Business Development in Crypto

Mark Lurie:

Welcome to WTF Crypto, where we explore the crypto universe, to understand what's really going on, and how it affects you and your portfolio. I'm your host, Mark Lurie, and as a caveat, nothing in this podcast is legal or investing advice. Today, we're talking about business development in crypto with Nikita Ovchinnik, chief business development officer of 1inch Network. Welcome Nikita, thank you for joining us.

Nikita Ovchinnik:

Thank you Mark. It's a pleasure to be here.

Mark Lurie:

In crypto, multi-million dollar deals get done with no contract at all, and some are done between decentralized projects that don't even have a leader. That is almost mind-blowing. This is really relevant, because projects come out with partnerships and announcements all the time, and it's often really hard for normal users, and traders, and people, to understand what's real, and what's not. It's important to understand what kind of partnerships matter for a project longterm, and what's just for show. We're really excited to have you on the podcast today to help us unpack and understand all this. To start, could you help us understand a little bit about your background, and why you're such a credible guide on this subject, as we start to unpack it?

Nikita Ovchinnik:

Yeah. I joined crypto in early 2017, and have been around since that time. I'm the first employee of 1inch. I joined in January 2020. I instantly spotted a lot of potential in this particular product, because it benchmarked against some of the competitors on the market, and the metrics seemed amazing to me. I was wrapping up my work at another protocol, and we did a partnership with 1inch, and at that time I was working at a blockchain gaming company called Abyss. At that time we've been bigger than 1inch. The partnership went really well, both our community and the 1inch community were really happy about it.

Nikita Ovchinnik:

I got to know Anthony and Sergei, our co-founders, and they had good chemistry. If you're looking for someone who can help them with integrations, investor relations, and all sorts of partnerships out there. That's how I joined the project. I have three passions, and crypto.... I think they overlap dramatically for economics, community and partnerships. Whenever you create a relationship between different companies, you also engage your community and genuinely supposed to have a positive effect on the token price, and on product use cases. It all creates this healthy and efficient mix of good vibes for everyone related.

Mark Lurie:

You also have some experience in traditional business development outside of crypto, is that right?

Nikita Ovchinnik:

Yes. A little bit. I've been working in a family business, and we've been renting office spaces in the forest of Russia, which is really far away. This is something I've done between my bachelor and master degree for one year. I've also worked in a traditional Russian bank, but not much on a business development aspects, but more on clients directly. I think it has a lot of in common, like looking for what the other party needs from you and what you can offer them, and how you can make someone lives better, more efficient, stuff like that. I there are a lot of similarities between those cases.

Mark Lurie:

Then, for those who aren't familiar with 1inch, can you give a brief overview of what it is and the kind of scale that you work at?

Nikita Ovchinnik:

Sure. 1inch is the second biggest [inaudible 00:04:05] blockchain in terms of users and volumes. We decentralize aggregator, so we aggregate different [inaudible 00:04:14] and protocols who have liquidity on different chains meet. We are currently present on seven, I believe. We provide the best exchange rate for our users. We are solving the liquidity fragmentation issue where when users like using one particular platform may encounter, and through our unrivaled mass algorithm, we provide the best pricing almost all of the time

Mark Lurie:

On order of magnitude, I mean, what kind of volumes or market cap organizationally? Around how big is the company?

Nikita Ovchinnik:

Absolutely. We are proceeding approximately 500 million dollars of daily trading volumes, and we have over 1,400,000 active wallets on [inaudible 00:05:07] blockchain only. Across all blockchains, I think the number goes for over two million. The team has grown since I joined from three people to over 100. We are just a bit over 100. Quite big actually for defi and crypto, I believe.

Mark Lurie:

Okay. Got it. Then you've raised something over a 100 million dollars, is that right?

Nikita Ovchinnik:

That is correct. We've had three investment rounds, and then the latest one, we received the unicorn valuation. We raised 175 million dollars.

Mark Lurie:

Okay, great. You're working at some scale. One of the impactful projects in the defi and crypto space. Okay, great. With all that, let's start from the beginning. What is business development, and how does that function fit into the organization?

Nikita Ovchinnik:

Right. I see business development as generally everything. What you do with third parties, and how through relationship and networking and through relationship, how you add value to company, and use your creativity to explore new relationship between different companies. I think with the rise of DOS, this function becomes more transparent and more efficient, because there can't be any kind of hidden terms or conditions.

Nikita Ovchinnik:

Genuinely everything is out there in the open. A lot more people are involved into the conversation. It makes it actually easier for projects to engage in different types of relationship. Business development is like things you do with third parties to bootstrap your growth, and to scale and to achieve some of your goals. Whether it's fundraising, whether it's launching new product, expanding into the new, different blockchains, and getting partners there. Yeah.

Mark Lurie:

It sounds like it also spans into fundraising and even internal sales to get the organization aligned around specific partnership.

Nikita Ovchinnik:

Absolutely. I think business development overlaps, or maybe walks hand in hand together with growth and with marketing. Those have very, very similar directions, and they pursue similar goals through different mechanics. Investor relationships of course is a big thing, especially in crypto, since now, majority of the companies, they have tokens and they want to get a larger exposure and eventually everything we do have an impact on the token value and token price. Investor relationship is a big part of business development.

Mark Lurie:

How would you describe how business development is done in crypto and in particular, how that compares with how it's done in the non crypto worlds?

Nikita Ovchinnik:

Yeah. Well, I think in majority of... From how mobile application space operates and some others, vastly... There are a lot of cold outreach through emails and projects advertising and trying to showcase what they can do for you. Plus it's relatively slow, because you have to go through a lot of different approvals from your management, from the founders, and agree with the company on certain specific terms. While in crypto, lots of things are in the open, and this is great. In 1inch, we have this culture of development first or engineering needs first.

Nikita Ovchinnik:

For example, if we spot a new hot decks that we want to add into our algorithm, we do not need to wait for the approval or to engage into some kind of deeper relationship. If we see that it can immediately benefit our product and our users, our devs would go for it and would integrate it, and would tell us that we've done it. Then we speak with the project. We ask them what's the opinion. Would they like to do a series of tweets about it, write a blog post? How we can get closer together, maybe do let's do some kind of AMA and other activities.

Nikita Ovchinnik:

Even if they say, "No," it doesn't quite matter for us. It's something what we do. We can also reach out to their communities through the same social networks. Our community can join their platform and speak with their users, and get some feedback on how efficient and secure its new protocol is. This is amazing. It's much, much different than a traditional space. The fact that it's shifting more from founders and management towards community. That's the biggest thing ever, because it just bootstraps efficiency and makes everything extremely fair.

Mark Lurie:

I guess it means that because the technology's open, you can just integrate with another project, actually, even without their permission, because the code is all public and runs on the blockchain in a permission-less manner. Is that what you mean when you say, open?

Nikita Ovchinnik:

Yes. I would say 50 percent is what you mentioned, but also 50 percent is because crypto is vastly driven by community, by people, by DOS. For example, majority of companies, they don't a permission from their management to engage into certain relationship, and do something that can obviously benefit the product and something what people want. For example, if users come to 1inch website and they look at the wallets that we provide for a fast access and like fast logging, and they don't see the wallet that they use, and a lot of users are asking for a new integration, we would go for it. It's not our boss who, for example, had, I don't know, he who is a friend of this wallet, founder, and they've agreed on a special deal just between them. No, it's extremely transparent, both from technology and from business perspective. It's also economically meaningful, because we see the clear demand from the users to add this particular integration into the website. It all adds up.

Mark Lurie:

Okay. Half of it is that you can... Functionally you can integrate with any project without their permission?

Nikita Ovchinnik:

Yes.

Mark Lurie:

Then second, the community can drive that forward. In order to work with another project in your community, you don't necessarily need the permission of some sort of centralized leader. That's what makes it possible to just do deals or do integrations and partnerships with people without even needing to go through the normal centralized gatekeepers.

Nikita Ovchinnik:

Absolutely.

Mark Lurie:

Is that right?

Nikita Ovchinnik:

Yes. In traditional companies, we've seen a similar pattern where the best of the best, like the most innovative organizations out there... For example, Airbnb, whereas they would speak with their first users and get to know their community, ask people who are renting houses, what drives them, what motivates them, which features they want to see on the website. It gets harder when there are a lot more users who are involved in or use a particular form. But, it has been around and community fetch us a lot of great ideas. It's pure gold.

Mark Lurie:

Interesting. I mean, it's essentially... They are your users, right?

Nikita Ovchinnik:

Of course.

Mark Lurie:

Ultimately what comes from them is... Makes sense that it's natural and organic and is what people actually want. But it also to strikes me that it creates some challenges. I mean, if you do want to do a deal or a partnership with another project, sometimes you literally don't have a specific person you can go to. That seems like there's two sides to that coin. That seems like it would also create some frictions.

Nikita Ovchinnik:

I guess there is. It's a price to pay for transparency and a long term sustainability, but it eventually lies in the mechanisms of [Dowa 00:13:27] and governance. Let's dive a little bit into one particular topic, which was very fascinating to me when Uniswap wanted to provide a grant to Flipside Crypto. I believe the grant was worth 25 million dollars. I might be wrong on this exact number as the case happened a while ago, but a lot of other platforms, they were unhappy about it.

Nikita Ovchinnik:

A lot of community members of Uniswap, they were unhappy because nobody really consulted them about who should be the receiver of this grant. Why was Flipside Crypto chosen of other guys like [inaudible 00:14:03]? There were a lot of discussions going on under this government proposal. The vote was extremely tight. It was like 40 million for it, and 42 million against it. It came real close. It felt like a real democracy. The fact that users could influence this grant and the decision making and long term development of the platform, was amazing. It was as transparent as it can get in crypto. I loved it.

Mark Lurie:

I guess it's a little bit like democracy. It can slow things down, but ultimately it's a check and a balance on the centralized leadership that results, perhaps, in better long term health and course correction.

Nikita Ovchinnik:

For sure, for sure. If people voted that they're better off without this grant, then it makes sense. Maybe it was too much, too expensive, not efficient enough. Stuff like that. I'm a big fan. But generally yes, the fact that there are no direct leaders, person who is responsible for certain communications, makes it a bit less efficient in comparison when there is a direct order from the management or from the founders, but I guess it's really to do it at this expense.

Mark Lurie:

Do you find that there's random people who just pop up in both communities and become champion of a given deal they think is a good idea? Does that actually drive results?

Nikita Ovchinnik:

I've seen a couple of examples, but it depends primarily on the magnitude of a project. Whenever a project has a large community, like Compound has, for example, or other, they have a very live governance forum full of events and things happening, and different projects. They also want to engage into relationship with them. Eventually, they appoint someone responsible from their team, for example, in order to get listed on other, and they have to look at other governance proposal, come up with their own. It's a lot of teamwork, because you have to gather a bunch of data and provide the necessary reports, audits, and more.

Nikita Ovchinnik:

Then you have to convince the token holders that admission of your token would be beneficial. There are a lot of people who monitor the market who are vivid and supporters of the protocol. Like other, for example. They would write very healthy, very efficient data driven updates or suggestions on what they can do, and how to make this protocol even more efficient. I'll tell you what, at 1inch, when we've seen people like that pop up into our community, we try to hire them multiple times. We have some successful cases where people join our organization full-time, because we saw the passion, and we saw a talent within those ideas that they shared open in the public.

Mark Lurie:

The centralized organization bleeds into the decentralized. It's super interesting. How do you think two protocols that were both completely decentralized, would do a partnership with each other?

Nikita Ovchinnik:

Well, there are now so many different scenarios how this can happen. For example, one of the founders might be a loyal community member talking holder, user of another one, and he can try to reach out. Then it can happen in a traditional kind of way. It can also happen through people sharing, like, "That would be a really good idea, if, for example, this protocol would be present in some kind of defi aggregator, like Zapper or Zion." We want to stake our tokens on this platform. Community can ask themselves, managers and support specialists of those protocols and brought this idea, organize a governance voting.

Nikita Ovchinnik:

I've seen some pretty good proposals in [inaudible 00:18:38]. More away since protocols have now treasuries that they manage, community can also say that, "Well, maybe we do a fundraiser," and every now and then some community, some existing community members, they can help you and bridge you very efficiently to some of the best VCs in the space. Because for example, they know them, they've been working with them, they've invested along them. Yeah. There are so many things that can happen, and it can happen through some specialists, some founders, and community governance way as well.

Nikita Ovchinnik:

It just amplifies the whole relationship between projects and how everything is going forward in the market. I personally love it. I want to also say that the fundraising example is extremely cool. I really enjoyed the proposal in sushi when they wanted to sell a token Swiss discount to a number of pretty good VCs in the space. The community was unhappy, voted against this proposal. It didn't happen, but the fact that the fundraising happens in public and all the terms known, this is very, very fascinating.

Mark Lurie:

Okay. On fundraising, how does that process work from a BD perspective? How did your fundraising go? Is it what you think of in the traditional fundraising where you do a bunch of Zoom meetings, and then you negotiate a term sheet? Or is this all done by Telegram with chats? Or is it done in person at conferences?

Nikita Ovchinnik:

1inch and other fundraising processes I've been involved as an angel or else otherwise, [inaudible 00:20:22] happening in the old way, not the one like sushi. I think for the one like sushi, it would make made sense that... Of course, there were some initial negotiations. They're not investing their own money. They've mostly invest the capital of funds, and from other family offices, and other organizations. They have to be very careful, so they initially had to do some background check. Maybe they've spoken with some founders or leaders. Maybe they gather data in chats, they look at on chain metrics.

Nikita Ovchinnik:

They get together, discussed it what everyone thinks about it, and made a proposal. This proposal was put in public, and it would be good that if... Sushi, maybe they did, I just followed the text message and discussions there and a little bit in the group chats, but Sushi should have probably done a couple of community calls to maybe [inaudible 00:21:23], also invite investors where they would say how they would help Sushi community to grow and scale. This platform achieve new metrics and what they can do for them. This is the future, this is how every fundraise will look in five to 10 years time in the future in crypto. I think so. I'm a little bit [inaudible 00:21:49], but I want to live in a world like that.

Mark Lurie:

Me too. Okay. You bring up actually an interesting point, which is, the idea of these CS's in general in crypto is that, they're not just giving money, but they're also a partnership, and they're delivering value. The community's kind of assessing, is this VC actually going to deliver value? Should we sell to them specifically? To what extent does this value add from VCs, in your experience, actually play out? Are these partnerships, really, or is this just money? Which is fine, but I'm trying to cut through the BS.

Nikita Ovchinnik:

It, it really depends. I've seen every shade of the VC market, I think, at least so. There are a lot of people... Not a lot of, but there are a lot of organizations out there that comply with their own challenges. Maybe they're always in a pursuit of new projects. I don't know, VCs also raise new funds and have a lot of things going on. I'm not trying to justify them, I'm just saying that some companies, they underperform, just as in every market. But, some VCs are extremely great.

Nikita Ovchinnik:

They would look at a blog post that you're about to publish, and they would read through it and provide some comments, share ideas. They would bridge you instantly to a lot of new opportunities in the space. They would maybe even share the yield flow with founders from different companies, to also invest as an angel. I would say it's 50/50. You never know until you work personally with someone. There might be even different cases within one fund.

Nikita Ovchinnik:

Every fund usually consists of a few people who are running it. One manager might be a lot more focused on helping a project, while others might be less engaged. Yeah. Some people would say, "Hey, I really enjoyed working with XYZ. They do great job." Another project would say, "Well, respond enough to our needs, and I think they can do a far better job." I would say it's mostly about the money, but when you get this extra value, it's priceless and extremely meaningful.

Mark Lurie:

It strikes me as odd that VCs can make a lot of promises, right? They can buy a bunch of your company, and then they... Some are great and perform, and some are not great and don't perform on those promises. It always struck me as strange there's no vesting or guarantee, whereas if they don't perform, they don't get some of the value that they oversold you on it. It always struck me as a little bit frustrating.

Nikita Ovchinnik:

But imagine if the whole VC value and their promises are in public, and they are written in a forum and the governance has voted for it, that would pretty much ruin their reputation, and that would seriously affect the deal flow. That's a game changer, right?

Mark Lurie:

That is so interesting. That is so interesting. You're right, because so long as it's behind closed doors, it doesn't affect their ability to get into new deals or earn returns. If it's in public, then it really does. That is a great point.

Nikita Ovchinnik:

In the future, in ideal world, it should be like that where everything is a lot more transparent and efficient for everyone in the long term.

Mark Lurie:

Transparency enforces honesty.

Nikita Ovchinnik:

True. We already have a lot of mechanism how we can track the efficiency of different VCs through what they do with their tokens, because there are a lot of wallets that are publicly known that belong to the big funds out there. If they sell somehow, how like do not believe long term, it can be seen. There are more questions that can be raised about the quality, and the help of those organizations.

Mark Lurie:

Yeah. That's great, because in Silicon valley, in venture world, which I spent some time in, when things happen that aren't great, everyone has a strong incentive to not talk about it and to be silent about it, because a lot of these... These VCs are going to invest in multiple entrepreneurs, and the entrepreneurs want to raise from multiple VCs. No one wants anyone talking bad about them in relatively small communities. So, problematic things aren't known.

Mark Lurie:

It's almost like how there's NDAs around sexual harassment claims in traditional companies. I don't mean to draw an equivalence there, but you don't know how often things happen and how well things work, because they're essentially covered by nondisclosure. Even if there's not an actual agreement, everyone's a little bit embarrassed and worried about their reputation, so no one talks about it, which is a problem because it just means people keep then running into the same situations and the same mistakes. But this, to your point, this transparency is a game changer, which is great.

Nikita Ovchinnik:

Yeah. Agree, agree. I feel like the war, like the market has matured so much since the ICO fever in 2017, actually when I joined. I am extremely hopeful for the future. I feel like we are moving towards the right direction, and those tools for DOS, and for fundraising and for other engagement mechanism, are being built as we speak. The best things are yet to happen in crypto Defi and the blockchain.

Mark Lurie:

Awesome. Okay, so a few more questions for you. One is, how do you tell the difference in other projects when their partnerships are impressive, or just for show?

Nikita Ovchinnik:

Right. Well, honestly, I love creativity. I love creativity. I love when someone does something that no one has done before, and creates those kind of unique relationship between projects. For example, we are access aggregator. We look for access to be integrated into our protocol. That's very simple partnership kind of type. Let me give you an example from what I've seen today, and disclaimer, I'm not an owner of this NFTs, and I'm not actually registered, or user of a Coin List. The Coin List announced today that they've... The results of their partnership with Lobster NFT project.

Nikita Ovchinnik:

Lobster NFT, for those who don't know, it's a pretty big and popular community, mostly on Telegram, where a lot of old school users and the builders in the space, share openly their ideas and chat. Now it's massive. It used to be a lot smaller, but now it's pretty big. I believe Coin List decided to attract those Lobster users that were not yet onto their platform, with some extra karma and some other perks on their platform. I think it's fascinating. We have some massive market leaders, like Crypto Parks or Word Apes Yacht Club. None of them have came up with anything close to that. To me, it shows that the Lobster NFT community is healthy, is creative. It's doing things in the right way. This is really amazing. I've sort of... Okay, maybe it's time for me to buy some lobsters back.

Mark Lurie:

Insane. You see BD deals and healthy BD deals as a buy signal?

Nikita Ovchinnik:

Definitely. Definitely. Yeah. Well, I'm very picky about partnerships in general. In crypto, I think you should be picky and risk averse. You have to monitor a lot of parameters before engaging into any kind of relationship. Recently, a nasty case, I believe, when... I think it was related to Abracadabra Money and Wonderland. There was a proposal of the merger and acquisition, and then community find out one of the protocol co-founders has been involved with [inaudible 00:30:41] and changed it when... Went to zero in Canada.

Nikita Ovchinnik:

It kind of... All of that exploded. Because everything happened in the open, I've seen... I think the block team was the first to report that Wonderland GitHub looks very average, very ordinary. They did not write any smart contracts. They looked like they fork most of their codes from different places. It did not seem efficient. This is what happens when things are in open. In traditional finance, they might have struck a deal, exchange finance, and only later on experience dramatic losses because this merger was unsuccessful, and the stakeholders would be hit.

Nikita Ovchinnik:

But here, in a community driven environment, everything went into open. Plus, every token holder could have made a decision, whether they think it was an okay fault and they want to continue trust in the developers of the protocol that was acquiring Wonderland, or if they want to say, "Okay, we are done. We do not believe you. We want to get out of this token," and they can sell. It's nice that you have this financial element to it, and you can vote with your money. That's great, I think.

Mark Lurie:

How do you think... Do you think that MNA type partnership merger takeover acquisition is... I mean, how do you think that's going to work?

Nikita Ovchinnik:

I'll tell you what, I would first say I have no clue. I don't have a clue, because I haven't digged in this particular topic, but I am a huge fan of mergers and acquisitions. I've written my master thesis in [inaudible 00:32:29] University on mergers and acquisitions in tech, and how actually the companies that acquires, often suffers some losses and difficulties through absorbing those new corporations. I have no idea.

Nikita Ovchinnik:

Especially in crypto, when you acquire someone that has issued the token, and they have token holders, they list it on centralized exchanges. It sounds extremely complex, but I love this idea. I think it'll be big. I think we need more MNAs like that, and less MNAs, like what's happening with centralized exchanges. When a big centralized exchange, and let's not name them, comes and acquires a young, aspiring project. This happens behind closed doors. This is very traditional market and VC style. I think crypto deserves more transparency again.

Mark Lurie:

Interesting. Okay. Well, maybe a whole other episode about MNA and crypto. To pull this out, basically what you described with the Sushi Wonderland drama, is that this kind of openness and transparency, which comes from both the technical nature of the projects and the community, the governance aspect of the projects creates opportunities and is a good thing, but also creates risks, and makes you have to be careful about what and who you get involved with, because it's public. I guess my question is, do you think that the way things are done in crypto will bleed back into business development in the non crypto markets?

Nikita Ovchinnik:

Yeah, I think it's highly possible. It feels like you have to adapt in order to move forward and be better. Companies would face this pressure from their competitors and from other organizations that are doing things in a different way, and they would have to follow, otherwise they would be left behind. In crypto way, this transparent [Dowa 00:34:41] community driven approach... In every case that we've discussed, it kind of was in the best favor, in the best belief, with an idea to help project long term.

Nikita Ovchinnik:

Imagine if Sushi raised from run investors, sold tokens at discount to different VCs. A lot of people might be angry, a lot of people might migrate to other protocols. It would probably not be healthy long term. Same applies to the rest of the things we discussed. I would not expect companies that do extremely well in traditional tech, or traditional finance, to follow this suit. But, startups happen in every direction. We see new ways how VCs are structured. Now we have [Dowa 00:35:34] Syndicates. Investment organizations, like groups. It moves VC towards be more transparent. The same would happen with companies that are building in other spheres or out there.

Mark Lurie:

Well, Nikita, anything else? Any other insights or thoughts you find interesting that you'd like to drop on us before we wrap up?

Nikita Ovchinnik:

Well, I just want to thank you again for this amazing opportunity. Nothing we say or nothing anyone says in an investment advice, and you have to be very careful, and people check every single crypto. Yeah. If you spot anything interesting, especially concerning, don't be afraid to be a whistleblower. Whenever you spot something is wrong, go for it and raise the question in public.

Mark Lurie:

Makes sense. Good advice. Nikita, thank you so much for joining us. Last question, where can people follow you or find out more about you, if they'd like to?

Nikita Ovchinnik:

Well, I guess... I'm not a big user of Twitter, but people can follow me there. Plus, I don't mind sharing my Telegram contact for different inquiries, and I have a LinkedIn profile that can be used as well.

Mark Lurie:

What is one [inaudible 00:36:54] Twitter handle, so they can follow there if they'd like to?

Nikita Ovchinnik:

1inch. It's just 1inch.

Mark Lurie:

So, the number 1, inch.

Nikita Ovchinnik:

Yes.

Mark Lurie:

Great. Well, Nikita, thank you so much for joining us, and sharing your insights and knowledge with us. You've been very generous with your time. We really appreciate it. Thank you again.

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