The Breakdown - Mike Dudas on Crypto Community Resilience

Episode Date: December 30, 2022

This episode is sponsored by Nexo.io, Circle and Kraken.   Today’s guest is Mike Dudas of 6th Man Ventures and LinksDAO.    Find our guest on Twitter: @mdudas - Nexo is a security-first platform where you can buy, exchange and borrow against your crypto. The company ensures the safety of your funds and keeps innovating with products like the Nexo Wallet - a non-custodial smart wallet that allows you to create your Web3 identity. Get early access at nexo.io/wallet. - Circle, the sole issuer of the trusted and reliable stablecoin USDC, is our sponsor for today’s show. USDC is a fast, cost-effective solution for global payments at internet speeds. Learn how businesses are taking advantage of these opportunities at Circle’s USDC Hub for Businesses. - Kraken, the secure, trusted digital asset exchange, is our sponsor for today's show. Kraken makes it easy to instantly buy 185+ cryptocurrencies with fast, flexible funding options. Your account is covered by regular Proof of Reserves audits, industry-leading security and award-winning Client Engagement, available 24/7. Sign up and trade today at kraken.com/breakdown. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell and research by Scott Hill. Jared Schwartz is our executive producer and our holiday theme music is "Spike The Eggnog" by Two Dudes. Music behind our sponsors today is “Glasgow” by Falls. Image credit: We Are/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

At the same time, not really maybe understanding or caring about the crypto ethos that so many people espoused from, you know, call it 2008 until 2020, for better and worse. I actually think it's better to have, you know, multiple, you know, very different communities of folks. We need many more, I think. I think gaming is the next big unlock. But many different communities of folks using applications and products that exist on public. blockchain. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, circle, and crackin, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, December 30th,

and today I am chatting with Mike Dutis of Sixth Man Ventures and Links Dow. Before we get into our conversation, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, review or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Today, my guest is Mike Dutus. Mike is a journeyman crypto head who before joining crypto was in payments technology at companies like Venmo. He went on to found the block before stepping back in 2020 and building a venture firm,

six-man ventures, as well as a golf-related Dow links Dow. In today's show, we discussed the resilience of the NFT community, the distortions of the last bull market and why there's still room for optimism moving forward. All right, Mike, welcome to the breakdown. How are you doing, sir? I am doing quite well this morning. Thank you. Happy, almost holidays, Mary, almost Christmas. We are here. We're recording on Thursday, December 22nd. It's been a very eventful 24 hours. It's been a very eventful 24 days. It's been a very eventful year. But I'm excited to dig in with you. You have worn a lot of different hats in the crypto industry. And I think for people who aren't familiar with you, I'd love to have

you just kind of quickly tell, maybe let's do a little tiny bit about journey. Like, when did you start to get excited about NFTs, Dow, sort of these other segments of crypto, you know, because you were, you were around for a lot of early parts even before these things were. So, you know, I've never had a chance to actually ask you when you kind of started to get excited about that stuff. Yeah. So the, you've been in crypto full time since late 2017. And so the first chapter was starting the block and, you're running that until early 2020. And, and, you're running that until early 2020. And, you know, after that, after I left the block, was kind of thinking, hey, what to do next? My whole goal has been, hey, how do we get people to use these blockchains?

And how do we move more towards a billion people, you know, versus a couple million people using public, you actually using the public blockchains? I had spent time in FinTech at Venmo and saw Venmo go from, you know, 30,000 users to 30 million. You wanted to see that level of scale. So to your question, early 2021, frankly, late 2020, I think it was, you know, basically NBA Top Shot was like the first wake up moment for me, the basketball card NFTs that I bought and started trading. And NFTs really caught my imagination because they felt like a better version of something that I had done in the physical world.

So I could trade, you know, cards, basketball cards. And actually, they're like moving around. and dynamic, you know, unlike a static physical card. And I can trade them with anyone anywhere in the world. And I can also, you know, jump into these chat groups that are tied to a community that has developed around trading these cards. And obviously, again, there are analogs, you know, to this prior to MBA Topshop. But it was just really cool to see it all come together.

Obviously, the notion, too, that you can have a little fun, sort of speculating on the value and in real time and all of that played into it. But caught my imagination, had a lot of fun, and then said, wow, like, I've never been into art before. But actually, you know, I can, you know, access generative art and one-of-one art and real art from artists I've never even thought about before. Like, I don't go to physical galleries to collect physical art. I live in Manhattan.

I don't have enough space to even put it anywhere. But, you know, I can trade these NFTs. I can collect them. I can display them digitally. Just had similar fun with things. that. And it was just that moment. I was having so much fun from sort of late 2020 into 2021 doing that and meeting so many interesting people that it was kind of the, that was the like light clicking that these blockchains are going to be used. And now we can finally see how in early

shoots of it for more than just payments and pure money movement and money transfer. Super interesting. And I guess let me kind of jump right. into then from there a kind of a, you know, 2022 retrospective question. One of the things that I think is interesting is if you look at kind of cycles of crypto, there are new things that emerge each cycle that then have to go through some sort of reckoning, you know, the cycle after. So obviously ICOs, you know, post-2017, post kind of early 2018 were that. And, you know, you could argue maybe that they morphed into IEOs or whatever, but there certainly was nothing like those ICOs that were happening in kind of, you know, November, December, 2017, January, February

2018. You must have expected, you must have known, as you kind of got into NFTs, that there would be sort of a, you know, a cycle drawdown as related to the value. But how have you seen sort of the NFT community change? How have you seen, you know, how resilient has it been? Have you been surprised about anything or, you know, in terms of kind of how many people have stuck around or how many people have decided to leave. I guess it's kind of just a broad question about your assessment of where the NFT community stands, you know, in late 2022 after having, you know, so much value drawn down and just such a different set of circumstances. Yeah, it's a good question. So if you go back to 2018, you know, after the sort of ICO boom and bust, I remember during the boom, a very similar

phenomenon that we saw in, you know, late 2021 into 2022 where every friend, like I was spending time on, you know, basically zooms and videos, like helping friends, like set up metamask so that they could buy an NFT. Like the craze was sort of reaching the mainstream and people were wondering, how do I get from Coinbase to, you know, self-custody wallet, right? The similar things that happened in 2018, Normie's just coming into telegram chats or Slack chats or texting me. Like, what's this ICO? How do I get on Binance? So a lot of analogies to the sort of hype and euphoria. So now fast forward from the first hype and euphoria, you know, Binance and trading these tokens, a lot of those people left, right? The vast majority left. Like there was, it was literally just pure speculation. And it was,

hey, can I, for many of the coins, right, for many of the ICOs. What's been awesome, you know, as you know, is many of those ICO projects have turned into really valuable stuff, right? Things like ChainLink. And it's just been exciting to see that. Similarly, in the NFT world, you're going to see things. And I think one of the things that I helped create called Links, which is a global golf club, you know, where you secure membership by owning an NFT is one of the examples.

But you're going to see projects of. long duration value. I think Yuga Labs, for example, art blocks will have long duration value. But to your core question, I've seen, so I know it sounds like a BS term and it's probably cringe and it's going to like,

I'm like going to Twitch saying it, but like community, like the fact that people, like there genuinely are the chat groups that I'm in, whether it's on WhatsApp, whether it's on telegram. Candidly, you see it on Twitter. I know people joke that it's dead, but like NFT Twitter,

is pretty alive. And like, there's still these, like, Twitter spaces. And I've seen a residual interest much, much stronger than I saw. We're basically at, like, the early 2019 phase of, like, the last cycle, you know, called a year after the peak. And the NFT cycle is not dead. Like, there's a new, you know, drop every day. Now, by the way, the dollar volumes that are being transacted for these new things are a 10th, a 20th of what they were at the peak because the price of Ethereum and the price of Seoul is way down. But the actual level of participation, like people like this stuff. They're having fun. So that's been interesting. Now, if we stay in a sideways market where, you know, there's not a lot of growth for another 12 to 18 months, I think you're going to see a

repeat of that 2014-17 period when, you know, there was a loss of general purpose interest in Bitcoin, right until Ethereum started to scale. And we'll be waiting for the next big thing, probably something like gaming and things that keep people's attention. But right now, I'm still seeing quite a bit of interest. And there's certainly many, many, many more people than there were in that 2019 era. Yeah, I think it's super interesting. So this dovetails with my sort of experience as an outside observer. You know, I didn't go deep down the NFT hole. I've sort of experienced it mostly from the almost like a participant kind of anthropologist in terms of like being, you know, as folks who listen to the show know, I think there are more interesting

potential disruptions there than it seems on the surface. I'm sort of, um, of the belief set that important things can start looking like toys. And frankly, I think that it's to me, just as an observer of this industry, one of the first places where you see an actual splintering off, not in the sense that people in the NFT space don't also engage with other parts of the crypto space entirely, but in the sense that it really, is the first time, much more so than Defi, much more so than a lot of these things, where this group really cares about what they're doing in the space, but not about sort of the whole thing, like necessarily, a priori, right? And what's been interesting to see is the extent

to which people have continued to be engaged in those communities, in those conversations. I'm sort of, like I said, I'm kind of passively in a bunch. And the difference in the conversation around, you know, the latest news in SBF in, you know, my hardcore crypto telegram chats versus the random, you know, NFT people chats is very different. It's not that they're not paying attention at all. They're, you know, sort of incensed in the same ways and stuff. But they're kind of just vibe in doing their thing. And it strikes me that to the extent that that persists for another year of sideways moves, it's probably a lot healthier than had the peak hype cycle just continued and abated, you know? It feels like every kind of part of this crypto sector has to go through that. So I just think it's interesting to watch and it will be interesting to watch and see, you know, if and how the texture of that community changes with, you know, another long period of depressed prices. Yep, exactly. Like, I would say that I agree with you. And it doesn't feel like the NFT folks view what's happening as like an existential threat to their ability to continue to enjoy and grow.

You know, I'm in like the Cryptopunks telegram chat and, you know, just a lot. There's like artists in there. And they're like, hey, this is really amazing. And, you know, my livelihood and what is is better than it was two years ago. And, you know, I expect that it's going to continue to get better. Right. So to your point, not as tied to these like hype cycles and not as tied to, you know, financial crimes and other things.

At the same time, not really. maybe understanding or caring about the crypto ethos that so many people espoused from, you know, call it 2008 until 2020, for better and worse. I actually think it's better to have, you know, multiple, you know, very different communities of folks. We need many more, I think. I think gaming is the next big unlock. But many different communities of folks using applications and products that exist on public

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Cracken Pro lets you set up your trading interface in the exact way you want. It's all backed by Cracken's industry-leading security and award-rength. winning client engagement teams that are available for support 24-7. No matter how you like to trade, Cracken Pro is built to make it happen. Visit pro.cratkin.com or download the CrackenPro app on Google Play or the Apple App Store today. Switching gears a little bit, having lived through multiple cycles, what's surprised you most about 2022 in the way that this sort of cycle has shifted? Yeah. So having said that the NFT folks are maybe outside of the

the everyday news. I think it's been wild just to see how financially interwoven the, you know, call it innovations from early 2019 or, you know, so called the beginning of this previous bull cycle, how interwoven the financial interests were over the past two years up and down. Like we'd all said, wow, it's crazy. Like all these coins are still correlated, Bitcoin moving with Eath, moving with, you know, everything else. And, you know, when you look at it in hindsight, it's incredible to see how much of that on a look back was likely, you know, tied to this really large, you know, fraudulent operation. And then all the other folks who basically kind of took those signals and whose behavior and financial decision making was impacted by that entity. And, you know, that went from CFI to big hedge funds to just your average professional and retail traders and then extended all the way to, I think, false signals about how much money there was in the market for many early-stage startups that launched and got easy money.

So ultimately, a lot of false positives for the past cycle. There clearly wasn't as much organic money and demand for products as it seemed at the peak. Yeah, I think that that's, there's a lot of numbers accounting to be done. We're still kind of, you know, racing to catch up with all of the sort of actual factual information coming out. But there's a lot of folks who are starting to ask that exact type of question, how much demand was artificial. But then there's also the flip side. It appears that FTX was never actually buying the Bitcoin that people were buying with it. They were just sort of debiting it. And so it's like there's also suppression of demand on the flip side, right? Exactly. Like the

open see trading or step in at its peak when literally half million people a day were using it. you know, there were shoots of deep organic usage where I think if the other parts of the market hadn't been so volatile, perhaps you could have sustained and sort of crossed a little bit more over into the mainstream. Yeah. So obviously everyone's trying to figure out what's going to recover, what's not, what's collateral damage, what's not? And one of the big questions is around Solana itself. Obviously, Solana was super associated with Sam and FTX, you know, perhaps uncomfortably so for some folks even in that ecosystem. But what's your read now? I know you spent a lot of time on it, you know, in the context of NFTs, among other things. But, you know, how are you kind of viewing that

ecosystem now and the people who are still there and building? Yeah. So I think what you'll see is there's a very stark difference in opinion in terms of Solana's chances to grow long term between people who actually used the blockchain and people who didn't. And so amongst people who have used it and used it, you know, basically, again, as users, as investors, have spent time with builders in the ecosystem and or have worked at Salonelab's Foundation or other companies, projects and protocols building the ecosystem. There's definitely considerable optimism. If I talk to my very smart friends who have primarily, you have been in the Ethereum ecosystem or, you know, are Bitcoiners. Like, yeah, that's dead. It's a, it's a total scam. It was always centralized, you know, VC chain,

you know, SBF chain. And I just authentically and deeply believe that's not the case. I believe that what you had was a very well thought out. Obviously, Solana has gone, you know, went down eight times over, you know, called the past, what, 14, 15 months. That's been well documented, but never lost date. And so it's basically done the things that it's designed to do, and it's a performant blockchain that will continue to get more resilient. So I'm optimistic about that. And the developers that I talk to building on it, the folks building tools and building applications believe that. It's far from perfect, just as Ethereum was far from perfect, you know, three to four years earlier and is far from perfect now. By the way, I invest heavily

the Ethereum ecosystem and believe in it deeply. So I come from a world of being an entrepreneur and working in early stage startups. What's been wild about these public blockchains is once Mainnet is live, it's like out there to use. And you're basically an early stage startup, but you're public. And you're just getting pounded by usage and, you know, people trying to exploit and, you know, all of the different complexity and things that could, you know, cause failure state. But at the earliest stages of, you know, your product journey.

So I think that's where Solon. is I think that you had a parasite in SBF who came in, took it over in really, really nasty ways. Definitely wasn't the only person doing that. There were a lot of poorly launched projects and coins with predatory economics. And, you know, I think rightfully people look at it and say, hey, a lot of not acceptable stuff happened in the earliest days of the ecosystem. At the same time, some of the best products I've ever seen in cryptosystem. have launched in the Salana ecosystem. Magic Eden, I think by far the most innovative and best

marketplace, disclosure, you know, I'm an investor. Phantom, not an investor, but you know, fantastic, easy to use, intuitive wallet that I think built on what Mattamas does and delivers even faster and now, you know, is working on Polygon and other chains. Stepan, which I mentioned, which was a really great, real world gamified use case, move and earn. So like we've seen great stuff be built there and developers continue to build there. So I believe, like I believe more than I don't that Solana will be a successful blockchain. I do believe that we're going to have a multi-chain world and there are going to be blockchains that do things differently. I think where we're so early in Salana's life cycle, just a few years since Mainnet's been live. I think they still call it

Mainnet beta. We haven't even gotten to the point where things like Solana Pay and Salana Mobile, we haven't got to the point. It's optimized for payments, and that use case really hasn't found product market fit yet. So I think next cycle, we're going to see a lot more interesting things happen there. So I'm optimistic. And look, people will joke and say, look, it's bag bias. But like my ETH investment bags, meaning like venture bags are far bigger than my Salana ones. But I'm really optimistic on Ethereum like I am, Solana like I am, Polygon, like I am, other L2s and roll-ups in the Ethereum ecosystem.

Do you think that every cycle, it's inevitable that we get more sort of attempts at new layer ones? And if so, I mean, obviously we have Aptos and Sweet now that are sort of competing to be that, this cycle's that or the next cycle's that. And if so, how much of that is driven by just problems left unsolved, genuinely, and technology advancement versus just the honeypot that is a new chain if it works? Yeah. So I think cynically people would say everybody who launches a new L1 is just looking for a tokenized money grab. You know, look, Bitcoiners argue that Ethereums were doing it with a pre-mine, right? And then, you know, you have Ethereum's argue that, you know, Solana was doing that and others, avalanche and others in the last cycle.

But like, ultimately, I think these are good, a lot of them are like good projects. A lot of them are trash and sort of just fade away and die. But yeah, I would expect Aptus and or Sway at least one to be successful, right? Developers do enjoy writing and move. There are things about the language. There are things about the consensus mechanism of the blockchains that might allow for different types of applications for, you know, higher throughput. It's all theoretical right now because we're so like Sway main net's not even live and APDUS has only been live for a few months. But to me, it's just crazy to assert that, you know, entrepreneurial people, you know, really talented engineering teams should not try to improve upon blockchain design and performance just based on where we are.

We're like fees skyrocket on Ethereum, you know, when there's high demand where Salana did have some problems at different times. If we don't continue to iterate on design and run different experiments, we're not going to get to an optimal state in 10, 15, 20 years when we're. actually have a billion people using public blockchains. As you look to next year, what's sort of your best case scenario? What's your worst case scenario? What makes you most sort of nervous or pessimistic and what makes you most optimistic? Yeah. So I would say pessimism just would be concern that we haven't peeled back all of the distressed assets and distressed businesses and distressed companies and that it just keeps on rolling. So I think a slow role of that would be bad.

So I would hope that we've seen the worst of it. I've not yet seen any firm evidence that any of the major institutions in crypto, centralized or decentralized have systemic risk in them. I obviously read a lot and see FUD and see concern about certain institutions. But the risk is that there's something else out there. That would be really bearish. The second bear thing is, you know, regulatory purgatory, right? Just no, you know, a continued another year of no rulemaking and, you know, and basically, you know, just selective enforcement, right? So regulation by enforcement versus rulemaking. I think everybody believes we need rules and regulations. And it's time for proper rulemaking in crypto. If we don't get that, again, I think it will paralyze innovation, in the United States. The bull case is that, you know, people, as we were just talking about, that people continue

to use and talk about these blockchains, that even if price isn't skyrocketing, you know, you see kind of like daily usage of defy, daily usage of NFT marketplaces, daily usage of games and move and earn applications and things like that, you know, hey, maybe they kind of like plateau, but if they flatline, I think that's really, uh, interesting and positive. And then the biggest one is if firms like ours, like we've made this week, I think will be our two final investments of the year. But if the earliest stage entrepreneurs, some of the best people we've seen in my five

years in crypto continue to start new businesses, what we're seeing is people looking at the flaws of the last cycle. And again, trying to build better versions, right? It's like every three or four years, we see better versions of exchanges. We're going to see D5V2, things that improve upon the things that didn't work in the last cycle. And so I'm really excited about that. Yeah. I think I know the answer, but just for the record, where do you find yourself, even in spite of all this, you know, sort of more net pessimistic or more net optimistic for the year or years ahead?

So I think starting from today, I feel like the opportunity to be successful for somebody who came in today versus somebody who came in 15 to 18 months ago is much, much higher. You almost certainly lost money if you entered as an entrepreneur, as a new investor, or as a new user, and probably had an unsatisfying experience. If you came into crypto for the first time in the middle of 2021, you probably haven't had a great 18 months. If you come in today, eyes wide open and curious, I think you're going to have a really, you're going to have a much better experience than that cohort of people. And I'm not laughing at that misfortune. I'm laughing at like it's it's just not been a good run, right? Everything they could go wrong since sort of the fall of last year has gone wrong.

And so I'm optimistic at folks starting today. But you're going to have to have a lot of patience. I mean, there's, I don't think it will be crypto mooning anytime in 2023. I think we're going to be kind of like, again, grinding through some headwinds and just building. But like, that's a normal market. And by the way, the crypto market is to some extent going to be at the whims of macro as well, right? Like, it feels like public equities are going to have potentially a difficult time. And it feels like the broader economy isn't going to be like firing all cylinders, you know, next year. We'll see. I'm not a macro economist. But yeah, so it's going to be a tough environment. So I'm cautiously optimistic, but, you know, I have to be in my job.

I share that sentiment sometimes in spite of myself. And listen, Mike, always great to chat. Really appreciate you taking some time today. And happy holidays and best luck in what must and needs to be a very new year. Yeah, likewise, sir. I appreciate it. All right, guys, back to NLW here. And just one quick reflection before we wrap up.

I really think this idea of how much the presence of FTX might have distorted market signals is something that we've barely talked about, but might actually have been a more significant force than we give it credit for. Mike was talking about it in the context of making it appear that there was more interest and money in a number of different tokens than there actually was, which is certainly true.

But as I mentioned, given that we've learned that FTCS had no Bitcoin on its balance sheet, it suggested there might have also been dislocations and warpings to the downside as well. If everyone who ever quote-unquote bought Bitcoin on FTCS didn't actually buy Bitcoin, well then that wasn't buy pressure on Bitcoin. Alternatively, if people who were sending their Bitcoin to FTX

had it basically liquidated immediately so that Alameda Research could trade it in for some low-float piece of crap, well, that that creates cell pressure. I don't think we should overstate any of these forces, but it does show that the market was certainly not free, clear, and clean. It's just one more example of why it's a good thing that this force in the industry is gone, even as painful as what we're going through right now is.

Anyways, thanks again to Mike for joining the show. Thanks to my sponsors, nexus.com, Circle and Cracken for supporting the show. And thanks most of all to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.