On The Brink with Castle Island - Ash Egan (Accomplice) (EP.19)

Episode Date: November 18, 2019

Ash Egan, a Partner at Accomplice joins the show to discuss cryptoasset investing approaches, DeFi, smart contract platforms, and the categories that he is the most excited about in 2020. 

Hey everyone. We have an exciting episode for you today. So we had Ash Egan, a partner from accomplice on the podcast to talk about his views on this industry. I've known Ash for a long time, I think he's a really thoughtful guy, and so we're excited to have him on the pod. So when Ash lived in Boston, we actually used to regularly meet for breakfast before work and just talk for hours about our views on the industry, the exciting companies that we were seeing, and just in general what the competing investment themes and theses were. So this is really a continuation of that. And Ash is building a great reputation in this industry. So before his current role at Accomplice, he was an investor at Converge Venture Partners up here in Boston

and also did a stint at Consensus Ventures. And so we wanted to have Ash on the pod because I think he's someone who comes at this space from a slightly different perspective from us. And we think it's important to expose a range of ideas and investment themes and theories just around how value should accrue within crypto asset networks in associating companies. So we want to expose that on this podcast. In this episode, we talk about a range of issues and discuss things like the evolving landscape for smart contract platforms. Ash is an investor in a number of these.

Talk about the current state of Ethereum and some of the companies that are doing interesting things in that ecosystem. And then we talk at length about investable categories within decentralized finance. And in general, we talk about a lot more things as well. So we had a lot of fun with this one. Ash was a good sport. And I think you'll enjoy this one too. So without further ado, here's Ash Egan. Brought down by Bad Mortgage Investment.

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 to Britain's ailing economy with a new round of Conjectureease. 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.

Bitcoin. Welcome to another episode of the On the Brink podcast. I'm Matt Walsh. And I'm Nick Carter. And we have Ash Egan in studio today. Ash is a partner at Accomplice. Thanks for joining the podcast, Ash. Thanks for having me, Matt and Nick. I'm excited to be here. Trying to get you on for a long time. Glad that we could, glad that we could make it happen. So, Ash, we've known each other for a long time. And I know your- Before crypto is cool. Before crypto is cool. I remember doing breakfasts in Beacon Hill, just talking about crypto in the mornings before we were both in it full time. But for the listeners, tell us a little bit about how you came to be interested in this sector and a little bit about your career path to how you got to accomplish. Yeah, so I don't have the cliche story of, you know, I went on the, I went on Reddit,

read the Bitcoin white paper, and immediately I was hooked, started buying stuff. That's not my path into the space. Although I did have a friend in 2009 who was mining Bitcoin, handed me a USB. I don't know where that USB drive is, but we'll save that for another time. Yeah, my story, I, so in college, went to Princeton. I started a few companies in college. I was sort of thinking about what kind of company I wanted to start. I looked at guys like Richard Branson, Elon Musk, Mark Zuckerberg.

I was like, wow, you know, they built some incredible organizations. How cool would it be to run one myself? And so I looked at VC as a place to learn about a bunch of different industries. So did that coming out of school, went to a firm here in Boston called Converge. At the time, it was called Common Angels. And I actually figured out two things. One, venture capital is actually a ton of fun, you know, meeting with incredible entrepreneurs, you know, providing value. I know that's cliche and everything like that.

But yeah, so got into join Converge and I looked at areas that traditional venture capitalists were overlooking. And so realized that those were going to be emerging areas. One of those was blockchain crypto and the other was vertical machine learning. And I think after reading the Ethereum white paper, it was all blockchain crypto and right around the time that we started doing our breakfast in Beacon Hell. That's great. Good background.

So one of your first forays into the space was an investment in Chinalysis when you were at Converge. What was the thesis that got you interested in blockchain forensics and how did you come to focus on that area? Yeah, I think at the time, no one was calling it blockchain forensics. Like I had such a dumb thesis going in. It was sort of the traditional world wanted to understand what was happening in this burgeoning, sort of emerging world of, it was really just Bitcoin at the time.

I'm sure there was, you know, Dogecoin and a few others, but it was really like, it was as dumb as the traditional world wanting to find out what was happening within Bitcoin and crypto assets. And I'm chatted with, it was actually tech stars. Demo Day in New York. This is the Barclays Accelerator. Met them during Pitch Day and, you know, there were a bunch of companies. I think they're the only blockchain crypto company in the class. And Michael Groniger, you know, talking to him, C.O. at Cracken and his and Jonathan Levin, those two guys and sort of as a pair, they're just so impressive. And so sort of just like went in blind and was

able to squeak into the seed round and the rest is history. They've done so many awesome things and have grown into a pretty incredible company. So has the story been consistent from seed to present or did it start as a more general kind of business just trying to understand blockchains and then they got into the compliance use case later? Yeah, I think compliance was always a piece of it. governments were obviously one of their early customers. I think Michael definitely had a roadmap and idea of how he wanted to build the company, but I don't think anyone at the table then realized blockchain and crypto would really like explode in interest over the next two, three, four years or so. And they've done a great job of, you know, spotting new lines of business and

taking advantage of those. And now you have a whole, you know, there's probably, you know, a few dozen or so companies within the blockchain forensics space. And they're even thinking about, you know, expanding into other areas beyond just forensics now. What do you make of the, we kind of have to ask this, what do you make of the apparent contradiction between the kind of, you know, devil may care, slyphorpunk ethos of crypto and then the tribe that's seeking to integrate it into our financial infrastructure, which I guess we're all part of that tribe? Yeah, I remember writing a why we invest in chain analysis blog post on LinkedIn, and I got like all

these direct messages like, F you're an idiot, like this is what Bitcoin represents and whatnot. And like it was actually like sort of depressing getting those messages. I thought people would be like excited. You know, it's like when the first few investments of my venture capital career, I thought everyone's like going to be like, you know, gosh, go chain analysis. And instead it was like, all these people were like, what are you doing? like these guys are the antithesis of like what we're trying to do in this space. And as you both know, we've matured a lot. That segment of the industry is still vibrant. But it's, you know,

I'd say it's now a microcosm of a much larger movement. It's good to get that hate coming at you every now and then. It keeps you humble, right? You know, it's human. Like, you need a little bit of pushback. So tell us a little bit about a comment. What the firm is focused on? What's your investment strategy for blockchain? Yeah. So, yeah, just for a little bit of context, so from Converge went over to consensus to help launch the ventures arm over there.

And then a year and a half or so ago, I had known the accomplice guys for a while being here in Boston. And it was, I think I just always looked at them as pretty incredible company builders. All the entrepreneurs I spoke with were like, you know, we really like these guys. and everything and had gotten to know them just talking about blockchain and crypto. And so a year and a half or so ago at this point, touched base again with Jeff Fagnin.

And he was like, you know, we're ramping up, we're thinking about ramping up what we're doing on the blockchain crypto side. And so I sort of just jumped at the opportunity when I found out he was thinking about hiring. But so, yeah, accomplice previously called Atlas Venture. We were the tech side of Atlas, rebrand in 2015 or so to accomplice.

We're unaccomplice two right now. $200 million funds raise every two or three years or so. I think we look at crypto really similar to, it's just an extension of venture capital. You know, you're sure there's nuances to it, but I mean, you guys are helping out these companies on a day-to-day basis. You know, you're helping out with strategy, recruiting, just being a sounding board, you know,

having a macro view and relaying those thoughts and what you're seeing in the market to, you know, companies you've invested in or you want to invest in or just being a helpful resources resource for folks in the community. I think so within crypto the way I like to break it down is there's crypto networks and then there's crypto enabling companies and on the crypto enabling company side these are traditional equity plays that may you know it's chain alysis coin list blockfi bison trails tourists simplex you know we've done we've done a fair amount on both sides. But on the crypto network side, these are the Bitcoins, Ethereums, and

Bitcoin, not Bitcoins, plural, but... So, you know, one of the interesting things to watch over the past few years has just been the diversity of theories around where value will be captured in this market. And so when, you know, when we were first starting to look at crypto, there was really just Bitcoin, to your point, Ethereum hadn't launched yet. And so you're looking at a lot of companies that are building in the Bitcoin ecosystem. And there are a lot of companies that got funded maybe with the wrong impression of what the protocol actually was for.

And so, for instance, there was a lot of payments oriented companies that were proposing to do layer one payments on Bitcoin. And we know how that turned out, you know, not well. So curious how your views have evolved over time on just your theory of where value will accrue to these things in terms of will value accrue to the protocol and if so what type of protocols and will value accrue to the operating companies and if so what category is the most exciting so kind of a large question but just how of your views of value accrual shifted over time yeah so I think if you're looking at it from a company perspective like a very micro just company

to company the way you know just the simplest answer is we want to be aligned with entrepreneur And so, you know, in 2017, everyone was talking about, you know, we're going to have a token, we're going to raise capital for that token. And in a lot of those instances, like a token did not make any sense at all. And so I think our mindset from just like a company to company perspective is like if an entrepreneur wants to do a token, great. Like, we're supportive of that. But, you know, we want to be as aligned in terms of, you know, whether it's just pure equity, whether it's a token, whether it's both, whether it's like maybe they'll have a token in the future. So, and then just to break it down a little bit more value cruel. So I think if you look at these crypto enabling companies, these are very similar to traditional

venture capital startups. You know, it's either revenue users, you know, the potential to earn revenue based off those users, you know, so I think like you can look at a lot of those in a similar lens to the traditional startup and venture capital world. I think for crypto networks, it varies by where they sit within the growing stack. I mean, we don't have like a set stack or anything. I think, you know, layer ones, you can look at gas as, like with Ethereum, you can look at that as revenue. I look at a lot of these layer ones as just digital economies.

And then, you know, atop them, there's digital provinces that are getting built out. and then some of those are delivering end applications. In other instances, it's much more modular. So you have digital economy, digital province, and then apps or DAPs. And so with DAPs, ultimately those are going to be users. I look at Robin Hood as a great example. Like Robin Hood didn't recreate NASDAQ or anything like that. It was just like an overlay and making stocks just much more accessible

to a mobile native user. And then if we go sort of down a layer, I call the, you know, you can call them digital provinces. I also look at what's working right now is, you know, defy, the liquidity layer. I think there's still a ton of experimentation around token and token models there. A lot of folks like governance and they like to value it purely off of governance. I think like an ideal world, you have a native token that acts more like, you know, it's capturing some type of value that's happening on the protocol with more liquidity, you have more network effects, and hopefully the native token is scarce, and, you know, as a holder, you're essentially seeing, you know,

some of the upside of the activity happening upon the liquidity network side. I think it's been interesting the last year we've seen more of these tokens with somewhat explicit capital return mechanisms being created. So with MKR being, canonical example in terms of the automated buybacks, you know, deriving from the, essentially the revenues of the protocol. And then you have BNB, which did very well, which gives token holders of somewhat loose claim on the revenues of the exchange. I mean, it's not a perfect instrument by any means.

And then that spawned a whole bunch of imitators. But the challenge, I think, is if you are going to introduce more explicit capital return mechanisms or cash flow mechanisms, then that brings, and you want to have American token holders, then you have a real risk that you know, you get branded to security and so on. But on the other hand, these are good properties, right? These are explicit mechanisms which you can use potentially to construct a valuation. Then the token is actually backed by something. And you sort of eliminate, some of the uncertainty in terms of how to value these things.

I mean, it's still very immature, I would say, in terms of, like, the cash flow tokens. But I find it to be quite promising. But then there's the reality that most of these issuers don't want to accept, you know, all of the difficulties and responsibilities that come with being a security. Is this, like, a positive move for you? And, like, how do you see that tension being resolved? I mean, do you see some of these, like the MKRs of the world, maybe actually? actually biting the bullet and and deciding, okay, we're going to trade this thing on an ATS

on the security token exchanges. Yeah, I mean, the regulatory piece is something that, I mean, in an ideal world, you have a new asset class, right? I think we can agree on that. Maybe other folks are totally fine with the current regulatory environment. So, yeah, I mean, it's super tricky. The timing is unclear. I think MKR will go down as a fan.

fantastic case study. But, you know, look at how MKR has performed. It's been, it's been terrific. So, yeah, I mean, it's so hard to say, like, what is the best approach for all these things? The thing is, if you go into this, you know, if you jump into the security bucket, then you lose out on a lot of the peer-to-peer nature, like a lot of the things that gets me excited about this space. And so by having, you know, you're going back to like middlemen, cuts, you know, they're taking cuts of transactions or whatever it may be. So I'd hope in an ideal world you have a new asset class. But again, you know, is it a year away, two years ago, two years away? Is it 20 years away? Like, I mean, it's really hard to say. Do you think we're going to see competition between

different jurisdictions to make themselves palatable to crypto issuers? Yeah. I mean, we're really, we're seeing some of it play out in the Zuckerberg and Lieber hearings. It's like, you know, you hear the congressman and congresswoman ask, you know, why is Libra domiciled in Switzerland? It's like, well, you know, that's just the standard, like setting up these foundations, Tezos, a bunch of others have, you know, they were domiciled in Switzerland. And we'll see if Switzerland remains the Delaware, you know, relative, sort of keeping the Delaware C-Corp analogy is, you know, is Switzerland the place where all these foundations are set up. I think, you know, the China, sort of what's happening with China and China's digital asset,

like I think that sort of puts the U.S. in gear. It's like, okay, we got to figure out a framework here so entrepreneurs don't go to other countries. Just being at consensus, you know, like I had a lot of friends who left the U.S. because whether it was for tax reasons or just like, you know, they didn't want to constantly be looking behind their shoulder and thinking around, you know, am I, whether, again, taxes or just like, am I doing the right thing? Because it's like the framework is super unclear. Right, right. Going back to something that you talked about, speaking with entrepreneurs and seeing a lot of tokens that didn't make any sense, certainly we've seen a lot of that

over time. So the question is really around how you think about, categories of value accrual where token does make sense. So some of the dominant themes and theses in the area would be around non-sovereign money. Like that's a good use case, a digital gold type of bearer instrument. So that makes sense. Others would look at smart contract platforms and the theory there would be that there would be a reserve asset for decentralized applications to be built on top of. Curious what your views are and how you filter out the signal from noise when it comes to projects that have a native token and how do you figure out if they make sense? Yeah. So I think ultimately there's only going to be, it's tough to say exactly what it is,

a dozen or so of these layer ones or massive digital economies and how they're sliced up, whether you have a vast majority of them are smart contract platforms, maybe they're split up by geography, maybe they're split up by use case. Like it's, if I knew how the future was going to be panning out, like it would be incredible, but no one truly knows how they're all going to pan out. I think today we're still very much so in experimental mode. And just given the regulatory environment, we're actually, there's not as much experiments and innovation around like these various models. I was really encouraged to see Spencer Dinwidis, you know, tokenizing his contract. Like, I think there are a bunch of different ways that these can

accrue value. And what's the most interesting to me is they're digitally native. They should based off of the platform or products use, like they should be accruing value. And so, you know, the sort of the Spencer Dinwiddie type example, like I think around like these personal tokens, that's very different than what 2100 or a few of these others are experimenting with. Whether it's like reputation. So I'd say it's really, really, really case by case, but you know, the hope is that they're scarce and, and maybe they're, you know, you're actually performing some type of action or like they give you access. I do think that, you know, we're not going to live in a world where there's 50,000 tokens.

Like, similar to talking to companies, they're like, you know, I want to get AWS credits. You know, they get those credits when they need them and then they buy more than when, you know, when they need to use more of them. And so it could be like an access type thing. We may see forks and whatnot if they're too rent-seeking. But I think it's difficult to answer because it's so I can generalize it a ton. But I think in every product of platform, it's going to have a different type of value accrual.

What do you make of this theme that we've seen in the last 18 months or so emerged called generalized mining? I think it's the most popular word for it in which the provisioning of network resources is something that token holders are meant to participate in. You know, with funds, holders of tokens being encouraged to be active and participate in their networks. Is that some of that you have committed or have contemplated doing once you become a large token holder and some of these active networks? Yeah. Yeah. Yeah, so joining Accomplice, rewind a year and a half, two years ago or so.

Like, there's been a clear movement towards proof of stake. And I think we're now at the precipice of a lot of these proof of stake networks launching. As an investor, you know, you either build out yourself or you partner with someone to do so. So just talking to the accomplice team, it's, you know, do we set aside a few million bucks to build out the infrastructure, do all these things? we were actually in the process of thinking through all of this and then I met the bison trails team and I was like great we love to invest in your seed round and that's how and that's really how it all happened but yeah I think it's important to be

securing and supporting these networks I think it gets tricky once there's a contentious vote you know do who do you side with is it the team is it the community Is it the fellow investors? Is it potential future users? I think the good piece of that's today, like a lot of investors, team and users, I hope are aligned, but it's going to be something that, you know, there's probably going to proxy and like all these sorts of things.

But yeah, it was sort of internally, it was do we invest and build this ourselves or do we, and it's a full-time job, like, you know, supporting all these networks, depending on how many you're investing in. Yeah, because the issuers will feel a little cheated, right? If you invest in the token and then don't participate in whatever it is that token holders are meant to do, right? Yeah. Well, and if you're also, if you're not staking in these proof-to-stake networks, you're

getting crushed by inflation depending on what the inflation rates are and if other folks are staking and whatnot. But yeah, I think that can be a value prop of why, you know, our fund is a compelling fun to take money from. It's like, look, we're going to be aligned with you, but ultimately, like, we all want to build something of extreme value here. And so maybe at times it's siding more with end users. And that's not to say, you know, let's say in theory we're invested in MKR and we're like, we want to bring the stability fee down to, you know, negative interest rates or something like that. You know, we went to that. But as you guys saw in the recent vote, it went from

and not a long time frame from 20 or so percent down to 5.5. So I don't know who's behind that and whatnot, but I didn't, I feel like I didn't answer you guys like value cruel stuff perfectly, but it's just, I mean, it's hard to say because you put out, like, you see all these models that come out and you're like, they can be like, Berniske did a ton of this. Right. And I think some of it still holds true, but like for the most part,

you know, there's just so many different variables today. I don't know. Would you be curious to get your thoughts on it? Yeah, I think there's a lot of model risk. Like if you become too indexed to a certain model and you start to see the world through that lens, then it can mean that you're putting on the blinders a little bit. So, yeah, I find the formal model is pretty interesting. But I don't think that we've really settled on one as an industry that describes these assets.

assets well. And also I would say the taxonomy is so, so, you know, disparate. There's so much heterogeneity in these assets. To me, like Maker and Bitcoin and like Bat, like basic attention token, those are three totally distinct things. Even like Unisw like when you're getting, when you're pooling liquidity on Uniswap, like that's, you're getting a synthet. You know, you're getting a token that's representative of your ownership of that pool. Like that's even very different than those three models. Maybe it's the most similar to MKRs. Yeah, I think there's the other question of, is there a category-based view of these assets that would lead you to believe that certain categories are just going to be worth a lot more than others? And so, for instance, like money versus frequent

flyer points in a traditional economy that take crypto out of it, you know, you'd probably rather have exposure to money versus frequent flyer points. Yeah. Or, you know, if you say, subscribe to the thesis of Web 3 and you think around like a global permissionless AWS and being able to rent time of that tokenize AWS like in theory that should be extremely valuable how far that future is tough to say right as have you found a utility token or an application token specifically which you think has achieved some sort of critical mass I remember like, you know, 2016, that was very much a story is that we would have utility tokens, which through the strength of their community and usage and so on would have some stable value.

And then, like, more recently, the emphasis had been much more on like, okay, no, let's create alternative, you know, base layers. And like the story through how they would accrue value is arguably simpler. Because as you say, you're like creating a digital commonwealth, you know, and you need to, And so the economy is the thing that backs the strength of the token. But on the utility token side, I don't know if I've encountered one that I think has a stable value. Well, I don't think you can look at it in the same lens that you're looking at Bitcoin. You know, like I think a really interesting example is pool together. And, you know, you're, you are buying a ticket with die.

That ticket in theory is a token or could be in synthetic. And so, but that's, you know, there's a, it's a scarce asset. It gives you, you know, the rights to a pool, which, you know, it's leveraging a few different protocols and whatnot. But I think that that's an, I think synthetics, are there just going to be more unique? Like, I think around, even like, you know, when we're going to be staking, like, you could in theory have a synthetic that's representative of, you know, what we're the amount that we're staking and who we're staking with. and we're casting it and all these things. Yeah, it's a great question, but I think it is quite a different lens than looking at Bitcoin. I mean, maybe you could say Libra. I don't even know what that will look like.

Will that be a utility token or app token? Or I guess they're going for money, similar to Bitcoin. I think so. And like, you know, in the case of Libra, they're not relying on like, you know, some sort of fiction to bootstrap the valley because they would have, in theory, all this collateral. Right.

I don't think it would be directly convertible, but there would definitely be some sort of reserve under there, which I guess is where the value would come from. Maybe Tone telegrams token would be a better example, but we don't know what that even looks like out in the wild. I guess Saya has a utility token, albeit it's a dual token structure, and so it's very understandable how the security token would accrue value. you. But that's in production at least. Yeah. I mean, there's plenty of utility tokens that are actually worth something. It's just the question for me is what is the connection between the usage of the network and, you know, the valuation? For the most part, it seems to be kind of disconnected still. Yeah. Well, I think the realization in 2017 is that businesses, corporates, enterprise like they don't want to be doing commerce in a volatile asset like that became pretty

crystal clear and so we've seen in 2018 we saw just like so many stable coins either an ounce or come into market and so I think the value accrual piece there like it could be maybe you have a world where all of these massively used applications have their own stable coin I tend to think there's probably going to be a few mega winners there, whether they're sovereign or non-sovereign. And then there's also a, there's essentially digitally native equity where you have almost this dividend or governance type token. And that will, should accrue in theory a ton of value. But there's a separation between what's actually used within the application or for the service and then where the ultimate value accrual happens.

Speaking of stable coins, actually, so there's been an interesting trend lately. So the most used stable coin for defy outside of die, the most used stable coin with convertibility is USDC. However, I guess there's maybe attention there potentially because so many of these defy use cases are explicitly like permissionless. We're not going to ask any, you know, any of the relevant authorities for permission to create financial products. We're just going to do it. And the assurances you get from using those products come from the fact that you can inspect the code, everything's open source. There's not necessarily an intermediary, although in some cases there is. And then you have USDC, which has obviously the potential to be

blacklisted and could maybe be used as a lever to apply pressure against some of these use cases. if it becomes super deeply, you know, starts to proliferate throughout defy. Do you see like any potential risks there in terms of what's ultimately something which is permission by the circle and Coinbase kind of consortium operating as collateral in a permissionless kind of context? Yeah. So I think that if we started to see a sort of an increase of activity where Coinbase is, or you know, you could say the same thing about GUSD or any of these balance sheet, any of these balance sheet back stable coins where they, you know, ramp up blacklisting and all these things. Like, you know, I think that will change how users

look at a lot of these things. And I just look at a spectrum of trust. Some people just have more faith in, you know, Coinbase and, you know, the fact that they've raised half a billion bucks or whatever it may be. Others look at, you know, just going to DevCon and hearing some of the folks talk about Maker and, you know, their experiences living in Argentina and how they have actually a ton of faith in MakerDAO as an organization entity. And, you know, I'm sure they're obviously familiar with Coinbase's stablecoin and whatnot. But I think it's just like a spectrum of, once we begin seeing more of that, if we ever do,

I could see that changing how people look at it. But it's really liquid. Now we're just, we need more liquidity. Like, we need more use cases. You know, Coinbase announced the $2 million defy fund to actually like inject more of USDC into defy in general. So like I don't even think they're, if maybe they're having internal conversations about blacklisting, you know, certain addresses or something like that.

But it's just tough to say because we haven't seen some of that. Do you think any coin is immune to that, Nick? I mean, like, Maker in of itself, raised venture dollars, and there is presumably a single point of failure there, even on that platform. So if one of these defy use cases were found to be conducting commerce with someone who's on an OFAC sanctions list, I think it would be pretty easy to target them. I think some of them don't necessarily have these obvious pressure points. just off the top of my head

I think Uniswap is like doesn't really I mean you might know better than me but I don't think they have a corporate wrapper around them I mean compound does of course some maker has the foundation

but if you're trying to move a US dollar backed asset on chain there's going to be single point of failure there yeah I mean unless it's the dye style although I guess there is also ways to interfere.

I think the on-ramps and off-ramps are the much more realistic way of government intervention. And just look at like Coinbase, I think one of their biggest modes are, is the on-ramp and off-ram. Like if you're going to buy Bitcoin, probably the easy, like, sure, you could go Robin Hood, but there's, you know, or you go cash app or something like that. But the reality is most folks are just buying via Coinbase. And so I think it would, it's more likely to happen on the, uh,

from the on ramp and off ramp angle. So switching gears a little bit. So there's been a tremendous amount of venture investment into Ethereum competitors, or as Chris Berniske calls them, Ethereum killers, Ks. So you've had a front row seat here working at consensus on the state of Ethereum over the years, and you have invested in some of these Ethereum competitors.

So curious what your thoughts are generally on the state of Ethereum and maybe talk about why some of, of this funding is coming in for its competitors? Yeah, so I think Ethereum, reading Ethereum's white paper is what really got me super interest in this space. And so, like, I love Ethereum. I think Ethereum will continue,

some form of Ethereum, maybe multiple versions of Ethereum will be around in 10 years or so. So, you know, there's, it's, it's, a lot of stuff is going on right now. But so, you know, the Bitcoin, Bitcoin camp is looking at Ethereum. It's like, that's not secure. Like, what are you guys doing?

Like, why are you building all these businesses at top Ethereum and whatnot? I think you look at the theorem camp looks at a lot of these new sort of layer ones and digital economies are like, what are you guys doing? This is so insecure. Like, why are you trying to, like, raise money and get, like, these businesses? And what I think is happening. So there's some really cool stuff already happening on. Ethereum today. And I think we're going to continue to unearth new use cases of smart contracts

with just the current 12 to 15 transactions per second. Look at what ERC 721 and NFT is like the explosion of activity there. I think we're going to see something similar to these, you know, over the next six months, we're going to see a whole, let's say, you know, five high profile, probably more than five high profile layer ones launch. And so I get really excited about that because I think we just have new sandboxes. Like I think the pie is going to continue to grow. You know, there's a certain amount of developers within the blockchain crypto sort of sphere today. But, you know, if this is what we think it might be, the hope is that pie will grow exponentially from here. And so, you know, with these new layer ones, whether they're, you know, high scaleability,

maybe it's like they have a specific geographical focus. Maybe they have a different approach to scalability. Maybe it's a different approach to value accrual. Like, I just think that expands the sandbox. And the hope is that, you know, allows people to build, you know, applications more easily in all these things. I think that, you know, launching a new. layer one. There's so many things that you need to think through. Like Ethereum and Bitcoin have

been grandfathered in here in the U.S. from a regulatory perspective. And looking at Ethereum, like there's the tooling, the libraries, like the activity that's already happening. A lot of people like to point to the Bitmax sort of stress test. You know, Ethereum's gone through that. And so like it's it's a steep hill to even you know even launch even go a lot like you know we've seen some of these it's like you can't launch at all um and we'll see how that how that plays out but like it's you can't be faint of heart to to launch a new layer one yeah that's for sure especially after the letter telegram got from the SEC yeah so what is it in your mind that is the primary complaint of many of these layer ones that are launching.

Is it just that we want to build things that are not possible from a scaling perspective on Ethereum, or is it a more fundamental criticism? Yeah, so I think it really varies. Like, for us, we're not going to invest in four layer ones that all have a very similar approach. Like, if you look at our, so, you know, you look at Coda leveraging ZK Snarks and sort of, you launching this idea of a succinct blockchain. Like that is very different from looking at the near team and sharding and being at

MemSQL and, you know, having run, you know, massive teams of distributed systems. Compare that to flow and dapper labs. Like Dieter Shirley authored ERC 721. Like I think they're thinking around use cases in smart contracts in a very different lens than, you know, a lot of the folks at layer one. So, you know, I think it, the way I think right is like, we would, yeah, we're not going to do things that are competitive. But, yeah, I mean, which of these stick? Like, it could be a world where there's, you know, specific use cases that they, maybe the use cases overlap.

Maybe we live in a future where, you know, the cross chain development really ramps up over the next year or two. How they communicate with each other is, I think is a big question. and no one has the answer. And maybe it's at, you know, the app layer. Maybe, you know, you're, you know, in Tezos says defy is ramping up over there. Like maybe one of the killer use cases of defy is like just getting interest on your assets. Maybe Tezos, like, you know, you can get higher interest compared to Ethereum defy. So, yeah, they're all, they all have different approaches.

Something that we talk about a lot is this notion of bringing disclosure to crypto markets. So, like, one of the biggest elements in, like, the current securities law framework is that if you are selling equity to the general public, you have to disclose, you know, audited financials, and you have to promise that you're not lying in those financials and basically give investors the information that is sufficient for them to make, like, an informed decision about a new listing. And that's often if you read between the lines of some of the SEC's letters to various projects, it'll be like, well, look, you're not giving retail investors the tools to make educated decisions here. But of course, there is no crypto disclosure framework, right, that really exists. But in theory, it should happen all on chain. Like, shouldn't you see a certain number of addresses or, like, funds distributed via on-share mechanism? Yeah, I mean, that's, like, one of the very attractive things.

obviously, but there's, I think there's like salient stuff like, for instance, in the kick raise, it would have been very salient to know that like the company itself was in a position of distress, right? So if there's an issuer, it seems like they have a duty to share some sort of information about themselves. You know, like, you know, what is the fraction of the tokens that is going to the core team? What's the vesting schedule? You know, like if you look at ripple, it's actually very difficult to find out how many XRP they're on-ask growing every month, even though they actually have a better disclosure schedule than most other projects. I would say it's still quite poor.

So do you talk to some of these teams that you might invest in about this? Or for them, is it just this notion that most things are transparently visible on chain, so there's no need? Yeah, I think your user in where we are in blockchain crypto today, like your user is your early communities. And so if you're lying about in not inflation, but like, you know, what the team has in terms of tokens or, you know, I think that should come out. The hope is that would come out. I think it's a different story with like Ripple and the XRP army. Like I was, actually hoping when some of this some of the uglier stuff about ripple came out like I was actually

hoping like this the xRP army is like very active and engaged and like maybe that would drift over to aetherium or some of these new protocols um I don't know if you want the ex-rp army on your side the the the ex-rp army is uh is a pretty mad bunch yeah they're indefatigable they they're still going in 2019 it's amazing I'm I mean it is Like, we should definitely not, like, tweet about XRP Army discussing it because they will, like, hunt our future children. Yeah, that's child. They tracked me down the other day because I was tweeting about Brad Garlinghouse's comments that, um, that XRP is like oil that Ripple just happened to discover in the same way that Exxon, like, found some oil. Yeah.

But if we look at the Ethereum community, there are a lot of folks that look at VETHRP. Vitalik as, you know, this figurehead and he can do no wrong. And, you know, I think that it's, there are a lot of folks and like Vitalik is fucking brilliant. Like he is such a smart guy and like it's so impressive what he's built. But I also think like just being at DevCon, you talk to folks and like there's definitely a few growing factions. It's like, you know, what does the transition actually look like to eat too? And so, you know, I think with, Community development, it's, you know, it's, it's, it's super tricky, but it is very important in these crypto networks. And so the hope is, you know, there's not a complete reliance on the

leader of these protocols to decide, you know, the hope is like if they say something that's maybe controversial or like in not the best interests of the crypto network, like the community should be speaking out about that. I guess my question was more along the lines of in the very earliest stages of some of these new protocols, there definitely is like an entity, which is the, you know, roughly speaking, the issuer. So, you know, do they have a duty to disclose sort of material information about the project or do you not believe that they should be held to a standard like that? Because there's like a ton of different strategies we see.

So, like, sometimes you've, like, the block stack filing, which is, like, pretty comprehensive. Yeah. And then, on the other hand, you have, like, you know, Libra, for instance, which is a little different because it's not meant to be volatile, but, like, information is very much not available about that project, you know. Or Veritacium. Maybe that's a good example.

Yeah, exactly. So, well, and very, they volunteered plenty of information, but most of it was false. So, you know. Well, I think, yeah, this goes sort of back to our, regulatory comments earlier in the conversations like look a lot of this stuff is unclear like is the block stack approach the best approach and should every project do that um i think just looking at the cost of compliance like it is not cheap you know and i think um if that is the path that regulators

want u.s projects to take like i think it puts an emphasis on raising a ton of capital and or having you know, a ton of resources like Libra and Facebook. The hope is that, you know, anyone can create, maybe not a layer one, but, you know, anyone can participate in crypto networks. And I think, like, the displaying work is a fascinating, you know, theme that's beginning to happen now, like, you know, live peer transcoding, new cipher, you know, we saw that, edgeware, sort of like the signal and locking. And so I think we're going to continue to see more models like that. Like I was just playing cheese wizards.

And, you know, like, that's super cool. Like, the fact that I can earn more Eath by, like, having an awesome cheese wizard and, like, getting a ton of them. So I think, yeah, it's tough to say. I want to say there should be one approach because I do think that puts emphasis on, like, raising a shit ton of money or having a ton of resources. And you've written a lot about defy in general

in terms of the categories, and where you think the aggregation points are. In a world where Ethereum is not the dominant smart contract platform, do you think that those use cases will just be ported over to whatever the strongest base chain is? Or do you think that they'll interoperate? Do you have a view on this? I think, yeah, it's emerging. And I'd say I try to revisit all of my Theses in this space pretty actively,

just given how fast the evolution of blockchain crypto actually is. So I think there's a number of errors of value krill. I think that there's some really fascinating stuff happening at that aggregator or curator sort of layer like facing users today specifically in Defi. Like, you know, I've been recently tracking the changes in stability fee and, you know, the sort of the rates that you can earn interest across these various places. Like, you know, it would be, and I think within. that it's awesome that we have more of these smart contract wallets where just routes to you know

the most efficient interest rate and so how those user facing applications call them yeah you know aggregators call them curators like how they route to other protocols in time i think um you know you're just building out more and more endpoints and so you could see a world where there's you know there are a few use cases where it makes a ton of sense. Like I've been fascinated by Tontines, like no loss lottery. You know, there's a few others. And so, you know, do they just route to the most efficient chain and leverage, you know, whether it's DFI or other use cases?

It's really tough to say because like Ethereum is just like so much further ahead in terms of like having a robust amount of digital provinces or commonwealth or whatever we want to call them top. But I think in the next six months we'll have more answers. And so I'll revisit it then. How do you think about investing in something like defy, which is kind of explicitly meant to sort of obliterate corporate margins by taking structures or concepts, which might previously have been intermediate by corporate entities like banks and rewriting them as code. You know, like it is, I mean, obviously in most cases there still are entities of some sort that run these things like compound.

There's like attacks. But I think the long-term objective is just to destroy the margins, really, and then have the system be more open and in theory have a surplus be returned to the consumer. Yeah. How do you think about that? Yeah. So, and even, yeah, so I think there are a number of different approaches. You have the extremely modular approach where app or DAP is leveraging, you know,

five different, three or five different protocols. You have your fat DAPs, you know, I think DYDX is a great example of that. You know, they're market making and they're, you know, owning the user and, you know, they're taking a cut of dye as you're closing position. positions. So I think there's then there's even layer ones which are trying to own, you know, end users. Like I think telegram is another example that obviously a little bit different than defy. And so I think value accrual for a more modular approach, if it's app facing or if it's that the liquidity layer is going to be different than if it's a fat

application. And so I think things that are user facing, like you have to figure out ultimately how you're going to monetize the user, whether it's like, advertisements, whether it's, you know, referrals, whether there's something else. But I think at the liquidity layer, you know, what you don't want to be, what would be really unfortunate is you launch a protocol, you know, it has mass liquidity and all these things, but it suffers from tragedy of the commons and there's no real value accrual to anyone, not even a team. And so you can't reinvest and, you know, continue to develop these things. And so that's why, like, I do believe that at the liquidity layer, there's going to be more developments around having a native asset

tied to it and whether it's like a dividend or like maybe there's governance rights to it as well. But I think it varies based off, yeah, the more modular if it's liquidity or tap or if it's more of a fat tap or if it's like layer one trying to own users as well. One of the things I love about this space is that we can go so deep into specific topics. But as you're describing it, some of these defy applications, I'm thinking towards some of the conversations that we have with our limited partners and just how we explain this space. And so from your seat now, where do you find the optimal entry point when talking to someone that might be an internet investor, might be familiar with how the web works, but not as familiar?

Maybe they know about Bitcoin. Maybe they know about Ethereum. But how do you explain what this is and get people? people interested and even to the point of just understanding it. Yeah, I like this is something we're all probably constantly iterating on. Like I talked to my dad and he's like, dude, what do you talk about? Like are you speaking in different language? Like what do you like what are you even doing with this crypto stuff?

And but he also thinks it's fascinating. Like, um, and it's, it's interesting how I, I like to tailor my narrative around what the headlines are. And so like right now you have, yeah, you know, China, digital assets. like will the US do something? And so I think like framing as non-sovereign digital assets or money is something that people, it's just super tangible right now. I think previously I've gone with the tokenized TCP IP, you know,

global permissionless AWS where you're, you know, renting time to actually use the equivalent of a AWS, which is a decentralized crypto. crypto network. It's so hard to summarize the entire space. The way I describe it in its most simple form, though, is crypto networks are democratizing access to digital and financial systems. I try to keep it that, and people are like, everyone has a different conception of that. And so the starting off point, like, it's something I'm constantly iterating on. But if you guys have ideas, like send them over and I'd like to use them. Well, it's tough because I think if you're a hammer, everything looks like a nail.

So can you imagine trying to explain what the internet was to someone in the early 1990s or even the late 80s? I think you'd probably just try to find where they come out the space from and plug in there. So if you're talking to a newspaper person, you'd probably be talking about, hey, you're going to be able to read your newspaper on your computer. Yeah. But if you were talking to the post office, you'd be talking about, hey, there's this new form of communication that you're going to be able to send letters, you know, people. peer to peer or turns out maybe not peer to peer to peer but um well email is actually to its credit still somewhat of a peer to peer protocol i guess unless you use uh the yeah right but if you're using gmail as many people do then you're you're not actually using it but i would say it it preserved

some of that original uh server model uh personal server model which we lost in virtually all the other aspects of the internet. Yeah, that's right. And I guess we have an episode coming out with the guys at Erbit that are trying to bring back some of that personal sovereignty and data. I guess it's something that we wrestle with to answer your question. I think that what we've found is that it's good to just figure out where people are coming out the space from. And I think that Arjun's blog post about the tribes and kind of if you're coming out this from a tech first lens or is it a money first lens. is usually a pretty good jumping off point. I think there's other lenses.

There's the, hey, this is a security settlement technology. We saw, like, you know, a lot of companies getting funded in 2015

with that lens. And all of that might happen, too. So I guess it's, we don't have a perfect answer. I think we certainly have some ideas. Well, it certainly looks like the,

the security settlement angle, it took a long time, but it seems to finally be getting some traction. Yeah, I think the implementation, will not be on private blockchains. Yeah, that we can agree on, I think. I hope.

It looks like the traction, at least that I've seen, is largely on Ethereum. Yeah. And Tazos is trying to brand themselves as the security token blockchain too. Right. And these narratives recycle. You know, it's like they,

I mean, there's some crazy stuff that was in 2017. And, you know, I think it's been repackaged in some ways and like a lot of it I'd say people are like okay that was a terrible idea but some some of these ideas is like okay actually this makes a ton of sense so you do see them recycle every I always look at it in like six to 18 month cycles

just in terms of narratives yeah yeah I mean Dow's I think are a prime example everybody got really upset about the original Dow those are coming back now Dows are back I think on my My view on Dow's is saying. Bring it in. I mean, I don't know if the current cohort of Dow's is going to work, but I do feel that if we keep trying to make Dow's that work, eventually we'll create some sort of novel response to the joint stock company,

which actually does very usefully coordinate activity. But it's almost like we need 200 failures before we find the good model. Is Bitcoin a Dow? I would say so, yeah. Okay. I mean, I consider it to be a decentralized utility, which on the one hand, you have people with electricity, and they convert that into ledger space, you know, well-ordered ledger space. And on the other hand, you have people who have value and they want to, you know, hold it

or use it in a way that is freer than the other system. So I consider it a doubt for sure. I have another Bitcoin question that I asked Matt the other night. I asked what happens in 2039 or you know through that when we've mine 99% or whatever it is of Bitcoin. We're relying on transactions to, you know, for the security of the network. Like what is the answer that you give whoever is? You know, your investors, just folks that you talk to. this is the the fud dice do we have this on one of the fud dice i don't know table emission or long-term

emission i think it's good fud actually i think it's it's thoughtful fun i think it's a great question uh yeah i mean i certainly spent a lot of time thinking about this um my my like high-level answer is like if we aren't able to create genuine digital scarcity in terms of something which is capped i would be very disappointed you know so whether that's through bitcoin or some other model i think it would be a shame if we weren't able to create a crypto asset, which doesn't have a capped supply, like truly capped. But then in terms of the actual substance of the question, I like the paper that Haseu and James Presswich wrote.

I thought that was very thoughtful. I mean, they don't have an answer per se. I mean, generally speaking, I gave a talk about this at the MIT Expo last year. my view is that the long-term security of Bitcoin is a function of Bitcoin's ability to retain a premium status for its block space. So if people will continue to value the ability to transact in Bitcoin, that'll just be, that'll render, and the block space remains scarce to some degree, you know, so we don't bust the block size and have, you know, gigabyte blocks. then there would be a lot of, there would be like a large design space with which you could

try and figure out how to smooth those fees if that was the problem. So as long as there's like a decent enough demand to transact with Bitcoin in the long term, I think it'll be okay. It's just that probably the security model or our conception of it would change. I think right now Bitcoin is probably overpaying for security. is my guess. Because the security model is not designed to achieve a certain precise variable

in terms of security spend. It's just totally a function of price and issuance. And it just so happens, the price is very high. But yeah, I think that's the most interesting question in the industry, not just with regards to proof work, but also like what's the lowest amount of inflation that you might tolerate and proof a stake or something? And like, it's interesting because like we've had 11 years of Bitcoin.

We never took the time to understand the security model that well. Academics didn't really do it. And when they made their models, the models were pretty malformed. You know, they didn't really represent reality. So then we've practitioners going to the academics and being like, no, you like forgot these variables, which is so funny. I would say there's been more of an emphasis on proof of stake because it was kind of collectively understood that proof of work was obsolete, although that's not my view,

and that since proof of stake, because the future we should just be spending our effort, you know, thinking about it. But I think in the last year or so, there's been this more of a focus on the notion of like formal crypto-economics, and there's been some really good work in terms of modeling security in these networks. Because it always like shocks me that there's no like authority or received wisdom in terms of how many confirmations would be sufficient to conservatively. Yeah, you put out a post on this a couple months ago. Yeah, and so that was kind of like a call to action.

And then actually a couple people message me like, yeah, here's my model. So I think that's great. But I'm very surprised that we as an industry haven't like converged on. Yeah, like here's like a good rule of thumb for security spend across blockchains. might kind of answer to your question maybe is an unsatisfying one. I think it's too early to worry about it. I think that in large part it depends on what some of these emergent applications end up being. And you could easily see a world where time stamping use cases result in enormously high demand for block space that pushes up that fee.

So I think it's too early to tell. the other thing I guess that we should just call out some of the levers that would be it's not just a tail emission that would be a potential solution to this problem there's been already some proposals to decrease the block size for instance

I'm in favor of that but people really don't like it when I say that so Luke Jr. has proposed a decrease I think to 300 but that's not because he wants to juice fee revenue on Bitcoin that's because he thinks that the band what the system is too much. Right, right. And Nick Zabbo was asked about this on what Bitcoin did.

He's asked about the block size in general, and he said, if anything, he would support the idea of decreasing it. So all that to say, I think there are some levers that at the right time could be pulled. But it sort of depends on who builds on top of it. I mean, this is going to be, we'll see. If I had to place a bet, what I would say is likely in like 40 years or whenever this becomes a really significant problem if it does. I think and let's say that the Bitcoin 1.0 as released by Satoshi is understood not to be secure. The likeliest thing to happen there is that the UTXO set is ported on something new and probably it'll be a consensus model developed by one of these newer base layer chains. So, you know, like maybe proof of work isn't the thing. I mean, I think

proof work is very elegant in a number of ways, especially for distribution and fairness and so on. But perhaps one of these newfangled consensus mechanisms will be understood to be more secure, give you better bang for the buck. And then you'll have a situation where you take the property registry from Bitcoin as instantiated by Satoshi in 2009 and you port it onto some other mechanism and you just retain the data file that says address A owns one Bitcoin and so on. I think that's right. I think the property rights become the most important thing in that world. Yeah.

So if you disaggregate Bitcoin into its constituent parts, you know, you have the list of who owns what, and then you have the rules for deciding who is allowed to move value in which ways. And I think you can tease them apart. I think you can jettison the rules

and institute new rules and retain the list of who owns what. But I think at that point, if we do it, we should also call it something other than Bitcoin. Yeah. So that's... That might be controversial.

Yeah, Nick coin. Yeah, people won't, yeah, all of this stuff is going to be controversial. All right, Ash, so closing question, what are you most excited about over the next year in crypto asset world? I think the, the, there's a lot of stuff I'm super excited about. I'd say I'm really looking forward to this next wave of flare one. launching. I think that's going to just be fascinating to see, you know, how the existing community reacts. I think it's easy to just, nay, say, you know, these new networks, but look, if there's a 10x improvement, then I think people are, like, you have to, you have to check

out what's around the corner. And so, and then I'm excited to, you know, bring in new folks to the ecosystem. Like, I do think that will hopefully drive a whole new wave of participants. I think we're going to see some really fascinating new use cases of smart contracts and applications and what you can do, you know, with crypto networks and whatnot. And so, like, it's so, it's so hard to say from a timing perspective. Like, I remember in 2016 and 2015, like, like, did anyone, it was so hard to say, like, ICOs were going to be what they were. I think that, you know, it's just like impossible to say what's around the corner. But I think this new wave of protocols will ignite, you know, hopefully more applications and participants, which I think is important.

Yeah, that's such a good point about the ICOs. No one really could have seen that coming. Yeah, and I mean, even Ethereum leadership didn't really forecast defy emerging as a big kind of theme on top of Ethereum. I mean, they really thought it was going to be kind of more like decentralized applications. Although I guess you could call defy an application. Yeah, it was web, I think web three, this idea. Yeah, like what we were talking about earlier, like I think that was sort of, and sure like defy checks the criteria for web three in some capacity. But like a lot of people were talking about like, you know, personal storage and, you know, all these things.

And that's, it will happen. when it will, you know, we're seeing some of these examples, but by no means, is it mainstream still quite niche? So my parting question for you is on a topical theme. So a couple weeks ago, Xi Jinping said that China should focus on blockchain. Some people thought that that was a catalyst for a Bitcoin and crypto rally. So do you believe that is on balance good or bad for the industry? I think I look at it in a similar lens to Facebook announcing Libra. Like it's just getting more people to think about it.

I think there when that was announced, I was just like, I was just like thinking about Black Mirror type like episodes and like, you know, there is a scary future there. But, you know, I think the exciting part is it it gets more people looking and thinking critically about the space. And, you know, I think there are a lot of folks that are just like, you know, Zuckbuck, Bucks, Libra, it sucks. It's like, well, you know, if this is going to be the funnel to educate, you know, the next billion users, I think that's actually a very good thing. And then how folks participate, like we'll see. But I think NetNet, it's a positive. And I do think it, you know, I think congressmen and the U.S. and congresswoman and congressmen, they're seeing that announcement.

They're like, okay, we have to figure out what our game plan is. It doesn't have to be perfect. But I think like if it's one thing, it's like we got to have some type of response. And we haven't necessarily seen that yet. But the hopes is those are the conversations happening behind closed doors. So, Ash, where can people follow you, learn more about Accomplice, and just generally keep in touch? Yeah, I'm on Twitter at Ash A. Egan. Accomplice is at Accomplices. Our website is Accomplice.compancy.

I try to be responsive. I try to get out a blog post a month on pace for a month and a half, two months. So, you know, got to get that draft into the published section. Ash, thanks so much for joining. This is a lot of fun. Yeah, thank you.