Odd Lots - Paradigm’s Matt Huang on the Biggest Crypto Fund Ever Raised

Episode Date: December 2, 2021

Money continues to pour into the crypto space at a rapid clip. Institutions, VCs, private investors all seem to have gotten the bug over the last year. But, of course, the big gains have come to those who have been in the space for a while. One of the leading investing institutions in crypto is Paradigm, which was founded during 2018's crypto winter. The firm just announced a new $2.5 billion fund, which is heretofore the biggest crypto fund ever raised. We speak with the firm's co-founder Matt Huang about Paradigm's unique structure, its vision for crypto, and what it plans to do with the money.See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLotts on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. We haven't talked about it in a few weeks, but crypto, price aside, there's always volatility. It's clearly not slowing down at all. I feel like we have been talking about crypto over the past few weeks, but I guess I guess we haven't. on the podcast. We've written about it on the Oddlot site. There's still a lot going on. I mean, like, every day, it seems there's a new investment in the space. People are getting more and more excited about defy. These random tokens keep taking off at the same time. Everyone's talking about NFTs. The list goes on. Right. You know what I feel like with crypto? And it's funny, like,

a joke, you know, is it kind of half true? We haven't been talking about it lately. I think I guess the issue is if you, I feel like if you go three weeks without having a crypto episode of the podcast or if I sort of tune out of crypto for a few weeks, because say I'm interested in supply chains or lumber or inflation or something, then when I try to tune back in, I'm like, what the heck just happened? Because the narratives change so fast. And the new story of the new coin that people are into, it's changed so fast that I feel like I'm totally behind. So three weeks in the crypto space feels like three months or a year.

Yeah, it's sort of like a dog years type phenomenon, right? Like, crypto just seems to be moving faster than everyone else. Yeah. So anyway, listen, I want to just get right into it. I'm very excited. There's a long time by crypto standards, VC firm or investment firm called Paradigm. If you say the name paradigm to people, like in crypto circles, it's like this like hushed tone because like there's such reverence for this firm.

Everyone respects this firm. and they've recently raised the biggest crypto, I think VC is the right word, term, but the biggest crypto investment fund as of now. And today we're recording this November 30th. Who knows the record's probably going to be broken in about three days. But they've raised the biggest fund ever to invest in the space of $2.5 billion. And we are going to talk to one of their co-founders about what they plan to do. Great. Can't wait. I'm very excited. I want to bring in Matt Wong. He is the co-founder and managing partner at Paradigm. Matt, thank you so much for coming on Oddlots. Hi, Joe. Hi, Tracy. Thanks for having me. Absolutely. So like I said in the intro,

I feel like when I've been in crypto circles or hanging out with crypto people, and like you bring up paradigm, people are like, oh yeah, they're legit. Like there's a lot of like kind of fakers in the space. We all sort of know that. And there's a lot of people that just arrived on the scene five minutes ago. But before we talk about this new fund, why do you talk about where did paradigm come from, what is its background and history, and what's its sort of basic story? Yeah, sure.

Well, we're very grateful that that's what people are saying about us. Look, I think paradigm started from a pretty simple place. My co-founder, whose name is Fred Ersum, who had previously co-founded Coinbase, and I were longtime acquaintances and friends. back in 2017 when I was, I like to say, a boring venture capitalist at Sequoia focused on all kinds of different technology investing

and started to spend a lot more time in the crypto space. We would meet up often and consider new investments. And one of our observations at the time, well, actually there were two. The first was, and Fred gained this early, but a very, very deep conviction that what was enabled by crypto was likely to be one of the most impactful

sort of spaces to be spending time in over the next 10 years. And we'd already seen Bitcoin as a digital monetary asset grow from effectively zero to hundreds of billions. We started to see the early days of defy take off on top of Ethereum. And so it was just very clear. to us that this is the future. And yet, when you looked at the traditional tech investing establishment, I think it was very underrated. In fact, most very smart and well-meaning people, often when they take a first look at crypto, especially back then, you know, they couldn't help but come away with a

sense that maybe there wasn't so much substance. It was, you know, there were dog coins and cat coins. And it was sort of, what is the point of all this? And, And yet when we spent time on the front lines with some of the protocol developers and the teams building real, you know, hard technology in the space, we just had a totally different view. So it was sort of born out of that conviction in crypto. And then, you know, somewhat separately, we looked around and, you know, I would talk to Fred. He had co-founded Coinbase in 2012. if you were starting another crypto project today, is there another investor that you would be really excited to work with?

And I think the answer for both of us at that point in time was no. And so paradigm really came from us kind of building the investment firm that we would have wanted as entrepreneurs. And to us, one of the biggest parts of that is how native, we are and our team is to the technology. And I think this is a general pattern you see across technology waves where some new platform exists, whether it's mobile phones or the internet or crypto.

And it's very easy to apply kind of old analogies to the new medium. And yet it turns out that some of the most important companies or innovations that come out of a particular wave end up being deeply native to it. And so that was kind of our aspiration around paradigm is sort of getting very close to the metal technically and being able to help support and guide the people building this future. So I want to go back to something you said. What exactly, in your opinion, does crypto enable? And this kind of gets to the tension that you were describing

with some other VCs, they don't see that much value in it. You know, critics have described blockchain at various points in time as a solution in search of a problem. We've talked on the show about how a lot of defy technology seems to be focused on more defy. So it's sort of, you know, trading coins or tokens all the way down. But what is it that you see? Give us the elevator pitch.

Sure. I think at the very highest level, we're, seeing crypto disrupt in several stages. The first was this idea of Bitcoin as digital money. And, you know, looking into the history of Bitcoin, I think a similar dynamic was always present, which was, is Bitcoin distinguishable from tulips? Is it tulips or is it, you know, the next digital monetary standard. And one observation would be like when you talk to people in developed countries, they often don't see the point of Bitcoin.

And when you talk to people in developing countries, it almost clicks immediately, whether it's countries in Latam or countries like China and Russia, where perhaps the rule of law or currency stability is less taken for granted. And so there is a form of dollar privilege in a lot of ways around Bitcoin. So I think that is the first category, not to be underrated, I think, that could be tremendously powerful for the world as it progresses. The second is, which is quite a natural extension of digital money is this idea of decentralized finance. Now that you have digitally native assets beyond just sending them back and forth or holding them, you can now do much, more complex things with them and program them. And I think one thing that's unique about

defy is the protocol can encode certain rules that you can trust will continue to be the case several years from now. In a lot of ways, it's much like, you know, in the country governance context, the idea of strong property rights. Strong property rights enables an economy to form in a way that's truly long term, people can build businesses and make decisions knowing that there will be stability over many years or decades. And similarly around Defi, the idea that, say, a decentralized exchange protocol like Uniswap might continue operating exactly the way it's operating today 10 years from now or 20 years from now really enables other people who might want to plug into that protocol or build on top of it to do so. And so I think that

digital commitment is sort of a key part of what these blockchains enable. And then finally, I think now that Defi has really scaled, I think we're seeing, especially over the past year, cryptocurrencies and crypto protocols broaden in the sort of types of industries that they can touch. And this year we've seen the rise of NFTs and the notions of digital art. crypto gaming has been become really popular. And so I think we'll see crypto broadened to touch many, many different parts of the modern internet. So let's talk about this fund. As I mentioned, I think it was just a couple of weeks ago, you announced it a two and a half billion dollar fund,

which as of now is the biggest crypto fund that's been raised. What do you see as the big opportunities? I mean, you talked in sort of broad categories. Defi, that's very broad now. It means a lot of things. NFT, the sort of NFTs, gaming, sort of like certain culture of things. What specifically do you see as the, you know, the big opportunity since you're going to go after with this fund, with this money? You know, back to when we started Paradigm in 2018, we had a lot of conviction about the progression of crypto over the coming decade. And we spent a lot of the early years investing across defy and, you know, various other

I think one thing that's become very notable over the past year is the rise of what the industry is terming Web3, this notion of blockchains as a way to build for many different other categories of the internet. Stepping back from the specific opportunities, one thing that's particularly notable to us and we pay a lot of attention to is kind of the talent flows into the industry. When we started in 2018, it was, you know, Crypto is mostly a ghost town. It was people who were present in 2016, 2017, who, you know, despite the bare market were continuing to build, today it's become much more consensus, almost, that Web3 and crypto might present part of the future for the internet.

So we're seeing a lot of interesting engineering and entrepreneurial talent come into the space. And I'm not trying to avoid the question. I do think what we're focused on is sort of the long-term potential that's possible and also kind of the short-term signs of quality and innovation and following that. Because I think ultimately for any new innovation that's happening at such a primitive level, I think it's always hard to fully predict exactly what's going to happen. whether it's like the internet itself or, you know, the advent of electricity or something, I think the applications eventually surprise us. And so we're more focused on keeping our ear to the ground, understanding the tech deeply, and spending time where the builders are spending

time. So how do you actually go about investing in a crypto business if you find one that you like? Because, I mean, there are multiple ways to do this, but I guess the two big ones would be, you know, you just buy a stake in a crypto business, sort of the old-fashioned venture capitalist way, or you could buy the project's token, and maybe that comes with some sort of governance, say, via a Dow or something like that. How do you sort of weigh those options? Yes, it's a very fascinating question, and I think it's, you know, as a whole, somewhat an open one for the industry, which is, you know, for hundreds of years even, we've had this very well-established and evolved form

of kind of coordinating human activity around corporations or LLCs and having sort of investors and outside folks participate in that. And now all of a sudden we have the ability to kind of store the cap table or the, you know, record of value on the, you know, blockchain in a sort of trustless immutable way that is equivalently good in various ways. And so there's sort of a question, which is a better fit for the crypto startup of today? And I think depending on the startup, the answer could be different. In practice, we're often investing at the earliest stages before any digital token might exist.

And we do that through corporate entities as a way. to kind of preserve optionality for the way that the project might ultimately want to distribute the record of participation. You sort of anticipated a question that I was going to ask, but I want to talk about there's something interesting, and I think one of the reasons that people do have this reverence for paradigm specifically is because it's clear that you have a lot of, like, technical talent. And I think like VC's always, like, they love to blog and they love to opine. they do these like big tweet threads about how like, you know, the future of work is going to change and stuff like that. And, you know, they all sort of like want to be writers or something.

But I feel like paradigm is unique. Like if you look on your blog, like there's a lot of like technical stuff. And you have colleagues who are literally inventing new financial products all the time. Like I'm looking at your blog and one of your colleagues, Dave White, like introduced a new type of like futures idea that could be connected to NFTs. And you have another like another colleague who I think is too. who like frequently like writes about like finding hacks and stuff like that or like sort of finding exploits in a token before they're discovered. And so I'm curious like it sounds like the strategy is having your ears close to the ground, knowing the tech deeply because you don't

necessarily know where it's going like nobody really does, but you know where the talent is going. Talk about this like how much of a moat you see that for paradigm, the idea of like having like deep technical people working for the fund itself as opposed to just being like money people? So first of all, I would sort of acknowledge that I don't think this is what most investment firms look like. And certainly when we were starting out, there's always this temptation of, you know, what have other people done and, you know, what have successful investment firms throughout history done. There's always wisdom and lessons to be gleaned there, but we were very focused on, you know, what have successful investment firms throughout history done. were very focused on just trying to think from first principles. Like, if we were an entrepreneur building a new crypto startup, who would we want around

the table? Is it possible for an investment firm such as ours to be able to add value in a way that was really meaningful? You know, investors can always write tweet threads, but we thought we should go further and, you know, be able to code alongside the companies and, you know, audit their code, etc. I think that's clearly very valuable in a practical level, and we're continuing to explore other ways to lean into that. I think also at an abstract level, one of the potential promises of crypto is this notion of digitizing more and more of our institutions and our companies and our infrastructure into these sort of protocolized forms. And if you envision sort of a future state in which more and more of our economy is running on crypto rails,

then it seems almost inevitable that, you know, having deeply technical people is a really important part of participating in that. And so just generally and philosophically, we feel like technical expertise must be one of the core parts of what we do at paradigm. So in addition to technical expertise, there was something that, you tweeted recently where you asked people, you know, if they're good at memes and they want to work at Paradigm, could they get in touch? Like, is that, is that a job required? Tracy is good at memes. So she sort of, yeah, hire memes. She's thinking about going from the media, the media at a crypto pipeline here. Is this a job requirement for the crypto space now? Like, you have to be able to deal in memes and ideas, given

that, you know, Joe kind of touched on this in the intro, but like, given that a lot of what's happening in the space seems to be driven by different narratives and those are shifting all the time. You know, there's, again, both this practical element of, I think, a lot of modern marketing, whether it is for investment firms or companies, occurs through sort of the medium of Twitter and memes and memes drive culture in a lot of ways. And so I think that skill is is very useful. I think there's a whole world that operates on crypto Twitter, as you both know, from following it. It's almost a parallel universe to what's happening in the real world. And if you aren't on crypto Twitter and aren't sort of one of these very online people who's following

what's happening, you're sort of not up to date on the latest in the culture or the substance of what's happening in crypto. So I think there's another element there that's really important. And then finally, I think if you think about, you know, the hardest problem for every upstart, whether it's us at Paradigm or one of the companies or projects we're backing, it's sort of assembling a really talented group of people to work on a single problem for a long period of time. And I think that's ultimately what it takes to build something really great and special. And in a lot of ways, someone like Elon Musk is a huge part of his success is his ability to attract sort of all the best people who want to work on rockets at this one rocket

company. If you think about the role of memes and marketing in that effort, I think, you know, memes are sort of the new way in which one can build a narrative around a vision. It could be something silly like, you know, a dog coin, or it could be something, you know, serious and important like rockets and everything in between. And so I think, you know, memes are all good and fun. And we have, you know, a great internal channel where everyone's sharing memes. But I think there's also something deeply powerful about, you know, their role in the way they're, you know, sort of shaping attention and directing energy towards certain projects that people get excited about. So I want to ask, you know, you mentioned that sort of like one of the interesting properties of

crypto is this sort of predictability. And you mentioned that there's a uniswap, and I think that's a paradigm investment. You're an investor in uniswap. That code may live on in its current form for 10 or maybe 100 years. And so someone could build on top of that code and build something new and have some expectation that that is not going to change. When you think about investing, to what extent do you think about different portfolio investments or different tokens or different DOWs that you invest in? as somewhat being like the network effects within your own companies, within paradigm companies, or within paradigm investments. I mean, people in traditional tech, they always talk about network effects, but it's sort of confined.

There's like Facebook's network effect or Twitter, et cetera. To what extent do you think about sort of compounding network effects of different tokens you invest in that in some way build or enhance another company or token within your family? It's a great question. and I think it's present in the dynamics of the portfolio, which is if we invest in protocols that are providing a great value to the ecosystem and its users, then it often makes a lot of sense for those protocols

to start interoperating or building on top of each other. And so that's definitely a dynamic that we'd love to encourage and do think about. I think there is actually a nice sort of pre-existing analogy to that effect, where if you look at a incubator like Y Combinator, it's sort of a very common element that new Y Combinator startups,

often their first customers, or first 100 customers, are actually like other Y Combinator startups. And I think that's been a powerful flywheel for that community overall. And certainly we do hope that if we're doing our jobs, right, which is finding and supporting some of the most ambitious and special crypto entrepreneurs around the world, that there'll be a lot of

benefits to them being in that same community and being able to work together. I have a slightly theoretical question, but, you know, one of the benefits or one of the sort of selling points for crypto has, at various times, been described as the manufacturing of artificial scarcity. So something like Bitcoin, there is a limited, a only a certain number of coins are ever going to be mined. And so there's something valuable about them. The same thing sort of for NFTs, you know, if you collect a certain type of art or pieces from one artist in particular, there's a limited amount. But one of the things I sometimes wonder about is with all the attention on crypto at the moment and all the money

flooding into the space, does the artificial scarcity, benefit or case get sort of eroded because you just see more and more projects, you know, more tokens, more coins, more NFTs, and people are just sort of flitting from one thing to the next such that a market never actually, an individual market might get scarce, but crypto as a total is just multiplying. perhaps the core underlying question is this one of with an oversupply of capital is that kind of efficient in terms of driving towards the innovation that crypto has the potential to achieve and at least we think about it in these terms in which you know i think when markets get

overheated, you think of investing as sort of a capital allocation and function for sort of which experiments are worthy of running. And once they start working, which ones are worth supporting more. And in this environment in which capital is abundant, I think, that sort of selection function is probably a bit weaker. And that does make it very hard as an investor or an engineer or an entrepreneur to kind of know what to pay attention to. And there's certainly this dynamic of the flavor of the week. We often remark internally that in some ways, there were elements to miss about the bear market of 2018

because with nobody paying attention and not that much capital around, it was actually easier to get work done. People made more progress. And the people who were building were really committed because they were doing it even though it was really not cool. And people made fun of them for doing it. So I think we are at the other end of the spectrum now, and the pendulum has swung. It's a great time to be a crypto investor and entrepreneur, and there's a lot of opportunity.

But I also think there's a lot of signal to noise to work through. Speaking of the other end of the pendulum, and I want to get your take on something, one of the things that gets discussed, I don't think particularly loudly in crypto Twitter or crypto generally, but it's definitely discussed, is the huge gap that people sometimes cite between how coins are valued when they're offered up privately versus when those same token projects become ultimately listed. So there may be some sort of crypto thing, but it's pre-token, and then the token becomes available on the decentralized exchanges or on, you know, FTCs or Binance, and people like, oh, 10x is. A, is that the case that they're in your view right now,

that there is still this huge gap between private valuations and then how coins are valued once they're sort of listed. And B, you know, you talked about at the very beginning or early on, you want paradigm to be a place that if I were, say, raising money for a, you know, some new token offering, I would want to go to you. And so how much is it just sort of like, that access to deal flow, you want the first look, you want people to say, I want paradigm money as opposed to, you know, I want to name another one, but as opposed to some other fun money. How important is that sort of like early stage investment in sort of like where you see delivering returns? Yeah, I think crypto markets have always been sometimes a puzzle on the valuation side. I think, you know, relative to other markets, and I won't name specific names, but I think there are

a really substantive, credible projects that are maybe worthy of what they're worth, and there are others that may be less so. And I think there's maybe not as much of a forcing function in crypto markets around that. But I think to your point on, you know, the stage of getting involved, we do. aspire to get involved as early as possible, that's in part because we believe that we've built a team that can help from the earliest days. And especially when you're building a protocol-related project, so much of getting a protocol right is sort of the initial protocol you launch with. In contrast to say a website or a mobile app that you're updating every day or every week, protocols are much less frequent in terms of upgrade cycle. And so there's a lot of importance,

we believe, in getting things right up front. So we aspire to get involved from the earliest days. That being said, we're humble about the fact that there's going to be plenty of great projects that will miss. And we love participating down the line, too, if that's when it makes sense. So at the other end of getting in early is, you know, actually getting out and the exit process for companies. And I'm curious what that looks like for crypto businesses. So, you know, Coinbase went public, but I don't think we've seen many other crypto entities that have done the same. And part of me gets the sense that a lot of them wouldn't want to. There's sort of a tension between disrupting the existing world of finance, you know, the traditional listing process and what they're trying to do

in various ways with crypto and blockchain. It seems like listing might be sort of contradictory. So how do you see the exits for your investments? Sure. So first, we tend not to think too much about that because we do, you know, we're only three years into the life of paradigm. And we believe a lot of the best companies or projects. will be 10-year or more journeys. But in terms of your structural question, I think it sort of gets back to the question earlier about tokens versus equity.

There are certain types of crypto businesses that are, at least today, a much better fit for the traditional, you know, C-Corp model. Coinbase being an example or, you know, exchanges globally around the world, software-as-a-service businesses that might be, you know, building software for crypto companies as two examples. And so I think a lot of those businesses will probably take a more traditional IPO path. And maybe the distinction is that their regular

businesses and generate revenue in a normal way, they just happen to serve the crypto market. And then on the other end of the spectrum, there's sort of the crypto protocols that, you know, have tokens from early on. And I would get. guess you're probably right that, you know, a lot of those protocols probably don't take the traditional IPO path in the long run. So I just want to sort of crystallize these different options with an actual example. So if you had the option of investing in Solana, the token or the coin versus investing in Solana as like a business, which would be the better long-term investment? in your view. Well, so maybe apologies for resisting this particular example, but maybe let me share,

maybe let me share sort of protocols like Solana, which I would categorize as sort of layer one protocols that are sort of building a full blockchain have sort of a core monetary unit at their center. I think those types of investments, we believe ultimately the monetary unit or the unit of account in Salana's case, Saul, or in Ethereum's case, Ether, ether, those are the sort of most natural place for value to accrue in the long run, relative to a corporate structure that might exist. And in a lot of ways, the corporate structure may be somewhat orthogonal in that it's maybe a labs entity or something else that's responsible for the development of the core protocol,

but maybe other things around the ecosystem, but not necessarily a core revenue driver. Right. A lot of these are not-for-profit foundations, right? That's right. That's right. And I think the ecosystem is sort of still exploring best practices on exactly how to structure all this stuff, but that's right. And then on the flip side, you know, we're investors in a company that provides, you know, accounting software or tax software called Tax Bit. And that's an example where besides the fact that it serves the crypto industry looks very much like a traditional software as a service company.

So you mentioned that right now kind of feels like the other end of the pendulum from 2018, and that was like the sort of the crypto winter, as it was called, and we are definitely not, we were in, you know, long crypto summer. Do you ever look at things that are going on right now, whether it's like the millionth fork of OM, you know, some sort of crazy, uh, you know, projects that even the adherents joke about, like, they blatantly call them Ponzi's in many case, or say, you know, the 20th version of a coin that has a puppy and Elon Musk's name. Do you ever like worry about like a sort of like hot money or maybe a better term that I think about is like cynical money, which is like projects that are clearly, I don't know, do not seem to be built

with some sort of longer vision other than like capitalizing and trying to make money right now. do you worry that that has corrosive effects on the space or is that just like or do you not see it that way and that's just like some people are having fun and throwing things against the wall and there's no reason to view it cynically yeah it's a great question i mean on one level it just is it's it's neither good or bad it's it's all part of a whole and i think you know would it be better if more labor and capital and attention was focused on really great, long-term, innovative projects. I think yes. And then sort of any market that attracts, any market that starts to do well and attracts other participants, I think ends up with these sorts of speculative dynamics. And I think they're somewhat inseparable. And so it's hard to sort of critique one part of it without thinking about the broader whole. I do think we'll see cyclical effects over time as a result.

Because to your point, and I love that you're following the 20th Ome Fork, but eventually people probably tire of the Ome Forks. And so there's sort of attention and interest that can exhaust. But ultimately, I think crypto as a whole feels very robust relative to, you know, two, three years ago. There's a guy in my DMs every week who I really like personally. Actually, I don't know who he is. I don't even know if it's a guy. And he's like, when are you doing an OM episode?

When are you doing an OM episode? I'm like, we're not doing an OM episode. We're not doing an episode on something that you blatantly joke of as a Ponzi. But anyway, sorry, keep going. Anyway, I get a kick out of that whole thing. Well, no, that's actually a fascinating because I think the, you know, to your point, there's sort of like a decentralized signal filter, right? So, you know, Bloomberg is not going to cover Ome,

and Bloomberg's going to focus on, you know, more substantive. long-term projects, and I think that's generally speaking, a decent place to go. Although maybe I'd like, you know, that's going to really come back to haunt me. And when OM is truly the sort of like the unbacked stable coin of the internet, I'll feel like that person who dismissed all the Bitcoin pitches in my inbox from 2010 and 2011. That's right. You should do an OM episode as insurance then.

Just as insurance, just in case it's the currency of the future. All right. I guess this is kind of a related question, but just. in terms of evaluating use cases for different coins or technologies. So much of it right now depends on their ability to scale up. And I know this is something that you've been watching quite closely when it comes to Ethereum. But like how are those efforts going in your view? And what are the challenges of scaling up or making the networks more efficient for a lot of those coins? because this is going to be the thing that, you know, drives defy expansion.

So if the underlying tech isn't working that smooth, that would seem to be a problem. I think maybe it's worth elucidating sort of why there is this core issue, which is part of what blockchains do is to ensure that there's sort of this immutable record of what happened. transactions are basically repeated on a lot of different machines in a consensus process, and that's inherently going to be more costly and less efficient than sort of traditional internet services. And I think when you think about that process, there's a couple different ways of solving it.

One way is to sort of batch transactions together and either make proofs about them or, you know, optimistically accept them and accept fraud proofs about them. And that's a type of scaling solution that's emerging around Ethereum called roll-ups. Another approach is to think about the hardware that you're using to run these and be able to run them in larger and better hardware. I would say right now we're at a phase in the ecosystem where basically every potential solution is being explored. And I think that's great for the ecosystem. system overall. And relative to two or three years ago, we're a lot further along. There's optimistic roll-ups and zero-knowledge roll-ups both in production around Ethereum. There's other layer ones like

Solana, which are more scalable. And so we're sort of seeing this play out in real time. And I would guess another couple years from now, scaling will still be an issue, but it'll no longer feel as existential or uncertain, the sort of fog of war will have lifted and we'll have much more clarity on sort of the specific paths and directions that are going to work. So I want to ask a question about this sort of, you know, we've been talking about crypto, the term Web 3.0 has sort of become synonymous. And I think like, you know, people like hear Web 3.0, there's this debate and this is actually another thing that got discussed recently on Crypto, recently, which is, will the services that we've come to associate with, like, the last iteration

of the web, Web 2.0, will they all become sort of like on blockchain? And so the classic example is like, oh, will there be an Uber on the blockchain? Where instead of an Uber Inc, like a company that there is like some sort of like decentralized protocol that routes drivers and they collect a token and it sort of and the every passenger and driver get some sort of reputation score, we no longer need like a sort of like corporate middleman or something like that or Twitter or could that entirely exist on a blockchain without an LLC as we know it. And I'm curious, you know, you've kind of been a little bit reluctant to sort of elucidate specifically the investment idea, but what do you think about that? Like are all these sort

of Web 2.0 things in your view going to get recreated on chain? Or do you think all those are sort of more or less exists in their current form? And what happens on Web 3.0 would just be something novel that we can't really anticipate yet? I think there's sort of two thoughts on this. The first is that we tend to think that it's much easier for the blockchain to kind of reason about things that are on the blockchain, or at least digital and sort of accessible via Oracle or some other mechanism. And so the example of Uber on the blockchain, you know, I would guess that that's really

far off if it ever happens. In contrast, I think gaming is a great example where most games aren't fully on-chain, but the idea of putting game items or game currency on-chain is a very natural one, and we're likely to see that happen much sooner. So that would be one general principle we think about is sort of how blockchain or crypto-native is the application or how digitally native is it. I think the second thing we think about is, you know, it's always easy to think in analogies, like Facebook on the blockchain, Uber on the blockchain. I think we tend to have the view that the most compelling applications will be kind of uniquely enabled by the new technology.

You wouldn't have been able to build it without it. And so, you know, the example, but the internet might be something like, you could put the New York Times or Bloomberg, online, but you couldn't have done Wikipedia before the internet. And I think that was, you know, ultimately much more interesting, although not a huge business. In the crypto world, I think there's sort of this example of Uniswap of the idea of like this on-chain, always available, sort of permissionless market maker was not possible before. And now it's suddenly possible because sort of Ethereum is kind of live all the time. And so that's what we're really looking for at

paradigm is sort of these uniquely enabled applications that wouldn't have been possible before. Can you give us an example, like a really concrete example of something that's exciting you in the space right now? Like what is it that you're most optimistic about or enthusiastic about? I think the idea of, and I've sort of already mentioned it, but the idea of digital games adopting blockchains, I think is just a really compelling area, both because this is a behavior that's already sort of decades old, the idea of placing value in digital items, potentially trading them. and it's a really natural fit for what, you know, crypto and blockchain enables, which is true digital property rights.

And so, you know, imagine the person who's maybe playing World of Warcraft for 10 hours a day and really investing time, energy, money into their digital life effectively in this game. And yet most of the value is purely subject to the platform. One analogy we think about is a lot of these digital worlds, whether it's games or Facebook's Metaverse or digital cryptosystems, you're sort of moving to a new country in a lot of ways and sort of adopting the rules of this new country. And it turns out that today most of those digital systems are effectively autocratic in contrast to what we think of as. good governance today more broadly. So I think that's a tremendous intersection. And then just very practically, we're seeing the gaming industry really adopt this seriously.

All the major large studios, small studios, gaming entrepreneurs from past waves are really sort of rushing headfirst because crypto is all of a sudden cracked open this creative canvas that I think people are really excited to explore. So I just have one last question, and it's sort of pragmatic, but, you know, $2.5 billion raise for this new fund. What is, do you have like a sort of estimated internal guess as to the length of time that you expect to deploy that over and sort of the cycle of it's so, you know, we sort of,

you know, we joked at the beginning three weeks or three months in crypto, it feels like years? What is the cycle of which you expect to deploy to, and a half billion dollars and uh you know how many different projects you have some guess of how far that will uh how far that will go like what's your what's your goal here so the top level answer is that we're very focused bottoms up and you know not not trying to dodge the question but just very genuinely we're always just trying to find interesting people and projects and back the ones that we get very excited about and that could be at the really early stage with small checks it could be at

the growth stage with larger checks, I would guess that it's not dissimilar to any other venture capital fund, which might, you know, have a deployment period of a couple years. Well, Matt, it was a real pleasure to have you on odd lots. Really appreciate it. Really a fascinating conversation and looking forward to seeing what you do. Cool. Thanks for the time. Yeah, take care, Matt. Thanks so much, Matt. Cheers. So, Tracy, I found that conversation to be really interesting. And I think the thing that struck me the most, I mean, at the end, what he said to you about, you know, his interest in blockchain gaming is clearly. But I think like one of the things that struck me most was sort of like how open ended they seem to be or Matt seems

to be about where this might go, which is like, we don't really know. It might look totally different. No one could have anticipated Wikipedia prior to the internet and just the sort of idea of, let's just see what the talented people are building. Yeah, I think the thing that stood out to me was that bit towards the end of the conversation where he was talking about, well, you put all this stuff on the chain and you're building Web 3.0 or Web 3 or whatever. But what you're essentially doing is sort of moving from those vertical models of trust where everything, you know, was controlled by a single entity. Like, I mean, Facebook's a bad example because it's going to be starting the metaverse. but like everything's controlled by Facebook, the social network, and now you're moving to sort of more horizontal structure of trust

that's enabled by the protocols that might be embedded in a particular crypto project. Like needless to stay and probably I think both of us, you know, still have some, I don't know, crypto, neither of us are like totally like drinking the Kool-Aid crypto converts. And I kind of see myself as somewhere in the middle these days. But I think a lot of the problem that people have with this is they sort of like, oh, like Uber already works fine as it is. And it doesn't need to be on the blockchain or Facebook already works fine or Twitter works fine or banking works fine or Robin Hood works fine. And it kind of feels like, as he put it or the way he was thinking about it, it's like, yeah, maybe it's not about solving some obvious problem that already exists. And maybe that's the wrong question as opposed to what organically.

emerges out of these new governance structures or property rights structures that we sort of can't conceive of. And so it's like the, yeah, but what is crypto four question? Maybe in a sense, maybe it's the wrong question to be asking at some level. Yeah, although I kind of feel like with the amount of money that is pouring into the space, you would want to be asking that question. And again, like, part of me is very interested to see what comes out of all of this. But the other part of me is thinking, why can't all this money go into, I don't know, some sort of environmental technology or something like that, rather than who's making the most efficient way

to move NFTs from one owner to the other. But who knows? Like maybe the metaverse or Web 3 or whatever is going to be absolutely amazing and, you know, we'll take it all back. Yeah, well, no, I mean, I remember like, you sort of made fun of me, like, you know, and so we did some of our defy.

Me, make fun of you? Yeah, right. That would never happen. When we did some of our like first defy like episodes like early in 2021 because I was like, yeah, well, what is the thing that's like getting funded? Yeah. It's great to invent finance. But like finance has a reason.

It's like to fund whaling expeditions and to distribute the risk of that. And so it's like, yeah, well, what are the thing? And I guess like that is still where I stand on some level. defy or crypto finance still seems like it has to like finance something of some use rather than just and I assume and also I wonder like you know looking at this in December or November at this point with like all of these own forks many of which like are like you know they like call themselves Ponzi schemes it's like is this really going in the other direction where it's like these are just blatantly games first of all I can tell already that we are going to end up doing an episode on

And then secondly, I love that all our defy episodes always come back to the whaling industry. That's the whole point of finance. Distribute risk from something that has, you know, very unpredictable return. Yeah. All right. Shall we leave it there? Let's leave it there. Okay.

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest on Twitter, Matt Wong. He's Matt. Wong. Follow our producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of

podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.