From 700,000 to 4 billion dollars, how did South Korea's leading crypto venture capital firm Hashed come to be?

Source: The Block Podcast

Compiled by: TechFlow

Do you know Hashed?

In terms of the crypto industry, its reputation in the VC circle may not be as prominent as a16z or Paradigm, but when it comes to growth, few can rival it.

Hashed was founded in 2017 when four engineers from South Korea spontaneously raised $700,000 for crypto investments. Five years later, after more than 150 investments, their assets under management total over $4 billion, and they have no external LPs.

Compared to high-profile VCs like a16z or Paradigm, Hashed is a bootstrap success story, growing from the ground up.

How did they achieve such rapid growth? In just five years, from $700,000 to $4 billion, how was Hashed forged?

This article is based on an interview from The Block podcast "The Scoop," where Hashed partner Baek Kim and host Frank Chaparro discuss how Hashed is shaping the future of crypto gaming, compiled by TechFlow volunteers.

Summary

1. Recently, a lot of capital has been crossing borders in search of better environments. Hashed chose to go to places where excellent founders often emerge, such as Southeast Asia and San Francisco, where they saw a lot of grassroots talent development.

2. Hashed has two major investment directions: one is decentralized stablecoins, and the other is gaming and the metaverse. After investing in Axie Infinity, they began to explore how crypto technology could reshape the Southeast Asian market and emerging markets, and change people's lives. They saw the inherent vision of how the metaverse and gaming could help solve problems.

3. The first game produced by the Asian metaverse studio acquired by Hashed is "The League of Kingdoms," launched on Terra, which has already secured investments from firms like Sequoia Capital. Kim believes that the fun of the game is very important, but currently, it hasn't received enough discussion; only real fun can bring about a lasting positive feedback loop.

4. Kim believes that Hashed may represent an evolutionary direction for VCs—becoming their own DAO. Hashed operates capital without LPs, which is a form of governance and an index of portfolio assets, allowing them to focus on what is most beneficial for long-term growth.

5. Regarding the sustainable development of games, Kim believes it depends on game content, which presents a unique opportunity to create original IP. This can be seen in Axie and other companies, which started from scratch without any distribution channels but grew from the community.

6. Kim has been thinking about how to create an economic model that encourages people to engage in certain account or identity activities. Builders should care enough about these identities and also focus on incentives or design new features around this user behavior. Solving this issue would also address the problem of identity privacy.

7. Regarding bridges, Kim believes that only when each "city" becomes attractive enough will it attract builders to construct highways to connect these cities, as the demand for back-and-forth travel will be significant at that time. The current bridge experience is quite limited and mainly exists at the asset certification layer, rather than the actual user experience.

8. The construction of token models and token governance is also a direction of thought for Hashed. Many new products are replicating the same token model, and Kim hopes to launch a model that is easy to understand, helping users focus on real fun, thereby deeply experiencing a part of the game and the metaverse itself.

9. How to bring the metaverse into daily life? Kim believes this needs to be event-driven, such as attending VR concerts, galleries, etc. Seamlessly switching between different metaverses and real life is what Kim and his team care about more. How to use this economy as another form of economic activity or social income, Kim believes Web3 is a very important foundational tool.

10. Regarding why to invest in crypto games, Kim stated that the largest digital economy is obviously gaming and esports. Gaming is the largest and fastest-growing economy, which may also be a crypto market that can be adopted on a large scale. Teams like Axie and Sandbox that are seriously building games and IP, rather than focusing on monetizing them through crypto, are really cool.

11. Kim believes their biggest mistake was being conservative in Layer 1 investments. Now, Kim is investing in and participating in different Layer 1 ecosystems to support new early founders building in these different new Layer 1s.

12. Kim and his team are actively collaborating with the South Korean government and look forward to seeing new leaders propose more concrete plans. Since 2018, South Korea has had the opportunity to become the next crypto hub, but has been affected by the government's negative sentiment. Kim has been working to implement some ideas into mainstream industries; the crypto wave is unstoppable.

Here is the full dialogue:

Frank: I’m Frank, the news director at The Block, thank you for tuning in. Today we have a guest, Kim, who is a partner at The Hash Block. Although we met recently at our office in New York, I still invited him to the show, hoping to give me a chance to play host. I’m glad you could come; I think you’ve received some very great innovation awards because I believe you are one of the best venture capital firms, and it’s really hard to believe how you’ve done it.

Kim: Frank, thank you for the invitation. Maybe it’s because we are one of the few VCs that invested in Web3 early on.

Frank: As far as I know, you mainly work in Asia, and your headquarters is in California. What does your daily work routine look like? Are you traveling all the time? Recently, we’ve had many VCs on the show, but the topics discussed have been quite different. Some talk about the metaverse, some about NFTs, and others about different Layer 1s. Perhaps the upcoming conversation will be about the mysterious Eastern scenery.

Kim: Yes, we have been investing in this field for the past five years and often travel. Now we have funded over 100 founders, about 65% of whom are in Asia, and the other half mainly in the U.S. We try to integrate locally and experience the growth from 0 to 1 with the founders so that we can truly understand the local market. This way, we can help them understand their target audience and what kind of Web3 business models can really work in these regions.

Kim: Recently, a lot of capital has been crossing borders, some from Asia to the West, and many funds have gone to different jurisdictions like Puerto Rico. Now we are reversing that trend; we go to where founders emerge. We believe these people will appear in Southeast Asia and San Francisco. We have expanded our team in Bangalore, India, to four people, three in Singapore, most of the team in Korea, and other team members in the U.S. We have seen a lot of grassroots talent development, which I love. Many of them, although they don’t have papers or investments from well-known institutions or VCs, have become new founders, which is very vibrant.

Frank: I don’t think it’s wrong for capital to go to Puerto Rico, because maybe that’s my next step, haha. I want to understand the scale and scope of the company. You mentioned that you have invested in over 100 projects; how do you invest? And what is their range?

Kim: Regarding our structure, it’s really interesting; we studied this issue five years ago. We really didn’t know why we wanted to do VC or how to build a portfolio. All four initial partners of our fund have backgrounds in software engineering and computer science. We just wanted to help the founders we selected not lose their way in Web3.

To be frank, starting to do something with crypto technology in 2016 and 2017 was quite scary because you couldn’t even tell who was legitimate and who was fraudulent. So it became especially important for us to help project founders get started, and fortunately, we knew two powerful Web2 founders.

Our first investment was in 2017 in Terra Money. We helped realize their project design and assisted them in raising funds, and now they have grown into the largest decentralized stablecoin.

Kim: We have two major investment directions: one is decentralized stablecoins, and the other is gaming and the metaverse. Our first investment in gaming was in Axie Infinity in 2018; at that time, we were their first advisor. We met them in Ho Chi Minh City, Vietnam, where we tried to understand more about how crypto technology could become easier and change people's lifestyles in Southeast Asia and emerging markets. This was before the emergence of SLP and Play2Earn economics, but since then, we have truly seen the inherent vision of how the metaverse and gaming could help solve problems.

So soon, as you mentioned, we have invested in over 100 founders globally, and without any LPs, our funds have grown to over $4 billion in crypto assets, so we still own 100% of the fund.

Now we can fully control liquidity to support our founders, whether it’s running governance or providing the best experience for retail investors. We have now acquired an Asian gaming studio from top public companies; it is a metaverse studio and also our subsidiary.

Our team has now grown to about 80 people, mostly engineers and designers, who build games on existing public chains like Terra, Solana, Polygon, and ETH. The first game they launched is "The League of Kingdoms," which is one of the fastest-growing games. They just raised funds from a16z Crypto and Sequoia Capital. This is the first game launched on Terra and was built with funds raised from top gaming funds in the U.S. We are working hard to establish a positive feedback loop to make this game the first to provide fun and liquidity governance, and be able to run sustainably on that basis. I believe the fun of the game is very important and interesting, but it hasn’t received enough discussion; only real fun can bring about a lasting positive feedback loop.

Frank: Let’s look back at the journey from $700,000 to $4 billion. While you are not the only VC to achieve high growth, this increase is quite impressive, especially when I think about some funds I was introduced to in 2017 and 2016 that now only have a few million dollars in scale. I’m even more shocked by your scale growth. I agree with what you said about the positive feedback loop supporting the market; nowadays, everyone is worried about the bear market, but you are reinvesting the money earned by these large funds back into the ecosystem. I think this is a very long-term approach that helps support the market's long-term stability.

Kim: You’re right. Sometimes, we even think of ourselves as an evolutionary direction for VCs, like becoming our own DAO, because we operate our capital without LPs. This is a form of governance and an index of our portfolio assets, and how we utilize this means a lot of responsibility, so we can actually focus on what is most beneficial for long-term growth. I think our fun is being able to not liquidate all of Terra LUNA, even when it touched a few cents during the last bear market. We believe in the vision of growing together, thus continuing to run Validators and building the future of crypto on that basis.

Frank: Your team now has 80 people, including engineers and perhaps other professional designers and community managers. How did you get into this crypto space? You mentioned you don’t have a relevant entrepreneurial background, but now you are also starting to invest in games. How did you build something like this and make it so successful that Sequoia and a16z came to visit you?

Kim: I think we are lucky; all of us are founders and builders, and this is also our first investment. We are fortunate to work with the right founders in the right places, and we are very proud of that.

We realized that there are too many gaps in this industry, and we didn’t want to just wait as ambassadors for founders to solve these problems; we wanted to do more and practice in a way that truly builds products. There are engineers within our fund; most of the engineers in the fund are building internal systems or trading systems or counting systems, but we thought we could do more by having engineers internally. Then we started thinking about how to create career development opportunities for these engineers because they joined a fund. Because I was also an engineer, many of us are engineers, when smart engineers come together instead of being alone, they thrive and can do many different special projects.

Kim: Sustainability is something we care about a lot in crypto because there are always cycles of bull and bear markets. During bear markets, a lot of activity disappears, and then many exciting things emerge in bull markets. But as a studio that is also a fund, we want to continue building and adding value during bear markets.

We believe that a metaverse-style star studio will be the best structure, where we can plan a long-term vision independent of our investment tools. So our studio has its own CEO, its own corporate development community, and engineers and designers to develop products. They have been hiring in a very organized manner, and this number has grown to 80, which has become quite sustainable.

Frank: To be precise, when we think about crypto games, we often talk about one thing, which is the game cycle. You have incentives to bring people into the game, but these incentives are not always sustainable, right? We have seen this in Axie Infinity and many other games. How do you create the power of sustainability so that people remain engaged in the movement long-term?

Kim: I think it really depends on the game content. I believe the current growth of crypto and Web3 presents a very unique opportunity for our generation. This is a unique opportunity to create original IP. Because when we look back at the most successful stories in history, there is always original content and original information. There is always a Disney-type imitation, but they have never ranked first in a new category; this is new intellectual property. I think this is what we see in Axie and other companies; they started from nothing, without any distribution channels, but they grew from the community, so this is what we as investors and builders are looking for.

After this opportunity, we can truly create sustainable community growth, and we can think about what can keep the community engaged. What happens to the NFT community if there is an oversupply of NFTs, and there is no utility support or new content support? This is what we are looking for, and it is also the driving force that motivates our founders to genuinely care about becoming sustainable games or NFT communities.

Frank: How much time do you spend playing "The League of Kingdoms"? Do you spend a lot of time playing it?

Kim: Not really. This is also an interesting thing; I can hang out in the Discord channel and then play the game. I think this is the uniqueness of crypto games; even for Axie, we, as early investors, are part of the game’s development, but in reality, I am a passionate gamer. I find more fun in discussing my Axie and the game in the community rather than actually playing the game. I think the next step for this community is how to maintain our position in the industry.

Frank: That is indeed a very interesting thing. It’s clear that we have talked about some of the games you are making in this studio, as well as some other trends affecting the VC market, such as Web3 and the metaverse. Where do you want to place your bets?

Kim: As you mentioned, the metaverse plan is a big part of it, and another aspect is the related infrastructure, such as Web3 infrastructure, especially infrastructure related to identity privacy at scale.

The reason I care about identity is that when I act as an APM for certain projects or protocols, my IP address may be leaked. The problem doesn’t stop there; sometimes, some users actually use multiple different wallets to engage with the same protocol or different strategies. For example, like uidx, you might have different accounts in different wallets playing different projects. For instance, in dydx, you can do different leverage or risk modeling. So when these accounts leave, how do you know if they really left or just changed wallets? Or are they just consolidating a strategist's wallet? So this is an interesting question.

I think this hinders some builders from better understanding our customers. One of the methods I have been thinking about is how we can create an economic model that encourages people to take action in certain accounts or identities. We care enough about these identities, and as builders, we can also focus on incentives or design new features around this user behavior. I believe that when this issue is resolved, we will truly understand what privacy means for the crypto industry.

In the past 45 years, there have been many grand discussions about privacy in this industry, but nothing has really worked. I think the reason is that it is either completely private or not private at all. If we figure this out, it actually helps solve problems in gaming, which in turn provides a better user experience for end-users, creating more engaging games.

Frank: The interesting thing you mentioned is that if you have this core entity, i.e., virtual reality or virtual reality games, right? It creates all these downstreams, and the economic growth flywheel comes from this core thing. So if you have a good metaverse game, but for it to succeed, you need privacy tools, better design, and better social tools. It will almost create this independent economy, right? This will be parallel to the real world. How do you see the development of this economy?

Kim: I think we are seeing early signs of it. We are starting to see people in virtual reality spaces having net worth greater than what they have in real life, or in real life, they don’t have real bank support but do through crypto tools. In this shift, we are trying to focus on how to bring the metaverse into daily life, because when you see virtual reality or any kind of virtual reality or so-called experiences, it is event-driven. What I mean is people go to VR to see certain concerts, or people go to this virtual reality space to see a specific gallery, or people continue to send money to participate in some initiative that a project or brand is doing, or to see Snoopy. All of this is great; we do this in life too, right?

Because we go to different cities to watch certain specific content, but when entering the metaverse, we care more about how we can seamlessly switch? As you mentioned, how to use this economy as another form of economic activity or social income, I think Web3 is indeed a significant foundational tool in this process.

Frank: So, which companies do you see breaking the barriers between metaverses?

Kim: Nowadays, we can see that there are not many projects specifically targeting bridges, but I think the main reason is that for different cities to connect, each city must become attractive enough to attract builders to construct highways to connect these cities, as the demand for back-and-forth travel will be significant at that time. Now is the stage where we start building our problems. If you look at SandBox, it is still mainly an empty land with speculative investment activities. We are only seeing it collaborate with brands and gaming studios to gain exposure on Sand to build interactive experiences. As activities on Sand increase, bridges will become increasingly important, and every builder facilitating projects will find ways to make it easier for people to participate. I think specific support will also emerge. But the current bridge experience is quite limited and mainly exists at the asset certification layer, rather than the actual user experience.

Frank: The current bridges are indeed quite clunky. It’s a bit like the early internet in the 90s; it’s not easy for the average person unless you abstract away its crypto complexity. The conventional internet is in many ways a precursor to virtual reality. What other adverse factors do you see regarding Metaverse projects or just the idea of the Metaverse itself?

Kim: Yes, another aspect we are really thinking about is these metaphysical token models. For example, thinking about how Uniswap started, I think we see the struggle for justice in this process, seeing the role of these tokens and the true meaning of governance tokens. I think the same thing is happening with gaming and Web3 issues; nowadays, many new products I see are replicating the same token model.

Then another question is how to create an effective payment method? From the case of Axie, we have seen some difficulties and limitations of this model. We are thinking about how we can truly have a simple token model? An even better structure? So that it becomes easier for people to understand the meaning of the model, allowing them to focus on real fun, thus deeply experiencing a part of the game and the metaverse itself.

Frank: Long ago, you foresaw the development of this trend, basically before anyone I know. I remember media reports that you placed a bet on Axie in 2018. What did you see at that time that others didn’t notice?

Kim: I think we are lucky; we raised the argument about gaming early in the crypto fund and chose to invest our own money in founders. This is not easy; we do this to truly drive the adoption of crypto technology. The reason we chose gaming as our second major pillar, next to decentralized stablecoins, is that it is really hard to transition from digital to offline. Why not stay in the digital age? The largest digital economy is obviously gaming and esports. Gaming is the largest and fastest-growing economy, and it is very attractive to participants. So we believe this could be a large market for crypto adoption. But in 2018 and 2019, all the games you saw in the industry were very speculative gambling-type games like "Tron: Legacy," "Batman," or "American Night." This is simply unsustainable. If I look back at what we actually got from other funds, I think we got a lot of questions, like why we should invest in gaming? Why we should invest in Axie, Sandbox? Because these teams seemed to come out of nowhere; they were not in the main target areas of the country. Gaming seemed just a small part of the crypto industry. But the Axie team and the Sandbox team are among the few who are genuinely building games and IP, rather than overly concerned about how to monetize games through crypto. I think it’s really cool to see how they have built communities over the past few years.

Frank: So what will the next few years, maybe five years, look like?

Kim: It’s hard to say. We have only been in the crypto industry for five years, and every year, even less than a quarter, unexpected events and different styles of events occur. As a fund, we want to maintain plasticity, adaptability, and rapid learning. Our main vision is to work towards the digital transition of many assets and make them tokenized. As the amount of capital and economies of scale grow in the space, the question of how we interact with it comes back to identity privacy. Today, we say there are 7 billion people globally; we could have ten times that population in virtual reality spaces, which is much larger than the population and user base we currently have as physical users. This is something you need to delve into; it actually looks like a larger and more liquid economic activity. What kind of services does a larger population need, or what kind of interactive experiences can we provide to sustain growth? This is a slight hint from future signals.

Frank: We talked about some of your successes, so what do you think your biggest mistake is?

Kim: I think our biggest mistake, from an investment perspective, is that we were more conservative in our Layer 1 investments. We wanted to be a fund focused on founders, supporting every founder in this category and working very hard to support them. We didn’t invest in multiple different Layer 1s. When we see new founders come to us, showcasing the games or applications they are developing, I wish they would directly tell us which Layer 1 we should choose; we want a clear answer. But as we see now, multi-chain is becoming quite clear. Many different new Layer 1s are providing tangible added value to the ecosystem, which is something we were too cautious about in the early stages and stayed away from. Now we are investing our funds and participating in different Layer 1 ecosystems to support new early founders building in these different new Layer 1s.

Kim: I always tell my friends, when you try to do anything in crypto, you have to become a super user. When you become a super user, you start to see the huge gaps in the industry. As you mentioned, the biggest gap as a super user is bridges. It’s a bit like everything in a city being one-way streets; you have to figure out how to really get to that point instead of making quick turns to get there. We have been very focused on this.

Frank: Let’s go back to what’s happening. In Asia, South Korea has just chosen a new, very crypto-friendly president, although he is also more conservative. Will this crypto-friendly president create ripples in the crypto world?

Kim: We have been designing and closely collaborating with the government as advisors to plan some crypto strategies, especially in terms of taxation and KYC. We achieved a significant victory two years ago by introducing TRIP into South Korean financial law, which is quite a good practical progress. But what’s really exciting is that all the candidates participating in the presidential election have a positive attitude towards crypto technology; they almost treat it as a populist proposal. Because in 2017 and 2018, South Korea was one of the fastest and largest markets for crypto software, and most adults have been exposed to the crypto space at some point. Many people made money from crypto, and many lost money; crypto is actually very important to their financial or personal lives, and this cannot be overlooked by leaders. So we look forward to seeing new leaders propose more concrete plans.

Since 2018, South Korea has been the largest market or the next crypto financial center, but the government has indeed taken a wrong sentiment, and there has been a lot of backlash. I think many governors are trying to see this again because more business opportunities pose a huge risk for companies or retail investors. We have been working with Terra, especially one of our legal and financial team members comes from the Blue House. We have been doing a lot of work to push some ideas into the mainstream crypto industry.

Kim: I believe crypto is unstoppable. In South Korea, what’s happening in the crypto gaming space is interesting; all these public gaming publishers are building their own blockchains and developing games on that basis. They are pouring all their core IP and content into building Web3, so they are really restructuring their companies to adapt to what’s happening. It’s interesting how public companies are doing this and actually issuing tokens while the government itself is still in a gray area regarding these matters. They see a huge appetite from consumers and global market opportunities, and they are just moving forward, keeping innovation happening.

Frank: So who do you think will win?

Kim: It’s not a zero-sum game because we are official advisors and are doing a lot of consulting through our studio, so we are actually co-building many of these games. We are helping them design many of these things. One thing I genuinely care about is that they don’t really mess this up because I don’t want them to miss the opportunity for the entire country or industry, just like a large gaming company launching in the wrong way would stifle everyone else’s opportunities. We just want to ensure they follow the rules of governance.