On The Brink with Castle Island - Avichal Garg and Curtis Spencer (Electric Capital) on developer communities, raising institutional capital and more (EP.122)

Episode Date: September 7, 2020

Avichal Garg and Curtis Spencer, founding partners of Electric Capital, join the show. In this episode we discuss: Their path from entrepreneurship to starting Electric Capital The experience of raising a $110M fund II from institutional limited partners The current state of play for layer one smart contract platforms Framing decentralized finance for the non-crypto native The geopolitical chess match for the USA and China vis a vis cryptoasset regulation The outlook for privacy coins   To learn more about Electric Capital visit their website and follow Avichal and Curtis on Twitter

Today on the podcast, I sat down with Avichel Garg and Curtis Spencer of Electric Capital. Electric is a venture fund that recently raised a $110 million fund too from some high-profile institutional investors. I wanted to have Avichel and Curtis on because I think they're two of the most thoughtful people in the space and they really know how to articulate some of the big ideas and opportunities that startup teams are tackling right now. In this episode, we discussed a range of topics, including their experience raising a big institutional fund in this climate, talked about how they think about developer communities in the future of layer one protocols. And we also talked a bit about future of decentralized finance.

And there was a whole lot more in addition to that. So I had a great time with this one. It could have gone on for another hour. So without further ado, here's my conversation with the Vichel Garg and Curtis Spencer of Electric Capital. 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 to Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Guys, thanks so much for joining the podcast today. Our pleasure.

Thanks for having us. Happy to be here. So so much to talk about here. but would love for maybe if we just start off with a quick background, could you guys each give your quick history and then we'd love to hear kind of how you decide to start electric capital together? I'll give a background on how Beachville and I met. So we were in the same dorm in college and became pretty good friends. Going back, it was an interesting time. It was right after the dot-com crash. So in many ways similar to 2014 or 2018 in crypto, where there was a

hangover from the market crash, but still a pretty positive general energy like around campus, something fundamental happening with the internet and the worldwide web. So we both started companies and then we started our second company together that we sold the Facebook. So I've been working together more or less for at least 10 years. Me personally, I have a distributed system's background and was early with both like SETI at home and folding at home, which were these large scale distributed systems before Bitcoin. So I encountered Bitcoin relatively early because the white paper proliferated through these similar circles and people are like, whoa, that like someone figured out incentives for these like distributed computational networks.

At the time, Vichel and I shared an office with two other startups while we were doing our company. And we had some of my fun debates about like whether Bitcoin would work. And a few of us were like running Bitcoin nodes under our desks on our Linux machines. But we were like, this is never going to work. And so we tabled it. And it sort of became this background thread. We check in on it periodically. And I think a lot of the technical people that come to Bitcoin, because it's like a technical curiosity. It takes a lot longer for some of the macro head and the sound money ideology to seep in.

And slowly over time it did. And I think that's what's really interesting with crypto is it's like the mix of community plus technical innovation and this like broader religion around sound money. And that's what I think a lot of like the technical people miss that. You have to sit with it for quite a while. My background, as Kurt mentioned, We went to undergrad and grad school together, did our second startup together.

And then I also have an engineering background, but have spent most of my career kind of on the product side as a product manager or product leader. And then as Curtis mentioned, we sort of came at it from the distributed systems perspective. And Bitcoin was in many ways the gateway drug for us that opened up crypto more generally. And so kind of the story of how electric capital happened, I left Facebook at the end of 2016. And I've been a pretty active angel investor in a number of companies. outside of crypto and kind of in crypto. And so we were investors kind of in that vintage of crypto companies,

companies like DYDX and Anchorage and Bitwise and Lightning Labs, kind of of that 1617 vintage. And a lot of the VCs here in Silicon Valley were reaching out to us and saying, hey, I remember you guys telling me about Bitcoin five or six years ago. Is it real this time? Should I be paying attention? Should I buy some Bitcoin? This is early 2017.

And then they started asking about ICOs. And so we were doing a lot of sort of information sessions with people that we'd work with, that we've co-invested with or people that have invested in our companies or that we'd worked with over the years. And kind of by the end of 2017, a lot of the existing VC firms here in Silicon Valley realize they're not really set up to do crypto, partly structurally, like how do you do custody or how do you think about compliance or operations or SEC registration? There's just some complexity there.

But also it's just a different beast in a lot of ways, like the way that you invest or you kind of don't want to own 40% of a network. you want to own 5% of a network. And so kind of structurally the way that you invest in the space is different. And so a few of them came to us and said, hey, we're not really set up to do crypto. Our firms are not set up to do crypto, but we trust you guys. Would you consider taking money from us and just do what you're doing with your personal money? Just keep doing it and we'll give you money.

And that's how electric happened. So in Q1, 2018, about two and a half years ago, we formalized a lot of what we were doing personally in the space into electric capital and kicked off our first fund. And then as you know, we just closed our second fund. And maybe that's a good segue kind of into our high-level thesis, which from the very beginning, we published a paper. I want to say it was 2017. We wrote it in 2017. We may not have published until 2018.

But it was the thesis behind electric capital, which we called programmable money at the time. And our basic belief was what we've really done with something like Bitcoin is invented a new form of digital money. And of course, one of the unique properties of it is that you can write code around it. You can have computers natively taking custody of money for the first time. And that opens up a whole new set of actions and behaviors that were previously not possible. So a human paying a computer, a computer paying another computer. And to us, that was kind of a critical unlock.

In many ways, it's so different from what you can do on the internet. And we can dig into that. But to us, that's sniff-plex disruption. And so from the very beginning, that's kind of been our core thesis, is things that involve money and moving money and computers and humans and computers interacting around money, are really going to be the sort of killer apps of this space. And so that's what we've been investing for the last two and a half years. That's great. Appreciate that background. And you've hit

on a couple things that I think are really important in this segment. If you look at this through the lens of venture capital, certainly the specialization approach is really paid off. And I think a lot of folks have talked about why this is a difficult asset class and difficult category to just do on a kind of a part-time basis. It's difficult to be 10% of your time in this category. How do you guys think about it in terms of what are the most interesting opportunities, whether that be protocols versus companies? And you must get asked that question a lot in terms of how much time do you spend looking at the protocols versus spending at the company level? The sort of high level answer, or at least the way we think about it is, well, no in five years

if we were right or not. But at a high level, the way we think about it is the line between company and protocol is kind of a blurry one. And so you can't really easily say, should you look at companies or should you look at protocols. And so what we do is we think about things that we think probably need to exist in the world and then keep a very, very open mind about really smart people coming to us and just having conversations about what they think is interesting. And so it's sort of half, here's what we think this technology might be good for and some intuition around that. And so we can poke around with things like when we maybe a month ago or so, we published 15 or so ideas that we thought needed to exist. And so, for example, invoice factoring is a very

large market and we think crypto infrastructure might be a really good fit for something like that. And so there are areas where we say there might be something here and will that be a company or will that be a protocol or will that be somewhere in the middle, something we call community owned networks that look kind of like companies and look kind of like networks is sort of TBD, depending on how you actually decide to solve that problem. But I would say probably half of what we end up spending time on is somebody really smart, a founder or an engineer comes to us and says, hey, I've been tinkering with this thing, what do you think? I think as investors, if you look back at the history of technology, a lot of the stuff that ends up being really the big stuff on a platform,

the big outlier sorts of things, like an Uber or Facebook, when you look at it, it's often, you can't predict those things in a lot of ways. And so what you kind of have to do is rely on really, really smart people who figured out something about the world that nobody would have thought of and have them come to you and then sort of keep an open mind about it. And so probably about half our time is spent just trying to talk to people and see what they come up with. And a lot of it is very counterintuitive. And a lot of it is, which is one of the most fun things about crypto, I think, is you can't really tell if it's a terrible idea or a good idea at first glance. It's a very thin line sometimes. To Curtis's the point earlier, I think you have to kind of sit

with some of these things for a little bit and get your head around. Is that a terrible idea or is that a brilliant idea, which I think makes this space a lot of fun. Yeah, it's so true. I mean, even the idea of just Bitcoin, if someone had pitched that to you before it existed, it would have been hard to imagine it working. Yeah, totally. Well, and actually, I mean, just look at the protocols that have large market caps. And actually many of them were not venture-backed. They were actually, in effect, community funded because through the traditional venture lens,

and I think a lot of the crypto-vacies take a different perspective, obviously, but through the traditional venture lens, some of these things were unfundable. Like, they just didn't pattern match to the kinds of things that you could actually invest in. It's a great point. I mean, really everyone missed Ethereum. Everyone kind of missed Bitcoin. If you look at it through the lens of just traditional venture funds. So it's a really good point.

Yeah. And then you sort of go back in time and look at what was funded. It was things like Coinbase and chain analysis because it was just simple. It was like, hey, this is an equity business. We can look at it through our traditional lens. And I think to the features point earlier, it's like you really need to be flexible as a crypto focused VC, especially now. It's like things are changing underneath us every day with fair launches and defy,

exchanges, adding tokens. There's just like a lot of schemes that are still being built today. Yeah, that's a really great. point. And so you guys have gone through this process. You're coming off raising a $100 million plus fund two here, which is definitely no small feed. And if I just think back to the times that I've been in this space, it kind of started off with traditional funds doing a deal or two here or there. I think the Andreessen dedicated fund was a big moment. Obviously, crypto hedge funds kind of had their moment. But this is an exceedingly rare kind of thing to see as a hundred million dollar plus

fund with big institutions behind it. So I'd love to just hear your perspectives on what that process was like, because I think you're kind of blazing a trail here that not a lot of funds have been on. First off, I think we're very fortunate that we get to follow some folks like Andreessen, Polychain, paradigm, like people who have raised larger funds in us even. And I think in particular with Andreessen, the floodgates open. I think when Chris and Katie went out there with a platform like Andrewson, where they have an amazing track record in terms of the crypto investments that they made, but also just generally as a VC firm that institutional LPs trust and has done right by that community, this was 2019.

I think it made a lot of institutional LPs kind of sit up and say, wait a second, somebody like Chris Dixon or Katie Hahn is putting their career on the line for something like this, we should really pay attention. And if somebody like Mark Andreessen and Ben Horowitz is saying, yes, we're willing to stand up a dedicated fund for this, like we should really pay attention. And I think that was actually a really important moment from the VC's perspective because that sort of made it okay. You open the floodgates with Andreessen going out. So I think in a lot of ways we've benefited from that.

And so for us, the conversation was a lot easier than it would have been in, say, 2018 when we were doing our first fund. Because as soon as somebody, let's say you're an institutional LP, you run some large endowment or some large nonprofit. The conversation is really different when one of your peers is already invested in paradigm or hasn't invested in Andresen. And so many ways, I think our job was made much easier by that. I think the other thing that happened was 2017 really created this moment where a lot of people started to pay attention and they started to say, maybe this thing is real. And then to Curtis's earlier point, people got to sit with it for a year or 18 months and try to get their heads around.

Like, was it a fad? Was it tulips? Or was it actually something real? And sort of being forced to have to spend some time with it and think about that and really mull that question over, a lot of people came to realize actually. this is not tulips. There's real technology here, and the caliber of people that are going into it is very, very high. And when you have Turing Award winning professors and you have MacArthur fellows leaving tenured positions to start projects, and you have the inflow of engineers that you do

in Silicon Valley into the space, you have to sort of pay attention to that. And so I think being able to sit with it for a little bit, a lot of the institutions, their job is to deploy capital and be ahead of these things. But the opportunity to sit with it for a year made that a lot easier. I think there is sort of this combination of things between the market and some people who had sort of the ability to move the market a little bit being able to do that, that made our jobs a lot easier. And then a lot of what we had to do, which is not easy, as you know, is convinced the institutionalities that we knew what we were doing. And we were fortunate, actually, it wasn't by design, but I think one of the things that worked in our favor was that so many of our earliest

investors into Electric and our first fund were the VCs themselves. And so when you're talking about institutional investors that invest in VC firms, the background reference checks became very easy because they would call the people that they already invest with outside of crypto and say, hey, do these guys know what they're doing? And of course, those people would say yes. And so that I think wasn't by design, but it sort of worked in our favor that all of our earliest LPs into the first fund were people who are deeply connected into this institutional investor community. And so it sort of worked in our favor for the second fund. That makes sense. One thing that was actually really refreshing compared to like raising in 2018,

versus 2019 is just the amount of work that the institutional LPs are putting into it. I remember conversations, the first question would be like, isn't this the tulip bulbs? Or doesn't Bitcoin get hacked all the time? Those are the types of questions we would receive. And then in 2019, it got to the point where like, oh, like what Ethereum scalability solution holds water or how do you build a moat around smart contracts? Like, these are the type of questions we were getting. And so that was really refreshing to see that analysts on these larger,

institutional teams of 20 to 30 people were really putting in the work. And I think that just made the conversations a lot easier. Another thing that I've kind of noticed that really maybe brought down the career risk was that Cambridge Associates report that Marcos Burrimas and his team wrote a couple of years ago. Absolutely. That was something. I don't know if you guys would have seen this, but I think that really moved the needle with a bunch of allocators and probably took the career risk down in a similar way that

that first and reason fund took the career risk down in the paradigm fund. That paper that Marcus put out was fantastic, and we hear LOPs mention it all the time. I think the reach of that really helped out the crypto funds based in general. Yeah. And one of the things that we have always kind of talked about from an institutional perspective, and I applied this even to institutions looking at holding underlying crypto assets directly, is you know, you hear a lot of talk about, hey, the infrastructure needs to get built, and then the institutions can come.

Now, the other thing that people don't talk about maybe as much is just, what is the thesis for why this is interesting and sort of what bucket do you put it in? And so I'm curious with the institutions that you're going out and speaking to, you're obviously talking to endowments and big foundations, big family offices. Is there an overarching thesis for why they actually care about blockchain and crypto? Is it digital gold? Is it kind of smart contracts, data self-sovereignty? Is it everything?

Where do you see the most interest just from a thesis perspective? Yeah, it's kind of all of the above. And it depends a lot on kind of backgrounds of the investors. Generally speaking, the bucket that the institutional LPs are placing this into, by and large, is the venture bucket. They look at it as having a return profile of venture investment. It's very asymmetric. You can get 100x on some of these investments.

And short of if you're not doing anything too silly, you can't really blow up, you'll lose one extra money. And so they think of it as a venture investment. In terms of the narratives that resonate, it varies pretty dramatically. I think it depends a lot on the backgrounds of the people involved. It depends a lot on the background of the CIO at these institutions. And so we found generally speaking there are two camps. There is sort of this top-down macro camp.

People who think about this as a potentially new form of money, a macro hedge, is this digital gold, and sort of an ecosystem around that. And that's kind of the starting point. And then there's another camp, which is much more bottoms up. And these are people that tend to think that if you follow where the engineers go, it's sort of that, I think it's acoustics and saying is what the engineers are doing on the weekends for a hobby or what you'll do for a job in 10 years. And I think there are a lot of LPs, institutional LPs that sort of subscribe to that sort of mentality of if there is really,

really great technical talent flowing in a particular direction, you probably just want exposure to that and then be smart about sizing into it. So don't have too much exposure and be too early and sort of time diversify as much as sector diversify. So for some institutional LPs, this bottoms up perspective really nice or resonates. And the reality is both are true. There's definitely something to this idea of this being non-sovereign money and non-sovereign store value and appearing at least for the last decade to be uncorrelated and we'll see if that continues for the next decade. And then there's absolutely something to the fact that thousands of engineers are coming into this space and there's real innovation happening all over the world. And there is a new technology

stack here in a new platform that is about building software in a fundamentally different way. And every time we've seen that, whether it was mobile or the internet or PCs or mainframes, like every time we see a platform emerge like that that just has unique property. you throw enough engineers at it and you just get this new ecosystem that emerges that can be massive. And so I think both are true. And then which message resonates sort of depends on the DNA of the organization. That's such a good point around following the talent and the thousands of developers that are moving into the space. And I've been a big fan of what you guys have been putting out over the years on developer reports and kind of market maps. So maybe let's talk a little bit about

that. And why did you start tracking developer activity? Why did you think it was important? And kind of what's the thought process there? for the kind of words on that. High level, we break the crypto ecosystem down into a lot of constituents, a lot of players. You have miners, you have traders, you have regulators and developers, and then you have like this broader user category. And I think that's the metric that everyone wants to drive up is this like broad user adoption. And there are probably more groups. Like maybe you could put like lawyers in there as well. But I think those like first four really inform the growth of the user group. And so when we're really going to get stuff to track,

when you take miners, for instance, you need to achieve this threshold of security. But after that, like, an additional terra hash of hash rate doesn't really meaningfully drive user adoption. And for traders, outside of driving price action into headlines and creating liquid markets, I don't think they move the needle on user growth as well. So really only regulators and developers are the people out there, like, really building foundations for the next, like, quantum of user growth. And the regulators, that's a black box.

We can track kind of sentiment maybe amongst regulators, but we don't really know exactly what they're going to do. But with developers, it's something open. We can look at GitHub, we can look at GitLab, we can see what developers are building, which platforms that they're putting energy on. And each of those, like, pieces of work is additive. It creates, like, this durable foundation

that more things can be built upon. And the last three years since 2017, you saw a huge influx of developers, and some of them churned, some of them went away. But there was this kind of ground swell of continued development. And we think by looking at that, we can start to pattern match to other like broader open source communities and see like which are the things that are going to have a lasting network effect. Yeah, that's super interesting to me. And I'd be curious what kind of metrics you think are most important as you're looking at these. developer ecosystems because it's not obvious what specifically stands out as a metric that would tell you that a certain ecosystem is growing. I mean, I guess just the total developers would be interesting,

but I guess you could also think about, well, what's the quality of the code? So how do you guys think about that? For us, we are building out this infrastructure over time as well. And so in our first dev report, we started with commits and like developer counts, which is a bit of a blunt hammer, but it did inform sort of what networks have activity and what don't. And then in the second edition, we started to peel back layers of the onion a bit and focus on understanding the type of developer. So whether they were like full time, part time or one time. And I think that gave us a bit of a better understanding of like

which platforms have people that are just putting in their life's work on this thing versus coming in and making a config change. And then in the next edition, I think we just want to continue to go deeper, focusing on code quality or for instance, like how valuable is a particular commit, like a commit to Bitcoin core that has 30 comments on the BIP around it is much more valuable than a one-line change to a read-me file in another repository. And so trying to quantify that is kind of what's going to be going into the next developer report. And so building out that infrastructure has been a challenge.

it's something that the team spends a lot of time on. That's interesting. So if you look at Ethereum, I'd say most people in this industry would probably say that Ethereum has the strongest sort of developer mindshare and activity right now of any base layer platform. I'm curious if you'd agree with that comment and maybe outside of Ethereum, if there are other communities that you have an eye on that have strong developer mindshare that maybe people aren't talking about as much.

I think Ethereum out in the open definitely has the most developer mind share. at the moment. I think Bitcoin also has a ton of mind share and there's also a lot happening in, I would say it's like the close source world of Bitcoin. There's a ton of development happening in CFi that really is not out there in the GitHub discourse. I think we see a lot of broad ecosystems that aren't any like one particular like tied to one token. So one example would be zero knowledge cryptography. There's a lot of platforms building libraries here that anyone can use. So things like SnarkJS or a lot of the work that Zcash puts out is actually used across a lot of zero knowledge proof systems. So we track stuff like that. There's like peer-to-peer networking stacks like

LibP-2-P that's used across a ton of the networks. So that's like one sector where there's a ton of developer activity. The other is, I think, just a lot of high-quality layer ones that are coming out. So you have projects like Cosmos, Pocodot, NIR, SLO. They're all kind of building their developer ecosystems out. And they're all targeting kind of how do we like scale this next phase, whether it's going to be app chains or sharded systems or like in the case of Salano, very specialized, verticalized systems with like really beefy hardware. It's still, clearly, which is going to win out, but I think we need all the experiments happening. And then, like, lastly, I mean, to your point, Matt, about Ethereum, I think everyone realizes

that they have to play in Ethereum and Bitcoin's world. And so we're seeing a lot of activity really around building bridges. Like, how do you get Ethereum or ERC20 assets to come in to new platforms? Or how do you get assets in these new platforms to come into defy happening on Ethereum? And similarly, like Bitcoin to Ethereum, like that. bridge. There's a ton of activity there as well. It's a great point on a couple different levels. One that I really agree with is just the activity around centralized infrastructure buildouts to support Bitcoin and probably to a lesser extent, Ethereum. I think there's just a ton of

activity going on and big enterprises around wallet infrastructure and key management and things like that. Unfortunately, you just can't really measure that by looking at GitHub. So we don't really know how big that is. But I think anecdotally, it's pretty big. Absolutely. There's a of engineers over Bitmax working on Bitcoin-related code. Exactly. Now, the other thing you said that I want to kind of dig into a little bit more is just other layer one. So I remember when I was at Fidelity, we had Vitalik come in. This was maybe early 2017, late 2016, to do a talk, just like a Bits and Blocks Club type of a talk. And that was when he was really going around and just evangelizing. And I remember asking him what his schedule was like. And I think he had been on a

plane for like 25 out of the last 28 days or something crazy. And that's really, in my mind, one of the things that built up a robust ecosystem there is that he was just out there evangelizing, going to meetups. And I guess that's one way to do it. I'm curious your perspective on what it takes to build that developer ecosystem. Do you need to be evangelical like Vitalik was? Or are there other ways to get that community build out? I think it's tough. I talked to Vitalik at a conference once and I asked him kind of where he calls home and he says, I'm a superposition. He's just like living everywhere. That's funny.

It's a tough nut to crack. I think developer conferences and hackathons were definitely a great way to grow adoption. But I think a lot of folks in crypto really experienced a conference burnout. And COVID, this environment now, I think the in-person developer evangelism is really diminished. I think when we look at other layer ones, a lot of them take the like we build it they will come mentality. And I think that works to some extent, but I think the savvier ones are operating more like private equity firms where they're putting their grant capital to work and really helping developers and entrepreneurs with capital formation and how to build like a lasting business

on their platform. And hackathons can create some of that, but they don't tend to be as lasting as helping someone raise capital. I think that's what we're seeing across the really strong layer ones right now. Just to jump in for a second, I would add sort of, I think there's kind of two phases almost to these communities. Phase one is how do you just bootstrap the community? And I think at that phase, there really is no substitute for just hard work and one-on-one. And it's just hand-to-hand combat. And I think Vitalik was in that zone a few years ago. And then once you kind of got the kernel of your community going and you have a few true believers. And a lot of that is emotional and psychological, more than rational. Maybe they think in 2016, 2017, Ether, it was that they thought

Vitalik was really impressive. They believed the vision, the world computer, like whatever, DFI, whatever narrative was resonating. And that opens the floodgates. And then those people start to build. And some of those things start to stick. And once they start to stick, if they can make a little bit of money, other developers will start to see that and say, oh, there's actually, there's a way for me to make a living here. And that's interesting. And so then the next tranche of developers who say, well, I don't need to make that much money. I just need a little bit. Maybe it's supplemental.

Maybe it's a side gig. Maybe it's a hobby. But now I can come in and sort of play with this. And so they're a little bit lower sort of on that like true believer spectrum, a little bit more rational. And then they start to make things work. And then the next tranche developers who are even more rational, but a little bit less true believer sort of come in. And sort of that's how these platforms get built. And eventually the platform can only really scale if it's rational.

If people can actually make money on it. If a developer can come in and make money on it, it can work. And you saw really similar things with early internet. you saw early mobile work this way as well. And I think Ethereum is now hitting this point where you can definitely make money on it, but if the gas fees stay as high as they are and the barriers to entry for developers are as high as they are, can it really break out? Can it really go to the mainstream developer who just wants to come in and can it compete with the app stores?

Can it compete with Apple, for example? And I think that's an open question. And so for all the other layer ones, I think there's still where Ethereum was in 1617, which is just hand-to-hand combat. And so techniques like what Curtis is mentioning, using your foundation capital or your treasury to support those people and bootstrap them into the zone or that business models make sense is where most of these other people are right now. I would argue that so many more developers know about these ecosystems now and the fact that you can actually launch something on Ethereum and look at something like Wi-Fi or sushi, the scale that you can get to in such a short period of time is compelling for developers, especially because you can't do that in many other places in technology today. And so I would not be surprised if one of these other layer ones is able to bootstrap a network and get into the later stages of community development around can you actually build a business here and something sustaining for developers much, much more quickly. You might argue it took Ethereum, let's say, four years to get there.

And I don't think it's crazy to imagine that the next set of layer ones might be able to bootstrap their way there in two years instead four years, just given how much more scale we're dealing with today. Yeah, that makes a ton of sense. And certainly some of this infrastructure that's been built out is extensible to these other layer ones. so you could definitely see that. You brought up the fee pressure. I was looking this morning. I think fees are at an all-time high on Ethereum right now. I even saw someone talking about just some of the fees that exchanges are incurring

to add new Ethereum addresses just to onboard new users. And it's adding to their customer acquisition costs. I mean, what do you see happening here just in terms of the fee market on Ethereum? Is this something that is going to really benefit some of the competitive layer ones, do you think? I think absolutely because it has forced the, question to be answered, essentially, because especially if you're an exchange or one of these smart contract wallets, for instance, that's paying gas fees in the name of user acquisition, it's starting to look more appealing to take a bet on one of these layer twos. Like you saw

DydX's announcement of working with StarCware, I think they really feel the pain right now, and they need to move to something quickly. And I hope it also forces the question on exchanges. it makes a ton of sense for exchanges to dive into layer two's because a lot of what they're doing is simply transfers. And so they shouldn't be paying a ton of gas to do transfers for people that are doing deposits and withdrawals. I'm hoping it causes kind of a golden age of layer two in the next six to nine months. Yeah, it needs to happen soon, for sure. One thing I would add, there's some like second order effects here that I think are really interesting as well. So one obviously is that Magaski has sort of forced this question of how do you scale

Ethereum itself. And there are lots of techniques to doing that. I think it opens up a question of, well, is actually the near-term solution, maybe it's something like what DYDX is doing with Starkware, but in some sense, maybe it's D-5. Our exchanges in some sense, just like a layer two on top of Ethereum and these centralized bodies that can custody assets and have no gas fees might end up being a short-term solution. It opens up the question of other layer ones as we were discussing. And I think this is the angle that a lot of the other layer ones are taking is Ethereum isn't scaling. and the ETH1 is not scaling. And you might consider ETH2 is hopefully going to happen in the next six to 12 months in some meaningful way.

But it's effectively a layer one competitor to ETH one. And so there are all these layer one competitors. And then it also creates, I think, this psychology or this game theory with developers, which is this has been a looming challenge for some time. We saw similar issues in 2017 and they're still not resolved. And so putting on my developer had, if I were the developer of one of these protocols that is hitting scale on Ethereum, what I would be thinking is, well, how do I solve my own problem? Like, how do I risk mitigate here? And what you saw the CryptoKitties team do is they essentially built their own layer

one. They just said, we need something that's customized for our use case. We're just going to go build our own layer one, which is certainly something that I could imagine some of these defy chains wanting to do is just say, we're going to fork it off, we're going to go solve our own problem and make something killer that just works for us. And I could also imagine hedging. And so if I'm one of the killer apps on Ethereum right now, if I'm in Defi, I'm absolutely looking at ways to bridge into these other chains, just as a hedge, just in case, like, maybe Ethereum can't solve this in any short period of time. And if that ends up being the rate limiter on my protocol of success, from my business's

success, not at all crazy to say, maybe I should be on a couple of chains. Maybe I should be in a couple of different ecosystems just as a hedge, just in case somebody else solves this first. And so I think you're actually going to see a bunch of the killer apps built on top of Ethereum, actually building variants of what they're doing for other chains and trying to bridge these two universes and purely rationally. I actually don't think most people here are operating philosophically because I think there's just so much value to be created that as a developer, it's just a rational thing to do is to say, well, if this doesn't work, I need to be on at least one other platform that might allow me to scale. And so I think you're going to see sort of a rush of people moving to these other platforms as a secondary backup option. I think that makes a ton of sense. And if you think about how the internet was built, it wasn't that we're just stacking single approaches to scaling on top of each other. These things really tended to evolve, at least in the internet protocol suites. with a lot of different solutions kind of cobbled together.

And it surfaces as a delightful user experience through a browser to most people, but there's actually a lot of protocols underneath the hood there. So maybe this ends up being pretty similar. Totally. And I think the kind of back to that question you're asking around or that conversation we were having around developer communities, I think one of the other things that gets lost in history a little bit is kind of how these network effect businesses actually get to scale

and kind of how they draft off of each other. And so in the same way that there's an incentive for developers to on Ethereum to want to consider other layer ones as a hedge, there's actually an incentive for all the other layer ones to work nicely with Ethereum because that's where all the developers are right now, where all the capital is, and use that as a way to potentially slingshot their own ecosystem. And so a concrete example of this would be something like YouTube.

I think most people don't remember, but the way YouTube got really big was actually on the back of Myspace. They were the easiest way to embed videos into MySpace, and MySpace was at 50 to 80 million users at the time. And so YouTube sucked over a bunch of users and then a bunch of people said, well, if YouTube is powering all this and they have all the content, why don't we just go to YouTube.com and we can look at all the videos there. And so you kind of hit escape velocity on the back of something like Myspace. So I think you're seeing a really similar dynamic play out here where instead of content creators, you have developers and instead of YouTube and Myspace, you have a bunch of other layer ones and Ethereum. But it's actually very analogous, I think. That's a good point. One of the things that I think you guys do a really good job, both of you, is going really deep on some of the technical sides of the of this industry, but being able to surface it up. So being able to speak to institutional allocators about what's going on here. So I'm fascinated to hear how you're describing what's going on in Defi. It's a category within this industry that everyone is obsessed with right now that is in the

industry. But I'd argue if you speak to potential institutional LP, for example, they are really not going to know what yams or sushi or Uniswap even actually is. So I'm curious how you characterize and explain what's going on here without just going too deep into the weeds? It's really easy to go deep. And I definitely think you don't want to be starting a conversation with yams. I mean, I think explaining defy, yeah, really depends on the audience. And so like taking the institutional LP as one, I think explaining it as an always-on financial system where traditional services offered by prime brokerages are now available to pretty

much anyone at small scale. I think that seems to resonate well because then there's follow-up questions like, oh, like what type of services? And then you can start talking about things like lending or margin as well as getting leverage and being able to do trades. And I think the 24-7 nature of it is also appealing to people because they get it. They're like, there's all this weird stuff happening in the overnight market. And being able to not have that is probably interesting in its own right. And then I think if you start talking to developers about what Diva is, you can explain. And it's kind of like, it's like a GitHub for finance, and you can push code out at time and try experiments.

And I think that resonates with developers. And then I think if you go to like a millennial or a zoomer, I think you start talking about it, like a massively multiplayer online money game. It's like a Fortnite where everyone's on the same server and there's heroes and villains. And I think that seems to work with that audience. There's probably more audiences out there. I think the hard one is how do you talk about defy the regulators, but maybe we can talk about that one later. That's a great one. I definitely want to talk about that one. I was reading this book over the summer. I'm totally blanking on what the name of it was. But one of the chapters was talking about the invention of the credit default swap in Blythe Masters, essentially bringing that product into existence on behalf of a customer years and years ago. And I couldn't help but think back to that a couple of weeks ago as I was seeing some of this growth in some of these defy projects that if you're a talented engineer, talented financial engineer, at this point, the equivalent of the credit default. Swap is probably something that would not be invented at a bank. It would just be put into the wild

on a defy protocol, I would argue. So in some ways, it's an innovation that has been siloed off and put into a centralized investment bank function for a long time. And really now we're probably seeing the first incarnations of these type of products just put into open source. So curious if you agree with that. It's a really cool thing that's happening where a lot of this research that's been around for a long time is now, like, you could put it in a practice in defy and just test it out. AMMs, like the research has been around for a long time around that. And now there's this sandbox to be able to try it out in a relatively low risk way. I mean, there might be some whales

that get blown up, but it's not something like you're bringing it to centralized finance and it could create like massive ripple effects. It's still like relatively contained within crypto. I think a lot of people like to say like first principles when they talk about crypto, but like a lot this research has been around for a long time. Similarly with cryptography, a lot of the cryptographic principles that are coming into play here are research from the 70s and 80s, and now they finally have a use case. So you're seeing it across both financial engineering and traditional engineering. Going back to our kind of discussion around the open source communities and the developers, one of the things that's really fascinating here is that there's a forkability

with all of these projects in the sense that it's just open source code and you can see a high profile project essentially being forked. And I guess we saw this to some extent with Curve even when it was sort of put into the wild and we're not even sure who launched the network. It was just out there and someone decided to start running it and deployed the contract. So when you think about defensibility and network effects, are these platforms actually the types of things that can drive network effects at scale? Is there a captive way to keep users on the platform and monetize these things? How do you think about that? I think there's a belief because in traditional markets, liquidity is some sort of a moat because moving money around is hard, that liquidity is potentially a moat in defy.

And we tend to think liquidity is probably not a moat because it is so easy to just move from one protocol to the next. And so that raises the question of, well, what does create defensibility and what does create moats? And we think it's actually time will tell, but we think potentially the ecosystem around all that liquidity. So for example, Ethereum and Bitcoin have really interesting moats, things like MetaMask or things like regulatory, clarity can create a moat. We think that community could be a really interesting moat. And so if you have true believers that will stick around because they believe in a thing, they can will things into existence. And they, even though it is cheap and easy to move your money away, choose not to. Extreme examples of this might be something like chain link. We have a community of believers

that have sort of created a moat around the business. And so in this world, actually, we think, unlike traditional centralized finance, liquidity probably won't be a huge moat. But it'll be some of these other effects around the ecosystem and the people around the money that actually create much more significant votes in time. I guess that's why some of the developer stuff that you guys are tracking is just so important because you can't really do any of that without having a community behind a project. That's right. In some sense, it's very easy to unroll a trade. You make a trade, you move some money, and then you move your money somewhere else. It's really hard to undo a belief system or it's really hard to unravel a career decision. And so if you've

committed your company or your career to some ecosystem or to some space or some approach, unwinding that is much, much harder than unwinding a trade. And so that's where real sort of lock-in and network effects, I think will come in. That makes sense. The moats here are really interesting. And I think it's still early days. I think liquidity, it sort of depends on the type of liquidity because I think maybe an interesting analogy here would be like different casino games where like Blackjack doesn't really have a moat. It's like you can go and play. And unless you're counting cards, each game is unique, but like a craps table or something where a ton of bets get put on the table and you actually get like a community energy around the table, it's like

harder to unravel that. So similarly, I think if you start to see a bunch of liquidity structures within an ecosystem, like something like a Wi-Fi, for instance, where there's a lot of different vaults and a lot of structure, I think it's like harder to unwind that liquidity as opposed to say like an AMM, it's a much simpler primitive. I think we're sort of in the primitive discovery phase, much like a currency gets launched on a centralized exchange and there's price discovery. I think people are still figuring out what are the primitives that need to be public goods? Like maybe there's no token at all. It's just a smart contract that gets called. And then ones that need governance and a token behind them. And it's still

unclear to me whether we're going to have like one simple AOM that's just a smart contract or are we going to have a series of them each with like different liquidity pools. and different governance models, and then aggregators that call across those. And increasingly, it's looking like it's going to be the latter. But yeah, fun times. I also think forks are inevitable, and fighting them is going to be a challenge. And so really, it's like, say you're the originator of an idea and you see it get forked away, I think figuring out how to play in that world where the forks exist,

like maybe you encourage the fork creator to, you do risk your assets, Like in the case of like compounding cream, let cream create the debt markets for some of the more speculative stuff and let compound focus on the blue chips, for instance. Like that's one way it could play out or more of like a consulting relationship. That's really interesting. The forkies. That's fascinating. On that topic of primitives, I think one of the most exciting things about being an early stage

investor in the whole crypto industry right now is just you see these categories of infrastructure that just have to exist. I guess just to bring that to life, if you think any public blockchain asset is going to be something that an institution wants to hold, it's fairly obvious that we need regulated custodians, we need regulated spot markets, we need index construction. So there are just these categories that have to exist and a lot of them aren't really scaled up yet. Now, in defy, I'm starting to see the same type of thing happen. So I'm curious, what are sort of these primitives or categories that you think are going to become kind of increasingly useful? Is it propelled? perpetual swaps, for instance, comes to mind. I'm curious what other categories you think are just on the cusp of being things that are really exciting in defy. I kind of have two thoughts about it. So one is you can look at the traditional financial stack.

You can look at sort of your reserve currency, your sort of fiat money, retail banking, lending, commercial banking, equities, derivatives, and you can drill into any of those futures versus perpetuals versus whatever. and you can sort of parallel those to D-Fi. And you can say, hey, look, all of these things need to sort of exist in D-Fi as well. And then you can just sort of fill in that market map. And that will probably happen. All of those things will happen in some form.

And so that's the more straightforward stuff. I think the really interesting stuff, though, is the crypto-native stuff that can only be done in crypto. And I don't know if we're quite seeing those yet. I think we're just starting to scratch the surface of those. Even something like an automated market maker starts to scratch at the surface of those. And those are going to be really novel and weird. And it's not clear what those will be. That's like the unknown unknown right now that we have to think about,

especially as venture investors, is back to this idea of somebody's going to do some stuff that looks really weird and strange, but it's actually brilliant because it's crypto-native. So I'll give you a concrete example by analogy because I think it's hard to see these things looking forward. It's a lot easier to see them looking backward. So we put GPS on mobile devices, like roughly in 2001. I think the BlackBerry roughly around that time had a GPS victim. And so you could see email, you could see a map.

And by the time the iPhone happened in 2007, maps were starting to be a thing. You could see that mapping on a phone was going to be a killer app. And so a lot of people said, oh, yes, like I have a TomTom or I have a navigation thing in my car. This is awesome. This is going to replace that. I can see how this works. And it turns out the killer app, actually with GPS was you sort of have to flip that on its head. We have to say, actually, is, oh, the killer app is not that now with a GPS on my phone.

I can go somewhere else. it's actually that other stuff can come to meet. And that's where you get sort of the share economy, you get Uber, you get Lyft, you get DoorDash, like all of these things all of a sudden become possible. And I don't know if we've quite seen that yet happen in DFI, where I think a lot of what's happening is we're making parallels to stuff that we've seen before. And over the next two to four years, I think, we're going to start to see the stuff that really turns this on its head and says, here's a bunch of stuff that has no analog and no parallel

in traditional finance. And we're only going to be able to see it because now we're seeing things like AMMs or Wi-Fi or sushi or compound or all these things that are primitives that we can get our heads around relatively quickly. I think the next wave of stuff that's going to happen may not have an analog at all in traditional finance. And I think that's going to be the really, really interesting stuff. And I think we're just starting to scratch the surface on what that might be. I couldn't agree with that more. You brought up Chris Dixon and what the smartest people do on their nights and weekends. That quote, the other one that I think is him is the Venn diagram

in the two circles are seems crazy and great idea. And that's really what. what you're describing is something is going to come along that is only possible because of these platforms and could look a little bit crazy, but that's kind of what we're looking for. A concrete example of something like this in the short term might be something like a governance token. There isn't quite that notion in the traditional world of like how do you vote on these things? And you can kind of look at it and say, well, it doesn't shareholder voting kind of do that or yeah, sort of. But the idea that people can participate in these community own networks and vote on proposals and change the protocol itself and have sort of the self-amending nature to it,

like maybe that ends up being this thing that right now we're all thinking of it through the lens of shareholder voting. But actually, there's going to be a twist on this thing, what actually fundamentally unlaunch the new kind of behavior. And all of a sudden, we're going to realize governance tokens are like massively valuable because they let you do a thing that you just couldn't do before. That's maybe a concrete example of something where you look at it and say, oh, this looks kind of like a thing I've seen before, but actually somebody may come up with a twist on it because the search and design space is now opened up, that on.

unlocks a new sort of behavior altogether. That makes a ton of sense. You guys brought up the regulatory piece at a couple different junctures in this conversation. And I guess that's something I'd be curious to see if you guys have a perspective on is there is an argument here that product market fit to some extent is a regulatory arbitrage for some of these projects and the fact that you don't have to have KYC on the platforms. And that's kind of inherently what makes it attractive to probably a subset of users. Do you see this as an existential threat?

And I guess the secondary question was like, if these platforms for some reason had to come under a full KYC regime, would they be as exciting? Short answer, I think is yes. They would still be as exciting. And I think the question you're asking is a really good one. And one way to sort of answer it would be to say, well, every protocol needs to do KYC, let's say. Another way to address it might be to say, what really matters is when you're moving in and out of the U.S. dollar, when you're moving in and out of the Fiat system. And we have a really robust KYC and AML at that layer already.

And so if we know that you're moving money into this ecosystem and then you're going to move money back out of this ecosystem, as long as you're KYC on the endpoints, that's okay. And I think that's roughly the position that the U.S. government has taken, for example, is like if you're moving money in and out, like we want to know where it came from, you should pay your taxes. You try to avoid those taxes. You can get in trouble. And that's all very reasonable.

People should not longer money. People should pay their taxes. Like those are actually pretty reasonable requests. And in that incarnation of the world, what you could have is KYC on the end. endpoints, and actually the crypto ecosystem can still operate through this sort of pseudonymous wallet addresses or a layer where you don't need that sort of baked in at that level. You just need to know that the person that's bringing the money in was KYC at some point. And I suspect that's the way it's going to end up. And I think if we can end up in that direction, actually, we'll get the best of both worlds.

We'll make sure that you don't have money laundering happening. A lot of the existing tools that we have to prevent that sorts of behavior will still work. And at the same time, we'll be able to unlock a lot of this permissionless innovation and iteration that happens to defy. And so I'm hoping that's where we end up. And it looks like generally the U.S. government, I use that as the proxy because I think a lot of other governments will sort of follow suit. Whatever the U.S. government does, I think they'll sort of use a signal for how they should behave. But I think the U.S. government has generally taken a, we're not going to necessarily unlock all of this innovation and be promotive of it and sort of go in that direction. But they're also not necessarily trying to kill it off. I think there have been

lots of opportunities where they could have killed it and they chose not to. And so there's somewhere in the middle right now. I think there are valid arguments to which direction they should push. But generally speaking, I think they seem to be taking the position that as long as your KIC going in, they have the tools to sort of handle it at that layer. And then whatever happens in Defi kind of is okay. Curtis, do you want to jump in on that at all? I think the Fiat onramp being the place where the KYC and AML provisions happen makes a lot of

sense. And I think it extends to privacy coins as well. I think that's the current thinking is that once you're in sort of the private or the defy ecosystem, as long as you're regulated at the end points, that makes sense. I think it's scoped right now to the fact that this whole market size is still relatively small. I think we're going to have to come up with a new regulatory framework if we go into another quantum of the size of the crypto market. Because at some point here, maybe you don't actually move back into fiat. And so we need to come up with strategies that make sense there. I think the U.S., everyone's realized that we've maybe gone too far into the surveillance state direction. And I think the U.S. does compete better with like the worldwide

authoritarian stage when we allow individual freedoms. So I think that balance of being able to stop money laundering and terrorist activity, but also give people back some of their privacy, is going to be an important one. This is actually a really important point. I mean, there's sort of an interesting, I think, implicit assumption in what you just said, which is that the government may seek to have more control in this space. And there's, I think, an alternative potential outcome here, which is that the government, rather than trying to hug the crypto ecosystem to death,

actually says, let's let this thing flourish. And the thought exercises, well, how might that happen? And why might that happen? And I think the thing that's really changed here in the last six to 12 months is more public understanding in crypto and increasing understanding inside the U.S. government that the Chinese government is fully embracing this technology. In November 2019, when President Xi said, hey, blockchain is a strategic imperative for the government and we need to really embrace this stuff, I think that was a pretty important moment. And I think the resource allocation and investment that's happened as a result of that and the unveiling of the Chinese digital currency, initiative that's going to get pushed through Belt and Road and has already launched domestically in China, I think it's a game changer.

Because now the U.S. government is not thinking about, it's not U.S. government versus crypto. There's now player three has entered the game. And I think the game theory of how does the U.S. government think about crypto vis-a-vis the fact that the Chinese government is now in this space is really important because what the Chinese government is doing is really smart. What they're doing is they're saying, hey, we have this thing. It's a really fast settlement layer.

it works domestically, it can work internationally, and we can now start to settle trade on this without needing the U.S. dollar. And if you look at, for example, China to Russia trade, they're increasingly not settling or denominating this in U.S. dollars. It was about 70% of their trade between Russia and China was denominated in dollars about five or six years ago, and now it's like 40%. And so they can push this internationally. And if you're the U.S. government, all of a sudden, you're thinking, wait a second, how do we compete against this? Does China go to Africa? Does it go to Europe? Does it go to Latin America and say, use our settlement layer instead of using Swift instead of using the dollar. And that's a real

threat. And in that sort of world, it's not the U.S. versus crypto. It's actually, the U.S. has this really interesting advantage to Curtis's point, which is we have individual freedoms, we have privacy, we have rule of law, we have freedom from unreasonable search and seizure. And to the extent that we can embrace those principles and allow crypto to sort of be offensive on those principles, because those are things that the Chinese government will have a very, very tough time embracing and baking into their settlement layer. That's a lot of the fact. actually a potentially very valuable strategic asset for the U.S. government in order to be able to sort of push back globally and to capture this sort of layer of innovation that's happening here

and make sure that that actually is captured primarily in the U.S., I think would be much more strategic and a much better way to approach the crypto ecosystem than trying to sort of control it. Because actually, when you look at it through the lens of the Chinese government has this really strategic set of initiatives, crypto is actually potentially very, very useful to the U.S. government against sort of the Chinese government's push here. I wouldn't agree with what you're saying any more emphatically. In fact, I went to an event over at the Kennedy School of Government at the Belfar Center before COVID. And there was actually a role playing exercise, kind of a mock trial of sorts. And Larry Summers was there, Gary Gensler, Ash Carter. And they were talking about just this. They're kind of talking about the negative potential ramifications to the dollars, kind of reserve currency status globally, if China were to be able to roll this out. And also really just the, you think about the swift network, in the insight that the U.S. government has into some of these financial transactions that are happening between other nation states. And that could really be compromised as a result of a Chinese

currency becoming a currency that is used for commodity trading and things like that. So I think what you're saying is very true. And I guess the good news is that people are talking about this and how this could be really to the U.S.'s advantage. You just hope that it doesn't get choked off with a FinCEN action or something like this that shoots the development community before it really gets started. Yeah, I agree. 100%. Well, this has been great, guys.

One of the things I'd love to maybe ask as a closing question here is I really love the post that you guys had. We talked about it earlier, but about programmable money. And you guys had this taxonomy around breaking up these various platforms between the money use case, smart contract platforms and compute and infra. And as a deeper dive, you kind of talk about these privacy-focused. cryptocurrencies. So I'm curious if you have a perspective on just what we've seen with some of these privacy coins over the years. And honestly, they haven't seen much meaningful adoption as

compared to some of these other networks. And curious why you think that is and whether or not you think that there's a future for a base layer privacy coin or whether or not we're going to just see that at the wallet level on Bitcoin, Ethereum, or any other kind of public blockchain based asset? I think it's kind of the sleeping giant of crypto. There's a lot of activity that's gone into building this stuff. And I think what's holding it back primarily is just the UX around it, as well as the integration. It's challenging for exchanges to integrate it because oftentimes the development teams of privacy coins are small. Starting up a Monero full node and a wallet is actually still challenging. When you look at how most crypto users hold with their assets, it is on centralized

exchanges. It's a big leap even to self-custody Bitcoin, much less a Zcash or Manero. I think as more people play with Defi actually, and they're starting to self-custody their Ethereum and their ERC20s, I think privacy starts to matter more. And I think they start to understand, hey, all of the stuff that I'm doing is fully transparent. We saw that anecdotally, people in 2017, they actually started custody or like they purchased a ledger or something. They'd be like, wait, like all this stuff's visible. If I send a transaction and fund and investment, someone can back trace back and see my entire portfolio. That's kind of goofy. That's not how it works in centralized finance. And so I think you're going to see more adoption toward privacy coin as

people become savvier with their control with their portfolio. And I think we just need more regulatory clarity around it. I think there's still a risk with it. where right now if you're using a privacy coin, the immediate assumption is that you're doing something wrong. And I think folks like CoinCenter are putting out great content around educating regulators that, hey, just because you're doing something in private, doesn't mean you're doing something wrong.

It's like now with HTTPPS on the internet, that's the default. Everyone is using encrypted transactions. It used to be before if you were using HTTP, maybe you could be doing something wrong. And it took a lot of effort by browser manufacturers, to say, hey, that's actually how you should be sending a credit card over the internet. It should be encrypted. And they push that through.

And I think we need something similar to happen with privacy, whether it's a dedicated layer one pushing it or things happening on Ethereum, like there's tornado cash, and Bitcoin has their own form of privacy with things like Swabby wallet. I couldn't agree more. I would add a couple of things. I mean, generally agree with what Curtis is saying. I think there's a fundamental question of do people want privacy? And I think the answer to that is undoubtedly yes.

And so the question then is, well, how does that manifest and for whom? And what is the sequence of events through which that actually manifests? And I would argue that for the people that it matters most today is either people who don't have privacy and really value it. And that may not be people in, for example, the U.S., that may be people in other countries that have more to worry about from a personal safety perspective. But I think my opinion is the place where it may start to kind of what Curtis was saying is people who have, more money likely care about more privacy. Like I think you're right that maybe the average person doesn't care that much about privacy yet, though I think that is increasing. People are increasingly

sensitive to this. I would argue that on a dollar weighted basis, a lot of the dollars and maybe most of the dollars in the world actually care about privacy. And so I think if you look at the market through the lens of dollar weighted rather than user weighted, I think the market is huge and there is a real need for it. In terms of how it manifests, it could be at a layer one. It could be, as Curtis was saying, tornado cash on top of Ethereum, or it could be, as you were saying, maybe at the wallet level. So I think there are a lot of different ways it might manifest. I don't think anybody really knows how that will play out today. What I will say is, I think you made a really interesting observation around Monaro and Zcash, and Curtis highlighted some of the

user experience challenges around using kind of that first gen of privacy coins. And I think there are two worldviews on that. I think you could look at the lack of adoption there, and you could say, hey, nobody wants these things. And the other way you could look at it is you could say, well, maybe we just didn't build the right thing yet. And so again, it's useful. It's always a little risky, but it is useful to reason by analogy because I think it helps illustrate these points easier looking back. So one analogy here would be Stripe versus Braintree.

So you could have looked at the payments infrastructure space in like 2008 or 2010, and it was a brutal space, low margin, it was like not huge businesses. It was really, really tough. And along comes Braintree, and they bought Venmo and they sold the paper. And you could have looked at and said, wow, like these guys had a slog and they built the best product in the space. And they only sold for $800 million. So you could look at Monaro and ZCash today.

And you could say, wow, like these guys have been around for a while. And they've been slogging away and they've built real tech and they've done a great job and they've built real community. And still, such few people are using them and the network values are what they are. Or you could have looked at Braintree in 2010 and you could say, wow, I can't believe this thing is worth a billion dollars. Like if somebody actually did this right, that might be a huge business. Like if the APIs were actually usable and they were really good and fast and the fraud was easy and all of this other stuff, like if somebody did this right, this could be a hundred billion dollar company. And that was Stripe came along and kind of did it right in my opinion. And so I think there's a worldview here, which we subscribe to, which is Monaro and Zcash actually are far more successful than you might think at first glance based on really how hard they are to use today.

And that's not a criticism of the teams or anything. It's like they've solved real hard technical problems over the last five years. But we look at that and we say, wow, there might actually be a thing that comes a lot. long that's so good and so easy to use and so fast and so on and so on that actually that is the thing that breaks up in the market in the way that Stripe broke up in the market on payments after Braintree was a billion dollar exit. So there's actually, I think, a very inverse view here, which we tend to hold, which is we haven't really seen the layer one that can compete. And people are probably working on it now in our opinion. I think that's really well put.

If I had to summarize both of your comments on that, I think one is just that there's potentially a fundamental lack of just user empathy. And you could see a need for just product managers that are kind of building things that are just easier to engage with in the privacy space. But the other thing that I think is an important callout, Curtis that you said, is the role of Coin Center. And so people should care about privacy. It's a really important thing. And to the extent that there is a group that is working on this, I think Coin Center is doing some of the best work in the industry, just to champion some of these things and to really try to save some of the, of the projects here from kind of getting into a bad place with the regulators and really just

call attention to some of these issues. And so I couldn't agree more. I think they're doing some terrific work on this. Well, this is great, guys. I feel like I could talk to you guys both for hours on a range of topics, but we'll have to save that till next time. In the meantime, where can people follow you guys and learn more about electric? Twitter is probably the easiest. I'm at Avichel, A-V-I-C-H-A-L, and Curtis says at Jubos, J-U-B-O-S. It's probably the best place to follow us. And we put out our research on our website. And we also have a GitHub out there.

If people want to help add to our taxonomy of repositories, I think we're up to about 40,000 in crypto right now. So let's push that number up. Well, keep up the good work, guys. I really appreciate you coming on. Thanks for having us, Matt. Thank you for having us. Thanks for listening to another episode of On the Brink with Castle Island.

To find out more about Castle Island, visit castle island.Vicc. To listen to all of our podcast episodes, please go to On the Brink dashpodcast.com or just click on the tab in our website. Thanks for listening.