The Pomp Podcast - #510: Jesse Walden on the Ownership Economy

Episode Date: March 11, 2021

Jesse Walden is an investor at Variant Fund and previously worked on the crypto team at Andreessen Horowitz.  In this conversation, we discuss the ownership economy, NFTs, social money, piracy, Compound, Uniswap, and locked value.  ======================= Public Rec is the first to bring tailored sizing to leisurewear so that you don’t have to choose between comfort and style. They make leisurewear in waist and inseam sizes because they believe comfort starts with a better fit. And when things fit better, they look better. No tailors. No settling. No stress. Comfort and style, all in one. Check out publicrec.com/pomp and use POMP10 at checkout for 10% off your order. Step into a better fit today with Public Rec. ======================= OKCoin.com is the leading crypto exchange for both beginners and experienced users. You can fund your account in under 2 minutes, and get access to the most advanced trading engine, all while paying the lowest trading fees in the industry (0.1%). Visit www.okcoin.com/pomp and open your account today.  ======================= LMAX Digital is the leading institutional crypto currency exchange with current average daily columes of $2bn. Built on proven, trusted LMAX Group trading technology, LMAX Digital delivers a market-leading solution for trading and custodial services for the most liquid crypto currencies. Trading with all the largest institutions globally, LMAX Digital is a primary price discovery venue, streaming real-time market data to the industry’s leading indices and analytics platforms, enhancing the quality of market information available to investors and enabling a credible overview of the spot crypto currency market. Learn more at lmaxdigital.com/pomp =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Jesse Walden is an investor at Variant Fund and previously worked on the crypto team at Andreessen Horowitz. In this conversation, we discussed the ownership economy, NFTs, social money, piracy, compound, Uniswap, and locked value. I really enjoyed this conversation with Jesse, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is a new sponsor, so pay attention. Public Rec. They are first to bring tailored sizing to leisure wear so that you don't have to choose

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make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got a special treat for you today. I've got Jesse here from Variant. Thank you so much for doing this. Yeah. Thanks for having me. I feel like you have taken the world by storm, but before we get into what you're doing now, let's just go back in time and go through your background. Where'd you grow up and how did you get into investing? Yeah. So I grew up in New York, went to high school on Long Island, went to college in Canada. I think relevant detail of my early years was in high school, I got pretty involved with piracy, um, much more than, you know, your average

teenager in the early two thousands. Um, thanks to a friend of mine, I sort of like found my way into this community of people who are uploading the files that everyone else was downloading. And, you know, for me, that was exciting. Cause I got access to the Jay-Z album before everyone else. Um, you know, I was burning copies of it and, and, you know, selling them to my friends pay for my dsl modem and like it was just amazing to have access to all this content at a time when like youtube didn't exist you know facebook didn't exist there was no soundcloud spotify etc meanwhile here was literally every piece of you know audio video software video games etc um on these exclusive ftp servers that were highly organized and incentivized communities not that similar from

from the way crypto communities function today um and that was a formative experience for me because it sort of highlighted how media was going to propagate on the internet in the future in the very near future so like four years later i'm in college um wasn't the best of students was too busy throwing parties and then concerts um and and and then using these new technology platforms that were sort of coming up at that time um to distribute media flyers music that you know of the artists that were were performing at these shows and so i i'd say the straight line through through my career is I've always been fascinated with how media propagates online, how the value of that media is captured, which in the piracy era was not happening at all. And then in the

sort of platform era started to get captured more and more by platforms. And what I set out to do sort of after my years in Montreal was set up an artist management company to help artists leverage these new tech platforms to reach their fans directly and capture more of the value for their business, you know, independent of the major label system. And so I worked with a number of big independent artists, Solange Knowles, Blood Orange, Magical Clouds, to help them do this as much as possible. And through that, I became really sort of aware of the degree to which these platforms were coming to dominate the relationship between creators and their audience. And also some more, you know, less glamorous problems with the way royalties

were administered in the traditional music business. And then I learned about Bitcoin in 2013 or so. And that was, you know, the turning point for me where, you know, I read the white paper. And to me, the most interesting thing was not the financial side of it, though I thought that was cool and still think it's really cool. But the fact that, you know, Bitcoin was this peer-to-peer network that was very similar in a lot of ways to the peer-to-peer piracy protocols that I was engaging with as a teenager. And I was like, this is kind of like BitTorrent in a lot of ways, but it has something that BitTorrent lacked. And that is, it has this identity system built into the protocol. And that's public-private key cryptography, which is what allows you to own

your Bitcoin and have it be yours, independent of any third party. And I thought, that's really interesting what if you could do the same for different kind of digital asset instead of a you know a financial asset what about a digital media asset like an image a video or song um if you could let the creator of that asset be discovered through the asset itself they could capture much more of the value without having to depend on the platforms who intermediate that relationship today and so that idea was the spark for a startup i co-founded in in 2014 called media chain labs where we set out to do that. And I'll say, in hindsight, we were way too early. I think today, a lot of those ideas are being realized through NFTs, which we'll get into. So that's exciting.

But back then, Bitcoin was just coming into mainstream consciousness. It was too early to be exploring non-financial use cases. We had a good outcome in that we were acquired by Spotify, And I ended up leading blockchain R&D there to help them sort of think about and solve some of the royalty administration problems that were sort of adjacent to what we were exploring. And then after Spotify, I joined Andreessen Horowitz and spent the better part of three years on their crypto investment team before spinning out Variant last year. So I'll pause there. That was that was a lot. You get major props from coming on here and talking about Jay-Z right out of the jump. So kudos for that. The other thing is we're probably similar age or at least ballpark wise. And I remember being in middle school or maybe even into high school and LimeWire was like, you know, really popular.

But it was always like a Russian roulette. You didn't know if you're downloading a song or a virus. And sometimes you got both. So it always felt like your computer, you know, drastically slowed down. And I think there's a whole generation of kids who kind of grew up on a lot of those platforms and got a crash course in what's going on today in the world. Talk a little bit about Variant and kind of what your goal is. I know that you guys have this idea of kind of being a community-oriented fund that really wants to invest in these community-owned networks. But what exactly does that mean?

Yeah, so it's related to our thesis, which I call the ownership economy thesis. And so one lens to view what's happening in crypto is that for the very first time, we have networks that are worth billions and billions of dollars that are completely built, operated and owned by their users. Right. So with Bitcoin, of course, the first example, there is no Bitcoin company. It's just a permissionless network. Your users or your listeners know this really well. Um, and, and, and I think that model that, you know, is at the core of success, the success of Bitcoin is being adapted to other networks in, in completely different verticals. And this is playing out, um, you know, from, uh, an audience of users that's, you know, been fairly technical, you know, developers were the first to realize, Hey, if I mine

Bitcoin, you know, I can earn Bitcoin and earn an ownership stake in the network. and so naturally developers and technologists were the first to understand that but increasingly more and more sort of mainstream audiences are realizing hey i can actually earn some of the value i contribute to the products and services i use every day so you know there was bitcoin there's ethereum um in defi there's lots of networks today that um that are owned by their users you know a couple good examples are uniswap and compound which are both financial marketplaces I'll pick Uniswap as an example. It's an exchange, not unlike Coinbase, but where the users of the exchange are the ones earning the transaction fees in the marketplace in exchange for putting

liquidity into the marketplace. So this ownership model is, in my view, the most market-driven way to build network effects for next-generation platforms. And it's what's driven the really rapid growth in Bitcoin and Ethereum and the like. So what we're investing in at Variant is founders who are building networks that have the objective of becoming community-owned because we feel these types of networks will grow much faster and much larger than their Web2 counterparts, which are largely owned by VCs. And that may sound counterintuitive because we are a venture capital firm, right? So how do we do business? Well, I think the strategy is one of backing founders at the earliest possible stage, because building one of these community

owned networks sort of requires a process that I've referred to as progressive decentralization, where you still have to build something people want. People don't care to own something that they don't want to use or think is valuable and so you know satoshi put the white paper out then he had to actually build or they had to build the network right someone has to do the work at the early days and someone has to fund that work right so that's where variant fund steps in is to help founders get ideas off the ground build a product that people want step two is you know find users for that product find product market fit build a community and then step three start to figure out how to, you know, effectuate a distribution of ownership to that community such that they're

incentivized to continue to contribute and grow the network alongside the founders. And so that's what Variant sort of prides itself on doing is helping founders get off the ground, build their community, and then actively participating in the networks that we invest in. Got it. And so when you talk about these networks, maybe give us an example of something that you guys have invested in that you can really kind of showcase what it means from, you know, ideation of, hey, we should go build this to where it is today? Yeah, I think a really good example is Compound. So I also mentioned Uniswap earlier. I think they're another, but I'll talk about Compound here. So Compound is a money marketplace. It's built on Ethereum. It enables lenders and borrowers

to find one another and sort of exchange digital assets through an automated process where if you're a lender, you can lend your stuff out without having to interface with the counterparty. And as a borrower, you come in fully collateralized and are able to instantly borrow any assets that are sort of on the money market at a rate determined by available supply and demand. Compound started, I think, late 2017, early 2018. The founder's name is Robert Leshner. And he had this, you know, this vision for this marketplace and raised an early round of funding. This is before Variant existed. but raised a small round of funding, built a team, built the product and found some early

product market fit in that, you know, they, they, they found lenders and borrowers and they grew the sort of marketplace volume. And the business model for this marketplace is not, you know, something new or unfamiliar. It's, it's a rake on transactions that are, you know, happening through the marketplace. What's different about, about Compound is what happens with that fee stream. And so after clear signs of product market fit and growth, Compound said, you know what, this thing is better if we get out of the way and turn ownership over to the participants in the marketplace who are driving the value thing. And so what they did is they launched a token, a comp token, and they distributed it directly to the users who

were providing liquidity to the money market. So these are the users that make the marketplace valuable, the ones that are driving the fees in the marketplace. And those users were able to earn Comp tokens, which in turn govern the marketplace itself, including governing what happens with the fee stream. Now, Comp is still a very early project. It today has over $10 billion in volume locked inside the money market. So it's quite significant at this point. But like most startups, that fee stream is not being distributed out to shareholders. It's being reinvested in growth. And so that's a really good example, I think, where distributing ownership to the users of the product is a really strong incentive to get them to actually use the thing.

And that's why Compound has seen such rapid growth over the last two years, going from effectively zero to 10 billion in volume. So when you think about this locked value, I think there's a lot of people who either are new to crypto, are coming out of kind of the Bitcoin world. They keep hearing, especially in the decentralized finance world, like locked value, locked value. Explain exactly what locked value is and then why you think that's important. Yeah. So I'll start by saying, I think locked value isn't actually the best metric for DeFi. A lot of people refer to it as like the holy grail, but the reason it's a little misleading is that locked value of crypto assets changes with the value of those crypto assets. So in a market

that's pretty volatile, where you have Bitcoin and ETH going up at a rapid clip, it's not the best measure of growth in these marketplaces. Because if Bitcoin 5Xs and you've got $1 million of Bitcoin in the compound protocol, you now have $5 million without any new users putting more capital in, right? So TVL is a little bit misleading. But what it refers to is the value in the marketplace that is available to trade with. So in the case of Compound, which is a money marketplace, it refers specifically to the amount of capital that one can borrow from the money market. In the case of Uniswap, which is an exchange, it refers to liquidity on the order book per se, right? So it's just a measure of like available liquidity in these various financial

marketplaces. I think, you know, a better metric to track real growth is to look at the number of unique users and sort of the median, you know, contribution that they're making in dollar amounts, right? So that you don't want to look at like, you don't want to like factor in the dollar volatility of the crypto asset, you want to look, sorry, I said dollar amounts. I meant look at the crypto amounts in these marketplaces and then the number of unique users that are putting in whatever the median is. Got it. And so when people think through this, walk through maybe the relationship between the comp token with the usage in the system. So if there's no value that is being dispersed out yet to kind of these token holders. What is the logic

behind why the token would go up, down, or stay, you know, kind of stable in price? And I think some people probably inaccurately think of it just as like, oh, it's a stock, which, you know, maybe there's some element of that, but that's not kind of the full story. So just describe a little bit how you think about like the price of the token and that's relationship with the success or failure of any certain project or community? Yeah. So, I think there's definitely an apt parallel to stocks in that, you know, shareholders govern the corporations that they own. Similarly, you know, token holders in these community-owned networks govern the network. And that's, you know, so that's the similarity. I'd say what's a little bit different is the fact

that tokens and shares don't have the same sort of legal standing, like that, you know, there's a lot of new territory that needs to be explored and built up in the crypto space when it comes to governance. And now, why would these things have value? I think that question is answered by one reason at the base case is there are a lot of developers building on top of these open protocols. It's important to keep in mind that Compound runs on Ethereum. That means it can't be shut off unless you shut off the whole Ethereum network, right? So that gives developers confidence building on top of it because, you know, developers have learned the hard way that if you build on top of closed networks, like if you build on top of Facebook or if you build on

top of, you know, Coinbase or, you know, Robinhood users learn the hard way. If you use Robinhood, they can just shut you off, right? So what's different about a network like Compound is it runs on Ethereum, that means it's running on machines all over the world. And even if one of those machines is shut off, another one picks up the slack and the system keeps going. So developers have confidence building on top. Now, they're only confident to the degree that the underlying isn't going to get yanked from underneath them. And so one of the reasons these comp tokens may have value is if a developer builds a valuable service on top with its own business model, they may want to have a say in how the underlying is governed. And therefore,

the governance rights in and of themselves could be valuable. The other reason that I think is a little further out is the idea that these marketplaces do generate cash flows, right? Like Compound is a money market and there are transaction fees in the market. Currently, those fees just accrue to a treasury that's being reinvested in growth. But at some point, governance could decide, you know what, this fee stream should be distributed to the user. So it's a claim on those cash flows. And that's the, where this, you know, the stock connection I think is most at. Got it. And so what do you think is like the downside in terms of, uh, it's very obvious why, uh, community owned networks would be valuable for the users. Um, it's also pretty

obvious why through financial incentives, you could really bootstrap, uh, kind of the, uh, the network effect. What's the downside to shifting to this decentralized version of some of these products or services? Well, I think the, the, the, the most, uh, the foremost one is, it's really hard to, you know, to design a product that people want by committee, right? You know, the best startups have strong sort of leadership, strong product vision, and they iterate quickly, they move quickly. You know, once you're in the public markets as a traditional company, you know, you're beholden to shareholders and what they want. And, you know, that can pull you in a number of directions. It can slow you down. It can force you to optimize

for short-term profits over long-term growth. And so I think that's one of the potential downsides that founders need to think about when they're going through this process of progressive decentralization and turning over ownership to users you don't want to do it too soon that's what happened in 2017 when there were all these icos they kind of had the right idea where they're like you know we should give our users ownership and then they'll be incentivized to try our thing the problem was they hadn't built the thing yet and so they got you know hamstrung by having to build a product by community consensus, as opposed to having a founder sort of drive the initial product vision, build the thing, and then effectuate distribution to the actual users

once they already are using the product. So I think that's one downside. I think another is that, you know, products do need to continue to evolve. So this is just an extension of the prior point. Once you're community-owned, your decision-making process is beholden to governance, right? And so how do you remain competitive? I think a good sort of lesson founders can look to is, you know, Visa actually started as a cooperative and that, you know, a bunch of banks came together, pooled money, built this network and grew the network effects of the payment system really quickly because they all had skin in the game to do so. But as it grew and competition got more fierce, you know, MasterCard came in, American Express,

these are converted from a cooperative to a for-profit entity because they could raise more capital through that structure. And ultimately, you know, that's what they felt they needed to do in order to remain competitive versus the others who had raised considerable amounts and were moving quickly. So I think that's something to just keep in mind is that you need to remain nimble, even once in the public markets, even with user ownership in order to remain competitive. I'm optimistic that because crypto tokens allow you to distribute value very granularly and programmably so, like in an automated fashion, will be able to, you know, to make cooperatives a lot more efficient, you know, like a lot more automated than they've

been in the past, and thus a lot more competitive. So I think this market can, you know, this market structure can scale. What do you think about the difference between equity and tokens as you deploy capital, right? So you mentioned that your venture capital fund, and I'll kind of put that in air quotes, because I think people think generally, like, hey, you go buy equity, you guys are buying tokens? One, are you buying equity as well? And then two, how do you think about if faced with, hey, I could buy equity or a token? Is there a framework or like a pros and cons that you think through as to what you would rather own? Yeah, totally. So I think there is a sort of best practice funding structure in the space. And I think this is something that the folks at

A16Z have worked on a lot. And a lot of the deals I worked on there were structured this way. similarly at Variant, most of the deals we do are structured as equity with a warrant for tokens. And so there's really two separate components here. The reason, you know, so I'll start by saying a lot of the companies that we invest in, they do have a very specific goal, which is to become a decentralized network coordinated by a token, just like Bitcoin and Ethereum and so on. Um, so the expectation is that a lot of the value of what's being built will ultimately accrue to the token. Um, but in the short term, the reason, you know, we're buying equity is that equity allows

for, it's the most flexible instrument for aligning incentives between investors and entrepreneurs. And, you know, at the earliest stages of a, of a company flexibility is, is paramount because things change, you know, like founders need to have, have, be able to pivot if they, if the idea or the market moves in a direction they weren't anticipating. And so equity aligns investors with the founders should they decide, hey, you know, that network we said we were going to build, it doesn't make sense in the market today. We're doing something different. Equity preserves that alignment. In 2017, a lot of investors were buying SAFs, which were a promise

for tokens in the future. The problem that can occur with that structure is a team is sort of committing in advance to say we're building a network with this specific token and maybe that doesn't make sense as the market evolves right so it doesn't allow for the the flexibility that that's important to early stage startups so so that's why we do equity and then the warrant for tokens essentially what it says is if you do end up building a network that is coordinated by a token at the time you launch the network hopefully that network is sufficiently decentralized so that the token is no longer a security. And at that point, this warrant gets exercised and the investors get their sort of pro rata share of the tokens in alignment with the founders.

And critical thing there is that the network does need to be sufficiently decentralized at that point, which typically means that a lot of the tokens aren't just going to founders and investors, but are also going to the actual users who are operating the network on a go forward basis. Makes a lot of sense. I want to switch gears and talk about what seems to be like the topic du jour, which is NFTs, non-fungible tokens. Last year, I think it was September, I wrote this thing publicly just saying, hey, look, I think digital art is going to be bigger than traditional art. It's very similar to kind of Bitcoin versus gold. The digital version is going to be bigger than the analog version. That may seem crazy today, but like, you know, see in 20 years and

we'll see what happens type situation. As you can imagine, literally got laughed out of the room. Fast forward to today, and I'm actually even thinking to myself, well, wait a second, like maybe I was archaic in my thinking of just comparing digital art to traditional art, because it seems like NFTs are taking on a life of its own. There's all these different implementations, like it's much, much bigger than just digital art. So what is your kind of thought process? And maybe at a high level, just like when you think of NFTs today, why do you think that is interesting or valuable? Yeah. So I think of NFT is sort of, you know, through the lens of the ownership economy thesis, right? So again, the idea that, you know, in the

future, the next big products on the internet are going to be built, operated, and owned by the users. And, you know, when you think about media on the internet today, you know, everyday billions of images, videos, songs are shared on social media platforms. What's interesting about what's actually happening there is, you know, creators of those media files, they're essentially uploading the files to Facebook, to Twitter, to Instagram. And what's happening is they're copy and pasting the file from their computer to the servers of those companies. And along with the file, they also copy and paste ownership of the file itself. And that's because somewhere along the way in the terms of service, you know, you agreed when I upload stuff, you guys can monetize it how

you see fit, right? So that's what's allowed the platforms that are dominant today to capture so much of the value that their users create. What's different about NFTs is it sort of inverts the ownership model of media where it allows creators to own their media in the same way they can own a Bitcoin. You can now own like a digital media asset in the same way you own a digital currency asset. And that is directly without any third party in between. And so as a result, creators are going to start to capture much more value directly by, you know, people buying their work. And so, you know, I think the reason why you gravitate towards digital art is it's the most obvious example. It functions sort of similar to the way the traditional art market works,

but that's just never been possible on the internet to date where everyone rents access to Spotify rents access to, you know, to Patreon. Now you're actually able to own content from the creators that you like. And that's, that's kind of important because it aligns incentives between creators and collectors where, you know, if you actually own a collector's work or a creator's work, you're kind of incentivized to help them grow their profile. You want to see them succeed because that has direct, you know, consequences for the value of the work that you own, which, you know, you can later resell. So I sort of refer to this as this concept as patronage plus where, you know, in, in, in the internet to date, you've been able to patronize creators and, you

know, pay them a monthly subscription on sub stack or Patreon. Um, but you've not been able to actually realize any financial benefit from doing so. And it's not, not the case that everyone is in it to make money, but it's certainly a, uh, you know, the, the prospect of being able to profit from patronizing an artist is a strong incentive to become a patron in the first place. And that's why I think this, you know, we're going to start seeing this market grow really, really quickly because it aligns incentives between creators and their audience in a better way than Web2 platforms have been able to. And beyond art, I think, you know, this medium opens up to every piece of of media on the internet you know it's it's um it's memes it's uh it's digital assets

for games it's collectibles like you know nba top shot i used to collect basketball cards as a kid so the fact that these are digital is is is amazing and that means you can do more with them right so critical thing is unlike paintings unlike basketball cards or like you know toy figures these are programmable assets and they're assets that live on open blockchains that anyone can program. So just like anyone can build on top of the Bitcoin network, anyone can build on top of an NFT on an open blockchain and give it more utility. So a developer can build an application where I can bring my digital art to it and display it, or I can bring my game asset from game to game and have it function in different ways that make it more valuable. So today, the baseline is I

collect this stuff because I like it. I think it's interesting. I think it's valuable. I might be able to resell it for more. Tomorrow, it's I collect this stuff because it's mine and developers are building stuff to make it have more utility and more interesting. And so developers are going to have to start catering to users and creators to get them to mint stuff and bring their stuff to the platform, as opposed to platforms today, locking your stuff in for them to monetize. And I think that's, you know, that inversion is pretty powerful. So let's start with kind of the equivalent of digital art, right? Kind of the easiest thing for people to wrap their head around. When I first saw this, it was very obvious, like one, the programmability. So

I can have sound, I can have motion, I can like do all these things that you can't do with just a painting, right? The other piece was from like a user experience standpoint. So I can like take it with me virtually, right? I don't have to physically carry the painting around, like very, very simple stuff. When I display it, I can literally have that picture on the wall rather than it be static. And the only way to change is to literally take it down and put another one. I can have it changed by the hour, by the season, by the lighting in the room. Like there's all these things that you can do with the display of it and kind of have the variation. But what really started to fascinate me was if you look at the traditional art market with like a Sotheby's

or something, they bring all these people together for these auctions. Now, what you can basically do is take a digital file, you can literally auction it off to anyone in the world, and you can send it to them almost immediately. And just like an open decentralized protocol, like Bitcoin or Ethereum allows people to access financial services, as long as they have an internet connection, it felt like it was going to democratize or really break down a lot of walls to quote, unquote, the art market. Right. But I think your point of like, okay, that's like step one that's the easiest thing to wrap your head around maybe give us an example of like what's the furthest out from that that you've seen with nfts like in terms of an implementation of the

technology where you're like this kind of gives you a peek around the corner as to what somebody may be able to do in the future um and they're kind of just touching on it now yeah there's there's so much on it the space is moving so quickly so i'll give it i feel like i'm talking to the experts So come on. Yeah, I'll give you I'll give you a few different examples. So one is on the on the financial side of things. I think there's, you know, to your point in the traditional art world, you know, there's a lot of gatekeepers. There's galleries. Right. There's there's auction houses and there's there's a lot of insiders who have all the information today. Right. In, you know, the Internet blows those kinds of institutions wide open. it's no different for art. What you're starting to see is all kinds of different financial

marketplaces emerge for these assets. And again, these are marketplaces that allow the creators and the collectors to capture more of the value. For example, really base case example is it is possible to specify in an NFT when the creator mints it, that they should get a royalty in perpetuity whenever it's resold. So that is a very basic thing that you can do with programmable art today that you know you can't do with legacy art um or you could but it'd be really hard to track down all those secondary sales and and and get the payments that you're you're owed right so that's very easy to automate and programmable and happening right now um and then you know another financial example is there's people packaging up these um these these digital

art objects into indices and so like if you're not you know if you want exposure to digital art but you're not an expert curator yourself, well, you can rely on someone else who is and easily invest in an index. And so play that out like 10 years, right? We're going to have all kinds of financial marketplaces around all kinds of creative work that just didn't make sense in the legacy world because it was too cumbersome, too fragmented to invest in. So that's the finance side. I think on the more creative side of things, today there's lots of you know, game developers building, building cool games that are sort of crypto native. And, you know, to be fair, the big game companies haven't caught onto this yet. And a lot of the

games as a result are sort of like janky. They're, they're kind of fun for, for people who are way down the rabbit hole, but they show a promise, which is today you can bring your game asset from one game to another. And you can't do that with Fortnite skins. You know, they lock you in, you buy your skins. You might sell them in a sketchy way on a secondary marketplace, but then fortnight doesn't see any of the benefit of that um so the cool thing about these these crypto native game assets is they're portable and developers can bring new meaning to them by programming new experiences on top there's lots of you know lots of examples of people buying a game asset then bringing it to a virtual world where they hang out with friends and they

sort of you know put it on display and so in a world where you know ar and vr are more common in our daily lives, you're going to see a lot more of this. And users are going to come to demand that portability that comes from true digital ownership. And further, developers, the big game studios are going to realize that we can actually make more money by leaning into this because, again, we can capture a portion of the resale value that's happening in sketchy ways outside of our platform today. I think bottom line, the way I'd sum it all up is free market economies are the best engine of growth. We don't have free market economies in the digital world today because we live inside of these big platforms. We live inside of Facebook or in the

case of gaming, Fortnite. What blockchains bring to the table is a sort of property rights system that functions more like the traditional physical world or countries that have strong property rights anyway. And it brings that to the digital world. And I think that's going to be an engine of growth, unlike anything we've seen in the internet to date. Yeah. What is, when you think through this um where where does the like platforms that end up being valuable is it the artist ends up being kind of the uh the most valuable component is it the platform that helps to mint uh the nfts is it the exchanges is this all centralized infrastructure is a decentralized infrastructure like i think people are very focused on if you take like top shot uh as an example right you've

got a centralized entity that's actually creating these in partnership they've done a licensing deal for intellectual property. Like it feels very similar to what Disney would do, right? Or some other centralized entity, but then the actual end product is a completely different thing, right? In terms of this NFT and kind of the interest and the digitization that we're seeing there. So how do you see centralization, decentralization, and then where do you see value accruing kind of in the overall ecosystem? Yeah, it's a great question. And to be honest, I've got some ideas. They're early ideas. It's not totally crystal clear yet, but I'll give my narrowly thought. So I think what's captured value in the crypto space today is blockchains

themselves that are the property rights systems, like Bitcoin, Ethereum, most valuable networks. So I think the blockchains where these assets are issued will continue to benefit from increased property being issued and tracked on the chain. Another area that's captured a lot of value encrypted to date independent of NFTs are wallets, things like Coinbase and hardware wallets and the like, the places where people store the value that lives on the blockchain. So I think wallets may end up having an important role to play with NFTs too, because they solve the problem of, hey, where's my stuff? Well, it's in my wallet. And that's where you go to view your NFTs. Maybe it's where you go to trade them. And maybe there's a good business model there, just being close to

the end user. So that's a more traditional one. I think some new areas that are sort of net new to NFTs are DAOs or collectively owned groups that curate these items, right? So in a world where every image, every video, every song is issued as an NFT, it then becomes a question of what is valuable? And that's the role that galleries play in the art market is sort of filtering through the noise and creating the context that makes these assets valuable. And I think we'll see a similar kind of curatorial layer emerge in the NFT world. But instead of it being Sotheby's or Christie's that are sort of gatekeeping what is and isn't valuable, you'll have groups of people like subreddits coming together to say, we want

to collectively pool value on the internet and buy that thing because we think it's valuable. And so one way to access the value in this space may be to not access directly, but access through an index that is curated by this community of people online who have a specific view. And by the way, I think you can extrapolate that out to all investing in this space, not just NFT investing. It may be the case that Variant Fund 3 is not a venture fund run by me, but something that is actually community owned, if the SEC would let us do that. So, those are some early ideas. I think just maybe one last one in where NFTs will capture value. I mean, I didn't mention it specifically, but it's the assets themselves, right? And that's, you know, content is king. That's remained kind of true, you know, in spite of the internet. if you make something that's that people love and and want to own you know you can capture value that way so for creators you know that's i think that's the big upside um of this model that doesn't exist in web 2 today i'm cheering for you i hope you figure out how to do fun three as a as a community organization that'd be awesome uh before we get into the rapid fire questions to

end this uh last thing i want to talk about is kind of social money and uh it's something that when you said earlier about like the idea of creators launching these NFTs and value almost accruing as a creator or an individual becomes more popular, more valuable, however you want to kind of measure it. It feels like there's some movement in this social money space. It hasn't really kind of taken off. It hasn't reached kind of any level of mainstream adoption from what I've noticed. But like, what are your thoughts there? And is that something that would be competitive kind of with NFT? Is that a complimentary thing? Is it binary? Like, hey, one of them wins, of them doesn't just how do you kind of uh view social money in comparison to everything else

we've talked about today yeah yeah so so maybe i'll start out with a definition because i think it means different things to different people so the way i think about social money is it's it's a person sort of issuing a token um that represents you know themselves right so like popcorn would be would be an example of social money now the question is what is the value of popcorn and and then it's you know i think it's whatever value you give to it right maybe it's access to spend an hour with you cost 10 popcorn or something like that um so it's it's a really interesting idea that i i think is there's a lot of fertile ground for experimentation there right because like there's again it's all about aligning incentives between creators and and their audience

um that's what nfts do you know you buy you buy something from a creator now you own it you can resell it if their profile grows at a profit right so the the alignment of incentives is what's driving the growth in this ecosystem. Social tokens offer that same promise. The question that I think is still open-ended for a lot of projects that are experimenting here is what is uniquely enabled by owning social money? What does the token actually unlock in terms of an interaction or value? And so we haven't seen anyone quite nail it yet. Some folks are saying it should be a financial relationship, like kind of similar to the concept of an ISA, an income sharing agreement, where essentially I'm backing you as a creator. I get a cut of

all your revenue streams. So not unlike a record deal or, you know, a sports contract or something like that. Right. But, you know, that has lots of implications that are legal. And so we haven't seen a ton of experimentation on the financial side other folks come at it from um more the angle of like it's the new fan club right like you used to buy you used to buy a membership to an artist fan club it would get you merch it would get you access to you know backstage at the show and social money is the way to do that it's just a fan club with a with a floating market price which again gives you that incentive alignment um that makes your fans into super fans um i don't think this idea is mutually exclusive with the concept of NFTs. In fact, I think it's quite

complimentary. You could imagine that owners of your social money get first dibs to buy an NFT that you issue. Or the other way around, holders of your NFT are given some social money because they're already your biggest fans. They bought your work, right? And then they get access to whatever the social tokens enable. So I think we will see the confluence of these two things come together but the reason i think nfts are having their moment first is that the interaction model between creator and audience is is well understood i'm buying your work that's something like we understand really well whereas the social money interactions are sort of new and unfamiliar and so they there's got to be a lot more experiments run before something catches yeah makes sense

is there any area um of kind of this community on networks or nfts where you're like hey no one's talking about this yet but a year from now that's going to be the the thing everyone's paying attention to almost like the most underestimated aspect? Yeah. I mean, I think, I think we haven't really explored, um, the, the, what I call composability of NFTs, which is an idea we've touched on, um, you know, in the conversation thus far, it's, it's this idea that these assets are portable and you can bring them, um, with you to new contexts. I think that's, that's, um, we're in the sort of early eruption, you know, phase of, of the hype cycle where, um, it's all about getting into the market, speculating, buying, and the prices of these assets are going crazy.

CryptoPunks, which is sort of the first crypto collectible NFT is issued on Ethereum back in 2017. They're selling for like millions of dollars right now. So we're in this frenzy phase. Inevitably, there's going to be a cool off period, like any market cycle. And during that cool off period, I think is when you're going to start to see developers go back to the drawing board and be like, what can we do that's net new? And that's when I think you're going to start to see the the composability of these assets really emerged where developers start to say, Hey, those crypto punks, we just built this new experience on top of them.

And I think that will dominate the conversation going forward. It's, it's who's building the coolest experience around NFTs to give these assets more value, more meaning and drive the next cycle down the line. Yeah. That's really, really fascinating. I got three questions to you. And you'll get to ask me one to finish up. First question. What's the most important book that you've ever read? interesting so i'm going to go with protocol um so this is a this is a book about how control exists in the internet era in spite of the fact that the protocols are all open and i think it's

it's an instructive read for anyone building in the crypto space today given everyone's you know values are about decentralization and permissionlessness um it's it's instructive how the same ideals were present in the web one movement and we didn't quite get there in web two. And so for people building in web three, I think it's a really important read to make sure we get it right this time. I have not read that. I'm going to read that one this weekend. That's a fantastic suggestion. Second one comes from our friends over at eight sleep. I sleep eight hours or six hours a night was absolutely demolishing my body in crypto 24, seven, three 65 market doesn't help. But now I've been sleeping on their

thermoregulated bed and it's fantastic sleep really cold and get eight, nine hours and feel amazing. What's your sleep schedule and how has that changed over time? It's not, I'll tell you, it's not good. Um, and that's, it's for all the reasons you mentioned, uh, especially right now in the, in the NFT hype cycle. So, I mean, I, I definitely strive to get eight hours. I've been doing far less today. Um, you know, I'm, I'm working on it is what I'll say. It's, uh, uh, there's lots of people I know that recently left finance and have gone into crypto and some are trading somewhere, you're doing whatever. And they're just like, you don't realize how nice it is to have hours of operations as a human, right? The machines, they don't care. But from

humans, like when the market closes, everyone takes a deep breath here that none of that happens, right? Yeah. And the space is just moving so fast that, you know, I think unfortunately it's only humans that can keep up with all the new ideas to, you know, to write the programs that machines run to keep up with the market. Absolutely. Last question for you is aliens. Are you a believer or a non-believer? You know, I I'd say I would put myself in the believer camp. It just seems it's too big out there for, for, for there not to be anything else out there. Yeah. I'm in the, uh, they're probably out there and they just being some sort of intelligent life form, but probably too far away. We'll never come in contact, unfortunately. And so, uh, you know,

it's a fun, uh, intellectual exercise, but, uh, but probably a worthless one in terms of preparing for them or anything like that. Right. Um, what, uh, what, what question you have for me to, uh, to finish up? I guess I'm curious what, what, um, what's your taste in digital art? What do you look for in, in assets you collect? Uh, so I read this book, uh, boom, uh, which a couple of guys sent me and, uh, basically goes back and looks at the like, uh, legacy art world and just kind of the history of it through, uh, kind of the 20th century. Um, and, uh, or yeah, I guess 20th century. And really what you find out is like, it's all stories, right? Like what makes a van go more expensive or valuable than something else? Like it is the story. And so you got to be

careful because that's like the fine line between like the charlatans of the world and then actually like the true value in the world. But when you start to understand like the market structure and how important the auction houses were to actually picking winners in the art world, I think we're going to see kind of a recreation of that. I actually don't think it's going to be auction houses, like it'll be some other form of that. But ultimately, when I look at art, I'm in the camp of like, I couldn't tell you what's good art and bad art, if you should be five pieces in the legacy world, like which was the most expensive? I just don't know, right? I don't have that I don't I don't have kind of that, that artistic inclination. And so instead, what I think

of it as is it's much more like a startup, right? Is if you kind of look at it, and you say, hey, what is the story behind this? What is kind of that directional arrow of progress, like the equivalent of that for the art world. That's basically the decisions that I make. And then the other piece of it too, I think is that there's this idea in startups of like things in motion, stay in motion. And so when you see kind of momentum, like you should go pay attention. I think the same thing happens with artists, right? So when you see an artist start to sell a couple of pieces and it's very obvious, like, Hey, this artist is gaining more and more traction. Traction is really a sign for the community. It's really for audience, right?

And like, like you're basically increasing the demand side of the equation. And so if you have you know, relatively fixed supply from an artist, and you've got an increasing demand for that artist, like, obviously, if you're just looking at it as a pure financial investment, like the price of those assets are going to go up over time. And so I just kind of, you know, chalk it up and say, Look, I'm figuring out alongside everybody else. But that's, you know, a couple of the frameworks that I've been using. Yeah, that makes sense. And I think I think it speaks to something important about crypto markets, art market, traditional art markets, and digital art markets. They're all reflexive markets, right? So, you know, you know, it's better than anyone,

But the more that sort of insiders talk about the value of the thing, and the more value they trade in internal to one another, the more outsiders look at that and say, Oh, look at all that value. Those guys are crazy. What's going on, the more they pay attention. And then that's what pulls the outsiders in. And so these reflexive markets just compound. And that's what drives activity in the space. I couldn't agree more. Where can we send people to find you on the internet or find out more about the work you're doing at Variant? It's just variant.fund. Simple. You are a man of very little words on that one. So variant.fund. Jesse, listen, thank you so much for doing this. I think people are really, really going to learn a lot from this.

And you guys are on the cutting edge a lot that's going on in this industry. So congrats on all the success and just keep going. We'll have to do this again in the future. Cool. Thanks so much for having me. It was fun.