This Crypto Venture Capitalist Is Bullish On Modular Blockchains, But Cautious About Restaking

Kavita Gupta is the Founder and General Partner of Delta Blockchain Fund. She has over 18 years of investment experience through the World Bank, IFC and Eric Schmidt Family office and founded one of the first early-stage blockchain funds, ConsenSys Ventures and the Tachyon accelerator.

In this discussion, we look beyond the groundswell of excitement surrounding spot bitcoin ETFs and dive into key emerging themes in the industry, such as liquid recovery and modular blockchains. We also cover why Gupta expects us to enter another DeFi boom.

Forbes: What do you think the crypto technology stack will look like in the future?

Gupta: I firmly believe that modular blockchains are the future. If we want institutional adoption, modular blockchains will be the way. Monolithic blockchains like Ethereum will be needed, but they will be more for crypto-native users. Even if you use modular blockchains, they will still employ different features than monolithic blockchains. For example, let's consider Base (Coinbase's new platform) as a modular blockchain. They use optimistic rollups for scalability, but transaction verification is still done at the Ethereum level.

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Forbes: Where do you think the overall value will accrue if we're in this mix-and-match world of modular blockchains? How do you see it distributed between the decentralized applications and the unified blockchain infrastructure that underlies all of this?

Gupta: Modular blockchains will be used less for infrastructure and more for applications over time. Right now, the app world is saying, "Let's have a DeFi app on Ethereum, then I'll have it on Polygon, then I'll have it on Solana, and then I'll have it on Avalanche." The same is happening with NFTs. Little by little, those people will start creating a single application. So I will have a DeFi borrowing/borrowing application, which I can mix and match based on my preferences for cost, scalability, and security between different modular blockchains so I don't have to use different ones. I'm not saying that's going to happen in a year or two, but over the next five years we'll see per-app liquidity versus per-chain liquidity.

Forbes: How important do you think interoperability protocols will be if we reach a world in which each application has its own blockchain?

Gupta: I feel like interoperability should exist regardless of dapps having their own chain, but the current state of interoperability is not very secure or friendly from a user experience perspective.

Forbes: What do you think about picking up again?

Gupta: It's been mixed, to be very honest. Suddenly, the rally has become so big that we are seeing billions of dollars locked up and not just in one chain, but in many products built on that chain. Will this be a big burden on Ethereum, like when the NFT craze happened without adding much other than people getting more returns in the bull and bear cycle? Or will it be a technology-driven platform that will add more security and value to the overall ecosystem? I'm not sure because it hasn't been tested yet. Billions of dollars are moving vertically without any proof or testing.

Forbes: How do you view liquid recovery protocols compared to liquid betting protocols? Do you see them as a zero-sum game or is it potentially additive? Also, will we see another boom in DeFi speculation because of all this?

Gupta: We are going to see a big boom in DeFi. Puffer entered the market and is not even on the mainnet, and is already over $200 million, just like Ether.fi, which has been on the market. The ratings for products like these and Renzo's are exaggerated. There is great performance here. Now, of course, at some point, as we also saw last year, there will be a lot of DeFi yield for six to eight months, and then there will come a point where there will not be enough yield, and then the liquidity will be insufficient. It's going to dry.

Forbes: At some point, could these things grow to challenge Lido and other liquid betting protocols?

Gupta: Resumption protocols could be positive or negative for liquid staking assets. I can definitely see over the next couple of years that they will be hugely profitable propositions, but a lot of them depend on things that haven't really come to market. Then we have to wait.

Forbes: What do you think about the StarkNet airdrop and airdrops in general?

Gupta: Airdrops have become an interesting way for people to test products and then, in a year or two, get tokens that will have some value. But the thing is, once the airdrops are over, we've consistently seen 80% or 85% of people leave those platforms. So retention until airdrop is high. Retention after airdrop has not occurred. But it's great to create anticipation. Regarding StarkNet, there was a lot of chatter on Twitter about cryptocurrencies that people were not happy about. They thought they got less than they imagined, but I'm sure the group has their own reasons for deciding who gets what and on what basis. And we must also remember that although StarkNet has been around for a long time, adoption has not been there. Now, with the tokens out, let's see if adoption holds or, after the airdrop, disappears.

Forbes: As a venture capitalist, I would imagine that the Bitcoin halving does not have a huge impact on your strategy. However, are there other interesting plays in the Bitcoin ecosystem?

Gupta: This isn't financial advice, but I'm excited about rollups to get you started. I want to see how optimism, Polygon and zk-rollups will do. I'm excited about the layers of data to come. Some Layer1 like Monad are making EVM systems, and I'm excited to see if that takes Ethereum's scalability to the next level. I'm watching to see if this whole liquid recovery thing will change the way DeFi is done. Yield stablecoins, which can turn DeFi into institutions, is another field that excites me.

Forbes: What about anything specific to the Bitcoin ecosystem, like rays, liquids, stacks, or ordinals?

Gupta: The ordinals continued and then there was a pause because there wasn't much going on. Then suddenly the entire Bitcoin ecosystem bounced back with everything that happened in Bitcoin. People are discussing bridges between Ethereum and Bitcoin, Stacks and how to build new stakes on Bitcoin and returns on Bitcoin. Suddenly, there is a huge ecosystem. Babylon is there. And Bitcoin's liquidity is the greatest, of course. But I have yet to see many bitcoin holders move their bitcoins aside from currency or speculation. So, I want to see how this adoption will happen.

Forbes: Do you have expectations for ether ETFs?

Gupta: I think a couple of years ago, in 2017, 2018, someone from a traditional world would say: I have half a bitcoin or I have one bitcoin just to experiment with it. But today, most people I know, even in the traditional space, own bitcoins and ether. The acceptance of ether has happened in a big way. There is a huge demand for ether ETFs because it contains something associated with a currency and a technical ecosystem that will grow. I think a lot of people are looking to have it in their portfolio more from a technology perspective, an adoption perspective than just a payment perspective. Honestly, I think in terms of price value it looks like a huge total dollar amount for AUM for bitcoin, but I think the ether ETFs will be bigger.

Forbes: Thank you.