The Pomp Podcast - #918 Ken Seiff On Why He Pivoted To Go All-In On Crypto Investments

Episode Date: April 15, 2022

Ken Seiff is a General Partner at Blockchange Ventures and is one of the top venture capitalists in the Crypto ecosystem. In this conversation, we talk about the changing market in the past few years, why Ken is so bullish on this industry, and what products and services Ken is looking at right now. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone.  Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= Today’s episode is sponsored by Abra. Based in California and backed by top VC firms, Abra is an all-in-one simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stablecoins and 8.15% APY on Bitcoin.  Join nearly 2 million users by downloading Abra from the Google Play or Apple App store. If you download the app today, you will get $15 in free crypto once you fund your account.  You came, you invested — now conquer. ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U.S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at http://defi.tech  =======================

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. Ken Seif is a general partner at Blockchain Ventures. He's one of the top venture capitalists in the crypto ecosystem. In this conversation, Ken and I talk about what's changed over the years. We also talk about all of the various new products that have been coming to market. I really enjoyed this conversation with Ken, and I hope that you enjoy it as well. Before we get into this episode, though, I first want to 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, user-friendly blockchain products that sync across all of your devices, making it easier to send, receive, and exchange over 150 or more crypto assets in one place. And with world-class customer service available to you 24-7, Exodus always has your back. but the fun doesn't stop with staking and trading they recently launched a new nft marketplace where you can buy and sell your favorite nfts on the solana network by partnering with the popular nft platform magic eden they're offering the full monty on verified collections with more added every single day ready to check it out for yourself run don't walk over to exodus.com slash pomp for your free download today again if you want the world's leading desktop mobile

and hardware crypto wallet. Go to Exodus.com slash Pomp today. Today's episode is sponsored by Abra. They're based in California and they're backed by top VC firms. Abra is an all-in-one, simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral, and earn interest with up to 13% APY on stablecoins and 7.15% APY on Bitcoin. You can join nearly 2 million users by downloading Abra from the Google Play or Apple App Store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested, now conquer. Abra, conquer crypto. Go check it out today. This episode is brought to you by DeFi Technologies. DeFi Technologies represents

what's next in the digital economy. They're providing simplified, trusted access to crypto, decentralized finance, and Web3 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the U.S. Exchange at DEFTF Stock Ticker and the Canadian NEO Exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at defi.tech. I'm really excited about what these guys are doing. I've become an advisor to the business and I highly

suggest you go check them out. Go to their website at defi.tech today. All right, let's get in this episode. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, we've got a special treat for everybody. We have Ken Seif here. How are you, sir? Very good. Are you ready? How are you, Pomp? We're great. I told the story earlier,

you were texting me like, hey, is this going to be on video? So I, you know, you do look pretty good like you you got dressed up so like we're good to go usually like you and i would meet we'd be in you know uh athletic gear for our morning coffee uh and nobody knows i still am in my athletic gear but you look great i wore my good sneakers um all right before we get started maybe let's uh go over like block change in general and also uh this isn't your first rodeo like internet, mobile, you've been around for a while. So like why crypto is so interesting to you given kind of your background and like, is this just like the next evolution of that internet? I think, I think you just called me old. No, experienced. We don't, age is just a number

around here. We just do experience. So yeah. You have more experience. I think one of the really interesting things about the internet is, and it was really hard to define in the early days. And I think it's actually pretty hard to define today, but we all know what it is. And so one of the first things that was a challenge for us as a venture fund in 2017 was to define the blockchain. And just a little bit of background, what you asked for, I started a fund with two other people in 2017 called Blockchain Ventures. Our mission is to invest early in ideally what will become the biggest outcomes of the blockchain. And the reason for that was really very simple, is every time there is a generational technology shift,

new things are made possible by that technology. And so new businesses, new categories of business are made possible for the first time, and that leads to a very fertile ground for investing. It means there's a lot of startups. It means that some of them will go on to become very big outcomes. And we've seen that. We saw that with the computer

and personal computer technology wave. We saw it with the internet. We saw it with the adoption of mobile technology. And the blockchain, at the time, seemed to be on the same path. but it became very difficult to uh to explain why it was that the blockchain would be so important and why it would create so many outsized outcomes and so we started by just trying to define the internet we we saw some similarities between the two i don't think at the time we saw how similar

they were um but one of the things that we eventually got to with the internet and i don't know if you want to take a stab at defining the internet but if you want to try you do it uh you're the expert i don't know that there is such a thing but but but what we got to was really simple um was that the internet allowed any two entities to exchange data in a frictionless way um information superhighways yeah i think it's the terminology that's right so so but what that meant is that every company could could be described as a entity exchanging data with another entity so facebook could be described as a person entity one sending some pictures and texts i.e data to entity to facebook and facebook then sending that information to entity three through n which are

their friends. And Uber could be described the same way, entity one being a person, a passenger sending the GPS coordinates and their credit card data to entity two, Uber, who would then send it to entity three, the driver who would pick them up. And having that as context made it much easier to define the blockchain. The blockchain simply was changing one word. It's any entity exchanging value with any other entity or any other entities in a frictionless way. And so you could see how similar the two were. It also allowed us to say, okay, what worked for the blockchain, for the internet might work for the blockchain as well. And so that became the formation of the fund. We used the historic filters, and you and I have spent some time talking about this, but we used,

we tried to derive filters for what would have been good filters for the internet had we been investing early in the internet so that we could use that as the beginning of a framework for investing in the blockchain. And what are like the key pieces to that? You know, they're not fundamentally different than what you hear a lot of investors talk about, which is, you know, why now? And the answer is always because this company couldn't exist before now. So one of our filters is very simply, does this company fundamentally depend on the blockchain to exist? Second one is always about team. In the case of the biggest outcomes, one of the things that was really different about teams was that they were there way past the

billion-dollar acquisition offer. So teams tend to be mission-driven in the biggest outcomes. They tend to have the ability to recruit extraordinary talent when they have a tailwind and some growth, and they tend to still have one participant still involved in running the company 10 years in when they're successful, which means that the founders are mission-driven, they have the ability to recruit, and they have some skill that is a critical skill for some lever of value creation. And then the third main one is around the market. And they all invented, almost all of them invented new categories of business. So you don't really know how big those markets are. But the markets have to be at least potentially massive. They typically have monopoly or oligopoly outcomes. And they're typically defensible through network effects, technology, IP, or economies of scale.

And one interesting thing when we went to backtest this was that most of them had growth in margins over the first 10 years. So they become better businesses as they get scale. That's right. They capture more of the value they create. And part of the reason for that is if you capture too much value too quickly, you open up the market to a lot of competition. So if you look at Amazon,

Amazon may be one of the first companies in history to consolidate a fragmented market. And I think one of the core reasons for it was that they priced so efficiently and didn't make money in the early days that no one wanted to be in that business. And so that allowed them to do other things really well, like service and delivery and convenience and one-click shopping and prime and broad, broad selection, all of which together made them the place you would want to go first. And so we look for those kinds of signals. I think you added another one on one of our conversations in a taxi a few years ago, which is often called traction. But most companies at

the stage we invest, which is seed and series A, don't have traction. So we look for leading indicators of traction, which can often be small markets that a company is going after to get a or some really 10x improvement in product or there's a variety of things but that we call it gravitational force internally but that has become a fourth filter ever since our taxi ride so thank you yeah well I think the way I've always thought about gravitational force is like a pretty concise way to say it I like that it's just like things in motion stay in motion and so when you see like the iteration speed the momentum right it's probably the number one piece of advice I give to founders is like when you find momentum like keep the momentum going like just momentum

momentum momentum and part of it is like once you have the momentum your recruiting gets easier fundraising gets easier like all you know marketing gets easier getting press gets easier like all these different things get easier not easy just easier than they were uh and it feels like the best companies once they get it they don't lose it like i don't know of that many companies outside of ones that completely pivoted. So you got like a Twitter, you got like a Lyft, you know, whatever. But outside of the ones who like go back to the starting line and do something different, I don't think I've actually ever seen a company become highly successful that was going and it lost momentum and then kept doing the same thing it was doing and ended up winning again.

Yeah. With really rare exceptions, one thing you see with traction is that in that first 10 to 20 years of the great companies they never miss a beat for more than 18 months and and you know the classic example of that is probably facebook with the mobile with mobile um you know the story it i don't know if there's a public story when i got there uh it is now it well it's about yeah but but nothing sensitive but uh it was kind of like folklore in uh internally that uh i think when they got to like a right around a billion users they pretty much plateaued so this is pre mobile uh challenge um and they put a moratorium on shipping new code uh and they basically were like what what's broken and that was one of the big inflection points as to why they ended up

becoming so data-driven so growth you know oriented was they had grown and it kind of was like the market pulling them into existence right just like everyone loved this you know the world's on fire amazing and then they hit that first plateau and they had to say wait time out like we actually don't know how to go faster or slow down or anything and so they went and they built that and so when mobile came around they actually benefited from having had that plateau at you know billion users whatever it was uh or maybe it was a hundred million users is where the first plateau was i forget the exact numbers but they had the muscle memory and so now all of a sudden oh we have to figure out mobile where they do stop figure it out use the data test all stuff

and it's dna right like the dna is in the company which goes back to the people which goes back to having momentum, like it all feeds into itself. Yeah. And interestingly, when you look at the truly great companies, it's in their DNA in some way. And in Facebook's case, you can see that data roll out to their M&A strategy. Where do their users go after they leave Facebook? Oh, Instagram, let's go buy it. Google was the same way. Google saw the growth firsthand of YouTube and was a really, really fast acquirer of YouTube. And so the power of that data is actually why those companies are sitting in front of Congress today.

They have so much power and so much advantage. Yeah. I always wonder, does Instagram become Instagram without Facebook? Probably not. But how big could it have been? YouTube, same thing. Like they were growing. They were really powerful.

But in some way, the acquisitions changed the trajectory. and gave it a longer, you know, kind of a more resource filled push. And so I don't know, right? Like, I find myself shopping on Instagram a lot. And I think it's a really force of nature in the e-commerce world, which is the world I grew up in. Um, and I was thinking the other day, how, um, how much of the last 20 years of the internet was formed because the internet was slow. And so you could only load text. And so because you could only load text, the people who gravitated towards buying things on the internet early were people who read text, i.e. books, which probably led to Amazon's early success, which meant when you were

optimizing websites in the early days for checkout, for product descriptions, for categories, you live with text and in a world with a faster internet we might have seen shopping look more like instagram um i i um i don't know how much of it was driven by facebook and their rigorous uh power of data and obviously their massive audience but there's something there was something in those early days of instagram and probably still today um that would have made it successful outside of facebook as well it completely agree definitely been successful uh what you're talking about here is performance and i think that's been one of the big conversations in crypto in general it's just the performance of all these blockchains so bitcoin as a layer

one 10 minute block times tons of people like oh it's slow it doesn't work nobody wants to use that uh we now are getting some very interesting data points with lightning and and uh what seem to be much faster instantaneous settlement all that type of stuff companies like strike etc uh and then i think ethereum uh which thought hey if we just speed up the block times we have kind of a smart contract focused platform uh we're going to be able to provide much better performance and we'll be able to scale to layer one that seems to maybe not be the thought process now and so there's the transition uh to proof of stake there's obviously layer two is being built but it opened the door for competition from uh solana binance smart chain avalanche like you just go down the line

there's a bunch of these how do you think about the trade-off or balance between like security and performance in this space? And like, is there like a quote unquote right mix or is it, it's use case specific or kind of dependent on like the individual application that you're trying to actually build? Yes and yes. The history of the internet is littered

with people misreading key metrics and driving against them. And the earliest metric which everyone measured themselves on was hits and how many data calls there were to a web page. And so everyone optimized around that and created these pages that had a lot of data calls on them so that the websites had a lot of hits so they could report a lot of hits. Speed is a metric. It's not the only metric. And we're talking about Bitcoin, which has 7 to 10 transactions a second. Again, Ethereum is whatever it is, $11 going to $1,000 maybe.

And Polkadot and Near and Avalanche and Solana are in the thousands and tens of thousands. Those are not numbers that are going to win this battle. We're going to have to get into the millions and probably hundreds of millions. When you look at what happened to the consumption of data after the adoption of the internet and the amount of data that was consumed, you can pretty much expect the same hockey stick curve to happen to the transfer of value. And this idea that achieving a blockchain

that can support Visa in its peak hour is the holy grail misunderstands history, right? When you have frictionless transfer of data, frictionless transfer of value, everything's going to be viewed as value. And so a site like Facebook, which has millions of transactions a second, if you count likes and posts and forwards, that's going to be baseline. And so it's not going to take tens of thousands of transactions a second, probably much more than millions. Now, we're far away from that, but we've seen some blockchains that have paths to achieving that.

But it's also not just about speed, right? But the ability to process a transaction quickly but not be able to remember it, for example, or have a high cost for remembering it eliminates almost all of the social networks from using a blockchain because you can't go back. I think it costs about a quarter to store a post on Ethereum at scale. And so that's not going to work if you have to store every post of a Facebook-sized business. So there are going to be things that we're not talking about in today's world that are going to have to be embedded into blockchains in the future. And clearly, we're talking about, you mentioned security. Clearly, that's a piece of it.

How much security I need for a penny asset is really different than how much security I need for a million dollars of assets or $100 million of assets. So this brings up an interesting point of like, probably the most fascinating thing around the security conversation, other than Bitcoin, right, which I think most people said, hey, Bitcoin is optimizing for decentralization, whether you agree or disagree with that, that's what they're going after. And so the structure of layer one, layer two, eventually layer three, etc, is very important. ethereum i think has this idea of good enough security right or or uh uh the minimal amount needed to actually be secure however they frame it and i think for the most part most people are like oh this whole thing's going to be decentralized and then when i saw binance smart chain which most people were like let's just centralize like it's just all trying to optimize for speed not all of the developers but a good portion of developers left the ethereum ecosystem and

went started building on binance smart chain and the thing that caught my mind was like wait a minute not everybody cares about decentralization not everything needs to be decentralized right and so like coming being so heavy in kind of the bitcoin world like decentralization is the single most important thing because at least there's security and obviously uh what bitcoin is trying to accomplish that security is paramount to being successful but if you're just trying to create i use an example of i don't know anyone doing this so so nobody can accuse me calling them out but like a weather app like you probably don't need to be decentralized right and uh that was i think what we saw was people like no i just want to very quickly be able to actually perform i don't need

to worry about how much security i have because what i'm doing and uh how it's structured isn't necessarily important it's like and that comes back to your original question like how much security do you need and what's the optimal balance and it depends on the application I also think we're at a time where we're moving from a – the world's changed a great deal in the last – I think I first started to follow this space in 2012. So it's nine, ten years now. And obviously I felt late at that time when I got to it. But the world's changed a lot since then, and that was a really philosophical time. I remember going to a conference in 2014 in Texas for a Bitcoin conference, and that conference was just Bitcoiners, obviously, because there was really nothing else Ethereum hadn't launched then.

And that conference, people flew in from all over the world, and it was philosophically, politically oriented. Today, if this movement is going to be as successful as I think it will be and achieve the mass adoption, we're talking about corporations getting involved and individuals and we're talking about weather apps. And I think corporations aren't looking for transparency and the public broadcasting of every piece of data and information. So I think the origin philosophy of the blockchain is going to transition, and it's already happening. We are in a different moment in time today than we were just, I think, just three, four years ago. My whole thing is like, I do think that a lot of the non-Bitcoin stuff initially, the only thing to compare it to was Bitcoin, right? So you had Bitcoin, there's people launch other things, they compare to Bitcoin. If you think critically about this, like Bitcoin is trying to do something that pretty much nothing else is actually trying to do. There's plenty of other blockchains, there's plenty of other use cases, whatever. but to have a non-state money with an automated central bank that is based on proof of work right

but can still serve instantaneous free transactions uh with a degree of pseudonymity and potentially privacy that is a very very unique thing to go after i think there's a lot of people especially the bitcoin community that is you know multi multi-trillion dollar opportunity and bitcoin is uniquely suited to go solve that but what i've never understood is like okay so those people then they get mad at like, oh, somebody is doing the weather app. Like, it's just so different. If you, I mean, I remember I met Vitalik Buterin and Gav Wood at that conference and they're two of the co-founders of Ethereum,

which I assume most of your audience knows, although Bitcoiners may not pay attention. I remember meeting them at this Bitcoin conference and thinking to myself that I didn't really understand the blockchain at the time and was really fortunate that Gav spent a lot of time during those three days explaining it to me. And I walked away with only one insight from those three days. And that was that if the internet had not existed

when someone invented email, they would have had to build the internet and email in order to launch email. And that's what Bitcoin did. It built the blockchain plus the application on top of it. And that Ethereum was just taking a piece of it, was just taking the underlying protocol, separating it out and saying you can build a lot of other stuff on top of it. What that means is many things. One of the things that that means is that there is a purpose-built blockchain with a purpose-built application on top.

And that is a closed ecosystem in a way like Apple is, right? That's a winning model. And it's winning to the tune of $800 billion or more today, proving its efficacy. But so is the other piece, which is building an underlying structure for smart contracts that allow this frictionless transfer and direct transfer of value between entities. I don't know if Ethereum is going to win. I don't make friends when I say that, you know, and I think I'm one of only a handful who believe this, but I think Ethereum may be legacy technology today.

And we may be looking at the AOL of the blockchain when we look at Ethereum. That is not to say that the price of Ethereum is going to go up or down. I don't make those kinds of predictions. I just, I look at it and it has many of the same characteristics that AOL had as it was peaking. Let me throw a framework that I use at you. I don't know. I don't think we've ever tried this, but I'd love to hear your thoughts. So there's two revolutions underway. Blockchain technology solves the fundamental double spend problem, this idea of value in a digital world.

the first revolution is a monetary revolution. That's Bitcoin. And we get one shot. There's an entire generation of people. If Bitcoin fails and someone shows up with the next one, no one in this generation is going to trust it. Similar to if you're in Venezuela, your government screws up their money and they show up, Hey, I got another one. You don't trust it. Right. And so the idea is very powerful. Uh, there's a ton of momentum. I obviously believe that it is going to work 150 plus million people around the world believe it's going to work. Uh, but God forbid it didn't work. I think that we would lose the, uh, the trust in that idea. So that's the monetary revolution. There's another revolution though, which I call the technology revolution. And the reason why

that's important is monetary assets end in maximalism, right? Like we're all us dollar maximalists. If you're in the Fiat world and you don't know anything about crypto, you don't have 20% in pesos, 20% in dollars, 20% in euros, 20% yen, won, whatever. You just, Hey, I get paid in dollars. I save in dollars. I pay my taxes in dollars. Technology is different though. I may be an iOS fan boy and I use only iOS products, but I don't think that Android is worthless, right? Like I understand it's just not for me. Right. And so naturally there's competition that competition breeds the innovation. And so in this technology world, what's actually interesting is Bitcoin was not the first digital currency in that monetary revolution, right? There

was multiple, multiple attempts and eventually Bitcoin broke through and ends up gaining some degree of, you know, adoption or mainstream adoption. In the technology revolution, Ethereum really was the first one, right? And to your point, like it took this new technology innovation and it started and got to, you know, $500 billion, whatever the market cap is today. But I actually think if you were to ask me, like, which one is more likely to be disrupted, just from a student of history, the first one, and we saw that already in digital currencies. Disruptive or disrupted? Disrupted, right? So it's just, again, that's not me saying that it is going to happen or not going to happen.

It's just like from a structure standpoint, it feels like in a technology revolution, competition is the steady state. And that's what we're actually seeing play out. You've got all these different smart contract platforms that are, quote, unquote, fighting or competing with each other. Some of it's on performance. Some of it's on security. Some of it's on the expressiveness, whatever. But actually, I think Ethereum is the most exposed, not because they're doing something right or wrong. It's just you're the first.

Well, two thoughts on that. One, Ethereum was created by a handful of people. So if you look at the history of the internet, the protocols of the internet were developed by large groups from institutions and governments and collaboratively building essentially monopoly protocols. When you have a couple of people build a protocol that's very quickly worth billions of dollars, if you're the next couple of technologists coming into the equation and you see, hey, I've seen some flaws in that protocol that four people built, and they're worth billions, am I going to build on top of that, or am I going to build a competitor? And if I'm an investor and I see how much money has been made, I'm ready to fund

the 10x better version. So, you had this economic alignment around creating lots of competitors to the underlying rails. I think Bitcoin is actually really different for the reason you said, but I interpret it a little bit differently. The phrase that always gets me as the most misunderstood phrase used in the blockchain is when people describe Bitcoin as digital gold, right? Because what that says is Bitcoin is a subset of gold. It's the digital subset of gold. And really what both of them are, are stores of value. And if you want to be precise, gold is an analog store of value and Bitcoin is a digital store of value. And in the history

of the world, when analog and digital face off, digital always wins. And there's so many reasons why gold is the best analog standard and the most trusted analog standard. But if I were in Ukraine today and I had my wealth in gold, it would be devastating because if you wanted to leave the country, you couldn't leave with your gold

very easily or very safely. Digital is going to win. It is extremely likely, in my view, that Bitcoin is the odds-on favorite by a lot to win that. And because I can just imagine this powerful community of miners and people who make a living off of Bitcoin, a good living, and who have deep pockets and a lot of resources, seeing a competitor spring up and forking it and attacking it. And it wouldn't take a lot of money if you see someone coming along to attack any competitor. And this is a

pretty ruthless space. So it feels like every day that Bitcoin gets bigger, it gets stronger, and it has a higher certainty of succeeding. So not investment advice for sure, but just pointing out that it is a virtuous cycle for Bitcoin at this stage to succeed. Conversely, with the number of technology platforms fighting to be a protocol that is a layer one protocol that serves as the main smart contract protocol that we all use, two things are clear. One,

there's going to be a lot of them competing with a lot of dollars because some of them have hundreds of millions or billions of dollars of war chest now. So the winner there is probably going to be in the interoperability field connecting them. And two, I think it's quite likely we'll see purpose-built blockchains, which are designed to solve narrow sectors, but with really deep product functionality. And so I think that further expands the competitive field in what you're calling the technology layer of the blockchain. Yeah, and I think that's what we saw on the internet, right? One of the things I know that you've, maybe not changed your mind, expanded your viewpoints on is like the size of the outcomes i think anyone who's been in this space

for a number of years thought it was going to be big uh last year i think i wrote a piece and i said you know i completely underestimated nfts right and uh of course i aptly titled it i was wrong about nfts because everyone is always yelling and screaming how about bitcoin maximalist uh although i was probably buying nfts before they were um and uh my thought process was exactly this like it's going to be way bigger it's not just digital art it's so much more than that um talk to me about like the size of outcomes like why why are you evolving your mind uh to think that they're way bigger than you originally thought yeah i mean for sure in the last 90 days i've come to the conclusion and it's probably the the the the most time i've spent thinking about

any one issue in the last 90 days but i've come to the conclusion that the outcomes of the blockchain are going to be bigger than I initially expected. Now, to say that that on its own is meaningful probably needs the context of, for several years now, I've been saying that I expected the outcomes of the blockchain to be on the same order of magnitude as the outcomes of the Internet. So this is a new insight, point of view, that they're actually going to be bigger.

And there are four main reasons why I think this is the case. And they were all sort of new to my thinking in the last year. The first is cultural awareness. Mass adoption has historically always happened after some set of people uses a mediocre product and then some other set of players builds really good products that appeal to a mass audience and then you get mass awareness and mass adoption.

This is the first time in my life that I can think of a technology that has mass awareness without a good product. And I think we've crossed the chasm there. It's because the blockchain has become a part of our culture, right? the words blockchain and crypto and Bitcoin are part of our vernacular today. We have athletes who are getting paid in Bitcoin. We have FTX who's named two stadiums. We have Heidi Klum

and Katy Perry and Jimmy Fallon and many celebrities who own NFTs. And all of this without really good user experiences or products without mass appeal. Why does that matter? It matters because the cost of adoption is so high. The cost of customer acquisition is so high in building businesses. And this is going to create a lower friction to the companies that get built in the future on this. So I think the growth and the adoption of the blockchain are likely to happen with less money than would have otherwise been required if they also had to train, if these companies also had to train consumers on what it is that they do or businesses on what They do.

Two, there's actually more money than anyone anticipated coming into the blockchain. So if you look at 2020, I think there was $3 billion of venture that came in. 2021, I think it was $25 billion. Today, you've got a number of funds, including Paradigm and Andreessen, A16Z Crypto, raising billions of dollars for their funds. Katie Hahn, who just splintered out of A16Z, raised a billion and a half dollars. You've got Lightspeed and Bain and many other traditional funds that are either raising or have raised crypto-dedicated funds. You have the protocols themselves who have so much capital to deploy that they're deploying billions of dollars between them into the venture world. So the capital that's coming in is going to accelerate the adoption as well and put it more front and center.

So I think those two things combined are very powerful. But then I think that the environment has been softened for the blockchain by both the pandemic and the war in the Ukraine. And what I mean by that is we've seen things that we never expected to happen. We've seen the silencing of voices over the last year or two. We've seen a war-torn Ukraine raise relief funds in cryptocurrencies. And when you think about why that's so much better, they can deploy it 24-7. They can deploy it to a town where the bank's been bombed, right? They can raise it globally, and they can raise it instantaneously.

So we're seeing handfuls of examples of the environment softening, not the least of which for me is that there's this moment in time where we've softened the embedded power structures that have existed for decades, if not centuries. concentration of wealth is at an all-time high i think that probably was a driving force in the creation of bitcoin itself but but when you when you look at this last decade there's been more wealth creation and i think bitcoin probably drove the fastest concentration of risk create of wealth creation in any single asset in history a number of power structures that we thought were well-entrenched because of the pandemic and because of the war and because of this moment in time are now breaking down. Silicon Valley was forever embedded as the center of technology. The pandemic happened, and the longstanding rule of VCs of only investing within 50 miles,

which was a virtuous cycle for keeping money inside of Silicon Valley, broke down. Because everybody was doing Zoom calls, so it didn't matter where you invested money. And a single tweet from our mayor, Suarez, how can I help, raised the awareness of Miami and led to the exodus from Silicon Valley to Miami and to Austin and to a number of other cities. That didn't happen slowly. That happened almost with a tweet. We saw the same thing with the traditional money power structure, right? Institutions are smart money. Retail investors are dumb money. But a retail investor identified a short squeeze opportunity in GameStop, banded together with a bunch of other dumb money, and pretty soon they became the smart money.

They triggered a 70% increase in the price of a stock in one day. They collectively halted the The trading, I think, nine or ten times or eight or nine times in one day after that in GameStop. And this is not a one-off occurrence. We can expect this more and more that people are going to come together and the power structures are going to break. And then finally, the fourth reason why I think the blockchain outcomes are going to be bigger is that if you just go back to 2013, Aileen Lee coined the phrase unicorn. Yes. At that time, there were 39 unicorns. They were growing at about four a year.

Last year alone, there were 560 new unicorns. So the speed of growth and creation of these unicorns is staggering. The same thing with billionaires. I don't remember the numbers offhand, but hundreds of billionaires are created every year now. And the blockchain is creating them in silence and in secrecy, but there are probably more billionaires. There's 2,755 billionaires in the world, according to- And how many were created in the last year? I think 500 or more. So I think we're creating a billionaire something like every 18 hours

in the world today. We also are creating trillion dollar companies for the first time. Apple was the first one in 2018. There are now, I think, five of them, not including Bitcoin, which has crossed that mark. I think Bitcoin sits around $800 billion today, give or take. But we're witnessing the dawn of the trillion dollar company era. And while they may seem rare and unicorns today, I think in 10 or 15 years when the blockchain matures, the trillion dollar company will be much more commonplace. So along these lines, one thing that I find really interesting, unicorn, I always talk about Aileen Lee. Keith Raboy, I think, was the first to say, I don't try to build unicorns. I try to invest in decacorns, so 10 billion. I do think that crypto

is going to usher in $100 billion as the benchmark, right? Because a trillion will be very popular, but investors will ask, can it get to $100 billion? Because that's going to be kind of a new benchmark target. Again, they all won't get there, but the investors who can do that consistently obviously will do very, very well. And look, we've come from the unicorn nine years ago

to talking about the centicorn, right? And maybe the tricorn, whatever the right word is for that. So, collectively, this changes the game, right? If the outcomes are that much bigger, it explains why the entry points are so high. And I do remember the Ethereum ICO pitch, and I shared it with a couple of very, very smart investors, and the response was, why would I ever invest at a $28 million valuation when all they have is some paper. And, you know, it's why that revolution was won

by the individual investor who wasn't thinking about that but was putting it in the context of what it could become. And, you know, the individual investors got wealthy off of the Ethereum ICO. How much did people make? If you just invested $500 in Ethereum, and you held it till today, it's worth over $5 million, right? So somebody putting $1,000 in is worth $10 million, right?

You can do the math, put in $5,000 and sell it all except for $1,000, and you've still made a great deal of money in a business that was just a few sheets of paper and no code. And the same thing was said by a lot of investors when Polkadot and Filecoin did their ICOs at, I think, $280, $300 million. And those investments have been extraordinary as well. So what we're witnessing is the growth in entry valuations tied in part to the growth in exit valuations.

I think we've met a moment in time where the entry valuations are going in reverse right now. What are you seeing in the market? So what was like the average initial round valuation six months ago versus today? It's a really good question. I don't know that we fully analyze the data from our CRM, but it's definitely lower. And not only is it lower, the softer terms are more meaningful. The right to invest more money at the same valuation in some period of time.

the pro rata rights and the information rights and all of that stuff, control provisions. We tend to be a very founder-friendly fund. We tend not to think about exit valuations because if they can't be monstrous, we're not interested. And if they can be monstrous, It's an academic exercise to model it. So the question comes down to the four filters we've always deployed, which is does it depend on blockchain technology? Could the market be massive with monopoly outcomes and defensible moats and margins that grow over time?

And is this the kind of founding team that's mission-driven, can recruit, and does this company have traction? And exit valuation is really not a part of it. I want to ask you two fun questions, but you can opt out. I'll give you the escape of you don't have to answer if you don't want to. You don't have to use the name if you don't want to either. What's the best investment that you've seen in all of crypto, whether you did it or somebody else did it?

What is the one where like if we go to this is the craziest market, most asymmetric market in the world, like how asymmetric can it get? I mean, the easy answer there is Bitcoin, right? It's not only the most zero-to-one investment I've seen in my lifetime, but it's also arguably, again, not investment advice. It's arguably one of the best risk-reward investments and continues to be. I think it's fair to say that there's an argument to be made that it continues to be a great risk-reward investment. I think even though I was early there,

I think probably the best one I've done is Ethereum. I've done others with more conviction and more knowledge since then that have proven to be good investments. But we've had a lot of failures, too. And I think that's one of the things about investing in this space that really has kind of been eye-opening for me. The wins are power law wins. They're so asymmetric that you can afford to have a lot of losses.

And because many of the losses are liquid, you often can see that you have a loss early and you can redeploy the capital. So in our collection of losses, including total losses that go to zero and things where we've lost total conviction in, I think we've still made money because of the ability to exit early, which is one of the really interesting characteristics of having a liquid token economy. And not everything we do is tokens. And we probably do nearly an equal amount of equity investments as well. What is the craziest, dumbest thing somebody's pitched you? oh there have been so many

I get dumb ones so I can only imagine the ones you get and and I'll I'll pass on that question okay but there have been some and by the way you know there are people who probably at the time they saw ethereum or bitcoin said this is the dumbest thing I've ever seen absolutely and and I will tell you, if somebody had offered me Airbnb in the seed round and said, hey, here's a company, and while you're at home, you could rent out your couch to a total stranger, that would have been my dumbest company that I've ever seen. Unfortunately, I wasn't offered the chance to say no. But we actually have designed our filters to let dumb ideas in.

So one thing that I would say is we don't really have a traditional investment committee. Anybody can green light an investment on the team. Now, the scale at which they can green light it and what they have to do to green light it differ. But anyone on our investment team of four can green light an investment and just simply say, I want to do it, even if everybody else says that's the dumbest thing I ever heard. because there's no way you're going to get an alignment around four people around Airbnb at the seed stage or around Bitcoin or Ethereum at the seed stage. So if you want to be in the big wins,

they're going to be the ones that are least obvious. Yeah, the Founders Fund, a number of firms have very similar kind of methodology of, you know, one person on the investment team can invest up to X dollars. You need two people to agree to more dollars, whatever, which I tend to think is actually a very good way to invest. Last thing I want to leave people with is what are the things you're looking for?

So when, you know, a founder is listening to this and they're like, all right, I'm starting something. What are the things that they should come pitch you guys on if they're working on it? You know, I'm particularly interested in the layer ones that are 10x better than what exists today. and I think our other favorite sector is what we call the holy shit sector which is stuff you can't categorize so it's the stuff that is building new categories of business that didn't exist before

because if you look at the big wins from the internet Google didn't exist or search didn't exist before the internet and Facebook or social networks didn't exist and on-demand taxis didn't exist in the form of an Uber or on-demand housing in the form of Airbnb. So these are all new markets that are being created because the technology allows it.

So I would say that that sector is probably the sector that hasn't happened yet. We're still at the building of the main protocols phase where you could actually put something that can scale on top of the protocols. I think we're just arriving at the time where real companies are going to be able to build and scale on top of the protocols we have.

So holy shit's coming around. I agree. Do you guys have any questions? Yeah, I would just ask what you're excited for, right? Like, what do you think the next phase is that you're looking at today and saying that this could be huge? I think the surprise.

I think if I were to take any lesson from my last 20 years of investing, it's that the greatest stuff is not things you can look for. It's the things that show up. And you literally say, holy shit, I never thought of that. I'm seeing something I never saw possible. and I can't unsee it. I can't unhear it. And I think that's going to start to happen a lot now, a lot more. The reason it hasn't happened yet isn't just the protocols. It takes billions of

people thinking about something for a handful to come up with the incredible ideas. And we don't have billions of people thinking about this yet. We're just starting to ramp up in terms of the volume of people the more people thinking about it the more people are going to have a shot at solving some great problem that we didn't know existed gotcha john can this i don't want to end on a boring note here but i am curious because some people think about is regulatory stuff so how does that affect both on the token side of things that you guys do and also the equity side of things? I think I look on the regulatory piece of this as very positive for the blockchain. By the time something gets to regulatory discussions, it's entered the psyche of the

mainstream. And for the blockchain to become what it could become, it's going to have to become mainstream. And I don't just mean trading cryptocurrencies, but I mean enterprises building on it, consumers getting applications that change their lives or consume their time. So I think at some level, I didn't expect regulation to happen this quickly. But again, we were exposed during the pandemic in ways that the government didn't realize that their infrastructure couldn't support, whether it was tracking PPE or distributing the checks to those in need. And so it's not a surprise that they're here and ready with regulation. And as long as it's thoughtful, or even moderately thoughtful, I think it's going to be very good. And I think

we'll then see institutions really deploy capital at scale. Are you having fun? Always. Yeah, I feel like that's probably the part that every morning I wake up, I'm like, man, I'm having the time of my life. I feel like the luckiest guy alive. Yeah, well, it also helps when Elon's trying to buy Twitter and the internet's on fire.

Yeah. You think he's going to be successful? You think he's going to follow through with it? I don't think that he puts forward the offer and did that much work if he wasn't serious about trying to do it. I think the big question is going to be if they say yes, it's a non-binding agreement,

does he say, okay, I'm going to buy it, but here's the team? Like the master chess move should bring Jack back. Well, the other- The private company, I mean- Yeah. Whew. Super interesting. I think it's actually part and parcel with the evolution

of the breaking down of power structures, right? If you look at the wealthy in the past, they've bought newspapers. And this is the first global headlines, basically, right? He's trying to buy the headline maker of headline makers for more money than any newspaper would cost. We've seen the power of media just in the last presidential elections.

So I think it's quite – I think it's maybe another billionaire, multi-centibillionaire exercising the spending of money to increase power, but I can't even imagine what that does to Elon's power in the world if he owns Twitter. So my gut is he goes forward. Whether it actually gets closed, I don't know. I don't know enough of the details. I also this morning tweeted and said, you know, Jeff Bezos, I'm waiting for him to enter his hat in the ring. Oh, Musk wants to buy something? Like, I'm rich, right?

Let me, I'll pay $54.90. The Washington Post against Twitter. Oh, my God. I'd take Twitter in that battle. I'll take Twitter. And I think Elon said the same thing. Yeah. What's better than owning a newspaper?

Own the town square. So we'll see. All right, where can we send people to find you on the internet? Blockchange.vc. That's B-L-O-C-K-C-H-A-N-G-E.vc or at Syph on Twitter. Thank you so much for coming. I appreciate it.

Thank you for having me. It was a lot of fun. If you're a founder, you should go talk to them. No-brainer. It's like possibly the biggest no-brainer you could have. Not only do you guys have a good team, not only do you have a lot of capital but you also have a lot of experience which I think is

one of the downsides is people always take money sometimes they forget the experience can be helpful at times thank you thanks so much for listening to today's episode I really hope you guys enjoyed this one make sure you subscribed on Apple, Spotify or your favorite podcast player and if you're looking

to try to transition to get a new job in the Bitcoin or crypto industry we've got you covered head over to palmscryptocourse.com we've developed a curriculum with a top team across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to pompscryptocourse.com to learn more and i'll meet you guys for the next episode