The New Economics of Crypto Tokens | Austin Barack
00:03Bankless station, I'm here with Austin Barak.He is the founder and managing partner over at Relayer Capital.Austin, welcome to the show.Hey, David. Glad to be here.Awesome.We're going to talk about tokens today.You and I share a lot of the same ideas about a lot of the same tokens.We're going to talk about Venice.
00:17We're going to talk about pump.We're going to talk about hyperliquid and etherfi, maybe a few others if we get enough time.But I first want to talk about your lens for investing in crypto.Talk to me about Relayer Capital and the strategy that you guys have.have over there when you guys look at investing in crypto assets?So it's an interesting question because crypto markets have changed so much over time.So you're forced to evolve.Otherwise, you end up in a stagnant strategy.
00:47You know, what worked in 2017 or what worked in 2021 or 2 or 2024 doesn't necessarilycontinue to work.But there's certain themes that I think have found replicatable success.And those are being at the end.intersection of growth and value. And what I mean by that is no one comes to crypto because they'relooking to find a company that's, you know, growing 10% a year and trading at a 4x multiple.That's not interesting. They can buy like a power utility. Well, actually, power utility isgetting a little more interesting with AI data centers, but you kind of get what I mean.
01:23So when I say growth and value, investors are looking for companies and tokens and projectsthat are growing most quickly,but also you have the most margin for opportunitywhen they're also valued very reasonably.And because capital in crypto has these very cyclical patternswhere at times things are very overbidand at times things are very oversold,you get these moments in time that often persist
01:53where there's actually growth and value,which is something you typically don't see.So that's kind of the,overriding theme in terms of what I look for when I look for in an asset.However, taking a step back, you know, I found a relayer capital about two and a halfyears ago. Before that, I was a partner at Coin Fund. A relayer, we do liquid in venture.But, you know, leaning quite a bit more to liquid recently because I think that's wherethere's more opportunities. And the two segments of the market that I found most interesting
02:24are the intersection of crypto and AI and 24-7,trading slash tokenization. And those have been the two core themes of what I've been looking at,especially this year. So that includes many of the assets that you mentioned at the beginning,whether it's Venice or pump or hyperliquid or etherfi or others. But yeah, that's the generallens through which I look at the market and try and find opportunities. How do you think aboutlike the typical VC strategy of very early stage, like speculative bets?you know, all or nothing.Is that how you lead the VC side of relayer?
03:03Or does it kind of stick with the public token side of thingswhere you're at the intersection of growth and value, as you said?Do those things match?Yeah.So that's a good question.And I guess a good distinction because that's really on the liquid side.In venture, I'm a firm believer that, like, it's very rare that the best deals arealso priced cheaply.
03:28So if you want to get into what you consider it to be the most interesting opportunity,you're usually going to have to pay up for it.However, if you can get in early enough, that means at least on an absolute valuation basis,you can get in at an attractive level.So on the venture side, I still am looking at those major categories, whether it's likeneobrochry, on-chain, defy, tokenization 24-7 trading, AI, and whatnot.but really the focus there is getting in at the pre-seed or seed level where the valuations are most compelling.And ultimately, when you're a venture investor, you're making a bet on the team, the market opportunity,
04:09and as an extension of the team, their ability to execute.So, you know, that's where I like to get in, you know, at that stage.Between the two sides of relay or between the liquid public token and the private VC side of things,which side has been capturing your attention more,which side has been winning in the tug of war, if you will?Yeah, so I would say maybe like the first three quarters of the year of 2024when I was live with the fund, I would say it was pretty 50-50.Now it's 95% liquid.
04:43I think most of the deals that you're seeing on the venture side come to market are,you know, there are interesting deals, but they're gross stage deals.They're more like traditional payments in fintech companies,which I think are also compellingand I like on the public equity sidewhen you think of like crypto linked assetsso something like a new bankor a delocal or a figure
05:04but something that I'm a little bit less excitedabout on the venture side.So at this point it's like 95% liquidwhere I'm spending my time.Do you think that's just downstreamof where we are in the cycle?I mean, it's a very interesting weekfor me to even ask that question
05:18because Bitcoin just ripped from like 62to almost $80,000.And so, you know, potentiallypotentially the bull market is on.But nonetheless, like last week,if the bull market is indeed on,the last week would be like the last week of the bear market.And so a lot of the liquid tokens,
05:34therefore, present themselves as very, very valuable deals.Do you think that's part,like the reason why liquid tokens are so favored right nowby you at Relayer is because of where we are in the cycle?No, I think even more so than that,you know, this has been core focus for probably about a year now.And I think we've, it's because we've been in such a deep bear market for such a long time that you've been able to see this separation of instead of looking at 100 tokens, all right, there's actually 10 maybe or five that are really, really compelling that are finding product market fit that are growing quickly, you know, as an extension of that.and then are also priced really attractively.
06:22And if anything, actually, some of these assets are now priced a little lessattractively, but in the grand scheme of things, still pretty good.I mean, you see something like Athena, which I think everyone was looking at as like,let's say if the bottom is the first inning and then the first recovery of assets is the second inning,I always thought of like Athena and Pendal as third inning assets where it's like,once things heat up and on-chain yields increase, those are two of the protocols likethese native on-chain yield protocols that benefit most.And, you know, Athena's up 40% in the last, like, 30 hours or something.
06:57So we're definitely seeing this play out.Let's talk about Venice.It's getting into some of the specific tokens here.There's a tweet from you that I'll read.In my opinion that Venice, it is my opinion that Venice's token is materially underpricedat $1 billion FDV.I think the price is a little bit higher now today, or actually quite a bit higher.Price target, based on what I consider to be a realistic scenario,
07:19is $43.90.Talk to me about how you backed into that model.How do you think about VVV?Because it's not a token that really we've seen before.It's very interesting in terms of its value capture storyand it's very specific in its value capture story.So when you think about valuing VVV,what are the most important things to consider
07:41when you create a model around it?Yeah, so I think,right now it's actually interesting because I think a lot of more people are creating like moresophisticated models because AI allows you to to kind of build things so quickly. But I actuallystarted my career in corporate development and FP&A at a payments company actually. So I built thismodel the traditional way from scratch, which maybe it's a little crazy to say, but I found fun.But the way I built this model is like, all right, you got to start at the top. What is the business,And the business is private and uncensored AI use being able to access kind of AI as an application through or be able to access any sort of model, whether it's a frontier model or an open source model.
08:31And they monetize primarily in two ways.So there's people that sign up for subscriptions.It's freemium.So you don't need a subscription, but you can't access all the products.And then it's, you know, unless they've changed the tiers recently, it's $18 a month, $16.$28 a month or $200 a month.But as consumers of AI know, that gives you a certain amount of credits.And when you run out, as people often do, if you want to keep using the product, you need
09:00to pay for additional credit.So that's really the second major revenue line right now, which is credit purchases.And then now you have to think about like, all right, so what does this mean for the token?And in June, or I guess maybe it was the very beginning of the,July, they raise an equity rounds or $1 billion valuation, equity and token to be clear.So alignment across both. And, you know, there's a lot of scar tissue in crypto. So people are like,oh, what does this equity mean? And I think Venice has actually created one of the mostelegant balances of token and equity where this is an off-chain business, right? Like,
09:40the majority of this is just people using AI as a consumer application.signing up with a credit card, using it on their computer or their phone.So in order to create all of the relationships and, you know,access all the compute they need and everything,like running a fully on-chain business as a foundation is just very operationally complex.So most companies, you know, will need an equity business.So what they've done is you have this token where, you know,the token benefits from burns that are happening.
10:16on chain. It also has a certain utility in terms of tokenized compute. And I'll get back to thatin a second. And the idea is like, all right, well, they're reinvesting in growth as any business shoulddo at an early stage when they're growing so quickly. However, all of or the majority of free cash flow,of the excess of what's spent, goes into the token. And that's the plan long term. They've been veryexplicit about that. And right now they have two programmatic burns. So for every new sign up,whether it's, you know, depending on the tier,they burn a certain amount of tokens.And for every credit purchase,
10:52they also burn a certain amount of tokens.So from there, you can back into like,all right, this is the revenue for the business.Now, let me make some assumptionson what the gross margins are at the business level.So, you know, this is not hyperliquidwith like 100% margins.It's a business with costs.
11:12So what are, you know, the cog?so what are like the inference costs and the related things.And then what's the OPEC?So marketing, customer acquisition, headcount, all of that.So that when I think about burns, I think about it in the context of like,what are they reinvesting in the business?What are their costs?What's actually feasible to burn?
11:29Because, you know, people say they're burning 8% of revenue.Well, if let's say, as an example, their gross margins are 50%,they're reinvesting in the business.And right now, let's say their EBITDA margins are 10%.If they're burning 8%, that means they're burning the,the majority of the free cash flow.So I think that's like a nuance that needs to be understood.So what I've done in my model is I look at where are credit burns today?
11:56Where are new subscription burns?And then what do I project those line items to grow based on, of course, how do creditpurchases grow and how do subscriptions grow?And then, you know, I'll pause in a second.Then I think about like, all right, what are some new business lines and what are potentialburns from that?that's the mine's product that they've been hinting at for a while,which is kind of like an app store for AI products,
12:20which is very interesting.And I imagine coming in the next couple of weeks.And then the other piece is what are subsequent burns that can be rolled out?Because, you know, they started first just with a discretionary burn,then they did it for new subs, then they did it for credits,and what are new ones that can be added?And how does that all roll up?So, you know, right now as of, you know, August, they are run rating in my estimate at 107 million of annualized revenue and at 8.3 million of annualized burns.
12:57I have that in 2027 scaling up to 336 million in projected revenue and 70 million in burns.So from there, I just look at, you know, what's a reasonable multiple on earnings, like a P.And I think for a token, buybacks to market cap is a very reasonable way to think of an equivalent for a P ratio.And for a business that's growing directionally like 5 to 10 X year of a year, which is just astounding growth, 50x is a reasonable comp, if not like potentially even cheap looking at stock market.and 70 million times of 50x valuation or multiple,three and a half billion for the token,thinking about the projected token supply at the end of 2027,and that's how you get to 4389,
13:45which versus the current prices today at, you know, about 16,it was, you know, 12 when I updated the model a few days ago,I think is very compelling.I've been trading crypto for almost a decade,and I've used so many different wallets, exchanges, aggregators,different front ends over the years, and I'm always kind of looking for the same thing.Just one interface with deep liquidity across a bunch of chains and assets where I can accessall the markets like perps, earn yield, trade confidentially, and still control all my own funds.
14:13And I've never really found this experience, and I'm always switching wallets, juggling gas fees,and just getting eaten by slippage.Near.com is not that. It feels fundamentally different to me.I can do everything I want from any chain, and I keep all my activity confidential.I can even earn yieldconfidentially.It's the waycrypto should work.
14:33The near.com walletis powered by NIRand it's moved over$25 billion cross-chainusing post-quantum signingand has run overfive years on main netwith zero downtime.
14:43Near.com is simply the best wayto be on chain and be in control.Get 20% of your trading feesback using the bankless linkin the show notes,not investment advice.Self-custody won,but it still has a usability problem.
14:54A seed phrase on paperis still a single point of failure.phones get lost, devices break, backups disappear.Bitkey is a self-custodial hardware wall built for that reality.It uses a two of three multi-sig with keys split across your phone, the bit-key hardware device,and block.No single key can move your Bitcoin, and Block can never move it alone.There's no seed phrase to lose or expose, and if you lose your phone, your bit-key or both,
15:17built-in recovery gives you a path back.The hardware screen also lets you verify the destination before approving a transaction.And that's the point.More control without one mistake putting everything at risk.So download Bitkey today and use promo code bankless to get 10% off of your Bitkey.This episode has been sponsored by Bitkey.What are the biggest assumptions in that model, the most shaky assumptions that kind of require the most amount of faith?So like what are you kind of relying on in order to create a fair value of almost $44?
15:49Yeah.So I think the of that 70 million, I have 29 million coming.29 million in burnscoming from the mine's product.So that's a significant assumption.That's 40% of 2027 burnscoming from a new product.However, you know,
16:10I don't make that assumption blindly.Venice didn't have a credit purchase productthat existed in 2026.They rolled out in the very beginning of this year.And prior to that,you could use the frontier models and creditsto the extent that you had available.And then after that, you kind of had to use other products
16:32or other models or upgrade tiers.And they rolled that out in January,or maybe it was February, but beginning of this year.And based on current credit purchases,and this is something you can all track on chain,their run rating at $60 million of ARR.So a product that didn't exist eight months ago,is now doing 60 million year of revenue.
16:59So I think, you know, thinking about what the business looks like in 2027,30 million for mines, well, perhaps optimistic because, you know,this is a product that doesn't, that's not yet live.So there's a lot of assumptions required.I think it's something that's reasonable based on like what we've seen from the executionof the team so far.Let me give you some pushback on that one, which is that the credit purchases,you call it a new product.
17:29It's the same product because they're just selling tokens.Venice has always been selling tokens.They were selling tokens with selling their subscriptions.And now buying credits is just like another way to sell tokens.So it's been the same product,but it's been just another way to take in revenueand really maximize, amplify a product that already exists.Mines, which I agree is exciting and potentially large,
17:55we just don't know.And so it could also potentially be a flop.And credit purchases are not going to be a flopbecause it's selling the same product that already exists.But Mines is like a completely new line item in the Venice business.And we actually just don't know.And I don't think even the Venice team knows how well Mines is going to do.How would you respond to that?
18:16Yeah.So I think that's fair.And in that lens, let's look at credit purchases.It's an extension of just using the product more.fair. So let's call that like a two out of 10 in the like new product scale, maybe mostly not a newproduct. I think you can think of minds as like five out of 10 in the scale of new product where it is anew product, but it's not like a 10 out of 10 completely new. And the reason for that is so creditsallowed you to use the existing product and the existing models more, the assets of it. And
18:50what minds allows you to do is use the existing product more and better.And what I mean by that is whether you're building out agentic use cases or you're using coding tools as part of your existing Venet experience or you're just doing chat prompts, the way people currently use AI today, like as a regular user versus a pro user, it's like you're using different products.The difference is vast.and that's the core of what Mines is building,whether it's like these structured promptsor like applications to help you use AI better,that I look at as just like making the existing product suiteeasier to use and easier to use more.
19:39So, and maybe I'm actually overestimating the revenue that will come from Minesand I'm underestimating how much Mines may just increasethe pace of subscription growth and credit purchases,because now they're going to be using mines,but in turn, like using the existing products more because it's more useful.So I continue to look at it as an extension of what's being built.But yeah, I think that's fair pushback.It's definitely more new than credits versus like extension.
20:10On the flip side, the bullish side of minds, I think,is also worth talking about and illustrating because it also kind of discusses Venice'spositioning as a company as a product.Maybe just to illuminate minds even more as a product,there are a handful, a good handful of Venice userswho are like super users.And the cool thing about Venice is that it has all the models.And some of these super users, all of these super users,
20:37have gotten really intimate about which models do what very well.And so some of these super users are super prompters.And they pick and choose the right models for the right circumstances.And the idea behind minds is that it gives these developers, like a developer platform,like a sandbox to create a structured model products.Like this, like use this model and this model and this model in these ways to amplifythe experience of like an average user.So a Venice super user can create a structure and they can present to that to the rest
21:18of the Venice user base.And I think they kind of hinted at a wayfor developers to actually monetize this.So if your mind gets used a lot,you get a kickback.And so it kind of turns it into an Apple App Store experience.And the reason why I think this is uniquely interestingabout Venice is because Venice touches the end user.
21:39And I want to talk to you later about OpenRouterand the $7 billion open router strike acquisition.But this is something that like OpenRouteror any generalized modelaggregator doesn't have as an option to them because Venice owns a direct relationship tothe user. So like talk about the bullish side for minds from that perspective where like Veniceactually gets to they have a direct user relationship and the potential like how Venice mightrewrite if it actually does turn into like an open developer platform. Yeah. And I think that's a big
22:13reason for why I'm modeling it at 44 and it's currently trading at 60.because I believe, based on my research,that this is more likely to be successfulthan I guess perhaps the market does right now.And that's how you make a market.But I think the bulk case is they have 4 million historical users.I mean, they haven't released what like monthly activeor quarterly active numbers are,
22:39but by my estimates, that's like at least over a million.And so you have these very, very active seven-figure.user base. And they're going to be marketing to each other, especially these power users. And it's notgoing to just be on Venice. It's going to be like wherever conversation is happening, whether it's onTwitter or Reddit or Telegram groups or Discord, because they're going to be incentivized toearn additional income for things that they're already doing by sharing those products. And I thinkthat's like a really, really strong bulk case. And like we've seen with, you know, like chat GPT tried toto build out like additional tooling around the product and like an app store of sorts,
23:22but it wasn't very open. It wasn't prominently featured. Venice is actually going to featurein the midst of everything they're building. So it's not going to be this thing off to the side.So I think, you know, if you probability weighted, the $29 million number that I have ismaybe like a fair, reasonable number, but there's opportunity for significant upside from there.And one of the things that I think is interesting is like,so they've been chatting about this,there's been like a few tweets and announcements around a film festivalthat Venice has been, you know, sponsoring and part of.
24:01Yeah, the Murrah Film Festival in October in New York.Yeah.Exactly.And I think that's one of the things where,I mean, you're seeing so much content created,but I think use of diffusion models is still pretty earlyin terms of image and video generation,beyond just like fun novelty creation.
24:21And those sorts of products, perhaps most specifically,are where a minds type product could be the most usefulbecause you have so many people that want to be creators.And it's not like using an AI chat productwhere you can kind of figure outand you don't even know how much your prompt versus another promptis not useful.Whereas like if you're trying to create a one minute,
24:47video and you have no idea where to start, then an app store for that becomes incrediblyuseful. I want to talk about the tension between value and growth on the Venice side. Venice hasbeen buying back and burning VV with a share of his revenue from day one. And of all AIstartups that exist right now, it's probably the only one doing the value thing instead ofthe growth thing. It's definitely still doing the growth thing. But they're not, as you said,they're taking a very healthy chunk of their free cash flowand choosing to do essentially like stock buybacks in quotes,buy and burn of the VVV token.
25:26And this just goes against like common sense about startups.Like Venice is a very young startup,just a couple of years old,and it's doing stock buybacks with some of the revenue.Now we can talk about the trust that needs to be imbuedin the crypto industry because of this like token equity problemand the value that,having programmatic buybacks brings to the trust around the VVV asset.
25:51But does it concern you at all that a AI startup is doing value-based activitiesrather than taking that revenue and reinvesting in growth?Like, wouldn't that be like the more normal thing to do?Yeah, so that's a good question.So there's lots of positives, lots of negatives of having a token.So it cuts both ways.The positive is you're able to get a ton of attention,and you're able to bootstrap quickly.
26:17You're able to create new types of like token utility.Like, you know, I mentioned you can lock up Venice to mint a token called DIM,which is essentially tokenized compute, gives you a dollar per day of inference,which is really, really cool.And it allows you to acquire more customers.But on the flip side, until we have Clarity Act,you don't have those necessarily those guarantees that the token is going to,accrue the value of everything that's built.
26:47The team has been very explicit that they plan to return value to the tokenpredominantly so.And they also plan to like, they made it like burn every token out of existence and like,I guess that's like asymptotically impossible.But like that's the plan of or like the the gist of what they're going after.But you need to, you know, walk the wall.if you're going to say that pre-clarity act.And I think that's what they're doing.
27:19So they're walking the walk.But they're also doing in a way that's sustainablewhere right now the burns are,it started with discretionary burns,which is just a couple hundred K per month.Then they're like, okay, we're going to do for new subscribers,but we're not going to do it for existing subscriptions.So it's like, you only get to cut the first month if you're a token home.
27:40Then they're like, all right, well, we have this credit purchase line itemis growing really quickly.let's do 5% of that revenue.So $5 of every $100.So they're being very deliberateto make sure they have enough moneyto reinvest in the businessand of course be profitable
27:55but also have this signaland provide this value to the token.One of the things that's most interestingabout the raisethat I think sometimes gets lostin conversation that Eric,the founder was talking aboutis they raise $65 million
28:10so that they have the abilityto prioritize the tokenbut also be able to actively reinvest in the business.So if you think about what's been burned so far,I don't know like the,I can actually pull it up from Venice stats,but like the historical number to date,it's, I don't know, like a few million bucks.
28:32And they've raised $65 million.So they've raised, you know,1020X what's been burned so farto be able to grow the business.So I think they've found a good balancewhere raising outside capital, getting other stakeholders involved,also making those stakeholders token alignedbecause those stakeholders all have token warrants
28:54is what gives them the ability to continue to grow so quickly.But yeah, it's an imperfect tension about reinvesting in the business and growth.And I mean, maybe hyperliquid is just like an anomaly of anomalies,but I don't think it's reasonable for them long termto be burning 99% of tokens unless all of the growth comes from,like all of the customer acquisition growth comes from trade XYZ or is just like funded by the team.But maybe that goes down to like 95 or 90% down the line.And they use some of that money to just like lean into marketing and customer acquisition and whatnot.
29:35And maybe they don't.And I'm a big fan of hyperliquids.I don't mean that in any particular way.But yeah, it's, you know, a certain amount needs to be reinvested.And I think, like, to the extent that is reasonable Venice is straddling that line very well.So there's two main mechanisms that VVV gets burned.As you've said, it's new signups.So different dollar amounts of VVV gets burned based off of the tier that somebody signs up for a Venice subscription.
30:04And then the second one is API credit purchases.So you buy $100 of credits.You burn about $5 of VVVs.about 5%.There's one more like possible mechanism for VVB burn that the team has like potentiallyraised as a mechanism for burn without any committing to it in any particular way,which is resubscriptions.So like you buy a one year subscription and then it runs out at the end of the year.
30:30And then if you resubscribe, if you have like a rolling over subscription, no new VVV getsburn because it's just on initial sign up.So there's potentially one more addition to the VVB burn mechanism,which is subscriptions rolling over and then they're buying another year's worth ofsubscription.Do you have that as an input into your model for Venice?Is that part of the $43.89 model or is that something that you haven't integrated yet?That's part of where, depending on your view of where the token is headed,
31:02my model is reasonable or optimistic.But I do have that part in my model.they've rolled out new burns over time, programmatic burns, and I think they'll continue to do so.So in my model, I have that beginning.I'm just looking.Yeah, so I have that beginning later this year or early Q1, depending on like the different scenario analysis that I have.I think that's something that they're likely to do.But I think that's also a place where they can be measured.
31:33So, you know, if the subscriptions are 1868 or $200 a month, they could start low, see how that impacts, you know, their ability to reinvest the business, and then grow that over time.So that's also what I'm modeling out over time that, like, it starts low, and then over time they increase that number.And for what it's worth, that's actually what I model out for credit purchases as well.So right now it's at 5% of every credit purchase is burned.In 27, I have that becoming 10% because, you know,I think they'll be able to actually increase that.Oh, wow.Oh, wow.
32:12Okay.So I was understanding a little bit of your model and your like stands towards it,it sounds like your model is optimistic and reasonable,as in nothing is ridiculous.Everything has had evidence or some supporting evidence somewhere,but nonetheless, it is an optimistic model where, like,all of the things that are reasonable but optimistic are included in the model.Yeah, I think that's fair.
32:35Let's call like ultimate bare cases zero out of 10, base case is five, you know,full ball case is 10.You can probably call it like, I would call it a six.A six on the optimism spectrum.Yes.Cool.Cool.What do you think about just Venice growth to this point?
32:55Has it like exceeded your expectations, the trajectory from,from day one has it has been about meeting your expectations.What can you say about Venice's growth up to this point and what you have imaginedfor it in the future?Definitely exceeded my expectations.I first started tracking Venice when they launched their token beginning of 2025.And that's because I was doing a lot of work in the virtuals and AIXBT and kind of relatedecosystem.
33:24So I was fortunate to get to get a nice air drop of VVVV tokens.And, you know, that started following.and since then.And, you know, it was something that that was interesting and I kept an eye on.But, you know, honestly, lost a little bit of track of it through, like, all the tariffs andcrazy stuff that was happening in 2025.And, you know, they changed their economic model.Originally, VVV was both the token and the inference compute token.
33:50And then later on, I think it was in August, they created the DEM token.But it was actually very beginning of this year, Venice was trading at like $2.and Eric wrote this really long tweet thread about the change in token economics,how their tokenized compute token worked,what some of the growth that they've seen lately was.And I, you know, sometimes it's nice to have this like blocked out periods of timewhere there's nothing else to do.But I was in a 40-minute taxi ride.
34:22I was, you know, traveling across town.So I'm scrolling Twitter and I'm like reading through this whole thing.And I'm like, wow, I guess I,I hadn't kept fully up to date with what they were doing with DM and started digging in.And that's when I started building a position for the fund.But I did not anticipate that the token would 10x, the revenue, like what I estimated at the time was maybe like in the 10 to 20 million range would do like a 5 to 10x in a period of eight months that they'd be at 4 million users.I think they were maybe at 1 million users at the time.that credits would also grow so quickly.
35:03So yeah, I've been really pleasantly surprised.You know, I chat with the team a lot just because I'm like an active community memberand I love sharing ideas, suggestions, like unsolicited feedback.So I appreciate that they don't tell me to lay off and, you know, they listen to the ideasthat I have.But yeah, it's really incredible.And I think one of the things that's cool is we've seen so few products in cryptothat have legitimate mainstream consumer crossover that have found product market fit.
35:42And Venice is one of this.When you saw OpenRodder sell for $7 billion, what was your reaction to that from the Venicewas that confirmation of the sector that Venice is in?Or did that add anything new to your perspective?around VVV the token?What was your reaction?Yeah, so I think it just shows that we're movingto like a multi-model routing world
36:05where people are finding tons of utilityof using different models for different use casesand that's what open router is,but like more on the developer tooling levelversus like the consumer level.And fundamentally that's what Venice is as well.You go there because you want privacy,but also because if you go to chat GPT,
36:29you're using whichever model of Open AIs,latest models that you pick to use.Or, you know, same thing with Anthropic,if you're going there, you know, so on and so forth.But there's very few strong consumer productsthat allow you to pick whatever model is bestfor the particular use case they're using at that time.And that's just validating what Venice is doing.
36:54So, you know, OpenRouter raised at a 1.3 billion valuation, like two months ago, like not really long ago.And now it's like 7x or more than 7x at 10 billion.So I think that just reflects on what a reasonable multiple should be for Venice.And like, maybe the right number was 30x before or 50x before.But if they continue to see this growth, maybe 70x is the right.multiple. So that just gives me more conviction in the valuation analysis that I've done.There have been a few tokens in the last like six months to a year or so that have grown in price,grown in value, idiosyncratically like out of the bear market where, you know, Bitcoin is down
37:44to flat, ETH is down to flat, but hype, which just like blew up in the last like 12 months or so.Venice, you know, really grew despite the bearishness in the macros.and there's been a few of these tokens that have grown despite just the broad bearishness in crypto.So there's one take where it's like, oh, well, like once Bitcoin goes, then like, oh, my God,these are going to go even further.But the bearish take is like, oh, no, these, like, you know, what is Venice exposed to?Like Venice is exposed to, or VV is exposed to the success of Venice, obviously.And actually, if, you know, if Bitcoin goes to all-time highs and beyond, say Bitcoin goes to like a quarter million dollars,
38:24actually VVV has no exposure to that whatsoever.Do you think there's any sort of couplingbetween the macros of the crypto assetsand things like hype or VVV which have grownaccording to their own revenues?Or do you think these things are like actually meaningfully decoupledand macro growth in crypto as an industryactually won't really show up in things like VV or hype?
38:47Do you have an opinion about that?Yeah, so that's a great question.So I think they're partially coupled, partially decoupled,but the decoupling part isn't a positive way.So I'll start with the decoupling,which is the performance that we've seenbefore the move in Bitcoin and majors.These are businesses that are growing really quickly.
39:06They're seeing like fundamental value being returned to token holders.That gives them a strong floor valuationbased on just the business that's being done.And depending on how much you want to underwrite the valuefor the growth that they have,you can price out what they should be worth.A lot of them have been growing faster than people expected and were valued cheaper than was reasonable.And that's why we saw this re-rating earlier in the year.
39:32I think that continues as the business fundamentals continue.And I think the business fundamentals continue.So that like non-correlated aspect should continue to do well.Now let's take like three particular assets as examples on what their coupling and correlation is to the broader market.Let's use Venice hyperliquine pump.So Venice, I think all of the, well, let's start.So all of them, I think, benefit from the fact that they're fundamentally tokens, not equities.And tokens have had negative drift for the last 18 months.
40:09What I mean by that is there's no capital flows coming into crypto, probably or definitivelycapital leaving tokens, leaving crypto, moving to equities, moving to AI, moving to other.asset classes.And, you know, you look at equities,equities just because of 401Ksand pensions and whatnot, they structurallyhave positive capital flows.But the negative drift in crypto
40:33is cyclical.I don't think it's going to persist.I think that flips over time.I think it's probably just flipped,which is why we're seeing this massivemovement across the board.So to the extent that VVV,POP, Hype, these other assets
40:49are tokens,they're going to benefit from more capital going to tokens as an asset class.So I think that's a tailwind regardless, and that's a very meaningful tailwind,because when people say, like, I want to allocate to tokens,those are some of the ones that are going to be top of the list,especially for the people that are trying to underwrite fundamental value,whether you think about it as like traditional hedge funds or liquid hedge fundsor like family office, high net worth type investors.
41:17And also retail that is just,just looking at it from that lens as well.The part where it's coupled further,I think Venice has that piece.I think hyperliquine and pump actually have some further coupling.So pump benefits their fundamentalsfrom when there's more on-chain activityand more meme coin trading.
41:38We've seen an acceleration over time,but I think that's just going to like massively grow from here.We can see revenues, you know,over the last 90 days, like the 90-day average versus, you know,what we've seen recently, it's growing like 80%.I think we could see like a doubling or tripling even from here.So just return of on-chain activity and meme coin trading, very positive for PUP.For Hyperliquid, most of the re-rating came from volume in their HIP3 markets,
42:07and they're like RWA markets, whether it's, you know, commodities, stocks, indices.And that hasn't generated a lot of revenue so far because they're all in growth mode.the revenue, the top line, hasn't actually grown that muchbecause while volume is growing so much from the RWA markets,not generating a ton of revenue,the cash cow has always been the crypto token business.And if we see a return to flows moving into cryptoand lots more activity,
42:35then that's something where they're going to benefitin the part of the business where they have the highest take rateand they're actually earning the most fees.So, you know, if you look at,they were generating, you know, like direction,just under a million dollars of fees a day a week ago,now they generated about $5 million of fees in just one day,a couple days ago.
42:58So I think the cycle reflexivity is very,very strong for something like a pumper or a hype in the fundamentals as well.So you think a handful of these tokens that we've talked aboutactually get the best of both worlds.They get exposure to their own growth,which obviously they do,but they also get exposure to just like the tide that lifts all boats,which is the crypto markets pump and the purse platforms,
43:24especially just because they are the crypto markets.That's literally their product.Yeah.And the nice thing about Venice is like,well, it doesn't have the full extent of the tide that lifts all boatswith crypto because it doesn't have that reflexivity with on-chain trading or whatnot.It has at least as big of a tide that lifts all boats,which is just AI adoption,
43:44which is why I'm so excited about itbecause more people are using AI every dayand that's not changing.There's a bunch more tokens that I want to talk to you about,but I don't want to prime you in any particular way.So what token, we've talked about VVV,so that one's done, like checkbox on that one.What token excites you the most?
44:05Like what gives you the most intellectual fodder to work with?What gets you going?A couple from different lens,from like a finance and valuation analysis perspective pump,I think it's still incredibly cheap.It's trading at 5x buybacks,where if you look at, you know,hyperliquid and lighter in the 30 to 40x buybacks range,
44:29so those are much higher,but I think people ascribe a higher multipleto a perps business than pump,which, you know, I think you can call it,I think it's not unreasonable to call it a durable casino business.You know, people go to pump,and trade meme coins looking for asymmetric returns have very short trading time horizons.And I think it's similar to gambling in many respects.
44:53But there's nothing wrong with gambling.It's a very big business.Like people are investors in Wynn and Las Vegas Sands and MGM and Draft Kings and Fandul and,I don't know, like you look at prediction markets or, you know, zero day to expiry options on Robin Hood.It's a form of speculation on the line with gambling that.that I think is not an unreasonable comparison.And trading a 5x multiple to earnings is crazy in my opinion.I think 10x multiple to earnings is much more reasonable.
45:24That would be a 2x from current levels,assuming no further growth.I think it grows further from here.So even though pump is done, you know,a 3x in the last month and a half,two months, something like that,I think it has, you know, a lot more room to growbased on, you know,
45:39these multiple re-rating and value plays out.hype, I think, is incredibly interesting just because it's maybe other than stable coins,the best, and, you know, Bitcoin and Zcash and like money from a perspective, I think it's one of the bestexamples of the crypto thesis playing out, which is instant settlement, 24-7 trading, bringingall assets on chain, and like shifting the financial system onto blockchains.So it's really fascinating to see like markets grow.And also new use cases like price discovery for SpaceX or someone like Cerebrus or Unitary or a lot of the new IPOs happened on hyperliquid.Like I think increasingly bankers as they set what the price for an IPO should be are going to look at their hyperliquid screen and is like, all right, well, that's where it's priced.
46:37I guess that's what the market is willing to pay.Etherify is another one.Etherfi have been falling probably closer than most for a very, very long time.And the fun reason for that is it was actually my first venture investment in the fund.So I started chatting with them in January 2024 before the fund was actually even live.And the fund went live February 1st and made an investment in their Series A then.And at that time, they were just a liquid restaking business.But, you know, I was, after speaking with Mike and Rock and the team there, they just struck me as a team that was like really top decile, top percentile and their ability to execute, but also build new products based on where the puck is going and understanding that like certain products can be useful for customer acquisition, but they could become commoditized over time.
47:37and like liquid staking is one of those products.And their ability to move from liquid restaking to yield products to a credit card productto now a full-fledged neobrokerage where you can trade any asset on chain, you can borrowagainst those assets, you have like an incredible credit card offering.They have their own instance of Ave v4 where they can facilitate borrow, lend and monetize that.and the way they're using stable coins to access a global marketkind of reminds me of like a mini on-chain NewBank.And New Bank, you know, it's like a very flattering comparison for EtherFi.
48:20And if they can achieve a fraction of New Bank success, that would be awesomebecause New Bank is worth, you know, like $80 billion and has 139 million users.But I think the thesis is somewhat the same in terms of, you know,offering compelling products to users on a global basis,but doing it in a way that was fundamentally differentthan what was standard at the timewith NewBank offering productsthat were much more consumer-friendly
48:50and more internet-nativeand EtherFI doing the same thingand a global stable coin-driven on-chain context.Etherfai is also doing buybacks of their own token,their own token, unlike all the othertokens that we've talked about, Venice, pump, hype, their own token, EtherFi has reallyfelt like it's been in a hangover from like the infra phase of crypto, which we have firmlyleft. But nonetheless, like Etherify is making revenue doing buybacks. How do you think about
49:18Etherify on the growth versus value spectrum? Are you in Etherify because there's a lotof growth left to do because the Neo-Brokerage is a phenomenal product that Ethify is really afirst mover on? Or is it just because, like, actually, they're making revenue and they'rebuying back the token, and based off of that, there's actually some dislocation in the market.How do you think about this thing?So it's both.It's both.And let me explain why.
49:45On the valuation, they've been fundamentally valued like a liquid staking or liquid restaking business for most of their history, which meant people were really excited about in the beginning of 2024.It was like an $8 billion FDV at the peak at the time that people thought Eigenlayer was going to be worth $15 or $20 billion.And, you know, valuation has declined over time as there's been less excitement in liquid staking and liquid restaking, or restaking generally.And you even see this play out as recently as the Ethereum inflation reduction proposal where Etherfi was down 10 plus percent on that day, as was Lido.And EtherFi is a fundamentally different business today than it was then.And it's definitely not the same business as Lido.So it just shows how the market is like still not that made that transitionin perception of what Etherfey's business is today.
50:43And when I say that, what I mean is today,65 plus percent of Etherfize business comes from their NeoBank product.So it's from credit card usage and it's fromborrow revenue of people borrowing against their balances to use the credit card.And only 35% is from yield and staking.And that's something that's been shrinking as a percentage of business with theNeoBank part growing over time.I think that portion of the business even accelerates further as they've offered access
51:17to tokenized stocks, wide variety of assets.So now instead of a handful of assets, hundreds of assets,and a much more compelling product than they even had before,which I think was already compelling with some of the updates that they recently released.So I think it's something that should be valued differently than it's being value today.And on that context is actually quite cheap.It's, you know, in the range of, you know, 10 to 15 times earning,depending on like what price you look at because it's moved quite a bit recently.
51:49On the other side, I think the great.growth opportunity is really, really massive.So, first of all, like, if you look at the credit card product, a year ago, they were doing$300,000 of credit card volume a day.Now they're doing $3 to $4 million a day.So that's 10x year over year.That's something that I think starts to hockey stick and actually grow a lot faster thanit's even growth.
52:16And in the grand scheme of things, three or four more million a day is nothing.It's a tiny, tiny number.And then now that you have buyback starting on a programmatic basis, similar to actually how Venice has done it, so a certain percent of interchange revenue and other line items, you can start to look at what does this actually return to the token.And the majority of the token supply is actually fully circulating at this point. So there's very, very little pressure from emissions.So now it's something like equities or like, you know, Microsoft in the sense thatthere's structural buyback pressure with no new tokens coming to market.Blockworks did a really good analysis recently on, you know, their model for projecting growth.And they actually, to be conservative, cut growth rates in half from where they are today.
53:08I'm saying the opposite that it should actually be faster.And they got to $21 million of buy and break.burns over the next 12 months.If you apply, let's say you use a number that's a little bit higher than that, say 30 millionof buy and burns, I think can actually be quite a bit higher than that.And you apply a 30x multiple, which is very reasonable in the like neobrokerage world,you get to a token price that's over a dollar.And, you know, that's directionally 2x from where we are today.
53:41but that also doesn't factor in multiple expansion from therefrom the fact that they're the category leaderfor on-chain Neo brokerage,but also a business that I think can actually grow a lot fasterthan that 20 or $30 million number.And a team that I'm fortunate to knowand know how well they execute.So yeah, TLDR, I think it's got a lot of triggers
54:07that can drive it forward.The thing I think is cool about EtherFiis that it's fitting the model of a modern startup,which is don't have a big team and instead use big technologies.And so, you know, Ethereum, to me,they're just kind of packaging up Ethereum and selling it.Like, why are they doing a Neo brokerage?Oh, it's because we have tokenized real world assets now.
54:31We have tokenized stocks now.And it costs them almost nothing to evolve their productfrom a Neo Bank to a Neo brokerage.because Ethereum has evolved from a neobank to a neobroker engine.So etherstores like, oh, great assets you have over there, Ethereum.It would be great if somebody just packaged this up and sold it to consumers.And so, like, they don't need, it's a very lean, slim, like, a low-cap-X business, I'm assuming.And they don't need to, like, bring on and hire out a whole new arm of the business
55:04to evolve from simply stablecoin spending to be.being a neo brokerage because like Ethereum does so much of the leg work for them.And so it can it can stay lean while it can scale pretty high.Yeah.And the cool thing is like, so you look at the evolution of Neo bank,neobrokerages over time.And over time, they make more and more of their money from interest income on borrowers.If you look at NewBank as an example, they make 60, 70% of their revenue from that.
55:34if you could etherify today, it's still very early, it's 4%.And to what you were saying about, like, leveraging existing infrastructure,initially they were using their own systems,and they were going like literally organizing deals with potential lenders directlyto be able to facilitate borrowers on the platform.And right now they have about $20 million that their users are borrowingfor the credit card product.And they're like, wait, this is on chain.
56:07AVE has actually built a pretty good product to do borrow lend.Why don't we just have our own instance of AVEV4?We can do a revenue share with them.They did an 80-20, so 80 to ether 520 to AVE revenue share.And now we can run it with like a best in class product with a really lean team and really low costs.Because like, hey, this DFI product already exists and it's pretty, pretty good.Bankless Nation, we've built something for you.Introducing the bankless MCP.
56:36Chat Chb-T and Claude are great at a lot of things,but ask them anything beyond the basics of cryptoabout protocol mechanics, tokenomics,or just what happened last week in crypto,and the gaps will start to show.The problem is context.Bankless, on the other hand,has spent almost a decade building
56:51one of the deepest archives of crypto data anywhere.More than 2,000 podcast transcripts,10,000 articles,and countless conversations with the peopleactually building this industry.And now we've structured all of that datainto the bankless MCP.So you can go and connect it to your cloud
57:05or chatDBT and suddenly your AIcan answer your crypto querieswith the entire bankless archive behind it.And every new bankless article or episodegets added automaticallyso the context keeps staying up to date.The bankless MCP is exclusively availableto bankless premium subscribers.
57:21So you can go to bankless.com,upgrade to premium,and connect the MCP in just a few minutesand all of a sudden your crypto queriesto your AI LLM, whatever you use,will get a thousand times better.So go check it out.There is a least.
57:32link in the show notes. And once you become a bankless premium member, you can hop into the banklessdiscord and let me know how you like it. Some exciting news. We are launching a new podcast to help peoplefigure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name isMichael Nato. He runs the defy report. This is the guy that sent me a sell alert before the 10-10price drop happened. His cycle analysis has been absolutely on point. I've been following him for years.And this year, we started recording weekly podcast episodes. Each one, we get into his portfolio,what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether,and where we are in the cycle, there's new episodes that are released every Wednesday.
58:09They're 30 minutes.They're short.They're punchy.I think this crypto cycle is harder to navigate than most.So let's do it together.Go subscribe to this podcast.Search the Defi Report.Wherever you get your podcast, YouTube, Apple, Spotify, or find a link in the show notes.
58:23There's a new episode waiting for you now.Yeah.Yeah.It does feel like the modern reincarnation of like OG money Legos.of like, oh, let me just plug that into my product and boom, now I have that.Yeah.Yeah.Moving on.
58:36Is there going to be a last few questions before I let you go?Why do you think the market ascribe such a low premium to pump revenue?Or is that like a dislocation that is an opportunity in the market?How do you think about the value that a dollar, that the market gives a dollar for pump revenue?Yeah.So I think the perception is changing.And that's part of, you know, why it's done well.over the last, you know, a couple weeks.
59:03One of the reasons is people questioned revenue durability.They're like, we've seen this story before.OpenC was an often touted example of like generate billions of revenueand then 12 months later the business is doing like 95% less.And I think what we've seen over the last two plus years is actually this revenue is pretty durable.It's not going anywhere.It's actually growing.This is something, not something that's fly by night.
59:32Maybe individual meme coins will go up and down.But this is, like, to use like hyperlake liquids language, like the house of all finance,this is the house of all mean coins.And I think that perception around durability is changing.Part of that was people questioned, like, really the veracity of that revenue.Like, is it real, even though it's on chain, which is kind of funny?But, like, is it being catalyzed in any particular way?And the reason is most of the people on crypto Twitter
01:00:01and most of the liquid fundsor retail investors that are trading things,there's a surprisingly small overlap with meme coin trading,myself included.I'm not like a trench or on axiom all day.So when people think about and see these numbersthat even after 1010 last year continue to be really high,they're like, how is this still so high?
01:00:24Who are these users?I don't talk to anyonethe user of this process.but I think it's just fundamentally different users.And once you understand that you're not the target user,it's easier to understand why this business is so durable.And then the other piece is just like,I think there's a negative association to meme coins.
01:00:44But once you start to think about it as just like another type of speculative product,just like prediction markets or short expiry options or like casino gamesthat have been durable,lotteries are huge. People know they have, unless you're like counting cards, a negative edge playingblackjack or like any other casino game. And they come back because there's variance. And I thinkpeople are coming around to the idea that like there is a reason that people will use negative EV products.If like for the total user base, it's negative EVV. That doesn't mean that you won't use it becausethen lotteries shouldn't be like the massive business that they are.
01:01:30So I think that's why it's traded so low.And I think that's,you know, that's changing.One other piece, of course, is there's an equity part of the businessand there's a token part of the business.It's not exactly clear what you control as a token holder.Initially, they had 100% buybacks,but that wasn't guaranteed for any amount of time.
01:01:51Then earlier this year, they said,we're going to do 50% of revenue into buybacks,and we're going to do it for guaranteed 12 months,and we can use that other 50% to grow the business and reinvest.That's something that is subject to renewal next year.For a multi-billion dollar asset that they own a ton ofand are trying to build a generational business,I don't think they're going to abandon the token,
01:02:17but that is something that's a risk that,you know, I think like depending on where you think that's going to end up,you can probably have your buyback multiple like six to 10 or 10 to 14 based on likehow do you handicap that risk.But yeah, that's just another component as well.And hopefully with Clarity Act, that that's something that that makes it a little easierfor them to be explicit.Awesome.
01:02:43When you look forward to 20 at the end of 2026 and 2027 and really to the next cycle,how do you think this legacy of this incoming cyclewill be defined, which is a weird questionbecause I'm asking you to go forwardand then look backwards again.But we're firmly in a new era of crypto.Like the hyper-infra age is firmly behind us.Like I think the excitement around new chains,
01:03:09be a layer twos or layer ones,is mostly a thing of the past.But nonetheless, there seems to be plenty of energyand excitement in different pockets of crypto.So just how are you thinking aboutlike what the future of crypto looks like for this next cycle.Yeah.So like one interesting chart, I think also a blockworks chart, is for much of crypto's history,
01:03:28execution layer infra revenue generated like 95 plus percent of total crypto revenue.Now it's actually applications are generating about two thirds of revenue and about a thirdis generated by execution layers.I think that continues to move in that direction.and we're going to see 90 plus percent of revenue generated by the applications.I think we're going to find the most enduring tokens be applications and money.And so that doesn't mean that Bitcoin is going anywhere.It also makes me incredibly excited about something like Zcash,
01:04:04which is serving like a different type of user and in many respects is the original ethosof what crypto was 10 plus years ago.And I think why it's resonating with so many OG Bitcoin holdersand why it's seeing like these structural inflows.I think ETH is actually in a very interesting place to potentially be money,depending on what happens with Bitcoin with quantum,the amount of like concentrated ownership and risk related to Bitcoin ownershipfrom strategy and other elements.
01:04:35So it actually makes me more curious about like Ethereum from a money perspectivethan I've been in a very long time.I looked at it from a revenue perspective for a while,which made me think that Ethereum was quite overvalued.And I think it has this interesting optionalitythat's kind of coming back a little bit.But yeah, I think it's going to really be about applications,usage, and money.
01:05:06And when I say usage, you know, obviously Ethereum is highly utilized.You have things like Base and Robin Hood that are highly utilized.but when you think of blockchains with the most activity,I think you have to look at Solana.Solana is what's enabling pump.It has the most spot activity on chain.They're right now going through this transitionwhere it's incredibly utilized,
01:05:30but they're not generating a ton of revenuebecause there's not like the MEV that it had back in the day.But I think it's one of the most compelling bets for crypto adoption.It's just like you have to watch how that evolves quickly over time.But yeah, looking back, I think it's going to be a story of what are the zero to one applicationsthat have really found this intersection of crypto and the rest of the world and what's the moneythat's resonated.And that's why I think the Venice is hyperliquids, pumps, ether fives, Bitcoin, Zcash,
01:06:09you know, et cetera of the world are going to be the,things that people look at and say like, wow, 20, 26 had some good entry points.Austin, this has been great. Thanks for coming on the show.Ready to be here. Bankless Nation, you guys know the deal. Crypto is risky, but not risky enough.The institutions have landed, so we are going even further west. This is a frontier. It's notfor everyone, but we are glad you're with us on the bankless journey. Thanks a lot.
There aren't comments yet for this episode. Click any sentence in the transcript to leave one.