Plain English with Derek Thompson - Crypto Crash, Part II: A Debate About the Future of Web3

Episode Date: July 26, 2022

Today is the second half of our special two-parter on the state of crypto. Yesterday’s theme was the case against. Today we debate the case for. In the last few weeks, use-cases have become a popular trope in the big crypto debate. Crypto has tens of thousands of people working with dozens of billions of dollars on building new technology. And I think it’s fair to ask: What have they built that is better than the status quo? What, as Monty Python might ask, has blockchain ever done for us? Today’s guest is Packy McCormick. Packy is the popular author of the Not Boring newsletter. In this episode, we debate use-cases for crypto, talk about whether major products are just Ponzi schemes, and discuss whether all the money sloshing around Web3 has subtly distorted the market and hurt the space. Host: Derek Thompson Guest: Packy McCormick Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

What's up, everybody? Are you tuning in to the Challenge USA on CBS? Well, tune in to me, Tyson Apostle, as I break down each and every episode with my co-host, Amelia Weddemeier. I'm also a contestant on the show, which gives you all the insider scoop. Amelia, how stoked are you to do this? Tyson, I'm freaking excited. I cannot wait to sit my butt down every single week to watch the show, then come here and recap it with you on the Ringer Reality TV podcast. Today is the second half. of our special two-parter on the state of crypto. In Monday's episode with the financial journalist turned venture capitalist, Molly Wood,

we discussed the up-and-down saga of Web3, and that's a good place to start, if you are flummox by all things crypto. And it settles on the idea that even if you think blockchain technology is interesting, and even if you're desperate for someone to build a better internet, there is a strong case to be made that crypto's promises got wildly out of line

with its actual use cases. In the last few weeks, use cases have become a popular trope in the crypto debate. Crypto has tens of thousands of people working with dozens of billions of dollars on new technology. And I think it's fair to ask, what have they built that is better than the status quo? What, as Monty Python might ask, has blockchain ever done for us? Today's guest is Pachie McCormick. Paki is the author of the Not Boring Newsletter, which is a great read. He's a popular Web 3 writer who's not afraid of sparring with skeptics about this space,

and he's been particularly active taking on the question of crypto's use cases. In this episode, we talk about his journey in Crypto Land, what he's learned from the last nine months of chaos. We debate the use cases, and we talk about where this technology goes from here. As always, if you have feedback, questions, ideas for new shows, email us at plain English at Spotify.com. I'm Derek Thompson. This is plain English.

Pachy McCormick, welcome to the podcast. I'm a big fan. Great to be here. So I have three goals for the next 30 or so minutes, and I think it's worthwhile for me to be totally transparent about what those goals are. Goal number one, I want to get an insider's view on the state of crypto.

I want to know how the last nine months have changed your mind and haven't changed your mind about the promise of this movement and the peril of this movement. Number two, I want to make sure that I give you space to make the best full-throated defense of crypto's potential as a technology of mass progress.

And number three, I want to make sure that I give myself space to respond or to express my uncertainties and my doubts, my skepticism about crypto, a lot of which have solidified because of the news the last nine months. So does that overall sound like a fair roadmap to you? This is going to be fun. My number one goal is to not have a very very important. video clip of me saying something dumb, so I think those goals are aligned. There is no video component

to this particular podcast. So right off the bat, I think that particular goal is going to be met. So let's start with an easy one. I do want to know how you got so into crypto. How did you fall down the rabbit hole? Yeah. So, I mean, I think first things first, I was a skeptic for a while as well. I bought Bitcoin back in 2013. I read a Fred Wilson blog post about investing in Coinbase. I worked at Bank of America Merrill Lynch at the time. I wasn't allowed to buy stocks without them knowing about it. So I guess a lot of people I came in as a criminal trying to kind of get around Bank of America's rules there. But Bitcoin ended up selling it a few months later to 50% gain to go to October Fest with my friends.

I thought I was a genius that was like the peak of $2 million mistake. So I avoided it really for maybe the next seven years. And every time I looked at the prices going up, I was just a little bit bitter about it. And I didn't get it. I mean, Bitcoin in particular, I didn't really get as a particular. valuable thing. I'd see some value now, but it's not the thing that excites me the most. I think how I got back into it, I started writing Not Boring in the beginning of 2020, didn't really write about crypto that whole first year, had more of kind of a finance and a little bit of tech-oriented

audience for the first year. And then I started investing and I talked to a few kind of Web3 entrepreneurs. And one conversation in particular kind of just talked about the value chain and and how it changes when more value accrues to kind of the creator and the user of the product. And I think one of the things that had kept me kind of on the outside of the space for a while was a lot of the language, like replacing the institutions and cutting out the middleman and all of that kind of stuff didn't appeal to me. I don't think that's how things work. But just thinking about it in terms of the value chain and just what happens when you take an entity out of the middle to the business models that are possible, that's what kind of started getting me into it.

And I remember the first time I wrote about it, I apologized for writing about crypto at the top of the email, and said I was like, maybe going to do it every so often. And then it became every month, and then it became every couple of weeks probably and have invested a bunch in Web3 startups as well. And still, I mean, I'm not going to be the most kind of full-throated, you know, blind believer in what's going on.

I think there are lots of scans, and there's certainly lots to be concerned about. But I also think it's incredibly vast. and probably being too dismissed right now. And so there's probably an answer that's somewhere right in the middle that hopefully will agree on by the end of this. Yeah, the hype pendulum is certainly swung very, very far. You mentioned a couple motivations, and I just want to tell you what I see as the motivations

and ask you to tell me sort of how you think these motivations are divided among the people that you follow most closely. So number one, I see a huge motivation behind crypto that is somewhat philosophical, that there's this idea that the Web 2 internet revolution between 2003 and 2000, let's say, 16 empowered a kind of digital behemoth that Ben Thompson called aggregators. And Facebook aggregates social media, and Amazon aggregates consumers, and Google aggregates information, Spotify, music, and so forth. And these aggregators provided extraordinary value to consumers, but they were often seen

as disempowering the creatives. And so Web3 was really interesting, it seemed to me, to a lot of people, because they thought, I'm a creative. I'm just an individual. I don't work at Facebook. I'm not an executive at Amazon. In this new economy where I just make stuff, I can own my own property and I can get rich on it. Number two, number one was agency.

Number two is adventure. The frontier of tech, I think, kind of felt closed to a lot of people. Like social media was done. And cloud computing was being competed upon by Microsoft and Amazon and big, big companies. And then number three was money. And I think we need to foreground the whole money thing. Like Web3 got massive amounts of money from venture capital. And look, doing something new is fun, but doing something new that's paying you a ton of money is really, really fun.

And so it was always difficult for me to disentangle exactly how much of the hype is truly philosophical, like sincerely about the product and how much of the hype is just about all the money is flowing here. So in all honesty, like how much looking at like the last few months do you think the hype around crypto was just about the money? Oh my God. I think a ton of the hype around crypto, probably the most vocal hype around crypto has been just about the money. I mean, like even today, we're recording this on a day where, you know, Ethereum rose 100 bucks and it's been doing well finally after crashing for a little while.

And so much of my timeline is just people drawing charts and like making predictions. based on the 200-day moving average, all of that kind of stuff, certainly I think it was a big kind of motivator for the hype. I mean, it's this really interesting thing where it's at the same time, financial instrument gambling, a new technology,

like all baked in from the beginning and probably the first big technological wave that people could talk about on the internet while participating in it on the internet. I mean, like, you know, things like AI and other things are happening and are interesting, but people can't get quite as involved. And so I think there's just all of this.

Part of it's from the fact that money is baked in from the beginning, which is both a blessing and a curse probably. And part of it's just because we're doing this thing on the internet, and people are bragging about making money. To me, that was never, and this is I'm sure what every single person will say, not what got me interested in the first place. I really approached it almost as like an academic thing in the beginning. I talked about aggregation theory in that first post that I wrote about crypto,

because I do think it's interesting, not necessarily to take down Facebook or to take down Twitter or Amazon. I think those companies are going to survive and do a great job for a very long time. And I'm interested in projects, and I'm sure we'll talk about it. I'm like Shopify getting involved in something like token gated commerce. I think a lot of the answers are going to be kind of these hybrid solutions that take the kind of decentralized crypto pieces in some spots and take more centralized pieces where it makes more sense and more scalable architecture is a valuable thing to have than where a big organization is a valuable thing to have. So I do think there is probably among the people

who are building real products in the space. I would say it really is very philosophical, like even more philosophical than I am, and I'm fairly philosophical on it. And then I think a lot of the noise and hype ends up being on the financial side. I'm glad you said that. I think 90% of it is greed.

And what's really difficult for me to figure out is how much of the rest of it is mostly an interest in money versus a sincere sort of early cracking of the case of what can we actually do in this entirely novel space that may have use cases and frankly, just may not have use cases that change the world. Before we jump all the way into the use case pool

and this very polite conversation becomes a little bit more of a fight, let me ask this question, how have you changed your mind in the last nine months? Like, you cannot possibly have gone through this crash and have none of your priors changed. So tell me one way that your mind has been changed by the last nine months. Yeah, I mean, I think probably the biggest one is just timeline for me.

Like, I kind of thought that you could just jump to some of these things being workable in the very, very near term without doing kind of like all of the infrastructural work on the way up without, you know, having, having use cases for people that aren't purely financial without like kind of skipping all of these steps. People in the space talk about speed running governance or speed running the economy. you're speed running the history of finance. And I think you do have to make a lot of the mistakes and build a lot of the same stuff, frankly, over and over again to get to even kind of par with kind of the traditional internet or the traditional financial system before building up on top of that. So I think it's going to take a little bit longer than I had expected. There are certainly more scams even than I thought there were in the space.

Like if you look at my DMs every day, it's 50 NFT projects that have no shot of doing anything of any value asking me to. to write about them or to promote their NFD project or whatever. And so there's just a lot of that crap. But overall, I'm still, I'm actually probably more optimistic on the space now, and we can talk about some of those use cases. So we're talking about money and greed in crypto, and that money comes in large part from venture capital.

Let's get some hard numbers on that. How much have venture capital firms invested in crypto, and how does it compare to other categories, like software or climate-to-tech? If you look at the pitchbook data, I think Pitchbook says that in 2021, $31 billion was invested into crypto and blockchain. That includes like a $3.4 billion gross stage round in Robin Hood and a few other stuff. So it's actually closer to like $26 billion. If you look at SaaS, it's $160 billion.

If you look at... Software as a service, yep, keep going. Software as a surface is $160 billion. If you look at fintech and there's overlap in the categories, but fintech's like $120 billion. And so I think actually as a proportion of all the money spent in, venture capital. It's not one of the largest categories. Biotech, thankfully, is higher. It's like right kind of in line with climate. I think climate might be a little bit higher. So I think maybe the amount of money that's gone into the space is just a little bit over-aived when people are talking

about the, talking about VC's role in crypto. So I've been following Bitcoin with some interest for the last seven years or so. And if you had told me in 2016 when Bitcoin was worth about $500, that by 2021, it would be worth $60,000, I would have been totally stunned. But I also would have predicted all of these widespread uses for Bitcoin. But something very interesting happened, which is that Bitcoin's value increased by a factor of 120x in five years. But its use cases, I would say, conservatively, did not increase by a factor of 120x. Like, it did not become a common medium of exchange.

It did not become a daily currency. And I wonder if it ever concerned you as you were watching. watching all of these prices go up and up and up as a writer, investor, thinker, that this new technology, and not just Bitcoin, but a lot of other cryptocurrencies, a lot of other companies, were 100xing in value before their obvious use cases had multiplied. Like, did that concern you at all? A hundred percent. I mean, on Bitcoin in particular, like I said, I'm not going to be the biggest Bitcoin bull or defender here. I think the thing that was really valuable about it was in an environment where there was cheap money, money being printed. Bitcoin is an

incredible receptacle for all of that extra cash, maybe not because it's an inflation hedge or any of that kind of stuff, but because even the stock, like you look at something like Zoom and it performed incredibly, incredibly well, and it, you know, it broke the rule of 40, which is this software rule that compares growth and that adds growth in profit margins, like by 10x, incredible performance during the pandemic, but there are still numbers, and you can still look at a P-E-Multable and be like, this is absolutely insane. Whereas with something like Bitcoin,

there's not really a way to value it. Maybe you compare it to gold, in which case it looks cheap, or maybe you compare it to, X, Y, or is the other thing. But it doesn't have the same valuation framework. And so it's just like really nice repository for all of this money that people all of a sudden have.

And by the way, it's going up, and all of your neighbors and friends got rich off of it. So, of course, you're going to put money in that. I did not think that was sustainable. And I think if you look back at my, my writing, you're not going to find a lot of like Bitcoin to the moon kind of predictions in there. I probably, you know, another thing that maybe I got a little bit, have changed my mind on, was thinking that Ethereum was maybe a little bit ahead of where it was. I mean, if you looked

at, then there were high gas prices and all of that contributing. And just stopped right there. Stop right there. And just do a little bit on what Ethereum is and how it's different than Bitcoin. Sure. So Ethereum is kind of an answer to Bitcoin. Vitalik Buterin, who's one of the co-founders of Ethereum, started out actually writing Bitcoin magazine. He wanted to build smart contracts on top of Bitcoin in the beginning. Bitcoin really is a database that knows... And I'm sorry to do this, but smart contracts are?

Smart contracts are pieces of code that act like kind of contracts on the internet. So it says it will do this thing, and then it just executes that thing based on certain inputs. And so Bitcoin really is this database that says how many people own which Bitcoin, whereas smart contracts are more general purpose and can allow people to build all sorts of applications on top of them. And so Ethereum was a blockchain that after trying to figure out how to do stuff with Bitcoin and even actually looking into kind of more purpose-built chains, is supposed to be this kind of like general world computer that anybody can build all sorts of applications on top of. And Ethereum has had all sorts of its own challenges with high gas prices and with scaling. But really, most of the things that people have heard about and used in Web3 over this kind of past cycle are built on top of Ethereum. So I want to get fully into the use case debate here. I think the strongest case against Crypto, the strongest case that I've heard, in a nutshell, is twofold, that the hype doesn't reflect reality and that the risk isn't worth the reward.

and we're going to get to the hype versus reality part of this in just a second. But I want to spend some time on risk and reward. And you sort of mentioned this a little bit earlier. There are incredible challenges in the world that tech could play a role in. There's climate change and biotech and housing automation. There's all these things that Mark and recent talked about in his It's Time to Build essay. And crypto doesn't seem to me to directly go to solving most of, if maybe any, of these problems. Instead, it innovates often in the space of decentralized finance.

at the risk of massive energy and electricity demand, and arguably in the process slurps up all of this tech talent away from the physical world problems that I mentioned. So how do you take on this criticism, that crypto gobbled up the talent and the funds that could have gone more productively to all these other challenges? Yeah, I think it's not nearly that zero-sum. Like, I am a huge abundance agenda supporter. If you've read my writing recently, I mean, I've called it out, but I'm also investing in Companies like Hadrian that are doing kind of automated manufacturing in the U.S., companies like

Primer Working in Education, like I really deeply believe that tech can help solve a lot of those problems. I don't think crypto is stealing. It's probably stealing attention, frankly, and maybe that's actually a good thing. Like if you look at every tech trend in the history of the world, there's a hype cycle where it gets overhyped and then people get disillusioned and then maybe there's something that comes out the other end. And maybe some of those categories can build and maybe a little bit more of a specific.

a little bit more obscurity because of crypto. But I think if you looked at the number, electric capital did a study on the number of developers in Web3. And I think it was something like 18,000 developers. Again, if you look at the $26 billion invested by VCs into crypto, a ton of money has been going to climate. Companies like Hadrian can raise every single dollar that they want. Andrewl can raise every single dollar that it wants.

I don't think, I haven't personally seen looking at companies kind of across the spectrum, very good companies solving the problems that you're talking about, not being able to get funding because someone was like, no, no, actually we're going to fund this NFT project instead. So there's two ways to look at risk and reward. One is to look at the number of engineers and the amount of funding, and you're making the case that, yes, there are really talented engineers that are being taken from Project A to work in crypto.

But if it's 18,000 engineers in all of crypto, and Google, by the way, alone employs 27,000, that suggests that crypto isn't stealing essential talent and bankrupting other fields of innovation. But there's another way to look at risk and reward. You could say the reward of crypto isn't worth the environmental risk, considering so much electricity is required for minting and mining tokens. You could say that the reward for consumers, ordinary investors, isn't worth the risk. We've seen hundreds of millions of dollars stolen, trillions of dollars of wealth wiped out in crypto markets, either because people made investments that crashed or the money was stolen, they parked their money in crypto and banks like Celsius that guaranteed a rate of return and then those banks exploded. You know, there's also this case that the risk isn't worth the reward.

A hundred percent. And I think there's a bunch of different pieces to this, right? Like something like Celsius that is centralized and practically guaranteed. Do you just a 10 second definition of what Celsius is. I'm sorry, I introduced it without defining. Yeah. So there's a category of companies that are called kind of C-Fi or centralized finance. where they'll say, we'll hold your crypto, we'll give you X percent yield. And X percent is often 10 percent or 20 percent are these crazy high yields. And so people will hold their crypto with something like a Celsius. And then Celsius in the background is taking that crypto and lending it out to get high yields. Sometimes that could be in a quote unquote sustainable way.

And sometimes that's lending the things like Terraluna and putting money in Anchorage and Teraluna where they promised 20 percent, but it's an algorithmic stablecoin kind of Ponzi that ends up falling apart, and then those yields aren't there anymore. The principal is not even there anymore, and then the centralized finance institutions have a challenge. So I think that is a, like, that's awful, right? That is people who you expected to treat your money with, with care and respect, going out and doing unsustainable and irresponsible things with that money, and then all of a sudden you're left with less money than you thought you put in a safe place. Like, that is not good. I do think it's worth separating that from people trying to participate in

NFT projects that end up not being worth something. And the motivation there really is, I think, in a lot of cases, when someone DMs you and says, do you want to buy this new NFD project, it's going to moon, that does feel a lot more like gambling. And so if people lose money doing things like that, it sucks. But it's very different than someone putting money in something that kind of looks like a bank, even if it says that it's not a bank, and then loses the money. A quick point on the future of Web3.

during the boom, there were all these memes among people who were crypto fans saying stuff like, you know, good luck staying poor, not going to make it. And now the shoe is on the other foot. And I wonder if you look back at some of your writing in 2020 and 2021 when the crypto markets were really just on a rocket ship. And I wonder if you think like, maybe I should have called out this culture for its braggadocious vibe. Maybe I should have offered. more warnings that a lot of people that were behind crypto were rooting for something that seemed like it was going to crash. So do you ever look back to 2021 and look at those posts and see, you know, maybe I should have seen this coming. Maybe I should have written more posts encouraging people to have a little bit more humility about how fragile this entire project is. Totally.

I mean, I think there's two pieces of that question. Like, one, have fun staying poor stuff and all of that. I hate. I never participated. All of that I think is just, it's from that group of people that I'm talking about that are more there to speculate and trade and all of that. And I don't think you see a lot of builders who are building companies and actual projects also yelling at people to have fun saying poor. Like that maximalism, the infighting among different blockchains. Like I've called that stuff out before for being dumb.

I think my biggest challenge as a writer, as an investor, as all of these things in general. is that I see the upside a lot better than I see the downside, and I see the good, in people, in projects and all of that, more than I see the bad. And so certainly, like, it wasn't even something that I was really thinking all that much about, frankly, like, calling it out, because if you look at any of my writing across Web3, across other stuff, it really focuses on, like,

oh, this is super interesting. If this company succeeds, this is what the world could look like. Now, for sure, you know, I wish that I had called some of that out a little bit more, but I don't think that I kind of leaned into that persona. All right. I want to finally get to the meat of the use case debate and this gap between, you know, hype and reality that's been talked about on so many different podcasts and in so many different circumstances.

So I hope you don't mind if I just quickly and painlessly foreground a famous debate that you had with Zach Weinberg. Zach is an entrepreneur who's been debating Web3 people on his cartoon avatars podcast for the last few weeks. And you and he had this exchange where basically you were musing about various ways. that putting a title on the blockchain, like for a car or for a house, might be a valid use case of the technology.

And Zach essentially, after several minutes of back and forth, made this point that, okay, but enforcing that title in court requires police officers, requires judges in the physical world. And so it's not clear that the title's presence in the blockchain makes a huge amount of difference.

Is that a fair, quick, and dirty summary of your exchange? Because I want to just point out mostly that it highlighted this open question of, wait, what is the major use case of Web3 that we have right now? But did I do an okay job just sort of summarizing each person's perspective there? You did. So it actually said the video clip that kind of went viral was really focused on that one piece of the conversation.

It was like as dumb as I've ever been with a microphone in front of my face, which is saying something. But, you know, the conversation before that was talking about news stories, then talking about Solana, then talking about Defi on Solana, and then looking for a use case. And then, you know, he asked me about a use case, I think, in Defi, On Solana that touched the real world. That was a real use case. And then I just, like, kind of pulled mortgages out of my butt and didn't have kind of like the, you know, I hadn't thought through that use case really ever before. And so you could tell, like, as it went on, that he asked even a second question.

And I was like, actually, I don't, I don't know. So that was not the best, the best use case. But I've listened to a bunch of his debates recently. And I do think there's this really interesting point. And again, this goes to a lot of the way that people talk about crypto, people from within side the Web3 community, that it needs to be fully decentralized and not touch the outside world to be of value. And so I'm not going to wade back into the mortgage debate here necessarily.

But what I do think is interesting is like, I don't think that it means that you can't make something a little bit more efficient and also have the police and the courts and whoever else get involved. and I don't think those are too necessarily opposing viewpoints. I think that's totally fair. I think what was useful about that exchange, you know, as someone who is a bit of a crypto-sceptic but is curious to know more, is that it put its finger on this question of how is Web3 better than the status quo?

You know, crypto has had time and money and low interest rates and lots of talent. It's like you guys have been in the kitchen for a few years now. And people want to know, like, what have you actually whipped up for, like, on mass consumer use. And so here's your spot. The stage is yours. The spotlight is yours. Right now today,

what is the single product that best shows how Web 3 or crypto can make something that is better than the current system and ripe for mass adoption? Yeah, so great question.

I think even this framing is a little bit tight because I would agree with you, actually, And I think a lot of people in the space would agree that there's not very much that's ready for wide-scale, huge consumer adoption in the space. I think there are things that are interesting and that point in that direction. I mean, stable coins, I think, are one example. And they've been going back and forth. I know SBF over at FTX tweeted about this and then people ripped on him because Wise is very good at international remittances.

And so why do you need crypto to do international remittances? But I think that stable coins are really interesting. the things that interests me about crypto in general is this idea of kind of combining the best properties of physical items and digital items and internet superpowers. And so you can think of a stable coin like USC, which is fairly, you know, fairly trusted in the industry and has 20% of its money in cash, 80% of its money in short-term U.S. treasuries backed kind of one-to-one. Something like a USDC kind of behaves like a regular kind of physical dollar in that you can hand it to somebody, you can keep your own dollars, but then has this kind of like internet scale

where you can send that same dollar to a person across the world without paying a fee for doing so, and it doesn't matter which country they're in. And so I think things like that are interesting and that they're not going to replace the US dollar. They're not going to replace Bitcoin, but they can make things a little bit more efficient. I think... I should have paused you here to to talk about stable coins for a second, and stable coins and remittances specifically. So I have close friends that work in remittances, and I know how grueling the on-the-ground work has to be

in order to get people in Africa, in Southeast Asia, to put the apps on their phone, right, in order to be able to do these kind of transactions. And I wonder how much, like, stable coins obviously don't solve that problem. They don't solve the grueling work of essentially of customer acquisition. And so I wonder that once you're a company that's working in remittances, and you know that so much of the problem here is making sure that all these people on the ground have on their phones, the infrastructure required to receive and send money internationally, how much does stable

coin really change the game here? And I'm not even talking about remittances. to developing countries right now. My sister has a fintech in Ghana that works with SMBs, and that is a real struggle, getting the app onto people's phone. I mean, she did dumb phone development for the first X number of years because there weren't enough smartphones for people to download an actual kind of iPhone or Google Play app. And so I know that that is a very, very, very challenging problem to solve.

I would imagine at some point you'll probably see some of those companies maybe work with something like a USDC or of Circle, which is the company that issues USTC to maybe make those rails a little bit more efficient. But certainly in this kind of next phase, we need apps that are actually worthwhile and get into people's hands. I think for right now,

it's probably easier for me to send money to my friend in Europe or to invest in a company in Europe, or I have LPs who are investing in not boring capital with stable coins because they're in country X where it's just a lot easier to send money point to point that way. And so these are not huge needs. I mean, I would imagine the volume of stable coin's usage overall is probably largely for crypto trading today.

But I also think that there are these kind of rails that, you know, Stripe has started to kind of incorporate a little bit of USC into their rails. I talked to a company the other day that is now going to be launching in Europe after launching in the U.S. because Circle issued Eurocoin. And so it just makes their processes a little bit easier, cheaper, faster. And I think that's maybe one of the misunderstandings and when I say that things are going to take a little bit longer to develop than they were. First, you need to get to the spot where people trust this thing where the infrastructure is actually kind of as good and as stable as the existing infrastructure

before people can build on top of it and build these applications that you and I would both agree people want to use. And it might not be a here is my stablecoin app. that might be, here's my fintech app, and actually stable coins power this one piece of it, and I can build on top of this open infrastructure as opposed to paying for an API that I need to then charge, you need to them pay 3% of the transaction fee to

to make this whole thing work. And so I do think a lot of the progress on something like that is going to be unsexy and feel incremental. And then as it gets to this kind of base layer where it's trusted, people will be able to build kind of more and more things on top of it. What is the metric along with, which stable coins would make remittances better, do you think? Because if you transfer a stable coin from, let's say, the U.S. to Ghana, then that family that's received a stable coin in Ghana,

let's say that they've done the on-the-ground work, they've downloaded the app, now they have stable coins in their digital wallet. They can't buy anything in Ghana with that stable coin. So they still have to transfer it into the local currency in order to go shopping at the local market. So it's not clear to me exactly what problem the stable coin being sent internationally is solving here. Yeah, I mean, I think kind of the point that I just made holds that I think it's probably going to end up looking a lot more like infrastructure for the, you know, for the fintech themselves and a lot of these cases, particularly when you're talking about low volumes of, money and low dollar amounts. I think it'll operate as the rails in a lot of cases. I think for larger transfers where there's people in countries who understand how to, you know, if you send me USC right now, I could transfer it out. There will be fees for that,

but it might be a lot smoother and take, you know, a lot less time than going through the bank and sending a wire and paying $10 for that and all of that kind of stuff. But I do think it'll be probably in those cases, maybe nothing and maybe useful as, as kind of brails for the fintech. But I think there's probably been too much focus on, to my point on SBF, on the use case of, I think, because probably it plays well, and it sounds good that you want to help all these people in developing countries get money where their local currency is unstable and all of that.

I think there's probably been a lot more focus on that than there actually is volume. I think it'll make it a little bit more efficient over time, but I don't necessarily think that everybody in the world is going to be sending stable coins to people in Ghana anytime soon. Yeah, it's just an interesting in me because, you know, I again just, I feel like I'm still on the hunt for a use case that like obviously

blows me away. And for a while I thought like, you know, maybe it's gaming. And I know that one of the most popular articles that you've written was about a game, Axi Infinity. You described it as a Pokemon-like game built on the Ethereum blockchain in which people buy digital pets called Axis as NFTs and breed, battle, and trade them.

So this is like, you know, it's an online world where you are operating with a digital economy of like NFT pets. And there was incredible growth in Axi Infinity. You wrote that in April 2021, the game did $600,000 in revenue.

By July, it did $80 million. That's wild. But then, this year, hackers stole $540 million in cryptocurrency from this game. The value of the tokens crashed. And this is what's most important, I think. As of July 4th,

users were down almost 90%. And that's important because it strongly suggests to me that going back to one of the first things that I said in our conversation, how much of this is about agency and power, and how much of it is just about money. Well, in this game, when the tokens crashed, 90% of the users left. And it suggests to me that a lot of people are in this space not just for the philosophy, not for the frontier, not for the agency, but basically for the money. It seems like a perfect metaphor, microcosm for like crypto-scepticism. Like the use case is the money. The use case is the money, and when the money goes away, so does the use case. Convince me that I'm wrong here. Convince me that the AXI Infinity story isn't a perfect microcosm for the idea that the vast,

vast, vast majority of crypto interest was just about people hoping to get in on a get-rich quick scheme before it overturned. Yeah, I think, I mean, the Axie story is one of the most fascinating. I mean, I'd never seen growth in something like that, like the growth that you just mentioned. And a lot of it, obviously, at this point, was fueled by speculation, both from players and from people on the outside. It's been really interesting. I've been reading, a bunch of the same stories that I'm sure you have on Axi recently. And a lot of lot of it, I think, makes it out to be almost this, like, villainous Ponzi scheme where I think it got started in 2017 or 2018 when there were like a couple hundred users or a couple thousand users.

And then this, like, you know, external capital came in and prices got pumped to the moon. Certainly, you know, writing that piece, I fueled the hype there for sure. And that wasn't my intention. I just thought it was fascinating that this thing had grown so much. But I think that instead of being an intentional Ponzi, the economics just weren't ready for that kind of usage that from 2017, 2018, when they started the company, could not have possibly predicted that.

And the first conversation that I had with Gio over on the team at Axy, he admitted and said, you know, like, look, we need to, now that this is blowing up so much, like, we need to get our gameplay in order. We need to build an ecosystem of other games in the system. Like, it's not as much fun as it should be to play this game.

And so certainly, I think in this case, a lot of the use was speculation. I also talk to a lot of Web3 gaming companies now that are building, you know, kind of what they call play Enderun as opposed to play To Earn. And so a company that I invested in called Goals is building a soccer game where if you want to just play the game for free, you can play the game for free. If you want to go into pro mode, then all of a sudden you can start accruing value to the players and to your stadium and to your team. And so instead of everybody needs to pay money to get into the game and economics are a little bit less sustainable, it's kind of that pro mode where you'd maybe be competing in, sports tournaments or you're just really, really good. And then you can opt in to, you know, turn all of your work into an NFT, make that tradable and kind of accrue value to it.

You mentioned that the people who were building Axi Infinity weren't trying to build a Ponzi's game. Do you think it's possible, though, that the combination of cryptocurrencies and gaming might naturally lead to, let's call them, accidental Ponzi schemes? Like, typically when you play a game, where you're not essentially being rewarded for playing with, like, literal money. Like, there's no sort of game, it's a game, but also it's a casino. You can play and play and get better and better at their game, and there's no reason to stop playing because your facility with the game is merely improving. But when cryptocurrencies are introduced into gaming, then you risk the possibility that there's

a huge spike in cryptocurrencies within the game, and then people are incentivized to sell out of them and move to the next game because they're like, wow, I've made a lot of money playing this one game. I can't make that much more money playing this game, so I'm going to sell out of it and move to something else. That seems like essentially a kind of petri dish for accidental Ponzi schemes. Maybe some of them are purposeful Ponzi schemes. I'm trying to be generous here.

But do you see how the intersection of tokens plus gaming might naturally create this phenomenon where people are essentially building a casino in one space and then bidding up the coins and then selling down the coins and moving to some other space where they can get in at the ground level and build up the value of more coins in another game? Totally. I don't think you've gone very much. far enough, right? I think that applies to a lot of companies as well and other kind of non-gaming projects that are being built in the space where I think probably for this first wave, people didn't design against that stuff happening and it was sexy to have your own token, even if you didn't

really need it in the system because that was a great way to make money quickly. And it wasn't necessarily even bad actors or people trying to scam people. It's just like, this is kind of what you do. You just have your own native token and hopefully the price goes up as more people use it. And then there are all these other challenges that maybe people didn't game out enough. Some of this next generation of games isn't even using their own native tokens. Some are, and there's economies that are designed around these tokens, and they've taken the lessons from kind of past games and are trying to build tokenomics in a way that makes it a little bit more sustainable.

And I think that that whole area is one of the most fascinating spaces. It's going to take a long time to figure out exactly how to kind of get it all right. And then there are other games that are just using USDC, and NFTs and saying, like, look, you're putting all of this time and effort into the game. You're one of the best thousand players in the world at this. Your players should be worth something if you want to stop playing the game, or your team that you've built up should be worth something to you. And that might not be in the native token of a game,

but there's still this idea of being able to own kind of the fruits of your labor. And so I think that, again, this next wave, you'll see a lot more of that kind of design. It's not meant for the token to just kind of go up as much as possible, but more to say like, here's this problem that games have. You can't move your assets from one game to another. If you quit playing the game, all the work that you put into the game just goes away. What if we designed a way to reward the best players and create an economy out of that?

I'm reading this book right now that has nothing to do with crypto, but it's a book about technology. And so I can't help but overlay the current big tech story onto it. The book is Build by Tony Fidel, and it's about the history of building the iPod and the And it made me think something that might be very germane to this conversation. When Tony Fidel tried to build the first personal computing devices in the late 1980s, it was a huge massive failure. And then he tries again in the 1990s. And it's another huge massive failure.

And the history of personal computing devices goes like fail, fail, fail, small success with Palm and Palm Pilot, then like another fail, fail, fail, and then you get BlackBerry, more failures, and then finally, boom, the iPhone, which is the most successful, influential influential consumer product to the last 50 years. And I was thinking about, you know, crypto's own problems or its own challenges to build things that have obvious mass use cases. And something struck me that's very different about the crypto industrial cycle. With personal computing devices, you had experimentation before you had money, right? Like people were experimenting and failing in the marketplace and trying to create product market fit. But with crypto, what's fascinating is you have

all this money coming in before there's an obvious product that has massive user appeal. And I wonder if you think the amount of money has just made the system a little bit berserk in a way. Like, it is the rare innovation cycle where you get billions of dollars before the home run. I think that is 100% true. And I've written this before that crypto's kind of original sin is that it came with money baked in. And it does distort things in the early days. I think this last crash is, I think, a little bit kind of what you're describing with, whether it be early smartphones, if you go back and look at like kind of even early networking device,

if you look at the app store when Apple released the app store, there were a ton, a ton, a ton, a ton of apps being developed, none of which had any real utility, even though they had a lot of usage because they were apps and it was cool to download apps and to try something on your phone, even though they were terrible. And then the next generation of apps came out, and there was Uber and Airbnb, and you could order food on your phone and all sorts of stuff that now we just take for granted. But the early days of the app store were a mess, and now you have all of that and all of the excitement about something being Web3, and you might be able to potentially make money by buying the tokens of this thing and maybe participating, maybe not. And so, of course, I think it probably amplifies the hype cycle in this really crazy way where the highs are higher, the lows are lower. And then I think that those kind of bigger use cases, I mean, look at Uniswap already. You know, it's done over a trillion dollars worth a volume.

Stay what that is. So Uniswap is a decentralized exchange. So instead of trading through something like a Robin Hood with thousands of employees and a central order book, people can go to Uniswap. And essentially, based on kind of formulas that sit in the middle, trade different pairs of crypto tokens against each other. So I might say I want to swap U.S.D.C. for Ethereum or Ethereum. for Uniswap token or whatever else.

And it's all based on math. I think they have a 60-person team. And they've now done a trillion dollars worth of volume without going down. And they've built this infrastructure that other exchange products can build on top of. So I think that's a really great example of like a real valuable thing that has produced value for the people who've invested in it. For the people who use the product early, they air dropped tokens on early users and just gave them tokens that ended up being fairly valuable. So there's like real things that have come out of it. But I think for this like next wave when you need to justify, you know, if it's $26 billion,

maybe the VC's own 10% of a project. So you need $260 billion with the value to kind of break even there. I think that's probably coming in this next cycle now that the infrastructure is being built up. Last question. Do you think it's possible that say 10, 20 years from now, we will look back at crypto and Web 3 as something that just didn't quite work out, that stable coins and remittances almost worked, but it turns out we couldn't get enough people on the app to think that this was more valuable than the remittance system that already exists, that NFTs enjoyed this like really sharp increase in popularity,

but we didn't quite know exactly what to do with them. And that largely outside of unregulated ways for tens of millions of people to trade risky securities, often a way that was very fun for them as they were trading them. It didn't quite cohere outside of that use case. Do you still think it's possible that this just doesn't work out? Yeah, I think it's possible that anything doesn't work out. And certainly we're in a spot now where it feels easy to say, wow, maybe this might not work out. I think what's more likely is we'll get to a spot where not a single person in the world is talking about an NFT, because that will just become kind of a piece of the infrastructure and a piece of the way that people handle digital items on the internet.

I don't think people will be talking about tokens. People gamble. People will always talk about things mooning, but I think that will become a lot less kind of sexy and exciting and some of the novelty wears off and you're not going to get people to kind of keep coming in, just hoping that the price goes up 500%. I don't want to get pigeonholed into the stable coins and remittances point, because I think it's just right now easier to send kind of large amounts of money to different people across the world. Maybe there'll be apps that use it and maybe there won't, but I do think stable coins as something that other people can build on top of is just faster. I mean, the way that I view it and the way that I think about the next 10 to 20 years is that looking at something

like a wise and saying that we're done or looking at something like a Facebook and saying that we're done or looking at the way that companies are organized and saying we're done is just as really kind of defeatist and anti-historical way to look at the future, where of course technology is going to continue to improve and get better. Maybe something will come that's even better at doing all of these things than the blockchain is at doing all of these things and all of the efforts that people are putting into making it more scalable and enabling it to support larger and large use cases. Like, we're all for not. But I don't think that the fintech apps and the social apps and all the things we have today are kind of the end of internet history. And I do

think that if we wake up in 10 or 20 years, a lot of this stuff will have just infused itself into a lot of the things that we do on the internet and beyond. And that's fundamentally a place that I think we agree. I think we're both tech positive. I think we both are aghast at the idea that we're done, that all of the tech bohemoths and all the systems that we have now, despite their obvious failures are the best we can possibly do and that the frontier is closed forever on digital technology, I think that's horrific to contemplate. And I think we need to fix these problems and come up with systems and companies that serve our needs better. I think the big difference between us is that you and I both look at current products in

the crypto and Web3 space that are unfinished, that are imperfect, that are maybe getting there, maybe not getting there. And you look at them, you look at these larval products and you see like the chrysalis, you know, you see like the thing it's going to become as a full-fledged organism. and I see a failure to obviously overcome the threshold of, is this better than the status quo? Is it easier than the status quo? And will it serve many people, millions of people,

more consistently efficiently than what we have? And right now, I still am skeptical, but I also still am curious. So back at the cornbrick, thank you very much. You can have the last word. So I think one of, and I agree, I mean, I think we probably agree on 95% of stuff in this space. I think one of the other differences is that those larval companies that I'm seeing, I'm seeing a lot of companies just because I'm investing kind of as a VC in some of the stuff

that aren't close to market, that have taken their time, probably 5% of my Web3 portfolio has a token now because they're making sure that they get it. right before they go to market with a product. And so I think hopefully this job lets me see a little bit further into the future on it and see what people are developing and how they're thinking about developing and the challenges that they're trying to address. And those entrepreneurs, I think, give me a lot of hope in what's coming. But I mean, you had Matt Ball on the other day to talk about the metaverse, which was an awesome conversation. I would be absolutely shocked if there was a Metaverse and there wasn't some form of NFTs

and letting people own their digital items as they traverse the metaphors. So if you believe that that's there, I think that it will be a piece of it, and I certainly don't want to spend time in the Facebook Metaverse. And if you want to get really weird, I think one of the fun kind of upside things here is that it just lets us run experiments at Internet speed in this really weird, open, messy, chaotic way

that hopefully I think at some point, whether it's 10, 20, 50 years in the future, helps solve a lot of the problems that you're talking about, at least figure out how to get fundings for a lot of the real-world problems that we're talking about. I've done a couple investments in companies that are touching biotech or climate, and they're still early.

But that's my big hope for the space is that all this messiness on dumb stuff like the 50,000 NFT project gives us lessons that you can kind of take and apply more broadly than just the cryptosphere or even the internet. Backy McCormick, thank you very much. Thank you very much for listening. Plain English is produced by Devin Manzi.

If you have a comment, a concern, a question, an idea for a future show, please email us at plain English at Spotify.com. That's plain, no space, English at Spotify.com.