The Wolf Of All Streets - The Flood Of Venture Capital Into Crypto | Brett Gibson, Partner At Initialized Capital

Episode Date: November 2, 2021

Nearly a decade ago, a brave VC took a million-dollar leap of faith and made a bet on a small company called Bitbank. Fast forward to today and that investment turned into a $600 million return, as Bitbank became Coinbase. Brett Gibson, a general partner from the firm, came on to tell the story and better explain how venture capital is flowing into the crypto space at break-neck speed. -- Sorare: Where fantasy meets reality. Collect, trade and earn weekly prizes on https://thewolfofallstreets.link/sorare. #OwnYourGame -- HBAR Foundation: Fund your project quickly and easily with the HBAR Foundation. Apply for a grant and be put on the fast track to success at https://thewolfofallstreets.link/hbar --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode is brought to you by SoRare. Stay tuned for more information on them later in the episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of Wall Street's podcast, where two times every week we talk to your favorite personalities from the worlds of Bitcoin, finance, music, art, sports, politics, basically anyone with a good story to tell. Now, earlier this year, you may have read an article about a venture capital firm that took a bet on a small little company called BitBank.

Well, that company is not small and eventually became Coinbase. And that particular investment was viewed as the holy grail of all investing. Well, I have a general partner from that firm, Brett Gibson. That firm has initialized capital here with me today to discuss that and to discuss generally what's happening with venture capital in the crypto space. As I often report, it seems like money is just absolutely flooding into the space at the moment and that people can't get their cash in fast enough. We'll talk about why that's the case. Brett, thank you so much for coming on today. Hey, yeah, thanks a lot. I'm really, really excited to be here. But first, can we just start with the Coinbase story? Can you walk us through how that investment happened and turned out? Yeah, sure. You know, it was actually before I joined the

firm. But so we were founded by Gary Tan, who was working at Y Combinator at the time. So there's a lot of logos on our website that are just like small fallen checks that he was making to YC companies he was working with. And while he was working there, he met Brian Armstrong. And he was able, you know, he was able to facilitate Brian getting Coinbase into the Y Combinator program. And then was, you know, the, you know, the first investor right after YC's demo day to sort of take the lead on their seed round. And then, you know, I think that the bigger inflection point was sort of later that year, you know, the investors weren't really sure what to make of Coinbase or the space yet still. But Gary kept meeting with Brian.

And as the story goes, Brian was like, we're having trouble just keeping up with the demand. Like we can't buy enough Bitcoin to actually sell on the platform. And so that's sort of when we doubled down into Coinbase. And I think that, you know, between those two investments, the returns to date have been kind of astounding. Basically, a $1.3 million invested and valued at $680 million roughly at the launch. Yeah. Not bad.

Pretty good day's work. Funny, one of my actual close friends locally was good friends with Brian Armstrong at the time at Y Combinator and had the opportunity to invest $10,000 into Coinbase very early and passed and has regretted it I think ever since. Well, I mean, it's a similar story with Bitcoin a lot of times. I mean, I think that my introduction to Bitcoin was as a former YC founder myself, I would just kind of be willing to try out any YC company. So I signed up for Coinbase and I bought like a few Bitcoin, but seriously, but, you know, nowhere near what I wish. Best thing that ever happened to you was just trying out Coinbase. Yeah, yeah.

Extremely, extremely early. So I alluded to this in the beginning, and I would love for you to give some clarity because it feels like there's an absolute flood of money. And just like you talked about just now with Bitcoin, a lot of people feel like they missed it early and they could have bought, but it seems like more people are interested in the picks and shovels approach now and investing in the companies that are building it, the exchanges, rather than just buying the coins, at least from an institutional perspective. Is that somewhat accurate? And why is money flowing in so heavily right now? Yeah, I mean, I don't know. It's a pretty expensive topic. I think a lot of things are going on. You know, first of all, like early this year, not just, you know, you know,

we don't just focus on crypto investing. We sort of invest across software startups or early stage technology startups, mostly software. And something crazy happened in like Q1 and Q2, where just across the entire venture, like money was just flowing in and we saw this dislocation in valuations across the board. And then what was happening in crypto markets money was just flowing in and we saw this dislocation in valuations across the board. And then what was happening in crypto markets that was just exacerbated on the crypto side and the crypto deals. I think that there's a bit of a cyclical participation of like, sort of like Sandhill, quote unquote, mainstream VCs in the crypto space. You know, early on, you know, they, you know, we were, a lot of us were limited

from actually even holding tokens directly or buying directly into liquid assets just because of how venture funds are structured and the carve-outs without having to register with the SEC. And so we saw a little bit of that changing. I think in 2018, Initialize actually amended our LP agreements to be able to buy tokens directly um so i think that early on there that that that drove a lot of this preference for exposure to the asset class through equity-based investments um and then and

you know it's it's it's sort of and then after the during the bear market like that that sort of group you know we saw all all these dedicated crypto funds raised, and that group just kind of went away. We were working with other portfolio companies and talking to them about follow-on. And for a while, when we were looking at their Series A's and Series B's, the sort of mainstream Sandhill VCs were off the table. They seem to be largely back. They do seem to be sort of more engaged on the equity side.

And I think the other big trend and reasoning behind equity is a lot of these equity companies can be more general bets on the space. I think that during these bull cycles, there's a million projects that get started up and they're all kind of directionally correct and you're not really sure which ones are going to stick around so being able to bet sort of like widely i think that you know we invest in bison trails which is like infrastructure as a service for you know they started mostly on proof of stake networks and you know at the time it was like you know we're not really sure what's going to happen with proof of stake generally but it seems like it's a thing and so they're going to kind of sort of capture the, if any of these proof of stake numbers take

off, this sort of infrastructure will be required. That makes perfect sense. A lot of the VCs that I've talked to, admittedly, just sort of say what you did and take a spray and pray approach, right? They're like, we'll just throw 50 or a hundred grand into anything, you know? And I think a lot of the smaller ones are doing that. It sounds like you guys have a bit of more of a measured approach. But it really does feel like there's just excess money coming from nowhere. You hear the same VCs investing over and over again. It's always like 200 million more, 300 million more, 500 million more.

Is this like a benefit of money printing and all of the spare cash that everybody has laying around who has wealth from the last few years? Where's all this money coming from? Yeah, I mean, that's my sense generally, that there's sort of money printing coming down the stack. The bigger sort of hedge fund growth style investors are moving down the risk curve and getting earlier and earlier. We're seeing't really we haven't seen them that aggressive in seed yet but we've definitely seen them in series a deals where you know that that wouldn't have made sense in the past i think that um and so that's is pushed just everyone's and so everyone's sort of very very uh like itchy of the trigger trigger because you're worried someone's just going to come in and dump a bunch of money on

sort of any deal you're looking at um and that drives sort of prices up and i don't know i mean i guess the the bit quarter in me is like how much of this is just a flight out of fiat right like we just have usd we need to get it into a productive asset somewhere but um the other big thing is like you know i saw a tweet from from like CMS a while back about like, you know, like Alameda's P&L on a monthly basis is like a new enormous mega venture fund, right? So if you're one of those firms or you're someone, you know, someone who called a bunch of capital, put it into Bitcoin and saw it go up 10x, you're sitting on, you know, a lot of money to deploy. Yeah. And you're probably looking to diversify in some way. But, you know, crypto hodlers and the really fanatical crypto people, they want to diversify, but not out of crypto. Right. So it's like, let me get a little money out of Bitcoin or out of this, but get it into some venture. You talked about the fact that you

guys sort of changed your agreement in 2018 to allow direct token buys, if that's correct. You weren't doing that before. Is that primarily structured as like an OTC deal where it kind of looks like an equity deal, but you're buying a tranche of tokens at a slight discount or something? Is that a presale and something that hasn't even launched yet? Is it both of those, a mix? What do those deals look like? Yeah, yeah. I mean, in practice, we could do either,

but we haven't really engaged in the form where we've looked at some of the larger deals, I think. So mostly it's like a SAFT-based instrument that's going to convert to tokens. And oftentimes, it's gotten really complicated in terms of what you're buying, in terms of like if it's a SAFT, if it's a SAFT, if it's equity that converts with some sort of warrant system.

So it seems like these days it's sort of coalesced on every deal has some optionality based on where the value is kind of going to accrue. I think, especially at the early stage, there was, you know, the first time around in the ICO craze, it was just kind of like sell tokens and money grab. And now with early stage founders, we want them, you know, we expect that they don't have all the things figured out about their token economic plan. And it's really hard to sell tokens directly until you have token allocations figured out. So some sort of like equity agreement

that has a token conversion mechanism often makes more sense just to give them time to get those plans in place. Do you think that a lot of this sort of, I don't know, maybe it's misleading to call it hysteria, but it feels that way, is driven by just sheerly the bull market? Price is going up. Everybody wants to get money in. Is that all it is? Or is it a mix of that and actual adoption? And like people are saying, these are the companies that are going to, you know, drive the future or are people still just sort of FOMOing into the space because they think, you know, buy low, sell high? Yeah. I mean, unfortunately, I think a lot of it is gone that way.

I mean, it is definitely reminding me of 2017 in terms of the part of the cycle where the number of things that are coming through and the number that are high quality is sort of starting to shift. And there's part of me that misses the sort of buildal phase, as people were calling it, right? Built through the winter, right? Yeah, yeah, exactly. And because, I don't know, I think it is kind of natural for the industry. It's just this expansion and contraction sort of dynamic. I think that it allows for sort of wider experimentation. It's a sort of Cambrian explosion of approaches to all these different types of things. And so, I don't know, there's a lot more things being tried, which I feel is a positive. So with all these things being tried, are there any that you guys

are particularly excited about? It doesn't have to be a specific company, obviously, to talk your book, you can. But, you know, is it NFTs, DeFi, you know, play to earn gaming? Obviously, we're seeing sort of all of these different niche industries within crypto emerge. And it seems that different people are excited about different ones. Yeah. I mean, I think so, you know, it's, I think we, we bring the same sort of generalist kind of founder first mentality that we normally invest into crypto. So, you know, just like we're not heavily thesis driven as a firm generally. So we're not really heavily thesis driven in the crypto space. I think the main thing, I mean, it's a, it's a weird, I mean, it's a silly answer kind of, but I'm sort of excited about everything. I think that,

you know, the business of early stage investing is just trying to believe in things to the extent possible, right? Cause it's, you know, it's just like founders come in, they tell you what the future is going to look like. And you, you know, you do your best to sort of get, get, get your head around it and get on the same page that they are and see what see what they're seeing so i think you know we have you know we've made investments across kind of all the things you mentioned um you know and sort of we're investors in hummingbot which is like a marketplace for for market making an open source trading bot and um and nfts we invested in Creator, which is like a platform for NFT contracts and issuance. And so, I don't know.

I think a lot about how like the NFT and sort of DAO search space, the complexity space has barely been tapped. And sort of like the degree to which like interoperability and sort of money Legos have gone, where they've gone on DeFi. I think that the same, the same sort of thing is going to happen in NFTs. Like there's, we sort of just sort of scratched the surface on the ways that can actually be useful beyond stuff like just like profile picks. And I think sort of next up, you know, it seems kind of concise, but the, the, the, the doubt, the doubt systems are going to be, you know, just basic early, like kind of vote on chain probably probably doesn't scale up to too complex an org, but a lot, but with a really robust infrastructure

layer, like a lot of interesting things are going to happen on the DAO side. So I want to talk about both of those things. You touched on exactly my next question, which was going to be, yes, we all know that NFTs have utility. A lot of what's happening in the space is extremely exciting, but also profile pics and JPEGs, right? So, you know, what is your feeling on the current state of the NFT market? Which parts are going to emerge? Which, maybe you think none, which are going to zero? I think most of the JPEGs are going to zero, personally.

You know, what's your take on what's happening with sort of NFT mania? It reminds me a lot of the ICO stuff in 2017, where the sort of fundamental mechanism is very valuable. And any average, any, you know, median project is not worth anything. So I think that, you know, I think that the, I think they're all going to take a hit, you know, I don't know, well, TBD, what's going on with super cycle stuff? I guess my default case is we do our normal crypto cycle that we've been through a few times. And they're all going to take sort of deep hits.

But the best ones will maintain some value and will likely come back. And sort of the long tail will just kind of go nowhere. But, you know, I think that independent of what you think about sort of JPEGs, like if you believe in if you're if you're willing to buy digital scarcity and believe in something like Bitcoin, then then it doesn't really seem like a big leap to me that a one of one asset would be would be could be equally valuable. And so I think, I think that, you know, beyond just sort of little, not little, they're big, they're big and important, but beyond just

sort of things you trade as individual sort of picks, like, you know, the amount of utility and sort of like being able to own something, I think, like, I think there's going to be a lot of NNCs you can't buy, you know, that you have to earn and then have some, you're endowed with some sort of rights based on that. I think there's going to be a lot that look kind of like subscription products or something like that. I think that, I don't know.

I just have this general sense that we're working towards figuring out a lot of use cases and they'll sort of flood in over the next few years. Yeah, the utility is endless, but it's kind of a bubble. I mean- Yeah, I agree with that. That's a good summary. Yeah, I mean, you definitely talk about,

in principle, I certainly understand the jump in digital scarcity and the mentality of, well, Bitcoin's digitally scarce. Sure, I'll collect NFTs are digitally scarce. But just because someone decides like today to do a money grab and make 10 of something that's crap, you also need demand, right? And so like a lot of people do make that comparison that NFTs are similar to Bitcoin, but Bitcoin is like the greatest asset that was ever created in mankind.

You can't duplicate that by just making something digitally scarce, right? Listen, you're a Bitcoiner, right? What got you into Bitcoin in the first place? You know, I mean, so yeah, again, like I kind of, you know, I bought a little and didn't pay a lot of attention to it. And then I was sort of, I was working at Y Combinator during the, you know, during like 2014 and sort of watching things going on and still just kind of busy not paying attention i think um so so i uh gary and i founded a blog platform in 2008 um and then it eventually got sold to twitter and then twitter was going to turn it off so we started a side project called

post haven which was giving our old users a place to migrate and then after he and i both looked to work do i see we we left at the same time i took about a year off um and during that year I you know I'd programmed my whole career but I didn't have a CS degree so it was taking a lot of CS courses and sort of learning and he was like hey you know this is like 2016 he was like we had promised our users we keep post saving on forever for you know whatever that whenever whatever we can make forever mean based on the sort of Twitter shutdown experience. And he was like, can we run this on Ethereum? You know, can we run this decentralized? And so in 2016, I took a deep dive into space

and emphatically came back, no, this is not possible to run our blog network. You see gas fees, man. But it gave me, but when I joined Initialize, you know, I had this background and doing a lot of research on the sort of fundamental technologies and sort of understanding

the sort of technical underpinnings to Bitcoin. And I don't know, it's a means classic kind of, from there, it's a sort of normal rabbit hole story where once you see it, you can't unsee it sort of thing. Yeah. So you couldn't do it on Ethereum. That was 2016 or so, though. Could you do it on Solana or Avalanche or Cardano or Elrond or any of the other competitive layer ones in 2021?

You know what? The limiting factor is less the smart contract platform and more the storage mechanism and the permanence of the storage. So I think that we could probably make a go if I was able to find a bunch of time, you know, it'd be something like SIA or Filecoin. But and I think that there would there would we could make a meaningful go at it, I bet. And then decentralize sort of like DNS equivalents, right? We'd need something like ENS or Handshake to function as well. But we have evolved, right?

I mean, just sort of you went from hard no when it was just Ethereum-based. So it's nice to know that we at least have come part of the way ahead from what was possible. Even any of the tooling right i was like i mean so like the developer tooling on top of solidity you know there was there there was nothing right and now and now and then there was like sort of truffle and now hard hat there's like the the dealer experience is vastly different but i remember like that i don't you know early versions of metamask i was using i was just kind of like how is no i was, I was kind of like, no one will ever, no one will ever do this. How much crazier you talk about MetaMask. I mean, you know, obviously we've seen Axie Infinity absolutely explode that did a billion dollars in a month. But even the founder of Axie Infinity said, listen, this is really difficult, even if you're into crypto.

But if you're not crypto native, getting this set up is nearly impossible. I mean, where there's a will, there's a way. Listen, like the Philippines have adopted Axie Infinity. They're using it to make more money than their real jobs. But you have to understand getting a MetaMask wallet, which still versus any legacy platform is clunky. Like MetaMask has come a long way, but it ain't PayPal, right? And then you open your Ronin wallet, buy your characters, whatever. It's still really early in that regard, right? I mean, we certainly do not have the tools that grandma can use to go play to earn. Yeah. I mean, we're investors in Horizon Blockchain Games, which builds Skyweaver. And they're getting close. They've been in beta for

a while. And part of the reason they're not on ManiaNet was, no, we're just going to build our own wallet. We can't deal with this wallet ecosystem. We need to just wrap this in an experience and own it entirely. Yeah, I mean, like, you know, I'm somewhat savvy. I'm certainly not a programmer, but I'll tell you the first time I discovered Uniswap and interacted with MetaMask, I was very confused.

You know, like, It took a day. It was fine, but it's not easy. The barriers to entry are still absolutely there. Do you think that that's still the main barrier to entry for mainstream adoption? It's like UX, UI problems, and basically it's just too complicated. Everybody in cryptocurrency already knows about Hedera Hashgraph. It's one of the fastest, most secure, and trusted networks on the planet. But what they might not know about is the HBAR Foundation. With a budget of $2.5 billion already, they are funding entrepreneurs and projects

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You truly own your collectibles. They are productive gaming assets that will generate rewards if you're a good fantasy player like me. Join SoRare and connect with your favorite teams, live the game with passion, and earn weekly prizes. You can do all of this at thewolfofallstreets.link slash SoRare. I don't know. I guess, I mean, so I think demonstrably, like, there's a lot of usage now, right? Like, I mean, I remember even like DeFi, I remember early kind of DeFi and being like, you know, I'm not sure, this TVL thing,

I'm not sure if this is toy, I'm not sure if this is people who are long ETH already, just putting their ETH into these things. Just because they can. But with the amount of like stable coins that have flooded in, you know, it's clear that there are users and they really care and that they will get over these boundaries. I think that, yeah think that, I think

that, yeah, I think a lot of the UX is ready. I think, but I think the trends are going the right direction. I think smart people are working on those problems. They've made meaningful, they've made meaningful strides. And I also think that it's, it might be a little generational, right? You know, you know, my parents still aren't totally savvy with smartphones, right? Like, and in a way that they're entirely intuitive to me. And I think that, you know, younger people coming and using these platforms for the first time, they're just,

they're going to have intuitions and be able to navigate them in a way that, you know, people that aren't used to, people that have sort of got a little older and aren't used to the systems have more trouble. Yeah. I just had a Gaborger box from Van Eck on the on the podcast. And I don't have the stats offhand, but he basically it was a very similar similar concept, but attaching money to it, talking about the incredible amount of money that's about to be transferred from the boomer generation, basically to millennials, obviously, as they either die or,

you know, give their children their cash and how at the same time, those millennials should be coming into their own around 2023 and 2024. So with their own spending power and starting to have investment, when you put those two things together, and you have this generation that has zero interest in investing in legacy assets, we should see this massive explosion. Yeah. I also believe a lot. I mean, a lot of it is like custody and signing. And I think that as it gets pervasive, there is like a secure enclave on my iPhone that is able to sign things. It just doesn't have the right curve rhythms to sign things on these major networks. And I think eventually most devices will sort of catch up just because all the things, these networks will be so important. Sure. I want to circle back to DAOs because you

mentioned them in passing. That was the second thing I wanted to get to after we talked about NFTs. You sort of alluded to the point that maybe they're not that scalable. Maybe I took you out of context, but I've heard people say that DAOs are the future of governments and voting. And I, you know, I just don't see a few hundred million Americans voting through a DAO or anything like that. What, what excites you about DAOs and what are the real, like, uh, legitimate and viable use cases for them and what's nonsense, I guess. Yeah. I mean, I guess my snarky case was kind of, I remember sort of like when they were first coming around a few years ago being like, look,

look where democracy got us as a United States citizen in 2019. But I think that, you know, I think that sort of being able to organize on-chain in an autonomous way is very important. I think that organizations often do need leadership and structure. And just having everyone vote on everything is not really totally a viable day-to-day functioning mechanism for things that aren't um you know you know something like bitcoin where the the intention is that is that governance is ossifying and sort of you know opting in on a flag every nth block is is is an appropriate way to sort of signal updates um on the on the one end like that that makes sense and then but i think that if you're

going to run something day-to-day you're going to need a DAO structure that sort of empowers individuals to do a lot of things without going to entire communities. And I think that you just need a lot of, we just don't have the infrastructure to like know who's in your DAO, know who's a holder, know who can vote.

Like we have some voting mechanisms, you know, that we've got around some of the how costly it would be to vote on-chain for everything, especially on top of Ethereum with stuff like Snapchat. But I don't know. I think the DAOs are going to start to look more like organizations. I think that not everything is sort of left up, not everything is best done by a big decentralized organization. You can kind of think about like Mac OS versus Linux, right? Like Linux is sort of is amazing. It's a treasure like being done in this open source decentralized way has given us a very powerful sort of server technology for the sort of experience that you want on your desktop.

It's never really gotten there. You kind of need individuals with a lot of power over the end result sort of driving product. Yeah, sort of like you talked about the beginning with just wanting to test Coinbase because it was part of Y Combinator. I obviously like to at least have a superficial understanding of things. So I have parts of DA Dow, I've tried to play some of the games, things like that. It seems like it's so early in Dow's, or maybe it's just my personal experience. It's anecdotal, but like, nobody knows how many things you really should

vote on and what's appropriate to vote on. And it basically just ends up being like this mass argument, a bunch of bunks, a bunch of people on Telegram or Discord. Yeah, I think it is a better way, but inevitably, you're still dealing with human personalities who are making decisions together, right? Totally. Yeah, I agree that the current state is very rough around the edges. I think that one thing investing in crypto has taught me over the years is sort of things that seem slightly off but have a lot of potential are probably going to get figured out on some scale. Yeah, it's the old zero to one, one to end, right? It's gotten from zero to one.

So now we just have the innovators flood in and just make it actually work. I think that describes almost everything in crypto, frankly. Yeah, I try not to bet against things generally. I'm trying not to be super negative on anything generally as early stage investor and crypto is exacerbated that sentiment. I guess the rule for the last few years was just stay alive. Every company that stuck it out through the bear market is sort of doing amazing. And don't be emotionally dismissive. I mean, it's so easy to dismiss things. And then three years later, you're like, man,

I probably should have paid attention to that, the crypto space. Because it's not like NFTs are new. Yeah. And that's one of those things. I was kind of excited about it. It sort of disappeared and I didn't pay enough attention. And here we are. Yeah.

Yeah. Didn't. Yeah. I played around with CryptoKitties for a little bit and sort of moved on. Whoops. So one of the other obvious hot button items right now, I think for you probably as an investor has been around for a very long time, but it's really becoming mainstream

is the conversation about regulation, obviously, especially in the United States. Will cryptos be deemed securities? How will they approach it? What agencies? I'm curious if there's any major roadblocks you guys have encountered in trying to do some of your investments. I know as an American, sometimes, maybe not as a company, as an individual, you're probably blocked from most of these investments

that we're even talking about. Yeah, we haven't run anything specifically yet. I think that, I mean, we're worried about it for a few of our America-based founders and what that might mean sort of regulatory-wise and something we're paying close attention to. I don't know. I guess personally, I'm kind of like crypto is going to win versus… Yeah, we know that. But that doesn't mean it's going to be fun. But yeah. But yeah.

So nothing really. I mean, we, we, we did, we did immediately when we, when we amended our LP agreements, we also for crypto companies were able to be able to invest in non U S entities. And so, you know, we've, we've done a couple of investments in things that were outside of North, North America. But beyond that, we, we haven't really, I think that we're not really, you know, I think we're not really trading, you know, so we're not really looking to get access to any sort of like derivative products that otherwise would be unavailable to us.

So what's the next Coinbase? Right? You guys, you guys caught that unicorn, bigger than a unicorn, I would say. And by the way, I mean, it seems like we have a new unicorn in the crypto space every week, right? I mean, companies you've never heard of two weeks ago, all of a sudden, they're coming in with $4 and $5 billion valuations and these crazy multi-hundred million dollar raises. Are there any that you can share that are your picks that you think have that chance? I obviously can't ask you what will be the next payments. What could be what could be yeah yeah i think i mean i think that um you know there's a couple on our portfolio that are doing really well and

you know i don't know next coinbase i don't want to totally totally set up their experience too crazy what companies are you excited about potentially very well in the future one is trm which is uh their competitor which analysis to you, you know, fraud, fraud and compliance for crypto networks. And I think that,'s just an absolutely enormous opportunity. And the market seems to be, and I think that the sort of its financial institutions are sort of, and governments are becoming aware that this is the software they absolutely need. And another is Talos, which is, it's an institutional execution platform that, you know, just is looking to be, you know, I think that there's, you know, there's a lot of weird, there's a lot that's weird about how trades are executed in

crypto for mainstream financial institutions. Certainly, you know, settlement and, you know, the fragmentation of all the way of trading venues. And so normalizing that for them and sort of becoming a liquidity hub, again, is just an enormous opportunity. Well, what other challenges do institutions have in approaching this space currently? I mean, I think, like, first of all, like understanding it all, right? There's still I mean, there's still plenty who are like, what is this, you know, for all the talk of like, they are coming and they are, they are getting smart, you know, it's, it's, there's still a lot left. I think that, you know, getting comfortable

with just sort of custody and data flow and data information sources and sort of research. And I think that I think that there's the regulatory issue sort of hangs over their head a little bit. So, you know, making sure they're sort of compliant and, and following all these sort of new AML sort of things and understanding counterparties, especially in sort of decentralized contexts. Infrastructurally, do you think we're there though? It's funny. We talk about all the time.

You remember the 2017 run where it was like, institutions are here and we talked about backed, backed, backed. It's a meme of all time for which, by the way, is now trading on the NASDAQ as of this week, I think finally four years later. But we talked about institutional adoption. When you look back, it was just silly, right? Because there was no way, what are they going to put their billion dollars in a ledger? There was no real custodians. It just, it didn't exist. So I've heard from many that they think we're basically there, but are there still things that, you know, might turn a risk manager of a, you know, trillion dollar endowment off and keep them from investing in this? Does the ETF do the job? Yeah, I don't know. I agree. It's been the

institutions that are coming sort of forever until, and then they only started showing up, I think, late last year in earnest, as far as I could tell. And I guess, you know, I don't know that I have my head fully around sort of what these endowment heads are doing. And I think I'm a little biased in terms of my own beliefs about the asset class. But, you know, it does seem, I think that one of the things that I've noted in talking to the portfolio founders is that even when they are ready, it still takes, I mean, the sales cycle is still 12 months, right? So it's this crazy lagging indicator. Yeah, that makes sense. You said that you have your own biases that give you a sort of skewed view on it.

What is that bias you're talking about? Oh, I just, I mean, I just, I mean, I'm a believer. I don't, how could you, like, how could you not have Bitcoin in your portfolio? Right. From that perspective, totally. I actually struggle sometimes, obviously, we cheer on institutional adoption. And we love every time we hear that one of these big banks is offering it to their wealthy clients but there's also the core ethos of bitcoin you know it's kind of you know long bitcoin short the bankers right and so you have this sort of bipolar number goes up because institutions are here but also don't we not want institutions ever in our money yeah you know a lot of people pointed to the the ETF as that.

They've said, listen, okay, great. Now Wall Street can control Bitcoin. You know, so should we cheer on institutional adoption or should we cheer on, you know, the people of El Salvador or both? I think it's both. I think that, yeah, you know, if you're successful enough, it gets co-opted. I think that some of the, it is hard. I think that it's one of the interesting questions

about specifically the Bitcoin community is like, do the ethos that got us here, you know, like a cult was successfully created, right? And that was like a lot of very strong, extreme opinions went into that and making it stick. And do those strong, extreme opinions get us to the next end percentage of humanity? It's an interesting question.

David Sherman So the maximalists are good. I always make the argument, maximalists are amazing, they got us here, but maybe be a little bit more open-minded now. So as investors, obviously venture capital, what's the exit strategy? You know, like Coinbase, for example, you guys sat on that obviously for roughly a decade. Do you start actually selling? Do you believe Coinbase can still be one of the biggest companies in the world? You hold your position. You can't hold forever, right? I mean, as Bitcoiners, we want to hold Bitcoin forever, but when you're an investor in the companies, you can't hold forever, right? I mean, as Bitcoiners, we want to hold Bitcoin forever, but when you're an investor in the companies, you can't hold forever. So how do you guys view your exit strategy? Yeah, I mean, it's sort of case by case. I think that actually, you know, we held

Coinbase across a few different funds. Our first couple of funds were those early investments, but then we had a bunch of Coinbase from our Bison Charles investment. And so for the first couple of ones, yeah, it just made sense to just distribute and kind. But for other ones, I think that we're sort of strong believers in Coinbase and holding. I mean, listen, I don't love the product, frankly. You know, like obviously the exchange outages

and all the things about Coinbase, but I'm absolutely buying the stock and planning to hold it for a very, very long time. I think that I really think there'll be one of the five, 10 biggest companies in the country, maybe in the world. I do. I mean, so yeah, some of the, some of the first phrases sort of make sense. I do think that I really believe strongly that they have leadership that's on top of sort of the innovators dilemma and, and, and, and is going to stay and is going to use their resources to stay at the forefront of consumer phasing tech in the space. Yeah. I think some of the criticisms are frankly

unfair, even when I offer them. I had CZ from Binance on the podcast a while back and he said, listen, I don't think people appreciate that you're building completely new technology and it's scaling at a rate that no human being could possibly keep up with or predict. You know, if you have millions of people coming in to use these platforms, of course, they're going to have times when they're down and they're not working perfectly because they're being built effectively on the fly at scale.

Right? Yeah. Yeah. You're a developer, so you probably know better than me. But a lot, yeah, a lot like, yeah. I've caused those issues with a lot less scale or, you know, face-to-face customer consternation without ever reaching anything. Right, but what happens when crypto is a billion people trying to use these platforms?

Can they scale? I mean, yeah, I think that there are certainly ways. There are best practices. I mean, I don't know. It's kind of the, you get into the phases of the technology where you get, I mean, just think about the arc of Twitter, right? Like it just unscalable.

They just brought in the right people and they were able to figure it out. What do you think will be the next big IPO? Oh, I guess I don't want to confuse anyone. Coinbase did not IPO everyone. They had a direct listing. I hate that. I hate when people say they had an IPO, but they had a direct listing. But do you think that we're going to see another major interesting. I mean, they're all sort of jurisdictioned. I mean, they have U.S. entities. I don't know. I don't, I mean, I don't,

I don't track the later stage companies as closely. Like I sort of pay attention to the rounds in the news, but, you know, I'm sort of more steeped in earlier stuff. So I don't have a strong opinion about who might IPO. I don't think Binance is going to get there quite yet. Talk about it. But I think they might have some other things to deal with before they can make that happen from a compliance perspective. But even outside of the exchange space, do you think that more miners or more just crypto exposed companies, or do you think that we're

kind of seeing what's out there for now and there'll be another round further down the road? That's my suspicion. I mean, I think that it's kind of unclear what, you know, I mean, the multiples we're seeing, I think that some of these later stage deals are going to need to catch up a little before they start opening up their books with their valuations. But I think, I don't know, I have a vague memory of seeing a miner that was filing to go public recently. But I don't know. I think it's clear we're all very bullish here

and extremely optimistic. I think it's always important though to consider the opposite case. Is there anything that concerns you that would make you bearish or turn your opinion or bias on the space? Not on Bitcoin clearly, but on the space in general or make you question any of the investments or bias on the space? Not on Bitcoin, clearly, but on the space in general

or make you question any of the investments or your ability to invest? Hmm, that's a great question. I think that, I mean, I think that we're still gonna see cycles. I think there's still macro risk across the board and that, you know, we're still advising our companies, like you need to prepare to stay alive

if we go into a bear cycle like we've seen in the past. And I think that there's also macro risk outside of crypto, like, you know, whatever. I don't know. I don't know. We sort of feel like this time it's a different part of this global macro system that that that scares me um in terms of like fundamental around the technology i mean i don't know i think that i mean short of short of like some crazy attack on nation state attack yeah solar flare it turns all these off we lose the ledger like i don't know. I think that distributed consensus systems are pretty robust and getting better. And I think that the security of Bitcoin and these other systems is probabilistic based on how long they've been running without a successful attack. So every day gives me some more confidence, but I don't know. I can't rule it out that something of that nature

would happen, but my gut is no. Did you by chance see the recent news that a company, I believe they're called Hindenburg, that's a short focused fund is putting a million dollar bounty for more information on Tether's backing? Yeah. Yeah, I did. I did. I'm just like, you know, I don't know. I so I get it. Like, I do think it is an industry black guy, and it doesn't look good for regulators. But everyone I've talked to who actually, you know, it seems like, you know, behind the scenes, everyone who's sort of interacting directly is like, yeah know you can redeem not worried nobody's worried and and the tether is so like so sure maybe they're under reserve and sure it's possible i guess technically possible there's a run on tether but it is so widely held and so like uh intertwined across a bunch of decentralized networks and exchanges around the world that, you know, that are, that the, just the mechanics of a widespread redemption event are, are sort of daunting in their own right. So I don't know, I think we're surrounded by actual

scams in the crypto industry. And this is not the systemic risk we're sort of looking for. I completely agree. I completely agree. How many times can we recycle the same, you know, FUD over and over again? It's not just the Tether FUD. Like it's always, every time Bitcoin drops, right?

Tether FUD, China FUD, India FUD, environmental FUD, ransomware FUD. It's like the same cycle. You know, and it's just like one fifth of that cycle that we see every single time and magically price rises and we stop talking about those things again. It's a very strange, humans are weird, but it almost really feels like it's like coordinated to some degree. Yeah. Yeah. I don't know. I guess, I don't know. I don't believe it is. It's just the way that I guess the news cycle works.

Once they're piling on, it's just this sort of endless barrage of the same stories recycled. Yeah, yeah. There's people that want to bang that drum and audience for it, you know, sort of as a counterpoint. So as a year developer, is there anything left that you have in your brain

that you'd love to build in this space that hasn't been built yet? Can you actually share with us? Nothing, nothing I would love to. I mean, so it's more, there's just more I'd love to work on. I wish I had more time to, to learn, you know, dabble a little bit in solidity. I, I would like to be able, I wish I had time to sort of do a deep dive. I know like manifold has like all their smart contracts, you know,

available and open source. I'd love to like hack on those and see smart contracts, you know, available in open source. I'd love to like hack on those and see. They're supposed to be like, they're like largely extensible. So you can add in sort of like NFT logic. So I also really want to learn Rust. I'm curious about, you know, it seems like it's showing up everywhere and sort of, you know, cryptography, cryptographic facing libraries. And then, you know, like Solana smart contracts. So, so yeah, less, less things I want to build and more just sort of spaces that

seem right for tinkering. Sounds like you're going to need 48 hour days, my friend. Where can everybody follow you after this and keep up with everything you're doing. Yeah, yeah. I'm at BrettDG on Twitter. And, you know, we're initialized.com. So thank you so much for taking the time to share. It's good to get confirmation that all this money is in fact flowing. Because it's exciting. I really think that that's one of the most exciting things people get so obviously consumed with price. They don't realize how much this industry is actually growing from the bottom up, you know, from infrastructure and the new ideas. And I think that that gives some context to the, you know, the floor that's being set here

below this bull run, in my opinion. Yeah. Awesome. Well, thanks a lot for having me. This is a lot of fun. Absolutely. My pleasure.