Onfinality and SubQuery - Building Web3 infrastructure from New Zealand.
Among the diverse range of Web3 start-ups that have emerged in New Zealand are two in particular that are setting out to supply infrastructure to power the entire blockchain ecosystem.
Onfinality and SubQuery are sister companies based in Auckland that employ around 50 people between them and have attracted significant venture capital funding and customers from around the world.
In a Web3NZ video podcast with David Ding, Callaghan Innovation’s Business Innovation Advisor, James Bayly explains the pros and cons of going global from New Zealand with Web3 ventures, and the realities of building blockchain-based technologies in a bear crypto market.
James Bayly (left) with David Ding on the Web3NZ video podcast
Bayly, a software engineer by training, is the Chief Operating Officer at both Onfinality and SubQuery. Onfinality, he tells Ding, is a Web3 infrastructure company, offering dApps (decentralised applications) developers integration with over 70 different blockchain networks.
“Let’s say you are opening a wallet. In your pocket, on your phone, that wallet has to talk to the blockchain network. Now, Blockchain networks are really large things. There are tens of millions of blocks on them. There's terabytes of storage required to run a full blockchain,” explains Bayly.
“Running your own hardware and infrastructure is a bit of a pain in the ass,” he adds.
“You require an external third party to provide you reliable, high performance access to those blockchain networks. And that's what we do at Onfidelity.”
SubQuery serves a different need, which Bayly describes as a “cache layer for blockchains”. Bring up your transaction history in a digital wallet requires the blocks on the chain to be queried, which is hard to do efficiently in realtime.
“SubQuery indexing is a process of, side by side, following the blockchain and taking the right information off it and storing it in a format that's a lot more performant,” says Bayly.
It makes for quicker access to richer sources of data for dApps. SubQuery is also in the process of developing its own token. Why do so when there are so many tokens already available in the Web3 world?
“The reason why is really about decentralisation,” Bayly explains.
“If you want to encourage something, a business or an idea, to stay out there you have to kind of incentivize people to keep perpetuating it,” he says.
SubQuery has been set up as a not for profit foundation with the SubQuery community using tokens issued to them, to participate in its governance. But Bayly and his colleagues chose Singapore to base the SubQuery foundation, with the New Zealand company supplying development services to it.
That’s simply down to the greater maturity of Singapore’s Web3 industry and the regulatory settings there, says Bayly.
“New Zealand's probably not the best place to launch a token business,” he says.
“The New Zealand tax regime is going forward quite fast. It's still slower than [Singapore’s],” Bayly adds.
“But you know, we are getting some clarity around some things here. [Singapore has] had a lot of crypto projects go through this already. So there's a bit of an ecosystem in Singapore of law firms and accounting firms.”
He says the British Virgin Islands and the Cayman Islands were other jurisdictions that had settings favourable to the ‘tokenomics’ of Web3. But with the fallout of the collapse of crypto exchange FTX and failure of Terra's UST and LUNA cryptocurrencies reverberating around the world, there’s potential for forward-looking governments to “slow things down a little bit”.
Bayly described the Web3 industry as going through regular boom-bust cycles, with the current depressed values of leading cryptocurrencies and tighter flows of capital for new ventures spurring a return to financial fundamentals.
“Do you have a sustainable business? Is your token modeling correct and sustainable?” Those are the sorts of questions prospective investors are now focused on. Where a whitepaper and slide deck outlining a Web3 venture may have been enough to secure funding in 2018 or 2021, boom years for the crypto industry, now investors often wanted to see technical prototypes before committing financing.
“For us right now, it's about building the best product, getting out there to as many customers as possible,” says Bayly.
“It's about product-market fit and I think many products that are kind of going under now in Web3 didn’t have that product market fit, they kind of rushed ahead, they raised the money,” he says.
Onfinality and SubQuery have taken a different path to most Web3 companies by having their teams largely based in one area - Auckland, a strategy that has fostered an innovative approach, but with customers all over the world, it also means taking meetings outside the usual 9 - 5 working day.
Securing tech talent remains a challenge for the fast-growing Web3 infrastructure players.
There is no “hotbed” of Web3 talent in New Zealand, because much of the technology is so new and rapidly evolving.
“For us, it's about getting young, smart people on board as early as possible who can learn on the fly and be a bit more adaptable,” Bayly says.
We want the fledgling Web3 industry to work more closely with universities to develop opportunities for software graduates to explore the technology’s potential. Part of seeing the industry thrive is also demystifying what Web3 is. The submissions to last year’s Parliamentary inquiry into cryptocurrencies, says Bayly, showed some of the superficial level of understanding of the broader Web3 environment.
“It’s a very technical space, we're very nerdy software developers,” Bayly admits.
“I think that's the next frontier for us as an industry, is this making it easy to access.”
Watch the discussion with James Bayly in full here.