Bankless - 56 - Authenticity in Crypto | 1confirmation

Starting point is 00:00:00 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm joined with David Hoffman, and we're here to help you become more bankless. David, fantastic episode. Lead us into it. Yeah, we had Nick and Richard from One Confirmation, which is a venture firm in the crypto space. and they are particularly dancing the line of playing with fundamentals, which is something that this crypto industry is particularly well suited to communicate because this is a very transparent industry,

Starting point is 00:00:52 but then also playing with narratives, the story, right? And this is not something new to crypto. Stories are very, very important, especially in young startups. Being able to spin a story is extremely important to attracting investments. But in crypto, it's always a little bit different. Everything's a little bit different in crypto. In crypto, and everything is completely available. All information is equally accessible to everyone.

Starting point is 00:01:14 So now the game is not can you access information. It's can you interpret information? And then the other game is the narrative game. The narratives that are spun around L1 protocols like Bitcoin and Ether and other L1 protocols like Pocod and Binance Train, like are those legit narratives or are those fake narratives? And then there's also the same narratives around smaller applications. We talked about the narratives behind something like Nexus Mutual versus something more closer to a yield farm. There are different narratives that surround these things, and they are backstopped by different fundamentals.

Starting point is 00:01:49 So it's a very interesting dance that must be danced around these two balances. And Nick and Richard of One Confirmation do a fantastic job playing on both sides. The one word that I've kind of added to my arsenal, the word of the episode, the word of the week, right, if we're here on Sesame Street here, is authenticity. authentic. That's what they look for. So it's not just fundamentals investing where you're just looking for a set of metrics and revenue and discounted cash flows. They're also very willing to invest in narratives, but the narratives have to be authentic. The fundamentals have to be authentic for it to be of interest. And I think this is a great mental model for you to add to your bankless arsenal, is when you're investing in crypto for the long term, look for authenticity. And these guys

Starting point is 00:02:36 showed some very practical ways you can look for it. And that's in the first part of the episode. So fantastic episode. Once again, David and I are doing a debrief. We've done a debrief for you. So if you are a premium subscriber, catch that debrief. It's an extra 20 to 30 minutes where David and I talk about the episode right after we record the episode. So you get our raw thoughts. And with that, I think we should get right into the episode. But before we do, we want to tell you about our fantastic sponsors who made this possible. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries

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Starting point is 00:05:23 in order to change the collateral you have backing them. Check out the power of AVE at AVE.com. That's AAAVE.com. We are so excited to bring our two guests. Nick Tomano and Richard Ched, they are from One Confirmation. One confirmation is an ultra-successful crypto VC firm. It is backed by individuals such as Peter Thiel, Mark Andreessen, and her own bankless guest, Mark Cuban. It is a venture fund with $75 million in assets under management. And we're going to talk a bit about their thesis for crypto because I think this is super interesting.

Starting point is 00:06:02 Nick, Richard, how are you guys doing? Great. How are you guys doing? Good. You know, it's the bull market. We're excited. Are you guys excited? Yeah, it's pretty fun right now. Well, you guys have been through a few bull markets. Maybe we could start there, Nick. How is this one shaping up? How does it feel different or similar to the previous ones you've been through? Well, I think it feels pretty similar. You know, anyone in crypto knows that kind of the booms and busts in crypto are unlike anything ever seen before in financial. financial markets, right? Because cryptocurrencies are global and the internet is more connected

Starting point is 00:06:37 before, things always go higher than you think they're going to go and then go lower than you think they're going to go, right? So I think that's certainly the case now. We're in another boom. And I couldn't tell you whether the crash will be tomorrow or a year from now when we're orders of magnitude higher. But I do know there will be another crash. And I think, you know, from the beginning, we've taken a long-term kind of venture approach. to investing in the space. And I think that's kind of what you really need to do unless you have a trading skill set or something like that, which we don't. Nick, since you've been through multiple cycles in these markets and Richard as well, you can feel free to chime in. A lot of, you know,

Starting point is 00:07:19 listeners to podcasts these days, perhaps this is their first bull market, bull cycle. Maybe you could kind of bring our listeners up to speed with the comparing and contrasting of how this particular cycle feels different. Like what is unique and compelling about? about this particular cycle versus the cycles that you've experienced in the past. Well, to me, and Richard, you should jump in as well, but I mean, to me, this is the most mainstream bull market that we've had, right?

Starting point is 00:07:47 And I think NFTs are playing a big role in that. Like I've been in this space kind of nine years or so waiting for a moment where my friends, my family that are not into crypto, you know, are interested and that time is now. I think, you know, in 2017 ICOs, that kind of happened very briefly, but it wasn't the degree to which people outside crypto are engaging now. So I think, you know, in that sense, it's more exciting than ever, right? Because this, the NFTs are really relatable to people in a way that nothing else in crypto has. And I think the extent to which

Starting point is 00:08:32 you know, the mainstream is getting interested is probably not even fully understood by, you know, crypto people like us. One thing I'd like to add, like comparing now to 2017 is like in 2017, you have like ICOs raised like billion dollar valuations from like just a wife paper. But this time around like when you look at the billion dollar valuations of D5 projects, like there's actual like cash flow fees that these protocols are generating. Like you can maybe make the argument that the valuations, like the PE ratios are overvalued relative to how many fees, how much fees they're generating, but at least there's an actual product for people to use, unlike in 2017, well, it's just ideas.

Starting point is 00:09:15 It's interesting, Richard, just a quick follow up on that. You mentioned kind of PE ratios, a price-to-sales ratios in crypto, and DFI is actually generating cash flows, which is amazing. None of that was present in 2017. And you said you could argue that maybe, maybe the valuations are still a little bit too high, although we've seen massive growth in defy that maybe someone would argue would justify this. But we also, when we look to the stock market, we look at PE ratios in the stock market, those are like at all time highs too. Well,

Starting point is 00:09:48 maybe not like all time highs throughout the course of all human history. But it's looking pretty frothy on the stock market side of things too. So in that context, what do you think about Defi, is it fairly valued? I think it's just kind of a consequence of like the global macro environment where we're in like zero interest rates, which this pushes up asset prices. So like, you know, the tech sector, like blue chip tech companies like Netflix are like a couple hundred P.E ratio. And, you know, people just get into more and more risky assets like crypto, defy. So I think it's kind of like underpinned by like what's going on like in the macro sense. So Nick and Richard, we're going to get to NFTs in a little bit. And I really like what you were saying, Nick, about NFTs being sort of the mainstreaming event. We had ICOs maybe in 2017, but NFTs are really, they almost exist outside of crypto circles, right? Like we're uncovering whole communities. We never knew existed. They don't know we exist. And they're diving down the crypto rabbit hole through NFTs. This almost seems to be the way from our conversation with Mark Cuban a week or two ago that he sort of got

Starting point is 00:11:00 super interested in crypto and fell down the D5 rabbit hole. But I want to talk about this first, because I think this sets the context for the rest of the conversation. So what would you guys say, Nick, is, maybe we'll start with you, it's kind of the underlying thesis for one confirmation. When you look at this space throughout the years, whether it was a, you know, in 2013 or with a 2017 cycle or now currently, is there one underlying thing? thesis for how this space will involve? How do you guys invest? Yeah, I mean, I think our thesis is very simple,

Starting point is 00:11:38 which is we like to back authentic founders that are building products for the crypto community. And they're products that kind of we understand as users, right? I first got in the space. I was one of the first couple hundred users of Coinbase and just really liked the product and hustled my way into working at Coinbase, right? Because I was excited about it from a user perspective.

Starting point is 00:12:00 And that's kind of how we guide all our investments, right? It's products that we understand from a crypto-native perspective, led by authentic founders. And those two pieces are pretty simple, you know, when you say them. But, you know, I think it takes discipline to execute on that thesis in a space where there's so much noise, so many different narratives and things like that. But I think as a guiding kind of principle to investing,

Starting point is 00:12:28 it's helped us, it's helped us perform pretty well. Can we talk about this, this term authenticity for a minute? So, especially in a bull market, there's a lot of noise, right? There's a lot of like copycats. There's a lot of things that that seem authentic, but maybe aren't. How do you determine what's authentic and what's not? Yeah, I mean, part of, I mean, the main thing is talking to the founders, right? I think one thing I notice from outside investors looking in and things like that is because like Bitcoin is, you know, was founded by Satoshi. Satoshi disappeared. And now it's just this kind of thing that exists with no real leadership. People assume that every cryptocurrency is like that. But the reality is that Bitcoin is the only cryptocurrency like that. Right. And every other cryptocurrency is led by a founding team. And that founding team is the most important aspect of the project. So I think the first thing you can do when kind of gauging authenticity is talk to the founding team, you know, assess the founding team and their engagement with a community, you know, things like that, right? And of course, you guys like Ethereum a lot, we do too. And I think if you think about authenticity, you know, Ethereum is the most authentic project in the space led by, Vitalik and a really strong community. So we kind of, that's what kind of got us really excited about Ethereum.

Starting point is 00:14:04 And it's what gets us excited about every single project that we're investing in. Richard, do you want to add anything to that? Yeah, I think another good mental model is like assume that like cryptocurrency prices we're going to crash like 90% tomorrow. Like would this founder still be around like building this project? And I think for a lot of people, answers no, because they kind of fomoed in and like see the cash grab. They might want a piece of it. But, you know, just from talking to the founder, you can kind of gauge what their incentives and motivations are.

Starting point is 00:14:40 And Richard, that starts to dive into a topic that I want to just unpack a lot more. Because the word authentic or authenticity, you know, we all know what that means. But really, if you go down to the basement level of it, it's a subjective term. So how do you guys define authenticity and what are signals of authenticity to you? Nick, you talked about, you know, or Richard, if you talked about if the, if the prices collapse, would they still be here? That's a great signal. What other signals do you guys look for when you guys are trying vet founders for their

Starting point is 00:15:11 authenticity? I think community building is, is a big part of it, right? So how are they engaging with the outside world? I think, you know, the way you build a cryptocurrency, based project is different than how you build a company. And, you know, I think an authentic founder is kind of sharing his ideas and engaging with the community in a way that shows kind of genuine interests rather than shilling in narrative, right? So a lot of this at the end of the day, I don't think it's a science, it's more an art in terms of kind of feel and evaluating people and

Starting point is 00:15:54 and projects, but you can certainly, you know, talk to the founder and get a feel for how they think about the world and also, you know, what their historical context is on the space, right? I think that's a big one for us. Like, particularly in 2017, like when we launched the fund, the last boom, you know, you saw a lot of Silicon Valley, you know, entrepreneurs leaving Google and Facebook to, you know, start crypto products, right? Companies. And, most, you know, we sat down and had conversations with a lot of those, but most of them didn't have deep historical context on the crypto space. And they didn't, they were just trying to build a crypto-based product because it was hot, right? And you can kind of, when you talk to people,

Starting point is 00:16:41 you can assess what their, their intentions and motivations are and, and what their knowledge and historical context is. And those are, I think, really important. for us and how we think about investing. One thing I like to add is like I think there's a difference between like crypto VCs and traditional VCs and that like traditional VCs like to look at like polished founders who are really good at like building a company like really good at hiring management like like if it like shilling like a narrative. But for like the archetypal crypto founders, they're really good at like building community, which is like a very different skill set because you're not really like managing. you're not really like managing any employees.

Starting point is 00:17:25 You're really trying to get a really passionate group of believers to like really evangelize the project for you. And that's just like a very different framework and skill set for like the archetypal crypto founders relative to the traditional like polished VC back founders. Nick, you were talking about how you would be able to tell that, you know, Silicon Valley startup founders would come to crypto and make a crypto product because it was hot, maybe not because they actually believed in this subject. And this is something I've been thinking about a lot lately where there is a,

Starting point is 00:17:59 there's a difference between and crypto-native people like us, like me, like Ryan, like you guys, can really tell when somebody else is crypto-native or not. Like, we can sniff you out. Like, we've got that kind of like that ability, right? We know who's real. We know who's fake. But does that come out in the person or does that come out in their product?

Starting point is 00:18:19 Because in 2017, it was very obvious that somebody, some people would make a startup and then they would slap a token on it and then they would call it crypto and that was a very easy way to identify if they are really about the crypto life so like where when you when you are sniffing out fake crypto people who are trying to come in and build something in crypto where does where does that where do they leak the fact that they are you know perhaps not here for the right reasons and how do you guys parse out people that are crypto like quote of quote here for the right reasons or just kind of here just to to be here because it's frothy. Yeah, what are the tells?

Starting point is 00:18:59 Well, I think, you know, historical context is probably to me one of the biggest ones, right? Like if you're building a stable coin, but you don't know about, you know, all of the past attempts at stable coins, for example, in depth, then that's a tell that you're doing stable coins because it's a hot thing rather than because you understand it deeply and, you know, and can figure it out. So I think that, you know, just it's not rock and science, but talking to founders and, you know, you kind of have to have deep historical context yourself to, you know, to do that. And it's not, I think it's not easy for, for everyone. But, but yeah, the main thing is talking to founders, right? But, you know, you could, you know if someone's like actual crypto user,

Starting point is 00:19:55 right? Like if you're building a defy product, but you're not actually using a defy products, then to me, that's another tell, right? And there's, you know, you'd be surprised how many, you know, founders that we've seen over the past couple years that, you know, want to build something on Ethereum, but they don't use metamask, right? So things like that. But at the end of the day, I think the main thing is talking to founders. You know what blows me away, too, Nick, is it's not just founders who aren't actually using defy. It's investors, too. You know, sometimes investors with large assets under management, like millions of dollars I'm talking about, who are investing in this space practically blind.

Starting point is 00:20:40 Like they're doing the narrative investing because they haven't actually plugged in and started using defy. This is part of the reason David and I started using defy. bankless. It's just because like if you actually use defy, so if you're listening to this guys and you're actually using defy products and tools like on an everyday basis, on a weekly basis, you have an edge because many investors, I don't know if you guys would say most, but I would say a lot that I've seen don't even go to that extent. They don't use a concerning amount. Yeah, a concerning amount. And they're just throwing money at this space without actually understanding how it works. And if you don't use the products, how in the world do you understand

Starting point is 00:21:21 how it works? Richard, do you want to say something about that? Yeah, I mean, I think that's right. And I think another advantage for us is because we're so crypto-native in like early users of a lot of these projects, like a good source of deal flow actually is just to, you know, live in these discords of like new projects that are up and coming and like kind of check out the early community like beta test the project. You can like also message the founder on Discord. or Telegram. So like you really get a feel for like where like the latest like up and coming friends in Defi like what those are like. Yeah, living in the Discord is really like basically that's that's living in the community, right? Because these communities are are completely

Starting point is 00:22:04 digital and that's the work that that you have to put in in order to do this. Can we talk about something else, too? Because I feel like David and I had a bare market crypto founders series. We did this back in like September, I think, David, right? And we brought on like Stani from Avey, we brought on Kane from Synthetics, we brought on Hugh from Nexus Mutual. And these are all D5 Protocol founders who started in like 2017, 2016, 17, but they persisted through the bare market, right? When everyone said crypto was dead, DFI was nothing. smart contracts would never work. Ethereum is a, you know, a pointless platform.

Starting point is 00:22:53 These teams kept building through the bear run, right? And if you talk to them during that time, you could see that there was authenticity because you have to have authenticity if you're going to stay when all the tourists leave, right? I feel at some level it's easier to find authenticity during the bear market. If you have conviction, you can find these authentic. founders because everybody else has left, right? The people who are just trying to be the Johnny come lately, they're gone and you just have the authenticity. But it gets harder during bull runs. It gets so much noisier. So is your strategy to, is it better to just deploy capital during the

Starting point is 00:23:34 bare runs and find the authenticity that way? Or can you still find that authenticity during the bull runs? And what advice would you give around that? Yeah. Well, it's a really good point. And we think a lot about this. I mean, even dating before defy, right? You know, like when I started at Coinbase in 2013, you know, six months or so after I joined, there was a Bitcoin boom, right? And we saw a ton of companies get funded that were Coinbase competitors. You know, companies like Circle and Zappo and, you know, raise lots of money from big VCs, right? And good teams. But they weren't you know, they weren't the right product at the right time, basically, and they weren't the authentic team doing it, right? And they, you know, they didn't work out as well, right? So I think what we

Starting point is 00:24:30 really try to do is think about what's going to be hot in two years and try to invest in that, right? So, you know, before defy became really hot, we, you know, invested in Maker Dow and Nexus Mutual and others. And, you know, those became really good investments when Defi got hot. And, you know, we didn't plow into Defi in Defy summer, right? Now, that, that, you know, could have been a mistake. And it certainly could look like a mistake in the short run because things were higher now even than they were. Right. But for us as a smaller fund, like that's the discipline that we like to approach things with where, you know, we invested in OpenC in 2018 and superar last year.

Starting point is 00:25:19 And now NFTs are incredibly hot, right? Those are the authentic teams that were doing it before the thing was hot. And so I think that's really where we want to be investing, right? is like where people, what's going to be really hot in a year or two and think about like, you know, what are the products that we get excited about that aren't hot, right? It's easy to be excited about products when everyone thinks it's hot. And that's the case with NFTs right now, right? But you kind of need to filter out the noise in a lot of ways and just think about what excites you

Starting point is 00:25:56 and what the future might look like. I guess that's how we like to approach things. So guys, when we talk about authenticity, can you give us some examples, right? So, Nick, you said Ethereum was an example. David and I listed some bare market founder projects that we feel like are probably examples. Yeah, I'm wondering if you would agree. But can you compare and contrast like defy protocols or projects in this space that are clearly authentic versus some that aren't.

Starting point is 00:26:28 We want you to name some names here if you're willing to do that. OK, well, look, I'll give an example that you guys, I'm curious how you think of this one, but because I know you like Ethereum a lot, right? And there's a lot of next gen, layer one smart contract platforms. That's obviously been a huge narrative the past four years and EOS and EOS and,

Starting point is 00:26:57 different projects like that captured, you know, billions of dollars in market cap from just a narrative, right, basically. And so there's certainly a lot of those types of projects, but, you know, there's a few that we think are authentic and that actually could have legs, right? And it's not to say we think they could displace Ethereum, but we think that they're led by, you know, real founders that have kind of new ideas that are pushing the space forward, right? And, you know, one of those would be Pocodot, right? So Pocodot, you know, Gav Wood, you know, he was one of the founders of Ethereum, right, and wrote a lot of the initial code.

Starting point is 00:27:42 And he has some ideas in terms of radical on-chain governance that are kind of new in pushing the space forward in different ways. And again, you know, we love it. Ethereum and it's not to say that, you know, Pocod is going to completely displace Ethereum. And we don't, we don't think that. But we think that that's an authentic project that is actually doing some interesting things to push the space forward, led by, you know, a team. And if you want to name some names of, you know, projects that are, you know, kind of

Starting point is 00:28:17 trying to do that but aren't really authentic, you know, you could talk about some of the VC chains like NIR protocol. and I don't even, Richard probably knows. Yeah, DFINITY is a big one. I don't. Would you say definitive is,

Starting point is 00:28:32 inauthentic? Is that what you're saying? Inauthentic, yeah. Why would you say that? I mean, they're taking a very Silicon Valley approach where you like make a close source. You hire like a world class research team

Starting point is 00:28:46 and like pay them a lot of money. And you just kind of go heads down, build a product, kind of in stealth mode, without giving like any consideration to building a community. around your project. And like, if they ever launch, first of all,

Starting point is 00:28:59 but like assume that they launch, like the question is like, how are they going to build a developer community if they've just been like heads down in self-mode for so long without kind of evangelizing the platform and getting organic community developers like what Vitalik and Ethereum have been doing. I think that's a really weird.

Starting point is 00:29:18 I wouldn't rule out DFINITY. I mean, at some point, you know, this Silicon Valley approach of just heads down and launch something and it, you know, and it works could happen. It hasn't happened to date. It doesn't mean it's not going to happen. I think, you know, the DFINITY team is a, you know, is a real team. And so to me, it's not one of, I wouldn't bucket it as kind of, you know, one of the worst

Starting point is 00:29:47 offenders of just a narrative-based thing. But I generally agree that it is, you know, they haven't taken a community approach that you need to in crypto. And there's something I want to parse apart here. And it's really, I think, what is going to be the through line for this whole entire episode is like the dichotomy between authenticity, which I think we could also talk about soul in that. And I'll parse that apart as well.

Starting point is 00:30:15 And then the other side of things is data and just like raw facts, which is something that we're definitely going to get into later in this podcast and something we haven't gotten to yet. And but to go back to what you guys were talking about about Pocod, and I would say, and I think I can speak for Ryan here as well, is like the reason why we don't talk about Pocodot very much is because it doesn't have full blocks, among other reasons. But I consider myself a full block blockchain maximalist. So if your blockchain has full blocks, I will talk about it, right? Because you can't fake that. And the reason why you can't fake that is because filling up a block full of transactions is expensive.

Starting point is 00:30:54 and you can't, no one wants to burn their money just to create a fake narrative, right? And so your blockchain that has full blocks, therefore has the community filling those blocks. And I think we, and you guys know perhaps know more about DFINITY than I do, but we can see like maybe their intentions are totally correct and they're building some of the sickest technology ever. But when you miss out on the community side of things, you miss out on like this sole side of things. This is a bottom up revolution. And if you don't have a bunch of just randomly dispersed people all over the globe believing in your project and filling up your blockchain with blocks that have good data in it, good transactional volume in it, then you don't have any soul, right? Like you don't have a community. You don't have this like because this is a populist movement.

Starting point is 00:31:40 And we need the populace to saturate the blockchain. And so there's this one part like we need the data there to verify it. And we also need the technology that's crypto native. technology as well. One counter I'd say to that, David, it's real quick, is what Nick and one confirmation told us earlier is that they like to invest in things before they're big, right? So like the whole point of, you know, Pocodot doesn't have full blocks. You know, maybe Nick and Richard, you guys would say, exactly, right?

Starting point is 00:32:15 Because we want to capture things before they actually hit their peak valuation, than after. I don't know what you'd say to that, Nick, but... Oh, that's exactly what I was going to say, right? Ethereum, there was a moment in time when Ethereum didn't have full blocks, right? So, yeah, I think it's thinking about kind of what the project is doing to push the space forward as well, right? So I would, to me, one of the reasons why Pocod is really interesting is at this point,

Starting point is 00:32:43 I don't know if you guys would agree, but from my perspective, Ethereum has effectively the same governance as Bitcoin, right? It's rough consensus. You need agreement from the miners, the developers, and the users to push things forward. And, you know, Vitalik is the benevolent dictator. And in some ways, and that's, you know, that's not a bad thing. That's just he's got a lot of power in the ecosystem and he's still around and he can push things through. So Ethereum has been able to change more than Bitcoin, but it's still relatively slow, right?

Starting point is 00:33:14 So I think if you're going to be kind of what comes after Ethereum, having this kind of radical on-chain governance and council system where the token holders can vote to make changes and amend the system at a much faster rate, that is interesting to me. And I think there's a community that likes that, right, and wants to have more power. And so if you think about, you know, blockchains is really empowering individuals. It makes sense. And governance has, of course, been a big narrative over the past four, five years. But to me, like a system like Pocodot that has this kind of user empowerment in a way that existing chains don't. And you have kind of, you know, interesting tech. That's what excites me about Pocod.

Starting point is 00:34:09 So I'm curious what you guys. My, so my thought on Pocodon, is I agree what you're saying about there being some authenticity there, in particular with kind of the development team. They're actually building net new things. And also, it seems to be the case that there's a community there. Also, I would say with some other projects that are, you know, some buckets similarly like Cosmos. I mean, there seems to be a real community in the cosmos. We love Cosmos also, by the way. Okay, so like those are Adam tokens. Where I get tripped up on these other chains is actually

Starting point is 00:34:43 not whether these chains have communities or not, or whether they're authentic or not. It's more about value accrual to the underlying token. So if you think about something like BitTorrent, for example, massively successful peer-to-peer network, but had no value accrual mechanism, I suppose until Tron bought them, right? But like, so massive amount of value creation, but very little value accrual. And so the way I think about these different crypto assets is through the lens of it's either a capital asset producing cash flows. It's a commodity like a transformable good or it's a store of value money. And I see that assets like dots or assets like atoms are very much more capital than the capital assets. So they're going to produce some revenue. They can also be

Starting point is 00:35:36 commodities because they go to pay for block space. But, because of the things like, because of some of the things like on-chain governance, which someone says, that's a form of plutocracy. That's how our corporations are managed. So no knock against on-chain governance. But the question is, does it disclude them from that third category of being a store of value money that Bitcoin certainly fits under? And increasingly, ether has started to fit under, too. And if that's the case, then you kind of value these other tokens more like layer twos, more like, you know, they are layer ones in a sense, but they don't necessarily have that monetary premium attached to them. So they're capital assets, essentially,

Starting point is 00:36:21 discounted cash flows. That's how you can value them growth into the future. That's where I get tripped up around some of these other chains. And then I see the valuations of them and the valuations of some of these things. Again, with empty blocks right now, you know, the valuations are almost as if they're pricing in some sort of long-term monetary premium as a percentage of Bitcoin or percentage of ETH. And so that's my big question, actually, with these other chains. It's less do they have real communities. It's more, how does the value accrual of the underlying token work out? And are they going to be long-term crypto-collateral monies or not? Maybe you guys don't think about it in that way, but I'd be curious.

Starting point is 00:37:05 No, I do. I mean, yeah, no, I think it's a good point. I think, look, it remains to be seen how these assets are going to be valued in the long run, right? And there's lots of people that have created their own models to do that. And yeah, I mean, the kind of store value versus capital asset framing, I think is an interesting one. I think, though, at the end of the day, what gives a cryptocurrency value is a community that believes it has value, right? And so I think the truth right now is that every cryptocurrency is just kind of being treated as a store of value. And even the defy stuff, you know, there's cash flows.

Starting point is 00:37:49 That's exciting. But nothing in defy is really being valued like that right now, right? It's just, it's being valid. Everything is just a meme, an idea that a community believes, you know, the thing has value. And I don't think, look, what we know about memes is that most of them are fleeting, right? And I think you need to have some kind of fundamental framing for why it has value over the long term, why people are going to continue to believe it has value. I think for Pocod in particular, there is kind of this interesting,

Starting point is 00:38:24 potential reason, which is you need to own dots to connect to, you know, the main chain, right? And that's, you know, there's a good argument right now that, well, will people really want to spend millions of dollars to do that when, you know, everything's open source and you could, you know, pay much less to get the same technology. We'll see. But, but yeah, you know, in summary, I think every cryptocurrency is a store value. And we very much think of like dots and atoms in this kind of in the same store value frame that we think of Bitcoin and ETH as. That's very interesting. Yeah. And, you know, good counterpoints. I want to ask you about another one that has been making waves recently, which is Binance Chain. So is Binance Chain authentic or not? It certainly has users.

Starting point is 00:39:24 It has a fair amount of capital. How would you guys put it through its lens? Yeah, I can talk about Binance Chain. Well, first of all, it has a lot of fake users. If you look at like the on-chain transactions, you can see like hundreds of thousands of like fake transactions to pancake swap to kind of game the numbers. But I think Binance Chain is, Richard, before you continue on that, can I get your perspective on this question? Do you think that that was, obviously that's intentional. How intentional do you think that is as a direct result of CZ? I, to be honest, don't know, like, how much CZ is, like, involved with that.

Starting point is 00:40:05 But regardless, like, my thoughts on finance chain, it's, like, very appealing to traders. Like, it's kind of going through the defy, DGEN summer of, like, 20, 2020, but just like going through that much faster. Where like for Ethereum, it took like three months for finance change. It's like probably going to take one month where like you have all these a thousand percent APYs and these like food farms that like all the traders are really excited about. But you know, traders are like looking for like short term mercenary capital.

Starting point is 00:40:34 And like we're VC fund. So we think about projects that are going to be around for five plus years. So it's not like authentic in that these projects are going to last for a long time like the projects on mine exchange, but in the short term, it's really appealing to the traders and, like, people who like to speculate on those things. It's funny because Binance sort of went through this with initial exchange offerings. It felt like, you know, time is blurring very much for me, but I don't know if that hit its peak in 2018 or 2019, but it was certainly a little bit after the ICO mania phase.

Starting point is 00:41:11 But that was shorter. And, you know, in order of magnitude less, it seems like what you're saying, Richard, is that might play out here on Binance chain in a similar way. Yeah, I think they're kind of just like a fast follower, like, you know, how like IEOs was like the fast follower to ICOs. Then remember you had finance decks. That was a fast follower to Uniswap, but that only lasted for like a couple months. And then now I see like finance smart chain, which is kind of a fast follower to like Ethereum D5. So, you know, if you're a fast follower and you just kind of copy what's existing, but you don't have an authentic community or really like innovate, then I think it's just kind of a short-term trade and not really like a long-term backable project. So Biden seems to be really good at creating narratives. And, you know, there's and memes and things like that. And that's not really a knock. I mean, that's a skill set in some ways, right? But.

Starting point is 00:42:10 I think it can, when you do that in these bubbles, it can suck a lot of people in that don't really know what they're getting into. And then if things turn, they're going to go away. Right. And so I think that's like, like you said, Ryan, you know, fast falling in terms of IEOs. You know, they kind of rode that wave after ICOs, but then it sucked in a lot of people, but then it kind of went away. It wasn't sustainable. So you're seeing these, you know, these kind of fast following narrative-based products that are, you know, seeming to gain some short-term traction. But, yeah, I think, as Richard said, you know, I think it pays to think about the long-term and if something is it sustainable or not.

Starting point is 00:43:03 And the thing about crypto, the thing that kind of truthfully just rubs me the wrong way about finance is they are very, much aggressively marketing and capturing a lot of new people. And that, you know, I tend to look at, we think about signaling and counter signaling, right? And when you see someone kind of signaling so much and so aggressive about marketing, that can in the long term actually indicate weakness, right? And so that's what I love about Vitalik, right? Like if you look at Vitalik, Vitalik's tweeted maybe three times in the past, you know, since 2021 started in this bull market, right? And he's, you know, he's not signaling. The counter signal,

Starting point is 00:43:51 I think is actually what you want to, what you want to identify, right? So. And the tweets he's made were just like links to some like esoteric research. Like I remember he made one for the Chinese New Year, which was interesting. So we're circling around the subject of narratives versus authenticity, narratives versus what's real. And earlier, we made the comments about how a lot of people just invest based off narratives. And perhaps that's not the best thing because you need the data to back that up. And I want to throw a counter argument in there as well and play devil's advocate. A lot of Ethereum people will perhaps ethmaxis will criticize Bitcoin for just being like this meme coin.

Starting point is 00:44:34 And yet, and yet I also believe at the same time, Bitcoin's meme is one of the strongest in crypto. But I would say, and I would argue that Bitcoin's meme comes from the fundamentals, the data that backs up Bitcoin, right? Like if Bitcoin is just a meme coin, then go ahead and roll back the chain. Well, you can't because it's Bitcoin, right? You can't confiscate anyone's Bitcoin. You can't change the hard cap. There are all of these very real things about Bitcoin. And because of that, because that data is there, in my mental models, the data is there and the

Starting point is 00:45:09 memes sit on top of the data. And when you poke at the memes and you question the memes, the memes can cite the data that's there. And there are other projects that are just memes and they actually aren't sitting on top of anything, right? And so there's this relationship between memes and data, narratives and data. And some projects just spin up narratives. And perhaps that's what Binance Smart Chain is doing.

Starting point is 00:45:33 They are just like, oh, we're going to kill Ethereum. Meanwhile, the state blow of Binance smart chain is putting on like 50 gigabytes every single week, right? And the implications of 50 gigabytes a week of state bloat is not something that the typical individual might be able to understand in their first foray into crypto. And so this is kind of where I want to turn it to the conversation of how you guys at one confirmation play with the juxtaposition between data and narrative. And Richard, I know you really like to use this thing called Dune Analytics, which is a data analytics platform for Ethereum.

Starting point is 00:46:08 So maybe we can get that conversation started. How do you guys invest based off narrative and also invest based off of data? And how do you guys balance these two things? Yeah, look, we have institutional investors, right? And when we raise the first funds, a lot of them would ask, like, how are you making decisions in terms of when to sell? for example, right? Are you just timing things based on, you know, what you think, when you think something's overbought or technical analysis or things like that? And, you know, we had to think deeply about analyzing all our investments from a fundamentals perspective. And so for every investment we make,

Starting point is 00:46:51 you know, we're thinking about asymmetric risk reward, right? We want, you know, investments that can be 20x if they work. And if they don't work, they could be zero. And then we kind of, you know, evaluate the fundamentals on a quarterly basis. And for every project that we invest in, we have kind of KPIs that we're, you know, we're looking at. And so, you know, you mentioned Bitcoin. And I think your point about Bitcoin, uh, it was a good one. Um, but what, what we look at for first, all of our store and value investments, right, is how many addresses on chain, uh, uh, you, uh, you investments, uh, have over a couple hundred dollars worth of cryptocurrency, right? As a proxy for how many people actually believe in this thing as a store of value. And so because Nick, they believe in it

Starting point is 00:47:39 enough to hold it on chain. Exactly. So like the on chain data, you know, doesn't lie, right? And that's when we look a lot after we, you know, make our initial investments and bets on teams, we're analyzing the on chain data to see what's real and what's just narrative. Right. And so if you look at Bitcoin, for example, the Bitcoin, the number of addresses with over a couple hundred dollars worth of Bitcoin has increased pretty significantly over the past year. And so that's real data that supports that, yes, this belief of Bitcoin as a store of value is growing. Now, one of the interesting things about ETH, and I know you guys are kind of ETH is money, ETH store of value, the number of addresses with a couple hundred dollars worth of ETH is increasing at a faster rate. And I know you guys are kind of ETH is money. ATH's store of value. The number of addresses with a couple hundred dollars worth of ETH is increasing at a faster rate. right now, right? So we kind of, we believe that ETH is becoming kind of this store value for the people and Bitcoin is becoming this store value for institutions, right? So we like looking at data like that, you know, allows us to kind of assess, you know, our conviction. And, you know, our conviction on ETH as a store of value is actually increasing based on this data. Wow. Okay. Store of value for the

Starting point is 00:48:52 people versus store of value for the institutions. And what you're saying is, This is not just meme narrative following. What you're saying is you're able to back this through on-chain data and real-world metrics. Yes. That is super cool. I'm curious before we leave the store of value category, because I think we want to get to some other categories

Starting point is 00:49:17 where you're doing this. What else is in the store of value category for you besides Bitcoin and ether? Dots, Adams, and. And I think that's it. Richard, am I missing anything? I think maybe KSM as like a light. KSM, true.

Starting point is 00:49:35 It's a lot of very light two dots. Basically, like, layer one chains, like have the upside of becoming store value. Super fascinating. Okay, cool. All right, guys, we're going to have to take a quick break in the action. There is so much left in this podcast. After we get back from the break,

Starting point is 00:49:53 we talk about what metrics Richard looks at to check for verifiable authenticity on chain, directly on the Ethereum blockchain. And we also continue the conversation about fundamentals versus narrative. And when do fundamentals come into favor versus when narratives come into favor? And then we also finish up with the conversation that because Ethereum is completely transparent, this informational advantage is gone and is replaced by having skills to be able to interpret and digest the data versus having political connections and friends and relationships that offer access to information that other people don't have.

Starting point is 00:50:30 We ask how Richard and Nick think this will change the future of defy investing. Really a fantastic conversation. Don't go anywhere because we have to take a moment to talk about some of these fantastic sponsors that make this show possible. If you want to live a bankless life, you need to get a monolith defy visa card. Monolith is both a one-two punch of an Ethereum smart contract wall. wallet, as well as an accompanying Visa card that lets you spend the money that you have in your Ethereum wallet wherever Visa is accepted. It's really a fantastic tool that lets you use

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Starting point is 00:53:00 If you're a developer or you just want to earn yield on your collateral, go to www.synthetics.io, where you can stake your SNX or ETH and earn fees from synthetics. Let's talk about some other things then. Maybe in the defy sector, I know you guys have some investment. investments there, what KPI's you look for, and how you find that verifiable authenticity on chain? Sure. I mean, one that comes to mind is like Nexus Mutual, which is like a DEPI insurance project.

Starting point is 00:53:32 And like the very obvious KPI is how active cover amounts, which is basically how many, what's like the total amount of cover policies that are currently active right now. Like it just hit a billion dollars like a couple weeks ago. And like it's had incredible growth. I think it's like over 100x in the last year. This is like one where like a lot of people for Nexus like to look at, you know, the capital pool and the token price as like their KPI's. But I think the more important thing is the active cover and launch. Because like while it's not directly tied to like the token, if like the fundamental KPIs of the project are increasing, eventually there's going to be some sort of margin of safety.

Starting point is 00:54:19 such that the token price is going to catch up to its fundamentals. And that's kind of how I feel like Nixis right now. Richard, for the benefit of those watching on YouTube, you actually put together a dashboard on this. Would you be able to send that to me so I could display that? Sure. The URL is nexus tracker.io. And Richard, yeah, Richard built that.

Starting point is 00:54:39 I mean, Richard's kind of being humble here, but Richard built that and, you know, it's become a really important resource for the Nexus community. So yeah, anyone that's interested in Nexus should check out Nexus Tracker. And there's a lot of good data for what's happening on chain there. This was before doing analytics existed. Yeah, I had to do all the hard work of parsing all the data. But fortunately now, it's the way either to spend up a Dune dashboard than to build

Starting point is 00:55:07 your own custom site. Oh, we'll definitely get to Dune. I remember including images of Nexus Tracker in bankless newsletters previously. It's fantastic that you're the one who created. rated this the whole time. All right. So what were the metrics that you were just talking about that you look like? I imagine they're on this dashboard. Yeah, yeah. I mean, the top one's active cover amount, annualized premiums enforced. That's like a really fancy way of saying annualized revenue, but kind of an insurance lingo. So like at the current rate, they're making close to like $20 million a year in revenue just from just from covers. Like there's other revenue sources that gives the sell spread and also investment earnings. So we could think of that $20 million. million per year as their annualized projected revenue, basically, if we were to compare this to some other capital asset like equity. Yeah. And so one of the conversations that it's important to have about Nexus Mutual is that the token has not perhaps followed the revenue metric, which is something that we might have expected if in more efficient markets, right?

Starting point is 00:56:09 And that's the gist that I'm getting out of this conversation. So we have the data because of, you know, thank God for Ethereum, it's this inside out platform. and we can consume all the data we want. Yet the token price is doing things that are different from what we would expect the data to show. So is that where the narrative aspect comes in? And so like what's the relationship between the Nexus Mutual and the NXM token price and then the Nexus mutual revenue? Like explain that relationship to me. Yeah, I think one thing that's very different between Nexus and like NXM and all these defy coins is that the NXM token is constrained by a formula, the bonding curve.

Starting point is 00:56:44 So it's like directly tied to the capital pool size versus other coins like say chain rink where it can just like trade up like based on narratives. Like for an XM price to increase, you actually have to deposit more money into the capital pool. And like there's a formula that ties the capital pool amounts to the token price, which is good and bad. It's good in the sense that like it's tied to like some sort of underlying fundamental. And you can think of it as like a leverage Fed.

Starting point is 00:57:14 on ETH based on like how much the project grows relative to EVE. It's bad in the sense that you can't get these like speculative like 10, 20x bubbles that are really exciting that you can with like other new DFI coins. Richard, I remember a VC once telling me this is, you know, pre-crypto that the most interesting companies were always the pre-revenue companies. Those were the ones who had the big valuations because investors could kind of like imagine what future revenues were. And once you start actually generating revenues

Starting point is 00:57:46 and they can see that and they can measure your growth rate, well, valuation tends to kind of collapse because I suppose it's less narrative driven, less people imagining the possibilities in the future. It's more grounded in the real world. It seems to be what you're saying is kind of happening here. Some tokens with no revenue fundamentals are just absolutely going on monster tears due to narrative.

Starting point is 00:58:08 But once you get revenue and fundamentals in your token, that can kind of constrain. your narrative power. Yeah, that's correct. I also like to say that like for Nexus, like for a brief period of time, the NXM, the WNXM token, which is like a rapid version of Nexus that's really tradable on exchanges, it was trading below book value, which like is like, as like honestly, I don't think that's ever happened before in like any D5 project.

Starting point is 00:58:33 So like basically what that means is the amount of ETH in the capital pool is worth more than the total market cap of NXM. So basically, if all of the NXM token holders decided tomorrow that we're just going to return money back to token holders, you would end up having more ETH than what you paid to buy that token. And like, that's just, that was just an incredible, like, undervalue assets that a lot of smart investors, like fundamental focus investors decided to buy, that was a good time to buy an XM.

Starting point is 00:59:07 That's absolutely crazy. Because to me, that tells me that the power of the narrative side of investment can just dwarf this side of fundamentals-based investment. And that kind of tells me that the ratio between narratives to fundamentals in this space is like 90-10 or something, some crazy juxtaposition like that. The narrative is actually, so how do you guys think that this skews investments when the returns on investments is theoretically so much narrative-based, rather than fundamentals base. How does that skew capital allocation in this industry?

Starting point is 00:59:43 I think that's short term though, right? Like our bet, we're making long term five to 10 year bets. And our view is that, yeah, narratives work in the short term. But when it's just narrative, the narrative runs out and then there's nothing, right? So, you know, we want to be investing in, I think narrative is important. I'm not dismissing it. We want to be investing in projects that have good narratives, but underlying fundamentals as well, right?

Starting point is 01:00:11 So I think what you don't want to be doing is investing in just narratives because there's some people that, there's a lot of ways to make money. So I'm not saying that people, you can't do well by this, but I just, it's not the game we're playing. We're playing kind of long term investing in strong fundamentals also backed by good narratives, right? I think you really need both to, you know, to have 20x kind of upside potential in the long run, which is what we're doing.

Starting point is 01:00:40 But because these are public, I think it's a lot. What I always say is like you need to approach crypto investing like venture investing, where it is kind of a long-term perspective and you're not making decisions based on 50% moves, you know, one way or the other, right? It's easier said than done because, you know, these are publicly traded and, you know, it is alluring to, you know, focus on what's hot on Twitter and what's hot on price and things like that. Well, it's one thing we say on bankless is you have to decide what type of investor you're

Starting point is 01:01:17 going to be in crypto. It's either one of three. You're fundamentals investor, which means you're doing the hard work that Richard's doing here or you're a narrative investor, which means you're looking at, you know, three to six month timelines and you're just going on the next narrative trying to front run that, or you're a trader. And you have to really pick. It's hard to do all three things at once well.

Starting point is 01:01:39 And the bankless program, this is one of your first time listening. You'll find that we skew towards the first, which is fundamentals, long-term hold, you know, and not the other two. But what you just said, Nick, I think is so important is because as smart people start digging into this data, ideally the market gets smarter in general in terms of its capital allocation. So the more Richards we have going through Dune Analytics and parsing through this data, the more rationalization we can make behind the valuation of the assets in this space. And the market levels up together. Now, I personally, I was hoping to see a bit more of that in the 2021 bull run.

Starting point is 01:02:23 I still feel like there's a lot of garbage in the top 100 coin market cap that is just narrative driven and not driven by fundamentals. but do you think that the market is getting a little bit smarter? Maybe Nick, your thoughts? Not really. Okay. And yeah, I think memes are, like, I'm not dismissive of memes by any means, right? Like, I think NFTs would be a good example to look at, right? There's no fundamentals underlying NFTs other than like a community that believes in

Starting point is 01:03:01 this NFT and that believes it has value, right? And NFTs are going crazy right now. There's certainly some type of bubble in NFTs and, you know, a lot of people, artists and things like that coming to the space for cash grabs. But I also believe in crypto art as a category, for example, which I think has a chance to completely displace the traditional art world, right, in terms of value and what people believe has value. There's not fundamentals there, really. It's just kind of belief. And so I'm, I think fundamentals are great. We definitely want to invest in like products that have good fundamentals, but I'm also not dismissive of memes. I think, and I think NFTs particular are kind of revealing truth about the crypto space in general that maybe a lot of people don't want

Starting point is 01:03:55 to recognize, which is that, you know, There is, memes are a big part of everything that's happening, and I don't think that's going to change. Richard, you want to add anything? Yeah, I think that's right. I think related to NFTs, there's also, like, some fundamentals that you can look at is, like, kind of, you know, trading volume. So, like, maybe, like, the assets themselves are memes, but, like, you can invest in, like, the picks and each other of the infrastructure that's, like, powering, like, the NFT economy. And, like, that's, well, it was the impetus for investing in. OpenC in 2018 and Super Rare in 2020.

Starting point is 01:04:32 Super Rare was actually a really interesting case study. So we made the investment around DFI summer. When DFI was really hot, but NFTs was still largely under radar and a lot of Defi Max was dismissed NFTs. But if you look at the Dune Analytics Dashboards, like the monthly volume for NFTs was growing about 55% month over month. And like at that time, like the absolute numbers. were still very small.

Starting point is 01:05:00 So like 55% month over month grow, growth didn't seem like a lot. But if you do the math with compound interest, eventually that gets to like an extremely large, absolutely numbering. Like as you can see here in the graph, like in February, it's just like completely exploded. So that's like a good source of alpha

Starting point is 01:05:20 for finding these underrated gems that are gonna explode in a few months. I do wanna get your guys' opinions on the cyclical of this whole narrative versus data debate, where my gut take is that in bull markets, things are primarily narrative, and in bear markets, data and fundamentals take over. And Ryan earlier mentioned our bare market DFI founder series

Starting point is 01:05:45 where we interviewed Kane from synthetics, Donnie from Avey. And there are, and in bear markets, those projects weren't narratives, because there was no narrative in the bear market. things were dead. There was only fundamentals. There was only reality. So how do you guys think that on these market cycles, how do you think the cycles of narratives versus fundamentals follow the market cycle? Can you guys explain that relationship? Well, I think in terms of narrative,

Starting point is 01:06:16 like, I think dismissing like narrative-based coins completely is, is wrong, right? Like, I think what you want to invest in is narratives that more people are going to believe over time, right? And so Bitcoin, as an example, is a narrative, is an authentic narrative that, you know, just more and more people are believing. And that's what allows it to capture value. So we certainly are investing in narratives that we believe are just going to grow over time. I think having certainly having fundamentals that underlie it in some way is important. And that's a good indication of kind of, you know, a narrative that's going to last over time if the fundamentals, you know, exist through kind of bull markets and bearer markets.

Starting point is 01:07:12 But, but yeah, I think, you know, fundamentals are certainly good. But we're like, we're not saying that we're just investing in fundamentals at all. I think I think narrative is and the meme is an important, critical component of any cryptocurrency. It's interesting because it's kind of almost a semantic thing, right? Because what you're saying is that narratives can have fundamentals and that narratives can be authentic. and you can see that authenticity, like on chain, in all sorts of various ways. So it's not that you're not investing in narratives, but you're investing in narratives with some fundamentals behind them.

Starting point is 01:07:58 Let's use the example of people, right? Have you guys seen? Yeah, for sure. Artwork and how it's going crazy in value right now? Yes. And would you say there's any fundamentals underlying that? Yeah, they're hard to quantify, right? So I would say it's fundamentals in the way that the store of value narrative has fundamentals. It's cultural expression and it's more people believing that people's art is awesome and wanting more of his art. And that's a fundamental in itself. But I agree it's also part part of this meme socially constructed narrative. Right. The only fundamentals that I would say are behind people's art is the fact that humans have liked art for forever.

Starting point is 01:08:42 But that doesn't even mean that necessarily people's art is what's going to be enjoyable. But clearly it is because people pay millions of dollars for it. Yeah. So we, I mean, we bought a people piece for the fund. And so, you know, people listening might say, well, you guys are talking about fundamentals, but like what's the fundamentals of a people artwork, right? And it kind of, that I think that solidifies kind of my point that I think a narrative, of a meme is could be a good investment if that meme just grows and grows over time, right?

Starting point is 01:09:16 And so like buying a Beeple is a bet on the artist, right? We think that Beeple is a really compelling artist that engages with a community incredibly well online as well. And there's a chance that, you know, Beeple is our generation's Warhol or something like that, right? And the belief in this kind of crypto-native digital native artist just grows over time. Right. And so that's just an example of this a meme-based investment that we, you know, that we think has a lot of upside.

Starting point is 01:09:51 I think that's a great articulation of it because I do think that the traditional finance world draws things too narratively when they use terms like fundamentals. They mean that the thing must have cash flows associated with it. And you must be able to do a discounted cash flow analysis and analyze it in the way you analyze a stock. And so they draw far too narrow of a like framing around things that can be valuable. And you're saying, look, things can be valuable and have fundamentals outside of of cash flows, right? It's just belief.

Starting point is 01:10:27 What I've been saying is like, look, there's this, there's an institutional narrative that's created for how you value something. But I think what we're seeing in 2021 is like the people, on the internet are saying, fuck this. Like we're investing in what we believe has value, right? And I think GameStop is obviously a stock market example of that, but it's also happening in crypto and in NFTs. So it's just belief.

Starting point is 01:10:52 All right. Well, let's talk. This is such a good conversation. It's so many good points here. Richard, I want to come back to another point that we kind of touched on a little bit. And that is this, you know, Dune Analytics dashboard that you put together. And this is just an example. So you were talking about monthly crypto art volume and being able to see all of this on chain.

Starting point is 01:11:12 I think the macro picture here is what you're doing, it appears to me, is like the type of work they do on Wall Street for stocks where they're combing through quarterly earnings reports, basically, and coming up with projections and trying to project out the future of these things. The difference is you have the superpower of crypto and the blockchain in that you don't have to wait for quarterly earnings reports. All of this data is available on chain. And if you know how to crunch it, and if you know the model behind the project and kind of the growth sector, then you can put together some extremely compelling analysis on the verifiable authenticity of what's really happening in these projects. And you could do this for NFTs. You can do it for DFI. it for anything that's on chain. That's really what you're doing here, right? Yeah, yeah, for sure. In June, like, published a manifesto actually, like, I think a month ago. It was like title,

Starting point is 01:12:10 something like, The Future of Finance will be like real time and basically kind of outline what you said. Like, now we don't have to wait for like quarterly reports, annual reports. We don't have to worry that like some Enron's going to happen where like they kind of, they cook the books and like fudge the numbers because like the blockchain doesn't lie. you can get all this data on chain in real time. And like we know it's like authentic. And it's a really good source of output like for like new projects that launch and like, you know, aren't big enough to like really have like any like semblance of like poorly reports.

Starting point is 01:12:47 But you can like look at their numbers and see if they're growing like 50% month over month, then it's like something worth looking at something worth talking to the founder, maybe even investing. Richard, why do you publish this open source? I'm curious. You know, in traditional financial, a lot of these funds will take this information, keep it secret, so they keep the alpha internally. Why do you guys just publish it on Dune? Oh, there's actually a lot of stuff that I keep private on Dune. Okay.

Starting point is 01:13:14 A backstory. So I was using the Dune, like, the free tier for a while. And then, like, DFI summer started. And, like, there was, like, all these farming projects I was doing. But, like, people were stalking me on Dune, like, asking me projects I was farming. I got to like pay for a pro version to like make this private. So like the the trading alpha is private, but like these like long term like KPIs I think are really important for like community to see like how a project is doing like this stuff is public.

Starting point is 01:13:43 Yeah. So all our fund investments right are obviously long term investments. We're, you know, the largest investor in Super Rare and you know, we want people to recognize that super rare is is killing this market. right now, right? And I think an interesting thing, too, about the on-chain is that in, you know, in Silicon Valley, when founders raise money, too, it's often all about narrative, right? It's about a founder that can get in a room with VCs and pitch a big vision. And there are a lot of bullshit founders like that in Silicon Valley, right? I think Richard mentioned earlier, we kind of, we like investing in founders that may not pitch great, you know, in a room in Silicon Valley, right?

Starting point is 01:14:27 but are building something very useful. And I think the Dune boards kind of help separate that. And still, like most investors, I don't think, are looking at these, but that's important for us to both evaluate new projects, but also, for our investments, we want people to recognize that, like, look, this super rare is the dominant prominent player in the crypto art market, despite, you know, a narrative from, you know,

Starting point is 01:15:03 certain people that might suggest otherwise, right? So with this availability of data that public blockchains offer and specifically with applications like Dune, where you is, Dune is really a way to consume data easier, it's, it's revolutionary that all of this data is equally available to everyone. And historically in, in previous, in legacy finance, uh, accessing data. that other people don't have is a fantastic way to gain edge, right? Getting your hands on information and data that other people don't have and you can use that information to place investments.

Starting point is 01:15:38 That's not true in public permissionless systems because everyone has the data. But the difference is that not everyone can consume the data in the same way and not everyone can interpret the data in the same way. So it's a new game. Everyone has all of the same information. but now that the advantage is not in like personal connections or political relationships so you can get your hands on data that other people have, now it's about how well can you consume the data and how well can you interpret the data.

Starting point is 01:16:08 Maybe talk about that transition and how that's going to change the game of investing moving forward if we do live in this new futuristic Ethereum-based world or public permissionless blockchain-based world. Yeah, I mean like one big difference with like data on the chain and like, traditional world is like it's it's all free and like publicly public to access like for nfts and like art for example um i i also built cryptoart. i which is like a website to track like total art market cap in like kind of a rankings of like all the artists by like each individual art like artist market cap and like you can do the same you can kind of do the same in the

Starting point is 01:16:50 traditional art world there's a website called artnet.com but it costs like 30 000 a year to get a subscription to that. And the data is also incomplete. So I mean, I think it just revolutionizes the game where like now if you want to be an art investor, all the data is in front of you, you can see like how much like other people I've paid for a particular artist works like historically

Starting point is 01:17:16 and then kind of do like a regression and see like how this artist is like trending over time and like popularity like are there artwork prices increasing over time. Whereas like in the traditional art world, But the art dealers have as have as impactful information in that, like, they know, like, what the previous, are, like, what the previous price the artwork was sold for. And, like, that's kept secret to, like, the new buyers. And, like, that's completely changed the game in our investing.

Starting point is 01:17:48 For sure. Yeah. I mean, to me, transparency is one of the core features of blockchains, right? And the fact that anyone can see this data about artwork is really powerful. And you don't have to be a rich person who can afford paying a couple hundred dollars a month for ArtNet or whatever. Anyone can go to crypto art and see what's happening. Right. So that's one of the core features of blockchains that we really, Richard in particular, who's fantastic at data, we want to take it, bring that to light more and allow more people to recognize that.

Starting point is 01:18:23 I think I'm falling in love with this, this Eith boy portrait of Vitalik. He looks like, what's it? Vitalik takes the role of Picasso's son. It's amazing. Too bad it just sold for almost half a million dollars. So that might be out of my price range. But this is phenomenal stuff. Richard, you know, one thing David and I often talk about on bankless is the tremendous,

Starting point is 01:18:46 I guess, white space of opportunities that are available for people who learn this space and learn it early. Like just a rough analogy is it's kind of like learning HTML, you know, right before the internet, right? You're just on the cusp of something. You have skills that are in demand that other people will want. It seems like Wall Street is going to have to level up. Like the Wall Street analyst game, it's no longer going to work in this new open, permissionless crypto economy. But I'm curious how somebody would get started doing some of it. this stuff, doing some of the stuff that you're doing. If they're interested in becoming a, you know, crypto financial analysts, what kind of skills do they need and how do they get started?

Starting point is 01:19:33 And I think, like, having, like, computer science skills, like, at least, like, basic abilities of code is, like, becoming, like, more important than ever. And, like, for example, with June, like, all of it is in SQL, which I guess you don't need a CS degree to, like, know how to use SQL. There's like plenty of tutorials out there to do that. Whereas, you know, like with traditional finance analysts, they're probably just combing through PDFs and like decks to like put together the numbers. Whereas for this, if you just a couple line of code, like can get to you like the same amount of information just like much faster and much easier. I also think like, I know understanding solidity and like at least being able to like read and like parse through

Starting point is 01:20:12 smart contracts is like really a value under like underrated scale, especially in D-Fi. I think during the DFI summer, there were like all these new projects coming up. Like if you, and like a lot of them were unauditive, like if you knew your way around solidity and could like at least like you a sanity check or like a dip check of like the smart contract versus like the synthetics mentor contract that they borrowed from, you can see like what's actually going on in these projects and not just, you know, invest money into a new project just because like it's a good mean. And to be clear, there's upside in doing this guys.

Starting point is 01:20:49 I think what Richard is saying is learn to code, you know, learn at least some of the basics, but there's some upside in doing this because what you've been saying the whole time is you found treasure this way, right? You found treasure with Nexus Mutual. You found treasure in NFTs before they were a big deal. You were able to predict things using this on-chain data and front-run opportunities that way. Is that right? Yeah, yeah, that's not it.

Starting point is 01:21:14 I want to ask you the question of what's next, of what you're seeing now that will be kind of the next big thing. You have any thoughts on that? Do you have any, I guess, ideas for us or places to look? Are you going to keep that alpha internally for one confirmation? Nick, do you want to answer that? Well, I mean, there are some obvious things, right? I think most people recognize the gas fees, right, on Ethereum right now are not viable for most people. And, you know, I think there's a narrative that, you know, Ethereum is becoming a defy and NFT platform for rich people.

Starting point is 01:22:00 And there's, you know, could be an opportunity either for, obviously, there's a lot of exciting stuff happening on Ethereum to change that. or for, you know, other platforms, right? So we're thinking a lot, we're looking at the on-chain data right now. Take Superair. Superair NFTs are working really well for these high dollar value, low throughput transactions. Right. So Superair, if you want to plug Superair bot, which Richard also built, which is a really cool Twitter bot.

Starting point is 01:22:30 And if you want to see in real time, who's buying crypto art and the artists that are selling it and monitoring that. I enjoy taking a peek in the morning. It's really just a good way to start the morning. But if you look at that, you'll see that there's every transaction, every purchase is, you know, $500 minimum and then, you know, hundreds of thousands of dollars maximum, right? So and that makes, it works for Ethereum because, you know, fees are anywhere between $20 and $40 right now, last time I checked, maybe lower today, I'm not sure.

Starting point is 01:23:08 But looking at that data and looking at NFTs, for example, and seeing that it's mostly high dollar value, you kind of can recognize that in the future, there's a need for a platform that supports kind of low dollar value, high throughput NFTs. And that's like one example of a big opportunity that we believe in that we're not really seeing yet. and we're thinking a lot about.

Starting point is 01:23:38 Richard, do you want to follow up? Yeah, I mean, high gas prices are just like pricing out a lot of like new, interesting use cases. Like kind of the gaming NFT, like use case, like kind of died because of the high gas prices. So, you know, I'm optimistic, you know, about like layer two stuff. We also invested in a project called a hop protocol, which is providing a really good UX2 bridge between layer one Ethereum and layer two's. also between layer twos and layer twos, like a really good UX for that without like having to

Starting point is 01:24:10 deal with like the withdrawal period and like waiting to get your money there. So I think a lot of like picks and shovels and like layer two scalability stuff, that stuff is really exciting in the next few years. I want to ask you guys about the changing landscape of investment into into Ethereum, into defy and into the greater world of crypto because the last, you know, $50 billion of investment into the space is not going to come from the same people or the same, you know, investor dispositions as the next $50 billion, especially what we see coming down the pipeline in this bull market. How do you guys think that the people that are looking into crypto now, how will that change the landscape of, you know, memes and narrative versus fundamentals?

Starting point is 01:24:56 Or how will just the, what will shift because of these new players coming into into crypto and investing in crypto? Well, I think on the institutional front, it's still all Bitcoin, right? So Bitcoin is just a very simple story that institutions understand, right, which is digital gold. And so I think that is going to be a big driver on the institutional front. Institutions are not yet buying ETH. I think it's likely that they, it's very likely that they will.

Starting point is 01:25:33 But right now, the, the narrative is still too confusing. And, you know, there's, you know, the, the, the, the, the, the, the, the, the, the, the, two economic improvements haven't happened yet. And I think, I think, I think there's certainly a, a chance that in the future, Eith has the economic story that Bitcoin has, plus it's most widely used. and that becomes something that institutions get on board with, but we're not there yet. So I think on the institutional front, it's Bitcoin, for the next year probably, it's kind of Bitcoin, and then institutions will allocate to funds and things like that that are investing in other

Starting point is 01:26:12 cryptocurrencies. And on the individual side, again, it goes back to kind of Bitcoin is a cryptocurrency for the people. And I think ETH is, sorry, Bitcoin is the cryptocurrency for institutions, and ETH is increasingly the cryptocurrency for the people. I think if you look at the use cases that are bringing people in right now, it's all Ethereum, right? So I think there's a really strong story that that is going to continue. And, you know, there's also other chains that I think are doing interesting things. I mean, obviously, Top Shots is an example of a project that is bringing in new people.

Starting point is 01:26:52 I think we're likely to see more of those as well as is kind of a view that I have. I think up until now, we've been mostly focused on these crypto-native, and that's what we love, that's what we mostly invest in. But we're closer than ever to just products like Topshots that aren't really crypto-native at all, but, you know, bring in our interesting products that bring in new people. So that's, I guess, a general view of how I see, you know, the new people coming in over the next couple of years. Just a quick follow up on that, Nick. And then I'd love to hear Richard's thoughts on this too.

Starting point is 01:27:32 But what do you make of some of the NFTs being priced and denominated in ETH right now? Is that part of the story value for the people narrative? Or do you think that's just a passing thing that, you know, NFTs won't always be denominated in ETH. They just are right now. No, I think they probably, they will. I mean, our whole thesis on crypto art in particular was like, just like, just like, like rich people like traditional art, crypto rich people like crypto art, right? And so I think

Starting point is 01:28:01 I think ETH is kind of the on ramp. And you know, you can buy NFTs on for USD on Nifty and things like that. But we're most excited about kind of the on chain stuff like OpenC and like super rare. And certainly I think more and more people that I'm hearing from and talking to, especially new people. I mean, I heard from a friend today that's really gotten excited about crypto, and he's asking me, what should my NFT allocation be? And so his, you know, he recognizes that ETH is kind of, you know, should be the biggest and Bitcoin as well.

Starting point is 01:28:40 But they're kind of thinking within that allocation, should it be 5% NFTs? Should it be 20% NFTs? So I definitely think it's first Bitcoin and ETH and cryptocurrencies and then NFTs, and then NFTs for most people and most people will continue to think about NFTs in ETH terms. Fascinating that ETH is being used. Oh, sorry, I was just going to say fascinating that ETH is being used as money in the NFT scene. Go ahead, Richard. Yeah, yeah.

Starting point is 01:29:08 I also have the data to back that up that, like, people are thinking about NFTs in terms of ETH. So, like, if you look at, like, my super rare Dune dashboard, you can see, like, the average artwork price over time. And, like, there's, like, a USB graph and an ETH graph. So a commonly asked question is like, well, these prices are just going up because ETH is pumping. So like in dollar terms, they're also like pumping. But you can see from the graph that ETH has like relatively kept its value as like the dollar price of ETH increases.

Starting point is 01:29:39 So that means people, collectors generally think of artworks in terms of ETH rather than USD. And like the stuff isn't getting more expensive in dollar terms. wait so i want to i want to unpack that just a little bit so euler beats let's use uller beats as an example um only price in eath you can only buy it with eith price and so if if the eith price two x is are you saying that that does not mean that the euler price uh uler beats uh nfts are also two xing or are they two xing uh two x in terms of dollars or in terms of dollars yeah wait so so ether price goes from $1,000 to $2,000. And because Yuler B. NFTs are only purchasable by ETH, how does that impact the evaluation of the Euler B's NFT? Oh, I see. And then the graph, like in like the dollar terms would

Starting point is 01:30:31 double, but the ETH would stay flat. And like what you want to see is that the ETH graph, you know, ignore the dollar graph. Just look at the ETH graph and make sure that it stays flat or goes up and doesn't go down as like the ETH price, ETH USD ratio increases. So this just adds more. narrative behind the meme of digital art is priced in ETH. Yeah. One interesting thing, I think it still remains to be seen how collectors think about like ETH appreciation. So an example is in January when, you know, ETH price was mooning, there were some

Starting point is 01:31:14 collectors on Super Rare that felt under exposed to ETH. and wanted to sell their NFTs to get more ETH because ETH is way more liquid. Right. So there's like there's the kind of liquidity discount that comes with NFTs. And so I think most NFT holders and even the artists that are, I think people underestimate how many new artists are coming into crypto and Ethereum is their on-ramp and how they're getting paid. And they're sure, some of them are going to Coinbase and cashing for cashing for dollars, but a lot of them kind of recognize ETH as this kind of valuable store of value and are holding it.

Starting point is 01:32:01 And I think it's a really awesome way to bring in new people to crypto. That's fascinating. That is such a new development that's come with NFTs and it's so exciting to see, you know, some people in the cryptosphere have thought about ETH in. money terms and certainly like, you know, we talk about bankless, denominating your wealth in units like Eith and Bitcoin, but for our collectors to come from non-crypto worlds and start being exposed to that natively and for artists themselves and creators themselves, that really is new. That does feel like a new on-ramp to the stuff as money. Maybe Richard, you know, kind of the same question to you of, do you think anything's going to be different during this

Starting point is 01:32:45 cycle as a result of all of these new entrants. Any additional thoughts there adding to what Nick said? I mean, like during this cycle, like we're bridging mainstream, like more so than like any other cycle. Like, you know, in 2017 ICOs, like, sure, there were like a couple of like smart, sophisticated people who knew how to like flip these ICOs. But like now in 2021 with NFTs, you just have to be a fan of the NBA or like, or. like are interested in art to like participate in NFTs. And I think that's like really like appealing to a lot of people because like finally like Ethereum, you know, it's not just about money in like financial these cases. It can also be about culture and entertainment. And like

Starting point is 01:33:32 that's relatable to everyone. All right, guys. This has been so insightful. I think David and I want to conclude with just getting your sense and some predictions for this bull run. The first question I have is are there any current narratives that you think are going to die by the end of this bull run? I felt like in 2017, one narrative that died, a withering death maybe, was the ICO narrative and the utility token narrative. Do you think anything, any narratives in vogue right now that seem really popular will die by the end of this bull cycle? That's a good question.

Starting point is 01:34:14 Nothing comes to money. A lot of the thousand percent APYs, that's less of a narrative, but it's like a short-term trade. Yeah, that's a good point. I mean, the yield farming stuff, I don't think the yield farming is going to die like ICOs, but there's been a lot of, you know, sketchy yield farming opportunities that people have done well on. And it feels like in some ways that has fizzled out to some degree.

Starting point is 01:34:42 Richard, I don't know if you agree. It's moved over to finance. Oh, yeah? There's yield farming on Binance now? I didn't even know. Yeah, finance smart team. Well, in theory, the yield farming APY should just like kind of collapse down into just earning yield on Ethereum, right?

Starting point is 01:34:57 No, 10%. That's still high compared to traditional world, but like that's normal in crypto world. Yeah. One, I mean, one kind of idea here that I'm not sure about, I think I don't feel strongly one way or the other, but this idea of governance tokens on Ethereum, um, that's, I don't think that's going to die, but it may look different. Like I think the reality is most governance token has been like a regulatory arbitrage in some ways, a way to launch a token without it being a security.

Starting point is 01:35:34 And I'm not sure how that's going to play out long term, but most of the governance tokens, there's not real governance happening. And I don't know. I'm unsure of how that's going to play out. And Nick, many of the governance tokens do not have fee revenue attached to them. They just have the possibility of future fee revenue attached to them. And the valuations are implying that the fees will be passed to token holders, right? But if you know, these, if you really believe in kind of governance minimization and like being really

Starting point is 01:36:12 hard to change things, then can that, is that actually going to be changed? I'm not sure. So we'll see. I mean, I think, obviously, I like, I mentioned Pocod earlier. I like kind of this idea of having councils, you know, to make decisions. And it's certainly, it's, you made the point that maybe that that looks exactly like a company. I think it's somewhere in between, right? It's not exactly a company users do have some power and um but it but it's kind of more centralizing can create uh you know faster decision making and and improvements than you know a rough consensus type governance so interesting all right guys any any other predictions for for 2021 then anything around NFTs defy how big this cycle's going to get how long it will last yeah that's what i want to know

Starting point is 01:37:09 how long do you guys think this cycle is going to go for? I don't make predictions like that. I don't have a good feel. Other than I would say, I think NFTs are going to be, it's going to continue longer and it's going to be bigger than a lot of people think. And I think the important thing to recognize about NFTs is that they're unregulated investable assets, right? So these are clearly not securities.

Starting point is 01:37:42 There's a very strong legal argument that that's the case. And I've been waiting since, you know, I don't know if you got, some listeners may remember Etherbots. Etherbots was one of the first Ethereum projects that did a pre-sale of digital goods. And they sold a million dollars worth of, you know, of NFTs for some, you know, robot-based game. And I thought back then there was just going to be an explosion. of these pre-sales and the numbers were going to get really big.

Starting point is 01:38:12 And I don't know why it didn't really happen, but it just never did. And I think there's a chance that that could happen in a really big way this time around, right? So we saw Blow, you know, last weekend do, I think, something like 11 million in, you know, in sales of his, you know, NFTs for his album. And I think this could get really big. and we start seeing a lot of mainstream people and there's going to be cash grabs. There's going to be, you know, people that are thinking about it long term and do it authentically. But I think, you know, NFTs' as unregulated, you know, investable assets is, you know, is important and it could get really big.

Starting point is 01:39:00 Richard, what about you? Hit us with some predictions. predictions. I actually wrote a blog post beginning of 2020 about like three under the radar predictions for 2020, sorry, beginning of 2021 for three under the radar predictions for 2021. So the three were one crypto art, which I guess that came through like way sooner than I expected, like literally just a month. Congratulations on that. Prediction markets, which yeah, they had polymarket in particular, I think they had like close to 30 million in volume like up until like, until like the Biden inauguration.

Starting point is 01:39:34 And the third was defy agreements like that we're going to see more like complex, structured products options. Like it's kind of the logical next step for defy, which, you know, that's still to be determined with all these new defy projects that are launching. This has been a fantastic interview, guys. And I've really enjoyed being able to parse apart narrative versus data. I think it's this conversation is, I think something that the crypto world is really pioneering because I think when you really go down to the bottom level of it, you actually can

Starting point is 01:40:06 take this all the way back to legacy financial markets and just all markets ever are always one part data and one part narrative. And I really see you guys as pioneers of dancing this dance inside of this new, this new paradigm that is crypto. So thank you for coming on the show and sharing us, you know, what you guys have found out. Thanks for having us guys. We love what you guys are doing, so keep up the great work. Well, thanks, Nick. We try to keep it authentic on bankless. And that's one word.

Starting point is 01:40:35 I hope you take away from this conversation, investing in authentic things, whether that's authentic fundamentals or authentic narratives. That was certainly my takeaway. Some action items for you. We've got some hot analytics on defy NFTs and Dune Analytics. We'll include resources for those in the show notes. You can start looking at these programs. protocols like Richard Chen does. Also, we've included his three underrated predictions article in the show notes that

Starting point is 01:41:04 was just referenced near the end. Third thing, David, it's a bull market. We need some bowl market five-star reviews on iTunes. How are we doing with that? Always want to do better. We are just under 200 five-star reviews. And so if enough listeners of this podcast give us those five-star reviews, we might break over 200. and that helps us get bankless to the tops of the iTunes investing in business charts, which is where we think bankless belongs. There's a lot of good information coming out of this podcast, at least I think. And if you guys think that more people should hear that, please give us those five-star reviews wherever you listen to podcasts.

Starting point is 01:41:40 And if you are watching on YouTube, make sure you like and subscribe. Our recent Mark Cuban interviews over 200K views. David, that's our biggest one yet. Really exciting about that. Awesome, guys. Well, risks and disclaimers, of course, the. assets we talked about are risky, eth is risky, Bitcoin is risky,

Starting point is 01:41:58 crypto is risky, you could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but thanks for joining us on the bankless program.

Bankless - 56 - Authenticity in Crypto | 1confirmation

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