The Wolf Of All Streets - DeFi, ZK Snarks, Layer 2 | What Founders Fund Partner Joey Krug Invests In

Episode Date: May 21, 2023

In this episode, I am joined by Joey Krug, a prominent figure in the cryptocurrency and blockchain industry who has recently joined Founder Fund, a VC with 11 billion AUM. We delve into his investment strategies and explore his insights on the upcoming investment narratives in the crypto space. From discussing DeFi and layer 2 projects to exploring topics like ZK snarks, gaming, and meme coins, Joey's extensive background in both building tech projects and investing makes this episode a must-watch for anyone interested in the field. Don't miss out on this opportunity! Follow Joey Krug: https://twitter.com/joeykrug ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►BITGET GET UP TO A $8,000 BONUS IN USDT AND GET MASSIVE DISCOUNTS ON TRADING FEES! 👉 https://thewolfofallstreets.info/bitget    ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets   ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #trading  Timestamps: 0:00 Intro 1:12 Where is money flowing into crypto  4:00 Investing in the Bitcoin ecosystem 6:12 Layer 2  8:00 Does decentralization matter? 14:02 Meme coins 15:40 Killer apps for crypto 18:55 AI  23:40 From computer science to investments 25:20 FOMO cycle 27:20 Naratives for the next cycle 32:20 Lower valuations 36:40 Do the projects need tokens? 39:50 ZK snarks will be the hot topic 44:20 Follow Joey The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

The most exciting things in crypto are built during a bear market and the savvy VCs investors who stick around and deploy capital during that time are the ones who benefit massively when that next bull cycle comes in. Peter Thiel's Founders Fund is likely one of them and Joey Krug is a partner there after being CIO at Pantera. We talked about what they're investing in, how they're doing it, how they can deploy capital during the midst of this bear market, and especially about where AI and crypto will likely come together in the future. This is an awesome conversation you don't want to miss. You obviously, with Pantera and Founders Fund, are actually allocating capital into this space right now.

And I think that a lot of people think there's just nothing happening, but that obviously isn't the case, assuming that you're still working and have a job. So where is money actually flowing right now in the crypto space? Yeah, good question. So I think there's a handful of areas. So I think the main area right now that there seems to be a lot of excitement around is all this infrastructure around Layer 2s. So you have projects that are working on decentralizing various parts of L2s, like the sequencer, what actually sequences the transactions and orders them. That's currently centralized in most Layer 2s today.

There's projects working on basically making that decentralized. There's projects that are working on making it so you can have a Layer 2 on top of a Layer 2. So if you have an app that you want to be super scalable, you can have it on its own, basically little L2, and then settles on one layer beneath it. There's a bunch of infrastructure there, I would say, that people are very excited about. And then the other area that I see some stuff is still interesting is DeFi, which I think is sort of in a trough of disillusionment right now. And I think there's also kind of this narrative that like, oh, you just thought V3 and Curve, that's all you need. The space has been solved and no one's ever gonna,

you know, like, and that's a very dangerous narrative in tech. Every time someone says that, you know, someone gets disrupted. And so, and so I think that's an area that I'm excited about still, even though not, maybe not everyone else is. Sounds like very picks and shovels then,

and not specific sort of projects. It sounds like to me then that we're still building the infrastructure here and we're not quite there yet. I mean, is that the correct impression? Yeah, more or less. I mean, I, I've seen a little bit of stuff that's like, you know, more consumery. Like there's a, there's a project that I talked to recently that's building like a, I don't know if you kind of think about how like one inch aggregates, you know, trading, they're doing similar for borrowing. So they'll refinance at the best rate, provide

insurance if you get liquidated in the middle of the night kind of thing. But there's still not a lot of direct consumer stuff. And there's some social stuff happening on top of Bitcoin with Nostr and things like that. Although I haven't followed it super closely. I went down a Nostr rabbit hole recently because I kept seeing so much of it on my Twitter feed and I tried it. And to me, it seemed extremely clunky and found out there was basically like 6,000 unique users

a day or something. I mean, it's non-existent. And nothing against Nostr, but there's literally nobody using it except for apparently like the 60 people I follow who have told me about it. But there, I mean, you talk about being built on Bitcoin. Is that really an investable space right now in your viewers? Most of it's still sort of in the proof of stake networks and other places. We've seen this massive boom, I guess, in ordinals and BRC20 and, you know,

lightning scaling and things like that. I've seen basically everything that's been built on Ethereum now being attempted somewhat on Bitcoin. But do you view a lot of capital flowing in that direction? Or do you think that that's smaller than it appears? I think in total dollar terms, you probably don't see a ton of capital going in that direction. A lot of the rounds raising there are fairly early stage. They're fairly small. There's a handful of exceptions to this. David Marcus, who used to be running Facebook's project, launched this lightning-based project, raised a bunch of money for that. There's a handful of exceptions. But I think most of what

I'm seeing, if you just take the, if you have 100 entrepreneurs pitching me and you pick one of them out of the hat, 75%, 80% chance they're building on either Ethereum or something EVM-based, something in the Ethereum ecosystem is what I'm mostly seeing. You think that things need to be built on Bitcoin or do you think that that's just kind of unnecessary and mimicry of what's happening elsewhere? I don't think they need to be. I mean, if people want to, more power to them, that's great. But I think the whole narrative of smart contracts on Bitcoin is something that I was excited about in 2017. But at this point, it's been so long. And even if you build that stuff, you often have to get changes made to

Bitcoin, which probably aren't going to happen. If you want smart contracts, for the most part, you should probably just use Ethereum. And I think it's more likely that someone will figure out a secure way to bridge Bitcoin over to Ethereum, just not like Graphic Bitcoin, which is kind of just like a multisig. I think that's an easier problem to solve than bringing smart contracts themselves onto Bitcoin. Yeah, I mean, that's what it certainly appears to be from the outside. You talked about now Layer 2s building on Layer 2s. We're already talking about scaling beyond layer twos then, right? I mean, I spoke recently with Sandeep from Polygon and he said, we're

going to have layer five, six, seven. He's like, there's really no end to how many of these we're going to have. But I was a bit disillusioned because I don't even think we've seen the layer twos function properly yet. Yeah's interesting it's an interesting point right like the um you know the layer twos themselves like they work but they're not fully decentralized right in the original vision behind all of them was that you could build this you know decentralized thing you you do have a bit more centralization than ethereum because that's how you get speed benefits um but but the idea the idea wasn't long term that you have one sequencer that sequences all the transactions. That was never the vision. And I think people

ship that as a minimum viable product. And then what you've had happen since then is people are like, now that access is built on top of it. And so you have infrastructure being built on top of infrastructure that's not fully completed. It's sort of like building a newspaper in a city and only part of the plumbing is done or something. I think that stuff will get built. And I'm also not convinced that we'll have Layer 7s or whatever. Once you have a Layer 2, and then you have another layer on top of that for app-specific use cases. I guess you could theoretically have apps split themselves up into separate layers, but I don't think you'll need that for a very long time.

Then you're talking... The bottleneck is going to be getting users far sooner than they need to have a layer for or something. Yeah, right. And the issue there then, as you sort of pointed out, is the decentralization, right? It can be done, but it's being done through, like you said, the sequencer through more centralized platforms. I guess the question then is how much do people actually care about the decentralization part? Because it seems like that's a huge narrative from the Bitcoin community and a big narrative from people who are deeply crypto native.

And I would argue that 99% of mainstream doesn't care and will never care if they actually come into the space. Yeah, I actually agree with that. I think the average person doesn't really care. I do think they care about this notion, which is very vague. There's a notion of, can I trust something or not? And maybe if you're a bit of an edgier techie, you're kind of slightly still mainstream person, you might know enough to know that like, well, super centralized, maybe bad, right? Like super centralized, FTX blew up, super centralized, bad, decentralized, maybe good. And even that small narrative is maybe enough to care a little bit, but it's not

like people are going to care about the exact mechanics of how something is decentralized or how it works or anything like that. I think people only care about things like centralization, privacy, all these things that we care about intellectually. They only care about those to the point that it causes a problem for them. People hate decentralization when Mapbox blew up and when FTX blew up, but they still use those things because that's just more convenient. Right. And then with privacy, no one cares until it affects them. Right. No one cares about it until they get

censored or their account gets banned or whatever it may be. And so I think it's one of those things where it's like, there are features that people don't care about until they realize that it's lacking. Yeah. Yeah, I think we should have a cartoon that's like somebody typing into Google, why should I care about privacy

while Google's collecting your data and why you care about privacy? Or like railing against how something's too centralized while putting their face in front of their iPhone to unlock it. I mean, I think that people just theoretically care about these things, but when it comes down to it, they don't. I always find it interesting, for example, that Tether, the primary chain that is used for Tether is Tron, right? And seemingly nobody really likes Tron. Nobody's a huge fan of Tron. Nobody talks about using Tron in any other way, but it's cheap and it's fast.

And that's the way that people send their stable coins as a result, right? So they clearly don't care. I mean, were you aware of that? The numbers are astounding, way more than on Ethereum, that stable coins are transferred on Tron. Yeah. Massively huge. So I just don't think that people genuinely care about that, which makes it interesting if you're investing, not you specifically, in things because they're going to be more decentralized. It doesn't even matter.

It matters to me. It probably matters to you. I just don't think that your average person is ever going to care. Yeah. I mean, I think when you invest in stuff, right. Like decentralization may be like one feature to it, but also like it has to provide some other, other benefit to, to the user. Right.

If you think about having like two centralized sequencers, right. Like the sequencer can go down, your transactions cannot go through, you know, like, again, those are problems that are like problems independent independent of the theoretical benefits of decentralization. You can get rid of all the religious aspect of it and be like, oh, having the system be a distributed system is actually useful because decentralized things go down. If you're doing some financial transaction or if you're in the middle of a trade and the market moves and you need to get out of it, if the network is down when you're in the middle of a trade right like in and the market moves and you need to get out of it if the network is down when you're trying to get out of it that's very bad um you

know or if your centralized platform is down coinbase right I mean we could all remember for like five years anytime there was even an inch of volatility on Bitcoin you couldn't trade anywhere yeah every platform couldn't handle the load right Right. So I guess that really is true that there's a pragmatic reason, obviously, to have the decentralization. You want redundancy. You want to know that these things are going to work. Do you think that we have any blockchains right now that can scale and are sufficiently decentralized?

I think right now we're in this landscape where everything has a bunch of different trade-offs. You know, actually, take take Solana, right? It's very scalable. There's some complexities to programming on it. It sometimes has downtime. The hardware you need to run it, a full Solana node and stuff is very, very expensive. You take Ethereum, it's got all these nice theoretical benefits. It's made a bunch of good trade-offs, but it's still expensive to use. You take the Layer 2s, they're actually pretty good. The downside there is that if you want to go back to Ethereum, it takes a week, and you have the centralized sequencer stuff. You have a bunch of different things that have made a bunch of different trade-offs. I think within a number of years we'll end up in a spot where like a lot of these trade-offs

will just be solved technical problems and like you'll no longer have to make a lot of these trade-offs like that that's kind of how most new tech is in the beginning in my opinion is you have stuff that ships you make some hardcore trade-offs and then eventually like it evolves to a point where you don't have to make the trade-offs anymore so I say today no the future yes yeah you said years people in crypto need it next month they're so impatient and I don't think that uh people kind of realize when this these things were being built that we were talking about five years 10 years 15 years 20 years I think that's become much clearer though in this fair market that uh things are just not really fit for purpose or ready yet for mainstream adoption i mean even sandeep again just uh just because i just had

the conversation he said you know maybe we could accommodate in all of crypto with the bandwidth that exists a couple million people but like talking about a hundred million or a billion trying to transact on any of these blockchains would just be wildly impossible at this point. Yeah. Yeah. I think in practice, that's probably true. Yeah. So I guess then it's good that we haven't reached mainstream adoption yet. So is Founders Fund investing in meme coins? No, we don't own any Pepe. Peter Thiel's not into McPepe and McPeepy or whatever they're called. What do you make, though, of this recent meme coin trend? I hate it, to be honest, even though I came in through Doge in like 2016, 2017, because I was a trader and I thought the Doge cycles were

entertaining. But man, I'm pretty concerned that that's what the mainstream legislators, regulators are seeing from this space right now when everybody has their eye on us. Yeah. I think the space definitely has a reference to it, which I think makes it both fun but also sometimes unserious. I don't think it matters too much in the grand scheme of things. I'm a free market capitalist. If people want to trade something, I let them trade it. And I think all the serious work is still ongoing.

You mentioned you're talking to the Polygon guys. They're building very serious tech. So is everyone else working on this other layer 2 stuff. I like sometimes the meme coin stuff is a bit of a distraction, but I don't think it's like, it's like, I'm like neutral on it. It's like neither here nor there. It doesn't really affect me too much. Oh, we won't even be talking about it in three months. I'm sure. Yeah. It will already be just another DeFi summer or NFT summer metaverse fall or

whatever, all of these cycles we inevitably have in crypto but you're talking about the fact that all this infrastructure is now being built which means that at some point it will be ready what do you think then the killer apps will be that are actually built on this infrastructure because i think we've struggled to find that really one sticky thing that brings in you you know, tens of millions of people. Yeah. So, um, so, so one thesis I've been kind of playing around with recently, if I ever have time to sit down, I might write up something about it is, is this sort of idea that, um, basically the short version is that Balaji's company 21.co may have been right,

but just a decade too early. And so if you think about the vision there, it was that machines are going to pay machines, and they're going to do it in crypto because credit cards don't make sense in a world where anyone can spin up like an autonomous agent that can undertake economic actions, and you don't know who they are, where they're based, or anything about them. Also, credit cards are made for business to business and business to consumer payments. They're not really made for consumer to consumer. And stuff like Venmo isn't global and also doesn't, you can only do certain transaction limits and stuff like that. And so if you look at today, the current AI wave, which is a bit hypey, but I think also fairly real.

Right now, these systems are very good at telling you data about the world. You ask them a question that you might normally spend 20 minutes Googling stuff and opening a bunch of tabs and it can give you an answer that's probably 90% as good as if you did it yourself. The thing they can't do today though is they can't... My AI, my chat GPT bot can't go order me something on Uber Eats and it can't send you a payment. All these things are a short amount of time away, very single-digit years or potentially even months, depending on the particular use case. And so I think there might be a world where people build crypto plugins for these things, where it uses crypto as the payment mechanism in the backend.

And then once you have crypto enabled as well, you can also do other stuff. If you think about crypto, one of the drawbacks of it, everyone says, oh, it's so hard to use. Well, my AI, if my API is mediocre, the AI doesn't care. It'll figure out how to use it. And so maybe the long-term interface to crypto is actually you just tell this language model, hey, figure out how to... Say there's a trade you want to do. Say you have like $100,000 worth of Doge and you want to stop it for ETH.

And you just tell it and it figures out how to do it. Or you want to pay your friend and earn in a different country. It figures out kind of the most efficient route to do that. And a lot of times I think that route will be crypto. So I think there could be this kind of like end state where mass adoption doesn't actually happen to people like using MetaMask or Coinbase Wallet or any of this stuff. It's just text or verbal interfaces or AI that actually do this stuff.

So it's the virtual assistant model. You effectively tell your virtual assistant to do it and it gets it done and you don't care how it happens. Yeah. Right. Which could actually be very interesting for people trading in markets for hedging strategies and things like that. I mean, I think they've already said that ChatGPT does a wildly better job of predicting price action

in markets than humans do. And it's still operating effectively on data from 2021 and before. How much have you actually played with AI and chat GPT so far? I used it a pretty good amount. So when I basically like, when kind of the API came out, I messed around with it a little bit, built a handful of like, things mostly just for myself. Like I built the thing where you could text with chat GPT and then I built another thing where you would give it a phone number and you tell it what you want it to accomplish and it will call whoever you gave it. And it will use text-to-speech and speech-to-text to basically have a conversation with them. And the thing that's interesting about this current wave of

AI stuff, I think it's very easy to get from the zero to one wow moment because the underlying tech is so good. Which is the inverse of most startups. Most startups, zero to one wow moment is the hard thing that forms a moat. But here, if you're building on top of something like OpenAI, it's pretty easy to get the wow moment. But then the one to 10 of actually being good, actually covering all the edge cases you want, actually being a great UI UX is really difficult because there's so many edge cases

when you're like, it's like if you hired like an assistant, right? Like you have to mess up all the time. And then here it's like, so it's kind of like a similar thing where it's sort of inverse that model. So I think some of the best teams in AI will probably be ones that just have crazy, crazy good product teams. Yeah, I think that's probably true. But it's kind of scary, the vision that you talked about, if it has access to your wallets and money and is making terrible mistakes.

Yeah, I mean, you probably... This has to do with a different discussion, but you probably want to get into guardrails than the question as well. What if it to get a guardrails then like the question as well. What if it gets off the guardrails, right? So yeah, like I would like to go on a trip to such and such and you don't give it a budget on accident. All of a sudden you're taking like a $45,000 flight and staying at a $10,000 a night hotel.

But I do think that those things to your point will eventually be solved. I want to hear more about this talk to text that you've given a phone number and just having conversations with people. Do those people know that they're speaking to AI or do they think that they're talking to you or some other human? Well, I just test it with myself and my friends. So they know. You wouldn't know if it weren't for the AI speech synthesis models, even the best ones, you can tell that they're not a human. Or there's some that are good enough where you think, oh, this sounds like a customer

support person, like in the mid 2000s when you call Dell customer support. That's what it sounds like. And so today, people are just like, oh, this must be an AI. I think within a few years, that stuff probably gets better and you won't be able to tell. I have spoken with quite a few people and the majority are dismissive of the connection between AI and crypto, which you pretty articulately explained why it could be very important and possible. Do you think that there are other places that we could see a crossroads between the two industries?

I mean, crypto seemed like we were getting hockey stick adoption and seemed like we had all the hype and it feels like AI has just erased that in a matter of weeks. Yeah. I mean, I think people are suspicious of it think people are dismissive of it because it's, there, there are two hype sectors. And so it's easier to just be like, oh, there's no, there's nothing there. Um, and I was kind of initially dismissive of it too, until I started playing around with this stuff and then kind of realized that like, that like, it actually does sort of make sense in certain areas as, as far as other areas they could work. I mean, there's some people trying to do, so there's some, there's a couple I'll list

off. I don't think they actually make a ton do. So there's a couple I'll list off. I don't think they actually make a ton of sense, but the other areas are things like people are trying to build like, you know, decentralized ways of like training AI models and the logic there is that like, it should be cheaper than AWS because they're using people's home compute and GPUs and stuff. The problem with that, in my opinion, is just you think about developers and people in general, people are lazy. If you can write a piece of software and to train it, it costs you even 50% more money. But it's a way easier training stack.

And it requires way less effort. Every company is going to pay 50% more money to do it. If it's 10 times less, then sure, people will use the crypto version. But the problem is it's not 10 times less. Amazon web services margins aren't that high. And so those ones tend to not be as interesting. I think that in tech in general, the stuff where someone's doing some zero to one huge new innovation is always more interesting than like, oh, we saved you X percent cost.

You're obviously an investor now, but you started in computer science right which is somewhat clear from this conversation but that's actually your background how did you make the jump from computer scientist to effectively a chief investment officer so um so computer so cs wise I'd always been interested in that as a kid. And then investing-wise, though, it was 2016, founders started reaching out to me, asking just for advice on how to build on Ethereum because it was very difficult back then, how to fundraise for VCs. VCs would often be like, if you're building on Ethereum back then, people would be like, well, explain Ethereum to me.

So they wanted advice on how should I do that. And so I started advising companies like Xerox and Numeri, also wrote checks into both their rounds and then started doing more deals like that on a syndication basis. That's how I met the folks at Pantera. Back then, they were looking to bring on someone who had a very strong technical background. This space is getting a lot more complicated. I'm sure you remember 2016, 2017, the space went from like, oh, there's Bitcoin and Litecoin to like, there are a million things.

And they're looking to try to like figure out how to, you know, how to, how to kind of like navigate that. And so that's, that's sort of how that, how that happened. Yeah. And you navigated that alongside all of us. And now 99% of that is gone or worthless, right? Talking about sort of the ICO craze and the ICO bubble. And a lot would argue that we just kind of did that again in 2021 and coming into 2022. Do you think that we're going to continue to see

these waves of massive FOMO and investment into thousands and thousands and thousands of projects that go nowhere? Do you think that people are becoming a bit wiser as to what's going to have value in the future? Yeah, I mean, I think like, the way I always think about it is, you know, every wave of new tech and companies you have, you have like a, you know, huge percentage of things fail and then a few things work. In crypto historically, I'd say the failure rate's been higher because more things have been tried. In some cases in the bubbly periods, more things have been tried than probably should have been

tried. But you do have stuff that sticks around, like a lot of the kind of the wave of DeFi stuff, some of that stuff is stuck. And I think it's actually useful financial primitives. The initial scale of the old wave in 2017, there was Plasma, there was state channels, there was all this stuff like Raiden network and a million different things. StarCore, Arbitrum, they're still around. Those projects were created late 2017, early 2018. I think in future cycles, I think people have learned some lessons. But the problem that you have is that in all financial markets, there's always some pocket of the world or people who haven't entered the market before. And so when they come in, they do crazy stuff.

And then they learn their lesson. And then next time, they're like the smart people who don't make those mistakes. But there's always a new wave of entrants, I think, that kind of do crazy stuff. And that's kind of how it will probably be for a long time. That describes every single one of us who came into the crypto space.

Genius in a bull market, get washed out once, and then finally your brain, I think, starts to work in the crypto space. You know, genius in a bull market, get washed out once, and then finally your brain, I think, starts to work in the next cycle. What do you think is going to lead the next cycle? We've talked about all these narratives that we've seen in the past. Do you think it is the infrastructure investments that you talked about before?

Or do you think that we're going to see, is it going to be gaming or NFTs, metaverse, something like that? A lot of people are still very bullish on gaming. Is that somewhere that you guys are deploying anything? I think infrastructure stuff is probably still going to be the safest risk-reward investment standpoint stuff. I do think, though, that we're starting to get to a point

where it really is possible to build stuff that has meaningful numbers of users. Sure, as we discussed in the beginning, you can't get 100 million today. But you to build stuff that has meaningful numbers of users. Sure, as we discussed in the beginning, you can't get 100 million today. You could build something that had a million monthly actives, assuming they're all active at the same time. I think there will be some stuff in this next cycle on the consumer side. One thing we invested in at Founders Fund before I joined is a project called The Mirror,

which is basically a central land of Roblox, where it has a live game engine in it so you can actually edit the game while you're playing it. And the thing I would say is on the gaming side, people are getting much more sophisticated from like the actual game side. Like their game looks really good. Um, it's like something like Decentraland, the graphics are kind of out of date and a little stale. Axie Infinity, right?

Yeah. Yeah. And, and versus this, like they're actually like gaming people and like the game looks beautiful and like, like, you know, it looks like it would actually be fun to play. Um, and so I think, I think like there is probably something there, um, you know, it looks like it actually fun to play. And so I think, I think like there is probably something there, you know, I don't really understand like the, like, is one game going to work or not? Like, you know, That's up to the market. Yeah. I mean, that's up to the market,

but you make the best point. I think we saw sort of a wave in crypto gaming of terrible games, but they had a financial incentive. So people did it, right? Like Axie Infinity. Like you found a way because you could make money and that was more than your job in the Philippines paid. So you found a way to play Axie Infinity,

but that lacked the Fortnite and Call of Duty. I was at ConsenSys and there were a few games to your point that were just looked awesome. There was one, they had this huge boat booth that was called Shrapnel, I think. And I sat there and played around for 20 or 30 minutes and I'm not even a gamer. So you got to imagine that if we get the high quality game and that side, the financial incentive part, which at least temporarily was proven that there's got to be massive upside there.

Yeah. I totally agree. Like when I was a kid, I used to play all these, you know, MMORPGs and, and like, you have a lot of the components of a metaverse there. The one thing you don't have is they're not really open, right. They have auction houses, they have like quests, they have jobs, they have hobbies, like people have houses in them. And, and so I think like that stuff I think is eventually going to happen. I think crypto will be definitely be of it, in my view. I wonder then if this vision of the metaverse

that everyone shared a year ago that seems to have disappeared is really just gaming. Like, will our metaverses inherently just be games that are on a much larger scale and are more open than the ones we've seen in the past? Yeah, I think so. That's sort of my view. I mean, I think maybe very long-term,

you have some sort of like the game intersects with the real world via some augmented reality overlay. But I think in practice, the most exciting metaphor stuff sort of is and probably always has been gaming, in my view anyway. So Founders Fund is obviously Peter Thiel. I think, does that mean that we should all be encouraged

that you guys are still here and committed to this and excited about it? Because I think there's a sort of a midstream view that nobody cares anymore, honestly. I just think that that's what people think. Yeah, we definitely care about crypto. I think we think that it's one of the next big platforms in tech. You have pretty transformative technologies in general.

There's a handful right now. Obviously, the AI stuff, there's crypto. There's some stuff happening in biotech. And I think definitely the thing I'd say is from a crypto standpoint, we're open for business. We're looking to invest into the space and super excited about it. I think right now is when everyone is despondent and most of the traditional Web2 VCs have left the space. That's the time you want to be investing. And valuations are down. It's no different than the market itself. You want to buy when there's blood in the streets. Everybody's terrified and prices are so low that

people think they have to go to zero. It does feel like that's what's happening in the VC side. For sure. It's good to see confirmation of that. And VC was kind of a four-letter word at the end of the last cycle. I mean, people were just seemingly unhappy with venture capital in general, the tokenomics models that were being perpetuated. Do you think that we're seeing sort of smarter investment and smarter structures for those investments at these lower valuations now? Yeah. I mean, I think like structure-wise, most projects now are just doing the, you know, you get an equity with a token warrant kind of thing. And that seems to work pretty well. I think like last cycle or every cycle in crypto, there's various points in the cycle where everyone

gets mad at VCs. I think it's because there's always a handful of firms that do sketchy stuff, right? Like they buy a token and say a bunch of positive stuff about it while they're selling it. That's wrong. You shouldn't do that. Or they do stuff where they... Last cycle, there's all this stuff where people would invest and they'd have these crazy low float and then the market caps were crazy high. You can see why retail traders would get annoyed or frustrated with that dynamic. There's another set of VCs that have a much more long-term mindset. At Founders Fund, for instance, our funds are very long-term venture funds. We're trying to invest in stuff that we think is going to be stuff that lasts long-term versus trying to find the hot next narrative.

Because often, if you invest in some narrative anyways, your tokens are going to be locked up for the most part anyway. So it's not like you can invest in some hot narrative and then sell it when it goes to the moon. You actually have to find stuff that actually works long-term. Versus if you're trading public markets, you can do whatever you want.

But if you're investing in privates, it's a different game. I think the worst mental mistake that you can make as a VC or a seed investor is to consider the current value of your unlocked tokens as part of your portfolio. But yeah, the paper multimillionaire and then by the time you're actually unlocked, it's worth almost nothing, right? Have you guys seen any difficulty actually deploying size because of the lower valuations or

how few things? I mean, it seems like teams are taking much smaller investments at this point. There's not as much on the table. And so if you have a huge fund, it's probably almost a challenge to get your money to work. Yeah, that's a good question. So I think it's less of an issue for us because we're a generalist fund, and so we can always invest in other stuff. We don't have to deploy any specific amount into crypto, so it can be pretty flexible there. I think instead of exact dollar amounts, the thing to me has always been like figuring out um kind of what what level of ownership can you get that's you know meaningful amount um i think right now let's see yeah i mean so products are raising you know less money um but it hasn't really affected the way i invest because the the stuff that i invested in you know

even at pantera you know for the most part that I can remember, we didn't really do too many of those very, very high dollar amount rounds, because they're just often not positive accepted value anyways. I agree. You're like the last money and you're paying more than a billion dollar valuation for it. It hits public markets, looks great on paper, eventually everyone gets liquid. So I think for us, if you're trying to do those rounds,

definitely probably affect you more, but for the smaller rounds, they're kind of the same. You talked about equity with a warrant for tokens being the new structure instead of being, I guess, fully liquid where you're just on a vesting schedule with the tokens. It seems like for a lot of projects in the last cycle, even having a token was really unnecessary and was effectively just a liquidity grab, a way to raise funds. And VCs knew that they'd be liquid and wouldn't have to wait 10 years necessarily to sell. Are you seeing a further move away from that? I mean, do better question. Do a lot of these things that are being built even need tokens?

Yeah, that's a good question. So I think like in general, um, there's this, this is, this is, they're like more of a company,

right? Like they're, they're more centralized. They don't really have like a protocol for the most part. There's businesses that are more of a company. They're more centralized. They don't really have a protocol for the most part. And then when you see those businesses try to do a token, it generally doesn't make very much sense. It feels slapped on. Things that don't really need a token.

And then you have stuff that's an actual protocol. It's some DeFi protocol or some infrastructure thing. And those ones, for the most part, they do usually benefit from having a token, whether it's for eventually long-term distributing fees to token holders. But in the interim, you have governance over the protocol. Sometimes you have various incentives in staking things that have to happen, where you just get penalized if they get mad. In those cases, it generally makes sense.

I see these days in the market, I don't really see people raising stuff for stuff where they have a token where they don't need it because I'm not even going to take those phone calls. If I see the deck and it's like there's some token slapped on, they don't need it, I'm not going to take the call. Most other VCs aren't either. The market environment right now is such that those things aren't getting funded. And so right now it actually feels like there's obviously like any market,

there's always ideas that people are working on that don't make any sense. But there's nothing really where like, there's not a lot that feels grifty at the moment, I guess is how I'd put it, like in the private markets. Well, that's good. I was going to say, that's great news. Anecdotally, speaking with VCs in the last cycle, I would say that those were the decks they were responding to first.

Oh, you mean I can get liquid in 30 days from now with 25% of my investment? I think everyone was just caught up in the cycle. I don't necessarily think that it was like, had malintention, but I think that that was the format of primarily the last round of venture capital. Yeah, I mean, I think it depends on what, what like firm model you have, right? Like everybody was a VC. Yeah, there's a lot of upstarts last cycle

where like there was this one firm, I remember that it was run by a friend of a friend and they did all these like private Solana deals and I remember you know they started with like maybe 10 million and their portfolio was like 200 plus million at one point and then you know on paper they sold the yeah on paper and then they sold the entire thing for like 20 million bucks or something right like um and and so it's like, that's a 2x in like two years. That's actually pretty good. But it wasn't a 25x like they thought.

Yeah, that's what I was talking about, counting your paper gains. You don't have the tokens that are in your portfolio. I think that people have largely learned that lesson, hopefully. Although I don't put it past humans to repeat the same exact sort of FOMO cycle and bad decisions when this bull market really gets going again, which I think inevitably it will. And we'll probably see all those things again. I mean, personally, with what you're seeing being built, you get so much deal flow, so many decks. Outside of what you guys necessarily are investing as a company,

is there anything that's being built right now that's really, really exciting to you? Either as a computer scientist, an investor, just a crypto enthusiast. What's actually getting you pumped? Yeah. I mean, there's a bunch of stuff. So I'd say outside of stuff that we're investing in, there's a bunch of people working on really wacky stuff with creating hardware to... It's more on the computer science side. Creating hardware to basically accelerate creating the computer science side, creating

hardware to basically like accelerate, creating zero knowledge proofs. And so you think about like, the scalability problem talked about, okay, you want to get 200 million users, you know, zero knowledge proof based systems like Starkware and stuff are actually pretty good, a pretty good approach towards getting there long term. One of the downsides is that it often takes a good amount of time to create these proofs. And if you had a hardware device that could specifically just create zero-knowledge proofs, then you would basically have a system where you could probably hit much higher scale numbers than you could hit anywhere today.

And so there's a bunch of startups that are creating hardware to do this. They're not like... I'm talking to a couple of them, but I think it's like some of those things where it's very hard to invest in hardware. I don't really feel like you have an edge there. And then the other problem with hardware investing is you have this dynamic where people will copy you pretty fast. And so you always have to be shipping a new step change improvement all the time. And it also just takes a really long time.

I mean, if you're developing hardware now, this market moves at the speed of light. And it might be four years before you get something to market and you're so far behind. How are ZK... I've never even asked this question. How are those ZK proofs now created at this point? That's a good question. I literally don't even know the answer. How are those ZK proofs now created at this point? Those zero knowledge proofs. I literally don't even know the answer. Yeah, I think people are just using regular hardware on AWS or whatever to make them.

Yeah, that seemed like that. The ZK snarks and optimistic roll-ups and zero knowledge proofs, all these things seemed like they were going to be the huge investable wave of this cycle, but I haven't heard as much about it as I expected. Maybe that's just because prices are down. Yeah, I think that's just because prices are down. The, like I went to the, there was a Starkware event in Israel a couple months ago, or February

basically. And there were a lot of people that are building on it. Like, I was surprised to see how many people were actually building on top of it. I think it hasn't really hit the narrative on Twitter or whatever yet to a huge amount. But I think as more and more stuff goes live there, it probably will be a pretty hot narrative in the next cycle. It'll be a hot narrative in the next cycle, then it'll crash. And then when you don't hear about it anymore, it's actually being used and we don't need to use the term ZK snarks and roll-ups anymore. That's when it will actually succeed. I think the biggest problem we still have is this vernacular and we're still too techie

and talking about all these things when your average person just wants clean UX and UI and doesn't care at all what's running it. And we're just not... That to me is the biggest leap that we still need to make. I just think that everything is way too complicated for grandma. For the best analogy we always make. Do you agree? Yeah. I think stuff is definitely too complicated.

I think there will probably be a bifurcation where those people who use the crypto stuff, like us, and then I do think long term, most people will just interact with this stuff, either do interfaces that really, really abstract almost all of it, or even like chatbots. I think if your grandma or whatever is going to ever use DeFi, it's probably because she really abstract almost all of it or even like chatbots you know i think i think like like if your grandma or whatever is going to ever use d5 it's probably because she she told her chatbot she wanted to do some financial thing and d5 happened to be the best way to do it versus like even like like if i can use like my mace whatever for the most part i like that i think that that that abstracts it all away and keeps it insanely simple. And then the bot can basically go figure it out.

And I think that that's actually one major way to overcome this challenge. I love that as your thesis. You need to write that up, as you said you were going to. Yeah, I'll write it up at some point. I definitely think so. Where can people follow you after this conversation, keep up with you, check out what you're doing? Yeah, I'm on Twitter and Telegram. I'm just Joey Prude.

So my name, all lowercase, no spaces. If you want to send me a pitch deck or talk about what you're building, joey at foundersfund.com. I have an incredible frog meme project that unlocks 75% in one week. Are you interested? Not on that one.

No comments. Yeah. But I've got you here. So this is basically an investor call now. You can't avoid me. Well, I'm going to have you back in the next bull cycle and we can talk about all the stupid things that people are doing again. Okay? Sounds good. All right. It's a deal, man. Thank you so much. Thanks.