Gokhan Er, Managing Director, IOSG Ventures
Hello everyone. This is Gokhan, Managing director at IOSC. I’ve been with the firm since 2020. It’s a pleasure to welcome you all today to our event at the 14th OFR. As you guys know, this week is DEVCON. It’s all about Ethereum. We picked Ethereum and the future of Ethereum as our main theme as well. In today’s talk, I’m going to briefly walk you guys through an overview of our Ethereum investment. IOSG has been a big supporter of Ethereum since the early days. We are one of the also biggest investors, and early masters in the Ethereum ecosystem and L2s overall. And I’d like to just walk you through and give you guys an idea about what we think is the recent overview of the Ethereum ecosystem.
Yeah, first of all, so there are a couple of things about IOSG you guys should know. We are a research-driven, early-stage venture capital investing in the space since 2017. There are a couple of principles that we are proud of. We are proud of these things and Research Driven is one of the first, to this date, IOSG has published more than 150 research reports in Chinese and in English and you guys can access all of these reports on the Internet. We are an early-stage investment firm. More than 60, 70% of our investments are at the seed and pre-seed stages. Based on the research that we’re doing we’re trying to come up with a proven thesis and so far our thesis has played out in the industry and then IOSG is global from day one.
We have a couple of offices in the world in Hong Kong, Singapore, and New York. We got a couple of team members investing and then about the portfolio. We have more than 100 portfolios at IOSG at this point. Around 60% of them are based in the US. We got 25, 30% in Europe, in Israel and the remaining is from the Greater Asia region. So like wherever you are, if you’re doing something in crypto, something core, we’re more than happy to talk to you guys.
Moving forward I think to start with, we believe that Ethereum is the way forward Ethereum has been making the best innovation and longer-term bets in the space and we believe that we’re reaching this inflection point in the industry where all the bets the technical bet Ethereum has made in the past will be playing out. First of all, I’m not sure if you guys, I’m sure you’re following Twitter but then recently there was a big discussion about like what is the North Star of Ethereum ecosystem. Actually, Vitalik has mentioned this a couple of times but we believe that being censorship-resistant, building a permissionless ecosystem for dapps and assets, although that sounds very simple, is basically the main North Star of the Ethereum ecosystem overall and there’s no other project closer to reaching this goal other than Ethereum itself.
We believe that Ethereum as it is doing now should just double down on basically providing an abundant blob space for the L2s. Building on top and lowering the fees is the key to Ethereum’s future success. There are a couple of discussions happening on the Internet where you know, shall we focus on scaling L1 versus the L2s? Shall we follow the roadmap of rollups? Are they beneficial or parasitic to Ethereum L1 we think that Ethereum as an ecosystem has the capacity to do all this research all at the same time? And then we should just stick to what we put forward last four or five years basically a rollup-centric roadmap. Moving forward. I just like to give a brief overview of what happened basically after the Ethereum ICO white paper. 2017 was the first sort of product market for Ethereum.
It became a platform for token issuance. Moving forward in 2020 we have actually found our first strong use case. That was a defi where we actually brought some value to real-world use cases. And quickly we realized Ethereum L1 was not scalable. Right? There were high fees. If you guys remember back in the day, people were paying $200 only for transaction fees to issue NFTs on Ethereum. It quickly became clear Ethereum L1 was not going to scale. And there were a lot of alternative L1 narratives emerging at that time. Solana, Avalanche, and all the other L1s came into space and they got a lot of audience in the space. And then you know, like Solana started capturing many of these emerging use cases, including the meme token trading, et cetera while Ethereum was scaling.
Now that we have L2s and L2s are improving very fast, they’re reaching to scale of scalability that I’m going to talk about. And what’s going to happen after this? Like is it too late for L2s? What’s going to happen? Just before that, I think I want to emphasize that speculation is still one of the main use cases of our industry and people will speculate with or without Ethereum prioritizing different use cases. Yes, we have ideals and we’re, you know, like want to bring some real value to the world. But then a trading volume is a trading volume and blockchains are just ledgers for trading. So we believe that speculation is still one of the important use cases. And then Ethereum should also be the place where people speculate if this is what they want to do.
One of the things is, while Ethereum was just providing these like high fees, low transaction volumes and TPS, one of the reasons all these alt ones have taken over is basically they scale faster. Although they made some of the sacrifices on the decentralization, we now know that there are so many L2s that are launching. I’m not sure how much you guys are following on that space. But then last four or five years tech providers like Arbitrum Optimism, have been actually working on this L2 technology, and actually Just starting from last year, we started the first fruits of this roadmap: Optimism Mainnet launched Arbitrum Mainnet launch. And then right now, actually if you look at it, one of the largest centralized exchanges in the world, Coinbase has its own L2 on Ethereum, Kraken, and Gemini, those exchanges are also interested in building L2s on Ethereum.
So we believe that it used to be the case that it was Ethereum versus all the alternative L1s, but now you have a bunch of L2s building on Ethereum, and all of them are actually world-class teams. They’re now going after the cake of the old alternative L1s. And I think this is a super important point that just started playing out this year and this is going to change the whole landscape of the space in our opinion. And what happens is all these L2s are establishing the BD front end for Ethereum. So Ethereum L1 core developers can do whatever they want to do to scale L1 itself. But on the L2 space, you’re going to have all these different chains with different niches. Some of them are focusing on gaming, some others focusing on deep in, et cetera.
They’re going to go after their own market and try to be the best in their niche markets. Another data point on the emerging L2 ecosystem, L2s are very easy to spin out instead if you want to build your own L1. And they’re also much easier to be profitable. Basically, this one is from the token terminal. If you look at it, Base is actually profitable from day one. Compare this to what Bitcoin, Ethereum, and Solana did. Basically just issues tokens through inflation. All these chains would have to just give free tokens, which is actually a cost to the token holders themselves. L2s are much easier to spin out, much easier to customize, and much easier to control. Like if you want to have a basically KYC L2, feel free to go and do that.
It’s a different design space and you might actually get your own users through doing that. So this customization is a super key thing and we already started seeing this new business model emerging on the Ethereum L2 part. Maybe another thing that we’re discussing is L2s, are they going to decentralize? Most of the L2s at this point are actually centralized. My opinion is that all L2s are either going to be centralized or based means decentralized like they’re using the Ethereum’s. Well later set the middle way won’t get any traction. And in my opinion, again, I think it’s a great strength. If an L2 wants to be completely centralized, let them be like these trade-offs are going to be very open to the public.
And as they centralize, actually this is our best bet in terms of bidding all the more centralized L1s out there. Base, if they keep centralized. If they bring their block sizes up to 1 gigabyte, this gives them 10k TPS on Ethereum as an L2, which is a number many of the other L1s and L2s are not able to reach, by the way. So we think if an L2 wants to be decentralized, that’s completely fine, but then you’re going to have other L2s in the space that might want to be the extension of Ethereum L1’s culture. So Aztec is a great example, another of our portfolio. Basically what they’re building is they want to build a Privacy Preserving, permissionless L2 on Ethereum. It is going to have almost the same features as Ethereum L1 and it’s going to be managed by L1 validators.
So this is all to say that all the L2s will have different design choices and that is completely fine. And that is simply by the nature of how the L2 roadmap is playing out. And just a quick number too. Two years ago Ethereum had only 15 TPS, 15 transactions per second. Thanks to the L2 roadmap, we have 250 TPS at this moment happening overall in the Ethereum ecosystem. That is already a huge scalability. And this is just the beginning. As I mentioned before, also wanted to talk about some specific like other production innovations in the L2 space. Like all these top teams from the world. Now they’re coming and improving upon Ethereum infrastructure which then becomes open source so all the other teams in the space can come and use it without paying any fee if they want to.
Worldcoin, you guys probably heard of it. Basically, Sam Altman’s project doing a ZK DID projects in the Space Identity program. They have this chain where they’re going to prioritize human transactions and they’re going to extract MEV from the bots to pay the transaction fees of the humans. This is a very interesting design and that is possible only on Ethereum as an L2 at this point. If they wanted to build their own L1 that would be a completely different game. It would take much longer to deliver something like that. Unichain. As you guys know, this was announced two weeks ago. They’re aiming for sub sub-second 200 millisecond transaction time and MEV is going to be distributed back to users and dapps, based on scaling up to 1 gigabyte of the block size.
Arbitrum has extended the development language to C and Rust. Aztec is bringing Privacy Stack where ZK is scaling through ZK technology. So all these are happening on Ethereum, it just takes some time. It took some time and you know there’s a cost that you have to pay. But then these are now coming into production and that is the reason that we’re super excited about the ecosystem overall. One another common criticism of the Ethereum ecosystem is fragmentation. Like you’re going to have all these L2s, how are you going to solve the fragmentation issue? There are many projects that are trying to solve that and we have high confidence it’s going to be sold one way or another.
But then also we just want to remind people that we’re entering into this new paradigm where it might not be the users who are the main users, it might not be the humans who are the main users of these blockchains. Many of the transactions are going to be managed by agents and making a transaction through different chains, bridging your asset. For humans that might be difficult. For bots and agents, it’s not going to be so difficult. That is an ongoing change that is happening in the space and we believe fragmentation might not be as big of an issue. Even if the existing projects don’t solve, it’s going to be less of an issue for the agents and the coming near AGI paradigm, that’s super important in our view and that also is beneficial for what Ethereum is doing overall.
One thing though, Ethereum, Vitalik is emphasizing that a lot. So Ethereum L1 is the underlying layer of all these L2s. So there’s only one criterion that all the rollups have to follow. That is whichever rollup you’re using, you should be able to permissionlessly withdraw your assets to the Ethereum L1 whenever you want to. Like any rollup, they cannot withhold your assets, they cannot prevent you from withdrawing your assets back to L1. That is the main principle underlying the whole rollup roadmap. Vitalik said that he’s going to be criticizing publicly the projects that are not following this. We believe that this is a core principle as well and everybody should adhere to it. And once that happens, what happens to Ethereum L1?
So basically the main thesis is that Ethereum L1 will still and always be the most permissionless, decentralized L1 out there. And the users, whales, whoever they might be, will jump on different L2s for different use cases. But they will always know that if something goes wrong, they can permissionlessly get Back to Ethereum L1 and ETH as a native asset of this permissionless network must accrue some value that might be in the form of money, it might be in the form of a different mental model. But this is a shift that is happening in the space at this point.
Finally, regarding the long-term role just want to emphasize that if you want to scale any blockchain, that is the way, the only way you scale blockchains to really good TPS, you just have to have this rollup eccentric roadmap and this is going to all the other alternative L1s one day or another they will have to adapt to this as well. So Ethereum right now is just opening the way. But then all the other L1s are going to face the same problem at some point as Ethereum L2s. The thesis will play out all these different BD plays on the L2s, they attract some users application. We believe that Ethereum L1 as the main enabler of this technology will still stand there and then eat the assets will actually accrue value as well moving forward.
So this is the idea, we believe that all the roadmap that we put forward in the last couple of years, all the investments now it just started playing out and we’re at an inflection point in the Ethereum ecosystem where the results will play out. So this is our main thesis regarding Ethereum. Happy to chat if you guys have any ideas or any objections. But yeah, that’s all from my side. Thank you guys.
