On The Brink with Castle Island - Kyle Samani (Multicoin Capital) on breakout applications for Web3 (EP.137)

Episode Date: October 12, 2020

Kyle Samani, cofounder and managing partner at Multicoin, joins the show to talk his current views on Bitcoin, Ethereum, and to give an update on web3 and how Multicoin is approaching the opportunity. In this episode:  Kyle's current views on Ethereum, its positioning, and its prospects for filling out the roadmap Whether liquidity network effects for smart contract chains are insurmountable What it would take to reach global scale for public blockchains Kyle's changing view of Bitcoin over time The effect of WBTC on Ethereum The topic that Kyle has most dramatically changed his mind on recently Kyle's view of the validity of DCF valuations for DeFi tokens Kyle's theory on which classes of DeFi tokens should accrue long-term value A retrospective on Multicoin's EOS thesis and where they were tripped up Which blog post of his Kyle thinks has aged the best What Web3 means to Kyle How fast Web3 has grown relative to Kyle's expectations in 2017 The imminent Web3 projects that Kyle thinks could have mass market applicability Multicoin's Helium thesis and the importance of LoRaWAN How Helium tokenomics are modeled after physical commodities Kyle's expectations for web3 applications within the next 5 years Whether Ethereum requires web3 to succeed and vice versa Content mentioned in this episode: Multicoin, EOS Analysis and Valuation  Multicoin, On Forking DeFi Protocols Multicoin, Augur Analysis and Valuation

Hello, everyone. Welcome back to On the Brink. Thanks for joining us again. Today we sit down with Kyle Samani, co-founder and managing partner at Multi-Coin Capital. Most of you, or all of you, will be familiar with Kyle. Certainly, he said things I've disagreed with about Bitcoin. And I'm sure the converse is also true. But agreeing with us is not a precondition for appearing on this podcast. Quite the contrary. We welcome spirited debate. Today we hit a number of topics. We start with Kyle's current outlook for Bitcoin and Ethereum. and their near-term prospects. We look back at the calls that Kyle is most proud of and some of the mistakes he's made.

And we look back at Multi-Coin's EOS position and they're thinking behind that. Then we move on to Web 3, which is really the subject of today's episode, what Web 3 actually means to Kyle, how he defines it, and how near we are to Web 3 becoming a potentially consumer-grade and functional phenomenon, and what the near-term breakout applications might be. We also look at whether Web3 requires Ethereum to work

or whether it's future lies with other chains and Ethereum's relationship with the Web3 thesis and how that's changed over time. I want to thank Kyle for coming on. Let's dive right into it. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group,

AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Kyle Simani, thanks so much for coming on. Welcome to the show. Nick, good to be on. Long time listener. Good to be here on the show.

I love to hear it. We've butted heads a few times. over the years? Just a couple. We don't see an eye to eye on everything or even maybe like a majority of things. But, you know, that's crypto. So we have a lot to talk about the main general topic for discussion

is the concept known as Web 3. But before we do that, you always have like interesting and contrary opinions on Bitcoin and Ethereum. So I wanted just to get your view on not like price-wise per se but where you see bitcoin and maybe also Ethereum in terms of their positioning and their general prospects as as networks especially as a lot of these newer protocols come online yeah so very fun question and love let's start off for the most

polarizing tribal question just to make this a fun interview we'll throw you in the deep end first thing let's do it so I think is actually easier to start with Ethereum than Bitcoin. So Ethereum, like, I want to love it. And, like, Ethereum is what made me fall in love with crypto. I was never, I never had, like, strong, like, libertarian views or had strong, like, opinions about monetary policy and government, you know, printing money and all those things. So Bitcoin kind of never appealed to me. But Ethereum did as it's, like, developed a platform to do cool things. And as it became increasingly clear that like financial applications were going to matter, like it was very clear to me early

on that smart contracts were going to be a very important thing for like the future of money and finance. I've become somewhat disillusioned with Ethereum over the last probably 18 months just because like I disagree with a lot of like the kind of long-term technical decisions that have been made in terms of how we're actually going to scale this thing to be meaningful, like meaningful in terms of users and dollars. Although the dollar, although the dollar, on Ethereum, they are somewhat significant. I mean, like 10 billion of TBL. And, you know, there's, I call it three or four billion dollars of loans outstanding.

I mean, like, these are real numbers now. The number of actual users is almost zero. I think the best way to think about that is look at the Uniswap, Airdrop. There were 250,000 addresses that received uni tokens from the Airdrop. So that tells you that, like, no more than 100,000 people have ever used DFI. I personally have like four addresses that got those tokens. I'm guessing you probably have one, two, three yourself. Right.

Like it's hard for this math to get over 100,000 users. And so, and I look at like gas fees and everything. And like it's just like doesn't, it's just like we're so many orders of magnitude away in terms of scaling that like I've become very disillusioned with how the current Ethereum roadmap is going to get us there. and I've developed a lot more conviction that A, and the network effects are not insurmountable because the number of absolute users is so small. And B, that there are much fundamentally better architectures. And I've kind of believe both of those things with pretty high conviction.

So your point is that given that it's at most a couple hundred thousand users that are totally taking advantage of all of the block space available and just plumbing all the network's resources and kind of reaching exhaustion almost, if you look at fees, that requires really significant scaling to support more users.

Yeah, I mean, I think for these systems to really work as we really, really want them to, at global scale, we're off by right now about 1 million X. Like, we're not off by 10 or 100X. We're off by a million X. And if you think about it in that, lens like you have to you have to completely throw away all conceptions of like what is the

current performance and like any notion of tweaking the current architecture and you have to go back to the basics and just say like okay how do we just compute more stuff faster and i don't think the kind of current propositions being discussed are going to you anywhere even close to a million x so i guess you could say we have to throw out incrementalism and start being more revolutionary in how we think about these networks specifically in how to scale computation yes now um I feel like your views on Bitcoin have maybe moderated a little bit. I don't know if that's just me speaking optimistically. What's been your personal history in terms of your view of Bitcoin and where does it stand today?

Yeah. So I've definitely gone back and forth on Bitcoin from like reviewing a full smart contract kind of believer to like losing a little faith in smart contracts and now kind of appreciating Bitcoin for what the simplicity of what it provides. the more I think about Bitcoin, the more, I think that like, the fundamentally interesting question for Bitcoin is like, what's going to happen and call it like five years or so from now when like you've got some sovereign wealth funds or pension funds or whatever? And they're like, okay, like we're going to finally buy these non-sovereign money things, whether Bitcoin or Ethereum or whatever new era one it is. It has some cryptographic properties and some monetary properties. of all of those options that are available then let's say there's going to be three or four I don't know potentially like main real competitors Bitcoin is almost certain to have the strongest Lindy effect in terms of just like it's the oldest right

like proof of it works been around the longest it'll obviously have those properties it'll probably have the hardest most simplistic monetary policy of all of these things but like is it going to be a 10x better in those funds or is it going to be like 15% better in those fronts. And I think it's going to be closer to 15% than 10x. And so if you kind of assume that's what that's going to look like, which I think is actually a pretty reasonable assumption. And then you also think like, hey,

are one of these one or multiple of these smart contract platform things, going to be facilitating trillions of dollars of trading and commerce and whatever, all these fund bank, you know, widgets and stuff. Like at some point, if you're the no-coiner in 2025 or 2028, who has got to deploy a trillion dollars or, you know, about $100 billion into these things. Like, where do you put your money, right? And why? And today, it feels very easy to say Bitcoin is the only answer. And like, I agree today that like it's clearly like a much better answer. But when smart contract platform X or Y is, you know, trading that kind of volume,

that's a lot less clear because again, you're getting the same cryptographic properties and you're getting almost all the same monetary properties. what do you make of the injection of bitcoins into ethereum with the whole wrap bitcoin phenomenon does that like some people have said that you know is kind of demonetizing ethereum on its own chain by putting you know this different monetary asset in there so weird leads to the detriment of bitcoin and then there's obviously the talking point about well you know bitcoin can't even support the the conveyance of its own units. And so it demonstrates Bitcoin's obsolution as like a technical protocol.

What's your, or is it just completely irrelevant? What's your attitude to that? Yeah. So again, if you're, if you believe that monetary policy is binary and like either it's Bitcoin fixed supply, you know, set in stone 10 years ago and has never been modified, right? Like, if you're going to take that the pretty extremist stance on monetary policy, then Bitcoin being on Ethereum is good for Bitcoin and bad for Ethereum.

Because Ethereum's monetary policy is obviously not as strict as Bitcoin's. Now, I'm not saying strictness is good, but it's just clearly not as strict. And that's not really a question. And the same is going to be true for any of the other smart contract platforms as well. Like they have more governance and they're newer and more people yelling at each other. And so it's like their monetary properties are not as good. But now if you look at the other way around and say, you know, monetary policy maximalism And like the strict fixed supply thing is not binary.

And like it's a feature, but not necessarily the only feature. Then I think it kind of lends itself to the other argument, which is Bitcoin can't even support itself. It's just going to end up somewhere else. And ultimately, the other thing over there is going to be more valuable. I tend to lean towards the latter view more than the former. It's okay to be off by one or two or three or even five percent in terms of monetary policy. Like you don't need that level of precision to like, provide the world the order that it needs.

What would you say like the single biggest like reversal you've had in terms of your attitude to the industry has been? Something you believed was true, which you subsequently realized was not the case. Ooh. I think this is one. This is a piece of advice I share with all of our portfolio CEOs, which is that the most important feature of a token is its market cap. And I don't mean that in the like I want to make money as an investor kind of a way.

I mean that in the social legitimacy that having a high market cap provides. It still to this day perplexes me how ChainLink has a $10 billion market cap. I don't know who owns all these things. Same with Lightcoin, like pick many other assets in the top 10. I cannot explain to you where those dollars are, but I know they're real dollar. Like some past somewhere they're real. But I've also realized that like the social legitimacy of being higher on coin market cap is real. People take things seriously because they're higher on coin market cap and coin gecko and finance and all those things.

And that is immensely powerful and underrated. And so I, yeah, what we really emphasize that as well portfolio companies is like you need to be higher on coin market cap. It makes you real. That's interesting. Yeah, I find myself realizing that a lot of my committed beliefs about this industry, end up just being false over a time, which I guess is a kind of a flexibility you have to have to have any longevity in the industry. I mean, I would say I've noticed from you a certain amount of flexibility, or at least like open-mindedness, like willing to explore new concepts pretty

aggressively. One really big mistake I made early on was I got into Ethereum because of the ideological belief in the power of decentralization and like openness and like you know absorbing i'll call it the bitcoin ethereum view that like the primary metric of decentralization that matters is no account and um yeah the longer i've spent in the space the more i've realized that that is too simplistic and that also that view is it is a is a manifestation of an ideology that may have been necessary to get crypto off the ground but doesn't mean that it has to be necessary for crypto to continue to move forward from where it is today. And I'm increasingly of the view that market, like, at this point, every libertarian on the planet owns Bitcoin.

Like, you can't really be a libertarian and, like, not have heard of Bitcoin and not like when it's the buyer. Like, all the ideological buyers for these things have been exhausted. And so we have to get, like, to get to the next 10x of growth in market cap, we need buyers who are not ideologically driven. And whether that's open finance or whether that's like open software building on a decentralized network or whatever or just libertarianism, you need market driven utilitarian driven buyers. And so I think in a lot of ways, the strong ideological beliefs that are the basis for many of these networks are increasingly hindering them. One thing I remember from one year old blog posts was this effort to create. sincere real valuations of certain tokens. Like I remember an Auger one where you looked at the cash flows that might accrued to

Auger and, you know, endeavor to devise a valuation of that one. And it's kind of like an early attempt to view certain classes of tokens as like capital assets. I know this is something that has been hotly debated over the years. And I would say today it's interesting that there are, there is like a whole genre of tokens that explicitly have cash flows occurring to them and there's actually a few dozen that have maybe fairly material cash flows or at least burns. What do you make of the this new kind of class of defy tokens with cash flows? I mean, I see people applying in like price earnings analysis to them and and you look even comparing those multiples to like public equity. Do you think that's

legitimate, does this kind of like vindicate that attitude of yours or do you find that analysis questionable? Yeah, I mean, it's something that has cash flows or forms like you can run a DCF and identify the yield and, you know, people can play a cost of capital game on if they think the asset's overvalued or undervalued. I believe like that, that is like a fundamental law of finance. I don't see a way around it. So I'm excited to see a lot of those capital assets, you know, starting to do the things that they said they were going to do. The defy community today tends to exaggerate what a lot of those ratios are in pretty intellectually dishonest ways. But like they are starting to accrue. I think the biggest actually open question for most of these defy things is long-term value capture. I've been poking at this debate online and I usually get kind of yelled at when I bring it up.

But it's not clear why Uniswap means to have a token or why balancer or those kinds of things. Zerox. You know, I've already went through this life cycle of debate. Right. And I actually, I have a blog post I started working on a couple days ago. I'll give the sneak peak preview here on Castle Island podcast. But basically my theory from the framework I'll come up with on how to think about which DFI tokens can cap can actually capture value are the ones where the token actually has to manage risk in the system.

So like the easy way to think about that is like Maker versus Uniswap in Maker or like MKR holders are the equity backstop of the system in a very real way. But in Uniswap, there's attacks on the system. And it's not really clear that like there's a way to evolve that Uniswap protocol in such a way that there's actually any fundamental risk in the system. If you look at Compound Darave, like those again like have clear. notions of fundamental risk in the system. Look at, so that's kind of the framework I've been thinking about.

I think it's intellectually coherence. I think it makes sense, right, which is just like, look, like if you are the final backstop in the event of some liquidations or some assets, whatever, like being stolen out of the vault or I don't know what, but like if you are fundamentally backstopping the system, you are actually the bottom of the capital stack. And therefore, you have a right to cash flows out of the system. and like you can price that risk. Like I believe that view is coherent

and I think we'll start to see the market get there over the next couple of years. So I guess to synthesize that, your point is that if you as a maker holder are constantly bearing that risk of dilution because there's some insolvency in the system, you're more incentivized to make good decisions and participate in governance.

And so in theory, that leads to a healthier system overall. Yes, correct. And in exchange for, bearing that risk, like, you know, people who want to obviously die creators, right, they have to pay for the cost of leverage, right? You have to pay to borrow money. And so, like, you are, you are justified as an MKR holder of receiving cash flows. There's one last one before we get to Web 3. So, like, obviously you write a lot and, you know, I think that's something people associate with you is a willingness to cover a huge diversity of topics. What of your, historical pieces are you kind of happiest with and you think has aged well and then conversely what's one that you kind of wish you could bury in you know in the ashes of history um so the one i want to bury is easy that's the the long ios paper we wrote in uh april of 2018

uh we were just wrong uh we we just totally missed the mark on that one we had a bunch of theories um most of those theories were just just plain wrong um we've been laughed that plenty times for it We lost plenty of money on EOS. We moved on and, you know, is what it is. But the paper is still on our website. If you dig in multi-coin capital, the OS, you'll find it. We have not taken it down. Just on that one, have you done a retrospective on EOS at all, like on any podcasts?

Not on any podcasts. Internally, we do a quarterly decision review where we look at kind of decisions over the last three and six months periods and figure out what we did right and wrong. So we have a lot of internal, you know, grief. and learning, but not in a public setting. So I don't know, maybe just briefly, do you, are there bullets of what you, you know, places you identified where you went wrong? Or is it just one of those things that you took a swing and you missed?

So I think the most hidden thing that was very non-obvious, but that I have a deep appreciation for is, and that actually really shaped my views on Ethereum and D5 was the correlation between price and transaction usage. So one theory we had was, if you look at the Ethereum transaction gas consumption chart over the course of second half of 17 and first half of 18, it's generally trending up into the right.

And our view was that like basically the system by basically June or July of 2018 was going to become saturated, like 90% plus gas consumption. And we were pretty convicted that was going to be the case. And prices started kind of going down after like April May or so and never kind of recovered from them. You just went into the, it just got very apathetic in the market. And gas consumption started the fall. And we thought that the gas consumption was going to gas prices. We're going to cause people to force to basically look at EOS because EOS was launching in June of 18.

And we were ultimately right about the thesis. If you look at what's happening now, like that's literally like what's. happening, but we didn't appreciate the power of the correlation between price and gas consumption. That's really, really interesting. Okay, so now here's your opportunity to say the blog that you're proudest of. The blog post that I am the proudest of, I'm going to go with the one I wrote about six months ago. It's called On Forking Defi Protocols. And over, like everyone, was talking about defy all the Ethereum Maximilist, like latter part of 2019 and first few months of this year. And like, you could feel the, the bubbling in social media.

And like, I was very well aware of what was going on. And I'm an avid snowboarder. And whenever I go on a solo, I like going on solo trips. I'll just like shred all day. And what I'll do usually on those trips is listen to podcasts on the way up and music on the way down and I have a lot of time to think and I listen to like literally 15 D5 founder over the course of like two weekends and and so a bunch of stuff is just bubbling through my head and as a result of that I wrote um you know I couldn't like consolidated all my thoughts on DFI into that that forking protocol that forking piece and um if you look at it now six months later um the funny thing is is like when I wrote that all the DFI people were throwing tomatoes at

me being like no like these things are so defensible and whatever and like the funny thing is is actually like, I was off by an order of magnitude of like how undefensible most of them are and like how easy it is to fork them. And what I realized is like latent capital is so plentiful and so, so fickle that like the forkability and defensibility in these things is quite low. And I think, you know, a year or two from now, we're going to look back on that post. And I think it's going to be, have directionally mailed everything. And like it tried to directionally cover seven or eight different things.

And although I think the order of magnitude of each of them is wrong, I think directionally all of them were correct. And so I'm looking forward to reviewing that post in another year or two. I'll put it in the show notes. All right. So let's dive into Web 3. I mean, so admittedly Web 3 isn't something I've ever spent a huge amount of time on, maybe kind of shamefully.

But you guys invest in it a lot and you talk about it a lot. So I figured you could give me the description. How would you actually describe Web3 as a concept? Because it's been described in really nebulous ways. So what's your kind of favorite description for the phenomenon? Yeah, so I'll give you both more and less nebulous description. So I think of like the Web3 maximalist type people, those folks tend to talk about like data sovereignty and like data ownership and like don't be subject to Google and Apple and Twitter and Facebook and those people. And I think that's one potentially interesting outcome of Web3 in some distant future state of the world.

But that's pretty far away and we're not even close to that stuff. I think the more interesting way to think about Web 3, which is also a little bit more nebulous, is just the foundation to create trust minimized applications. And so like the largest class of trust minimized applications today are Defy applications. but like there's lots of other trust minimized applications things like helium for example things like audius things like oxio a whole bunch of others all of these things share some common properties and underpinnings with defy and the bitcoin

but then they also have kind of new unique things as well enabling them but like the core of all of these things is like facilitating trust minimized economic value transfer between two parties in some way One thing I've noticed is kind of maybe a disillusionment with the concept of Web3. I feel like it was really, really big in 2017, and it was kind of very integral part of the Ethereum story. And then today the Ethereum story is a little different, and it's kind of more narrowly lineizing, defy with some of the non-financial use cases being marginalized a little bit. Where do you feel Web3 is in terms of its development based on where you expected it to be,

you know, three or four years ago? Relative of the four years ago, I'd say it hasn't come as far as I expected relative to 18 months ago. It's in line. I've come to the realization that the most common expression of the Web3 thing by the kind of Web3 ID logs is again like the own your own data, self-sovereign internet applications. And that stuff is just, we are still very, very far away from that, like not even close. And so I'm just like less interested there.

but I also think that's okay and there are now some things that are possible that I am pretty excited about and I think we're going to see a lot more of those things rise to prominence over the next 12 to 24 months and I think they'll get probably undeserved media attention because they're basically the first ones that work. Like you can argue DFI has received undeserved media attention.

Like, right, Coinbase is 30 million registered users, finances somewhere in that neighborhood. Finance is definitely more than a million daily active users and like we know defy has no more than 100,000 total users ever. And so like just right, like defy has received undue media coverage because it's just like the new thing. And I expect this kind of first wave of new Web3 things to also receive undue media coverage simply because of their first.

So if you're pitching Web3 to a complete skeptic, what would be the applications that you would call out to them as the most kind of immediately addressable and relevant ones. Yeah, the first one I would call out just for like a mass market consumer audience would be Audius. Okay, so let's dig an Audius a little bit. So tell us a little bit about it. You described it on our call as sensor resistance sound cloud. What does that mean? What's, what's kind of the purpose? What's the reason for existence? Yeah, so full disclosure, we are an investor in Audius. We've invested a few months ago. So, audience is decentralized music streaming. The property, the primary property of that that you receive is censorship resistance.

And so the idea is, the goal of audience is not to compete with Spotify or Apple Music. So like just kind of get rid of that mental framing. The kind of immediate priority for audience is kind of two major segments of target users. One are like DJs and like hip hop artists and those kinds of people who want to remix other people's music. They would be able to do so and republish and broadcasts to the world. For anyone who remembers SoundCloud, like SoundCloud kind of had its heyday from 2010 to 2014 or so and has become meaningfully less relevant in terms of like broad-based social culture

since then. Basically, the top of SoundCloud was when the record labels all came in and said, hey, all of the stuff on here is remixed, you know, copyrighted content. like you have to take it all down. And so that happened. And that basically killed kind of the, I'll call it the ideological fan base that comprised SoundCloud and most of those creators went elsewhere and tried to distribute elsewhere have been largely suffocated.

YouTube obviously does something similar. And Spotify obviously does something similar. And so that kind of, I'll call it the underground of like new creative music types has been largely squashed by record labels who have been able to dictate terms over centralized platforms. The goal with Audius, then, kind of target user base number one, are all those people who want to kind of unlock that creativity of music by recomposing in different ways. And then the second major use case for Audius are people who want to be able to stream audio into games, social environments, whatever, but in some sort of automated software application, and they don't want to deal with copyright issues as the game developer themselves. And so actually, there's like, I think, five or six games that recently started using the Audius API, which launched, like, I don't know, six weeks ago.

And those game developers, like, the great thing is they can clean their hands and say, look, we're not streaming audio, right? Like, it's coming directly from audio servers to users, and they don't have to worry about copyright issues for their games, which actually for, like, a long tail of game developers and other types of comparable things is actually a pretty big deal. And so Audius is not trying to comply with the DMCA, right? I mean, that's not an objective. So I mean, Audius, so you have to understand, Audius is a protocol. Audius is not a company. Audius protocol leverages IPFS. It kind of has a, it's not a fork of IPFS, but it kind of wraps IPFS with another stuff.

And then anyone in the world can run an Audius node, just like Bitcoin or Ethereum or any other things. And when they run an audience node, obviously these things all find each other and connect to each other. There is an audience front-end application to browse music and have profile and share with your friends and do all those things. The audience open-sort, the front-end is open-source. Every line is open. You can take it today and fork it.

Actually, I think the first couple developers have started to fork the audience front-end now and do other stuff. And obviously the audience front-end system will find audience nodes and stream music from them, right? But the audience, the team that built all of this is just a team. they have no revenue. They don't intend to have any revenue. They don't host any files. They just publish open source software. What does the information that goes on chain, so to speak?

Yeah. So there will eventually be payment flows in the audio system. Today, there is no payment flows in any form. But you can imagine, like people may want to say, hey, look, if you recompose my music and you get a million listens, please pay me, you know, X dollars or whatever. So the audience protocol will be adding payment type of features. in 2021. So that will obviously live on chain.

And then the other major class of things that will live on chain, this actually lives on chain already, is basically your social profile. So whenever you open up the audience client, you sign in with Twitter. And whenever you like a song, repost a song, play a song, share a song, do all those things.

Those obviously all get tagged to your public key, which lives on the blockchain. And that is used then for a recommendation algorithm. and all those kinds of things. So all that lives on chain. And what that means, though, is that because all that data is on chain, that means if anyone else wants to create a new Audius clients with new recommendation algorithms or, you know,

then, like, they can have new algorithms on top of the same open data set. And I presume Audius has a native token, right? Correct. Yes. So I guess the, like, the existential question is why do it that way? maybe you can get into the token economics a little bit, but as opposed to create, you know, an interface for another, for a P-to-P, you know, music streaming app. And then to the extent that there's monetization or direct payment to the artists, use something like an established stable coin or something like that.

Yeah. So the audience token is not a medium of exchange. The audience token has kind of a couple of functions. One is, I think once payment features are implemented, I think it's like, that there will be some sort of fee payment to the audience nodes for hosting all the audio and streaming it all and stuff. So there's some kind of capital asset angle there. And then the other one, and this is actually the more interesting one, is dispute resolution. So the audio system is obviously permissionless.

I could today just download a whole bunch of MP3s of Taylor Swift music and upload all of them to Audius. and I can like create a profile on there and say I am Taylor Swift and then try and claim credit for those write those songs saying that they're mine once one payment flows turn on you can imagine that's like very problematic and so you need some sort of way for basically people to verify their identity and say look this Twitter profile actually belongs to the artist they say it belongs to and then you also need to be able to say look this artist who owns this Twitter profile did in fact publish the song and any payment rights need to actually flow to the underlying person. And so you need some sort of decentralized way to solve that problem.

And so the audience token will be kind of the civil resistance, or part of the civil resistance to solve that problem. The exact mechanics of how it's going to work are still unclear, but if this is ever going to actually matter, you have to have some way to solve that problem. I'm presuming this isn't the first kind of media streaming on-chain project. I feel like I've seen some of these as well. There have been a few others.

There was a thing called library credits. I know it came around 2017. Yeah. Yeah, that's Jeremy Coffin. I think that's a Boston-based project. I don't know whatever happened to them. I know it was supposed to be decentralized YouTube, but I don't know what happened to them. There was D-Live, which we spoke to them for a while,

about a year ago, fundraising. And ultimately, Steam, not Steam. Ultimately, Tron acquired them. So they have some users. I don't remember what the blockchain part was for. And you've got LivePier, which we are an investor in, and those guys aren't really focused on the user interface platform, but on kind of a new way to connect people with GPUs

but people who need to transcode videos. And so there have been a handful of teams playing around with this kind of a thing. Audius is probably the most ambitious and I say well-funded effort with just like a very comprehensive team, that they have real traction now. I think there's something like 600,000 monthly active on audience

and they should clear a million by the end of the year. So you described them as the first kind of on-chain music streaming platform with meaningful usage? Yeah, that's correct. I use audience now probably every two or three days as an audience. They have good curated playlist on there. It's still early. Like this is not going to replace Spotify for anybody.

But for the folks who are into kind of like long-field music discovery, There is a pretty vibrant, obvious community now today around that. So I think it was Larry Sukarnik that coined this, something about the difference between sovereign grade sensor resistance, and I don't remember what the other one was platform grade or something. And this would probably be in the latter category, right? Like you're not trying to ward off attacks from the state, but you're trying to generate enough decentralization

such that it's difficult for legal attacks to work. That is correct. Yeah, the other thing worth noting is that the DMCA, which is kind of the Digital Millennium Copyright Act, the way it actually works, there is no federal agency responsible for enforcing it. The way that DMCA works is if you own copyright for some piece of music and you identify someone on the internet who you believe is violating your copyright, you send them a takedown notice. They have like 24 hours or 48 hours or something to comply. And then basically if they don't, then there's kind of a series of remunerations, which ultimately, end up in suing them in federal court. But there's no like enforcement agency, right?

And so as you imagine, as you imagine you like start escalating through the kind of the series of steps here, when the servers hosting all the content are not in the United States, it quickly becomes exponentially more difficult to enforce any of this stuff. So there's no obvious person to sue in this instance. Correct. And in fact, there are like there are lots of. hosting data centers around the world, not in the U.S., but not in the U.S. That actually publicly advertised to developers, like, look, like we do not comply with DMC take down requests and other analogous types of requests. So the return of the premise, you're pitching Web3 to a complete outsider.

What would be another application where you'd say this is kind of immediately relevant and works today? Yeah, so, I mean, the other one that we're really excited about is called Helium, which we invested in about a year and a half ago. And helium is a new way to think about deploying a wireless network. So today, you know, you've got ATTI or Verizon or whatever you got. If you think about, like, how do you deploy a wireless network? You can imagine there's a group of people. They sit in a room somewhere.

They look at a map of the city. They say, oh, we're going to put towers and, you know, all these different locations. They call it the people who own the land. They, you know, negotiate with them, rents, some land. Then they go hire a bunch of guys with hard hats, have them drive around and install a bunch of towers, run a bunch of back haul, right? Like do all that work. That's obviously very capital-intensive. Then they build massive marketing arms and agencies, massive sales and retail arms on customer service departments, right? And then like just collect the scripts. Then fund it all by a bunch

of debt and then collect a bunch of subscription revenue, right? Amortize the cost of CAPX over like 10 years or whatever it is. And that's kind of like the general model for deploying a wireless network. One of the key challenges with the wireless network is that if you don't have a large area of coverage, people basically don't want to use the service because people travel, right, and drive around and fly. And so people expect to have coverage everywhere they go. And so having small regional sectors of coverage is very difficult. So the helium team has had this vision for a long time of basically saying, look, like, we want to have sensors all over the world that can pick up things, you know, is the grass watered or the trash canceled? Do we need to send someone out to take out the trash cans?

There's a car parked here in this parking spot. We're tracking GPS items through the world. If you think about agriculture, like, hey, the moist is the ground, you know, getting enough water in all these different places, fire sensors, all these kinds of things. But there's all kinds of things in the world you may want to detect and have some sensor and then relay, you know, the state of that thing to some Internet server somewhere. So there's a whole kind of category of radio waves that are actually. very good for these use cases called Lorowan and these radio waves are super long distance super low power but have very low data rates and so the helium team started in 2013 trying to popularize this concept and they built all the wireless stuff it all worked really well what they what they realized

is they tried to scale the business was that they didn't they didn't have five billion dollars to go become a nationwide telecom and so they kind of came up with this idea of saying, hey, what if we can create this crypto blockchain network? And what if we can incentivize rational people all over the country and all over the world? Just buy a little hotspot, plug it into the wall at home, create radio waves, and then charge people, basically per byte of data or using the network. And so that's what helium is. It's a new business model for deploying wireless networks, the first iteration of which is

focused on these low-power IoT devices. Network went live in August of 2019. And today there's about 9,000 hotspots all over the United States that are running, covering something like 75 or 80% of the U.S. population is covered today. And there's now about 100,000 IoT devices connecting to the network and submitting data every day, and that number is growing pretty quickly. Do you have an estimate of the number of devices that Trans would want to receive Lorain, submissions. Like how what's the kind of addressable market there? I'm trying to figure out what,

you know, what that network is suitable for. Yeah. So the main answer is we really don't know, like this is largely a new market. For anyone who's like followed IoT or dug into IOT over the last six or seven years, you've seen all these very bold promises about like smart cities and smart globe and all these things. For any of that smart stuff to work, the like key input is a sensor that detects the current state of the world, whether that's the, you know, the temperature or the humidity or the location or whatever. And so the problem with all of these big, bold IoT initiatives has been, how do you get blanket the entire nation or the world in radio waves that are good for devices

that need to have very small batteries and very long battery life? Right, because you can't have people changing these batteries every 24 hours. It's just too expensive. And so that's always been like the fundamental problem. and helium, you know, is really today the first large-scale lower-o-man network that's ever existed. It's just never been economical to roll such network out. So, you know, now that the network is starting to exist, it's really been the last four or five months that serious companies have started to look at this and say, hey, we can actually build our business on top of this. So like, for example, lion scooters is now doing all kinds of work with the Helium Network.

There's about another dozen or maybe two dozen Fortune 500 companies that are now working with Helium on integrating the Lorowan system into their various business practices. If you go to helium.com slash use, they have all the publicly disclosed customers are listed there today. The individuals that are buying the hotspots, are they doing it out of an expectation of actually turning a profit? or is it just for the thrill of kind of participating in this network? I would say it's both. So the first round of people, folks like ourselves, for example, thought it was just really cool. And there's a pretty large niche of geeks out there who are like IoT geeks, who just think this stuff is cool.

But in order to get from, you know, we have 9,000 hotspots today, like, I would love there to be a million hotspots all over the world. And in order to get to that level of scale, you have to be purely economically motivated. And so the key to doing that is to have the price of H&T go higher and have the cost of hardware the lower. I guess the revenue that you can expect from buying a helium hotspot is heterogeneous based on maybe where you install it and the usage characteristics of that location. Right. So you're not necessarily earning the same thing, you know, indiscriminate of your location, right? Correct.

So if you think about, again, like deploying a wireless network, there's like two distinct forms of value being created. One is I am on the network right now transiting data. And obviously that's creating some value for me. And then the other is I know I have the option that if I travel to any of the other places, I will be able to transmit data there. And so those are two distinct forms of value. And if you think about how do we incentivize people all over the world to deploy these things, right, we want to have coverage, even in places where usage is 100th or 1,000,

the median location. And so the algorithm for, you know, H&T is mine, much like Bitcoin, there is some determination made in the, by he, of like what percentage of rewards should go to people who are actively transmitting data versus people who are providing coverage that may not be utilized at the current enrollment. That is kind of a fun and a slightly subjective tradeoff. And, you know, governance rights in the healing network will, I'm sure, adjust that over time. And would you say the users are actually earning return on their hotspots or is it still

an expectation of the network obtaining future use? Yeah. So the Heelian network mines 5 million tokens per month. That's just embedded in the protocol. So there's something like 70 million helium tokens outstanding today. Helium trades on Binance.com and on FtX.com today. I think the price is like $1.80 or something. So, you know, like there's a real market cap here for this to work with.

And like if you are mining HNT with a hotspot, You can definitely go sell it and make dollars. So the model here is interesting, the token model that is. So you have this continuous issuance in terms of rewarding the network participants. And then there's also the other end of the network is constricting as there's actual usage as kind of enterprise clients utilize the network resources. So tell me a little bit about that. Yeah, so we helped the helium team kind of design their token system. And one thing we realized early on was that wireless data is a commodity, like fundamentally

is a commodity. In the same way, the oil, you pull oil out of the ground and it's a commodity. And now it's a different kind of commodity in that, like, you know, if you don't use data last second, it's no longer useful this second, but there's obviously some fixed bandwidth of, you know, there's some fixed amount of bandwidth available at any moment in time that can be consumed. So the way that we thought about this was that, like, we wanted this to actually be useful. And this, you know, network clearly provides some obvious utility, which is relaying data between point A and point B. And so we thought the best way to design the token network was to actually make helium, make HNT into a commodity.

So the system prints 5 million tokens for month, regardless of anything happening. In the same way, you can just imagine oil shooting out of the ground. Obviously, the people who, you know, set up hotspots earlier have been rewarded more, fortunately, which again, I think is pretty equitable. And then the flip side is as people use the network, so I'll just use Lime and Scooters as an example. So Lime, if they've got scooters, they want to broadcast data with these things. They have to pay per bite of data. I don't remember what the price per byte is.

Let's just say it's a 10 of a penny per megabyte explicitly. So if they want to transmit a megabyte of data, they basically have to buy that amount of HNT, and then they have to burn that HNT. They actually light it on fire and destroy it. And by doing that, they then earn the right to receive, get the data broadcasts from somewhere in the real world to Lyme servers.

And so by doing that, basically, there's always this downwards price pressure, or excuse me, downward supply pressure as more and more companies are buying and burning H&T. Meanwhile, the network is always printing new HNT at a rate of $5 million per month. The system does have an Oracle in it. So there's something like 15 or 20 nodes that are grabbing the price of HNTUSD, I think, every 24 hours, and relaying that the network. And so that ratio determines the number of HNT you need to burn, or rather the amount of agency you need to burn in order to produce a single data credit for, let's say, one megabyte of data. And that's kind of how the system is mediated. So unlike, you know, the kind of utility token idea, a unit of HNT is actually redeemable for a real world kind of computational network resource. Yes.

Yeah. Did you draw inspiration from any of their projects, or would you say this is kind of the first of its kind in that respect? Yeah. So we definitely drew on inspiration from a lot of other networks. The one actually that I think had the most amount of inspiration was Factam. The Factam network had a similar idea where it was saying, look, you want to embed data. It's blockchain and anchor it here forever. There's real economic value to that. And they had an idea. They called them entry credits. But it was a same. similar idea of basically pegging the fact that the USD price and having a conversion ratio between the two, have it be a one-way conversion, have the entry credits be non-tradable and non-reteatable and non-transferable so that you don't want a secondary market for these things. You want ultimately the enterprise customers here to not have crypto on their balance sheet that's speculating in value. You want them to just think they're buying AWS credits or something equivalent to that. So we drew a lot of inspiration from factum on a lot of

those core ideas. So zooming out a little bit, I mean, we've talked about a couple live, kind of quote unquote Web 3 projects that are, you know, functioning today. I mean, and it seems like we've come a long way in Web 3 in the last couple of years. What would you say in the next two to three years? What's it going to look like? I mean, what can we expect? Are we going to get this beautiful utopia where everyone owns their own data and their own identity? and we have this completely serverless model where we're not dependent on these internet silos anymore. I mean, what do you expect there?

Yeah, so I think the own your own data thing is still pretty far away. I think that the first class of those applications will probably not be feature parity with Web 2 for still probably another three or four years. I think we sell a little ways to go for messaging apps and chat apps and photo sharing apps and those things. There's a lot of harder problems with whatever you want to do sharing while also like managing keys and like who has access to them. Those problems become just exponentially more complicated.

The first class of applications that you will start to see happening now are things that can leverage truly public infrastructure. So Audius is a great example. Audius, nothing is private. Right, the point the system is that all the audio files are completely open. And I think we'll see a large class of those kinds of applications. So you could say media broadly falls into this category of people who create stuff. They want to share that stuff with the world. They want to have a direct relationship with the customers or consumers of that content.

And they don't want to have any platform risk or be intramated by middlemen of some form. So, you know, after music, the kind of next obvious class. here is probably just like email newsletters. A lot of people today rely on medium and substack, right, for distribution. And there are obviously good services, but there's a lot of kind of platform risk and people complaining about those actually quite a bit. So like I think you're, I know for a fact we're going to see a handful of people committing in that space pretty soon.

And they'll be able to deliver, you know, consumer grade Web 2 experiences that all that are having maintained Web 3 properties, trust properties in the next. probably six months or so. And then probably more public domain stuff. Getting into the element of private domain stuff that runs on public web through infrastructure is just, that's further away.

Yeah, the content delivery model that we have now seems, you know, we're both content creators. To me, it seems irreparably broken. And I'm actually shocked that we haven't seen more renovation in terms of decentralized mediums or selective paywall unlocking for internet content

as opposed to forcing everyone through this credit card subscription model online, which is the main way we consume content. I'm actually shocked it hasn't happened yet, but optimistic that we kind of get there in the near future. Yeah, right. And you can see that the right number of things are just starting to hit critical mass. So Brave is about the cross 20 million monthly occupiers. and you know the brave guys, they're thinking hard about crypto. Like, they know crypto's going to be a big deal and they're figuring out what to do with it.

You'll see the first, you know, crypto-native publication platforms proliferate over the next 12 months. I think those things will start to interact with together in some pretty cool ways. I think once you have a couple of high, you know, at some point you're going to get some famous artist or writer or something is going to, like, publicly endorse one of these things

and it's just going to light a match under that kind of whole industry and it'll just start moving really fast. But I feel pretty good there that all that stuff is going to happen. Where does that evolve into is murkier? But I think once you've got some high profile consumers endorsing this stuff and saying, look, like it's great and everyone loves it, that's going to really accelerate all the Web3 stuff. So maybe to Rob and

put a cap on this. So, you know, historically Web3 was very tightly intertwined with the Ethereum story as like one of the key value propositions of Ethereum. Maybe today's slightly less so. So I guess my question is, does Web3 rely depend on the success of Ethereum? And then also conversely, does Ethereum require the success of Web 3? I think the answer to both those questions, is no. In order for any of these web three things to work, the kind of key, the reason they're relevant to blockchains is you need some sort of logically centralized coordination point for all the systems to work. So Audius is actually an instructive example here, where you just, if you want to have recommendations and curation and social profiles and all that stuff, right,

like you need a place to put all of that information. And if the system is open and decentralized, then you need some sort of credibly neutral, politically neutral open. database turned out blockchains are kind of the first instantiation of that um so there's nothing about web three is tied to ethereum and the EVM it just Ethereum happened to be the first you know openly programmable database thing but there's going to be in fact there are already many others um so I expect to see the majority of Web3 stuff happen elsewhere for example helium actually it's on blockchain because they determine it would not support their their scaling needs and I think you'll see a lot more of that in the pretty near future.

Well, Kyle, you are a pretty visible person, so I think people know where to find you, but maybe just remind us how should people follow you? Yeah, so I am on Twitter at my name, so at Kyle Samani. Pretty easy to find me there. We also have a blog. We like to write stuff. I don't write quite as frequently as you do, Nick, but I like to think that I'm still an active writer. And so all of our written content is on multi-coigne.com.

Well, thanks so much for coming on, Kyle. It's been pleasure. Hey, Nick, this was super fun. These are all kind of wacky, weird things. So glad to have a chance to share with the castle I with an audience.