Polygon founders Jaynti Kanani & Sandeep Nailwal on why Ethereum will win, and on building an AWS for Web3

 In this interview with Moneycontrol, Kanani and Nailwal spoke about the funding round, their vision for Polygon, India’s future in Web3, and why Ethereum will win against Bitcoin. Edited excerpts:

It has been a tale of two extremes for you. Initially, you did not get any VC interest but now you’ve raised a round where you have over 39 investors...

Sandeep: We had to stop at $450 million. If we wanted to, we could have raised another $200 million, but since some very good investors came in, we said ok let’s take them.

Raising this time was very easy. Of course, it took time; I mean, most of these, like Sequoia, Tiger Global, etc do their own due diligence and want to understand the overall business model and so on. We started two-three months back, and they kept getting their new companies applying to them with their slides mentioning Polygon, many of these who want to come into Web3… So, they realised that okay, there is something big happening, which they are not a part of.

 And then, once when they spoke to us, things were very clear to them about where we are headed.

 Jaynti: Before, it was different. We were new, so it was obviously hard for them to believe anything we had done at the time. But now, Polygon is a clear winner. If you see DeFi or gaming, everyone is kind of building on Polygon. It is kind of leading the whole ecosystem.

So, for them now, it’s taking the lead on this thing plus the ecosystem project. We have huge ecosystem projects building on Polygon. So, for them, there are two things, one is Polygon, and (the second is) being very close to the ecosystem projects building on Polygon. It’s a win-win for them. They will now see who all are building on Polygon, watch them, advise them and invest in them early on. It’s kind of like betting early on Internet platform companies.

 I would say raising was easy, but reaching that point was not easy. People spend a lot of time raising instead of building. We actually spent a lot of time building and raising was easy.

 If you could have raised more, why did you stop at $450 million?

Sandeep: Already there’s a certain amount of dilution that we want to do and not beyond that. Apart from that, why do we even need that much money? We just wanted to secure a 3-5 year runway, because now Polygon has 7-8 different product lines. And then we wanted to secure 3-5 years of the runway for each of those teams, plus a $100 million ecosystem fund, and then some buffer for the treasury.

That was our simple goal. And, this was already enough money, and we did not need more. But,  there are more marquee investors who are evaluating Polygon. So, we stopped because some of them might come on board. And if they do, then maybe we’ll do something more.

 So is this an ongoing round?

Sandeep: The interest is from our side. We want to work with some of these people and they have a longer due diligence process.

 The investors have essentially purchased Matic tokens right?

Sandeep: In the equity structure, whenever there is a new round, you do a new equity issue, right. In token, it doesn’t happen like that, the token supply is fixed. And then the proportion is also fixed. But, this fundraising has happened from the Polygon treasury. So Polygon Treasury tokens were allocated to some of these investors who invested in the stock. Dilution means the dilution of the Treasury; we want to still maintain the Polygon Treasury for longer.

 We understand there’s a lock-in period for these coins?

It’s a three-year vesting period, and they get 33 percent of their tokens unlocked after every year.

You have 6-7 product lines. How are these going to converge, what’s the broader vision?

Sandeep: We want to become the Amazon Web Services (AWS) of Web3. If you are a Web 2 developer, you are looking for computation services, centralised computation services, you go to AWS, you create your server, and all that. But in Web3, a developer is looking for a decentralised computation service. And Polygon is building that suite of solutions from where the developer can choose.

Right now, in Web3, everybody is actually building one kind of approach and one kind of solution. And then what happens is that there is no one solution that fits all. Each developer has their own needs, some of the developers want to be on a shared chain and interact with other applications. Some of the developers want their own chains, some want more security, more decentralisation.

That’s why Polygon instead, of one particular solution, is an aggregator of solutions, there are 7-8 approaches. Plus we are now bringing in ancillary solutions, which will enable Web3 to go truly global, and achieve Internet-level scale, which will include things like data, availability, identity, and so on. So, some of the other things that we are building are peripheral things but in a decentralised way.

Recently, you also roped in YouTube’s head of gaming Ryan Watt. Tell us about those ambitions. How does it tie in with your overall vision to be the underlying infrastructure for Web3?

Sandeep: The divisions that I spoke about are basically the technology divisions. Now, apart from these technology divisions,  we are building these business divisions. That means who can take this technology out there so that people can use it. So, out of those divisions, there is one division called Polygon Studios, and Polygon Enterprise and then there will be one or two more.

Polygon Studios is focused on NFT and gaming adoption, which is currently the largest segment where startups and applications are being built. And Ryan has been brought in to head that because he’s coming from YouTube Gaming. He’s helping us to connect with these large games and bring them on board. That’s the purpose. For example, if you want to bring Web2 companies to Web3, hire big talent in the global space, and we need people who have done that before. Ryan has headed gaming at YouTube, where he has done multiple partnerships with gaming companies, studios, and players to push gaming on YouTube. He has done multiple contracts and partnerships with big gaming studios and we need those.

How do you plan to use the $450 million?

Jaynti: Firstly, we are investing in multiple projects, which are building on Polygon with small amounts. Now, we can kind of have a huge set of investors with us and we can also start going big on those individual projects. If we find them very good, we can bet on them with our investors together.

Secondly, acquiring talent is also very important in the Web3 space. However, the whole Web3 space is very competitive. Everyone is competing for a very small pool of talent here. Having the marquee investors and treasury can also help us.

And, now with ZK (a layer 2 construction that reduces computing and storage resources) and investor money, we can drive growth as well in the coming months. This will help us to reach our goal in the next 2-3 years.

Sandeep: The ecosystem fund is very important, we want to help early-stage startups who are building these applications to keep building on Polygon. Now, with this large institutional investor ecosystem, people who are building on Polygon have a path to reach these investors via us.

It helps us to support these applications to build on a large scale and become bigger. Being an infrastructure builder, that’s the goal. But, the point is to get that infrastructure to be adopted.

Also, by any measurable metrics, we would be much bigger than other scaling solutions out there in the market. But the institutional headspace that we have in the US or on Wall Street or financial markets has not been that big compared to some other solutions. The reason for that is very heavily skewed towards institutional involvement of those funds because they talk from the global channels about these applications, it gives them better visibility into the financial markets also.

This funding will also help us in that because now we have our institutional stamp. We can go and speak to, say, the Goldman Sachs and JP Morgans of the world, and they know that this is a legit, pure Web3 community.

Apart from the US, India and Dubai, how do you plan to make inroads into the other developer markets?

Jaynti: Currently, there is no country or place where we are not visible. When people are searching for blockchain scaling solutions, Polygon comes first, there is no doubt about it. We are targeting every country, enterprise, or Web3.

 Sandeep: That’s the benefit of a community, like projects or these decentralised companies. Some of the geographies we don’t even do ourselves. Our community spreads the word over there and you know, doing workshops and all that.

We also feel that we need to have our feet on the ground now in the US. With the Web3 adoption wave accelerating, we are planning to establish a permanent establishment. We already have a lot of employees from the US, but now probably have an office and incubate these startups.

What are your views about India’s developer ecosystem? And after the recent crypto tax announcement in the Budget are you more optimistic?

Sandeep: It definitely gives legitimacy. But, when somebody is building a blockchain or Web3 application, they are not tied to any Geography. If you are building Flipkart or Paytm, you need to have a presence in India. But, if you are building a Web3 startup, you don’t need to be in any geography whatsoever. So, what happens is a lot of brain drain.

Entrepreneurs who have raised funds will always try to find the best locations, which have low tax, infrastructural benefits like Dubai, Lisbon, Singapore... The exodus of these entrepreneurs will keep going as is happening right now.

Right now it’s 30 percent taxes outright on everything. Whether you are a trader, or getting your salary in USDC, you still have to pay 30 percent tax outright, like no deductions whatsoever. Those will have to evolve, but it is the right direction.

On India’s developer ecosystem, it has been our mission to make India a superpower in Web3 and we continue to spend so much of our resources in India, be it sponsoring hackathons, educational programmes, or funding early-stage startups. India has become one of the premium geographies now. The US funds now want to back Indian startups and the tables have completely turned. When we were there, nobody wanted to fund Indian startups but it has changed and it’s a very heartwarming thing for us.

Nischal Shetty recently announced his Layer 1 project. Your comments. And do you plan to provide scaling beyond Ethereum?

Jaynti: Creating a huge ecosystem, making people use some tools and everything will take a lot of effort and time, security-wise as well. They are accepting multiple chains, newer chains every day, but it’s very hard to make and secure a blockchain in Layer 1. We think Ethereum is leading in the whole space right now. And we will keep supporting Ethereum for the foreseeable future. We don’t have a plan to use other blockchains yet.

Sandeep:  We have four different approaches on the zero-knowledge side. This is still early technology, and so we are not betting on one particular approach. Out of these, if any of the approaches starts becoming bigger, maybe the other projects will converge, or each of these approaches will have its own benefits.

But, Ethereum has strongly emerged as the fundamental settlement layer 1 of Web3, and for Layer 1, you need extreme decentralisation, extreme security, and reliability of the chain, that’s when people invest billions in it. Some of the Layer 1 (Solana, Avalanche) chains that became popular have also gone down. With Ethereum, that has never happened. The network effect, and that credibility, is improving and growing by the day, whereas any other Layer 1 has to go through this organic cycle of building this trust, building the developer community, the tooling around all the things having hacks actually on your chain. So, in that journey, Ethereum is extremely far ahead, and we don’t see any other Layer 1. My theory is not only about Etherium versus other Layer 1, I think even between Ethereum and Bitcoin, Ethereum is also going to win eventually.

What is the theory? 

Sandeep: Layer 1 is a decentralisation game and it will be accepted more and more when it is tested, has smart contracts and so on. But, you also need a native asset like Ethereum in the case of Ethereum or Bitcoin as the native asset of Bitcoin. You need the native asset to acquire properties of the hard money. If it’s not the hard money, it cannot become the incentive and disincentive layer of managing this decentralisation. And once, those assets start acquiring properties of harmony, and if you go back in the history of mankind there has always been one single global currency and everyone else has been smaller.

So, today its dollar; previously, it was the British pound, before that gold, eventually the first Layer one will evolve and then one Native Asset will start acquiring properties of money. And then for that asset, there will be a one single money which will have those properties.

If you see Bitcoin, like whatever Bitcoin can do, Ethereum can also do that plus Ethereum will now yield giving capabilities with the proof of stake plus Ethereum has an actual use because it is basically the gas power or fuel that you use to run the transaction. So, that’s why I believe that eventually people will realise that Etherum has everything plus its inflationary supply, which because of the IP 1559, has become deflationary now, is also even better than Bitcoin. So, sooner or later people will realise, this has better possibilities, and then Ethereum will flip Bitcoin. Probably in maybe two years it will flip Bitcoin as the largest asset.

When your funding announcement came out, there was a lot of excitement among the Web3 entrepreneurs in India, who saw this as a pivotal moment for the ecosystem. What would your advice be to some of these younger entrepreneurs? 

Jaynti: Very rarely, you get a chance to build something easily right. And this is the chance for developers. This is a very good time to become a developer. Before, if a developer wanted to build a company, he/she would need a partner who understands business and goes out there and raises money. Now, the tables have turned, because if you’re a developer, you can do anything, you can do end to end, start a company, create a code, raise the money, because now investors are looking for developers, not business people.

Also, you don’t need to leave your home, you just need a laptop, and can even raise funds through your laptop. Even if you are in a small town in India, it doesn’t matter. You don’t have to be in Silicon Valley, you don’t need to meet any investor, due to COVID as well. In Web3, everyone is online, everyone is doing online raising, transferring money online. It’s the best time to be in Web3 and start something in Web3.

Also, earlier you needed to prove why you are the best person to build this startup. For instance, you needed to have some kind of background in creating multiple companies or prove your expertise. Now, there is no checklist for investors. That’s why it is the easiest to build here. Many people will realise it, sooner or later. If you’re thinking about creating something, creating in Web3 should be easier and better.

Sandeep: This industry is more about contribution. I’m a huge fan of JD (Jaynti Kanani) for that, being a developer from India, he was building and contributing to the open-source space. Generally, you don’t see this mindset from Indian developers. Those who are still contributing to open source, do it to build up a profile and get a better job, but in this industry, many of the times you are just contributing to the open-source ecosystem to build better things. That community mindset where you are doing something for the community, not directly for some benefit, is one thing that Indian Web3 aspiring founders should believe in you contribute to the community, the community gives you back. You have to be a contributor, you have to be a net giver.

It’s very easy to get funding right now. So, this is your chance, go all in and raise money, build your startups from India for the globe, and become this global citizen.