Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Kyle Samani: Multicoin Capital – The Thesis-Driven Cryptoasset Investment Firm

Episode Date: October 13, 2020

Multicoin Capital is a thesis-driven investment firm that invests in cryptocurrencies, tokens, and blockchain companies. They manage a hedge fund and a venture fund, investing across both public and private markets. They are extremely bullish on smart contract platforms and DeFi is one of their main areas of focus. They've invested in several projects and companies such as Algorand, Arweave, Nervos, Skale, Solana, to name a few. We originally had Multicoin on the show in February of 2018 when they were still reasonably new and we were in the height of the ICO bubble. Kyle Samani, Co-founder and Managing Partner, joins us back on the show to share not only how Multicoin has changed since then, but also the cryptoasset industry as a whole.Topics covered in this episode:What are the Multicoin theses and have they changed since Kyle was last on the showWhy the most used smart contract platform will produce the winning store of valueThe role of gold in today's economyBitcoin gaining traction in today's asset management circleOther assets that will eventually displace BitcoinWhich projects Multicoin are backing at the momentDeFi vs CeFi and latencyDiscussing what DeFi actually isCryptocurrency's future role in the traditional financial system and the impact of potential new regulationsHow the cryptoasset industry has changed since Multicoin started and where it is headedThe underrated areas Multicoin are looking at todayEpisode links: Multicoin CapitalMulticoin's first appearance on EpicenterMulticoin blogThe Multicoin ThesisMulticoin on TwitterKyle on TwitterSponsors: Algorand: To learn more about Algorand and how it’s unique design makes it easy for developers to build sophisticated applications. - https://algorand.com/epicenterThis episode is hosted by Sebastien Couture & Brian Fabian Crain. Show notes and listening options: epicenter.tv/361

This is Epicenter, episode 361 with guest, Kyle Samani. Hi, I'm Sebastian Quigio, and you're listening to Epicenter, the podcast where we interview crypto founders, builders, and thought leaders. On this show, we dive deep to learn how things work at a technical level, and we fly high to understand visionary concepts and long-term trends. If you like the podcast, well, there's only one way that you can support us that costs nothing and makes me really happy, and that is to leave a review on Apple Podcasts. If you're on a Mac or an iOS device, the easiest way to do that is to go to epicenter. Dotrocks slash Apple.

Today our guest is Kyle Simani. He's the co-founder and managing partner at Multi-coin Capital. Multi-coin Capital is a thesis-driven investment firm that invests in cryptocurrencies, tokens, and blockchain companies. And we had Kyle on the podcast with his co-founder, Tashar Jane, in 2018. So it's been over two and a half years. So we talked to Kyle to catch up. on multi-coin and also how his thinking had evolved since we last had him on. Of course,

in 2018, we were in the heart of the ICO bubble. And since then, the ecosystem has matured, we now have many more layer one protocols built on solid technology and lots more decentralized finance applications or D-5 built on top of these protocols. What's remarkable is how little the multi-coin thesis has changed over the years. Kyle is extremely bullish on smart contract platforms and Defi is one of their main areas of focus. They have invested in several projects and companies like DFINITY, Helium, Cadena, Life Pier, Near Protocol, and Algarand. And if you're building Defi and Open Finance applications, you should definitely check out Algarand. It's fast, it scales, it's secure, and it has instant finality. And they've built several

Defi primitives right into the protocol. I'll tell you a little bit more about that later in the interview. But for now, here's our conversation with Kyle Samani. Hi, and welcome. We're here with Kyle Samani. Kyle is the founder and managing partner of Multi-Coin. We already had Kyle on. This was like, we were just calculating before, I think 138 episodes ago. that was in February 2018, when there was a big crypto boom time, and many funds were started, and among them multi-coin.

And so, yeah, thanks so much for coming on again, Kyle. Hey, Brian, Sebastian. Thank you guys for having me on the show. It was an honor to be on back then. It was one of my favorite podcasts, continues to be, and excited to be on two and a half years later. Now we can see how some stuff has panned out.

I feel blessed. Love the show. I'm excited to be back on. So on your website, it says Multicoin is like a thesis-driven fund. So I'm curious, what is, you might like reiterating,

what is the Multi-Coin thesis? And has it changed since you were on last time? Yeah. So we have three kind of mega-theces that guide all of our investments. They're on our website. If you go to Multicoin.competal

and there's like a thesis button at the top. And those three megathesis are what we call open finance. We think defy is a part of open finance, although I think open finance is bigger than just defy. Number two is Web3, which I'll just kind of loosely define as trust-minimized technologies to help people coordinate some sort of economic activity. And then the third megathesis would be the opportunity for non-sovere money. You can kind of most simplistically think about that as digital goals. but I actually think that that understates the opportunity.

It's pretty clear that by making gold digital and like having a smart contract platform that can do fancy, you know, fancy stuff, like you get both something that has monetary properties and has some sort of utility properties. And also just like every human on the planet can theoretically own these things and use these things every day. And that, to me,

market expansionary relative to just gold. So those are kind of the three big theses that guide our investments. Within those, we have like kind of sub-sectors of areas we're interested in. For example, we're very interested at the intersection of telecom and blockchains and happy to touch on why and just generally internet infrastructure and blockchains, very interested in kind of geographic bets around the world. And I think we've done a good job as a firm at being pretty international. So those are our three pieces that guide our investments. They haven't really changed since we started. I think what has changed is we just solidified them.

You know, we launched multi-coin in October of 2017. And at the time, like, there was a lot of stuff happening, but we just, I couldn't fully kind of wrap my head around all of the things crypto is useful for. And it took us until early 2019 to sit down and say, look, we've been doing this for a couple years. What is everything we've seen and how do we synthesize this into some sort of coherent framework? And that really produced our megapheases that guide our investments today. I was looking through some of the show notes for the last. last episode, one of the thesis we discussed back then, or maybe this kind of falls, was that the most used smart contract platform will produce the winning store of value. This is something you

still believe? Or like, how do you think this thesis has turned out? Yeah. So I still, I like more firmly believe now that I ever have that some smart contract platform will surpass Bitcoin and become the global non-sovere money. It's very clear today that if you fast forward five years from now, to call it Go, your 2025, 2025, smart contract, there is going to be one or multiple smart contract, probably between one and three smart contract platforms that are facilitating trillions of dollars of economic activity on a daily, weekly, if not maybe daily basis. Like that, to me, I basically take for granted will be true.

And it's not very hard to extrapolate from here to get there. And so, like, in that world, like, that stuff is happening. And you've got all kinds of consumer applications, finance applications, all the stuff running on some sort of smart project platform. And then you've got Bitcoin, which is just like your pet rock and you put it under your mattress. And, like, it's just like it just doesn't do anything, you know? And, like, people say, well, it doesn't have to do anything and gold hasn't done anything historically. And, like, I, you know, I try and give perspective to, like, the historical past. of kind of the story of gold.

But I think that that fails to account, like, how do large-scale asset allocators think about their investments? I spent a fair bit of my time talking to, like, large endowments, foundations, pensions, sovereign and wealth funds, large family offices, like, you know, folks with big, big dollars. And one thing that has surprised me is quite a how many of them think gold is dumb. Like, they think nonproductive assets just generally are really stupid. Warren Buffett's probably the most famous person in this school of thought where he's just like all the gold in the world, you just put it there and you can sit in a pool

and come back in a hundred years and it's done nothing and produce nothing of value for the world and like therefore gold is dumb. And like that's a pretty reasonable view. You can disagree with it, but it's like not unreasonable. And anyone who's, you know, allocating tens of billions or hundreds of billions of dollars, like all of these people are always thinking about returns and yields and, you know, productive, pressures metals don't do anything. And so I think the opportunity for just much more nuanced both monetary policy and real utility is a huge, huge value-driving factor.

And so there's kind of two, like all of these layer ones, like all give you the same basic cryptographic guarantees, right? Like they all use more or less the same photography. And then they all have some monetary policy of some form. Now people yell and scream at each other about like which one's a better monetary policy, but like they all have some sort of monetary policy of some sort. And when I look at smart project platforms, I see two things they offer kind of natively that Bitcoin cannot. The first is organic staking and yield that effectively will act as the risk-free rate in these systems, which is super powerful. And then the second is MEV. In any of these proof-of-stakes systems, like MEV is going to be a thing.

We already see MEV happening today on Ethereum. And that's pretty clear. There's been a few tweet storms in the last few weeks, like showing, you know, like there's real dollars going into NED now. and improve the stake systems, MEV effectively becomes a DCF for, like it gives you an actual way to calculate a DCF for the underlying value of the asset. And so what's cool about like,

if you tax four five years, like it's, again, like this seems like a basically 100% certainty that we're going to have some large amount of money flowing through some smart contracts. If the thing's going to have monetary properties and it's going to have their native risk-free rate and yield, and it's going to have M-EV. And all of those things can be used to derive some sort of objective value.

So I'm pretty bullish that like that confluence of things will happen. I think the biggest question is, will that convert on a single, you know, layer one asset? Or will there be, you know, two or three layer one assets that kind of share in that pie? Yeah, that's an interesting perspective. So talking about gold here, I thought that was an interesting kind of statement there that so many seemingly smart people in finance things think that gold and nonproductive assets are useless. Do you think this is a, do you think this sort of signals a shift in maybe financial and economic policy and thinking, whereas in our modern economy, tangible assets are perhaps no longer necessary to the functioning of an economy, as was the case, you know, previously, even just, you know, 100 years ago? I think I see what you're saying. So I don't have a super good sense of like history and how college finance people thought 100 years ago.

But if you just go like Benjamin Graham, Warren Buffett, kind of value investing school of thought, which predates 1971 when Nixon broke the gold standard. Pre-gold standard or sorry, pre-breaking the gold standard, gold was more or less money, right? And paper bills were just a claim on gold. And Nixon just realized you just don't need to do that. And so just, you know, break the peg. In the world since then, the question is like, do you want, like, I guess question is like, do you value the fiat currency that you pay your taxes and or do you value gold because you have some sort of like deeper belief about like the nature of scarcity and like what that means for, you know, wealth distribution and like how human, humanity allocates resources? I never got into crypto because I like had like strong like deep macroeconomic beliefs about like Austrian economics and like the nature of scarcity in the world. I know that obviously was like the foundation of crypto, but like that didn't draw me in.

I'm guessing for the two of you that like wasn't your primary calling either. My sense is that like basically 100% of the libertarians and like the Austrian economists in the world today have maxed out their Bitcoin purchases. Like I think anyone who actually believes those things today and like, you know, has an internet connection, like has acquired all of the Bitcoin that they can afford to acquire. And so like I just think they're all in. And it's clear that like that dollar number of is just not going to get you to Bitcoin 100K. Right. Like it's barely getting you to Bitcoin 10K. And like to get from Bitcoin 10K to Bitcoin 100K, you just need new dollars to come in.

And like the new dollars coming in are by definition, much more much less ideological. And they're much more utilitarian driven. And it's pretty clear. I mean, just look at like there's about $750 trillion of wealth in the world. Like is that kind of the, you know, value. with wealth. Gold is $7 trillion, $8 trillion, whatever it is right now. So it's about 1% of the world's wealth is stored in gold. You can look at some other precious metals and other small commodities, but let's just round up the $10 trillion for simplicity. Like we're talking 1% in change of the world's

assets are in gold. And basically all the other assets are productive. They're either equity, debt, or real estate comprise the substantial majority of the rest of that. And then fiat currency is like another $50 to $100 trillion, depending on how you want to count. But something like 80% how the world's assets are productive. And I suspect that will, you know, be true in perpetuity because just like the world needs productive assets. That like that's how the economy grows. Yeah, that's an interesting argument. So do you see, I mean, we have seen in, you know, this year even, you know, things like Paul Tudor Jones or, you know, in this kind of more traditional asset management circle, it does seem that there is like some traction that Bitcoin is gaining.

Do you agree with this? And if so, like, how do you, like, how do you situate that in those different, in the breakdown of asset classes? Yeah. So today, as people are worried about governments printing money and runaway inflation. And I mean, like, Jerome Powell went on television a few weeks ago and was like, yeah, 2% inflation. And like, it's okay if we go above that, which is like a scary, crazy new thing.

And so, like, given that in reality, Bitcoin simply as little gold is an interesting bet, at least for the foreseeable future. I think the question to ask is what would cause that to change. And I think the reality is that like Ethereum, which is definitively the second largest thing in crypto, by really every measure you can count, is just like still extremely small scale and just kind of everything that it does. I mean, like there's no, you know, the amount of trading volume that happens there is a fraction of what happens, the centralizing exchanges, just a fraction of happens on equities or FX or other, you know, global markets. The number of daily users here is like 100, 200,000 range, right? It's just like no one, if you are allocated $50 billion, $100 billion, whatever it is, you look at crypto, you're like, this Ethereum thing is interesting.

These smart contracts, it's like, it's clearly interesting. Like it's impossible to look at this and say like, this is not cool and like this is not important. But then you look at the actual scale of adoption and usage and you're like, okay, how many people are using this thing? And what are they using it for? And those numbers all around to zero. like again for anyone who's dealing with 50 billion dollars plus of capital allocation like also consider like what are companies that are worth 50 billion is worth 50 billion that 40 50 billion right something like that what are companies that are worth that much money

and like slack is up there like zoom is up there uh like Twilio somewhere in that range you look at those companies uber's in that range right and it's like you look at those things and you're like okay like these have some impact on the world right which call it was worth 40 billion plus or minus. And you look at Ethereum's impact on the world. And like, it's not a question that Ethereum has, like, dramatically less impact on the world than any of those companies I just named. Because just the sheer amount of utility that those things provide for humanity is, like, huge. Right? Now, I understand Ethereum is different. Like, it's hard to do apples and apples comparisons. But it's just like, if 200,000 people use this thing every day and then Twelio sends, like,

a trillion text messages every day that, like, power, you know, just like all the world's communications. Like, you just, it's just a different scale of, like, utility for humanity. And so I think most rational capital allocators in the world look at that and say, yeah, Ethereum is cool. Smart contracts are cool, but like there's 200,000 people using this thing. Like, this is not achieved escape velocity. It may achieve escape velocity at some point, but like it hasn't today. And so I think all of those people looking at crypto are like, okay, Ethereum's cool. Maybe it wins.

Maybe it doesn't win. We don't know. Let's just put money in Bitcoin for now and we'll come back in 12 or 24 months and see what happens then. And I think that's, if you're, again, a soccer wealth fund, a pension fund, like anyone at that scale, like, that is the rational way to think about space. And so your thesis is that we will, you know, we will see other assets that are kind of emerged from smart contract platforms that actually reach scale with, you know, a million, like, you know, Uber scale. and that then the native assets of those chains will, over time, kind of displaced Bitcoin. Yeah, I think so.

I think it's going to take a while. Like, you're going to need something that's been operating at scale. My kind of general number is 100 million users. When something hits 100 million users, that's like the scale when Facebook gets like scared, right? Like Google pays attention at 100 million users. Like 10 million users, Google and Facebook don't even pay attention to you. And so that's kind of the, to me, is like escape velocity scale. And so when you have something that's like out 100 million, you know, daily actives,

then it has the potential to like potentially surpass Bitcoin. But until you get to there, I don't think that's, that's even on the table. What are your bets in terms of who will win that race? Yeah. So we made a handful of bets in the space, layer ones and layer twos. We don't own any ether today. we haven't to own any ether for probably two years, a year and a half, two years. That actually doesn't reflect our views on the assets.

It's a reflection of if Ethereum is going to win and be successful, I would rather own other much smaller cap assets that are tied to Ethereum, the ecosystem that just will have much more upwards price of ability. So like the graph is a very good example of that, scale is another example, those types of bets. We just prefer to be longed those things because I think we have much, much better risk order ratios than only eat itself at $40 billion. So we're longed the Ethereum.

theory of ecosystem through those kinds of bets. And then we abet on a handful of other layer ones, most notably near Salana, Algarand, and Mina protocol, and affinity. So those have been the odds we made. And of those, we've been pretty publicly most supportive and bullish about Salana. And we do own. That is the largest, you know, layer one position. Back in January, we interviewed Steve Kokinos and Sylvia McAlli of Al-Garand. And during our conversation, we talked about how Algaran's unique design makes it easy for developers to build sophisticated applications on their platform. So what's great about Algarand, beyond the fact that it's fast, it's secure, it's scales, and it has instant finality, is the fact that they've designed a layer one

protocol with primitives that are purpose built for defy. So what that means is that they've taken some of the most common things that people do with smart contracts and they've embedded them right in the system, right in the layer one. So things like issuing tokens, atomic transfers, these are built into the layer one, and smart contracts are first-class citizens on AllGrant. So with these essential building blocks at your disposal, you can build fast and secure defy apps in no time. To learn more about what Al-Garand brings to the table and how to get started, I would encourage you to check out Al-Garand.com slash epicenter. That lets them know that you heard about it from us, and it takes you where you need to go to learn about their tech.

And with that, we'd like to thank Al-Garand for supporting the podcast. So I'm curious. I mean, one of the things that I think is to be noted, I guess, about the other layer ones other than Ethereum is the difficulty that these projects have in attracting developers to build applications on their platforms. And, you know, for something like Cosmos, there's, like, decent community there of people building applications. And then, you know, perhaps on Pocod. And it kind of trails off from there. I feel like there isn't that much traction on these other platforms other than perhaps speculating on a token. You know, what do you think is the thing that that kind of sparks development on these other platforms?

Or do you think that there will be consolidation around one or two major platforms, you know, looking 10, 15 years into the future? So I am a one-chain maximalist. No, I don't think we're going to get there anytime soon. Like that, that feels 10 years away. but like I believe that there should be one magical chain that does everything and that works for everyone I realize that that can happen but that's kind of my ideal state of the world it's pretty clear that I think over the next I think 24 months from now it will be very clear which two or three chains matter I think it's very unlikely that 24 months from now people actually think like chain number six has a shot

just the marginal benefit of being chain number four number five it's just so small So I feel quite confident that basically three ecosystems will matter. Ethereum is more or less guaranteed to be one of those. And then the question is kind of what are the other one or two? In terms of like the first question of how do you attract developers, so there's a few ways to think about this. So one is gas fees on Ethereum have forced people to go elsewhere. And you can see this happening.

Now I can't disclose a couple of names, but there are some folks who are pretty large users of POA network, for example, that are currently in the process of building, like moving outright to a other chain. There are a lot of folks, like look at like the braves of the world, the Reddits of the world, the like Snapchats of the world. There's all of these people who are all looking at crypto and they're all interested, right? Like they all see something and you know they all want to do something there. But like they can't do it on Ethereum today.

It's actually impossible. We'll see kind of the result of this Reddit layer two baking scale-off thing. But, like, it's clear that they just don't want to make a decision. Like, they've told everyone we're interested. But, like, they're just buying time, which is actually the rational thing to do. Like, if you're the CTO of Reddit, the right thing to do is just to say, we're just probably too early. Let's just talk to everyone and stay in touch with everyone and, like, see what's going to happen. And, like, that is the rational thing to do.

And so, like, just imagine, like, let's just say tomorrow, for simplicity, the Reddit guys come out and say, we're going to build everything on NIR or we're going to build everything on Soloma, right? I'm not making any predictions. I'm not close to the Reddit team. Just hypothetical that happens. Does that completely reshape the competitive landscape of the entire ecosystem? And like I'm fairly certain the answer is yes, like in a massive way. Because the scale any of these distribution platforms provide is so much larger than the entirety of crypto combined like times 10.

And so I think it's very easy for all of us who like we think, talk to each other on crypto Twitter to be like, oh, there's no one using these new things. A, that's not true. They're just early. I mean, look at where Ethereum was in early 16, right? Like, Solana has been out for six months, NIR has been out for a week or something. Pocod's been out for, I don't know, a couple months now. It was just early, but, like, you can see stuff happening.

And then, so A, stuff is happening, and B, it's not very hard to see any of these large-scale people pulling the trigger in a major way. on one of these platforms. And again, I'm fairly certain that will happen at some point. When is unclear, but it will happen. And I don't take it for granted that they're going to use Ethereum. Okay. So what you're saying is that the major inflection point may come when large Web 2 companies start building on blockchain platforms. Okay.

Distribution matters more than anything else. Like forget about your ideological beliefs about anything. Forget about programming environment. the maturity of tool sets, like all of that stuff rounds to zero. When you say, we have 50 million users using our thing every day, whatever the thing is, and we're going to like start using some blockchain to do X or Y or Z. It's just like every other variable combined does not matter. Distribution matters more than anything in the world.

And so, and we know, I mean, Brave is like very clearly thinking about crypto, right? Like, you know, like we know that Reddit's been thinking about crypto. So Snapchat hasn't said anything publicly, but like you can imagine there's like some cool stuff to do around some NFTs and some other like types of payment things in there to like compete asymmetrically with with Instagram and Facebook. Like it's not that hard to see these guys doing some pretty interesting. Twitter obviously like keeps talking about it, although like I don't know how you're going to build any of that stuff on Bitcoin. But, you know, like the stuff's going to happen. And those CTO's making those decisions are not ideological for the most part. and like their number one constraints is scale.

Like all of those guys, right, their job is to think about how do we serve 100 million daily active users? And so scale is like their number one requirement. So in the crypto space, right? So you have Bitcoin and you have Ethereum that had these, you know, kind of unusual stories of coming about

and, you know, the investors and token holders and like that kind of took some, some course that was, you know, unprecedented. And then after that, we had, you know, there was, of course, crackdown on token sales. And, you know, most of those layer ones that are now kind of coming up to compete, they've, you know, approaching a different way, right? They've mostly raised from VCs and accredited investors. And, you know, there is definitely, I think, some, let's say, in the Ethereum community,

some resistance to that, right? There's something that they prefer about the Ethereum approach. So I'm wondering, do you think this is going to be a significant factor that we're going to have these kind of, you know, maybe differences in philosophy or is in the end, this is just going to be, you know, whoever can give the scalability or the cost will win and the rest kind of doesn't matter? Yeah, I'm a utilitarian at heart. Like, so some fun examples to think through in history. Microsoft was like notoriously Like Bill Gates was an asshole And like Steve Ballmer and all those guys

And like they kind of took over the world for a while If you look at Linux Like Linux is really without question The most important piece of software in the world It powers Android and it powers like every single server Like Run Linux Right Like isn't the most important piece of software

That humanity is ever produced And like Linus is a total, total jackass Like he's really like insufferable as a human being And like again this is like public information Like no one no one's gonna contest this even Linus won't contest it right so I don't know

so like one is I just look at like the history of software and it's not that like Bill Gates was evil or Linus is evil it's just like the whole community thing I'm skeptical that like

it has value but it doesn't it's not the defining thing that has caused large gale software things to win in the past so that's kind of one way to think about this

the other is again just like if tomorrow you know brave or Reddit or whatever says like we're going to turn on, you know, start doing all this stuff on one of these platforms. It's like, where do app developers, where does the marginal app developer go? And like, they can go build on Ethereum, which has distribution of X, whatever X is today. And then they can say, or we're going to go on, you know, some new defy thing or some new web three application or whatever on this platform that, like, we know,

is natively integrated into pick large, you know, consumer app. And like, it's just like, okay, if you're a developer, you've got X amount of time to build stuff, like, where are you going to, you know, go? And like everyone kind of hates Apple and look at Epic Games is fighting with Apple right now But it doesn't matter We all have to put up with Apple's shit Because Apple is Apple like they control distribution To the iPhone, right?

Distribution matters more than everything And there's tons and tons of examples of business history about the people Who own distribution, you know, like controlling Not controlling, but being able to strongly influence the rest of the industry I think most rational developers who just want to build cool stuff and get it out there in the world and create value for users

Are going to say, okay, like I want Like it doesn't matter what I think I I believe about the history of the Ethereum story. Like, at the end of the day, I want to build something useful for the world. So, like, where am I going to go build it? So one of the interesting things I read was in the blog was wrote a few months ago, where I was talking about comparing DFI and C-Fi. And in particular, you talked about, you know, latency.

And we're like talking about, hey, you know, decentralized exchanges have this latency issue. Let's say on Ethereum and it too slow. And that causes all these restrictions. That's why they're not going to, like, you know, be able to compete with centralized exchanges. And now, of course, you've had uniswap, which has reached, like, big scale. What do you have thoughts on that? Has your view on latency changed? No, the one more than answer is, no, it hasn't.

So again, if you think about, like, the idea of, like, liquidity pools for trading versus central limit order books, the guys on Wall Street who trade, you know, Jane and Susquehanna and Susserana and Susser Citadel and 2 Sigma and Renaissance and Jump and all these big, and DRW and like big crop shops. I mean, the number of like finance PhDs and economics PhDs and like distributed systems and computer science PhDs, like these guys employ, right? I mean, like, it's the caliber of brain power and talent is like astonishing. And so like, and all these guys are obviously like hyper, hyper competitive.

And they have effectively unlimited resources. And so like being like, aha. the future of like trading is x y equals k it's just like wait what like like like no like you know just like there's just like millennia of sophistication has like gone into thinking about like the nuances of like how do you provide the liquidity effectively and make markets and like do these things and the idea that you can take all of that nuance and combine it into a single formula up and then and then have people display that formula publicly and say like here you go please trade against me like i just like i i I logically do not understand how that's possible that, like, that can outcompete what has been around for the last, you know, called 50 years or so of, like, sophisticated market making.

I just don't understand. But at least on Ethereum today, right, you have had this kind of system outcompete order book-based exchanges. Is this purely because of, like, is this because of gas costs? Is it because of latency or is there, like, some other reason? Yeah, Uniswap works because it's simple and also because the fees are very high and latency is very high. So just imagine, let's say if Uniswop, like, by the way, no one should be celebrating 30 basis points of fees, right? Like, that's like really high. Like I think our blended rate on finance is like three basis points or something.

I think most people's like seven or eight basis points. And like that's been coming down steadily, right? 30 basis points is very expensive and generally should not be celebrated. But if you think about Unisrop, right, like if the price moves 31 basis points, then an arbitrager arbitrages and takes one basis point from the liquidity provider. But let's say that was cut down to five basis points. So now if the price moves six basis points, then like someone is going to come and take arbitrage and take a basis point, right?

And you can imagine very quickly that like if the spread was five basis point fee into of 30, that arbitrages would just be, like, robbing liquidity providers left and right, because the amount of price volatility you need to justify an arbitrage is much less, right? Six times less for simplicity. And so, like, ironically, because the system is, the block times are slow to update, and because the fees are high, the system, like, works, and liquidity providers have not gotten totally wrecked. And the fact that it's simple to use, which is, which I grant is an important feature. But, like, the future of trade, like, trading should be one basis point, right? Like, we shouldn't be celebrating 30 basis point trades. We should be celebrating

one basis point trades. And, like, if you think about, like, how do you get to one basis point? Like, that's a much harder problem to do in, like, the liquidity pool model, because then arbitrage are just going to take money left and right. So they're cool, but I just don't, I don't see how they're going to like when latency gets down to, you know, 100, 200, 300 and 300 milliseconds, and when fees are effectively zero, like trading gas policy are effectively zero, I just don't understand how you compete with a central motorbook. I'd like to take a step back, perhaps, on this defy topic. And as a starting point, I'd like to take this is, you know, in each of our early days in Bitcoin, we all had this

kind of way of explaining Bitcoin, and, you know, we'd kind of like share these anecdotes for how we would explain Bitcoin to people. But it seems like defy is like not a very simple concept to explain to a non-crypto person. And at least for me, it's not easy. And I haven't seen really sort of a convergence around how we explain defy to non-crypto folks. How do you explain defy to a non-crypto person? How do you explain what is the value proposition for defy? By explaining this to like a finance person or to like my mom?

maybe someone in between I mean if I was explaining this if I was explaining defy in one sentence to like someone who works like in financial markets like another hedge fund or something I would say it's a way to do large scale risk management and transfer between parties non-pastodially

or like without counterparty risk basically if I were to say it in like one sentence that would be that would be it and it's kind of a vague and abstract but like that the other finance person would hopefully understand the implications of that. If I had to explain this, like, more of a retail audience,

I would probably not emphasize the non-cosodal nature of it, and I would emphasize the, like, the U.S. of just, like, moving your money around. Basically, like, stop with the three-day waiting times every time you move between PayPal and your bank and, like, between Robin Hood and your bank and whatever. And it's just like, you can move your money between all of these services in, like, 10 seconds.

And, like, just do anything, right, whether you're buying stock or a bond or whatever, or paying someone, just everything that works, some 10 seconds or less. That's how I would explain it to like in normal retail user. Like isn't that how money should be? Yeah, no, I agree. That's a good, that's a good way to explain it. And I feel like that that's how money should be argument or way to explain it is sort of one that I think catches lots of people, lots of people's attention. But I think one of the things that's that lots of people often ask about defy is like, oh, it's very speculative, right? And this is sort of

seen as a bad thing, especially by regulators, I think, since we're on the top, you know, we'll probably talk about that at some point. But does it make sense these days to think of defy, or at least the use cases on defy, to be mostly speculative? And do you consider that to be a good thing or a bad thing? And is it bad for defy's image, I would say? Like, is it, is it detrimental to how defy is perceived by, you know, the retail audience, but also, you know, regulators. Yeah. So if I were to sum up the net output of the entire DFI ecosystem today, I would say that

it is a bunch of chip coin traders trading chip coins against each other. And I think that is the ultimate complement. Like, what is the first thing that people did with Bitcoin was like Silk Road? And then like, and then like, again, there was like casinos and online gambling games. And like, look at Ethereum and it was like more or less the same thing. And like, so I think D5 today is just like a reflection of that. But like when you create global permissionless censorship versus financial rails, the first thing people are going to do are great market things, which is fine. I think the fact that it works for large-scale gray markets, things, is a testament to everything else that it could work for.

But yeah, the net output today is a bunch of shitcoin traders trading shitcoins against each other, which is great. Like, I think that's fantastic. It ultimately facilitates open access, like financial access to stuff, whatever stuff may be. Today, it's, you know, mostly other defy tokens. but like you just change out the nature of the token tomorrow and like oh aha like now you're democratizing financial access for a lot of people the question is how do you get beyond people just speculating and trading you know speculative assets and like you kind of sort of there's two-ish things you need to do one is you just need to get new people and like grow the net number of people and then two is you need to have call it non speculative assets so like for example let's take compound today as an example it's a governance token that theoretically governs this money market thing. It's not, like, the whole thing is kind of reflexive. It's just like, okay, we have people who use it.

Like, I guess if you control governance, you could rob everyone, just change the whole system and rob everyone. But absent, like, robbing everyone, it's not clear why someone should pay to, like, hold comp tokens. I mean, there may be fees in the future. You know, we'll see. But, like, that's all kind of squishy right now. Like, it's very unclear how that's going to happen.

And, like, what the fees will be and how to do a DCF. So a compound is, like, you know, somewhat speculative asset. But like the look at Wi-Fi, for example, right? And thing produces fees, like, definitively. So, like, that's good. And, like, what if we can just get more non-speculative assets in the system? We've been, for a long time, thinking about how do you get people trading trillions of dollars of stuff on blockchain rails?

And I feel pretty good that the answer is synthetic assets. Like, you can replicate synthetic financial exposure to any asset in the world that has a whole price feed. We already know how to do this. It's called perpetual stock contracts. PetroSalk contracts in FX markets. in Europe and Asia, trade like, I don't know, hundreds of billions or trillions per day. And in crypto, like the perpetual stock contract facilitates most of Bitcoin Ether trading trades via the perpetual swap contract and not to be a spot.

So we already know how to do this. Like it definitively works. All the finance and economics and game theory is all proven. We should need to replicate that on top of the blockchain. And once you do, then anyone in the world should be able to buy Google stock or Apple stock or Tencent or Alibaba or Tesla or whatever, right? But like any asset that is a publicly available price feed, you will be able to be. able to get replicated exposure on blockchain rails. And like, if you look at where we are now,

like we're not very far away from that happening, right? Like, that feels like it's going to happen in the next six to 12 months. Because like all you can, oracles are there, you know, like USC, you've got settlement currencies now with USC and USCT at some meaningful level of scale, maybe die, maybe ether, you know, who knows, but like all of those pieces are kind of coming together. And so I expect to see perpetual swap contracts for kind of sort of all asset classes pretty soon. And once that happens, then you enable the next wave of entrepreneurs to go build like the next gen Robin Hood, but like probably not for Americans, because Americans are probably just going to use Robin Hood, but for like Latin America, Southeast Asia, like large part,

like Eastern Europe, like large parts of the world, those people who cannot access American equities or Chinese equities today, for example, should be able to pretty trivially access those things right through synthetic exposure. What's the You mentioned Latin America and sort of like the geographical aspect

of how how crypto can reach populations that perhaps don't have access to financial markets or at least as well

as we do in Europe and the US you know coming back on this idea that crypto can, you know, has a lot to lose I think

to regulation coming down on it pretty hard. What do you think is the risk that in the next 10 years, we have sort of two crypto ecosystems. One that's decentralized that sort of lives in a bubble and has a very hard time interacting with existing financial systems.

And then a regulated crypto that has licenses and is able to be listed on centralized exchanges and can be where users can on ramp with Fiat, etc. Is that something that you think about and is that something that goes into your investment thesis? We do think about it a fair bit. Right now, like, definitively, the crypto ecosystem lives in a completely separate universe from traditional finance. And that's, like, very obvious to all of us. And there's like this weird kind of bridges that, like, take you back and forth sometimes and, like, they're slow and kind of hard to use and kind of crappy, right? And, like, we use them because we have to.

there's not a very clear like even if you assume like regulators are like super excited about crypto and want to like magically integrate permissionless crypto with like permission finance like it's actually not clear technically how you do that in like a super elegant way like it kind of feels like what you do now except maybe make some things a little bit smoother but like there's not a it just feels kind of just like a hard problem so I think the probability that like traditional finance and crypto somehow merge feels impossible. Like you can take, like maybe if Libra is like wildly successful, there's like some sort of weird like merging or something where like slowly people kind of transition

from like old banking to like Libra's permission crypto banking thing. Like that's plausible if you look out far enough in the future and cross your fingers and hope. But that's, you know, just too hard to forecast. Our kind of default assumption is that these two universes exist in parallel. And that slowly, over time, people start doing more and more stuff in the new parallel universe because of like the obvious benefits of like it's 24-7 and then no transaction fees and non-custodial and all these magical things. And, you know, merchants slowly start accepting it and like different types of financial services and whatever start using it. And then kind of very decentralized organic rounds up kind of a way.

That's kind of our default assumption. I suspect what you'll start to see happen in three to five years is like enough bank. banks and other smart folks will be like, okay, look, this like technical model, like, have a private key and sign some messages and, like, do, you know, cool things. Like, this is, like, anyone with the brain who, like, looks at this is, like, understands, like, this is the correct model in terms of, like, how money should be. And so you're going to see kind of the traditional banking system in different parts of the world start to try and adapt this in different ways and points of time. China's starting this now with their DSEP thing. It's not entirely clear to me how it's going or how it actually works, but like they're obviously starting. You've seen American banks talk about this a fair bit. Like JP Morgan announced JPM coin, which was just a dollar on like a permission blockchain. Like this is like a year and a half ago or something. And then nothing has come of it as far as I can tell. So you can already see like everyone understands like this is going to happen.

It's just no one kind of knows how to get there. It's not clear what the impetus is to like get over the hump. But like it's going to happen. I suspect the force of will from the CEOs of these large institutions will not be there until crypto. markets are mature enough and large enough and real enough that like they have to care. And it's clear today the answer is they don't care because the crypto markets too small and too irrelevant for them. But like I think in three to five years that will no longer be true. Like you can see a world where like like in fast forward three years, if Tesla, Apple and Google

perpetual swap contracts are trading like, I don't know, $20 billion a day, which does not seem, that that seems totally on table. Then like those guys are going to be like, okay, this is real. what is this, how does this work, like, how do we, what do we do about this? And then they're all going to start to respond in their own weird, funny ways. And like how that culmination of discussions goes, both among the banks and among the regulators, it's like, and across different geographies, right? Like, it's really hard to forecast the net output of all those discussions. Yeah, I mean, for me, actually, using urn was like a pretty,

something that really changed my perception on, like, how close we are. because Yearn just feels like, you know, we can basically put some U.S. dollar coin into it, and then it can get automatically deployed across different protocols and, like, you know, put where they weren't the most money. And, you know, his philosophy was very much of this, like, savings account. And you can absolutely see that, and of course, the interest is very high at this point, much, much higher than anything you can get in a traditional finance system. Now, is it sustainable? Maybe not.

but you can immediately see that this is very close to being like a superior, you know, U.S. dollar account for, you know, most of the world. And I think that's, of course, the U.S. still a bit like, you know, not so great. And you have the gas problems with the costs and stuff like that. But it's very close. Yeah. Like, we tell all of our LPs, like, some of whom don't really in crypto, we're just like, look, like, please get them in a mask and just go, like,

trade something on curve, they go trade something in un-swap, then go put it in compound, and then go put something in urine, right? And just, like, do that whole set of actions in, like, 15 minutes or less. And then think about how long would have taken you to do the equivalent set of actions in what, you know, traditional financial rails. And, like, it's, like, such a striking difference of, like, right, like how you accomplish these two objectives. And, like, it's just obvious.

So I just like to say, this is how money should be. Like, it's clear that bad is how money should be. Yeah, no, I think it's clear that that's how money should be. I mean, you guys are familiar with the digital finance package that came out of the EU Commission a couple of weeks ago? Not super familiar now. So this is a regulatory proposal that is coming out of the EU Commission. It can take up to three years to be passed into law, but it aims to regulate crypto in Europe. There are some things in there that are pretty damaging to,

some of the core infrastructure in crypto, or at least the ability for that infrastructure to continue to exist or companies to build this infrastructure. So, for example, things like stable coins. There's extremely high capital requirements for asset-backed stable coins. And we're not even sure looking at this regulation if things like die are even, you know, will be considered legal in Europe. And at least in this first version, things like interest-bearing tokens are forbidden. So, you know, This is just sort of like glossing over some of the things that are in this initial, in this initial paper. But looking at this, you know, it's sort of a bleak future for Defi, at least in Europe.

I'm wary that, you know, we'll end up in a situation where defy gets regulated, you know, to the teeth. And we, you know, all these things, right, that we're seeing being built in the ecosystem, whether it's compound, things like that. uniswap, et cetera, have a difficult time continuing to exist in that framework. So, yeah, I don't know if you guys have any thoughts on that, but that's just sort of like where my head is at the moment at the moment with regards to the future of defy. Yeah, so I mean, like the bare case for defy is that basically in every major jurisdiction, even minor ones, the government perceives it as a threat to their local sovereignty, and they go out of their way to ban it.

And if they ban it early enough in their respective life cycles in each country, then like the network effects don't, you know, like, over, like, Uber works because government said, like, it's illegal and people said, fuck you, like, I want to ride a taxi. And, like, this is the right way to, like, get around. And, like, Uber just grew super, super fast and basically broke much loss. Finance probably, defy probably won't grow as fast as Uber did. Like, Uber is a very viral thing, right? Like, you get on a cab with your friends. And everyone's like, wow, that was great. And, and so it's like organically viral in a way that defy probably is not, or at least doesn't, doesn't appear to be. So I think given that reality,

of like the K factor on like the coefficient of growth is probably much lower for D5 than it is for like Snapchat or TikTok or Uber or whatever. That does seem like a real risk that just like government's ban it just kind of systematically all over the world or like make it hard enough to use that like my mom is like no, the government said it's illegal. I'm not going to try and use it. And like my guess is probably like 75% of the population. Like if the government says it's illegal like won't do it.

You know, like you may have different perspectives of like what that you think that percentage is. But like my kind of intuition is is. it's in that range. And so if you cap your market size by 75%, that's unfortunate. That probably just means the defy is relegated to being, like, again, this own parallel universe that, like, is a totally separate, you know, place. And it will always just be kind of a gray market.

That outcome, you know, means that, like, defy will be larger than it is today, for sure, that outcome. But, like, is that a million daily active users or is that 25 million daily active users is probably somewhere in that range. It's probably not 100 billion daily active users. Right? So, you know, like you still have growth from where we are, but it's just not like,

there's no path to a billion users in that outcome. Do you think that the, you know, we saw this kind of exuberance in 2017, and I guess we're kind of seeing a little bit of that exuberance now with all this DGEN trading in DFI, on this DGEN activity. Do you think that the community would be wise to build this stuff with a little bit,

like be a little bit more careful when building these things to not, you know, stir up the wrong kinds of narratives or, you know, the attention of people that could harm the ecosystem, right? So like should we be more careful and not building like super speculative assets that were like the risks are super high, et cetera? I mean, I'm a pretty big believer in like, capitalism and not telling other people what to do. And so, like, I can sit here and wish and say, man, if only these idiots wouldn't tweet

these dumb things and that's the regulators, but, like, my beliefs about idiots tweeting things is kind of irrelevant. So people need to be able to do whatever they want to do. And, like, the idea that we're going to somehow as a community to, like, collectively agree on some bounds is, like, just not practical. That's also called cancel culture. And, like, cancel culture is, like, very scary very quickly. I don't want to go down that whole kind of rabbit hole, but, like, I'm not.

generally supportive of letting people do whatever they want to do up until the point of like injuring other people and then breaking some bad laws. Well, I guess we are a little bit on the topic and we actually haven't discussed this on the podcast before, I think, but how do you think this is going to play out in this kind of tension between, you know, the crypto space that's trying to advance, move fast, building things and then the regulators who are trying to like, you know, keep it under control. And recently we saw with like BitMex that, you know, it seems like regulators are in salt lending. You know, there were some things where regulators are kind of like stepping up.

You know, is it just a matter that, okay, people are going to build it elsewhere and then at some point, let's say U.S. regulators are going to kind of capitulate because they're at a disadvantage or like how is that going to play out? Yeah. So we have some opinions. here. So we have spent some time, a fair bit of time talking to our lawyers, like, understanding, like, what are the risks all these offshore exchanges faced and, like, doing, we've done a pretty thorough analysis on, like, exchange by exchange basis of, like, which ones do we think are, have more risks than the others. I, like, can't really share the net outcomes of that. Other than I can tell you, like, which tokens we own, because we, like, exchange tokens, because we've been pretty public about which ones we own. So, like, you can kind of infer the net output of the analysis without really reading anything. And we own B&B, H.H. FTT and SRM being the four exchange tokens we own. So a few comments. One, Bitmex was like really in a class of its own in terms of like breaking the rules. That's not really a question.

So I'm less worried about the other major exchanges than than I am Bitmex by a meaningful margin. Two, like salt lending and like those things are different. So you guys know there's different regulators that do different things. And I'm not really speaking to Europe or Asia. I'm just kind of taking the U.S. centric view to answer this question. Like in the U.S. there's like four or so regulatory agencies that matter, kind of sort of. There's FinC, which is like money laundering stuff, which like those are the guys who just took out.

And then like they work with the DOJ to like go arrest people. But like FinC is like money laundering. SEC is security's exchange commission. CFTC is leverage and derivatives. And like IRS for paying taxes. And like the IRS has been like, hey, people please pay your tax on crypto. And, like, you know, they ask you to certify, did you trade crypto in the last year or whatever, right? But, like, the IRS is, like, doesn't really hate crypto.

It's just, like, they want to collect taxes. The SEC is primarily concerned on, like, swindlers, swindling retail investors out of their money. And so, like, you've seen, like, the people who did, like, swindled, like, the SEC went after them pretty hard. And then everyone else is kind of in this gray state of the world of, like, is it a security? Is it not a security? And, like, we don't really know, right? But, like, it's clear the SEC doesn't, like, hate these things. and is not like actively trying to kill the crypto industry large for people who issue things that are quasi security, quasi not security.

Like, you know, I don't know. But like, as long as you've acted in good faith, like, it's clear that, like, you're not going to have that huge of, you're not going to have a criminal liability. You might have some civil liability. You might have some civil liability. So, like, I'm not really worried about them. CFTC is mostly just focused on, like, people, like, trading with leverage on futures, which, like, whatever, like, okay. Like, again, like, even if you do that in an unregistered way, you know, you know, people who trade a leverage are generally more sophisticated anyways.

And like, it's like, okay, like that's not a criminal kind of a crime. It's just like, okay, like it's, you know, like people trade with too much leverage. And then FinCin, which is like money laundering. And like, of those, it's pretty clear that like the one that's like the most important is the money laundering one. And so the exchanges that facilitate that are the ones most at risk. And like Bitmex clearly did the least to combat money laundering. And so like, no surprise they got the hammer. Well, the other exchanges receive similar outcomes.

I mean, they've all. done a lot more than Bitmex has to combat money laundering and try to detect it and fight it and such. One thing I've noticed having spoken to CEOs of basically all the major exchanges is like all of the exchanges don't like crime. Like they really don't like people try and rob them all the time and people try and launder money through them. And like they know that's bad for their businesses. It's a risk to all of them and to the industry as a whole. And so like although the exchanges generally hate each other as like brutal competitors, they are like remarkably cooperative when it comes to anything related to like combating crime.

And I've like independently had this discussion with like basically all the major exchanges around the world. And they all like sing the exact same song because like they all understand the like collective risk they all face. So, you know, like that that will continue to be buttoned up. Overall, I'm not super worried that like anything bad is going to happen. But you kind of never know. The other thing I think is really interesting to think about game theoretically is like, okay, what happens if like the, I don't know, the DOJ or like FinCEN just says,

like crypto is illegal. Like just they come out with some kind of like crazy statement, right? And like what happens after that? And like the answer is like you quickly get a series of like, I don't know, Coinbase or Cracken or someone like sues the government and says like this is unconstitutional. And like that's going to quickly go up to the Supreme Court, right? Like that that's going to happen in short order. And so like what is the argument that like some set of lawyers was going to make in front of the Supreme Court on this issue? And I mean, I'm not a constitutional lawyer or anything. But like, my. What I would say, given my current knowledge, is like, I would frame this as a notion of property rights of, of like, crypto is like a very, it's actually probably the strongest instantiation of property rights of anything in the world. Because private key is just, you know, like magic.

And so, like, by basically trying to ban crypto or make crypto illegal, you effectively is a direct attack on your ability to own something. And that's like a direct attack on the notion of property rights. And at least in the United, like, the U.S., probably more than any other country in the world has, like, the strongest enforcement of property rights. And so I think that that argument would hold water at the Supreme Court level. And so I'm optimistic that even in the event of like crazy government bureaucrats or crazy politicians doing things like saying crypto is illegal, I'm optimistic that like that will win. The property rights argument will win ultimately at the Supreme Court. Yeah, I mean, I think one one important factor in my eyes is also just that the crypto space moves very quickly.

And, you know, you have, okay, you had this token sales. But the token sale stuff was going on for quite a while. And then, you know, you had this SEC white paper in the fall of 2018. And, you know, they started kind of cracking down. But it took them like years to basically, like, crack down on that. And then it was also just like way too much activity that they could really like control it. So they would have to say, okay, you know, we are going to kind of crack down a little bit and like some, the most egregious parts. And then now, of course, it's already moved on, right?

And there's a lot of other things people are doing. And there again, you know, behind and probably going to be behind, like, you know, by a long margin. And then so I think that's also just like the sheer, you know, capacity on their end to like evaluate projects, look at things and act is going to make it hard for them to take like a hard line stance because they just can't consistently enforce it. Yeah, correct. And they know that. And so given that they know that, they just say, okay, we have to go after the most, you know, agree just violators. And you can see that's been clear, clear what they've done.

Anyone who raised a lot of money got their attention and the people who did pretty nebulous things like the Swindlers. And so talking a little bit about the crypto asset industry and multi-coin, like how has the industry changed since, you know, you guys got started to now? It's changed a lot. I'll kind of quickly touch on markets. importantly touch on, I think, kind of like the stuff we're all building. In terms of markets, I mean, when we got in in 2017, crypto markets were effectively 100% retail. Everything was

designed for like a retail audience only. You had basically only spot exchanges. You had a little bit of margin to like borrow and lever up, but not much. There were very few, if any, professional market makers in the space. There was no, very little futures or derivatives of any form. And then there was no like, I'll call institutional services, like custodies and, uh, from administration and, and audit and all that stuff. It's been about three years since we started. Today, all of those things are like radically different. Today, large-scale institutions can invest in crypto safely, like through regulated, trusted custodians with auditors and all these magical things. There's tons of leverage available. There's not full-blown prime brokerages,

but like we're close to the point of getting to full-blown prime brokerages. And, um, like, There's tons of futures and options and, like, everything kind of, like, works well. So the market structure is just, like, much more mature now and much less retail-centric. The retail obviously is being served still. I don't mean that they're not being served, but just, like, the biggest dollars in the world are not retail dollars, and, like, those people are now able to be served, which is good. In terms of, like, core infrastructure, I mean, like, what we've seen happen over the last few years is, like, basically 2017 happens, like, the first use case that was good for crypto is raising

money. So big bubble happens in Ether and a bunch of ICOs because of that. That causes a bunch of smart people to look at Smart Ethereum and say, okay, what is Ethereum? What are smart contracts? Like, okay, smart contracts seem important. Like, this seems like a fundamentally important thing for the world. And then all these smart cryptographers and distributed systems people and database people all looked at Ethereum and they said, guys, this is like suboptimal in like so many ways. Like we can do better. And so all of those people like NIR and Solana and DFINITY and Koda, now known as Mina, and like, All these people, right, like all said, okay, like we can do better. And they all raised a bunch of money basically say we can try and do better. And it turns out it took a lot longer than anyone thought to build any of those things. I just realized anything proof of stake related is just like exponentially more complicated than proof for in terms of just building it. And like this is empirically true across, I think, every single protocol. And so they all raised much money. And then meanwhile, Ethereum figured out something that it's useful for.

Like Ethereum obviously didn't go away. and they were like, hey, we can actually, the most useful thing here is to issue assets and then basically trade them and lend them and borrow them to each other interesting and different ways. That happened. And so now we kind of know, you know, at least one fundamentally useful thing for smart contracts, which is defy. And so that's kind of what's happened.

Today, the infrastructure is just so much better for using stuff. I mean, like, Rolex salon has been out for six months. And like, Sherom is usable today. It's clunky to onboard. But like, once you're in and have a slon of wallet and everything, like, it's pretty damn easy to use. The same is true for Ethereum. Like, once you have metamask set up or whatever, right? Like, it's very easy to go trade on curve and uniswap and compound and all they and all these things.

And so the cycle time of like what it takes to build a new application, on board user, deploy it and onboard users. Like, I feel like that time cycle is compresses. about 10x over the last three years. It's 10 times easier to launch a new thing today than it was then. That's a function of like tooling being better. That's a function of like wallet distribution being better and just like user education, at least on people who are in the crypto space.

All of those things have improved enough that like it's actually 10 times faster and easier to launch something new, which is great. And then like you're also seeing now all of the what I'll call like tangential services are also starting to like really hit maturity. So the graph is probably the most important one of those. And like, you're like large scale indexing and querying. Again, it's like super important to do large scale applications. And then like other what I'll call tenders services.

So things like are we even file coin? Like we're going to want to store stuff that's not just a ledger entry. And like those are again like much more. The file coin launches in three days. Are we launched like it's now just kind of hitting its stride. So those kinds of things. And then wallets are just exponentially better. You know now.

Key management's better. Like backup and recovery. Like we have. magic, we have tourists, like, all of those approaches are all, like, well, thoroughly understood and explored. There's just much much easier to use. And so that kind of combination of things has just made the whole ecosystem. It's just much, in 2019, it was hard to use crypto.

Today, it's better. It's 10x better, but still not, you know, like, is easy as Snapchat. And so, like, that's happened. And you can see now the kind of primordial soup is, like, almost there for, like, some big breakout cool things to happen. Like, we're not quite there, but like you can really tell like we're very close. That's why I feel like that's kind of the summary in the last call up three or four years. And so looking back in 10 years, what do you think will have fundamentally changed in the way people transact and invest and how much of that will be attributed to sort of crypto and defy?

I mean, I'm in this ecosystem because I'm like bullish on it and I think it's going to change the world. So whether it's pure, the question is like, is it permissionless defy that like, 100 million people use every day, or is it permissioned defy? And, like, I don't know how to answer that question right now. I'm hoping it's permission list, but, you know, we'll see. In the event that it's permission list, then, like, all the stuff we're doing now is, like, going to be game-changing and all super important. In the event that it's permissioned, that depends.

Like, you could see a world where they just, like, fork the EVM or fork the wasum runtimes on Solana or Pocod or whatever, and, like, to grade as all of permission, content us now. content us and like thank you for all the free code. And like that's totally a possible outcome or they'll rebuild it all because they're bureaucrats and that's what they do. I don't know. So those kind of seem like the three major outcomes of all of this. But I'm optimistic that at least the idea that like you will have your cash, so to speak,

and like money will operate as we all think it should. Like I'm optimistic that. That I feel very confident will happen. It will probably be longer and messier than I would like, but I'm fairly certain that like the writing is on the wall and it's basically a foregone. conclusion. And okay, maybe a final question. What are the areas that you're like looking at today and learning about, you know, regarding to crypto and investing that you think are most underrated? So I think the most compelling use case for crypto I've seen beyond DFI

is anything related to what I'll call internet infrastructure. So I'm not referring to necessarily like Rwe file coin like decentralized storage or like decentralized compute more focus on actually bandwidth management and like packet routing

internet bandwidth is fungible like I have an internet connection at my house in Austin and you have an internet connection in Berlin like those things are not fun like those are not fungible

right like my internet connection needs to work here and yours needs to work there and so the internet is by definition decentralized and you just have tons and tons of routers and IP tables and whatever, right? And all these packets like magically wrap around the Internet somehow.

The question is kind of in like abstract, is the entire way that like we route packets today as economically optimal as possible? And I'm like 100% confident the answer is no. Like not even close. So like is there an opportunity to create permissionless ways to route packets that are like far more economically efficient than status quo? And we have made two bets so far on that thesis, and I expect we'll make many more. But, like, I'm fairly confident the answer is you can do a lot better.

So, like, looking at helium is their most public example of this, where, like, helium is, like, the idea is, look, AT&T and Verizon and Orange and Vodafone of these guys, like, build a bunch of towers and go, like, rent a bunch of land that run a bunch of AC call and do all these things. But, like, what if just you and I can, like, plug anything in our house and, like, get, then, like, create bandwidth and share it. and other people can pay, per bite of data in real time. Right? There's just like a totally, totally different model of like how do you deploy enough towers

to just blanket the entire world in radio waves. And like that model, I'm optimistic, is going to like totally change like internet access and like how people access the internet all over the world.

The other bet we made in that's basically called Opsio, which is like a basically focus, it's kind of the opposite of helium where it's focused on making an exchange where like people can trade data. So like I have an 18 T5 gigabytes that expires at 30 days. I can trade that for dollars in real time or resell it or whatever. But like having an exchange for data where like today mobile data

is probably the world's largest commodity that is not financialized. What I mean not financialized like look at oil or gas or like wheat or whatever. Those are all financialized quantities. Mobile data is not a financialized commodity. And so I feel pretty optimistic that like we will financialize that asset. There's going to be more stuff in. this space. So like Althea is an interesting company, right? Like they've been doing a bunch of work on like similar kind of helium model a little different.

There's a bunch of people right now working on like incentivized mix nets or incentivized packet obfuscation like NAM and Hopper and handful of others. You can see so like and then do you just see more peer to peer mesh type of things. It's very clear to me that like some set of these are going to produce

a large, large, large amount of value for the world. And we've been pretty, I think we've been probably the most active investor in that space. And I expect we will continue to be. Because it's just like fundamentally makes sense. Like internet infrastructure is decentralized. It is not optimal. And like by enabling permissionless access and permissionless packet routing,

you can achieve things that were not possible before. And so I'm like very excited about that like sector of stuff. Cool. Well, Kyle, thanks so much for coming on. It's a pleasure to catch up. I'm excited to see how, you know, how the next. and a half years turn out and how your investment thesis is going to play out in that time? 136 weeks. I'm counting that, Brian. Let's get it on the calendar. Put it in your calendar.

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