Invest Like the Best with Patrick O'Shaughnessy - Alok Vasudev - Searching for White Space - [Invest Like the Best, EP.287]

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Starting point is 00:00:30 If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com slash Patrick. That's C-A-N-A-L-Y-S-T-com slash Patrick. Today's episode is sponsored by Brex, the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software all in one place. you accelerate your business, learn more at brex.com slash best. That's bR-E-X.com slash best. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will

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Starting point is 00:01:54 Clients of O'Shaughnessy Asset Management may maintain positions and the securities discussed in this podcast. My guest today is Alok Vasudev. Alok is an early stage investor who has been in the crypto space for a very long time. Before co-founding standard crypto, he was an investor at benchmark and S28 capital. Given Alok's experience and the prevailing mood right now in crypto, this is a particularly interesting discussion on the ecosystem writ large. We discuss whether the bubble can be thought of as productive speculation, his views on

Starting point is 00:02:24 skeptics in the space, and look at some big, potentially underestimated ideas. Please enjoy my conversation with Alok Pesudov. So, Alok, I think the benefit of this conversation, today is the very long experience and perspective that you bring to our topic. It's also a good time to be talking about crypto because it's finally in a season where there's a lot that's gone wrong. There's been some extremely epic meltdowns in different parts of the ecosystem. I think the general tenor is very bearish and very skeptical and a lot of worry out there. And so it's a good time to have a conversation like this. Maybe you could just tell your story a little bit.

Starting point is 00:03:03 I want to give frame of reference for those listening why you're a sort of different and interesting voice having come to this a lot earlier than most. And I think having a unique way of thinking about the ecosystem and its potential. So maybe just give us a little bit of history lesson on your own experience here. And then we'll go into 30 different topics. I've been in venture for just about 10 years now. I started as a generalist venture guy. I was a benchmark. is where I started my investing career. Like any young person in venture, your job is to find white space. And at the time, this was SaaS was already big in an early stage venture, consumer internet was raging, marketplaces were raging. Part of it was hunting for what's new, what's on

Starting point is 00:03:46 the horizon, where can I plan a flag and build the type of reputation that can set me up to compete at the highest level. Open source was an interest of mine. Consumer was a big interest of mine because we did a lot of great work there at the firm. And Bitcoin, when I first encountered it, was this hybrid of the two, right? In some sense, it's a community, it's a consumer-facing product, it's money that you can hold and use, but it's built on an open-source network. It's an open-source protocol. I think those are probably the two veins that at least made me consider it as something I should decide to spend more time on or not. And it clicked. It was one of these things where you saw it, you understood it, and you realize that it was a disruption on so many dimensions,

Starting point is 00:04:30 right? It was a monetary disruption. It was a technology breakthrough. It was a values disruption in terms of how we actually build organizations and the idea that decentralization could actually work in this configuration, whereas like every other pressure in the world that you had was pushing towards centralization. And also there was a roadmap for how blockchains and the tech that underpended could become this fabric that you could do so much more on top of. If you understood what was happening, understood where it could be upgraded or changed or improved, you can see compute being built on these blockchains, you can see all sorts of mind-bending stuff built with it. Part of it was right time, right place.

Starting point is 00:05:10 I think part of it was also having a Texan upbringing where I think you have a default skepticism towards institutions that I think you get in a place like Texas that you wouldn't get in other places. It fit me like a glove and I ever really looked back. I think that over time you always go through your own moments where you question your beliefs, you question what's going on, and cryptocococcality certainly does that to an extreme degree. But once you go through one or two or three or four of those, you realize that these things just start to rhyme. They're a part of what happens. They're unavoidable. But you also find they're necessary to some degree. And now, here we are. We're another version of the same thing where I think a lot of the same factors are in play.

Starting point is 00:05:54 different reasons, different names, different specifics, but the broad structure, I think, holds today as it did in 2018 and 15 and 12. You said something interesting there, which is your job as a young VC is to search for white space. What lessons could you offer about that kind of search, abstracted away from crypto? If you're talking to young investors out there, not just VC's any investors, probably job, is to look for unturned rocks, white space, whoever you want to call it. What do you think it is to be great at searching for white space, just in general? That's a great question. Well, almost definitionally, it needs to be weird or non-consensus, because that's your only chance. For me, it was, I looked around my partnership room.

Starting point is 00:06:40 I show up. I'm a 28-year-old who's never done venture before. And I look around my first partner meeting. And Bill Gurley, Matt Kohler, Mitch Lasky, Peter Fenton, were the four GPs at the time. These guys are at the top of their games. How am I going to bring something at the table? Am I going to find a better open source company than Peter? Maybe, but it's not going to be structural, better consumer company than that, et cetera.

Starting point is 00:07:06 It's almost like, well, like, what else can I do other than try to find weird stuff that may have a chance to work? It also helped that I came from a background in science and physics. I did my PhD at Stanford in double E and I worked on applied physics research. And so I was curious about things that happened to actually work out synthetic biology. A lot of what was called Frontier Tech back when that was a meme, I think was natural for me to poke around in. I think it's about curiosity. It's about putting yourself in places where you're the only VC.

Starting point is 00:07:37 That's a huge one. The number of VCs that I see go to networking events where there are 30 other junior VCs there. Again, almost by definition, if a bunch of other VCs are hanging around the same scene, then it's probably not weird enough or new enough. And so I always prided myself when I'd go to a meetup or go to an event and there was not another VC in sight because it meant that I was actually doing something to have the chance to actually be original. If I asked that crew of four sort of like its own mini Mount Rushmore of sorts, if I asked that crew about the time they spent with you and what you were best at, what do you think they would say? Oh, that's hard to answer. I would say they could probably tell you a lot of things that's bad. Those are interesting too.

Starting point is 00:08:17 I always had curiosity to me. And I think that that led me to crypto. I think that I was pretty early Bitcoin crypto evangelist there. I would say that kind of intelligence, curiosity, being able to follow it, I can program a little bit too. I tried some things using that to source deals that were, that we hadn't done before. What about the inverse? What do you think that you were bad at back then that you've learned a lot from because

Starting point is 00:08:41 you were bad? I was an awful employee. Okay. How so? I'm bad at taking orders, bad at following instructions. I find that also I tend to gravitate towards things that give me energy, things that actually satiate my own personal curiosities. My big learning over my career is basically just find ways to do more of the things

Starting point is 00:09:03 that naturally excite you and give you energy. For example, when you're thinking about Bitcoin and crypto all day, there are a number of other companies that you look over and you're like, that's black and white compared to this full vibrant color over here. And all you want to do is spend more time there. it was just like making sure that situations where it doesn't feel like work, and the more of that that you make your work, the better off you are. If you fast forward all the way to now,

Starting point is 00:09:25 you mentioned these four or five cycles already that you've lived through in the world of crypto. I would say to sum up like the skeptical view, it's something like, yeah, we get it. This is great. Like this is a new compute platform or database platform of sorts. There is a novel technology story here that started with Bitcoin. but we're getting impatient around where the use cases all are. And again, I'm trying to be like perfect summary of the skeptics view that aren't tied back

Starting point is 00:09:54 in some way to speculation on assets that move up and down in some price return setting. So like, yeah, there's some defy exchanges that have been really successful. And there's these JPEGs, the skeptic would say, that are really successful trading instruments. But like at the end of the day, this is just like a unregulated casino. And to be clear, I don't believe a lot of this stuff. I do think that's like the current summary is a lot of these great sounding things are just learning the lessons that the traditional finance community learned over the last 200 years and the failures like Celsius or like three arrows or whatever are just the same lessons learned again.

Starting point is 00:10:27 How would you, in a broad sense, address that like generic skeptic out there in midway through 2022? It's tough because the skepticism, it's taken on so many different shapes and forms over the years. and to some degree, I think a lot of us within crypto have a sense of frustration with the skeptic one, because I don't think we have the quality of skeptics that we deserve. I think we get people that use the same crappy arguments for years and years and years. I also think there's a tendency to move the goalposts back when it comes to this like, oh, crypto hasn't done anything, what are the use cases? And then somehow anything that we say is not legitimate enough, and that keeps being pushed

Starting point is 00:11:10 back, but when you zoom out and you think about from 2012 to where we are now, we've dramatically expanded the capabilities. We've dramatically expanded what we're able to do with it. At one point, it was these tokens don't do anything. It's like, well, now we have token operated protocols that generate hundreds of millions in cash flow with 90% plus FCF margin. That use case is not legitimate enough for it to be valid in the eyes of some. So I think that's why there's this base level frustration. I also think there were these moment in time things where there are moments when the Overton window, so to speak, expands and new ideas can be introduced into the general population. And there are moments where that just can't happen. Satoshi had a great line in one of the

Starting point is 00:11:54 old Bitcoin forums where someone was arguing about some merit of Bitcoin and he says, if you don't believe me or don't get it, I don't have time to convince you. Sorry. I feel like to some degree that's an approach that many within crypto have taken because it's like, I don't know if we're going to be able to ultimately address every form of this. We're just going to keep doing our thing. And over time, you can keep moving your goalpost back to the point where it's absurd or you can just die on the hill. I mean, that was a rant about skeptics in general. We've done so much in the space.

Starting point is 00:12:24 And it started, the core idea for a blockchain is it is a community operated computer. And I think a big problem that we faced, it was one of the best and worst things that happened is that we really had this currency overtone that I think really created a lot of the path dependence for how people from the outside view the space. And I think there are a couple traps that people fall into. Like, for example, people think cryptocurrency is this catch-all. And they think that somehow these are all currencies competing with one another. And you look at coin market cap on the top 25 and these things might as well be the euro and the US dollar and the pound and all these things. And that's just the wrong mental model for it. Better mental model is you look at it like the S&P 500 and you say that each

Starting point is 00:13:11 of these things is actually unique. It has unique fundamentals. It has its own unique addressable market. There's obviously competition. There's obviously overlap. But if you don't think about these things as individual entities that actually have their own first principles with which you should understand them, then you're missing basically the first step for understanding this stuff. Do you think that it's most appropriate, just to piggyback on the S&P 500 thing, to think about, I'm sure not all, but many of these projects or networks as cash flow producing entities? Like you mentioned one that's operating with very high free cash flow margin. Maybe you could give us your favorite example of something that's sustained itself and is producing a flow of something back to its owners. Is that the right way to conceive of these things, that it's just like a different kind of stock effectively?

Starting point is 00:14:05 Yeah, for some, absolutely. I think a lot of the D-5 protocols, that can be a really appropriate way to think about them. Maker-Dao is an example. I'm going to gloss over some of the nuance with it, but ultimately, Maker-Dou is a stable-coin issuer. It issues dye, a decentralized stable-coin. And there's a set of smart contracts that live on Ethereum that basically determine that issuance of die. You can post-collateral into the maker-smart contract. contract, and then you can borrow the stable coin against it, subject to some collateralization

Starting point is 00:14:40 ratio. And Maker, the protocol generates income. There's a fee charged to people that borrow die. When they repay their loan, there's a fee that they pay. And that fee is revenue to the protocol. And the protocol actually can take that revenue. And it's called a buy and burn. So it goes and buys back its own tokens, the MKR token, which is kind of,

Starting point is 00:15:05 the unit of ownership for this protocol. It goes back and buys them on the market and it burns them. It destroys them. You can kind of think of it like a share buyback where it's a form of directly converting an income stream into value to holders of that asset of the MKR token. In that case, it's really simple to think about modeling out future cash flows and thinking about those to inform how you value the MKR token. Let's take that example. Tell me about the pool of demand for dye itself. So if this is a ecosystem that creates like a sort of cash flow for the maker owners and you could model it like you described, at the end of that chain is a demand of people that want die and want to do something with it. So tell me about that.

Starting point is 00:15:50 What is the end use case for die itself? Well, die is a stable coin. And so I think stable coins are one thing we can point to as one of the really one of the strongest forms of product market fit that we've had within crypto, especially over the past couple of years. It's, It's about demand for this form of a dollar that lives natively on a blockchain, that you can send 24 hours a day. Most of the stablecoin market right now are centralized stable coins, like USDC and USDT. I'm sure your audience knows this well at this point, but you have a dollar deposit in the bank

Starting point is 00:16:25 account. And for every dollar deposit in the bank account, a company can issue one token that's backed one to one by that dollar. and we call those centralized stable coins, and those are the lion's share of stablecoin demand. And so decentralized stable coins are basically a subset of the broader stable coin market for users who care deeply about their stable coin having one particular property, and that particular property is it not having this singular risk of the company that issues the coin getting shut down. What about collateral is interesting to you? So that like a digital programmable dollar is indeed a very interesting thing. There's obviously demand for it. I want to talk about what might happen if like the US or Janet Yellen were to digitalize the dollar and whether that's like a stable coin competitor. But first, maybe since there's been some fairly noteworthy blowups in this space more recently and everyone wants to talk about tether all the time, just give us a little history lesson here. What matters most to you in the world of stablecoins? The idea of algorithmic stable.

Starting point is 00:17:30 I think, again, to return to our skeptic, I would say it's just like something to be dismissed. Like, they're just going to inevitably blow up for some reason or another. They're not collateralized right or something. Like maybe just give us a crash course here. Right now, there's this idea that if you want to find a good startup idea, just look at Vitalik's blog, just build something that he wrote about. And that's a pretty good startup idea. My favorite kind of OG version of that is so if all great up startup ideas are in Vitalik's

Starting point is 00:17:55 blog, the actual upstream of that is the Bitcoin talk forums from like 2000. 10 through 2013 because pretty much every idea in crypto first existed on the Bitcoin talk forums way back in the day, including stable coins. The first time I encountered a design for a stable coin was Robert Sams came up with the senior shares model for a stable coin. And he was a Bitcoiner. It was out of that kind of Bitcoin community where it came from. We've since seen flavors of that design over and over again.

Starting point is 00:18:26 And every single time, it's had the same unsoundness. Right. So I would say that people often throw, I think right now like algorithmic stable coins, that concept is floated as being fundamentally unsound. That's the wrong lens. I think if you discard all algorithmic stable coins, you really are throwing the baby out with the bathwater to some degree. I think it's this combination of algorithmic monetary policy with unsound or insufficient collateral where things go bad. Whereas I think you can. can have algorithmic monetary policy on top of a more structurally sound collateral base, and it works fine. There's one that we work with called Reflexer, and their coin is called Rye.

Starting point is 00:19:11 And it's exactly that. It's algorithmic monetary policy, but with a base of structurally sound collateral, so far that's operated as intended. So if I'm just building out kind of a two-by-two matrix here of good collateral, bad collateral, algorithmic governance, algorithmic monetary policy and monetary policy set by humans. You can think about MakerDAO as an example of it's sound collateral, but humans actually do the governance because it's the collective of the maker token holders that can vote to actually establish rates within the system. And then you have all of these senior inshairs models of which UST was a flavor of that live in this algorithmic monetary policy with unsound collateral. And then things like Reflexer Rye are algorithmic monetary

Starting point is 00:19:56 policy that live with sound collateral. Do you just describe what sound and unsound collateral, like what those terms mean? Yeah, so it relates to the amount and what it is specifically. When you have no collateral or less collateral, then you're borrowing against. That's unsound. And the other one that it's especially important in some of these crypto designs is this idea of exogenous collateral versus endogenous collateral. exogenous, meaning this asset is really independent of the core stable coin mechanism.

Starting point is 00:20:30 So, for example, if you are MakerDAO and you have ETH as your collateral, ETH is not wound up within Maker's mechanism directly. And so it's exogenous. Whereas if MakerDAO had NKR as collateral, if its own governance token was a form of collateral, that would be endogenous. If that collateral went bad, there's kind of the systemic spiral that, would take the whole thing down together. When you have exogenous collateral, that's kind of appropriately inappropriate amount, that's how I think about soundness. And there are examples where back to this

Starting point is 00:21:04 idea that like, why is their demand for this? Seems like the ability to move dollars around is just something in high demand. It's very simple. Why does the UNS government not just digitalize the dollar and make it? If they were to digitalize the dollar, what couldn't they do that a great, well, collateralized U.S. dollar stable coin would still allow people to do? I mean, there's certainly an agility and pace of innovation angle to it. I think that we've seen that the private sector can do that pretty well. There's a lot they could do with it just because they have the ability to make it so and kind of enforce.

Starting point is 00:21:43 They've got the guns. It's funny. It's even hard to walk too far down that hypothetical just because it feels so implausible. At this point, there is a clear vector for the government to enforce policy and constraints around stable coins. We've already seen white lists, black lists, things like that for the ad-scale stable coins that reflect things like OFAC compliance and reflect the will of the government. So I don't know if kind of building it all the way up from scratch. I don't know if there's a consensus is even possible within the government to implement something like that.

Starting point is 00:22:27 There's also some evidence that the government views stable coins as is, as positive and as a vector for dollarization around the world, which obviously has positive implications from a foreign policy and geopolitical standpoint for us. It was a tiny article, didn't get much play, but there was a South American government in exile that I think that we were supporters of. And at some point, they needed an aid payment. And it was actually implemented in stablecoins. And for me, it was like, huh, this is the first time that we've actually seen our government using stable coins to accomplish something. And so to me, that was like, I think there may be some voices in policy rooms that kind of agree that,

Starting point is 00:23:10 hey, this is a really powerful way for the dollar just to spread. We have anecdotal evidence that this is actually the most successful form of a dollar to many people all over the world. I want to go back to this interesting definition you said earlier, which is that this is just a community-operated computer. That's a bit different than maybe some of the earliest definitions I encountered, which is more of like a ledger or a database of who owns what assets, a way of achieving decentralized consensus around who owns what, I'm going to trust anybody. The community-operated computer sounds like it's more general than that earlier definition. What do you think that means?

Starting point is 00:23:47 It's a nice, elegant idea. We've got lots of computers. We've done a lot with them. It's been great. What is a community operated in that phrase unlock that a computer on its own can't make possible? In computers, we have computers that are general purpose, like a server within AWS or your PC.

Starting point is 00:24:07 And we have computers that are domain specific or application specific, like your calculator or your Fitbit. I think about Bitcoin is a domain-specific computer. It's a blockchain computer that really has one job. And its job is to keep track of Bitcoin balances and make sure that you can send them around and that there's integrity in all the procedures involved. And then you have something like Ethereum that's more general purpose in nature. It's so operated on the same fabric by the same principles. There's ultimately this decentralized consensus that needs to form on whether the computer is operating properly. But what you can do with it is you can do anything you want with it.

Starting point is 00:24:49 You can write applications that do arbitrary things. That's been my frame for some time. To me, it's the right one that if you kind of believe that these are a fabric that you can do much more with. You can think about so what does like community-operated computer mean? You start by your own computer on your desk or at your laptop. It's a computer owned and operated by you. You decide what software you install on it.

Starting point is 00:25:11 You decide when it's on, you decide when it's off. And then you think about a cloud computer like Amazon Web Services, and it's controlled by owned and operated by company. They choose what software runs. They choose who can access it. They choose when it's on, when it's off, et cetera. And then a blockchain computer is the same thing, but it's owned and operated by users. The Bitcoin computer, those policies, what does the software do?

Starting point is 00:25:41 What do upgrades look like? Is it on or off? All of that is set by a combination of social and economic incentives in this fuzzy way by the people that own and operate it. Hopefully that kind of elaborates a bit on what I meant by it. In terms of, what does a community computer get you as a desirable property? It gets you unbelievable resilience. Bitcoin as a computer has been up since 2009. I can't think of another computing service that's even had that longevity before.

Starting point is 00:26:16 So it's remarkable to me that we have a program, we have a computer that's been just running up for that long. It's kind of staggering when you think about it in that way. Ethereum similarly, a computer that's been running for years. I think that's one property that's really unique about these things. When we think about building these protocols, these immutable building blocks that we expect to live on for a real long time, the fact that you actually have a computer that can live forever, which means you can write programs that will run forever. That's something that's mind-blowing that we've never seen before. I think other things you get are you get the dynamism of open source, the dynamism of communities

Starting point is 00:26:53 forming and innovating and able to kind of express views and innovate in weird, emergent ways that's harder to get when you have systems that are more closed off. All the beauty that you get in the open-source software world. as applied in a much more full-stack way. Thinking about the resilience and uptime specifically, just to keep kind of pushing on that same thread, does seem completely unique. What kinds of things does that unlock?

Starting point is 00:27:18 The persistence and reliability of those two examples, which has been true, what does that allow for? Again, some other computer wouldn't allow for as a class. I'm trying to hone in on like the sort of class of objectives that this sort of computer unlocks for the, first time. And I know there's lots of examples we'll get to in terms of things that it's been used for in the last couple of years that are interesting and even like the stuff at the most

Starting point is 00:27:44 cutting edge frontier today. But if you think about it as like a category of capability, what do you think resilience and persistence and the uptime allow for that's new? There's a class of uses that's previously been hard for computers to natively access. the basics of crypto and money and finance, the fact that I can hold this object that ultimately it lives on a computer for me to hold an object that lives on a computer as a form of money with all the properties of durability, longevity, these things are just fundamental attributes money. If you can't make really strong guarantees about the resilience of this computer, how on earth can you have a monetary asset rooted in one of these things that people can

Starting point is 00:28:31 actually form a basis of belief in. So that's one really like down the middle example related, right? You can kind of grow from there to think about now like uses of that monetary asset. You can have financial rails that you can count on, even stable coins. If people didn't deeply believe in the resilience of the Ethereum blockchain, then I think that would undermine belief in holding stable coins and using them, using them and to pay people, using them as assets that you really place a lot of belief in. And I think that even NFTs, things like that, right? We're getting things like art, things where like a really important property is its durability and its ability to be lindy and last across generations. And now we have a piece of artwork that lives

Starting point is 00:29:18 on a blockchain that you can say, I'm going to hang on to it for 100 years. I'm going to hang on 200 years. I'm going to pass it down to my children. And it's viable because the substrate he lives on can viably live for that long. One of the things that I've talked a lot with our mutual friend Gabe laden about, specifically is Ethereum as this kind of crazy payment rail of its own. You don't need look any farther than some of the record setting like NFT purchases or whatever to see this in action. But I would constantly ping him with like this skeptical, how long can this really last?

Starting point is 00:29:49 Like isn't this just nonsense? And he came back to me one time. He's like, how many times do you need to see this happen before you're convinced that This is wild, that there is something that's unlocked by the ability to send this much money converted back into dollar terms or something this quickly to facilitate a transaction of this size. Let's set aside what's being bought and whether it's worth that or something. But just like the literal act itself, it's not happening elsewhere in like the consumer world in the consumer sense. Obviously, you can send lots of money different ways. I found that interesting of just like, wow, okay, so if there is this growing trust in Ethereum, is it as a payment rail?

Starting point is 00:30:24 like the thing that no one's talking about enough. What are those big ideas like that one in your mind today that people are maybe overlooking? There's evidence that it's already there, it's already operating, it's already happening, and people are underestimating the potential impact and the way I would frame it with Ethereum. What if in two years we see a $5 billion transaction that happens in an instant? And it's because of Ethereum. It seems possible based on what we've seen today. Are there other things like that out there where you feel like something's going on? People aren't talking about it, they're not aware of it, they're not aware of the potential implications if we extrapolate it forward? I think the payments use case is almost going to be perpetually

Starting point is 00:31:01 underrated, just because we've known about it for so long it's there, but I still think that it's just going to be underrated because it's so staggering in terms of what you can do, but it's also like, we've already talked about it, let's move on. Even the way to frame, people have oriented around how many transactions per second can you send or can I do visa-scale transaction volume on a blockchain, and that's always been worth of comparisons. But I always thought the money bandwidth concept is really interesting. Think about bandwidth. It's kind of a combination of it's two-dimensional, is how much can you send over a given unit of the time. The money bandwidth of a blockchain is crazy. You could send billions of dollars in 10 minutes. That's unprecedented.

Starting point is 00:31:41 To Gabe's point, I think that just the fact that these are truly unlimited payment rails that facilitates some of the largest commerce events that we've ever had in the internet's history, It's going to be perpetually underrated as something that blockchains can enable. I mean, so many things in crypto are, they go through this phase where you have a, these ideas come onto the scene and they strike a chord and there's an initial flurry of interest and excitement, but the early movers are imperfect in some way. And then you get some sort of a collapse. and then the entire notion is written off for debt.

Starting point is 00:32:23 That's this pattern that's played out every single time we've had a crypto cycle. I think NFTs are probably like the prime example of what people are going to be talking about in that vein this time around. Like, oh, these things are dead. Like, I can't believe we like spent all that time talking about monkey pictures. What a waste. And then every time inevitably what happens is that the idea gets hardened. maybe there's a technology enabler, or maybe it's, in most cases, it's just kind of putting pieces together just properly where it works.

Starting point is 00:32:54 And it works in like a staggeringly big way. And it catches so many people by surprise. So that pattern is going to play out. It'll happen with NFTs. NFTs is so obviously here to stay. There's so obviously this game-changing building block for everything from providing seed capital to seed community to ideas. That's going to work.

Starting point is 00:33:14 And I actually think if you looked at all of the tokens market cap collectively as a percentage, and you looked at ERC20s or fungible tokens versus non-fungible tokens, I actually think the non-fungible token dominance against fungible tokens is going to increase over time. Just because I think it's a better form factor for so much of the use cases, so many of the use cases that we wanted to use tokens with. That's one. I think any time your instinct is to write something off for dead because it had a a bust or this specific version of it didn't pan out in as durable ways you wanted,

Starting point is 00:33:49 almost count on it coming back in a strengthened form the next go-round. Can you say a little bit about this notion of productive speculation that we chatted about before? I think Bill Janeway was the person that popularized this idea. It's a really interesting idea. Carlotta Perez has done some work here too. Everyone agrees there's been speculation. Why has some of it been productive in your mind? And what does that concept mean? Janeway, he's amazing. He's incredibly bright. He talks about the role of the state in innovation in his books where ultimately he views it as a critical part of this innovation supply chain.

Starting point is 00:34:24 And they provide a form of kind of capital and direction that really is the straw that stirs the drink downstream for kind of innovation that we get. One interesting observation about crypto is, and I'd love to see you're a student of tech history as well. I think it's the only platform shift or only kind of tectonic tech wave that's emerged that didn't originate with a monolithic buyer in the sense that semiconductors, kind of the computing industry, the government was the monolithic buyer for it right. They were commissioning chips for missiles. They were building data centers for intelligence. And then you look at things like application software as computing matured.

Starting point is 00:35:06 And it was the enterprise that was the monolithic buyer. And in fact, like Janeway talks about this a lot, but the idea that you would kind of pre-sell multi-year licenses to buy applications kind of before the SaaS model was there, part of why that worked is because they would pay up front to subsidize the R&B costs of the innovator in order to ultimately deliver what they promised over the horizon of that contract. So you have government, you have enterprise enterprises, and both these were kind of these monolithic buyers that basically through contracts, subsidize. the R&D work that led the maturation of these technologies. But crypto never had a monolithic buyer. It actually just had retail. It had people that were kind of putting in money to these things. So I always wondered if that was kind of a part of the volatility. That was a part of kind of why crypto has evolved in this path to a new way is the fact it's kind of the only tech revolution that didn't originate in that manner. Yeah, it makes me wonder like what the answer is.

Starting point is 00:36:05 media came to mind at first, but the advertisers are kind of monolithic in their own way, especially early on in media, last year today on the Facebook ad platform or something, but certainly early media was monolithic ad buyers. Matt Ball writes about this in his Metaverse book. The entire metaverse concept is perhaps like you're describing with crypto, one of the first major technology platforms that we don't really know what that looks like yet, that doesn't have a monolithic buyer. It is more consumer-driven, retail-driven, as you put it. But Web3 and Metaverse are probably in some ways linked together. So maybe I'm saying the same thing. It's a really interesting observation, like the lack of a monolithic demand pool is kind of wild when you really think about it.

Starting point is 00:36:47 Yeah. I'm curious, like when you say productive especially, what the best in your mind, historical example of this is in crypto specifically. So there was some area of rampant speculation. We went through the cycle. Speculators got wiped out. But something really important and productive was established. What's your favorite example of that in action? Janeway definition of productive speculation is where the euphoria in a bubble allows or facilitates the funding of R&D that otherwise would not have been funded that ultimately leads to what he calls a general purpose technology, something that can be broadly applicable that creates value across the economy. That's kind of the general frame.

Starting point is 00:37:30 So it's basically like what are the types of things that get funded in bull markets that actually play out often years down the line or cycles down the line? Productive is where you say that I'm going to take advantage of the fact that the money's flowing and I'm going to build something real that may take more time or that may be much harder that I may not have been able to capitalize in a moment where we didn't have this excitement. And then when it plays out, it's going to move us forward materially. And so examples of that are Ethereum as an example. In 2014, it was a story of Bitcoin and the altcoins. And then the idea of having a smart contract enabled blockchain, that was a wild concept. A lot of people thought it was infeasible, unworkable. Ethereum raised money in kind of the hype of still.

Starting point is 00:38:20 It was kind of caught up one of those Bitcoin bubbles. It took a couple years for it to be built. But then that's an example of something that really, pushed us forward as an industry in terms of really making this tangible general purpose blockchain computer. Another example in a kind of 2018, I think that zero knowledge cryptography as a theme was still in the lab at the time. And there were companies like Starkware and disclosure we work with them. That's an example of a company where zero knowledge cryptography was kind of on that cusp of going from science to engineering. And there wasn't

Starting point is 00:38:54 an obvious near-term market for it. And so it really, I think, took the exuberance of a bubble in order to adequately capitalize a company like that to undertake years of really hard and pioneering R&B work. And here we are one cycle later where there are some of the most popular applications in crypto live on these stark chains. And they use zero knowledge proofs under the hood for improved performance. I think zero knowledge cryptography is going to be one of these general purpose technologies that we're going to see take all sorts of forms and it's going to blow people's

Starting point is 00:39:29 minds as it proliferates. Bitcoin encryption, I could explain to somebody. I could not explain zero knowledge in any way, shape, or form. Can you explain that? The simplest way to understand it, there's a bunch of really rigorous math and cryptography behind it, but the essence of it is that I can prove something to you. I can prove a fact to you without revealing the specifics. If I'm doing some sort of zero knowledge proof of the amount of money I have my bank account, I can construct a proof that I can hand to you and you can kind of quickly easily verify. This proof says I have more than $100 in this account. But you don't need to know where that is.

Starting point is 00:40:10 You don't need to respect it. You don't need to know anything about it other than this proof is sacrosanct. It's done. I don't need to show you the bank account screenshot. I can just, this is like an abstracted thing that proves something. Yep, exactly. The first application for these things that people are. are using them for is in blockchain scalability, where blockchain itself, it's a computer,

Starting point is 00:40:29 and the computer is updating its state. Every time a program executes, it's going to execute its state. These are state transitions that a blockchain computer goes through. The job of the blockchain is to ensure that these state transitions it goes through are valid for the rules of the computer. That means nobody's double spending money. That means... This is the consensus mechanism usually.

Starting point is 00:40:51 Yeah, exactly. a zero knowledge roll-up is a term, or if you use a zero-knowledge proof as a form of blockchain scalability, you can have a really fast blockchain that can prove that it operated correctly. And rather than needing to have every single node validate every single step themselves, which is how some blockchains operate today, this proof can suffice for the validity of what the computer did. Instead of like everybody replaying every single operation that a blockchain went through, they're just checking the proofs. It sounds like that is like another bandwidth. It's just another speed upgrade that's been a Bitcoin takes 10 minutes every time to it's very slow moving computer community operating computer.

Starting point is 00:41:36 This is like something that unlocks fast community operator computers. Is that like an overgeneralization or is that roughly right? Yeah. It's another way to improve the speed of it. And that's the first, I would say most obvious use of zero knowledge proofs. But I think it's going to get wild. I think it's going to get beyond that. Like, for example, so let's say that you wanted to start in a non-Twitter account.

Starting point is 00:41:54 What are your problems is how do you bootstrap that audience? What if you could construct a proof that said, I can't tell you who I am, but I'm somebody who had this many followers on my real account, like zero knowledge proof of audience as an example, right? These are the kinds of concepts that can be opened up by this stuff. And I think it's going to have broader implications beyond just blockchain scalability. It's an interesting portability concept. You can move credentialing or signals or value or something across different networks.

Starting point is 00:42:22 It's kind of cool. Kind of cool sounding. Exactly. Zero knowledge proof of being an accredited investor. How does it get built? It starts to bridge the question of how you connect things that aren't native to the digital or even blockchain native stuff in the physical world or some independent truths or things outside of the blockchains themselves that can somehow get linked onto blockchains.

Starting point is 00:42:44 People talk about putting their house on a blockchain or something like this. How does that work? like in the accredited investor example, now you're talking about you're having to go off of a pure crypto-native environment into antiquated old. The thing to prove that you're an accredited investor is the old. Here's how much money I have my bank or here's my W-2 or whatever the methods are. So how do you link something that's old and offline in a sense to something that is fast and new and programmable and online?

Starting point is 00:43:10 This is where I think that zero knowledge cryptography can be one of these bridge solutions. At a high level, it's really about how do you extend trust guarantees around computing operations? Computational integrity is a term that a lot of people in zero knowledge talk about. How do you know that a computer is doing what you said it's doing? Proofs are one way that you can enforce a degree of integrity or accountability on a computing service. For example, and again, we're getting into wildly speculative territory here. I think this technology is still pretty nascent and there's a lot to come. I would say just undergone this transition from stuff that's the domain of the research lab to stuff that now can be tinkered with in production.

Starting point is 00:43:51 But you could imagine part of the problem is, so off-chain, on-chain has been really hard. And I would say that I kind of biased towards being an on-chain maximalist in the sense that I think off-chain-on-chain is something that always feels like just within arm's reach, but it always almost is perpetually like that. And the fundamental problem for this is that you have competing systems of record, competing ledgers. Blockchain is one. ledger and then you have the courts or the legal system or something else that's a competing ledger and ultimately like you want these two to keep in sync all the time but there are situations where they can get out of sync and then which authority reign supreme in most situations

Starting point is 00:44:32 it'll be the legal version of it so then if the legal version is ultimately supreme to the blockchain version what's the point of the blockchain version that's kind of the argument for why putting your house on the blockchain makes no sense you have a token that represents your house and then somebody hacks it and they'd steal your token or you just walk out of your house. Like, I guess I lost it then. Off chain, on chain, really hard. And I think that for the most part, I'm not a big believer in people pushing the boundary and off chain to off chain.

Starting point is 00:44:56 But with zero knowledge, you can at least say that, hey, I can guarantee that this particular compute task was done correctly. For example, anybody could do it, right? It could still be permissionless. Let's say for this toy example, we're talking about the zero knowledge, proof of audience thing. You could have a number of companies or a number of entities. who could run this task of you often with Twitter, and then they kind of verify that you own that

Starting point is 00:45:20 account, and they run some like compute task that verifies your proof of audience. If you have that proof, then you know the computation was done correctly. You've kind of now provided a guarantee for something that's been done in a way where other people can do it. You're not reliant on a single person to do it for you, but you still have a form of that guarantee. It's abstract. No, I get it. I think this is the stuff that it's kind of like back to your original thing of white space. How many VCs could explain this? Far fewer that can, there's a lot of VCs in crypto now, right? Like it fills that test. But whereas like no one able to think or talk intelligently, it's interesting to explore these theoretical frontiers, we're bringing it back down to Earth a little bit

Starting point is 00:46:01 and something that I've thought a lot about is gaming, especially my conversation with Gabe, which has been one of the most popular that we've done in the show and also one of my favorites, It's this notion of there being that his advantage in the old play-to-earn video game world was that he had a live-ops team. And so he could sort of pay to secure the value of the stuff in his games and he could monetize. There was a limit to that monetization at $100 a user, a transaction or whatever. Maybe one of the things crypto does is just unlock stuff in gaming settings that were previously set by other platforms that you couldn't get around, the $100 upper limit or something. How do you think this technology intersects with the world of gaming, where we know there's tons of demand, We don't have to debate that.

Starting point is 00:46:40 It's obvious. We know people like to spend a lot of money on games. All these things are true. What does crypto do to the gaming world over the next 10 years, do you think? I would say like gaming applications of blockchains or blockchain assets. That's been conceived of pretty much since the beginning of the space. And I think people have pointed to things like in-game economies have become really important value drivers for modern games. everyone talks about skins, everyone talks about these types of things.

Starting point is 00:47:11 And so it's been clear that, hey, like, these two things, they're probably going to fit together at some point. Some of the crypto people, I think to some degree are a little bit more like optimistically forward looking around it, right? The idea that you can take, I'm going to take my sword in this game because it's an open and interoperable sword. I'm going to go, like, play with it in other games. And there's going to be this shared economy between games and all that.

Starting point is 00:47:36 Maybe. but I think that I'm pretty skeptical, at least in the near term, of those type of ideas working. But what I love about Gabe is that I think he's done a great job of correctly assessing what it is that crypto can give you that can blow lines in terms of what the experience of being a part of the game is, but that's also rooted in what makes a good game and what might people actually want to do and does it actually jive with the incentives and motivations for all involved. I mean, unrestricted payments, I think people don't appreciate how big of the deal this is for games. The App Store has the $100 limit on how much you could pay into it at any given time,

Starting point is 00:48:18 and it takes a 30% haircut on anything that goes through. And so when you contrast that to like a middle of the curve NFT project routinely has asset sales in the tens of thousands of dollars, hundreds of thousand dollars, and millions in kind of top end case, you just compare and contrast those two. And you're like, wow, there's such a big opportunity just to explore the upper end of monetization for games. The idea that instead of driving millions of people to press the $100 button a bunch of times, if you can get a much smaller fraction to press the million dollar button once, you can actually get an equivalent outcome in terms of value to the company. That's where I love the way that he thinks about it.

Starting point is 00:49:01 And to me, it makes all the sense in the world because we have these singular moments of commerce that we've had on the internet, right? I think the blockchains probably sell all the records for them. If you think about the potential where a lot of the utility happens, but there's not like an investment return. My mind goes to this conversation out with Alex Danko from Shopify and this notion of token gated commerce that Shopify is playing with, where merchants can use NFTs in this case or non-fugeable tokens to privilege certain customers, and that could have some value, but maybe the NFTs themselves aren't that valuable. They're just something that you get that unlock some benefit that itself is valuable. How do you think about that potential where,

Starting point is 00:49:41 yeah, there's going to be an amazing amount of tech utility that comes because of this technology, but that doesn't necessarily mean you should buy ETH or the value may not accrue to ETH or Bitcoin or somewhere else? Do you think that's possible? How do you handicap that future? Because we've talked mostly about use cases, not so much about like investing perspective investment returns. you're running an investment firm. So obviously, I think there's investment returns to be earned. And historically there has been. How do you think about that potential of, huh, maybe this is TCPIP and it's unbelievably impactful, but no one makes any money from it? I think it's extraordinarily unlikely that the kind of NFTs work. And then somehow the

Starting point is 00:50:21 blockchains you're built on top of and the monetary assets that secure these blockchains don't also benefit from that value creation. It's extraordinary unlikely. I think there are some deep structural reasons where kind of really can't have one of those. about the other. For example, if you think about ETH as a monetary asset or the qualities of its moniness, one of the big benefits ETH has as a form of money is its use as a unit of account within this growing blockchain GDP that we have. So NFTs are priced in ETH. The trading pairs for on-chain liquidity is ETH denominated. So that's a really important function of money. and ETH has really done a terrific job with penetration on those dimensions.

Starting point is 00:51:04 And then the even deeper structural reason is that NFTs live on blockchains, and the economic security underpinning a blockchain is what gives you the guarantees it can operate. And that economic security is just related to the reserve token and whether it's an adequate incentive for people to maintain consensus. And so the higher the market cap of the token, the more valuable ether is, the harder it is for somebody to go and compromise the computer, the more valuable the block space in Ethereum is, the more valuable that is, than the asset ether should improve and value commensurate to that. Yeah, I think that makes a lot of sense that these things won't be secured unless someone's

Starting point is 00:51:46 incentivized to do it, and that's money at the end of the day. The NFT thing is so interesting in the world of art, I don't just mean like NFT art, but like music or any form of art where there's big fan bases has become, in this cycle, integrated into this world. You see lots of famous celebrities with a board ape, or you have examples of musicians that are adopting this technology to sell NFTs and make a lot more money than they might have in traditional means, even doing concerts or something. Tell me what you think about what's going on in the world of art and IP around art in all its forms and how that could intersect with this technology.

Starting point is 00:52:26 I mean, you're spot on. Like what I said earlier is I think that NFTs are a great way to seed capital and seed community is what you can get with NFTs. It's one of these things we're like, I think that a lot of the celebrity NFT drops are probably in the unproductive speculation category that we talked about earlier. But there are a number of these things, this concept of, hey, I want to pursue a creative endeavor of some sort. And I'm looking for seed capital and a seed fan base around me. And NFT is a great fit for that. As an artist, you've got a chance to, you get to capital, you've got kind of an embedded fan base, and you've got a community that you can use that can grow over time.

Starting point is 00:53:08 And as a member, you get all the special feelings of kind of being in on something early, everything from like it being a form of your identity and to even this idea that maybe there's even upside in it, right? Maybe I can even follow along the journey for something that I'm a part of and even get rewarded somehow, some way for it. One of my favorite stories about the role of Internet community and actually creating and succeeding with a aiding creative endeavor at the highest levels is The Martian. Have you seen, like obviously Matt Damon, Blockbuster movie, but.

Starting point is 00:53:38 I remember reading the book. Yeah, but do you know the origin story for the book? I knew it at some point, but remind me. I forget. Andy Weir had a day job as a programmer, I believe, and he was just blogging chapters of the Martian. And he would post a chapter on his blog. And then like a couple months later, he post the next one.

Starting point is 00:53:56 People on the internet found it. And he got basically this fan base that was building up this community that was forming around it. They would do things like fact check the science for him. They would add value to the story. And of course, they were in on it. They were, you know, can't wait for the next chapter to drop. I imagine that community in the fact that he had a fan base that he could point to, Cable would play some role in him securing the book deal.

Starting point is 00:54:18 And of course, like the book was a bestseller. And that validated the concept to get the, the movie Green Lent. And so this idea that actually an internet community was there on the ground floor in this creative endeavor that ultimately went the distance, I think it's just such a cool story. That's kind of one of the examples I point to us to where like, yeah, we could do more of that. And that feels like a thing that we're going to get more of in the future, not less of. There's this notion that you've mentioned before, which is around the importance of obscuring complexity to get this thing to the next level, the idea of a ZK roll-up.

Starting point is 00:54:53 Like the next Andy Weir is not going to have any friggin' idea what that means. But he probably would quickly understand the general notion of what that example might mean to do in practice. So are those companies being built? Like, are the companies being built that would be the platform that's simple to use and easy to understand? I don't give a crap what's going on under the hood, but it's facilitating this kind of interaction with my fan base or something?

Starting point is 00:55:19 Is that stuff happening? When do you think that will become the norm that emerging artists? of various kinds will think about their art and their fan base in this way. I believe it's somewhat of a controversial opinion on this, which is that there's this idea that, oh, we need to kind of smooth away the crypto, abstract away this stuff, make it really polished, make it really frictionless, make it look like products and services that you're used to using, only then will we have mass peel. It's kind of cope for not having good enough draws for the mass market into crypto yet. And I think what we found is, for example,

Starting point is 00:56:00 early in NFTs, there was these ideas that, you know, I'm talking kind of pre-2020 and even kind of early 2020, this idea where how do we get more mainstream digital artists, how do we get people that are outside of the crypto orbit to start to use this stuff and think about it? You go through these painstaking steps of, well, we'll let you get paid in dollars. You're never going to have to touch a cryptocurrency. You'll never have to have a wallet. We will make it seamless. It will be like you're using substack or something like that. And it worked. Right. I think there were kind of people that were like, yeah, you've kind of adequately removed friction for me. And so now, you know, I guess I can try this thing. And then what happened is NFTs went bananas. They struck a cord

Starting point is 00:56:43 and the appetite for NFTs went haywire. And then it was the total opposite. You had people saying, like, well, excuse me, where do I connect my metamask here? And why are you not giving me Eith? And so there's one of these situations where you're like, oh, it turns out, like, NFTs weren't just ready. Once they're ready, people will meet us where we are because they want it. And we've struck a chord in terms of what they actually want to do. That's why I think even, especially for thinking about this idea of NFTs as a substrate for kind of early financing and coordination around creative endeavors, it's Jeffrey Moore one-on-one stuff. It's really, really understanding who are the early adopters and understanding that like new concepts

Starting point is 00:57:24 have this diffusion like a law of physics that they follow. You can't skip steps in that progression. And so it's not about just am I going to appeal to like a mainstream writer today that's going to turn down a book deal in order to do this weird NFT community thing. That's probably not the right fit. The right fit is somebody that's just the right. They are a creative genius and they can succeed at the highest levels, they need this medium in order to actually achieve that potential. So they probably know something about crypto. They probably have a stronger point of view on the right way to use these tools to accomplish their goals. They're kind of the definitional early adopter for something new. They live in the same future as the creator of the tools or the

Starting point is 00:58:13 platform. Yeah, I love that concept. I think it's really cool. We shouldn't zoom all the way to the end. You have to build your way there. What other controversial opinions do you think you hold in the crypto community specifically? Like, are there things that if I got 10 other super smart people onto our Zoom, they think you're nuts about, but you believe strongly? On chain maximalism, like I described earlier, and this actually stems to the kind of the NFT IP question, which is interesting. There's this idea that can we have things like IP rights attached to NFTs, maybe like the use of IP or the downstream monetization of IP, can we have a way? Can we have a way for that to flow back in some form to the holder of an NFT? I tend to be more skeptical about these ideas, again, just because I think that reconciling

Starting point is 00:58:59 stuff in the legal system with stuff in the blockchain is just really hard. I don't know. This may be intensive, but I'm really intrigued by the CC0 movement in NFTs. What's that? No, I haven't. It's a really interesting idea. And it's still in this phase where I have no idea if it's going to, to work or not. I want it to work because I think it'll create a very interesting future if it does

Starting point is 00:59:22 work. With NFTs, there's IP behind these NFT projects. And we can think about a basic art, PFP, 10,000 picture, NFT drop as the example here. There are some situations where, like, the IP is owned entirely by the company that issues the NFTs. The company can do a deal with that IP and they can make money on it. But there's not necessarily a right to any of that that you have as a holder of the NFT, then there's another situation where the holder of the NFT actually gets the IP license for like their NFT. If there's a deal done where this NFT is used in like an ad or something like that and your NFT was used or something like that, then you would get, you would be entitled to that

Starting point is 01:00:06 or you could sue them for claim on cash if you didn't get anything from it. The core idea here is that there is some IP, these NFTs have licenses that are protected and then we're kind of debating who controls it, who has the rights to income from it, and who decides how it's used. And ultimately, that requires reconciling the blockchain with some sort of off-chain legal system. Same applies for music, if you're promising royalties, et cetera. And then there's this idea, CC0, which is Creative Commons license, which is the same, like Shakespeare's under this license, right, basically free to use, do whatever you want with it.

Starting point is 01:00:42 there's this movement within the NFT space where like, what if you just didn't put a license on the NFT at all? What if it was just literally do whatever you want with it? Could it work if you owned an NFT and let's say you had no structural claim on the IP with it? But if maybe that meant that the NFT project could actually get distributed further, it could actually have more cultural relevance because you remove barriers for its spreading foreign wide. Could that actually have an indirect feedback loop where you still, your assets still become more valuable? Yeah, it's like, what if Apple's take rate was zero kind of idea? Yeah, there's a project Nouns Dow that I think a bunch of Ethereum people, and I self included, love. And we think of this

Starting point is 01:01:29 is one of these really interesting concepts in the NFT world that a lot of people are paying attention to. I would say it's probably one of the most notable CC0 project. And we've seen the noun's glasses has become this iconic image from this project. And we saw it in a Super Bowl commercial. I think Budweiser, one of your companies, have the Nouns glasses in the Super Bowl commercial. They didn't pay royalty because all of that Nouns IP is CC0. It's this really interesting question of kind of indirect value of cruel. And there's a really cool frame on it where right now with IP, distribution and monetization happens along the same axis. I get views on YouTube and I get paid for those views on YouTube.

Starting point is 01:02:16 I get listens on Spotify and I get paid for those listens on Spotify. And there's this inherent tension between getting it distributed far and wide, but also being able to bear hug it so you can make sure to get what's yours. CC0 and NFT users are what if there's now. like another access to this? What if you can monetize in a way where you don't have to even think about constraining distribution? I don't know if it's going to work. It's one of these things where it's like, but the world to me where you can actually think about IP just as free flowing and you can remix it, you can do whatever you want. It's a pretty interesting kind of form of

Starting point is 01:02:54 abundance that I don't think we've seen yet with IP. And if NFTs could be the solved for where value can still be created, I think at least it's a very interesting. version of the future. But I totally understand how it's going to fall on the space as well, because it's really nice to be able to directly make money from IP. We're recording this in kind of the summer, midsummer of 2022. From this vantage point in the crypto ecosystem, what are you most bearish on and most bullish on right now? I'm incredibly bullish on Ethereum. As an ecosystem, everything, every advantage it's had has, in my mind, been strengthened. I think there are a few upgrades and changes in the pipeline that are going to further improve it.

Starting point is 01:03:38 I think it's always been the ecosystem that is at the top of the innovation supply chain in the space, in the sense that like all the newest and zaniest and best ideas tend to take place within the Ethereum community first. The ecosystem has done a great job over time of just systematically addressing, the biggest issues with it. In 2017, it was this thing won't scale. And your roadmap for how to do it is ridiculous. Imagine a world and where within the community, people just build things that have higher performance that attached to it, this idea that you don't have like a centrally coordinated company developing and hiring engineers against a roadmap that's never going to work, this idea that you can just plant a flag for how you think it should work and then let the community almost build the bridge

Starting point is 01:04:22 along the way. That's exactly what happened. We have roll-ups that are functioning. We have have side chains that are functioning, every single thing that people thought couldn't happen, but Ethereum kind of the community at large chose, it's kind of working out. I still think it's just underappreciated as one of the most monumental tech projects we've ever had. What are my most bearish on? Like in this moment, I'm very bearish on things that really need count on retail speculation as kind of a driving force for it functioning or gaining adoption.

Starting point is 01:04:56 in general, it's not great when you're counting on that as a chief component. But I think especially so when we're not going to have any for some time. If you're not kind of viable in a fundamental way, then it's not going to work. I actually think people deeply appreciate how much retail speculation was the driver for a lot of what we saw, even things that were kind of dressed up as not speculation driven, like the yields that people talked about in defy, where the yields come from or like these eye popping yields. I think that if you actually like decompose those yields, where do they actually come from?

Starting point is 01:05:31 Where is like a dollar being turned into like a dollar 10? A large part of those yields, somewhere, however many steps behind the scenes, there was some token that was ultimately being bit up by retail speculators that was being market sold that generated the yield. So when that goes away, the yield collapse, everything goes away. And I think there are genuine structural sources of yield. within crypto that are real and sustainable, and they're probably, rightly so, not going to provide like eye-popping numbers, but for example, like staking for blockchain security, super structural.

Starting point is 01:06:06 And it's like a net new form of yield that we've never seen before because blockchains are new. If you're kind of counting on some like bottoms up movement or speculation to really drive what you're doing, it's not going to work, I think a large part of, I would say like the second half of what we saw in Defi, a lot of those ideas had that base assumption in them. I'm pretty bearish on off-chain to on-chain stuff. So things like reconciling IP off-chain, but kind of keeping the on-chain piece working, that to me feels really hard. There may be narrow situations where it could work, but I think as a category, it's not

Starting point is 01:06:41 going to work. If we do this again in years, I'll be perpetually bearish on enterprise blockchains. That's like the easiest punching bag out there. the idea that these things are just like a database and the token doesn't matter. Like that, I hope, one day I hope will fully disabuse ourselves to that notion. I actually feel like I'm an optimist by default. So all the stuff is going to work. NFT is going to work.

Starting point is 01:07:05 Crypto-gaming is going to work. Blockchains are going to scale most of the Web3 concepts that we're talking about are going to work. It's just a question of the sequencing and what do we need as kind of structural enablers from a tech standpoint, from a behavior chain standpoint. and then how much learning from kind of trial and error do we need as an ecosystem, as an industry, in order to actually just get it just right where it can actually go the distance. Well, it's been so much fun.

Starting point is 01:07:30 I mean, there's so many concepts here that I'm always drawn back to this because I'm like a funny case where I've spent so much time talking to the smartest people in this world, never really put a whole lot of money into it, much to my chagrin looking back, even though it's been ugly recently. I've loved our conversation because I think there's a lot of cool new ideas, whether it's the bandwidth of money, the Creative Commons concept, the four by four quadrant around what makes for an effective stable coin, lots of great interesting ideas. I think, you know, I ask everyone the same traditional closing question. What is the kindest thing that anyone's ever done for you? When I was in high school, I was working at a sandwich shop and one of our neighbors who is one of the most distinguished chemists of all time. and he's a prolific researcher,

Starting point is 01:08:16 but he was my next door neighbor, and he saw me in the sandwich shop, and he was like, what are you doing in the sandwich shop? I was like, I don't know, making money, 15,

Starting point is 01:08:24 like what do you want? And he said, do you want to work in my lab? Basically, I got the chance as a high schooler to work in his lab. I'd basically taken one chemistry class at that point. I'd gone through some personal stuff.

Starting point is 01:08:36 My dad died about a year before that. And so I think part of it was just like, you know, him just helping me on a very human, level. But what it did was it really set me on a path where science became something that I really fell in love with. And it became so fundamental to who I was in a part of my identity. It set me on a really terrific trajectory kind of academically and professionally. I had published papers in high school, which sets you up for research and undergrad, which sets you up for research and grads,

Starting point is 01:09:06 all these things. And so it was awesome. And I don't think I'd be, have accomplished anywhere near what I have if it weren't for Grant Wilson. Would you remember the first thing you worked on in the lab for him? I do. My job was to produce these things called Meyerhofer plots. It's semiconductor chemistry. And so the idea is that you have these things called photo resists, which are chemicals that you put on top of a wafer and you selectively expose the photo resist to light.

Starting point is 01:09:36 And then you can dissolve the parts that haven't been exposed to light. So it forms like a mask on top of it. So you put a mask on and then you can either like etch away the parts that are exposed or you can like grow another layer. And that's how these integrated circuits are built layer by layer where you're basically masking each time to connect all the wires. We were working on photo resists in the way it works. Again, this is hilarious that we're getting into this. But if you want to make the resolution of these masks higher, you want to have smaller features. One way to do it is you want to have smaller wavelengths of light that actually like do this photo chemistry within them.

Starting point is 01:10:11 The smaller the wavelength of the light, the smaller the feature you can define in the mask, the smaller and higher performance semiconductor chip you can write with it. So we were working on cutting edge photo resist chemistry for a lower wavelength of light that hadn't really been pioneered yet. And the goal was we were trying different things to figure out what worked. And I was the guy that would basically test how well it worked. And so it meant me just having this big truckload of samples and putting them on wafers and shining light and measuring things. And it was very like mechanical formulae at work, but it was a very much

Starting point is 01:10:44 the grunt work in the lab, but I loved every minute of it. What a wonderful story. I wish there was some way to manufacture a similar experience to that for like every 15 year old. I would have benefited so much from something like that at that age. What a cool, amazing kindness. I love it. Look, this was a blast. Thank you so much. Great closing story. Great set of ideas. I really appreciate your time. Thanks, man. If you enjoyed this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning.

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Invest Like the Best with Patrick O'Shaughnessy - Alok Vasudev - Searching for White Space - [Invest Like the Best, EP.287]

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