Bankless - How to Become a VC with Haseeb Qureshi | Layer Zero

Starting point is 00:00:06 Welcome to Layer Zero. Layer Zero is a podcast of unscripted conversations with the people that make up the Ethereum community. Crypto is built by code, but is composed by people. And each individual member of the crypto community has their own story to tell. CyphurPunks understood that the code they write impacts the people that use it. And Layer Zero focuses on the people behind the code because Ethereum is people all the way down and it always has been. Today on Layer Zero, we're talking with Hiseeb Qureshi of Dragonfly Capital. And Haseeb, we've had him on the bankless podcast before, but always to talk about. some sort of a thesis or mental model. And instead in this particular episode, we talk about just the dynamics of being a venture capitalist in Web 3. So if you are interested in learning what's it like to be a VC and also what it might be like for you to find a path into becoming a VC, this might be the episode for you. I think everyone, at least most people, when they get into the world of crypto,

Starting point is 00:01:00 always kind of day day they'll be a part of a venture capital fund and one day they'll be on the research desk. And I think everyone, I certainly had that dream myself and kind of growing through the industry, I realized it wasn't necessary for me. But if that is what you are interested in, this episode is going to be perfect. We talk about what it's like to establish relationships with your portfolio companies. We talk about what it's like to add value to our portfolio companies. We also talk about the timing on when it becomes time to actually sell your investments and how you credibly and honorably actually find liquidity on the projects that you've had

Starting point is 00:01:33 relationships with and what that means. And we also get into the concept of airdrops, whether air drops are going to be here for the long term or maybe they were just kind of a 2020 to 2021 thing. And really what it means to have a long term thesis in Web 3 versus just kind of looking at what's going on in the present moment. So a really wide-ranging conversation all about kind of investing in crypto, as we all do. So I hope you enjoy this conversation with Haseeb Qureshi right after we get to some of these fantastic sponsors that make the show possible. If you're going bankless, you need Metamask. This is your tool to unlock the world of defy without giving up custody over your private keys.

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Starting point is 00:04:31 So if you don't have a ledger hardware wallet, go to ledger.com, grab a ledger, and take control over your crypto. What's up, Isip? How's it going? I am doing well. Know yourself. Pretty good. Pretty good. Currently, it's stuck between extremely bullish about the merge, but extremely bearish about most everything else. Yeah, that is reasonable. There's been a lot of good news, but the merch. There has also been a lot of bad news in the world.

Starting point is 00:04:54 So I think I agree with you. It does feel like we're in crypto, there's like a little bit of narrative exhaustion, it feels like. People are getting a little bit tired of hearing the same old stories. But I don't know. I feel like fundamentals still look really good. So I'm feeling confident. Yeah. Narrative exhaustion is definitely one.

Starting point is 00:05:12 But also I've gotten a sense of like bull market exhaustion over the last like two months. Maybe kind of the same thing. Just like, oh, like sweet, another play to earn game. Oh, sweet. Another like NFTE profile picture thing. All right. All right. Like we're done with that.

Starting point is 00:05:26 Talking about the merge again. All right. Like cool. We've been talking about that for a while. It's just like how many like crypto runs on attention and sometimes like defy tokens, that was the thing that invigorated us in 2020 and then that kind of like spun out. And then NFTs that kind of ran its chorus and gaming. And then it seems to be like in bull markets, we have these iterative cycles of new things that can capture people's attention. But eventually like the sparkly new ideas kind of run out and then people kind of like sober up.

Starting point is 00:05:55 It kind of feels like where we are right now. Yeah. Well, Macro is definitely the driver's seat this year. And it's also, you know, Bitcoin and ETH are doing most of the talking for the crypto market, which is also a sign that, like, again, it's primarily about macro. Right. At the same time, you know, I remember in January, we were getting so many gaming pitches. It was like five Metaverse pitches a week.

Starting point is 00:06:14 It was like just exhaustingly repetitive. That's slowing down. So I'm definitely seeing less kind of Metaverse automatically raise tons of money hype. It feels like investors are trying to catch on. I am still seeing a lot of Dow infrastructure, but I was seeing a lot of that a month ago. We were seeing, like, so many people telling the same story about Dow infrastructure, down infrastructure stocks, we're going to build better tools for Dow's.

Starting point is 00:06:35 That's finally slowing down. And so now it does feel like there's a little bit of a dearth of ideas. We went through a few cycles of like, okay, you know, defy on new L-1s, and then it was Metaverse, and then it was Dow Infrastructure. And now, like, I'm not sure what the pattern matching, like, okay, here's the startup of DeJure is. I'm seeing more follow-ons from companies that already have a staff. established their businesses. And I'm seeing less interesting things happening at the very, very early

Starting point is 00:07:01 stages right now. So when you're engaging with all of these like startups, the seed opportunities, angel investment opportunities, well, not angel investment for me, seed investment. State investment for us. Yeah, seed investment for you. Yeah. How do you keep the bull market mania at arm's length and also still do your job? How do you balance those two things? Well, the nice thing is that at seed, the market has fairly limited impact on seed, right? So seed prices go up. See prices go down. And so seed prices go down. And so the nice thing is that. It kind of depends on the supply of capital. But what's happening in public markets

Starting point is 00:07:31 tends to have limited impact on what's happening there. The public markets have more and more impact on later stage rounds. You can kind of imagine almost like a spring, and it's really hard to push that spring all the way down to seed. But, you know, Series D, Series E, series C, they get affected pretty rapidly by changes that are happening in public markets.

Starting point is 00:07:48 But the effect of that push and pull is not only graduated, but it's also, there's some latency in how long it takes for that to show up in seed. So for the most part, public markets don't affect seed too much. It's more about ideas and more about like what markets are hot that are driving entrepreneurs in a particular direction, right? So you see more concentration of ideas in certain areas when those things are hot in public markets. So, you know, like you mentioned, there are always NFTE projects raising. There's always NFT studios.

Starting point is 00:08:16 There's always things that are tethered to the themes that are exciting in public markets. But for the most part, you can kind of ignore what's happening in publics when you're looking at C-stage deals. when you go further afield to like series a beyond that it really starts to matter. Axi infinity alone triggered an absolute mania in play-to-earned games. Like this one thing like started to move billions of dollars of capital outside of its own token into like, you know, play-to-earned games. The next Axi, we want to be the next Axi was like a line for a really, really long time. But like when you invest in these things, like your minimum locked up for a year and usually much more than that.

Starting point is 00:08:52 And so you have no amount of like guarantees that like, you know, the play to earn gaming thing is going to be around, let alone in three months, let alone like one plus years. Right. So how do you just manage like, well, play to earn games is a really hot topic right now. And maybe the fundamentals are there. And we do want exposure to that concept. And so like you know that like, yes, this is an investable theme, but are the startups that are coming to my desk right now going to be the thing that actually capitalize on that. I guess it's another reframing of the same question, just like the mania and demand for it's like, oh, like, play to earn gaming. We got to invest in that versus like, well, is it really going to be a thing in a year again?

Starting point is 00:09:31 How do you navigate those waters? Yeah, that's precisely the right way to think about it, is that it's not enough to say this thing is hot right now. You have to draw the economics forward and really understand. Look, by the time that we get liquidity on our investment and the things that we're investing in now, which are pre-launch games, like from pre-launch game to actually getting a game in the market and monetize. and then the token gets launched and your lockup eventually starts to inspire and you start getting liquidity, that is going to be multiple years. And so it's really not a question of what is Axx Infinity being valued at by the market today? The right question is, where do you think this market's going to be in three years? And, you know, for us, for me personally,

Starting point is 00:10:10 I'm actually, I'm very bearish on this current generation of played earn gaming. I don't think it's particularly sustainable. And I also, I mean, look, I've been in crypto long enough to know that, like, although in general you should assume that markets are smarter than you are, and that markets are forward-looking. In crypto, I think those are both bad assumptions, depending on who you are. So I generally speaking, you know, I strongly take my own judgment over what the market's telling you. I think it's very likely that when we see, now we've backed a number of games and even games that are using play to earnstile mechanics, but pretty much everybody we have backed, you know, when we ask them, like, what do you think of Axe Infinity?

Starting point is 00:10:45 Their answer is that, like, yeah, it's bullshit. Like, it's not going to work. And, you know, you need to have sustainable token economics in order to build the game with real longevity, and the game's got to be fun. And, you know, the one thing that you'll never hear in the same sentence is Axi Infinity and Fun. And in fact, you go look up any content you could possibly find an Axi Infinity. 100% of it is about making money and 0% is about having a good time. And that has to reverse for crypto gaming to actually have legs. So the games that we're backing are like trying to be fun first.

Starting point is 00:11:14 And the reality is that building a fun game takes time. Right. You don't get a fun game by, like, doing a much of NFT pre-sales and land sales and this thing and that thing and then like paying a bunch of people in the third world to play your game. That's not how you build a sustainable game economy. Right. You can't mint fun like you can mint a token. Unfortunately not. No, you can do that with NFTs, but not with games.

Starting point is 00:11:33 Maybe that is in hindsight, like how we reflect on this whole NFT mania is like, oh, yeah, we figured out how to briefly mint fun and then we milk that for all of its worth. Yes, yes. I do think that in retrospect, when we look back on this sort of gen 1 of crypto gaming, it's going to look a lot like gen 1 of tokens. Sure. Which were bad. We're going to have the same kind of embarrassed. Yes.

Starting point is 00:11:56 Yes. Yes. Yeah. People are going to look back and got to be like, I was kind of right, but like, yeah, maybe I missed like the particulars of why this generation wasn't going to work. Right. When you do your seed investing at Dragonfly, do you like think about is this going to outperform ETH or how do you try and gauge performance?

Starting point is 00:12:14 What is your measure for return? That is definitely the right question. Or Bitcoin or your preferred L1 asset. Yeah, yeah, yeah. I mean, you generally want to be thinking of, look, is this a good risk-adjusted return and risk-adjusted relative to what? And the answer should be the risk-and-returner profile of just beta, right, which is buying Bitcoin or buying Ether.

Starting point is 00:12:30 That being said, you know, our venture funds can't just go and buy Ether. So that actually is not literally the counterfactual, but that's ultimately what our LPs are going to judge us on, is investing in you better than just buying the underlying. That's the metric by which we try to judge. our investments. And he's see, switching gears a little bit, but also not totally. You have a background in poker. Correct. Can you talk about how poker has influenced your decision making in these markets, especially the emotional ones? Yeah, it's a good question. So most people are aware a lot of poker players have found their way into crypto. But most of those poker players end up on the trading side.

Starting point is 00:13:04 There are actually very few poker players I know that have ended up on the venture side. And trading and venture require very different skill sets. So I think poker and trading have a lot of crossover in common. There's a lot of stuff in there about risk management, controlling your emotions, thinking in terms of expected value, being probabilistic about, you know, understanding outcomes. Those are skills that poker trains you in that are very much rewarded in training. Venture is a very different kind of business because in venture, so one, venture is driven by power laws, meaning that most things make very little money or make no money, and then a few things make a ton of money. And so you're really betting on this like asymptotic return profile on each individual

Starting point is 00:13:44 investment. And trading is not like that. Most times trading, it's like, okay, it goes for you, you, it goes against you. But like, you just need to be right more than 50% of the time and you're going to make money. Whereas venture is like, you make 100 bets and three of them are going to pay for your entire fund and one of them is going to be like a thousand X. That's what venture looks like. And so the kind of thinking you to do in venture is very different than the kind of thinking you do in poker. It's very difficult to do math when you're dealing with power laws. Right. Right. Like the vaccine of individual bets is so high that something that like is most likely going to fail, but it's a very small chance of paying off a very, very large amount of money.

Starting point is 00:14:17 There aren't a lot of things like that at poker. The second thing about it that's different from poker is that venture is very relationship-driven, and it's very, it's extremely iterated game. So venture is all about building your brand, building the way that people know you and think of you and building long-term relationships. Whereas poker famously is like, you know, it's like this hand. I just have to make money in this hand. And I maximize value in this hand, and that's it. And like, generally speaking, although obviously poker is an iterated game in the sense that you're playing the same people at the same table for multiple different hands, you're not really worried about, okay, I want to be nice to this guy, so that next time around, you know, he's going to be nice to me. You know, I don't want to check raise him too hard because then he'll check raise me next time. Like usually in poker, it's like, no, I'm just going to check raise him and screw him and, like, exert as much pressure as you can.

Starting point is 00:15:03 Unless you're thinking about, like, okay, this guy's a fish and like I want to keep him happy because I want to keep him losing money to me next time and the time after that. But that's generally not a huge part of how poker is played. It's a fairly small factor at poker. So those are ways in which I think poker doesn't really prepare you that well for venture. It prepares you very well for trading, but not very well for venture. And that's why I think you see very few poker players find their way into venture. I feel like I've had to learn a lot of those skills really from scratch as a venture capitalist. Interesting.

Starting point is 00:15:30 Yeah, I never really considered that dynamic. But the zero-sum versus positive sum games and the iterative game aspect of venture is a brand-new concept to me. So I definitely want to dive into that particularly. what aspects of venture are like positive, some, iterative, like you scratch my back, I'll scratch your back kind of thing. Like, what are the relationships that you're trying to establish that help you become a better venture capitalist? So there's a bunch of them. So beyond just, you know, creating a lot of value and putting out content that ends up becoming valuable in ways that are difficult to quantify, right? Like, that's what brand is. Brand is sort of difficult to quantify

Starting point is 00:16:03 relationships. We have lots of small relationships, a lot of people whom you've never met. That's brand. the importance, if anything in poker, it's actually the way around. In some ways, in trading it's another way around. In trading, you don't want people to know what you're doing. You don't want people to know that you're a really smart trader and that you're making a lot of money and you're pushing these edges. Same thing in poker. And poker generally, you actually don't want people to know you're good.

Starting point is 00:16:22 Because if people know you're good, they won't play you. And so in some sense, there's like an anti-value to brand. Is that having brand, unless it's like, you know, you're getting on TV and you're getting invited to these invite only tournaments. But then there's a big difference between like TV poker players and then like real poker players. And like, you know, someone like Doyle Brunson who's like not actually very good anymore, he's like super, super old, you know, it's like kind of a TV famous poker player. In a real card game, he would actually be a terrible, he would be like a fish at the table

Starting point is 00:16:48 in like a real high six poker game. But he, you know, he gets famous, he gets a fighter on TV. And then he gets a play in these like really soft games where actually he's, he's good when he's playing against, you know, just like Jimmy Fallon or something. Right. Okay, now he's, now he has the shark at that table. Most poker players don't have that experience. Most poker players, they don't want to be known. But in crypto venture, or in venture generally, you want to be known. You want everyone to know that you're really valuable and that you're a person they want to work with. And that extends not only to just random folks who might someday become entrepreneurs, it also applies to your portfolio. You want your portfolio to speak highly of you and you

Starting point is 00:17:18 want them to be a strong reference when other people ask around about how, hey, what does it like to work with this VC? You also want to have strong relationships with co-investors. So other people who you're going to find it around and you want them to say like, hey, I've got this company. You know, I don't want to take the whole thing myself. Who do I want to partner with to take down this investment? You know, want them to think of us. Or, you know, you want them to think of us. Or alternatively, when we know a lot of angels who find deals very early, we want them to say when they meet with a company, hey, you should really take dragonflies money because they're a really great investor. And so a lot of our deal flow comes from the relationships that we have and the people with whom we've been valuable. The sort of I scratch your back, you scratch my back.

Starting point is 00:17:53 You know, we bring a lot of angels into rounds. They bring us into rounds. We bring a lot of co-investors into our rounds. They bring us into their rounds. And those relationships are incredibly valuable over the long run to establishing your deal flow and your access as a VC. And that's the kind of thing you don't deal with when you're a trader or a poker player. There's a meme going around in crypto Twitter not too long ago. It was from the perspective of a venture capital fund.

Starting point is 00:18:14 And it was like when the portfolio company finally calls you up for that value ad that you promised at the very beginning of the relationship. And then it was like, you know, some like small little girl like crying her eyes out, like being boohoo like, oh, I have to actually add value. What does adding value actually look like? And then like how would one add value to one of their portfolio companies? And I'm assuming that being one of the most viable. paths toward establishing reputation, positive reputation for the venture capital fund. Yeah. So there's a few avenues of value that are most common. There's a bunch of stuff that's really easy to do that a lot of VC, no matter how large would be able to do it. So one example

Starting point is 00:18:50 is helping with recruiting, right? So, you know, helping them find candidates, helping them closing candidates, helping them just even strategize around a hiring strategy, which tends to be one of the biggest difficulties for early stage startups. You know, support on just kind of wrote things like legal compliance, like figuring out where to structure, given and how complex structuring tends to be for crypto projects. So those are some of the very early and obvious needs that early search startups have. And then you can even go further afield, sort of more crypto-native consideration. So, you know, a lot of people need help with getting an audit.

Starting point is 00:19:19 So, you know, these auditors, they tend to have very, very long backlogs of audits. And if you can help them accelerate, getting an audit more quickly, that's really valuable. There are a lot of service providers like, you know, what's a good accounting firm? What's a good legal firm? You know, what's a good PR firm, if that's what I need. Or even, you know, if there's a dev consulting shop that I might need access to, right? Then you've got things like, okay, can I help you place a story in PR? Can I help you get an announcement into the block or into coin desk or into one of these

Starting point is 00:19:42 Crypto Native publications with whom we have relationships? And then you start getting even more specialized, which is, can you help me with my token economics? Can you help me with my strategy? Can you help me with my go-to-market? And these are places where it's not just enough to have people on staff who are good at those individual tasks. That's a place where you really need, you know, sort of investor-level expertise, right?

Starting point is 00:20:05 So like someone like myself or someone like Tom, who's another partner at Dragonfly used to be head of product at ZeroX, you know, folks like us who've seen a ton of projects because of our work and experience in the industry, that we can actually sit down with our companies and help them think through, you know, a novel token economic design or a novel approach to mechanism design or, you know, some way to structure their token distribution that really requires the kind of expertise that they can't buy, right? You can buy help from a recruiting firm. Like technically, we kind of bundle it together with our investment. You can buy a PR firm that can give you access to a coin desk or whatever, but you can't buy

Starting point is 00:20:39 the kind of expertise that a relatively small number of firms actually have in-house. You know, it's like for paradigm, you can't buy Dan Robinson, right? You know, at Dragonfly, like you can't buy a seed to sit down with you and think through your token economics. And so that tends to be the most irreplaceable part of what strong VCs can provide to portfolio companies. It seems like from what you just listed off, more or less is somehow involved with almost everything about like a startup, just like, you know, legal or just like the Rob token economics of

Starting point is 00:21:09 like how their project works or connections and hiring. It sounds like, you know, you have the potential of helping them out with almost literally every one of their needs. And a lot of that comes from simply like the reputation and the connections that you've established from yourself as a brand. Like, well, it's easier for us to provide that for you than it is for you to provide that for you because we have connections. Is that more or less right? Yes and no. I mean, the media company is not going to ask for even, you know, half of those things. Like the median company has some of those things figured out and other ones of those they need help on.

Starting point is 00:21:39 So, you know, we're not going to go back and like redo your structure. Right, yeah. I'm not, I wasn't saying like you're bringing. Right. Yeah, exactly. I wasn't saying like you come and bring down like literally half of the company coming from Dragonfly to make this one startup. But it's just like you have the potential to.

Starting point is 00:21:51 Yes. And you have the optionality to do all of those things. Yes. Yes. I think for sufficiently large firms, we tend to be pretty full stack in the way that we can perform our value at. But there are some things that are more common than others that people actually want from us, right? Generally, the advice that I give to founders in thinking about value at is,

Starting point is 00:22:08 you know, VCs, we're in the bundling business, meaning that our job is to try to brand our capital as being different from other people's capital. And the reality, of course, that capital does not brand, right? Real, actually capital is just like money in your bank and you can't tell who it came from. So it doesn't really matter who you get it from. And so what VCs really do is they try to make it so the package of my capital is worth more than the package of that person's capital. And it's in our incentive to bundle as many things as possible in that package. Now, the most valuable bundles are bundles that include things that you can't buy otherwise, right? And so, you know, if I were to tell you, like, look, I'm going to invest in your company

Starting point is 00:22:46 in exchange, I'm going to market make your token. And that's going to be really valuable. And, you know, so a lot of market makers try to get into VC by offering, you know, a bundle of marketing services. Or, you know, an auditing firm might say, hey, I want to get some room on your cap table. And I will give you a discount on audits if you use me as an auditor. And these things are obviously valuable, right? Like it's them trying to compete in their own way in the bundling business. But the advice I generally give founders is that usually the most valuable bundles, like if you take money from an Andreessen or a paradigm or a polychain or a dragonfly,

Starting point is 00:23:14 the most valuable part of that bundle, again, is the part that you cannot buy. Right. So like if somebody wants to offer your marketmaking services, you can buy marketmaking services, right? It's a completely commodified market. You can buy it from any of the marketers. They all quote your price. But there are some things that, again, you cannot buy or that if you want to try to get yourself

Starting point is 00:23:31 will take you a lot of time. And time is the one resource that you cannot spend money on, general. And so those are the things that are usually most valuable in that bundle. And it's why you see, in fact, that it is the top VCs who end up usually winning the allocation in a lot of these deals, not market makers, not service providers, and not other people who have more commodified forms of that bundle when they're trying to invest into early stage companies. And how does that change the game for what a VC is looking for when it's trying to grow out its own staffing and its own resources in-house? Like, what's hot on the market for a VC firm?

Starting point is 00:24:05 What's hot on the market? Is it poker players? Obviously, poker players, very high demand. I mean, the hardest thing right now that I think most people are realizing, it's very, very hard to just get an investment team. Anybody who knows how to invest in crypto is an extremely high demand. And so you've got, you know, you've got like, you know, 23-year-olds, who've got like two years of experience who are getting partner offers at like tri-tify funds. And this is just the way of the world now. And I think it's going to be a while until you see supply and demand equilibrate on the investment side.

Starting point is 00:24:36 I mean, you're seeing it too, obviously, on the engineering side, whether you're getting seen crazy, crazy engineering hires, crazy legal hires, where folks who are making, you know, somebody in big law, for example, is making, you know, maybe $500k a year with, you know, four or five years experience at a big law firm is being offered like a million dollars a year in a top shopping project. That kind of pay bump is a function of supply and demand, right? There's just not enough supply of crypto-native talent. So I think over time, that will normalize. You and I are seeing the huge influx of people coming into crypto. And those people within a couple years, they're going to be ramped up and that's going to change the supply and demand mechanics within crypto. But it's going to take

Starting point is 00:25:13 some time for that to happen. And we're certainly far away from there today. You said people who know how to invest in crypto. I mean, anyone who comes into this market can sign up for Coinbase, buy some Ethan Bitcoin, take self-custody of it, buy some tokens on Unuswap. But what does it really mean to be, like, good at investing in crypto? Like, I've been in this industry for almost five years now, which is insane. Like, I'm not even sure if I'm good at investing in crypto. So like, what does that actually mean? Yeah. So when I say investing, I mean, the liquid market side, I have less expertise on just because it's not what I spend my day-to-day on. The venture side, what it means to be good at investing into crypto, generally the way that you're going to be measured for your skill at investing

Starting point is 00:25:50 is, one, just your portfolio. So what deals have you gotten into? So whether that's as an angel or whether that's at a firm where you're investing on behalf of a platform. But then there's one element of getting a check into a deal, which is kind of just your, it's really about judgment and having some degree of access. But the real barometer of like how good are you investing in crypto is can you lead deals? Can you really extract large amounts of the cap table and really sell an entrepreneur on Not just let me the round, but have me be the guy who you partner with for this round. You know, it's sort of like if you got into a great deal, let's say you did Avalanche early, right? You get some points for just picking Avalanche.

Starting point is 00:26:27 So it's like, okay, great, you have good judgment. You have good taste in deals. You get even more points if you're more than just an angel, but you got a platform into Avalanche, right? Because as an angel, it's all right, you get like a 25K check in. Okay, that's like not that hard to get a 25K checking. People will take a 25K check, you know, even if you just have a vague promise of being valuable. but if you want to get like a 500K check-in or a 200-k check-in, it's like, okay, you need to really justify that for a platform. So that gives you more points.

Starting point is 00:26:52 But the most points you'll get is if you get like, you know, a $3 million check-in or a $10 million check-in, that's like, okay, you really earned the trust of this person and you can win deals. And winning deals is kind of the hardest and rarest skill to get in crypto. And the reason why, of course, that's a very multidimensional skill. In order to win a deal, you need to be competent, you need to be trustworthy, you need to have relationships. that are really strong. You need to have a reputation of value add. It's like all those things that we were talking about, you need to kind of be the whole package in order to be able to lead deals. And so that's like the highest echelon of, okay, you are somebody around you and we can build a firm because you're a deal winner. And so those are the ways in which if I were looking at a

Starting point is 00:27:30 potential investment candidate, that's how I'd be sizing up the value of their experience. So the worst of all is if like, if you're somebody who you've, you have a track record of investments into terrible deals, then it's like, okay, I would rather not work with you at all because you're going to be bringing in bad deals and you don't have a good reputation, et cetera, et cetera. Okay, so they need their own deal flow. They obviously need their own capital. But from what I heard is like the real magic is allocating size into a good deal that

Starting point is 00:27:58 ultimately ends up working out. And so basically having the conviction and the knowledge to quote unquote ape into a very strong deal that turns out to be strong in hindsight. That's really what you're looking for. Right. But also the ability to win that lead position in a round. Right. Yes.

Starting point is 00:28:11 winning a lead position, a lot of it is really about sales. Right. And it's about sales and market. So the way I like to put it is that as a BC firm, you have to do both. You have to do both sales and marketing. Marketing is brand. Marketing is like the research you put out, the talks you give, the tweets you do, like the way in which people know who you are before you show up to the table.

Starting point is 00:28:31 That's marketing. That's your brand. But your ability to win deals, like when you actually show up and sit down with an entrepreneur and convince them, yo, you should let me lead you around because I'm awesome and I'm going to, you know, help you become successful. That's sales. That's more like hand-to-hand combat. And in order to be a great VC, you need to be able to do both. You need to be able to do both building the brand and the reputation of yourself and your firm, but you also need to be able to sit down an entrepreneur and convince them that you're the guy. They should take you over Polychain or

Starting point is 00:28:59 Andreessen or over Paradine. And that's hard to do. But the very best investors have exactly that skill set. Am I allowed to ask what your pitch is or is that trade secrets? You're allowed to ask. It depends a lot on the company, what the sales pitch is. But if I just sort of imagine myself pitching a generic company, I'd say there are a few things that I would lean on in my pitch. So assuming it's me, myself personally, who's the partner who's on that deal, the first thing I'd point out is that I've invested in a bunch of the great companies and products

Starting point is 00:29:32 in crypto. So I did the seed round of Avalanche, seed round of NIR protocol, seed round of DuneiR protocol, seed round of Dune Analytics, Matter Labs, a bunch of the great company, and compound and MakerDAO and one inch and so on. So a bunch of stuff, whether it's in C-Fi, D-Fi, layer ones, layer twos, I've been an early investor in all those things. So I know the industry extremely well. I think very deeply and strongly about token economics.

Starting point is 00:29:55 It's something I could sit down with you on and help you think through, how to design your protocol and whether the pitfalls that I've seen other projects fall into that you can avoid. I have relationships with all the big folks in the space, whether it's auditors, whether it's the publications, that you want to get your story out into. And I'm somebody you want in your corner. I'm somebody who can help you think through the ups and downs of how to build this thing from zero to 100.

Starting point is 00:30:16 And then, of course, the other thing about Dragonfly that makes us very unique is that we're also a global firm. So we have a presence in Asia, which most of the firms don't really have. And we can help you think about how to bring your protocol or your company to a global stage beyond just the Twitter sphere. Twitter's huge, obviously, crypto is a big deal. But it's only one part of where crypto operates. And crypto is a global phenomenon. And if you don't have a window into your community outside of the U.S. or outside of the Anglophone market,

Starting point is 00:30:41 then you're missing a big part of what's making your protocol tick. And that's something that I can help you navigate. So that's my very generic pitch, but usually it depends on who I'm sitting down in front of, what in particular I would be focused on in communicating why I'm the right person to partner with. Well, I'm sold. There we go. You're going to let me into bankless? Yeah, well, we'll talk about that later.

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Starting point is 00:33:04 you trade any token at the current market price. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. The Uniswap Grants program is accepting applications for grants. Do you have something of value that you think you want to contribute to the Uniswap ecosystem? No matter how big or small your idea is, you can apply for a unique grant at Uniswapgrant.org and help steer Uniswap in the direction that you think it should go. Thank you, Uniswap, for sponsoring bankless. So after you establish relationships with these companies, like, I'm sure they turn into, you know, more than just, you know, your portfolio companies. I'm sure, like, you get to know these people, get to know their face, you establish some sort of, like, actual relationship with them.

Starting point is 00:33:49 How do you go about navigating the actual selling of the asset, selling of the token? Because there are some brands, there are some VC funds out there that have the explicit brand of, like, this fund dumps your token at the soon-as-available opportunity. and that's kind of definitely worked against them. So obviously that's something that you have to consider as a VC is like with the timing and just like obviously like your job is to make money. So the commitment is like, well, at some point the token gets sold. But like also that is like a choice of like, oh yeah, we are choosing to kind of transactionally end our relationship by selling this token, not all of it.

Starting point is 00:34:25 But how do you navigate those waters with like this is an appropriate time to credibly and honorably sell this token? Like how do you time that? Yeah. It's a good and it's a very tricky question. So there's a few components of it. So the first, of course, is that, you know, as VCs, we're always locked up in every investment. Certainly.

Starting point is 00:34:40 We don't do any deals without lockups. And generally speaking, you know, when we're looking at a deal and there's not the pretense of lockups or, you know, there's like, okay, everyone is going to be fully unlocked in like a year and a half. Generally speaking, that's like a hard pass from us. Right. Because we believe really strongly in the alignment of incentives. And, you know, we saw all this in the, you know, 2017, 2018, ICO boom, is that when you don't have lockups, you don't have incentives. line, then people basically, they launch something and then they walk away. And we believe it's not healthy for the community. A web page, yeah. Yeah, exactly. It's not healthy for the community. It's not

Starting point is 00:35:11 healthy for the investors. It's not healthy for the founders. So we in general push for lockups, and we like lockups. And we often prefer them to be longer than what sometimes some of the initial state in which we might find these rounds being priced at. Now that being said, like obviously, as a venture capitalist, we eventually have to sell because we have LPs and our LPs have the demand to eventually get their money back. So we do eventually have to sell. But we're in no hurry to sell. So as venture capital, we're not traders. There's no reason why we have to sell the moment that our lockup expires. And so generally speaking, we don't sell when our lock expires.

Starting point is 00:35:40 And our view also is that most of the money in the space is made in the long run. Like there's always money that you can make by flipping things quickly, you know, buying things early and then selling them as soon as it become liquid in the market. There's some folks who engage in that strategy, and it's a strategy that can work. Sometimes it doesn't work, but a lot of times it does work. But that's not how the big money gets made. the big money gets made by finding the right things and sticking to them and betting them as they continue to grow and becoming extremely valuable.

Starting point is 00:36:08 The way that you got rich off ether and Bitcoin was not by jumping in and out of the market when things were good and things were bad. There are people who made money doing that. Absolutely. A lot of people made a lot of money in crypto. But the people who made the most money in crypto are the people who just sat there and held the most valuable things. And as a VC, again, we think in terms of power laws.

Starting point is 00:36:27 And if you think in terms of power laws, you realize like, look, it's possible. that some of the stuff that we invest in, it goes liquid. And as it goes liquid, you know, the demand doesn't keep pace with supply. The supply keeps going out of the market. And I think the price just, you know, slowly creeps down and you end up, you know, losing a lot of what initially looked like your markup might have been. This definitely happens. And it's happened to us in our portfolio a bunch of times. And it's very normal. But it doesn't really matter that much in the context of overall portfolio compared to the things that are really going to work. Right. So it's like the layer ones that you bet on that didn't take off, all of them got more than paid for by the avalanches of the world, the nears of the world that really did take off and really became extremely valuable. And so in the overall picture of a portfolio, it just doesn't really matter whether or not you like sold this thing earlier, sold it late. Like it doesn't matter relative to the overall growth of crypto in the most valuable things that are being built. And that's why, one, we don't lose so much sleep over whether we time this particular thing or not. And second, why we're not under a strong impetus to sell things quickly.

Starting point is 00:37:27 So if we end up being wrong in certain number of the bets that we made, then, okay, we'll take the L. It's unfortunately we didn't get what we might have originally hoped to have gotten in this particular investment, but we don't try to immediately dump the tokens as we get them because it's just not necessary. And that doesn't mean that we never sell things before 10 years or something. We do sometimes sell things before some other period because of some fundamental view or we might have fundamentally lost confidence in a particular project or particular position, in which case we will do that. But if we're still along for the ride and we believe in the entrepreneur, then we'll hold. and we'll wait to see what this thing evolves into. Because again, you know, the thing about crypto is that crypto is very cyclical. And, you know, there are times when the market goes into, you know, a secular decline.

Starting point is 00:38:05 And we talk about narrative exhaustion and it happens in crypto. But, you know, the cyclicality of crypto also means that at some point again, people get excited. And it starts to go up. And those things, you know, the animal spirits return. And so to some degree, like, you don't need to overindex on what's going on in the market right now. Almost always the right answer in retrospect was just keep holding. and see what happens with the market. And probably that would have ended up working out better for you.

Starting point is 00:38:29 But how does that work when so much of crypto operates in fads, right? Like the advice of just like, well, you can kind of just hold your way through it. Definitely doesn't always work. Like, take for example of somebody who gets into the world of the ICO mania. Like you can't really hold your way through the ICO mania. Granted, there are things like SNX and Lend, which then turned into AVE and Link, right? Like we got three big, big winners coming out of the ICO Mania. Oh, no, we got more than that.

Starting point is 00:38:56 Really? We got a lot more than that, right? Like, what were you guys other ICOs? Cosmos? Oh, yeah. I see. I guess was also one. Yeah.

Starting point is 00:39:04 Okay. Exactly. There were a ton of huge winners in the ICU room, right? It's very reminiscent of the dot-com bubble. I guess so. Is that the dot-com bubble included Amazon, included Google, it included a ton of companies that ended up becoming absolutely generational winners. And so if you just bought a basket, a lot of things that basket would have gone to zero.

Starting point is 00:39:22 And then you would have had some things that paid for everything. Right. Right. And today, it looks like that's Cosmos, Definity, you know, Pocod, and a number of other projects that have become tremendously successful that were part of that ICO book. Yeah, I guess I might have revealed my 2017 investor naivete because I was definitely definitely buying substratum and a bunch of other just like, you know, shit coins all throughout 2017 because I didn't know what I was doing. Something's got absolutely wrecked, right? Something's got absolutely wrecked and are just lost to history. But there are a lot of things that end up becoming among the most valuable protocols in existence.

Starting point is 00:39:55 So on the whole, I bet you that if you index the ICO bubble, you made money. Interesting. You talked about how like three Ws will pay for the fund and then one W will be like the 1000 X that like really, really is a differentiator. Has there ever been like a time where you've been listening to a pitch or you just kind of been reflecting or diving deep on a project and you're like, it's going to be that one? Like did you, is there ever at a time where you identified it ahead of time? We're identified it correctly ahead of time.

Starting point is 00:40:21 Yes, correctly at all the time. Or at least, you know, ballpark. Yeah. I think the only time that I have done that was Near. Yeah. I think Near is the only one that I saw that. And I was like, I know that this one is going to hit. I know that this one is going to be huge.

Starting point is 00:40:37 And that was only in the Series A, not in the C. In C, it was very, very nebulous. But in the series A, which was pre-token launch, I was like, this one is going to be absolutely massive. That was probably the only one that I identified. Oh, no, the second one I'd say was By-Bit. By-Bit was the other one that we bat on. and we were like, this thing is going to be absolutely a massive success.

Starting point is 00:40:56 But most of the time, it was a surprise. Was there anything you remember that really stuck out as to like, was just like pure product market fit or like anything that stuck out that really was like, well, this is why I believe in this. I'll say for ByBit, it was more straightforward. These guys were just growing like crazy. They had super good execution. They had super high margins.

Starting point is 00:41:15 And they were basically coming into the market right as Bitmex was falling off. And so they were filling a big hole in the market and in the derivative space. So that was just like a market structure, and it was just really obvious to anybody who had underwritten the business that these guys were just going to continue to crush. And of course, PURPS are just a huge market. So being one of the dominant players in PURPS and rapidly rising in your market share, that was just a 100 IQ, like doesn't require a lot of insight to realize that by it was going to win. To look at NIR, the reason why I was so bullish on NIR at that time, this was like before the cornice sale that we invested into NIR. And the reason why I was so bullish on Neer at that time was one is that I felt like Neer was probably pound for pound the best engineering team in crypto, in layer ones.

Starting point is 00:41:59 Second is that they had basically innovated on the design for Ethereum 2.0. Like Ethereum 2.0 actually took a lot from the near sharding design. There was a lot of, I feel like the two things that were most influential on ETH2.0 were probably Neer and Falcoyn. We're probably the two biggest influences. And Neer just had the most credible shot on sharding of any blockchain that I scene. And that seemed really, really compelling. And third is that they had an EVM story. And I was very bullish on the UVM continue to be dominant. And if they could integrate the EVM into a sharding

Starting point is 00:42:27 based platform, but also with the developer experience of having a WASM-based runtime that people could also opt into that was higher performance, that I was just like, this thing is just going to be huge, given that the demand for Ether, the demand for Ethereum block space is so high. And I think sharding is just long-term the most credible paths of scaling, or not the most, but one of the most incredible past the scaling. So that made me just incredibly bullish on here. Do you know when this was? When was this? This was late 2020. So this was like October-ish, I think. Okay. October 2020. Yeah. Demand space for Ethereum hadn't, it had started to pick up. We were at one Gway gas prices for a really long time. I can't remember when we actually broke out of that paradigm and went from like one to three.

Starting point is 00:43:11 And then a few months later, we went three to ten. And everyone was like freaking out about how how congested Ethereum Blockspace was. I think that was towards the end of 2019. Yeah, well, this is after DFI summer. You must have been baking in growth in demand. Well, this was after DFI summer, but yes. 2020 was D5 summer. Okay, I was a year off.

Starting point is 00:43:27 So this was late 2020 when it was pretty straightforward that demand for block space exceeded what Ethereum was going to be able to do. And the other thing, of course, was just that Ethereum 2.0 was so far away. And it was just really obvious to us that, like, everybody who was thinking Ethereum 2.0 was coming soon. Right. Was completely off the rocker and, like, it was going to dig forever for Ethereum 2.0. so you needed to have other approaches to scaling blockchains to come in the interim.

Starting point is 00:43:49 Like at that time, there was this debate that I feel like in my mind got resolved in early 2020 of is it going to be Ethereum and Ethereum 2.0. Or is it going to be alternative lower ones? And I just became absolutely certain, basically. In like early mid, late 2018, it was not obvious to me. I feel like it would have gone out of the way. Early 2019, I felt like you go out of the way. Mid to late 2019, I became more and more certain that other lower ones were going to matter

Starting point is 00:44:14 and that Ethereum was not just going to own the entire market. And then by late 2020, I feel like it was just a done deal. And what do you think now? I think it's been the same since 2020. It's a done deal. Yeah, it has not changed. We're in a multi-chain world, right? There's no longer a debate.

Starting point is 00:44:26 It's just a fact. What do you think over like 2025 to 2030, the distribution between market share between Ethereum and the rest of the all-layer ones? Do you have kind of a gut ballpark field on what that might look like? It's an extremely hard question. If I just had to give a guess at the top of my head, I would guess that Ethereum

Starting point is 00:44:47 was probably going to have 50 to 60% market share. And then like three to five all layer one split up the rest? Something like that, yeah. My guess is that like the number two player probably has 20% market share and then it like kind of falls off

Starting point is 00:45:00 from there. Switching gears a little bit here, going back to kind of the similar question where like you had this opportunity and you knew ahead of time that this was going to work. For me in 2018, that was Cosmos.

Starting point is 00:45:11 I learned about Cosmos, doing just like basic, 2018 was my first like nine months into crypto. So I was very, very new. But I still had like my strong intuition that I think most people didn't have back then. And the multi-chain and like interoperability layer is very, very attractive. It's like a very simple concept.

Starting point is 00:45:28 Oh, we got all these chains. Well, we need the chains to span the chains. That was Cosmos. Like obviously we need that. And I remember I was working at an ICO advisory company, my first crypto job. And I went and printed off like the first couple pages of the Cosmos white paper. And I took it over to the research team.

Starting point is 00:45:43 I slapped it down on the desk and I guess guys read this. And I was like, they were all like, oh my God, this is so great. This is exactly what we're looking for. So basically the TLDR of the story is like, I had that. Like I called that. But after I was like, okay, like how do I buy the token? Turns out like they had already sold the token to, I'm pretty sure accredited investors that I was not able to get in at the time because I was like a recently broke college student. And so we've had this conversation about like VCs and their connections to media.

Starting point is 00:46:13 firms and to smart contract auditors and being able to provide value to their angel or to their seed investment companies, their portfolio companies by using their connections. And like, you know, we still have accreditation laws and all that stuff. And to some degree, part of the Web3 narrative is like we can get away from all that. Right. Like we can have like the users. And that was the ICO narrative is that it's the users that are the investors now. Do you still see any like kernel of energy around that narrative in Web3 because I see it less and less and less these days. Yeah, well, first of all, didn't Cosmos do an ICO?

Starting point is 00:46:47 Yeah, it might have just been before my time, so I might have just missed it. Okay, okay, yeah, because I'm pretty sure they did. This story is still the same. But yes, but I understand the broader point. I understand the broader point, yeah, yeah. So I guess there's a few things, right? So the first thing is that when we say retail,

Starting point is 00:47:04 what do we mean by retail? And what do we mean by the community, right? Those are often the two terms that we kind of use interchangeably, but I think they also imply different things. The reality, of course, is that you look at Defi, right? Like when you open up an IDO, the vision behind opening up an IDO or opening up like NFT minting is that the community or retail gets to participate. Right, right.

Starting point is 00:47:23 And the reality, of course, is that it's not retail or, quote, unquote, the community that participates. It's a bunch of trading firms with bots that actually can, you know, get into flashbots or, you know, front run the men pool or do all this fancy stuff to go and fill out this entire thing before you can even show up, right? If you're sitting there clicking buttons on an interface, like you're already out of the game. Like you're done. Like, don't bother.

Starting point is 00:47:43 So the ability to really identify what do we mean by retail has become more and more clouded over time as the space has gotten more professionalized. So that's one thing. Now, the second thing is that in some ways, one of the most pure embodiments of what we mean by retail and the community is, what's the term of like Discord grinding or white list grinding? Yeah. Basically, like, you know, folks who basically will just go around and like basically farm engagement in a bunch of different discords in order to get invited to be able to, you know, pre-mint. Farm participation. Exactly. Farm participation, right?

Starting point is 00:48:14 And like, in a way, this is actually very, these are true retail people who are doing this, right? Like, this is not trading firms that are going in and doing it because you can't do that at scale, right? This is like true individuals. But, of course, it's the most cavalier mercenary kinds of individuals who are going in and doing that. The real thing that you want, what you mean when you say, how do we get the participation of retail is what I mean. is what I mean is, like, the really nice folks who are not trying to game things, who are not just end up for the money, who really just believe in the ethos of Ethereum, or believe in the ethos of NFTs, or believe in the ethos of the thing that I'm building.

Starting point is 00:48:45 And the reality is that, like, as you start slicing up the pie of what I mean by retail, it starts getting smaller and smaller and smaller and smaller to the point where, like, it's almost impossible to actually specify those people within a set of rules, right? Like, it's kind of like I know it when I see it, when I know, like, a real genuine community member, but there's no mechanism I can come up with that actually distributes tokens to just those people and not these other people who I don't want to give tokens to because they're all a bunch of mercenaries. And I think the realization that as the space has professionalized, it's harder and harder to accomplish that true goal, which is, you know, I want to give it

Starting point is 00:49:18 to my true community members, that you realize, like, look, the ROI on giving it to the folks who show up in whatever mechanism I come up with, if 80% of those tokens are actually going to trading firms, then like that's such terrible ROI on trying to do a community distribution that like, why am I even optimizing for that anymore? It's so inefficient to try to do that, that it just doesn't work. Now, we have things like, you know, ArcX or things like Galaxy that try to find ways to sort of do on-chain KOC for real good users who've been, you know, active in governance or who have participated in other defy protocols before. It's a kind of civil resistance for, you know, how to identify really true good community members. But the reality is

Starting point is 00:49:57 that it's hard. It's really hard to do that. And so one of the reasons why people kind of throw up their arms and give up on this notion of, you know, really trying to do an earnest distribution to community is that the definition and the ability to access the community has changed over the last three or four years, right? Four years ago, it was much easier. If you did an ICO, you could pretty much bet that most people who are buying your token were genuinely, quote unquote, retail or quote unquote community members. But that's just not true today. And that's why it's a lot easier to say, look, I know if I take capital from a, you know, high quality VC, that they will help me. But I don't know if I do a distribution to quote unquote retail, that it's not

Starting point is 00:50:31 going to mostly go to a bunch of trading firms that are just going to dump my token the moment they pick it up, which is, in fact, what will happen if you just do an IDO without any other forms of gating. So that, I think, is where a lot of this exasperation with a notion of selling tokens the community has come from. Yeah, it seems like a gigantic Molok trap where even if there are a supply of very engaged quality community members who definitely deserve the tokens, like the more and more of those people that there are, the more and more incentive it becomes to game that existence of those people and, like, become the wolf and the sheep's clothing. Like, oh, yeah, we're just like those. Let us in. And then we'll just drown everyone out. Right. Exactly. Exactly. And you see the

Starting point is 00:51:11 same thing with like, you know, you saw it with ribbon farming. You see it with, you know, D-YDX, wash trading. You see it with almost every one of these mechanics for distributing tokens to users of the protocol gets gamed in one way or another. And there's almost no mechanism you can come up with that will not get gained somehow. So say that every single cycle of crypto brings in their brand new cohort. Like we currently have the 2020 to 2021 cohort of crypto people who are, you know, quote, quote, buying the top and like earning their stripes and all that stuff. But say there's a listener who is like, well, I'm one of those. Like I believe in crypto. I believe in the ethos. I see the potential of crypto, not just for 2025 or 2030 or 2030, but like for 2050 and 2050 and I'm so crypto-pilled. And I'm, I believe

Starting point is 00:51:56 believe in the ethos and I'm here for the long term and I am a good community member. I hope there's a number of those listeners listening to bank lists right now. Do you have any just perspectives or thoughts or advice for these types of people? It's just how to navigate the murky waters of retail and actually become elevated to start participating in some of the conversations that we've been having here. Yeah, I'd say the number one thing that you can do in anything, but especially in crypto, is to take on responsibility. There's a lot of engagement in crypto, right? There's a lot of people who show up in your Discord, a lot of people who will like, you know, especially on your first governance vote, a lot of people who might vote in governance or like weigh in on some

Starting point is 00:52:32 forum post. But there are not a lot of people who will take on responsibility, who will raise up their hand and say, I will be responsible for X. And I will do the cat hurting. I will do the dirty work. I will write up the docs. I will organize the governance calls or whatever it is, right? That instinct to just raise your hand and take on responsibility in the communities that you're a part of is the most valuable thing. And the most likely thing that's going to, one, get you a lot smarter about Web3, and also what you're looking for is compensation as a, you know, member of the Web3 community, you're going to get there much faster by taking on that responsibility and also getting invited upwards to take on responsibility in other communities

Starting point is 00:53:09 and other Dow's and other multisics, right? Like if you show up in a bunch of these discords and you just, you know, type a bunch of random stuff and get into arguments and then, you know, expect an air drop, that person is going to become much less successful over the next several years than the person who learns how to be inactive and engaged and valuable community member. So that would be my number one piece of advice to the marginal person coming into crypto. I think that maps onto a lot of the advice that I've seen in other industries give with when it generally comes to like breaking into the industry, like you're a no one and you're in a sea of nobody's. And so how do you stand out is that,

Starting point is 00:53:42 well, you start doing valuable work for free. And if you do work for free, that's like the easiest way to stand out because no one does work for free. Like, why would they do that? But like doing work for free and willingly take on responsibility without anyone asking you is indicative of perhaps so many more things. And that's perhaps why people like that pique the interests of others. That's exactly right. And the number one thing that I hear founders lament about their communities is that there are a lot of people who show up because they want an air drop or they want, you know, to get some alpha or whatever. There are not a lot of people who show up and like, hey, I love what you're doing. How can I get involved? That is like music to every founder's ears.

Starting point is 00:54:22 If you just say those magic words, like, how can I help? They will be absolutely delighted. And they will sing your phrases from the rooftops. And you'll start building your own reputation as being a valuable member of the Web3 community, and not just somebody who's here to learn, but somebody who's here to contribute. I will say that the question of how can I help, not from the centralized projects, upstarts and startups, but from the Dow side of things, the question of how can I help has become like an absolute meme because everyone in a DAO, in a decentralized DAO wants to ask that

Starting point is 00:54:54 question, but no one wants to actually be the delegation of responsibility. And so in DAOs, no one can actually say, like, do this. We need more people in DAO's to say, oh, you want to help, go do this. We have not enough people to delegate responsibility in way too many people saying, oh, let me know how I can help. Yeah, that's a fair point. Do you pay attention to like the Dow dynamics? In the DAO's that I'm actively engaged in, I do. but obviously the number of dows is just massively exploded. But the thing that I guess, maybe a more pointed form of advice is like, just go start doing things, right?

Starting point is 00:55:28 Like you notice that this thing is a problem and like don't wait for someone to like deputize you to be the person who goes and does this. Like there's this debate going on. You're the one who goes in and like creates a doc that like summarizes everyone's positions. Or you're the person who goes and like just is like, okay, man, we're not keeping track of like X, Y, Z and nobody can seem to get an answer on like what has gone on up until now. And so you just go in and you're the documentarian. They're just like, you know, just solves that problem for everyone.

Starting point is 00:55:53 And the more that you start doing that, and the more that you start building the trust and the people who are actually in the positions of authority recognize, like the community leaders recognize like, oh, this person is a problem solver. This person, instead of sitting around waiting to be told what to do, does valuable things. Then they'll be like, cool. There's some other stuff that we could also use, you know, some extra hands on. You talked about how a lot of founders are frustrated by the number of people in discourse

Starting point is 00:56:17 who are just there to like get the airdrop. I can't remember the name of this phenomenon, but just like when something just becomes the norm, then it becomes gamed, right? Like now everyone's just gaming air drops. Right. Do you think like air drops are kind of turning into a thing in the past just because they've just been overused and abused for the last like 18 months? Or do you think air drops are going to be here for the rest of time?

Starting point is 00:56:37 I think air drops are probably going to be here for a long time. I think there are some projects that will start to avoid doing air drops. But air drops are, although. they are gameed, they're still really valuable. But there's the ability now to forego the irdrop, but to benefit from the implication of anirdrop. Right. So, like, if you don't do an irdrop when you launch your token, people get mad at you. Even if you never say you're going to do an air drop. You don't even imply that you're going to do anirdrop. But, like, people will automatically get mad at you. So, like, what? How could you launch a project with an airdrop?

Starting point is 00:57:10 How can you not reward your early customers? This is a terrible project. I'm going to leave a bad of you. I'm going to, like, tell the SEC on you. This is the kind of comments you'll get if you try to launch a project without an era of. Why? Why is that the case? Why is that the case? Right? Like, why is it happening?

Starting point is 00:57:25 And the answer, I think, is that what we have now is this very interesting thing that you generally don't see in economics, which is basically like backwards causation. In the sense that you're incentivizing behavior of people did in the past by a pre-commitment that you're going to do something in the future to reward their past behavior. Right. So it's almost like, here's one problem, like a generalized problem in the past. just game theory, right? Let's say we're in Russia, and I'm like trying to make you become, you know, the next president of Russia. And, you know, become the president of Russia. It's a very cut-throat business, right? So when you become president of Russia, you just have total control over everything. You're just like a dictator. So if I help you to become the president of Russia,

Starting point is 00:58:02 but when I succeed in making you president of Russia, I lose all my leverage over you. So I have no way to make you enforce your commitment to actually, you know, pay me back for helping make you the president of Russia, then like, I have no way to stop you from backstabbing me. And it's not rational for you anymore. when you become President Russia for you to actually make good on the commitments you made prior to that, because you know you have total control. Now you can just kill everyone who could potentially get in your way or who had any leverage over you. So this is a fundamental problem in a lot of systems where you cannot actually reward people in the past because there's no credible way to enforce

Starting point is 00:58:35 the commitment after you become successful. In the same way, right, like, how do you enforce when a project actually becomes successful that they are going to go do the air drop? And the answer is that there is really no way to do it. There's no way to do it. There's no way to enforce that this Dow actually does theirdrop and therefore rewarding the early community. Like the way that you, the leverage they have over you is that they're going to yell at you and they're going to say, this is a bad project and blah, blah, blah, right? But like, if you become OpenC or if you become, you know, uniswap, it doesn't really matter what those people say because you're going to win anyway, right?

Starting point is 00:59:05 So somehow we've gotten to this equilibrium that even though it's really hard to enforce this, every project is kind of benefiting from this assumption that there is going to be an air drop. We're not going to say it. The invisible carrot. There's an invisible carrot, right, that's now implied with almost every single project. And the project's benefit from that because now a lot of people are using the project. They're putting TVL on the project. They're blah, blah, blah, blah, right? Like, they're getting the flywheel going in the expectation that there is going to be an air drop. Now, if you don't do the air drop, right? If you don't do the air drop, you're kind of defecting in the prisoner's dilemma, right? You're the person who's like, you know what? Everyone else is going to get hurt for

Starting point is 00:59:40 this because other people now are going to start assuming that maybe there's not an air drop on the next marginal project, but it's to my benefit to not do the air drop, right? Even if a few people get mad at me, I don't really care. It's not going to impact my community that much. I suspect that what you'll see, though, is that the risk of not doing the air drop and pissing off your community is going to perceive as being too high, that most projects are going to say, look, I'm going to do something, even if it's a nominal, even if it's a very small air drop. I'll do something, and that's the way in which I'm going to, quote, unquote, defect from this equilibrium. So I'll do like a two to three percent token distribution, air drop, which is something, but it's not much. And that'll be my

Starting point is 01:00:12 carrot to the community and say, look, I did an air. AirDrop, you guys are just complaining, but technically, like I did theirdrop, I never told you how much I was going to give to the community. And that will become more and more closer to the equilibrium. But I think air drops will probably just never go away because they've just become the norm and people don't want to make their community mad at them. And so it's like, I'm okay with having my community a little bit mad at me, but I really don't want them to be like completely mad at me. And that's why like air drops will just be this like sticky thing, kind of like white papers were. Like white papers, like why did we keep writing

Starting point is 01:00:43 like Lotech white papers, even for things that aren't technical, right? Like, they don't need a white paper to explain them. Like, after 2017, there became this, like, cargo cult of, if you're launching a token, you need a white paper and you need to put, like, math equations in it. And, like, we just still, you know, we've gradually let go of this.

Starting point is 01:01:01 Or even worse graphic design. Yes, exactly. Like, we've gradually let go of this. We're like, now you see, like, notions, right? Like, there's, like, a notion. And we've gradually gotten to the point where you don't have to have white paper anymore. Unless you're building something super technical

Starting point is 01:01:13 in which case, okay, you still need to have a white paper. But this norm just showed up and it was so hard to make you go away. Even when I would tell on tours, look, I don't care. You don't need to have a white paper. Just explain what you're building clearly. That's all I ask for. I do not ask for a white paper.

Starting point is 01:01:25 I don't want a white paper. I want a clear explanation of what you're building. But it took a long time for it to go away because a lot of these norms become really sticky and hard to dismantle. And I think AirDross might be one of them. It's such a useful primitive that you, it seems like people with enough creativity

Starting point is 01:01:42 would be able to derive some sort of value out of them because you can kind of custom design an airdrop however you like it's almost like touring complete right like you can kind of design an airdrop however you see fit so it's really up to you to make it work to see as we kind of wrap up here I have just a zoomed out higher level question for you yeah do you think web three is currently or at least on the trajectory towards trying to kind of fulfill some of the goals that the crypto industry has for it like web three has an ethos it has like a vision or are we not doing that

Starting point is 01:02:12 Or are you more agnostic to like people's subjective interpretations as to what Web3 should be? Does that make sense as a question? It does, it does. I would say I am personally more agnostic about what Web3 is and what it's supposed to be. You know, the term Web 3 has metamorphose so much over the last few years, right? Like Web 3, you know, really we just call the crypto. Now Web 3 kind of is like this big basket of things that includes a lot. When I think Web 3, you know, what that originally meant to me was a replacement for traditional

Starting point is 01:02:41 web services intermediateed by blockchains, right? Like, that's what I think when I think Web 3 now. The term obviously has become much broader than that. For the record, that is the first way that I started using Web 3 back in 2017, 2018, and then it kind of left the common vernacular and then it kind of resurfaced in the last year. Personally, I just use it because

Starting point is 01:02:57 it pulls well and people like it does. It is now, it's now like the more it's a more respectable way to describe crypto. Web 3 like sounds more right. It's interesting because it's more idealistic, right? It's more respectable. And this is like, this is just the thing that happens, right? With words, is that some words get stale, you got to let them go and you've got to

Starting point is 01:03:15 adopt new ones. So, you know, one of my views on the direction of Web3. I think the reality is that every single time I've heard somebody tell me what Web3 was going to be or what Crypto was going they were almost always wrong. And the reality is that, like, I've been in this industry long enough to know that no one knows where it's going. No one is able to predict the future direction of this stuff. The way that I see it, like all of us, all human beings who are participating in the Crypto Revolution, We're all playing on this giant Ouija board, and we're all pulling the thing in a different direction. And somebody who claims like, oh, I know what word we're spelling. They probably don't know.

Starting point is 01:03:48 They might know the direction that we're pulling in right now. But as more people enter the space, as more ideas are invented and as more founders come in and start moving the direction of innovation somewhere else, we're going to see all this stuff evolve and all this stuff change. And so the answer in my mind is like, I think that the job, at least of a crypto investor, is not to try to predict the future. but rather to pay attention to the present. And, you know, one thing I often tell folks on our investment team, when they ask me, like, oh, how do we figure out what's going to work and what's not going to work? And the answer is like, look, no one can figure out what's going to work and what's not going to work. Like, it's really hard to do.

Starting point is 01:04:22 That's why, you know, venture is the way it is, which is that you invest in a ton of stuff and most of it doesn't work and a small number of things end up becoming really successful. You know, when we invested early into defy, we invested early into these alternative little ones, it was way before DeFi summer. It was way before Ethereum was congested, right? or I guess congested in the ICU bubble, but not anywhere to the degree that it is today. And what we were doing at that time

Starting point is 01:04:45 was not predicting the future. It was noticing the present. It was noticing that there were all these great entrepreneurs who had genuinely really novel ideas about how to build a next generation blockchain that if, in fact, we were going to get tens of millions of people in the crypto, that that was going to be necessary.

Starting point is 01:04:59 And they were building it. And they had insights that were real. Defi in the early days, it was a bunch of nerds who were just like off in a corner playing with Lego blocks and like, you know, at that time it was not obvious that any of the stuff was going to be significant or that it was going to be billions of dollars in locked in any of these protocols. At the time, it was just a bunch of nerds in their garages, right?

Starting point is 01:05:15 But like noticing that what they were building was actually really sound, was actually going to work if it really got to scale. And that it was really creating brand new innovations that had never before been invented. Noticing that was our superpower as investors. And so I think the same philosophy today is that like, I don't see my job or even my ability as being able to predict the future of crypto. What I see my skill set as is being able to notice what's happening in the present, to understand it, to explain it, and to at least draw the line out.

Starting point is 01:05:44 But the line is super uncertain where it goes. And to that extent, I'm kind of along for the ride just as much as anyone else is. Yeah, and it's certainly a fun ride. See one last one, and we'll wrap this up. Is there any just like rule of thumb or life advice or just like law of the universe that you pay attention to and follow every single day when you wake up in the morning, any bit of advice that you think is pretty canon that you like to share. A piece of advice that's canon.

Starting point is 01:06:09 To you. Yeah. I guess for me, the biggest thing I'd say is that your scarcest resource is always time, even when it doesn't seem like it is. So anything that you can do to get more time is almost always the most valuable tradeoff you can make. Time being the one asset that you cannot purchase or mint or freely create. Exactly.

Starting point is 01:06:30 So Haseeb, with that, I thank you for your time. and spreading some of your knowledge here on Layer Zero. Thanks for having to do.

Bankless - How to Become a VC with Haseeb Qureshi | Layer Zero

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