On The Brink with Castle Island - Alex Lin (Reforge) on On-chain Innovation & Consumer Use Cases (EP.584)

Episode Date: December 18, 2024

Wyatt sits down with Reforge VC's Alex Lin. In this episode: Alex's interdisciplinary road into crypto Innovation in blockchain infrastructure Crypto-powered consumer applications Learn more about Reforge, a blockchain and frontier tech investment firm.

This is Wyatt from Castle Island, and today on the podcast, I was joined by Alex Lynn, founding partner of Reforge. Having launched earlier this year, Reforge is a venture capital firm focused on investing in the next generation of blockchain and deep tech infrastructure. Without further ado, I hope you enjoy my conversation with Alex. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by any. anyone on this podcast as a specific inducement to make a particular investment or follow a particular

strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The bank of England has pumped. 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry,

we have something called the Bitcoin. Alex, thanks for joining me. I've been excited to have you on the pod for a while. I think it would probably be great to start with a personal introduction. So we'd love to hear more about you and what you're up to these days and your road in crypto. First of all, thanks for having me on. huge fan of the podcast. I think we can kind of go back to college. I went to the Virginia Military Institute, and for a long time on the website,

the banner would say, don't do ordinary, which encapsulated a lot of my experience there. You're going to a school that requires you to dress up in a uniform, requires you to go through intense, rigorous, physical training, but then at the end of it all, you might not commission in the military.

A lot of people have asked me over time, why did you go to VMI if you didn't commission as an officer? And I think it just kind of brings about this idea of don't do ordinary in my life. It's just been a common theme, which I can allude to in many different examples. But this is also relevant because I got into crypto during my time at VMI. So I made my first Bitcoin, not through mining. So this is 2012, but through a little online business that I created through Runecape, bot farming. And those listeners that aren't familiar, RuneScape is a very popular MMO-R-R-PG game that is very

rigorous and intense in of itself when it comes to grinding out stats, making gold is kind of like a virtual medieval Sims in a way. And so I found a way to automate the playtime. And it was very lucrative. Gold mining and selling gold for real-world cash is very popular among MMO-R-R-PGs like Rundscape and World of Warcraft. And I had some buyers that were interested in buying my accounts using Bitcoin because the foreign exchange rate on PayPal was 4.5%. So that was my first foray into Bitcoin. And that kind of started the whole idea of don't do ordinary in a more professional sense.

So then graduated, went into consulting for a little bit, tried to join the blockchain group at Deloitte. and at the time they were focused on hyperledger implementation. So private blockchains really promoted by IBM. And a lot of the consulting firms were very on top of it back then. When was this? This was 2015 at this time. And fortunately, I couldn't make the transfer of classic corporate America bureaucracy

than large corporate America. But that was kind of my catalyst to deciding to leave Deloitte and pursue the entrepreneurial spirit that I've always had with wanting to be a part of something that I could drive impact at. So join an ad tech startup in New York. And that was kind of my foray into startups, entrepreneurship, and being an operator. So I was an engineer and then eventual product manager at several Web2 companies. Tried my hand at starting my own company called Tether Health, digital healthcare company. Throughout this process, you can kind of see the theme of don't do ordinary. I'm going to kind of challenge myself, go against the grain, instead of taking your

traditional consulting path or your investment banking path. And being in New York for startups versus SV. And it was around the time around 2019 that I decided, hey, crypto has been in my life personally for a long time. And so how do I get into it professionally? Defi Summer comes around in 2020. At this point, I decided to go back to grad school. So I wanted to do two things with my career at this point. It was first, go to grad school to really differentiate myself, to enter the industry, and then to become an investor. after years of being an operator. And the first was important because I think that

entering the industry as an investor, I didn't need to go to grad school. But what I did was I really focused on understanding the primitives better than anyone else on the investing side or wanting to. I did this technical MBA at Cornell where I focused on computer engineering, distributed systems, cryptography.

And that set the tone for my investing career, taking my operator experience, taking this more academic rigor and fundamentals approach to ensuring that, hey, as we kind of embark on the investing journey within this more frontier industry, that I have a very strong foundation and understanding to what drives it all. So that landed me at Schema Capital, early stage fund, generalists that focused on all things. Crypto, where I was the head of research in one of the first investment team hires. And once again, very non-traditional way, I was tweeting my way through Twitter, writing research reports, reaching out to funds, sharing deals,

getting my foot in the door just based off of the things that I was interested in writing about, caught the attention of our good friend, Ida, at Shima, and started investing at Shima. And so through that process, decided, hey, I really wanted to focus on more, don't do ordinary ideas and believe that there are particular areas that I wanted to really focus on alongside my partner now, which brings me to where I am today, which is recently launched Reforge and early stage blockchain and frontier tech investment firm that I'm super excited to have launched to support the best founders in very unique areas that I believe to really drive impact and move the needle within the space.

Yeah, really excited for you guys in the launch. First off, needless to say, this might be a loaded question, but I'd love for you to explain in your view, what are blockchain primitives? Blockchain primitives really goes back to the foundations of math, mathematics, computer science, economics, and philosophy. That's why it's so interesting to me. If I were to kind of highlight my degree specifically, a lot of it revolved around understanding consensus, understanding distributed systems, understanding operating systems, understanding how

we've kind of gone through the earliest designs of the internet to existing internet protocols to now Web 3, as we know it, and what makes up Web 3. It's a very broad category. And so the degree specifically focused a lot on the mathematics and the computer science behind blockchain networks and distributed ledger technologies. But there's just so much more to that. There's the economic component that makes up the primitives of incentives and the Byzantine fault tolerant problem that kind of makes up the earliest forms of consensus to ensure

alignment between multiple parties and doing so through a monetary incentive, i.e. Bitcoin on the proof of work side. And then once we shifted over to the new consensus designs, you still have that monetary component. That's very relevant. And then persisting on, you start to see the cypherpunk movement surface, which is the core philosophies as to why Satoshi created Bitcoin and the whole idea of moving intermediaries. So the philosophical piece comes in as to what motivates us, the morals and ethics of us

with greed and how that impacts us, I think all plays into this due to this game theory that exists within our free market economy of, hey, do we do X to want to achieve Y when we're introduced to Z factors? That's the philosophical piece and really understanding what drives humans and wanting us to either become irrational or remain rational is what makes this all crazier than it already is. So it's been a loaded question. loaded answer there as well. More of abstract answer, I guess. It's really difficult to kind of pinpoint.

But if I were to give you something more tangible, it's a lot of the mathematics and computer science elements of what makes up a blockchain and what is feasible and what's not feasible to the actual underlying infrastructure. Where do you guys see innovation as being possible within that stack of primitives, or call it the existing stack of what runs blockchains? A simplistic way to put it would be you have the execution layer, the way the transactions are settled, you have consensus like you mentioned. And you can obviously go deeper down to the physical hardware that are underlying blockchain technology and other

associated technologies. Maybe if you could orient, where can we expect to see innovation within that? And what's the end that you see? I think innovation happens at all points of the stack. Starting with hardware, there are a lot of layer one designs that will be impacted by the type of hardware you use on the validator side, you have the execution and settlement that arguably can be improved a lot. Solana and their movement of increased bandwidth, reduced latency, has persisted within the market. Because I think that every part of the stack can be innovated upon, I think that there are just a lot of core assumptions that might either be flawed or should be revisited in that stack.

So one example is the virtual machine, and I think that we've seen a lot of innovation surface in the last 12 to 18 months with respect to, hey, is the Ethereum virtual machine the most optimal form factor for smart contract execution? You have the SVM surface,

and you have projects that believe, hey, we believe the SVM is better, the slot of virtual machine is better, but we want to tap into the EVM liquidity. And so you have projects like Eclipse come into the fold. You have projects like movement or you have Aptos and Sweet native move L1s that say, hey, the move language will provide a better virtual machine because of the EVM flaws. On the VM side, there's innovation.

We're going to see execution innovation. We're going to see settlement innovation. The DA. Celestia introduced a different approach to data availability. That's how modular. surfaced. But we have to be very careful with this because even though there's innovation opportunity at each stack or layer, it doesn't necessarily mean you need to create a new protocol or a new company to address those problems. We've started to see this idea or this

issue where user experience is so bad when it comes to crypto and blockchains. Why is that, though? That's not necessarily because of the infrastructure problems. I would posit. I think that's for a lot of reasons. And it's current state, if we specifically highlight the modular thesis, we can say that the user experience has gotten so poorly. Let's look at roll-ups.

Sharding and Dang Sharding was a massive technical barrier that the Ethereum Foundation and researchers decided to say, hey, I think roll-ups will be a better alternative solution. And now you have many roll-ups and L-2s that now come in and say, hey, we will help Ethereum scale. And then because roll-ups now are introduced, we need DA for those roll-ups. We need ZKs. So you're saying infrastructure, innovation begets needs.

Correct. People just keep building things on top to improve. And you create a new market for such tools. But I would argue that that has given us a lot of misdirection over the last several years. But to revert back to your point, I think there's innovation to be had on every part of the stack, and I think that's what we're really excited about. And do you think we'll eventually get to a fast-performant blockchain that can be a universal type of settlement layer? Or will we be multi-chain?

Our thesis is there will be an oligopoly of L1s that really promote this idea of a modular TCPIP, where you don't really know what chain that you're building an app on, you don't really care as a user, what access point. If I need to use my MetaMapask or Rabi to enter the EVM, it doesn't matter. I should have wallets that can provide access to liquidity on any chain in this modular TCP underlying network. And that's that, completely abstracted away.

And when you guys are looking at the areas, where you invest, which ultimately improves the efficiency and usefulness of chains. Is that with primarily financial use cases as the endpoint in mind for you? Or are you thinking about other implementations at scale that people might not be as aware of? Definitely financial. I think financial applications are our number one use case, everything from stable coins to payments to Defi itself is a great use case and what Defy has created across meme coins, lending, borrowing, perps. The list goes on. But by no means, is it confined to that? I just think that we've been able to identify a really great use case. And we're double downing, triple downing on that.

But it goes well beyond financial applications. I think something that we're really interested in is consumer in general. It could be anything social. It could be interest media. So this idea where attention is not just social media, it's all about attention and how do you capture the interest of society and many other social contracts that come from the benefits of composability and coordination that blockchain's offer, how do we understand that space? And it's very difficult right now to know exactly what consumer product I want to be investing in. Because you don't really know what you don't know. If a founder, a really strong founding team presents an idea, I'm willing to bet that there's a high probability they will pivot. On the consumer side. Yes.

So virtuals, the AI agent protocol on Ethereum, or I guess specifically base, they used to be Gamedown, building another consumer product. Pump. Fun. Fun, used to be the team that was focused on NFTs. Caviar. That was not too long ago. One of the areas that I'm most excited about is, hey, I want to invest in founding teams that are highly experimental, that are willing to iterate.

They could have no idea what they want to build. 12 months ago, Blast launched. Let's capitalize and let's use this sandbox to identify an experiment what we can do, from incentives, from unique coordination, mechanisms, NFTs, what have you. And then you have another network launch in six months. And, hey, I'm not promoting, let's produce Gryft. But I think it's very important to experiment right now. When everything is moving so quickly, switching costs are incredibly low for the end user. We must understand, hey, what works in this new paradigm and what doesn't? And the only way to do

that effectively is to take bets on really, really experienced founders and founders that are willing to take risks to experiment. That's really the only way for us to kind of do this at scale properly. In the areas where you're seeing innovation in the consumer space, what's material there or what moves the needle in terms of something that could be useful, widely used for society will be around in 10 years? I think virtual's protocol is cool for the sake of anyone listening. it's, to my knowledge, essentially you can buy tokens representative of these AI agents that exist across media platforms. I see that as somewhat temporary and novel. Go free to push back on that front, but where do you see staying power is another way to ask that? That's the biggest question,

sustainability. That's really hard to answer today. If I knew, then I would be investing in it and I would be shilling at this one in time. If we were to really look at the benefits of crypto, I'd be the first to tell you, hey, we don't need a token for everything that we're building for. And so when I think about alternatives to Defi and then thinking about what's sticky, crypto has this incredible ability to encode and automatically enforce really complex social relationships and agreements. I'm only looking at consumer. And maybe we could categorize deep in decentralized physical infrastructure networks

within consumer because of the form factor of being able to interact with one. But I'm more so thinking of true application consumer that solves a problem that I experienced day to day. If crypto is able to enforce these complex social relationships and agreements that were previously impossible to formalize, those problems are the ones that I think crypto is really fit to solve. So examples would be reputation systems that can't be gamed or centrally controlled. And so I think we have the earliest versions of that and Dow's and

governance mechanisms that I think can always be improved upon. That's because of the accountability of blockchains is the unlock there. The accountability and incentives and then also composability, being able to then add on to core pillars of, say, a use case and then improving it from, say, a different third party that is not biased or is not centrally managed by that original core pillar or problem. Then you also have your typical, hey, what are some coordination mechanisms for large groups of people, large entities, large agents that doesn't have a trusted central intermediary? You have commitment devices, being able to commit to certain contracts, whether it's social, financial, legal, that are truly binding. You know Dunbar's number.

So the number of people that we as individuals can probably manage in our day-to-day lives. What if there are ways to enable trust relationships that can scale beyond Dunbar's number and doing so in a way that is both economical and technically feasible? Once again, we have good understanding from a high level what can be enabled, but I think execution is everything. And we just haven't seen that yet. And that's why I think from an experiment highly iterative approach, we will be able to get closer to that outcome.

I really like this framework you've given of blockchains as enabling contract and social being a primary use case there. At risk of wildly generalizing a lot of businesses in the world, a lot of the largest businesses that we see take Uber, Facebook, advertising like you mentioned, rely on the value proposition within their closed-loop systems. And if you open that up, they will lose a lot of, frankly, why you use and pay for those platforms. An example being Uber relies on a closed network where they maintain the relationships between you and the drivers. If you open that up, they lose their value proposition.

Facebook relies on being the keyholder of your network. And if you could port that elsewhere, they lose their value proposition. Given those are the largest companies in society, do you think that contracts, let's say social contracts enabled by blockchains, have the actual potential ability to get around that and be adopted at scale if arguably the strongest forces are going to be, in my view, probably very opposed to that. My immediate thought is individual empowerment is incredibly powerful mechanism in society, meaning how do you promote agency?

And I think that that's kind of the core question I ask of why does this all matter? Because you can stay, if you remove Uber as a centralized entity and you as an individual open up an app that allows you to connect peer to peer to drivers. And that app is a protocol that is decentralized, fully decentralized, and not managed by an organization, then the transaction occurs between you and the driver. So you're empowering the driver to manage his or her own book of business when it comes to driving. And then on the demand side, you have writers who want to take advantage of the service for whatever purpose. And so the barrier is the experience.

We as individuals should live that way. And I think this is a little history lesson. This goes all the way back to Athenian democracy of, hey, how do you promote individual views and perspectives within the governing body? And then you have the Renaissance, then you have the Enlightenment, then you have the Industrial Revolution, then you have so many of these movements in history to the civil rights, to then women's rights and suffrage movements. And then now we've entered the digital world. We've reverted back and said, hey, you no longer have these individual rights because you have governing bodies within the digital realm that control you. And so essentially we're saying, hey, like, how do we revert back to what has worked? really, really well for us in the physical world throughout history, but in the digital world.

And so if you're able to unlock that, because the internet itself and what it enables is a beautiful thing, makes it incredibly efficient and has created billions and billions and billions upon trillions of wealth for us in innovation and technology, and I think that that increases exponentially once we focus on individual empowerment again. That transition is only blocked by user experience. Yeah, but purely experience and the technology infrastructure that will enable that to happen seamlessly. That is a big part of the categories of reforge. And it's in the name of the firm as to what it is that we are reforging. We're fundamentally reforging human interaction digitally because of an improved internet and an improved financial system.

I take the stance that the platforms that thrive based off of the same, or power of a smaller number of individuals, Twitter being one that comes to mind, are easier to disintermediate versus those that derive value from having just a really deep, robust network, Uber being one that comes to mind in that sense. Because if you can move the high signal individuals to people that make Twitter a place that you want to be, I think you can create a rival platform or whatever a next generation would be, I do think it's very difficult to move platforms that derive their value from a collective participation that they've built over a period of many years. I agree. I think that's why blue sky and a lot of the social networks have had a

difficult time pushing for adoption and proper distribution. In a funny way, I think that the amount that we're, some would say chronically online, promotes individualism, which probably in a way benefits new types of social media because people are tending to gravitate towards where the individuals they want to see are. I think TikTok is the living, breathing embodiment of that. Whereas I don't know about you. When I used Facebook in high school, it was all about just connecting with their friends. You weren't following celebrities or anything like that. I feel like it's changed a lot. I think that there is the component of monetization and having access to content that you wouldn't have with just your friends.

If you could watch an Uncle Drew video and you don't have any friends or basketball players, then of course you're going to want access to that. I think a revolution of content has been a fascinating. So this is something that came up in one of our conversations today, and I'm curious to hear your respective on it. But I think a major unlock here from what blockchains can bring to social platforms is you can arguably get unfiltered

or semi-permissionless forms of social interaction online when you have a governing body like Twitter or X, where, yes, it's a centralized governing body, but they're not going to stop you from doing essentially anything. The harder part is, I think, our financial system is very stiff in terms of what you're able to do online. And an example of that has been the debanking issue that you've had with the cannabis and the crypto industries,

and you'll have payment service providers who don't necessarily want to work with certain legal, activities, especially where there might be more of an element of forms of identity that are non-traditional. Crypto and blockchains can be used to be the financial rail of what is otherwise a fairly permissionless platform and allow for a sort of open commerce experience. In a way that has hopefully evolved what we were 10 years ago, where you had this use behind illicit transactions, that there's a happy medium where you have filtering in terms of making sure that there's no elicit activity and movement to bad actors,

but you allow for an open commerce experience buying and selling that happens in the social realm. And I think if you look at the Web 2 stack, they have shortcomings that could be easily mitigated with Web 3 from data modes. What's an example of that? Data modes from these companies that have potential to hurt users is mitigated by composability. of blockchain networks and smart contracts. Can you explain that further? This is very top of mind, especially with the recent OFAC ruling,

with respect to Tornado Cash not being responsible for illicit activities because Tornado Cash was wrongly accused of promoting illicit activity. OFAC said, hey, we don't really have the evidence or the positioning to say that this was promoted by you guys, Tornado Cash. I think privacy is surfacing again as a really important component. And this is relevant because Bitcoin's original vision was before chain analysis and before a lot of the existing companies, privacy was part of the Cypherpunk manifesto. And the whole idea is that you really couldn't determine who was sending Bob by Bitcoin.

And that was really the core ethos. when you have this opportunity to still have an open network associated to data availability, but then doing so in a private manner, wanting things to be secret versus wanting things to be private is very different. Privacy still enables a data mode within products. Whereas if you look at today in Web2, the data modes that now protects institutions no longer protect the user. You essentially switch that with crypto, with blockchains, where you're protecting the user and the opportunity to say, hey, me as a user, I want my data to be open on my own accord to benefit me.

But then if it doesn't benefit me and benefits others, then I don't want it to be available, that should always be in the decision of the user. And so I think that crypto switches that paradigm and makes it more powerful for us. So that's where the agency returns back to the user. And to put a bow on a lot of the things we've hit on, do you think the industry is moving the right direction in terms of implementing these sorts of new solutions you'd like to see? I think we are. I think we're at a very important inflection point with what it is that we're, one, allocating capital towards and two, what founders want to be building with this pool.

I think we're very far from it being consensus that we're going in the right direction. And I say that because you'll still have bad actors, you'll still have a lot of of projects, founders, investors seeking short-termism outcomes that don't really move the needle. But I think that we're starting to shift both from regulatory clarity to better technologies, to better incentives, to a general understanding of what it is that we're capable of building. Slowly but surely we're going to have that shift come sooner rather than later. And what are you excited about in the next year broadly? I'm really excited to see the changes in administration.

The latest developments in the macroeconomic environment will start to drive better human capital into this industry. I think that human capital is probably one of the most important drivers of innovation, if not the most important driver. And I think that's rather obvious, but I think we forget, especially when for a long time, crypto had a lot of brilliant people come in and, and want to build an experiment new things. But a lot of that's dissipated with AI and a lot of other very interesting industries. But I think because of the existing overlap that we're now seeing between free market economic

opportunity that crypto offers with enabling technologies like AI or edge compute or other kind of physical infrastructure improvements, then we're going to see an influx of individuals who are going to really look at these problems that we're experiencing and saying, hey, I want to break the status quo and solve them. And I'm not doing it just for the opportunity to generate wealth for myself, but because this is way bigger than me as an individual. Cool. I love the human capital piece.

Well, Alex, thanks for coming on. I've really enjoyed chatting and excited for what's ahead for Reforge. So appreciate you joining us. Thank you. It was a pleasure to be on. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com

or just click on the tab in our website. Thanks for listening.