us taking a horizontal view increasingly, and then really figuring out how we adjust our strategies in order to gain exposure. I mean, fundamentally, as a capital 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 will say — me included — there was some degree of skepticism internally as to why are we talking so much about sustainability? Is this lip service? With the passage of time, we’ve come to realize that it goes beyond just investing in a particular opportunity — actually it’s an existential risk to our portfolio. And if we 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 we 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’re acting with both humility and awareness of what’s happening around us. And then, yeah, making sure we have the right exposure and contributing in the best way possible.

Lau: Capital allocation ratio of your portfolio. It’s close to US$400 billion right now, your net portfolio. How much of that is bet on blockchain and crypto?

Agrawal: We actually don’t do top-down allocations. Irrespective of which vertical, 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’re committed to continue making investments in the space and to grow along with the companies and the broader space. It’s one of the most promising areas, and it’s definitely getting a lot of attention from within the firm. And we’ll 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.

Lau: And word on the street is that you’re also buying Bitcoin.

Agrawal: So, it is one of those (pieces of) 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’re very focused on backing the best projects. That’s really where we’re spending a lot of time and activity today. Today, Temasek does not own Bitcoin, since you asked me this very pointed question. But that’s not a statement on whether we like Bitcoin or whether we want to own Bitcoin or not. I mean, that’s just a statement of fact for where we are today. Where we are very, very focused is looking at which are the emerging protocols, where the utility is. That’s central to all of our activity.

Lau: But part of that is tokenization. And a lot of protocols don’t have equity. They raise through tokens. So, de facto you or your funds owning crypto in some of these protocols — is that within your realm?

Agrawal: 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.

Lau: Yeah, I mean, you don’t want to necessarily be in the treasury management space.

Agrawal: What that (signals) is there is a new set of risks that comes with owning this new form factor. And therefore we’re getting ready in terms of being able to deal with tokenized assets. But I’d say it’ll need some time to make sure that it meets our operating risk requirements and that we can do it at scale — something we’re very focused on. In the meantime, we’re more focused right now on tracking down and supporting projects in this space.

Lau: And I want to hear more about that, where you’re placing your next big bets, where Temasek fits in this ecosystem, and where Singapore fits into this Web3 world of ours. Everybody wants to know. We understand the thinking, the experience, how you’re applying this knowledge into blockchain, Web3, crypto bets. What are the bets in this space? A lot of people are just really interested to hear what your future thesis is for Web3.

Agrawal: More than happy to share. (There are) 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 under blockchain or Web3. It’s more around decentralization. I increasingly describe it as making the internet we know better. It’s something that a number of founders have been working on. The first area is just around 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. An entity called Partior, which I referred to earlier in this conversation.

The second is in the area of capital markets. Trillions of dollars of assets with a great degree of inefficiencies, silos … and eventually hoping to create more liquidity in this as we digitize capital market flows. So, an effort we’ve had with Singapore Exchange called Marketnode. 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 Affinidi, GoodWorker, Trustana, which are working on these problem statements in many different ways.

And then, now, the next wave of ventures that we’re dabbling in, potentially creating, everything from the creator economy, musicians, virtual worlds. Those are very early-stage thinking at our end. And if we find validated opportunities, we’ll launch those into venture. So that’s the building side of our business.

On the investing side. I wouldn’t use the words ‘big bets.’ We’re fairly calibrated in our approach. We’re going after big ideas. We’re very focused on deepening our understanding of the protocol layer because these are really the primitives in the space, on which people are building. Over time, we hope to build exposure in this area both directly and through our funds. We already have exposure.

We’ve been looking at centralized financial institutions and infrastructure, so we’ve done investments like (crypto exchange) FTX, Amber (Group), but also access points into the infrastructure, things like consensus with MetaMask and Infinera and the tools. 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, which we’re invested in, but (we’re also) looking at other projects which can help make these more mainstream, including gaming. It’s been one of my bet 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 these areas.

So I’d say that these themes are probably not unique to Temasek, but these are fairly early and (there is) some very interesting work happening in the space and we’re looking to get behind these big ideas.

Lau: You led the round for Amber. This is one of the big crypto investment, crypto exchange firms coming out of Asia. Is it an Asia bid? Is it a Singapore bet?

Agrawal: Temasek has always operated with a global mandate. We don’t anchor our activities in one particular region. Singapore is naturally home turf and we have an advantage here, but we’ve globally diversified our portfolio. So, the reason we’ve gone after investments in FTX or in Amber is because we’ve liked what the management teams are building. And in most instances, these are actually regional or global businesses.

Of course, if something is anchored in Singapore, we would welcome that. Why would we not want innovation in our backyard? We’d 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 pretty global coverage in terms of exposure.

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 regards access for retail investors into crypto. Does that hurt some of your investments? Does that hurt some of the exponential growth that you hope for this region and beyond?

Agrawal: No, it doesn’t really impact our activities — can’t really comment for 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 would welcome 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 in 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 companies 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 we keep very close track of.

Lau: And finally, bringing it back full circle — 2018 crypto winter. And now everybody’s 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?

Agrawal: Very exciting times. I wouldn’t comment on specific events, but generally, any corrections when you’ve had such big run-ups are healthy. I mean, it’s a generic statement that would apply across market sectors. For us, it’s a very exciting time. It’ll give everyone breathing space — including founders — to just step back a little bit, focus on the problems they were trying to solve for creating some great companies, creating some great projects. And we’re very excited. It may be a short-lived winter, it may be a long winter, I can’t really tell, but (we’re) very excited by the amount of talent that’s coming into the place.

I just came back from a two -week trip in different parts of the world and was absolutely wowed and amazed by what we’re seeing in terms of the movement of talent into the space. And, inevitably — whether it’s in the region, here in Singapore or Southeast Asia, or globally — that means that you’ll see some very, very interesting work happening. So we’re very excited, irrespective of price movements, if anything actually will give a breather and maybe have some good, sensible conversations on where to take this project.

Lau: And for everyone else who is as visionary in this space and 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.

Agrawal: It’s exciting, and it’s only the beginning. Actually, if you look at the number of developers who are Web3 developers, it’s still very small, so this has a long, long runway.

Lau: 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.

Agrawal: Well, thank you. Really enjoyed this conversation.

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.

(Corrects name of Vertex Ventures in the story first published on June 10.)

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