Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Kyle Samani & Tushar Jain: Multicoin Capital – An Update From the Thesis-Driven Investment Firm

Episode Date: April 29, 2022

Multicoin Capital is a thesis-driven investment firm that invests in the crypto space. They manage a hedge fund and a venture fund, investing across both public and private markets. Since their founding in 2017, they have become known for their high returns.We were joined by founders Kyle Samani and Tushar Jain, for Multicoin's third visit on the show, to chat about how they came together to form Multicoin, their current investment thesis and how it has evolved, and the road ahead in the blockchain ecosystem.Topics covered in this episode:Tushar and Kyle's backgrounds and what led to MulticoinWhy did they choose to create an investing company?Their current investment thesis and how it has evolvedMulticoin's decision to not invest in certain lucrative projectsHow they chose what to invest inThe Proof of Physical Work thesisThe process of how they select an investment and the strategy behind their portfolioProjects they regret not investing inA prediction of how the blockchain ecosystem will look in three yearsDominance of DeFiEpisode links:Episode 361 with KyleEpisode 223 with Kyle and TusharProtocols dont capture value, DAOs manage risk - thesisMulticoin on TwitterKyle on TwitterTushar on TwitterSponsors:ParaSwap: ParaSwap aggregates all major DEXs and makes sure you beat the market price at every single swap and with the lowest slippage - paraswap.io/epicenterChorus One: Chorus One runs validators on cutting edge Proof of Stake networks such as Cosmos, Solana, Celo, Polkadot and Oasis. - https://epicenter.rocks/chorusoneThis episode is hosted by Friederike Ernst. Show notes and listening options: epicenter.tv/441

Welcome to Epicenter, the show which talks about technologies, projects and people driving decentralization and the blockchain revolution. I am Friedricha Ernst. Today I'm speaking with Kyle Samani and Twitter Jane, who are the founders of Multicoin, a crypto VC firm that started out back in 2017 when there weren't so many crypto VCs yet. And it's rumored to be the most performant VC fund ever. Before we talk with Kyle and Twitter about multi-coin, let me tell you about our sponsors this week. Paraswop is a multi-chain decks aggregator. This means that through Paraswop, you can easily access the liquidity of various different decentralized exchanges. The protocol automatically finds the cheapest liquidity for you, so you can trade knowing that you're getting the best price.

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We're also sponsored by Corus 1. So proof of stake offers a more performance, scalable, and energy-efficient way of securing blockchains. Start earning rewards and contribute to network security by staking with KORS-1. The staking providers securing billions in assets on over 25 decentralized networks, including Solana, Cosmos and Ethereum. If you're an institution or want to run your own branded node, KORS1's wide-label node as a service offering leverages, they're highly available and proven infrastructure enabling you to participate directly in decentralized networks. Head over to Chorus 1 and start your staking journey today. Hi, Tusha and hi, Kyle.

Thanks for coming on. It's such a pleasure to finally have you on. I can't believe you've never been on Epicenter before. We've actually been on Epicenter back in 2018. Yeah, it was a great episode. We had a lot of fun. It's great to be back. Fantastic.

It's good to have you back. I will have to go back and listen to that now. Do you remember who did the interview back then? Brian Crane and Meher. Meher, fantastic. That's a good team. Fantastic. Cool.

So I guess you've done this before. So let's talk about you first of all. So basically, how did you guys meet? What are your backgrounds and what kind of made you become crypto VCs? So hi, hi, everyone. My name is Tashar. I grew up in New York. I met Kyle at NYU when we were studying finance.

We realized that we were both fans of the intersection of finance and technology. Spent a lot of time thinking about just how mobile was reshaping the world and how the internet was reshaping the world during those very formative years for us. We both have an entrepreneurial background after university. We went and started our own companies that were. both, you know, kind of modest little outcomes, which is to say, not very successful. But, you know, we heard about this blockchain thing along the way, which was very exciting. For me, specifically, it was exciting because it was a new way to coordinate human economic activity

and, you know, incentivize people to work together in ways that they had previously not been able to. We decided in 2017 to launch multi-coin after seeing that the technology was being validated, that things were being built in the industry that were beyond just digital payments, but also, you know, enabling new types of coordination. And, you know, in fact, funny enough, the day we decided to launch multi-coin was the day of the NOSIS ICO. So, you know, back in 2017, that was one of the major data points for us that showed us that crypto capital markets were going to be a big deal. It's kind of funny because we named the firm multi-coin because at the time when we started, a lot of people asked a question of like, will there be many coins or will there only be one coin to rule them all? And this was, you know, back when Bitcoin maximalists had a lot more political power within the crypto ecosystem and, you know, shout it down, anyone creating another coin is just another shit coin. And, you know, we wanted to be very explicitly against that and say, you know, we believe, you know, with complete conviction that there will be many tokens, there will be many coins, that will do different things. So that's a little bit of the history of, you know, how we met and how we decide to start multi-coin and why we called it multi-coin.

Super interesting. Given your backgrounds, I mean, you both studied finance and then you both started separate companies in the in the, in the, you know, kind of in the medical field, right? I mean, Kyle Zios was like a Google Glass-based app, and Tusha, you had like this patient data company, right? So basically you had this, you had this very strong entrepreneurial background, and then you moved into A, a new field and B, a new discipline. So wouldn't it have been, so why did you become VCs?

Why didn't you start an application or protocol or, you know, for tooling or something. Why, why, why, you see? It was, it was kind of through the fall of 2016 and early 2017, Tushar and I were chatting pretty almost daily about various crypto things. And we were just getting both more and more excited and both kind of losing interest in other things. And so we did have a conversation in the April, May timeframe of 2017, saying, you know, what, what should we do? Both of us kind of knew a couple of things. about each other fairly well. One is they were both like kind of insatiably curious.

I can spend my entire day reading just like all day as can to Sharr about different subjects and ideas. Second was we wanted to, we both knew that there was a really interesting opportunity to educate the space and share our ideas and help the ecosystem move forward. And that's why we started blogging so early on was to do that. And we had felt that the amount of thought leadership being put out by other investors around crypto was quite lacking. It's gotten a lot better over the years. But still, I would argue, it's like not enough.

And we kind of identified that whole in the market fairly quickly. And that turned out to be very effective strategy. and I think both of us all just both had like a desire to just like focus on our thinking and our curiosities. And so that kind of natural set of desires led us to want to start an investment firm instead of operating business. We had done the operating business thing. We had learned a lot. I think we both had a few battle scars from that.

And we're interested in trying something else. Yeah. And just to add a little something there. I remember thinking explicitly at the time, you know, what does the ecosystem really need? And this is, you know, 2017. People are doing ICOs for like really weird, wacky stuff. And concepts that, quite frankly, like, don't make sense. You know, you're going to use this coin to pay your dentist or you're going to use this other coin to pay for coffee.

Like, it's just like nonsense. And what we realized was that there was, like Kyle said, a lack of understanding of how to think about this asset class, right? Because the asset class was new and the heuristics for how to value these things or how these things, you know, would capture any value or be, you know, marketable in any way. Those heuristics were just lacking, right? If you think back to all of the heuristics that people have about traditional equity markets, well, those were created in the early 1900s as equity markets were just getting started. Like the idea of valuing a company off of discounted cash flows, you know, isn't a concept that's been around since ancient times.

Like that, that was something that was created by, you know, this discipline of value investing when the asset class got popular. And we realized that that was what crypto really needed at the time was those types of heuristics because there were a lot of investors who were curious, who were interested in what this technology could be. But, you know, they're full-time investors. They're not full-time crypto investors. They couldn't spend the time to develop those heuristics.

So the first one that we did was Kyle published a post on understanding token velocity, which I think is the first post that we ever had that went viral, that, you know, got a lot of attention. You know, we got a bunch of deals off that post. I think we're still getting deals off that post. So it's one of the highest ROI pieces of writing on the internet, probably. And it was just to explain to the world that, hey, having separate coins for separate payments, does not capture value because of the token velocity problem, which has since then become very popularized. But, you know, we saw that as a way to contribute value back to the ecosystem

and probably, you know, was the most effective way for the two of us to contribute value back to the ecosystem beyond if we had actually been entrepreneurs building something. Yeah. I mean, I totally get that. And I mean, thinking back to 2017, there were a small number of crypto VCs, right? I mean, today it's everyone and their grandmother are crypto VCs. So, but I mean, back then it was literally polychain, union square ventures, metasable, maybe fabric or something. But they weren't super vocal about the investment hypothesis, right? So basically you guys were maybe the first people who really said, look, we're investing in this and this and this because this is the way that we think it's going to pan out. We think in public for better and for worse.

Let's talk about your thinking. So what's your current investment thesis? And has it changed over the last couple of years? I think the investment thesis have definitely evolved over the past couple of years. I think we just have seen more projects, more data that helps us understand how the technology will be used. But at the high level, the investment theses are pretty clear, right? We've written a post about this explaining out the mega-theces.

I think we can add a little bit to that. But, you know, the first megathesis that we had is defy, right? By having units of value, whether they're tokens or equities or bonds or currencies or, you know, commodities, etc. All on a programmable ledger that works anywhere in the world permissionlessly, you can bring access to capital markets. to more people. You can include more people in capital markets. And that creates a lot of value and creates a lot of wealth for the world because you want everyone in the world to be able to participate in capital markets. Kyle, maybe you want to talk about Web3 pieces. Yeah, I mean, we were fairly early to start investing in kind of Web3 infrastructure thing,

starting with Live Pier and the graph back in the early part of 2018. And I think that of the thing we've developed conviction, especially over the last like six months or so, has been that you're going to have decentralized databases. Ceramic kind of being the most notable, and there's other teams trying to tackle this problem as well, for storing user-owned data that is not financial. And I think this is going to be, if you just look at the developer ecosystem around ceramic now, it doesn't get a lot of air time in the press and on Twitter, but it's an impressively large percentage of the,

overall crypto ecosystem is now leveraging ceramic in some way. And I'm quite optimistic. We're going to have a handful of tools that look and feel like ceramic. And they're just offering these decentralized database things. And I think that's a really, really big opportunity. Well, obviously with Elon buying Twitter, I get the sense. Twitter is going to do more crypto-y thingies. I don't think his first objective is going to be to move the database from Postgres or whatever

it is to, you know, to ceramics. But like, I think that design space just became a lot more probable that Twitter does cool stuff there. And I think that's going to provide a lot of inspiration for developers to build new kinds of things. So, yeah, we're very, very excited about decentralized databases. You were also one of the early investors in Aweave, right? Yeah, correct. We, we're not in the ICO. I believe the ArtWeave ICO was in the fall of 2018. We learned about RWeave in the spring of 19 and completed our first investment in June of 2019 in RWeave. Again, that one just kind of struck us as I think there needs to be permanence. We did not expect NFTs to blossom in the way that they have.

And that turns out to have been just a phenomenal use case for RWeave. And if you look at most of RWeave's growth in the last six months, most of it is coming from NFTs, specifically around the Metaplex integration. That's been just an amazing integration for both. and for RWeave. And the other thing we've obviously seen is a lot of layer one teams and layer two teams using RWeave for data availability. So it's been very cool to see that those kind of, this thing find product market fit in those kind of two major use cases.

But there's a lot of low level infrastructure that needs to get built. You need to have storage. You obviously need to have databases. You need to have bandwidth. You need to have compute. And generally speaking, in the higher up the stack you go. the harder those things get to do in a decentralized way. And so we're excited to see more and more of that stuff, that stuff happen.

We've announced ceramic and fluence that maybe a month ago, a month and a half ago. And there's going to be a lot more to be done. Yeah, that was also the first I heard of ceramic. So somehow this had completely bypassed me. So in terms of composability and the money legos that you just talked about in terms of defy, There were also, I mean, you guys were early to the Defy game, but there were also, I remember, very notable exceptions where you decided to not invest in Defy projects that would have been pretty lucrative, like Uniswap, for instance, because you fundamentally objected to the tokenomics. Can you talk about that a little bit? Yeah, absolutely. So broadly, you know, we try to think about value capture in defy or in crypto broadly from first principles and just think in the very long term. You know, we're not focused on shorter term. You know, what will the capital markets think of this?

In the short term, the capital market is a voting machine and long term it's a weighing machine. and it's really about your ability to capture value over the long run. And, you know, we believe Uniswap built something innovative and really cool, especially given the gas constraints of Ethereum. You know, if you want to have a decentralized exchange, this was the way to do it. And it has clearly been very successful in attracting trading volume and users and assets. However, the Uni token itself doesn't capture any. of the trading fees that are earned by the Uniswop system.

And the instant that they do turn on fee capture, which they could potentially do that and say, you know, of the 30 BIPs fees going to liquidity providers for a standard pool, five BIPs actually ends up going to the token holders instead, we just see that as indefensible in the long run because it's just rent extraction without providing any value back to the protocol or to the users of the protocol. And that's very, very difficult to execute in a world of open source and permissionless access where someone else can go and copy your code and say, hey, you know, we just don't take five bips away from you as liquidity providers. Why don't you use this instead? Right. And you have, you have,

aggregators who will route traders' orders to wherever, you know, gives them the best fill. So, you know, the users aren't necessarily loyal to a specific exchange. They want the best price over the long run. So given that, you know, confluence of things, we just didn't see a way for a token in that system to sustainably capture value. And we actually published a thesis about this, and I think is one of the best theses that we've published. It's called protocols don't collect fees, Dow's manage risk.

We published it, you know, something like six, seven, eight months ago. And in it, we talk about specifically defy value capture where there are cases where a token can take a spread or take a fee. An example is a defy derivatives market. Something like,

mango markets, for example. You know, we think that mango markets can sustainably collect a fee off of trading volume going to the Mango Dow or the Mango token holders because they offer an insurance fund, where because it's a leveraged trading protocol, if a winning trader makes too much money and the system, you know, becomes insolvent based on how much, you know, customer deposits are in there, or trader deposits are in there, then the Mango Insurance Fund has to cover that loss. And if the Mango Insurance Fund cannot cover that loss, they will print new mango tokens or use Mango tokens off the balance sheet and sell them into the open market in order

to make sure that the winning traders are made whole. And traders on leverage trading platforms want to know that there's a big insurance fund. They want to know that there's a big backstop in case their trade is really, really a big winner, and that whoever traded against them gets blown out and the risk engine isn't able to handle that well. And so in exchange for providing that type of insurance, in a sense, to those traders, they're providing a service that allows long-term sustainable fee capture for something like Mango, whereas something like Uniswop, where there is no long-term value. going from uni holders to users of uniswap.

So that's really the key thing that we look for is like, is there some risk in the system that can be managed by the token rather than, you know, trying to put all of the risk outside the system and then just have the token extract rent because, oh, hey, we've wrote the code. And so therefore we deserve to extract rent. I just fundamentally don't believe that that is a sustainable model. Has this thinking changed since you published the thesis? Because, I mean, basically, if you look at the, if you look at the market since then, Uniswap very much is still around, despite the fact that often you can actually,

usually you can get better prices elsewhere. If you go to a Dex aggregator, right? You'll get at the very worst, the uniswop price. So why do you think interfaces are so sticking? Do you think Uniswap really owns the user? Do you think this is a temporary thing? It's a good question. You know, is there some unforkable state in Uniswap in the brand recognition?

And the answer is like definitively yes today. People literally go to Uniswop's website rather than going to Zero X Macha or one inch or, you know, one of the other aggregators that offers you better execution. You know, so that is currently the case. over the long run, I always like to bet on rationality. I think that, you know, markets can be irrational in the short run, but in the long run, humanity tends towards rationality. And it's very hard to see something like that sustaining over the period of years and years and years. You know, we're not short-term focused. We're not thinking about, you know, what will the market think 12 months from now? That's too soon, right? We're thinking with a much longer time horizon.

And our intention is to invest in things that we never have to sell because they have really sustainable value capture and we can just hold it for, you know, forever. And in order to feel a conviction to hold something forever, you know, you have to see value capture. That's not just unsustainable rent extraction. Yeah. The other thing I would add here is the unit swap team or should the uniswap Dow rather is actually choosing not to really answer this question.

The way they would choose to answer this question is they would introduce fees that pay out to the uni holders. And that's when you can actually figure out for real what's working or not working. Right now they're just kind of like floating in like the uni price is still worth billions because yay, I guess. But once you introduce fees that get paid out to the uni holders, Uni holders are strictly parasitic to both makers and takers. Obviously, the system works today without uni holders being involved. It worked before the uny token existed, which is all the proof you need that they're strictly parasitic. Once you introduce those fees, now you're creating a lot more incentive for LPs and for both makers and takers to go elsewhere.

And so I think that's also kind of core to the argument here. Is that if this stakeholder group is strictly parasitic to the other two that are obviously the two important stakeholder groups, which are makers and takers, then the system will unwind a lot more quickly. Yeah, that's fair. And I think it's kind of, it's this way of thinking, not being afraid of being contrary. And this is actually a hallmark of you guys. I mean, basically, if you think back to 2018 or 2017, and basically everyone, everyone was an Ethereum maximalist, right? So basically, and I mean, a lot of them still are. And you guys invested into EOS, big.

And I mean, obviously, we all know that didn't really pan out well. But this kind of led you to invest in Solana. when really no one else really wanted to. Back then, I mean, in hindsight, obviously it looks obvious. But back then, what exactly gave you the conviction to invest into Ethereum competitor layer ones? I think actually the most important thing has been watching really the Ethereum Foundation and how they operate. So first, just like,

there doesn't seem to be a sense of urgency at all, which I like find fundamentally problematic. I think it's actually very contradictory and basically almost hypocritical to say, we believe our technology thing that we're building is going to be one of the most important things in the history of the world. It's going to enable all this new human coordination

and good for freedom and sovereignty and whatever. And then say, yeah, but like, we're also going to like kind of relax while we're building it and like not try very hard. And I like, I don't know. I just, I really struggle with that. I think that's been, that's been a big part of it.

And the second part of it has just been like, uh, the, the research team is really not focused on what I'll call like product development. Um, and, and so like, it's been like a,

like, what is a layer one good for? And like, I don't know, like probably some defy things, maybe some NFT things. If you're going to build an L1, let's say, and you say,

okay, I believe DFI is the most important thing in the world. I believe we're going to have lots of financial markets, right? And we want to build the best thing for financial markets. Then you would probably start to make a lot of optimizations in the design of the system. Accordingly, the most obvious of which is latency. You'd want to have as short of block times as possible because, like, if you have leverage in financial markets,

you want to have low latency. All right. And like, you know, ETH2 design, I think they're talking. about somewhere between six and 12 second block times. And it's going to be several blocks to finality. Right. So you're talking, I don't know, 20 to 60 seconds to get finality. And like, I understand why the decisions they made based on whatever prioritizing like validated or note count or whatever. But like that's not optimal for financial markets. Um, like it's explicitly not optimal. And they know that. And like, they're just choosing to optimize for like not the thing

that it seems to be used for. Um, and I find it to be like extremely problematic from a product strategy perspective. And so, you know, we got into crypto in 2016. And by the end of 2017, I remember I went to the, to DevCon 3 in Cancun. I remember a Vitalik charting presentation. And I remember like, I was like, dude, I've been following this thing for two years. And like, nothing is happening at the core protocol. And I kind of, at that moment, I got very disenchanted because everyone at that conference was like super excited and like Ethereum going to change the world. Right. And it was all, all. Everyone was a little too happy and started to really reexamine, you know, how things operated.

I'll contrast this with Solana. From day one, the architecture of Solana was build and support decentralized NASDAQ. And like, I think maybe that's a dumb idea to do. I don't know. But like they were very clear from day one. Like that's the goal. And it turns out, you know, year or two later, as DFI started to really work on Ethereum, that that that probably includes. it became more and more clear that that is certainly one of the most important things

a blockchain is useful for. There may in fact be others that are more important than that. I'm not yet sure. We'll see what emerges. But I think that's a very, very important thing to do. And, you know, after all this time, we've actually had grown more convicted in this kind of a general frame of thinking. Yeah.

To add on to that, you know, we realized after Vatollick's sharding presentation at devcon three and kind of just like for talking to a bunch of the Ethereum people that Ethereum was going to choose the hard path to scaling, right? It was going to choose the path with a bunch of unsolved computer science problems. And, you know, maybe they will solve them. Like, these are some very intelligent people, you know, way smarter than me, who are inventing new stuff, right? They're inventing new ways to get these computer systems to talk to each other. But it was just very ambitial. ambiguous on the roadmap and the timing because and through no fault of their own, it's very hard to project when you're going to have a fundamental breakthrough in computer science or any other academic field, really. Right. So it's just an open-ended research problem of like, how do we do this? And we've seen this play out with the roadmap get delayed and get delayed and get delayed and now, you know, reframe what it is and get delayed again. And it's just like Kyle said, a lack of urgency and open-ended research problems. And what we were.

really looking for was a more defined path to scaling. Now, you mentioned EOS. You know, we were contrarian in supporting EOS. That clearly was wrong, right? Like, we can look back at in history and, you know, we lost money on that position, like quite a bit. And, you know, we were wrong about EOS. However, our fundamental thesis was not invalidated. What was wrong was the execution of the block one team, which was quite frankly atrocious. Like one of the worst of any team out there that I've seen in fact, you know, they raised the $4 billion and didn't spend it on anything useful for the ecosystem, which, you know, kind of defeated the point of the whole capital raise in my opinion.

And so we took our losses on that position, but as investors, you have to be very rapid. And you have to think, you know, why did something happen? And was it fundamentally something with the thesis? Or was it something idiosyncratic? And after a lot of deep thought, and, you know, this was a lot of deep thought. We lost a lot of money on this one, right? We realized it was something idiosyncratic. So we said, no, we're going to double down.

And we actually think that the deterministic approach to scaling that something like Slana offers is really attractive. And so we made that, you know, our largest bet. We have obviously been very vocal about it. And we double down because we had the conviction there, despite, you know, having taken losses on the first time we invested in that thesis. Yeah, I think there's a lot of insight here. So basically, if I try to reframe this in terms of the blockchain,

blockchain try them up, so basically security, scalability, and decentralization, Basically, you're putting the Ethereum Foundation or the Ethereum core team, the Ethereum core developers are placing most of their eggs on decentralization. And do you think that is the wrong prioritization to make? It's just backwards looking. So, yes, I think it is the wrong prioritization to make because I think Ethereum suffers from a problem where the Ethereum core team is just comparing themselves to Bitcoin. because Bitcoin was first and it's bigger, right?

And they're looking backwards at Bitcoin. And the thing is, like, Ethereum is never going to be as decentralized as Bitcoin. And it shouldn't try to be. It's okay. You don't have to be the best at every single dimension. But you should optimize for the dimension that really, really matters and focus on that. And I think Ethereum just was too broad in that focus. They wanted to be as decentralized as Bitcoin.

They wanted to be as scalable as slana. They wanted to try and do all of these different things. things and it's just, you know, not plausible to do that and it slowed down the roadmap tremendously. I also think that decentralization is a spectrum. It's not a binary thing. And I think that the value of decentralization is an S curve. There is a such a thing as decentralized enough where, you know, you don't need everyone to run a full note at home. That's pointless, right? Like, I don't check the maintenance of every airplane I fly in. Right. I know that other people are doing that. So why do I need to run a full node when I know that other people are doing that?

You know, I don't necessarily need to do that every time. And so I just think, you know, over-optimizing on one dimension that turns out to be the one where there's an S-curve in value delivered was the wrong decision. Yeah, I think that's that's a fair assessment to make. And I think even the most diehard ethereal maximalist would have to concede that the Ethereum wrote map has shrunken consistently over the last couple of years. And I mean, if you look at what's going to come with, ETH too, now with, I mean, even with, you know, after the merge with sharding, I mean, it's, it's not what was talked about years ago in terms of smart contracts, shards. It's just data availability shards. So, yeah, I think that's a completely fair, fair assessment to make.

Let's talk about one of your other investment hypotheses, and that's proof of physical work. Just real quick. I'm sorry. I'd like to add one more thing to that that I think is really relevant and important, is Vatelik published a post recently talking about how cross-shard MEV will lead to block production for Ethereum being centralized in data centers anyway. So, you know, through this economic incentive of cross-chain or cross-shard MEV, that is going to end up with block production being centralized anyway. So I kind of think Ethereum is ending back in the same position that some of these other chains are in that the Ethereum community has been criticizing them for, you know, of having block production and data centers.

I think Ethereum ends up back there because of the economic gravity that is cross-chain MEV and the highest yield validators on ETH 2.0. will be the ones run in data centers, not the ones run on laptops at home. I mean, one could also argue the converse that debt developers will optimize for MEV-less protocols, right? I actually, well, I don't think it's possible. Not that it's not possible. I mean, Osmosis is doing it today. You obviously want to minimize MEV, but MEV does not need to be zero.

We already had MEV today. it's called HFT and like it's fine like the world works um so that that's okay again history is path dependent right so for the the best example of this is the query keyboard uh which is like known to be just stupid from a placement perspective but like it's what everyone learned in the four they actually made it slower in the 50s because the typewriter's jammed and now we still use it today with electronic keyboards my point is to say that like you have to think about how these systems evolve um and what it was clear that everyone wants by far as the most important priority is low latency, high throughput, low gas costs.

Like without a question, those are the most important things. So you need to optimize for those first. If you could concurrently get all of those things done and also have zero MEP via, let's say, something like osmosis, that would be great. But it just adds a lot of complexity to the system. They don't have generalized smart contracts, right? Block times are slower. There's a delay on just things getting included in the blocks because of the whole

decryption thing, whatever. Like, you're just introducing all of this new complexity. And like, if you can guarantee that the upper bound of MEV per trade is like, I don't know, three Bips or something, like, I don't know, like that might be worth it. Like, that's totally okay. So, you know, MV is bad, but it's not like it must be eradicated from the face of the earth bad. And so when we think about the evolution of these systems, we're thinking about like, solve the most painful needs today. and then maybe you can come up with other creative solutions over time. One thing I think the world at large doesn't give enough credit to the Solana team for is just like,

they assume that everything is fixed and static and done and nothing will ever change again. And like, this is just kind of a stupid assumption. Obviously, all of these teams are building lots of stuff and all of these teams are learning from each other and adopting some good and bad idea, right? So maybe there will be a lot of ZK roll-ups on Solana in two years. Actually, I think there will be. It's just one example, right? And others can happen to.

So, you know, path dependency matters. And you want to prioritize based on kind of the most immediate demands and then revisit other needs over time as you can. That makes sense. So let's talk about proof of physical work. It's one of your other investment hypotheses and one that isn't as widely distributed yet as the defy hypothesis, hypothesis and the composability, right?

Yes. It's just newer. It's wacky. It's weird. Really, I think it was inspired by Helium, I think is the first implementation of proof of physical work in the real world. For the listeners who aren't aware, helium is a new business model for deploying and managing communications networks.

The first network that they built was a network for the Internet of Things or IOT. And the way that it works is, you know, regular people go buy a hotspot. They plug it in. They connect it to Wi-Fi. And they try and find good locations for these hotspots to create broad coverage in their area. And they can earn tokens for doing so for providing connectivity. And here what we've done is we've taken what is a crypto-economic game. of, you know, go find the best location for your hotspot so you can mine the most tokens.

And the output of that game is something with utility, something that is actually useful for the world. Because if we can connect, you know, a bunch of fire sensors to have early detection of forest fires or flood sensors for water preservation or location trackers for pets or children or, you know, any of these other items to the internet. like that creates a lot of value. But being able to create the network through the crypto economic game and then have something of utility created as a byproduct of that crypto economic game is the core

of that proof of physical work thesis. Another example of that is an investment recently announced in a project called HiveMapper where people are able to put a dash cam on their car, upload their dash cam footage, or annotate, you know, maps on their desktop.

and earn tokens for uploading their footage that the software uses computer vision to create an always up-to-date street map, right, or for annotating those maps. And so we're taking these crypto-economic games that have proven to be very successful through things like Axy, which we've seen, you know, with many, many, you know, hundreds of thousands of users and tremendous amounts of money flowing through the system, things like Step-in recently. or crypto economic games that, you know, aren't necessarily creating that externality that is useful for the rest of the world, right? Prove of physical work is about using the crypto economic game to create a communications network or create a map that is owned by the people or create some other asset that is useful to the world. We're looking at other ideas of this around like, you know, electric car charging networks, which is going to be a major thing that we need to solve if we want to combat climate change. We need electric car chargers and more locations. So can we create a crypto-economic game around that to incentivize people to put up more of these chargers to create the capacity for more electric cars? Maybe.

We're thinking about that. We haven't made any investments there yet. Still idea phase. Or can we do something around battery storage to make the grid more resilient for renewable energy is another example of a thesis around proof of physical work that we're really interested in? and fundamentally just looking for ways to implement a crypto economic game to build something useful for the world. Yeah, I think that's a very powerful investment hypothesis because, I mean, basically, it gives you the ability to scale through collective ownership, right? So basically the way that you actually facilitate payments more or less seamlessly, hopefully, through tokens, this is something that was kind of, missing. And I actually remember something similar here in Berlin probably like 20 years ago or something.

It was called Freifung. So basically you put up and remember 20 years, this was before smartphones and widely available mobile data and so on. So basically the way that it worked is you bought a Wi-Fi router and you set it up in Berlin. And basically you either let other people join for free or you actually got some credits for it. And basically if you let other people join for free, you could use everyone else's for free as well. If you had other people pay for your Wi-Fi, then you had to pay for other people's Wi-Fi as well. So basically, I mean, basically those two antipodes were called. You could either be a liners or you could be a bill because, I mean, obviously, this back, this was like in 2000.

And so basically this was kind of the dichotomy back then. But yeah, and I think it never, I mean, basically I knew lots of people who actually had them, but this was a very specific subculture in Berlin. And it never really widely took off. And basically having this seamless integration of the ownership of the network, this is something that is fundamentally new. And I'm super excited about helium. We had them on last year or so.

super fascinating. So yeah. That example is really interesting, actually, because we've seen other examples like this. I think the key thing that's innovative here is, like you said, the user's owning the network, not just getting access to it, but also it's bringing markets to where those hotspots are placed. If you have the model that you described where if, you know, I'm a Linus and I donate, right, I can just put my device, my hotspot anywhere. And it's the same, right? Whereas with something like the helium model that I think is really innovative is by rewarding different locations with tokens based on how much coverage they create.

Right. You live in a high rise and you put in the effort to put your antenna on the roof and, you know, you got a big antenna and you invest in all this effort. You should get more ownership. You should get more tokens than someone who just, you know, put the hotspot. in their closet. And I think that that free market incentive is really like a really important part of this, proof of physical work thesis. You know, you want to implement markets in capital allocation or time allocation decisions. Whereas, you know, centralized planning of, oh, every hotspot is equal to another hotspot. It is just like, you know, it's very like centralized committee

Soviet-style planning, right? Like someone's deciding that these are all equal, but they're not. They provide different amounts of value. Yeah, absolutely. So maybe that's kind of change gears a little bit. So walk me through the process of how you select your investment. So basically, how do you source them? How do you evaluate them?

How do you decide whether an investment is made? and if so, at what ticket size? New deals come in a bunch of places. And at this point, we have a fairly large network of people in the crypto ecosystem who send us stuff, which is great. We obviously have a lot of relationships with entrepreneurs and those guys have friends who are builders and stuff. So we get a fair bit of that. We tend to do a fair bit of outbound as well. I'll make it a priority to spend at least 30 minutes per day scrolling Twitter looking at

anything that catches my interest and like clicking links out from there. I think it's very, very important to never lose that curiosity. It's very inefficient because you, by definition, don't know where you're going. But you can oftentimes find a lot of really interesting things accordingly. Ceramic is a good example of that, actually.

I had noticed like two or three startups mentioned they were building on ceramic. And I was like, okay, that's like the second or third time. I was like, I got to see what this thing is. That's actually also how I got into Ethereum back in 2016. I saw a similar, similar thing. So that's very important.

We do a fair bit of that, and I'm known for sending cold messages to founders on Twitter, telegram, email, whatever. So do a lot of that. And then we obviously published stuff on our blog in areas we're interested in. We've published a lot about the Web3 Stack. I recently did a thing about audio re-bundling value in the audio chain,

rebuttling value capture in the audio chain, to show our reason did a post on proof of physical work. In general, whenever there's an area where we're kind of getting intellectually pretty, intrigued. We will usually try and write something and use that as a basis for, you know, starting more conversations with more smart people in those spaces. So there's a lot of that. In terms of how we select deals, you know, there's, there's different styles of investing. And that's a function of ticket size. It's a function of like who the customers are. Is it

developers, enterprise? Is it consumers? Is it whatever? Function of just like a bunch of a bunch of variables. We have started, you know, we've been doing this for a few years now, and we've started to figure out where we think the limits are of like, where are we really good and what styles do we know how to do and which styles do we not know how to do. Obviously, you can't be too rigid about those things because the market itself changes over time. And so you always kind of need to like be a little uncomfortable.

You don't, I think you don't want to be too strict about like your strike zone here. And so, but, you know, we. We have a sense for things we like, our types of things we like. And usually we're pretty quick. Like once we speak to an entrepreneur, if it makes sense to us as being kind of fundamentally crypto-native and can leverage crypto to do something cool, we usually get excited pretty quickly. And we make decisions usually within a week or two frequently within a week because that's

just how deals move these days. I set up a few calls with entrepreneur, Tuchar and I get involved fairly quickly and start kind of working our way towards a deal. there's no unfortunately magic to it other than that. I think the only other really generalized comment I would make is I have a kind of a joke I share with the investment team, which is there's a lot of stuff we look at that like we think it will make money with a very high probability, but we find it to be boring. Not that it is necessarily boring, but just like to us given our backgrounds and skill sets, we don't find it to be very intellectually exciting. And so the rule I have with our investment team is if the entrepreneur calls you Friday, 8, 9 p.m. are you going to answer the phone? And you have to care enough about the thing

to, you know, to want to answer the phone. And I think that's a pretty important rule to have as an investor. And so that's something we try and stick to. That means there's certain areas that we are not going to be as active in. That's okay. Other people can do those deals and make that money. Like that, you know, that's fine. We just don't want to stick to where we can be in our strike zone. we are intellectually excited. And then when an entrepreneur calls, we're going to answer the phone. You are also known for writing pretty big tickets. Is that just, you know, your risk inclination, or is that just the way that you do business?

Or is there a business rationale behind it? We're just fortunate that we have. Our fund structures, plural, enables us to do that. We have our venture funds that we invest out of, which, can write smaller tickets and then our hedge fund is quite large and we can write 100 million and $300 million tickets out of that thing. We've never done anything in that size yet, but probably in the next 12 months it'll happen. We'll see.

So we're fortunate we have a fair degree of flexibility there. We generally are sensitive to not overcapitalizing a business. In this startup environment or I just say this fundraising environment, a lot of founders feel like they can raise more money than they know that they need and they do it anyways. And, you know, like, I get it. Everyone wants to have more dollars in the bank. We generally try and push back against that. But, you know, like sometimes it's entrepreneurs do it and it's fine.

It is what it is. But when we are excited at something, we will size up aggressively. And I think that's very important is to like lean in hard when you're very convicted. Yes. And I think the thing that allows us to do that is thinking for our. and thinking from first principles to build true conviction in something. And that allows us to have very concentrated positions. You know, a lot of investors aren't investing for maximum returns. They're maximizing their logos. And like, you know, it's almost like they're trying to

complete a collection, right? They're like, oh, no, if that deal makes money and I wasn't in it, like my collection will be incomplete. What will I do? Right. And so they try and get in a lot of deals. And the thing is, like, if you see an investor join around and, you know, goes up 100x, but you sized it as like 10 bits of your fund, you know, like that's a 10% return to your fund. It doesn't mean anything, actually, in the grand scheme of things. So, you know, the reason that we do larger tickets is because, one, we think for ourselves, we build conviction and we have concentrated positions because of those reasons. And how do you construct your portfolios? I mean, is it kind of a deal-by-deal kind of decision flow? Or do you have an overarching strategy of constructing the portfolio?

So we do think about it overarching, right? And there's a few factors here, right? The first thing we think about is what markets are we interested in? And the market size has to be big enough for us to be excited to, you know, meet that bar that Kyle mentioned of being willing to pick up that phone call at 9 p.m. on a Friday. And if the market's not big enough to be that exciting, right? Like, then we're probably not going to go much further than that. Then the next step that we think about is what are all of the fundamental tradeoffs if you

were designing a product in that market? Because in the things that we invest in that are at the very frontier of technology, whether it's, you know, computer technology or social technology in terms of coordinating people, when you're at the very frontier, usually there's no one right answer. There's not one product that is just better than another. It's all tradeoffs. You know, you're trading off something in order to optimize for the variable that you really care about. And so the second thing we do after we identify a market that we really like, because the market is the market. market is large enough to be exciting. So you try to identify what is the right variable to optimize for. You know, the case study for that that I think is the most impactful is we identified the market for block space as being incredibly lucrative. We thought that's going to be an enormous market. We want to be very active in this market. We thought, what is the right thing to optimize for is block time, throughput, low fees. You know, that that's really what matters to optimize for.

And so then we'll go and, you know, we'll try and understand what are all the different approaches to building based on that optimization function, right? And what are all the ways that you can do that? Who are all the people who are doing that? Let's talk to them and learn from the experts. And from there, we'll make investment decisions. So it's very top down in that way, right? I find a lot of investors are investing like they're swiping on Tinder. They're like, do I like this one or not? And they just, you know, they just get served. up a new deal and they decide to swipe right or swipe left, right? And we are really starting from first principles of, you know, like, do I like this market? What is the variable to optimize for? Who are the people building who actually fundamentally understand the tradeoffs and know why they're optimizing for the variable that they're optimizing for? Cool. Yeah. That makes sense. So basically, when a founder calls you at 9 p.m. on a Friday night, what kind of services do you provide to portfolio companies? I mean, Basically, if you look at VCs, right?

I mean, there's a large spectrum of what they'll actually do for you. So where do you sit on that spectrum? So usually at Friday at 9 p.m. phone call means there's a problem and it's urgent. So that means we're dealing with whatever the fire is at that moment in time. Could be a hack and money's gone or who knows what else, right? But that's obviously fairly idiosyncratic. But that's kind of different than like general portfolio services type things. I had a number of discussions on how we think about this at Multi-Coin.

And the thing that we've decided we want to focus on is if we're going to do portfolio services, it needs to be strategic to the company. So that means it's not just like, hey, we're helping you with this function because like you need help in this function. That's fairly commoditized. Rather, once I want it to be, hey, we're engaging so that we can help you make decisions that are going to change the outcome and the trajectory of your business.

And that's really kind of where we engages along that vector. In practice, probably the most important version of that is kind of what we call like full stack capital markets engagement. So what does that mean?

If you think about a company that goes public in equity land, it's an extremely structured process, obviously how you work with the banks, the deals. Then once you go public, like how you disseminate information, you have these quarterly analyst calls,

you have the quarterly tent filings right like who can join those calls it's like i don't know 20 analysts who work at 20 banks uh like the public at large doesn't get to join those calls right uh what would have said is very scripted and and structured and and cagey um you look at crypto and it's like i don't know how do people learn about the token and it's like they fucking tweet at the CEO and like maybe the CEO responds right uh so it's just a very very different and then and it's people all over the world in all time zones speaking 25 different languages. And so the kind of entire mechanism for engaging with the market at large is like it's just completely different. The composition of the people who are in the market is different. How they want to consume

information is different. And it's extremely unintuitive. If you're a founder, you've got, I don't know, 10, 15, 20 employees building whatever your thing is. Like dealing with that whole class of problem that I described is very unintuitive to most people. And basically 100% of them do it wrong. Because it's just, it's hard and weird and new. And it's like not strictly serving your customers, which is like the traditional kind of Silicon Valley mantra of like focus on the customers kind of a thing. But it turns out it's a superpower if you can engage the market in a productive way. And so we help teams think through kind of all facets of this. What should the messaging be above the fold and below the fold? How should you think about working with

exchanges and liquidity? How do you think about token design? There's a whole bunch of variables to this that matter. How do you, on what cadence are you doing comms to the public? And how are you getting that out there? Right. And there's just a whole bunch of considerations too. These are all fairly idiosyncratic. We've obviously made some dumb decisions. We've watched a lot of other people make even more dumb decisions. We've learned, I think a lot of the dumb decisions are and are trying to avoid those on a go forward basis and help those teams avoid those things. I think that's kind of our primary vector that we engage. We do a lot of work with token design in particular. Some other stuff. Too short, maybe I'm missing something here. I think that hits on a lot of the key items.

You know, first is engagement with crypto capital markets, understanding how crypto capital markets work. You know, we have worked with a lot of portfolio companies who've gone through this process. And, you know, there's very few people out there who've gone through this process more than once. Usually an entrepreneur is going through it for the first time. And, you know, they want some guidance. Next is token design. That is, you know, probably my favorite part of my job is just like trying to think of token mechanisms that can sustainably capture value. Right.

We talked a little bit about, you know, value capture earlier in this conversation. I think that is one of the most fundamentally important questions. that all of these projects have is like, you know, if you go build something and it's very useful and it creates a lot of utility, but you don't figure out token value capture, well, it's not going to be great for investors to be involved in that project, right? And so like those things are great. Like I can go and do that out of, you know, my personal account and like I would consider that a donation if I'm investing in something like that, right? It's not really an investment. But when we're investing, we want to understand how the token will capture value. And we want to help them

think through that and think through how that will be sustainable and not rent extraction. I just have an allergic reaction to unearned rent extraction and try to steer teams away from that actively wherever possible. And I would say the last category of things that we do for entrepreneurs is help them avoid unforced errors. There's a lot of unforced errors that people make because they just don't realize the second and third order consequences of what they're doing. Whether it's a design decision, whether it's a product decision, whether it's a capital markets decision or a hiring decision, you know, we have made a lot of mistakes. We've seen a lot of other people make mistakes too.

And just helping portfolio teams avoid unforced errors, I think is a huge value add. You're one of the few VCs who actually speak out vocally against projects. that you feel are overvalued. Is that a business decision or is that just who you guys are? That's a good question. I'd say it's more of the latter, honestly, because from the VC perspective, right? Like, you kind of want to be friends with everybody always, right?

And, you know, you just, you don't want to give people a reason to not like you. However, you know, the way I look at this is like, we operate in public markets. That requires public discourse. You need to be able to talk about these things in public. And if the large, sophisticated investors who have the resources to do research and have, you know, spent a lot of time thinking about it are censoring themselves, that is doing a disservice to public markets. that is doing a disservice to capital formation for our entire industry. You know, every new person who ends up buying something that, you know, everyone's serious in crypto, you know, thinks that XRP is not going to be the global liquidity bridge.

But, you know, if no one speaks out against it and no one says anything, then, you know, you just have retail come in and buy that because they don't know any better. And, you know, that is bad for the industry. That capital could have been put to much better work elsewhere. to promote building useful things, right? And so I kind of see it as helping create value for the industry, probably, you know, at some cost to us, but really, like, can't help it. You've actually shorter tokens before, which is very unusual for, you know, a VC fund.

So, and to me, it also seems like, I mean, there are so many tokens where I know, their shit tokens and I would never buy them. But basically shorting them is a different matter because you have a limited upside and you have an asymmetric downside. It just seems like a bad business decision, no? I mean, you know, the market can stay rational longer than you can stay solvent kind of thing, right? Stay solvent.

Yeah, we, shorting is decreased as a percentage of what we do pretty substantially. it's not 0% but it's it's pretty small for for primary not not for the reason of like annoying it pisses people off but just because like the record profile is not there especially as our size has grown um i want to another comment though kind of building on what too char said about like you know to some degree we think it's our end of mandates like socially to uh call out problems um there's actually a little more than that too that happens, which is a lot of the best found, like, if we call out some bullshit and let's assume that our view is correct and that it was in fact bullshit, right? There's a lot of founders, really, really smart people who also probably believed that thing was bullshit. And I think a lot

of them appreciate the courage it takes to call out the bullshit. And so it actually makes a lot of those guys want to work with you more. It feels risky in the moment. But, I mean, I've had a lot of founders call us and tell us like, dude, you all are the only ones who fucking stick your next out there. And like, I want to work with you for that. And it, it, it, it obviously pisses some people off, but other people are really drawn to it. It's hard to obviously measure like the relative value of those two things and like counterfactuals

here. It's pretty hard to do. But it's not as simple, I would say, as it appears on the surface. Yeah. We're, we're just not scared. of being wrong in public. You know, we've been wrong before. It's okay.

All right. It turns out that nothing bad really happens if you're wrong in public a few times. And I think it takes courage for people too willing to be wrong in public. And I think that the market does appreciate that, like Kyle said. There are some people who do appreciate that. And they want that. that kind of public market protection of having these narratives out there. Yeah, I agree.

Speaking of being wrong, any investments that you regret missing out on. Basically, people who pitch to you whom you turned down and where it actually turned out to have not been a good decision. I mean, look, like there's a lot of things we've said no to that have made money. I think the question needs to be a little bit more specific. I feel like maybe you have to qualify it, qualify it more to, uh,

like we agreed with the thesis and like got caught up on some dumb detail that ended up not mattering. Like those are the ones that like you really kick yourself for after the fact. Um, it's like classic middle of the IQ curve. Like just in like it, you know, um, I mean, I'm sure we've done it.

I'm trying to think of something that comes to my mind. Uh, where we were in the middle of the IQ curve. I don't know too sure. What resonates stands out to you? Oh, I'm scrolling down coin gecko as we speak, trying to find examples. Because, you know, like Kyle said, there are a bunch of things that we passed on that made money. But that's not necessarily what we regret the most.

You know, he's right. The thing that I would regret the most is we were right about the market, but wrong about the variable to optimize for. You know, maybe an example of that would be DYDX early days. You know, we were right about the market of decentralized derivatives. You know, we've published about it. We've made a number of other investments there and are quite excited by that market. We don't have a meaningful position with DYDX.

It appears that team has executed extremely well and has built up, you know, quite a brand for themselves. I don't know what volume would look like if they turned off their liquidity mining, which would be a very good experiment to run. I generally think a lot of projects would look very different without their liquidity mining kind of sheen on it that's covering up some of the rough spots. But generally, you know, been impressed with their execution. And, you know, I think that might be interesting.

Another one might be polygon. We looked at that early on. And, you know, I think the thing we got caught up on was the technology was just not that compelling. But what we missed was that they're experts at business development. And that, you know, in an open source world, you don't have to build the tech yourself. As long as you can get people to build on your platform and the tech is good enough, you know, you can go from there, right? Like the right now, the polygon side chain is just the eVM. being run faster.

All right. Let's just take the EVM and, you know, have it go faster. But I think if someone else goes and figures out ZK roll-ups or, you know, maybe one of the four research teams they have figured out ZK roll-ups, that's really powerful. And, you know, maybe the right variable to optimize for in the market for block space isn't necessarily the best technology. It's who has the best business development, right? And Polygon team is up there.

We did do flow, which is similar in that thesis, right? Like flow is the best business development, I think, for NFTs, at least so far. So, you know, we have made a variety of bets there. But I think Polygon and D-YDX are the two that stand out the most is misses in the way that, you know, actually is painful. What do you think the blockchain ecosystem will look like in three years? where people know which chains the apps they use are on or will it not matter? People like to use analogies to reason about things because it can be helpful. 95% of analogies written on the internet are wrong.

The least bad analogy for blockchains is cloud providers. It is not a great analogy, but it's the least bad of them. one of the ways in which cloud providers are fairly obviously different. There's a few obvious differences between them. One is blockchains have tokens and you pay gas to use the things. It's possible gas is 100% abstracted. I'm not sure that it will be, but it's possible that it is. But in the event, gas is not 100% abstracted.

Then obviously, like you will not see the native token. And so you'll know what the blockchain is. unlike, you know, my mom obviously doesn't know if Netflix is on Amazon or Google or Microsoft. I'd say it's unlikely you get to that degree of, you're just not needing to know. And the second, and actually this is maybe even more important is all the blockchain things have tokens. And people like the tokens and they talk about them on the internet. And so I think it's likely people will know which blockchain things are built on just simply for that reason. AWS is not of a token.

And so it's just like, why do people have a reason to talk about it? So more than cloud providers less than today. Okay. I see a fairly high conviction correct. Yeah. I think that's right. And then when I think about the specific chains and how that might work, my best current mental model of how the chain ecosystem will evolve.

is I think we will have kind of center of gravity in one monolithic chain that just is, you know, to use the city's analogy is like the biggest city. It's the one that has, you know, all of the finance activity specifically. You can't shard an order book. Sharding an order book doesn't make any sense. No one wants the third best bid or the fifth best offer. Everyone wants the best bid or best offer. That means you need to put the order book in one place, right? So I think you're going to have one big monolithic blockchain that has the order book and has, you know, a lot of the defy activity. And I think you have a lot of smaller chains, smaller in terms of state, specifically, that all connect to each other using either cross-chain bridges like wormhole or

layer zero or something like an IBC type system in order to connect to each other with certain state guarantees or trust guarantees. And they all settle back down to that main chain as well. But I think that main chain needs to be as big as possible. And then you, can have your, you know, specific game with its NFTs and everything else live off on a side chain or a subchain, but I think it needs to then settle back or talk to the other chains in a composable way using these types of bridges or other protocols. But I think that, you know, of those smaller chains by state, like a lot of the value in those is going to be captured by the apps themselves, right? The game that has you interacting with that specific Cosmosone or

that subnet or, you know, maybe their own implementation of Solana or, you know, whatever, right, like is going off and going to capture a lot of that value, not for the L1 token that of the system that they're building, that they don't care about that. They're going to capture it for the game developer with the games token, right? And I think that actually the vast majority of the value is going to end up being earned and collected by that big instance, which is kind of the central hub where everything interacts. Which chain do you think that'll be on? Which change do you think it'll be?

Solana. Same for you, Kyle? Agreed. Okay. Dominance of defy. So, I mean, basically, if you look at the number of transactions today, I mean, the very large proportion of them are defy, I assume that numbers going to go. down, I mean, not total, but

proportionally. How much do you think it's going to go down in the next two years? And what other non-DFI primitives are we going to see? I think TVL as a measure is just kind of flawed. Like serum versus uniswap

is a good example of that. It just doesn't make sense, right, to have compared TVL of serum to uniswap. That's part of it. liquidity mining programs and other things kind of distort those things. So I wouldn't really over index on TVL. It's hard to know exactly what to compare. I realize I'm kind of not answering the question. But my sense is that the probably right way to think about this is like what is drawing in retail users that is not defy and that is something fun and cool, whether that's

Instagram NFTs, whether that's games, whether that's stuff like Audius, you know, whatever. And I think kind of sort of 100% of those things will use Defi in various ways. So I would really be looking to, I'd be looking to optimize just like general user growth of people doing stuff. And as that happens, I think that will drive Defi because all of those things need to have some notion of liquidity. they need to have some notion of finance and money flowing through them. And I think Solana is extremely well positioned for that.

There's some awesome stuff that's going to ship this year. And it's going to change a lot of perceptions of Solana. Is there a thing that you think most people get wrong about the future of crypto? I think most people think too much that the past will represent the future. The big example of this is like look at Web 3 thinking versus Web 2 thinking. You could have never come up with proof of work and permissionless consensus and whatever all these things. It like if you're like a hardcore Web 2 person. And so it required like a first order change in thinking to get there.

And obviously Bitcoin is like arguably like the purest form of a lot of that stuff. A lot of the hate, the theory I've got in the early days was like that's too centralized. Oh, you know, the white juice ICO and all these tokens and shit. And now everyone says, oh, Solanis who centralized. And you just realize it's kind of the same class of thing. Our kind of view of the world is the right way to think about innovation is, hey, look, like, I would have never been early in Bitcoin. I was not early in Ethereum because I just like didn't.

I was too web two, you know, mental frame. And so like we missed like, we missed that. We also had other jobs we were doing. whatever, we were busy with our healthcare stuff. But like I just wasn't prepared to rewire my brain into like a new kind of way of thinking. But once we did and we said, okay, we can accept this new way of thinking. Then the next question is, okay, well, how do I can take everything I can learn from the old

paradigm and like what can I apply intelligently? And like there's a lot of things that you can do product design, user experience, messaging, comms, hiring business development teams. Like this is all just like blocking and tackling operations. things. The Web 3 world Bitcoin and Ethereum in particular, like just because of the culture and timing and whatever of all the other things around their their foundings were just like these very loose orgs that like, you know, almost rebuked like a lot of the

common called tech startup practices that are like generally accepted to be best practices on how to like do things done in the world. they just didn't do it. And I think they framed it primarily as like an ideological thing. We're like, no, no, no, we're not going to do it. It's going to be decentralized. The community is going to do it or whatever. And that was probably necessary in the earliest days.

But like at some point, it's become counterproductive. Because like as these things scale as they get used by more people and get in more places, like you need to embrace. Like Facebook is not going away. like Instagram is going to do NFTs, right? Zuckerberg has had this publicly. You know, PayPal is going to do something. Twitter's going to do something. And so like if you want to win the game, you need to win those guys. And you got to do some stuff.

And like, you got to show up and you got to talk to them. Like, I've got to give them support. Like whatever, whatever it is. It's got to get done. Like, you got to do it. And I think, you know, up until probably 2017 or thereabouts, the right mental frame was like decentralization first, community first. And I think somewhere around 2017, 2018, probably the optimal thing to do changed,

where it should be, look, leverage the technology so that you have, you can be credibly neutral and be decentralized, but then have as many commercial instincts as possible and like run it like a business. Yeah, somewhere between 2016 on the early end and 2019 on the late end, like that that that flipped and it wasn't obvious exactly what what the moment in time was or what the event was but somewhere in that range i have a different thing i think most people are wrong about in crypto which i think most people are wrong about bitcoin actually um i think people are wrong about bitcoins relevance to crypto broadly i think that you know that crypto markets are decoupling from

Bitcoin. I think that we have productive crypto assets and non-productive crypto assets. I think Bitcoin is clearly non-productive. It's a digital rock. You buy it. It sits there. You don't do anything. And I think that most of the world wants to interact with productive assets. I think most of the world wants to invest in productive assets. People like doing stuff. I also just think that the scarcity of Bitcoin is actually replicable to an adequate degree with other assets. Yes, Bitcoin has the strongest scarcity guarantees of any asset. But once again, just like decentralization is valued on an S curve where you can have enough decentralization, I think the same thing is true of scarcity. And so I think that, you know, you can go buy another asset that gives you

substantially similar scarcity guarantees and inflation resistance as as Bitcoin. And the last point I'll make on this is I think the Bitcoin security model is fundamentally challenged over the next 10, 12 years. You know, we need probably three, four halvings before it becomes really clear that, hey, people don't want to pay enough in transaction fees on this chain to actually secure the chain. And that is going to create major, major problems. You know, you just need one, big block reorg and it forces everyone to re-rate this thing. And, you know, when you have a system that only has probabilistic finality, if I send you, you know, a hundred Bitcoin, I am going to need to wait an extraordinary, or you as a recipient are going to need to wait an extraordinarily,

extraordinarily long time in order to confirm that transaction. This idea of like six blocks and, you know, no rollbacks anymore than six blocks is going to go away as a security budget gets slashed. So I think that's something that, you know, a lot of people in crypto are closing their eyes to. They're not thinking hard enough about how that's going to evolve. And I think that people will be very surprised as that plays out over the next probably, you know, 10, 12 years. Yeah. Or you need to mix the hard cap. And I mean, that's kind of, that's kind of the meme. It's, yeah. Yeah, it's between a rock and a hard place for Bitcoin. I agree. So what's, uh, what's, uh, what? What's up next for Malticoin?

I mean, we're pretty happy doing what we're doing. We love supporting portfolio companies, right? Like what we care about is working with the best founders to help them change the world. We're not trying to build an asset management empire. We don't want to manage, you know, a thousand people or hundreds of people. We're a pretty small team. We are content to keep it that way, right? That way every entrepreneur who works with us knows that they're working with the A team.

We're not big enough to have a B team. You're not going to get relegated to some B team if you're an entrepreneur. And, you know, our portfolio company's success is our success. So really that's what we're focused on. We're focused on finding new theses. We're focused on continuing to support existing portfolio companies, continue to invest in the feces that we've already developed. And, you know, just like helping crypto achieve the next level of maturity.

I want to see a billion people interacting with blockchains. You know, that's really the dream. And I think that will be a major milestone. Tisha, Kaya, thank you so much for coming on. It's been fascinating. And it's, yeah, it's good to speak with the people who are not afraid to say things that some people won't. Well, I look at the truth is uncomfortable sometimes, but that's okay. And we'll all get better for it and keep pushing forward.

And we're going to make this industry successful and get tokens in the hands of billions of people. Wag me. Wag me. Wag me. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast.

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