The Pomp Podcast - #805 Finding New Web3 Investments w/ Chris Perkins

Episode Date: January 29, 2022

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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. Now let's kick this thing off. Christopher Perkins is the president of CoinFund, a diverse investment management firm focused on Web3 and decentralized technologies. In this conversation, we talk about Bitcoin, Ethereum, smart contracts, Web3, decentralization, and much, much more. I really enjoyed this conversation with Christopher, and I hope you do as well. Before we get into this episode though, I want to quickly talk about our sponsors. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful,

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purposes only all right next we have the president coin fund chris perkins going to join us uh chris i think you're there how are you i'm well how you doing gentlemen what's going on i'm doing fantastic i'm super excited to talk to you first of all uh i have from a good source aka the internet that you were in the uh u.s marines which uh you get credit for being in the military you get negative points for being a marine rather than an army but uh tell us about your uh your marine experience yeah we're not going to say what army stands for so we'll put that aside yeah i was for nine years uh i think you served in taji right i did yeah we were uh out west in ramadi back in 2004 uh during some some of the tougher fighting uh i served under mattis for a little

bit james mattis and then i went down to to the city to do some street fighting um did that for nine months and it's quite an experience as i know your experience was uh pretty formative as well Ramadi in 2004. That's no, uh, that's no bullshit, man. Yeah. It's no joke. Uh, heavy casualties. Uh, we had to fight our way through the streets every single day. Um, but you know, it gives you great perspective as you come into an industry like this. Yeah, absolutely. When, when, uh, uh, when you were doing that, any main takeaways you had from either time deployed or, uh,

or the military training in general, uh, that you kind of use now in the business world? Yeah. I imagine you've experienced the same thing. Have you ever been in a world where there's no rule of law, right, where the guy with the biggest gun, you know, calls the shots? And so you really have to rely on your ethics. You need to understand how to take and manage risk. And you've got to stay mission focused. Like, you know, we're experiencing this volatility now. You've got to get through the noise and power through and get to your objective. And that's what we did every single day. And it gives you great like I see it as a source of strength.

I know a lot of fellow veterans, you know, they come back and they have they struggle and we're doing things to take care of them. But for me, it's a source of strength. Yeah, I completely agree. And I always joke with people that are like, oh man, this is stressful, but nobody's shooting at you. You're going to be okay. They still shoot at you. It's just in a different way.

Yeah, tweets, the mean tweets, man. We got to be careful about the mean tweets, right? All right, let's talk about kind of the crypto market in general. Maybe we can start at CoinFund. You guys have been around for quite a while. Help everyone understand kind of what you guys do at CoinFund. I know you're very focused on kind of decentralized technologies, Web3, et cetera.

How do you guys think about what you're doing? Yeah, thank you. So we're one of the oldest crypto-native investment managers, I guess, in the world, started in 2015 by a mathematician and computer scientist named Jake Brugman. He was joined by a guy named Alex Felix, our CIO, who has a private equity background. And really what we are today is we're highly diverse by background. And also, you know, straight up diversity, about 46% of our team is diverse. But we bring very diverse backgrounds to focus on seed, pre-seed strategies.

We have venture strategies and we have liquid strategies. And, you know, we look across the various verticals, decentralization, Web3. We'll look at everything from gaming to infrastructure, NFTs. We have a really strong background in NFTs, DeFi and DAOs and things of that sort. All verticals we're super excited about. Got it. And then when you start to think about, obviously, the crypto market in general, just like in the military, obviously, one of the most important things is the talent, right? And there's famous quotes in just business building in general.

You know, I think it's Keith Roy Boyce says, the people you hire is the company you build. If you think of kind of the military, they spend a lot of time breaking you down. A lot of people don't realize the breaking down process may be a little bit less fun than you would imagine. But then they build you back up and they focus on leadership and really kind of refining that talent. it seems like the crypto market has been a big beneficiary of a lot of capital flows in terms of intellectual capital just as much as financial capital talk about the people you're seeing both that you guys are backing folks that are working at coin fund and then folks that you know from the legacy tech or finance worlds that are moving into the crypto industry yeah i mean great point

and it's a great lesson that we learn in the military any business anything you do starts and ends with people and you need people that are very diverse in background and experience and very very smart. We're seeing an absolute pouring of talent into this space. And that's one of the things that makes me incredibly bullish in the long term. I mean, look, I did 15 hard years in finance. And one thing that's super interesting right now, it's just on the phone with some of my friends over there, is that the institutional adoption of crypto has slowed a little bit. And when I'm talking about institutional adoption, I'm talking about the largest 130 asset managers in the world. Why is it slowing? It's because they all want to get in. They realize that they

have reputational risk, not for entering the market, but for not being in the market. Bitcoin is the best performing asset in eight of the last 10 years. The regulation is very well known. It's a commodity. So why can't they get in? It's because of their operations. And so what's happening? They're forming these task force. And just like we used to have in the military, and they get the ops guy, they get the trading guy, or lady, by the way. They bring it all together and they institutionalize and it's showing their commitment. The problem is, is that as they bring these task forces together, light bulbs go on and then they lose the talent. It's coming into crypto. And so we're seeing, I'm super excited by what I'm seeing and that slows the

adoption, but the commitment remains, you know, my personal belief is that you'll see less than 20% of those large institutions in the space by the end of the year. But that's long-term tailwind, right? Because they're coming and there's going to be institutional adoption. As you look at any investment, it always starts with the people. I've heard you say this many times, Anthony. It's all about the people, the founders. And it's, you know, you want to invest in people that are ethical, thoughtful, knowledgeable, top in their class, but also people that are not afraid to take risk and make mistakes.

And that's where we come in with a really a founder's first approach where we try to get behind them, help them think through their challenges, et cetera. So, you know, a couple other themes that we're looking at is you're seeing a lot of Web2 folks pouring into the space, right? And if you look at Web3 right now, I would argue one of the biggest gaps is user experience. And we could talk about the users pouring into the space, which I'd love to comment on, particularly in NFTs. But we're seeing a lot of Web2 people now coming in and they're saying, well, wait a second. I get this. This is going to be big. We're introducing private property into the Internet.

I kind of know how to create a good user experience with my Web2 background. And so that's a trend that we're starting to see, which is really interesting. The talent coming in from traditional finance is second to none. I mean, my colleagues, some of the best and brightest are coming across, and I don't blame them. So when you think about that kind of consumer demand for NFTs, obviously there's tons of talent coming to work on this stuff. But consumers are coming almost at a more rapid pace than the talent to actually build this stuff. What are the milestones or the data points that you look at to measure or quantify the consumer demand for NFTs and what that market looks like right now? I mean, we track it all the time. And we like to look at, you know, we have a company called

Metaversal. We just announced around there. And it's our vertical that will do everything from curate to purchase iconic NFTs. The NFT space is super exciting because it's so accessible to consumers. And in a way, it's a gateway into crypto. And, you know, if you look at some of the stats, you go onto the internet, look at like a crypto slam or something. I think board apes are up 80% this month in the last 30 days, sales of Bored Apes, right? People are pouring in. World of Women up like 1300%. You look at something like Dapper Labs, which has its NBA top shots, very accessible to people. That's up like 60%. And so like, again, it's a very big tailwind because as people come into the space and look, macro forces are really

impacting pretty much every single asset class. We believe that crypto may outperform those other asset classes because of this increased user and consumer adoption, whether it's the consumers coming in the NFC space or if you have institutions, like I said earlier, they're really not in yet. The biggest, largest traditional asset managers are not in the space. That will create incremental demand over the long-term for long-term investors. And so it's super exciting. Got it. And then when you start to think about a number of other areas, are there other areas outside of NFTs that you guys are like, wow, there's just explosive growth that rivals that kind of NFT growth? Or is NFTs really the fastest growing sector in your guys' opinion?

It's hard to talk about timing of sectors and when they're going to blow up. I mean, everything that we do in this space is really less than five years old. And people forget that, because crypto moves a mile a minute. Yes, Bitcoin's been around since 2008. Ethereum's been around 2014, 2015. But everything that we really learn looking at is less than five years old. So I think that there's innovation happening across those streams that I mentioned. I'm particularly interested in DAOs. I think DAOs are going to be huge. When you think about it, they feed this innately tribal instinct that we all have. We want to be part of communities. We want to be we want to work with those communities. We want to share ideals.

And now we have the ability to fund those ideals. I think I think things like Constitution Dow really changed the game when it came to Dow. So super excited about that space. Look, there's incredible things going on across all those verticals. You know, gaming is continues to explode. DeFi, super interesting stuff going on. There's innovation happening all the time, you know, whether they're figuring out how to do it via AML, KYC, you know, the innovation I see across the streams is fantastic. And then infrastructure, right? Like I said earlier, the user experience is something that will continue to be focused on. And as that gets sorted, you'll see more and more adoption. So, like, we're very excited across the various verticals.

Got it. And you guys recently hired Chris Giancarlo as a strategic advisor. And for those that don't know, he was the former CFTC chairman, very big deal, known as Crypto Dad. He's got a brand new book coming out about crypto. I mean, he's all in, right? Talk a little bit about getting somebody like that on board and how that kind of is a signal in terms of the various kind of regulatory things or legislative topics that are being debated right now in Washington, D.C., and why that's important for you all. Yeah. So back in my old finance days, I was I took charge of the derivatives industry after Dodd-Frank was passed and we had to go from take the 700 trillion dollar derivatives industry from unregulated to unregulated, from unregulated to regulated. And I had to build that in the context of new regulation. And wouldn't you know it, a guy named Gary Gensler was my regulator.

And then Christian Carlo was as well. We're very, very bullish about the long term policy outcome around crypto here in the United States. We're seeing Democrats and Republicans coming together. And I said it, it actually does happen. They typically don't agree on too much, but we're seeing it happen more and more as we approach the midterm elections. I don't see a single politician, you know, out in the airwaves focusing on an anti-crypto stance. To the contrary, our phones ring and people are really trying to think through, hey, how can this benefit, you know, my constituents? How can I use this new technology? And what we're seeing is a pivoting from going on the defense and saying, oh, wait a second, this is dangerous, it's this and that, to saying, wait a second, this is opportunity.

This is opportunity for our country. If we get it right, it'll create jobs. It'll create innovation. By disintermediating, we're going to give power back to the people in many cases by introducing private property. Oh, my gosh. If you look what China has done, they've leveraged the technology for their ideals. You know, I see a lot of this decentralization, democratization, even doubts. It's American as apple pie. And we're seeing that being embraced by the left and the right. I mean, a great example is look at the great things Mayor Suarez is doing in Miami. And then Eric Adams here in New York City, you know, other sides of the aisle coming together, you know, even competing on how to be more pro the industry. So, you know, what needs to happen, and, you know, the regulators, they're very, very, you know, they're there to, they're serving their country. They're there to try to implement the laws. What I think we need, and I know Christian Carlos on Saturday talked about it regularly, is we need policy, principles-based policy that empowers, you know, the industry to be able to operate.

And I think that regulatory clarity is something that we're supportive of, provided it's principles-based and thoughtful. And we're encouraged that it's happening. We're seeing great things, great dialogue happening right now. And I think the midterms will be a game changer there. But Chris is coming on board. There's nobody better, I think, in the regulatory landscape to really advise not only coin funds, but also our portfolio companies on how to really operate, how to think through thoughtful policy. And by taking, you know, some of our ideas and knowledge of the technologies and then working with him and his policy outlook, you know, we're hopeful to thoughtfully engage various policymakers and whoever will listen to us on how we can make this thing work for the benefit of all of us. Joe, John, what questions you guys got?

Hey, Chris, how are you? Thanks for coming on. My question would just be around kind of institutions. I know you spend a lot of your time talking to institutions on this stuff. And I'm curious just kind of how those conversations have changed and where your general feeling is on where, like, we are with them, right? Not only from decentralized networks, but crypto and Web3 and so forth. Yeah, so I remember 2017, I was running a couple businesses at Citi. Phone would ring off the hook, right?

And it was like, hey, get me into this market. Get me into this market. And I would say, are you talking for yourself or are you talking for your institution? And they'd say, dude, I'm talking for myself. My company would never touch the stuff. By the time I left Citi, I left earlier this summer. The last thing I did was I got Bitcoin and Ethereum futures approved on the CME. It was a massive undertaking.

I had to like, we had to take it to the reputational risk committee of the board. And like 65 people tried to stop me, but we got it done. And now, like I said earlier, the institutions want to come in. Every single asset manager, the most conservative asset manager in the world, would call us and say, I've got to figure it out. Can you help me? And honestly, most of it came down to operations because like, I mean, even when I was in the city, like a lot of the technologies like from the nineties, it's slow, it's batch driven. They just, they need to upgrade their systems to have that 24 seven, you know, it's a risk management challenge for them. So I do see

them invest, investing in the technologies, you know, the, like I said earlier, that reputational risk dynamic is changing, where they're saying, oh, I'm a fiduciary, I missed out on this market. I need to I need to figure it out. Because if it's operations hold me back, I do think as right regulation further crystallizes, it will help them. But in many cases, the regulation is clear. Like we know what's we know Bitcoin is a commodity. Ethereum is a commodity. We have futures on them. Those are derivatives, those are regulated. So there are ways to participate. And I think it really comes down to ops. John, Chris, how do you think about investing in founders? How do you look at the founder? How do you look at the project? Can you talk about your process there? Yeah, so we

have a really, really capable team of research analysts. These men and women are just incredibly strong at being able to get into every single nook and cranny of any type of founder that we would invest in clearly it starts with people we look at tam we look at applicability we also you know because of our knowledge of the ecosystem we can step back and see how um whatever particular company we're looking at fits into the greater ecosystem and and we can also see how we can add value by cross-pollinating well with that expertise um but you know it's also it's hard to to break it down into you know we have got various different strategies uh from from seed precede where there may be more focus on the founders to, um, to, to more on the venture

side where, you know, there, there is product market fit and it's a bit of a different analysis, but we have experts across, uh, those, those verticals that we'll look at, uh, all the things that, that, that you would think go into, uh, evaluation of a particular opportunity. Chris, last question I have for you is when you start to kind of look out, uh, over the next, you know, two, three years, how do you guys think about capital flows? Uh, obviously we've seen, some large organizations like Fidelity, et cetera, all kind of get in the game over the last couple of years. We've seen public companies start to allocate.

Is this a thing where it becomes the standard and actually the people who don't participate are the outliers? Or do you think we've got kind of longer than a two, three year timeframe for that stuff to happen? And maybe it's more like a decade or two. Yeah, I would say true institutional adoption is going to start.

It's still going a little bit slower than some of us anticipated. From a policy perspective, We'll get through midterms and then probably, you know, two to three years, you'll have a very clear regulatory picture as they're building out their operations. You know, we're going to get to a point, obviously, where the technology is ubiquitous. Everybody has crypto exposure. And frankly, I believe we're going to get to a point where you don't even know what chain is on. You don't really care. You do your transaction and there's optimization for chains and costs and efficiencies. I think widespread adoption for institutions, I probably would say less than five years as some of the policy crystallizes.

Yeah, I think that's probably a pretty rational view of the world. So I appreciate that. Where can we send people to find you on the Internet or find out more about CoinFund and the work you guys are doing there? Yeah, you can hit me on Twitter, PerkinsCR97. We're also launching, I don't know, Anthony, we'd love to invite you, an initiative called VITA, Veterans in Digital Assets. Uh, we're trying to bring a community of veterans together to get them into, uh, the space. You know, I, I think the space would benefit from more veterans and, uh, I think veterans would benefit from operating in crypto. So, so more to follow on, on Vita as well.

I love that idea. I'm in, I don't know what I got to do, but I'm in. Uh, I'm going to, don't worry. I'm going to track you down. We'll start with some army jokes. You see, yeah, I was going to say, you see how the Marine, they're always chasing after the army guys, right? They, they know, they know that's okay.

The army leads the way the Marines follow. It's easy to understand. I got it. I haven't heard that one. If you guys aren't real Marines yet. I haven't heard that one. Awesome, Chris. Listen, thank you so much for joining us.

And we'll definitely do it again in the future as you guys kind of keep progressing. Thank you so much. Great to see you guys. All right. Later, buddy.