Unchained - A16z Crypto’s Chris Dixon on How Blockchains Can Save the Internet - Ep. 601

Episode Date: January 30, 2024

Sign up for our free newsletter here! Listen to the episode on Apple Podcasts, Spotify, Fountain, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Chris Dixon, founder and managing partner of a16z crypto, believes the Internet’s early ideals of democratization and community ownership have been subverted by the consolidation of power into just a few small companies like Facebook and Google. He’s written a new book called Read Write Own in which he writes about this phenomenon, and argues that blockchain technology can help reverse the trend by providing an environment in which developers and entrepreneurs can once again build direct relationships with their audiences.  Dixon joins Unchained to discuss criticisms of crypto VC firms, how he feels now about a16z’s previous investment in Facebook, how crypto has become overly politicized in the U.S., why Facebook’s Libra project was ultimately shut down, the significant promise of restaking and EigenLayer in particular, and why he believes that creator royalties are essential for the NFT market.   Show highlights: what inspired Chris to write his new book and why he thinks the crypto industry is misunderstood what the current problems of the Internet are and how just a few companies control most of the revenue how Chris explains the concept of blockchains to the layman the importance of property rights in the real world and how blockchains make this better how Chris responds to the criticism that venture capital firms “dump on retail” and what a proper allocation of tokens to VCs is what the best designs are to achieve good governance in decentralized networks how the crypto industry has become politicized in the U.S.  what Chris thinks about a16z’s investment in Facebook why Facebook’s Libra project was shut down and his takeaways from the venture what lessons Chris learned from the 2022 crypto debacle, with the collapse of FTX, Terra, Celsius, 3AC, etc. where Chris sits in the debate about modular vs. monolithic networks how restaking and EigenLayer could “unlock a bunch of new design possibilities,” according to Chris the role of open source software in driving a better environment and better projects how decentralized social networks could attract new levels of adoption  whether creator royalties are necessary and why Chris believes that they are “non-negotiable” Thank you to our sponsors! Popcorn Network Guest: Chris Dixon, founder and managing partner of a16z crypto, author of Read Write Own Previous appearance on Unchained: Chris Dixon on How Trust Is the Best Lego Links Tokenomics Unchained: What Is Tokenomics? A Beginner's Guide Venture Capital Unchained: Does Venture Capital Investment Violate the Ethos of Crypto? Sequoia Says No Modular vs. monolithic Unchained:  Three Crypto Pioneers on Crypto’s Monolithic vs. Modular Debate What Are Modular Blockchains? A Beginner's Guide Restaking Unchained:  Do You Need to Think Twice Before Restaking Your Assets?  What Is Ethereum Restaking? A Beginner's Guide Royalties Unchained: Are NFT Royalties the Way? How to Build a Sustainable Creator Economy The Chopping Block: Two on Two Debate: NFT Royalty Throwdown! The 2022 debacle Unchained: Collapses, Bankruptcies, and Fraud: How 2022 Became the Year of Crypto Carnage SocialFi Unchained: What Is SocialFi? A Beginner’s Guide Crypto & AI Unchained: When AI and Blockchain Meet, How Can Each Technology Benefit? The Chopping Block: Why AI Will Change the Course of History in Crypto Learn more about your ad choices. Visit megaphone.fm/adchoices

I'm pro-Bitcoin. I get attacked by the Bitcoiners as being into, I'm actually pro-Bitcoin. I try to be pro-Bitcoin in the book. But Bitcoin has one use case. It's sort of a digital store of value. Like my goal here is to build a new wave of internet services that replace a lot of the big internet companies and do a lot of different things. And so I just view it as you need, you know, we need to have more projects doing more things and doing it, you know, in a way that it has proper funding. Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the January 30th, 2024 episode of Unchained. Streamline your Defy with VaultCraft, the ultimate on-chain toolkit for deploying custom automated Defy products on any EVM chain. Join Valkraft's referral program,

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And it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. Today's guest is Chris Dixon, founder and managing partner at A16Z Crypto. Welcome, Chris.

Thanks for having me, Laura. The day this podcast airs, your book, Read, Write, Own comes out. Congratulations. Thank you. Thank you. It's been a long time in the work, so I'm excited. You've been a VC for 11 years, and this is your first book. So what inspired you to write it?

Yeah. You know, I blogged for years, like, you know, sort of 2000, I think, eight through 13 era and I've always liked writing and you know been now in the kind of crypto space for about 10 years I find that what we were working on sort of blockchains and crypto I believe is a very misunderstood topic um it's partly misunderstood due to you know sort of faults of our own meaning the industry there's a lot of focus in the industry on trading and speculation and of course there are these giant catastrophes like FTX um you know we were not investors in FTX but regardless like having these kinds of things happen in industry sort of sullies the sully's the kind of the image.

I believe in, you know, there's another side to all of this and this is the side that I think I work on and a lot of friends of mine work on, which is what I would describe as sort of the productive use cases for blockchains and tokens and a way in which they can, you know, as I argue in my book, make the internet a place that works better on behalf of users and creators and software developers and the people that use the internet and kind of returns the internet to a lot of its original ideals from the 1990s. And so I felt like that message was not getting through. And I had tried, you know, like a lot of people in industry, I had gone out and written blog posts and podcasts and spoken to lots of people. And in that process, felt that,

it's it's simply a story that needed a longer treatment and specifically you know needed to to bring in some context from the history of the internet explain a little bit of the inner workings of how this technology works and then really dive deeply into different practical applications that affect people's lives and I found that the you know ultimately I concluded that the only way to really do that was in the in the form of a book and something you know my book's 230 pages in the main text, something that was like not a super long book, but like, you know, enough that that it really gave the full context. You know, the other thing I would say is that there's, and I'm sure we'll talk about it, there's a lot of active policy discussions going on around, you know,

crypto and regulation. And, you know, I've spent a lot of time in the last couple of years with lawmakers and policymakers. And in every meeting, the question is what at the end is, what book should I read? And there are a lot of great books, including your book. You know, there's great books on sort of the history of Ethereum and Coinbase and Bitcoin and just, but I didn't feel like there was sort of a 2024 kind of, you know, what are the societal benefits of this technology written in a way that didn't presuppose any background in the internet or blockchains, right? You could sort of take an average citizen and average per, I sort of, someone told me to write a book for sort of a smart high school student when I started writing, which was advice that stuck with me, you know,

don't assume any background knowledge, avoid jargon, explain things, you know, sort of from first principles. I didn't feel like there was a book that sort of explained all of that and why the technology can benefit society and therefore shouldn't be just sort of banned and, you know, regulated away. Like there is a positive aspect to it. And so I felt there was a need for that. And, you know, like the downturn happened. This was I started writing it after things like, you know, a lot of the kind of blowups of,

I guess, what it was, 21 and 22, or I think, 20. early 2022. And for me also, you know, sort of a personal mission in that I wanted to, I think it was Richard Feynman or somebody who said, if you can't explain something to a, I forget what it was, a 10-year-old, you don't really understand it or something. There's some famous science quote like this. And I felt like, look, if, like, if I really believe that this, that blockchains are critical for creating a better internet, you know, I should be able to really kind of write that

out and explain it in detail in a way that doesn't presuppose anything. Like I don't, like a lot of times in the space, people use these words like decentralization as an example. I think the book, the word might be in the book, but it's certainly not, like, I don't depend. I don't rely on that word. Like, I really go into like the specifics, right? And I felt like that was part of what I challenged myself with personally is like really show this in detail how this has positive effects on people and, you know, how you can create internet. services that are kind of more democratically controlled or the money and the power and all the sort of important things flow to the participants of the network and not just these big centralized

intermediaries. And so for me it was also kind of just frankly a personal challenge just to really kind of go and work out all these ideas. I thought, you know, naively it would take me like a few months. And then of course it took me at least a well over a year of a lot of work. And I had, you know, I had a bunch of really talented people also helped me out and give me detailed feedback and, you know, other things. But, you know, in the end, it was a very, I don't know, you've written books. So I think like her, you know, you know, but it's a, it was in the end of kind of a gratifying process and I'm excited to get it out. Yeah. And, you know, one thing I want listeners to know is that when I read it, I thought, oh, maybe I'll send this to my mom.

because I was really struck by just how simple and accessible a lot of these descriptions were. And even for myself, especially in the earlier parts of the book, I was learning things, you know, which goes to show that, you know, because obviously crypto came later in the internet and I was not doing this earlier. So I do definitely think it's worth checking out for something. Thank you. Thank you. No, that's good.

That's music to my ears because that's what I want it to be. is a successful book. And also, by the way, I'll mention it's broken into both chapters, but also three to four page kind of blog posts like chunks. And specifically to your point, like what I was kind of imagining was that if you're like you and you've done crypto, maybe the internet history stuff would be more interesting. And then there's a lot of people that know internet like veterans like me, internet veterans, like who know the internet history, but maybe don't know the blockchain stuff.

And then so I'm hoping. And then the third part of the book where I go into more specific, like, how to do token designs, some applications, there I'm kind of distilling, I think, the best knowledge of a bunch of smart entrepreneurs that I work with. And so I'm hoping even for entrepreneurs, like cutting edge entrepreneurs, some of that. I'm not saying it'll be, like, brand new, but like I hope that the way I present it is helpful and novel. And maybe, you know, so that's kind of how I was thinking about it is like different part. Like for some people, hopefully the whole. whole thing will be new and interesting, like kind of for the general reader. But then even for folks like you, I'm hoping there'll be parts. So that's what you just said is music to my ears. Thank you. That's exactly my goal. Yeah. Well, let's talk about that beginning part because you start the book by outlining a number of problems with the current internet. You know, I don't even want to name examples because I just want you to lay out like what it is that you're, yeah, trying to tackle with crypto. I mean, I, so I fell in love with the internet in the late 90s and, you know, it's now

spent my entire 25-year career working on the internet. And I, you know, like, I was in an academic program at one point and actually a philosophy, PhD program and dropped out and did the internet. And I, and like, I did that because I, I don't see myself as someone who necessarily would have gone into even business if it hadn't been for the internet to me was this amazing thing. It was this idea that you'd link all the computers in the world and you would do it in a way that was that where there was no intermediary, there was no company that controlled it. It was a, it was a community-owned network, right? This is how the early. internet worked. And this had to do, and I outlined a little bit in the book, but this had to do

with the origins of it coming from academia and government, and there were a whole bunch of good things that happened that led to the 90s internet being this sort of open democratically controlled system. You know, and then that led to because, you know, as I argue in the book, because of the incentives it created, because it was open and there were no intermediaries, it created a very strong incentive for people to create websites and other kinds of internet services. And that's why you had this golden period from the late 90s to the early 2000s where you had Facebook and YouTube and Amazon and Google and all these amazing internet services that that was created partly because of this it was this open democratic system where

if you created a website if you were Jeff Bezos or Larry Page and you created Google or Amazon you owned it like it was your property you didn't have anyone sitting in between you and your audience right they have a direct relationship with their audience and then what happened in the sort of mid to late 2000s going up to this decade you know to the rather the 2010s you had the rise you know you had a set of about roughly five companies that started to sort of consolidate more and more control. And, you know, I rattle off some of these stats in the book, but the top one percent of social networks control 99 percent of the traffic, you know, 99 percent of the revenue, similar

stats for search. The, you know, the top five tech companies now account for 50 percent of the NASDAQ market capitalization, which has doubled. Their share has doubled in the last decade. And so where I think we're potentially headed is for an internet that looks a lot more like kind of old broadcast TV where you had ABC, CBS, and NBC, and you have sort of three channels. And I think that's going to be a bad thing for the world. I think it's bad for society. I think it's bad for entrepreneurs because it's much harder to kind of start a new company. I think it's bad for influencers and creators because, you know, if you're built, if, you know, if you're a TikTok influencer or Instagram influencer, like people go to those services to see the people

who are on them, the other users. They don't go to see TikTok's content. They go to see other users. Yet those other users get very poor economics as I walk through in detail in the book. So I think a consolidated internet around, you know, three to three to five companies, let's call it, is a bad thing for a whole bunch of reasons. By the way, it's a bad thing for venture capital. I mean, people ask me sometimes, like, is this some kind of altruistic message? Like, I work in the business that depends on startups existing. And, and that depends on having a dynamic, innovative, you know, open internet in many ways. So, you know, we see this at the firm is long term kind of a very important precondition for having a vibrant startup ecosystem as having an

open internet. And so, you know, look, I think all the trends are headed that way. Maybe you could sort of slow it down with regulation. You know, we've seen the FTC and others get more involved in, like, you know, blocking acquisitions and things. Like, I don't see that as, I see that as mostly a side show. Like, it's not changing the core dynamics of companies like Facebook and Apple and Amazon getting in, you know, and Google getting stronger and stronger. And so to me, blockchains offer one of the only credible counterweights to that, to that central, that sort of consolidation and centralization movement. And specifically, blockchains allow you to create new internet services that can be anything from social networks to games, to financial

services to, you name it. And I have a bunch of chapters where I go through those specifically in the book. But you can create new internet services that have a lot of the properties of the early internet where people can software developers, creators, entrepreneurs can build direct relationship with their audiences where no intermediary is standing in the middle controlling things where users and all and developers and creators and all the participants of the network are empowered both in terms of how the network is controlled the digital service is controlled but also how the economics work. Right. And so it is a, I see blockchains as a new building material that allow us to create a new wave of digital services that have much better properties

the participants of the network and return us in many ways to what the intention of the, I see the intention of the internet in the 90s and sort of the ideals of the internet, I think blockchains can help return us to those ideals. And that's why I'm so excited about it. That's why I work on it. And, you know, like I asked myself, like this last downturn was brutal and all the bad things that happened. And, you know, and look, I asked myself, I probably like a lot of people, like, is it, you know,

do I believe in this? Is it worth it? And, you know, and can I prove it to myself by writing it down in a book and detail? And, you know, like, I came away, I think, with sort of reinvigorated and feeling like this is more important than ever. And I think, you know, look, and like things like artificial intelligence, I'm very pro-A-I, as I hope comes through in the book. I'm generally believing technology, you know, has a positive influence. But I think AI will reinforce the centralizing forces. AI rewards companies with large stores of data and capital and compute, you know, meta just announced that they're, they have.

have 350,000 H-100s, I think it is. Like it's 10 billion of GPUs. Now, meta, to their credit, is making a lot of that open source. But you're going to see a lot of these companies, these big companies, get stronger and stronger with these AI systems. And so what is the counterbalancing force? Like, we need something to, as a counterweight. And I believe it's the crypto blockchain movement is the main credible counterweight. And so I think it's sort of, not only is it important, but I think it's sort of an urgent thing that needs to be worked on right away. And we need to specifically on the policy side, like stop, you know, like design policies that stop the bad stuff, of course, and put guardrails around it and avoid another FTX, but also allow for the productive

use cases of blockchains, which is, you know, what I try to outline in the book. Yeah, and I definitely want to ask you really specific questions about things like that. But before we dive into some of the more detailed, yeah, issues around blockchain, I do want to ask you about your explanations or just. descriptions of blockchains. You know, I was very impressed by these in the book. Thank you. It was, yeah, just so clear.

And it's something that fascinates me generally, probably because of the type of role that I have. But when you talk to a lay person, how do you explain what a blockchain is? Yeah. I mean, so, I mean, I think the first thing is, I mean, I guess I say a few, the way I describe it is a little bit different than most people in the industry. So first of all, I don't really like when people describe blockchains as ledgers. And it's not because they aren't ledgers. It's because they're more than ledgers. I think it understates the power of them.

And I like to refer to them as computers. And by a computer, you know, I'm going by the kind of original Alan Turing, his, you know, famous description in his undecidability paper, which is, you know, a state machine, which is something that sort of both can store information and then act on that information, right? And so has both kind of storage and programs that can modify that storage. That's what a, at its heart, what your Mac is, what a iPhone is, what a, you know, that is what a computer is, right? It's something that can store information and then manipulate that information in some way. And that blockchain, like Ethereum, is very much that.

It's a computer. You can write code for it. It can store things. It's a computer that is owned by nobody and accessible to everybody, right? it's open, it's transparent. Contrary to a lot of the kind of fud you hear about, you know, blockchains being for hiding stuff. There is exactly the opposite of that, as I'm sure you know, Laura, like they're not,

you know, they're actually horrible at hiding stuff. They're incredibly public. But to me, the key, kind of the key idea is that with any other type of computer, I can make promises to you. Like, I can put up a server and I can say, I'm going to create digital money on my website, on Chris's website, or Google can put up a server and say they're going to have Google coin or something like this. And they're going to put into some legal agreement or something else, some commitment that they'll only ever be 21 million coins. Okay.

In the end, because of the way those, you know, on a typical computer, in the end, they can just change their mind. They can just say, you know what, I'm going to make them 22 million coins or I'm going to change my terms of service or, you know, you sign up for a social network and you, they, have a privacy policy, they can just change their mind. Like any digital service you use today is ultimately controlled by a person and a company and then ultimately a person, the CEO of that company or the manager of that service, and they can just change whatever they want. Like you, you know, the old saying is a cloud is just another word for someone else's computer and it is.

Like you don't control these things. You have no rights. You know, you, all of the typical services you use on a daily basis, Instagram, TikTok, etc. In the end, whoever just runs those servers has the power. Blockchains invert that relationship between sort of who has the software and the hardware. So typically the hard, you know, whoever controls the physical machine controls the software that runs on it. That's how corporate servers work. Blockchains invert that relationship.

The software is in charge of the hardware. So, you know, I upload software to the Ethereum computer. Yes, there are people, you know, known as validators who run the physical code. But they can't, the way that blockchains are designed, the core design, feature, right, is those validators outside of extreme, extreme situations where you have, you know, what's called a 51% attack, outside of the situations, those validators can undermine the code. The code, whatever code is written will continue to run as designed, right, in perpetuity. And that means you can write code that makes commitments.

You can write code that says if this user owns this NFT, they get to fully control it in perpetuity. You can say in this, you know, you can do Bitcoin. There will, Bitcoin commits. There will only ever be 21 million coins. It doesn't matter. Ultimately, Bitcoin runs on physical computers. In Bitcoin's case, it's called miners. Bitcoin, the code is running on those computers, but the people running the code

can't subvert the rules of the system, you know, outside of the extreme collusion, 51% attacks. In the normal course of events, they cannot subvert that. There are other rules, Bitcoin promises Bitcoin makes. Bitcoin makes the promise that you can. can't double spend a Bitcoin, right? That a Bitcoin, that a single Bitcoin can only be spent once. If you could double spend it, it would lose its value. And so it makes all of these commitments that are preconditions for having a digital currency. And then something like Ethereum came

along right, and it generalized this and said, anyone can write code. And that code can also make commitments. And now we have entrepreneurs and independent developers who are exploring that design space. And writing interesting, you know, that's where NFTs came from. NFTs, if only been around the standard's only been formalized for four years right it was a new idea that like well now that you can have fungible tokens what about non fungible tokens and that's very very early in the development of nfts of people saying well what can you do with this and you can have an nfti that represents you know a avatar like the kind of board ape style or you can have one that represents a piece of art or you can have one that represents a sword in a video game or you can have one that

represents an identifier on a social media website or you can have one that represents a you know a deed, a physical offline deed, right? It's a unit of encapsulation of ownership, but that unit of encapsulation of ownership could not exist if you didn't have a computer that could make those strong commitments, right? Because if Google said, you own this thing, if, you know, on Google servers, like, they could just change their mind. And they have, by the way, many, many times, I have that in the book. They've, they've had 300-something services that they've decided to shut down. You know, they could just have Google coin and just one day stop serving it. They can change your terms of service. Like corporate commitments just can't

be relied on. They simply can't. They ultimately have a fiduciary duty. So, so I think of this blockchain is having this very powerful new feature through inverting the power relationship between software and hardware, putting the software in charge, then in turn enabling the ability to make these commitments about the future. And those commitments can span a range of areas. They can be financial commitments, like kind of as described in Bitcoin. They can be commitments to software developers. So like this is a thing that, you know, if you're not a software developer, you don't know, but there was a long period, you know, where social networks like Facebook and Twitter promised open API access to developers. This was like late 2000s and startups were built on them

and there was a whole wave of innovation of people kind of building on top of these things. And then they just all kind of whimsically capriciously decided to remove or deprecate their APIs, killing off a whole cohort of startups. Blockchains, because you can make commitments, one of the commitments blockchains can make is to developers. They can say, hey, we're going to have open API access. And by the way, we can't change it. It's we're committed. Therefore, you can build on solid ground, right? You're not building on quicksand.

You're building your business on solid ground. Think about how important property rights are on the real world. Like if you, you know, the reason that I'm in New York right now, you know, that a small business, you know, will feel good about building, you know, their restaurant or, you know, kind of developing their restaurant on a street is the commitments around them. They know the sidewalk is open. They know the road is open. They have a legal agreement with their, you know, landlord or maybe they own it. And all of those commitments say, you know what, now I feel good investing. There's lots and lots of data from economists that show that countries where there's weaker property rights, there's less investment.

That's because people don't have confidence that they can make long-term commitments. So this is a precondition for a lot of different kinds of entrepreneurship and development is giving people like sort of really strong property rights. And that's one way to think about what blockchains do. It's so interesting. I did not expect you to go in that direction. But yeah, I might try that. So one thing that I did want to ask you about, you know, in the book, you know, because obviously all these systems have coins, you use an analogy around faucets and sinks

to describe tokenomics. But I'm sure you're well aware. And this even came up in your earlier description of some of the criticisms of the Web 2 space. But there are a lot of people in crypto who are critical of what they call VC coins. One of the memes around this actually uses an image of a faucet where the VCs get most of the flow. There's just drops left for retail. So, you know, with these critics calling out A16's involvement in funding new projects and receiving, you know, some percentage of the tokens, how do you, you know, address those criticisms? Especially when they say what you and the founders are doing is dumping on retail.

It's just none of these criticisms I've seen are actually based on any facts. So, like, they're all just these sort of vague insinuations. The actual facts of the situation is, you know, if you look at all of the projects that were involved, first of all, the first thing people will say is that we own, like, too much and control these projects. It's just simply like, I think the average, certainly, I think the norm in the industry now is like a VC lead will own something like 3% of the tokens. And if you just go, look, all this stuff is public information.

Certainly, you know, almost all these, almost every project we're involved with me on sub 5%. Second of all, I think even the smart critics will say that like A16Z, you know, holds these things for a very long time. So the, the stat that we that we have is that of the token holdings, since life to date into crypto funds, we have sold 6% of our token holdings, just to give you a sense of the fact that how long term we are. Look, there's a well-known kind of thing in venture capital of what's called the J-Curve, right?

The J-curve is sort of you start off a fund and then it sort of drops in value, it goes up. And if you're successful, it takes a very long time. Like, our funds are structured. Like, we don't have hedge funds in our crypto funds. We have venture funds. Venture funds mean that essentially it's a different sort of economics where it's a much more long-term holding. And our base period for our venture funds is 10 years. And that base meaning LPs just expect they won't get money back for 10 years. And by the way, most, many of our funds are extended longer than that. So it's just not empirically true. I've never seen anyone make that claim with any data. And and it doesn't match the data.

And so I don't know. Like, it's just not, I think this is just something people say to, and like, maybe there are VCs out there who do that. And I don't know because some of this stuff, I don't have access to all the data for other people. But with respect to us, it's just simply not true. And for the 6% that you have sold, like, what were those circumstances? Well, like, generally, it's, you know, the way I think about it is at some point we do need to return money to our LPs. At some point, they want money back. And so, you know, we're now, I think, six or seven years into our crypto funds.

And so at some point, and generally the way we look at it is we, you know, at some point at different times, we'll do kind of strips of just like selling, you know, a little bit of liquidity across different things. And you mentioned 3%. Is that what you think the ideal percentage is for a VC to receive? Well, okay. I mean, like, just to give you a quick history of, venture capital. Like in the old days, like put aside crypto, just old style. Like when I raised money for my first company in 2004, I think the norm in the VC industry, this is not crypto, obviously, 2004. I think VCs would often own 25% of a company. And then, you know, fast forward, again, not crypto. Like that number is probably has just steadily declined to well below 15,

if not 10%. This is in traditional venture capital. So, and that just has to do with dynamics of like, you know, entrepreneurs sort of, there's more capital out there. The entrepreneurs have more negotiating leverage. In crypto, I think the numbers were already cut in half for a bunch of reasons. Look, part of the reason is that in any well-designed blockchain project, they're going to give at least 50% of the tokens to, you know, the community through various incentive programs, air drops. And so already the numbers are lower. And then there's a lot of, you know, just competition. There's a lot of investors out there. And so that gives the entrepreneur's leverage. And so that number, I don't, I'm basing this on anecdotes and not data, what I'm saying right now,

but I'm pretty sure that number has cut in half, the average ownership of a lead VC in a token project. And I'm pretty sure it's around. I mean, like, I know today like 3% is like a pretty decent number for a VC to get. So, you know, and it's been sort of steadily going down. So, I just don't think that that, like, that criticism is based on data. I'd love to see people's data when they make that claim because I haven't seen, it's not consistent with what I've been seeing. And by the way, the other thing is like, you know, with these systems like Uniswap is, I think Uniswap is one of our higher, you know, that was an investment we made in, I think it was 2018 or 19. We led the series A of Uniswap. I think that's one of our higher ownership of like 6% or something.

I don't actually know that I think it might something around there. But in all those cases, also we have a delegate program where we commit to delegating half of our votes to our college students and other delegates that we have. So that's just another way to kind of decentralize control and things. But look, I mean, I think the important thing I talk about this in the book is let's compare this to the alternative, which is the alternative is you have these big companies who control most of the internet where it's controlled by, you know, one person or maybe a 10 person board. and it's all opaque and it's all behind the scenes. So like the idea that now having a community control with a few institutions owning 3% is somehow worse is just, to me, it's just losing perspective on the topic, right? Which is a dramatic improvement in terms of making these systems more democratic and more community owned. Yeah.

I mean, I think the, you know, on the other side, they would say that there isn't just one other alternative. They would say, oh, Bitcoin or any of the quote unquote, fair launch coins. I like Bitcoin. I mean, I'm a like I'm pro Bitcoin. I get attacked by the Bitcoiners as being into, I'm actually pro Bitcoin. I try to be pro Bitcoin in the book. But, but, you know, Bitcoin has one use case. It's sort of a digital store of value. Like my goal here is to build a new wave of internet services that replace a lot of the big internet companies and do a lot of different things. And so I just view it as you need, you know, we need to have more projects, doing more things and doing it, you know, in a way that is, it has proper funding. And sometimes that

proper funding, like a useful way to raise that money is to have D.C.'s involved. Like, it's just the reality. It's like, look, it'd be nice if, you know, you could build the next YouTube and Twitter and everything else in a totally bootstrapped way. I've seen no evidence that's ever happened. It's literally never happened in 30 years of the internet. I actually walk through all these examples of people trying to do it. And at some point, like, if it's not working over and over and over, maybe you should try something else. And like, you know, venture capital, people like to criticize it and it's an easy punching bag.

But the reality is like venture capital is the model that has created, you know, the vast majority of successful internet services. And so, like, you know, at some point, I want, you know, I guess the question I would have is do you want to start winning? Like, you know, like, I get, you know, like, is Bitcoin winning against, you know, PayPal and Square Cash and all these other services as a payment network is lightning winning? I think Bitcoin's doing well as a digital gold store value. I think on the payment side, it's still very early.

We have some investments there like LightSpark, David Marcus, and I hope it does well. But ultimately, I view myself and our firm is pragmatist. We want these things to be successful. And there's sometimes in these things, there's a balance between having these ideals around fair launch and everything else and winning. So in a moment, we're going to talk more about tokenomics and token distribution. but first a quick word from the sponsors who make this show possible. Defy just got way easier with VaultCraft, a blockchain infrastructure for building, deploying,

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Investing is all about the future. So what do you think is going to happen? Bitcoin is sort of inevitable at this point. I think it would come down to precious. metals. I hope we don't go cashless. I would say land is a safe investment. Technology companies, solar energy. Robotic pollinators might be a thing. A wrestler to face a robot, that will have to happen. So whatever you think is going to happen in the future, you can invest in it at WealthSimple. Start now at WealthSimple.com. Everyone needs help with something. If investing

is your something, we get it. Cooperators' financial representatives are here to help. With genuine advice that puts your needs first. We got you. For all your holistic investment and life insurance advice needs, talk to us today. Co-operators, investing in your future together. Mutual funds are offered through Cooperators Financial Investment Services Inc. to Canadian residents except those in Quebec in the territories. Segregated funds are administered by cooperators' life insurance company. Life insurance is underwritten by cooperators' life insurance company. Stuck in that winter slump, try dove men plus care aluminum-free deodorant. All it takes is a small change to your routine to lift your mood. And it can be as simple as starting your day with the mood-boosting sense of Dove Men Plus care aluminum-free deodorant. It'll keep you feeling fresh for up to 72 hours. And when you smell good, you feel good. Visit Dove.com to learn more. Back to my conversation with Chris. And so just in that vein of talking about, you know, how to

distribute the tokens, I noticed that when you describe blockchain networks, you did mention that one of the downsides of them could be plutocracy in which big token holders have too much power. And so, you know, how do you think about designing governance and the systems so that we don't, that crypto networks don't end up with that? Yeah. Yeah. So, yeah, I have a chapter on network governance. And I, you know, it's interesting, I rewrote that chapter many times because I started off

trying to, wanting to sort of give an answer to network governance. but then decided that, you know what, I just don't actually have an answer. What I do believe is that blockchains now allow network governance to be moved into the rich design space of software. You can now use software to design new governance systems. That's what a blockchain allows. And I think that is a notable improvement over, you know, just giving all the power to a CEO of Facebook or Twitter or, you know, in the case of things like web and email, where you have this. I think those are great, but like you just haven't had any other kind of community on systems that have succeeded in the last 30 years. So to me, this is a, the idea that you can, you can now design governance systems for networks is an important breakthrough.

The specific designs that are the best, I try to walk through some examples of what I think are some interesting ones that are, but, but the truth is I don't, like, I think it's still, I think it's still evolving. So, but to give you an example, like, I think originally we had sort of two broad schools of thought on, on, on blockchain, network governance, right? One was the off-chain governance to something like Ethereum, where it's done much more in this sort of old style open source governance, where essentially the software developers quote-unquote vote by deciding what to upgrade to make. So if you propose a fork or a change, like this is how Bitcoin works, the software developers kind of are effectively voting by deciding, you know, which side of the fork to take. The other form of governance that we've seen initially is the fully on-chain governance. And this is things like Compact.

in uniswap. And then within on-chain governance, we've had kind of strong on-chain governance, which is like compound, which would be let you like propose full code change, any arbitrary code change. You can propose it and people vote on and on-chain, your token votes. And then you have things like uniswap, which is much more constrained. You can't change the code, but you can vote on the funding. So it's also this question of what you can vote on. And then you have, I think, really interesting experiments like optimism where you have a sort of bicameral system. All right, so you have a kind of its, you know, Senate and House, if you will. And so the Senate kind of keeps check on the House. So people, you know, that House is sort of the token votes, but you make sure they

aren't doing things that are, for example, plutocratic and self-interested. So you have this sort of override safety valve. You know, like I think that's really promising experiment as an example that's going reasonably well. But I think these are complex problems. We have a guy, Andy Hall, it's a professor at Stanford, who's a governance political science expert who works on our team. You know, like, and he's excited about this area because it's like this whole new kind of way to study governance. And look, what he would say is the reality is we haven't figured out governance in the offline world. Like, how's that going? It's just complex. It's people. It's messy. But I do think, but I do, well, the claim I would support, and I do argue in the book,

is that it's a lot better than just having these kind of little dictatorships, which is what we have today with these social networks and other digital services. We're just like the, you know, the person who runs it wakes up one day and decides to demote a certain type of, of post or a certain type of, you know, user and like they have full power. I don't think that's a good way to control these systems, which have become, you know, like Twitter, Facebook, these PayPal, these are, these are, you know, all of these digital services we use are now. They control global economics, politics, culture. These are very, very important systems. And I think we kind of backed into this system where like they're controlled by a few people who may or,

may not have society's broader interests in mind. And I don't think that's the right way to control digital services. And so I don't think the blockchain space has figured out all the answers, but I do think it's a very interesting new set of tools to address these questions. And so this isn't necessarily about distribution specifically, but there's another issue that crypto projects have seen, which is that sometimes speculators have gotten in early, driven the price up in a bubble, which then causes a crash. It kind of kills the project.

So what do you think is the best way to prevent that kind of situation? Yeah. So look, I talk about a little bit in the book. I think time horizons are a very important thing, as I was just talking about with venture capital. Like I, along with all of Silicon Valley, is in the for-profit, you know, tech business, right? So there's no no illusions about that. But generally, I think Silicon Valley works pretty well because it's profit-driven. but it's long-term profit-driven, right? If you join a startup, you usually have to go through a, you know, five to 10-year process and build something of value before you make money off of it, right?

And the same with venture capital. Like, I think people would be surprised at how long, you know, the average holding period in venture capital firms across the industry is. Like, it's really long. Like the average, I think the average, I think it's longer than this, probably based on the data I've seen, but it's seven to eight years before. typical fund even breaks even, let alone makes profit, right? Seven to eight years.

And that's sort of just typical around the industry. And I think it's, look, it's, if you're doing it, I know people that work at startups, it's like, gosh, you know, I'd like to go and buy house and do all this stuff and people have to wait. But it ends up aligning incentives very well between the company and the broader societal interests, right? Because they, you just, you can't hype something up for eight years. Like, you have to actually go build something useful, right?

And I, so I think that kind of stuff, look, and if you look, and if you look, and if you at the some of the draft proposals that came out of the House Financial Services Committee, like important ideas and there are enforced lockups. And I think I'm very supportive of those ideas. I think having, I think one of the main things that could be done to tamp down speculation would be longer time horizons enforced through policy. And so, you know, like if you, you know, so, you know, for example, maybe users earn tokens through air drops, but they, you know, you know, they can't sell them for some period of time or until some milestones are hit or some other kind of thing to severely dampen the kind of speculative side of things. But I also think there's an interesting, sorry, for one thing I could add is I think there's also a lot of projects exploring what I would call kind of financial dampening, which is, you know, you've heard about points as an example, which are non-transferable tokens.

Like there's a bunch of people, I think in some ways one of the lessons is that from the speculative side of crypto, you know, I call it. the casino in the book, from the kind of casino side, which I think has, you know, hurt the, hurt the space and given it a bad image and also hurt a lot of consumers. I think essentially that one of the key lessons is that they're, in some ways, tokens are too powerful, like the financial aspects just overwhelm everything else. So you try to create a game and you want people to play the game, but like everyone just ends up getting obsessed with the tokens. So one of the things points do is it sort of says, look, these are not as power, like you're dampening it, right? You're sort of saying, hey, these are just transferable points. Maybe someday they'll be

transferable or something else, but you're sort of putting the focus back on the utility and not just on the financial aspects because it's just the financial aspects just kind of overwhelms everything. So while we're on the subject of points, is there anything else about them that you want to add in terms of like, you know, how you find them useful or when you think they should be used versus when they should not? Yeah, well, this is one of these things where I think people are using the word. And like, I think different people, like it's one of these, whenever you have new tech words, people use it in different ways. And maybe not always in the same way. Is there. So, I'm not even sure when people say points what they're referring to because people can mean different things.

I think that the idea of non-transferability of tokens is interesting, like especially just because there's a lot of legal uncertainty right now around these things. And so by making points, you know, tokens non-transferable, you know, force, it just makes it impossible for people to trade and to lose money and to have all those kinds of issues. And so, you know, I think that's one reason people, are exploring it. And I think it's good to see people sort of running experiments and things, but it's still very early. I mean, that even the word points is like, I think, a month old or something. So we don't really know where all of it's headed. So to go back to your comments about the casino, Bitcoin ETFs were finally approved and launched in the U.S.

And as we're all very well aware, that only happened because the SEC was forced to do it. And it probably should have happened sooner or would have if Bitcoin and crypto hadn't become politicized. I've even heard Gary Gensler actually talk about crypto and use the word casino to describe it. So I wondered, you know, what your thoughts were on why it is that crypto has become politicized? Like, I don't know if you've seen that in previous eras of tech that you've worked on. Yeah, it's a great question. I think, I think there's different ways to look at it. Like, one is just maybe the world is different now and everything is politicized. I mean, you know, you saw this during COVID. Like, I remember when COVID started, I naively thought, okay,

okay, this will be finally be an issue that brings a country together. And the fact that whether to wear a mask or not became a political issue, I think just probably says something about the current climate we live in. I think the fact that whether you have, you know, the crypto has been, I mean, I think that's one way to look at it. It's just sort of we kind of live in an era where for whatever reason everything seems to become politicized. And that's happened with crypto. Like I think part of it is the origins, the fact that crypto started with Bitcoin and started

with kind of a more like a lot of them were libertarian and kind of coded right. And that made people like Elizabeth Warren on the left and others sort of see it as as the enemy. I, you know, I think that it's a blockchain as a software construction. It's politically neutral. And a lot of the use cases, I think, could be described as left. Some of them, a lot of them could be described as right in the same way that social media could be used in either direction. So I don't think, I think that they are, you know, it's very much politically neutral. And that, and it would be great to kind of, if we could, lessen the politicization of it. Yeah, I don't know if that's possible, but that, like, it certainly has happened. It is politicized. And I think that's driving a lot of the,

a lot of the policy now, unfortunately. So, but look, we're also seeing, I think, a lot of moderate Democrats are much more open-minded about it, you know, on the, I think it was six Democrats voted for the McHenry bill as an example. I think, you know, I think we'll see more of that. And so, you know, like, and I hope that as people kind of understand, hopefully if we can get the right messages out and help people understand the possibilities of the technology and sort of broaden the, you know, make the movement more inclusive, bring more people into it, that potentially, I hope that over time we can change that perception. Like open source software is an interesting analog where it began as a actually a left-wing political movement from the 80s. It was sort of a

socialist movement, anti-copyright. And for a long time, the 90s was sort of, nor it as this fringe kind of left-wing thing, and then it kind of morphed into a much more pragmatic movement with things like Linux. And so my hope is that that same thing can happen with blockchains is that it's sort of, yes, it had these kind of political origins, but over time, people sort of view it more pragmatically. It's just another tool, another, you know, another way to build things. So, you know, that, but that obviously is not where we are today, and that would take time. And I also wanted to ask about the description that you had of how proprietary networks like Twitter and Facebook ended up beating out some of these other more open protocols like

RSS. And, you know, one of the reasons that you gave for it was because Twitter and Facebook could raise venture funding. And A16 itself invested in Facebook. So I was curious for how either you or the firm view that investment now. Well, I'll speak for myself, which is I, like, I felt like I went through a journey where, you know, I was obviously part of, a little bit part of Web 1, but then really part of Web 2 and sort of the 2000s. I was an entrepreneur and then became an investor working on that. You know, I became disillusioned with how that was going about when I got into, you know, 2013 or so when I got into this space and into crypto.

And, you know, that was around as I document in the book when sort of RSS and these other open social networking systems were failing or losing ground to these centralized systems like Facebook. And look, and that was after, like, late 2000s, it looked like, well, Facebook will be a new platform and Twitter will be a new platform, but they'll be kind of, they'll uphold all the principles of the early internet. By 2013, that was clear that wasn't happening, right? And this was going to be a very different world. At least for myself, that's when I started to become disillusioned with this system and started to look for alternatives. And, you know, for me, that was sort of the striking thing about blockchains. And so, you know, like, I think people say that sometimes like, oh,

you know, this, it's hypocritical. You were part of the web two, you know, Mark Entrieson's involved in the face, is still on the board of Facebook. I, you know, I think generally, I think it's, to me, it's consistent to have believed in something and supported it and then to be, you know, and then to as you see it going off the rails to, um, support things that, that might fix it, right? And that's, that's how I view my own journey. And as I mentioned earlier, like, I just don't think there's going to be a huge, you know, I just don't think venture capital is going to have a bright future if we don't have a dynamic internet that's accessible and open to startups. So I think it's, you know, another very important issue that we're very

involved with that's not crypto is open source software in general, open source AI, which I think is the next policy threat, right? I mean, we already saw with the executive order from the Biden administration what looks like essentially effectively abandon open source software through, you know, having to quote register frontier models and all these other kinds of things that just simply couldn't happen with open source software. And so I just think there's a bunch of forces that are effectively going to sort of make the playing field, like make it impossible to have a level playing field for startups. Like, I don't think any, any, no one I know who was involved in the Web 2 era up until 2013

had any idea this is where everything would end up. So I think it's just been a big surprise and some people seem happy with it. Other people like me and, you know, others at my firm are not happy with how things ended up. want to try to improve it. But I think it surprised a lot of people for sure because, look, I mean, even the most optimistic, if you told the most optimistic tech person in 2007 that we'd have a social network that's worth whatever the meta's worth now, $700 billion, they would have thought you were insane. If you told them that the five biggest companies, including matter, were 50% of NASDAX market capitalization, they would have thought you were insane. Like, nobody predicted

this level of consolidation that I know of. And so it's just, it up very different than people thought it would, at least people I knew thought it would. And then that forces you to reckon with that. And you either decide it's good or not good. I decide it's not good. And I want to work on systems that, you know, try to move things the other way. Yeah. And I find it interesting also because I realized your investment in Coinbase was in 2013. It was. Yeah. The timing lines up there. So speaking of Facebook, you know, tried to move in the direction of crypto with its Lieber project. eventually it had to abandon that.

And A16C was one of the members. What were your takeaways from that whole debacle? I mean, I think, like, I wasn't, you know, I mean, we were like on the whatever it was the consortium. Yeah, something like that. Like, we weren't insider, so I don't know the whole thing. But my impression was it was just all heavy pressure from policymakers and regulators to shut it down.

There has been, you know, and like, look, with all of these companies that have other lines of business, like, it's one thing for a crypto company to get pressured from the government. But if you're Facebook and you've got, you know, these, you know, $150 billion of revenue streams from all these different businesses and they're under various, I'm sure they're under thousands of various pressures and regulatory pressure. I think in the end that was just the, you know, the thing. I mean, that's also, if you remember that I forgot who it was, a senator sent a public letter to like Stripe. And I think it was PayPal and a bunch of other members of the consortium telling them if they don't drop out. They're essentially going to, you know, like threat.

the rest of their business, right? And so you can't, you know, you can't expect a Stripe or PayPal to risk their core business for what they view as an experiment, right? But what's your takeaway in terms of like how you think about how to launch other things you're working on or, you know, how to advise? Well, I think we need to figure out the policy side. I mean, I think we need to have rules that are set and fair and protect consumers, but also allow for responsible innovation, which we don't have today. And like, that was one of the challenges. The Facebook had just simply weren't they, you know, we just didn't have that.

Like, there wasn't enough space there for them to innovate. And so, and like, I think part of it, too, was the public messaging. I mean, if you look at a lot of the political discussion around it, it was like Facebook's trying to create their own money system, right? Of course, they weren't. They were trying to create a payment system. It's very different than creating, they weren't trying to compete with the U.S. dollar. And so just, it's just a lot of the messaging got complicated. So my takeaway, look, I think part of my takeaway is we're just not going to, you know, we just need to have.

smart policy around all of these new tech issues, crypto, AI, everything else, if we're going to have the kind of innovation we want. I mean, so a lot of it was just policy related. I don't know. I mean, like, I think they did it. They tried very hard. They did a good job. Look, a lot of the tech, you know, the tech itself was all done and opened on GitHub.

And the team spun out and did Aptos and sui. And so the code lives on. And I think to Facebook's credit, same with what they're doing with AI. Lama, they were very open source oriented, so that's nice. So like all that investment in very interesting technology lives on through the open source code. Yeah, I mean, when you said they weren't trying to build a competitor to the US dollar, I think even if they weren't trying, it probably would have on some level. So that's probably what policymakers were calling out. Yeah, and it was right around. I think Facebook was getting a lot of heat at the time just generally,

right? And so for like the social media stuff. So I don't know. I may just, I don't know. I'm not privy to the internal working to Facebook, but it may have just been too much, too much, you know, political drama. Yeah. So speaking of drama, crypto had a terrible 2022, as you mentioned earlier. Yeah. Taraluna 3C, Celsius, FTX, et cetera. What are the lessons that you learned from that year? Or like, what are the lessons you think the crypto community should have learned from that year? Yeah, you know, I felt like, so I felt this, so if you remember, there was that, that whole kind of cycle. As I recall, like, maybe I'm forgetting the days, but I think it began in like summer 2020 with like the launch of, you know, the so-called defy summer. And then, and then that was

sort of, I think, when compound and uniswap launched or at least started to grow. And then, you know, then we had like top shot like NFTs toward the end of the year. And, and I felt like for that first year, I was really encouraged because it felt like there was a lot of product innovation and people focus kind of more on the products. And it was like TopShop was, hey, this is cool thing. You can collect these basketball cards. And then at some point, I don't remember the exact dates, but it was like probably in 2021, it felt like to me it turned.

And it became, as you were describing earlier, less about the products and just all about the kind of money. And it just became, you know, and the kind of heroes on Twitter, crypto Twitter, instead of them being product innovators, they were like three arrows and SB And like, so it not only became more about money, but the kind of the personalities became money personalities. And I felt like that. And then, and then, of course, fast forward and there were these disasters. And I think I forget the order, but it was like three arrows and Terra and of course, FTCS.

And so for me, you know, I mean, I think the lessons are many fold. But one of them is we, you know, look, we need regulation and we need clear regulation. So I was on the board of Coinbase for years, and it was with great frustration at Coinbase that Coinbase, you know, Coinbase has been, for example, had KYC since the beginning, contrary to some of the insinuations otherwise. Like, they've always been very, very compliant and spent a lot of money on regulation. Meanwhile, they had competitors who were offshore, including FTCs, including Binance, who ignored a lot of those things. And it was always very frustrating at Coinbase because they felt like they were doing all these things and complying. and yet losing significant market share, right? Like I think at its peak, finance, I mean, I don't know, you probably know better.

I think Coinbase got down to like 5% market share. And all the market share was getting taken by FTX and finance. I can't tell you how many times I heard from people in the venture community, oh, wow, FtX has got a new, you know, there's so much better than Coinbase. You guys have the losing company, you know. And so it was very frustrating. And I would argue, you know, and like, why is that? Because it takes seven years to build a case against Binance.

because we don't have black and white rules around crypto, and therefore everything is going to court, like with the Coinbase case, and it's going to take five years to settle. And so we have this extremely slow-moving system where there's going to be many, many long court battles. When if you had just like a law passed and you had very clear rules, it would be black and white,

and if somebody is outside the lines, you can go and force it immediately, and you could shut this stuff down. So I think a lot of this was a policy thing, Like having clear rules and then enforced rules that you don't have to go to court for five years over to enforce would help everybody. Okay. So I think that was part of the problem. I think part of the problem came from the crypto world.

I'm not saying, so I don't want to just, you know, I don't want to take the responsibility out to crypto world, which is just this focus on kind of trading and speculation in crypto Twitter. You know, I think the design of these systems, as I was sort of mentioning earlier, like there's just too much focus on money and tokens and not enough on utility and other kinds of things. things. So it was a series of failures and it was, you know, and it was definitely, it was a failure and it was a disappointing outcome. I don't think that means that we should, you know, throw the baby out with the bathwater and give up on blockchains and tokens. As I, you know, I think that it's, as I've mentioned before, very, very important technology. The technology itself is not, you know, technology often arrives, you know, with various historical events and cultures and other kinds of things, but like we need to separate that from the technology itself.

And that's what I try to do in my book. I try to look at the technology objectively. Here's what's good about it. Here's what's bad about it. And, you know, if we had a proactive smart policy, we try to maximize the good and minimize the bad. You can use a hammer to build a house or to destroy a house. You can use nitrogen as fertilizer or it's for explosives.

Like all technology has a good side and the bad side. And the job of investors like me, of entrepreneurs, of policymakers, of society at large, is to think about systems for maximizing the good and minimizing the bad. Right. And I think that was part of the major lesson coming out of that. It's like we need to go collectively, I hope, and figure that out. And by writing a book, what I'm hoping to do is take the debate out of kind of the Twitter dunking and ad hominem and all the things that go on of like people name calling.

And I'm trying to say like, here's my view. I put it out in 230 pages in detail. If someone's going to critique it, my plan is if anyone does a good faith critique, like long form critique, I will respond to it in good faith. I want to elevate the debate to a like a smart discussion and not just like people, you know, name calling. And I think, you know, I think this is all of these tech policy things should be, you know, sort of new tech AI too.

Like how does how do we balance AI, which is clearly an amazing technology and we should embrace with the livelihoods of creative people that it might replace. Like we need to have these discussions, right? And we need to move these discussions out of this realm of like name calling and dunking. It needs to be, these need to be like, serious long-form discussions in my view. And I'm trying to contribute my part to it with the book. Yeah. Speaking of the dunking it, one of the examples that I thought of was the have fun staying poor from Doquant. I think it's a terrible message. Like, is that you, that we're talking, like, I think that's one of the, one of the things that the crypto people do that makes them disliked is that they say things like half fun staying poor and a bunch of other things, which is just non-inclusive. It's not like it, it, it, it, it,

I don't know. It's just not like we should be thinking about how do we use this technology to improve people's lives and improve the internet and be inclusive. Like if you're not like it's by definition. If you're exclusive speech, like if you want to if you want to grow the movement, you need to be inclusive. Yeah. Yeah. It comes from like ego. So it looks like we're on the verge of another another bull run, at least in my opinion. If you agree with that, what do you think this bull market will be about? I don't, yeah, so I don't know. I try not to, as mentioned, we're in the venture business, so we're long term, so we don't try to time markets or anything like that. But, like, I think, I think the good news is right now, like, infrastructure-wise, we've made a lot of progress.

It's been, you know, like, it's always, for me, always slower than I'd like because I'm impatient about it. But, but, like, the Ethereum L2 stuff is real. And, you know, I think we're getting very close. Like, I kind of measure it against, like, when will we have kind of feature parity with web two systems? you can just go on, click a few buttons, you know, not pay high gas fees or ideally any of gas fees and like do something, right? And just have it be like a really clean user experience.

And I think we're very close to that. And in fact, some people have that today. Like, you know, we have just given an example, like a investment in one called a company called Blackbird that's doing kind of restaurant related NFT stuff created by the founder of eater.com and resi, like an experience. restaurant person and it's a web two kind of like it's like a very clean experience and um and so we're we're seeing more and more of that i think we're seeing more um a whole bunch of so i think on the infrastructure layer things have gotten much much better um there's also of course as i mentioned alternative l1s like aptos and sui and avalanche and near and a bunch of others and and i think the l2 stuff has gone well i think um and then on the application side there's just a lot of really

talented entrepreneurs we've got a bunch of people making games and social networks you know it's thoroughly. But like, you know, I think like, for example, Farcaster, Dan Romero, like, is a good example where I think it's a really interesting design of a decentralized social network on a blockchain. And he's very early in terms of users, but he's got a nice, you know, early community going. And the technology is evolving well. And there's probably, you know, in our portfolio 20 to 30 applications like that, whether they be games or idea I really excited about is this kind of collaborative storytelling, which is I talk about in the book, which is an idea that you can get a community of people together and they can create narrative universes like Harry Potter and Star Wars and get rewarded financially for their contributions. There's just a whole series of interesting kind of applications getting built. I was there for the early iPhone application wave. And what happened is, you know, you had like a 13 year period of people trying to create smartphone. The iPhone came out 2007. Smartphone innovation Silicon Valley probably began 15 years before the iPhone, like General Magic.

There were a bunch of people trying to create smartphone. in the 2000s. And then iPhone came out. It was finally like nailed the infrastructure, nailed the, nailed the phone. And then there was like a year of like flashlight apps. And then about a year later, you started to see entrepreneurs entering. And I was actually an active investor at that point. And that's, if you look at the data, like it was between 2009 and 11, like almost all the

top apps were started, meaning Uber, Snap, Instagram. They were all that kind of that range. And so at some point, you hit this kind of like sweet. beat spot in any kind of computing evolution. And I don't think we're there yet. We have not had our iPhone moment. I don't believe in crypto, but I do think that a lot of signs point to it being in the near future.

I hope, you know, AI, by the way, I love this sort of new revisionist history that it was this, you know, overnight success. It was the first neural network paper was 1943. Okay. It was 80 years to Chad GBT. There was a many, many summers and winters of AI. In fact, if you go read about it, there was a whole, like, AI investment quote bubble in the 80s, 1980s. I started an AI company in 2008.

I thought that was the right time. I sold it to eBay in 2011. Retrospect, that was whatever, over a decade too early. What ended up making AI happen? A lot of really smart people, algorithms, et cetera. But fundamentally, it was GPUs got better and better and GPUs got better because of video games. So, I mean, I think that's AI is a great lesson both in how long these things can take. but also in how circuitous the roots can be.

Sometimes, you know, video games led to AGI. It might be the headline, you know, 100 years from now or something. So my point just being like, that's how these things evolve. I don't think we've had our kind of chat GPT or iPhone moment yet. And I hope, you know, I, and I also have found in my own career, it's easier to predict the direction of things and it's much harder to predict the timing. So I hesitate to give you timing predictions because I'll probably be wrong. But I do think that a lot of signs point to us being relatively, you know, I'm hoping,

relatively close to some kind of really breakthrough and more useful applications. And I think when that happens, that will really dramatically change the perception of the space because people will start to be able to directly experience. It's one thing to talk about these ideas, as I do in the book. But like, it's another thing to experience them. And I think that will be a really important moment when we finally have applications that, you know, or hundreds of millions of people are using on a daily basis. And then, you know, they can understand this is much more than just about kind of casino speculation.

And there are really productive use cases. Yeah. And I actually do want to ask you about a few different applications. But first, I have just a few quick questions about infrastructure-related things. I'm sure you've heard this common debate in crypto now about modular versus monolithic blockchains. Obviously, this is Ethereum versus Solana. And I wondered what your take was on that debate. Yeah.

I mean, so, you know, that, by the way, that's an old debate in computing. So, like, you know, this goes back to Unix versus Microsoft, right? Like, so Unix would be a modular system and Microsoft was a monolithic system. Our view has been, and, you know, like, we're excited about Solana. And I think it's, you know, there's a lot of interesting positive signs there. And I think the technology is very interesting. You know, I guess I view it as different applications require different architectures and different sort of use cases.

So like if you're building, you know, for example, one of the benefits of a monolithic architecture is you get, is you have all the different applications built on that, on Solana can fully interact with each other and be fully composable and be like Lego bricks. Whereas if you have, you know, a whole bunch of different L2s on Ethereum, maybe you have to need bridges and it's clumsier to get across.

But, you know, at the same time, if you're building a video game and it's a more siloed experience and it doesn't have to interact with the video game, games and you just want it to be incredibly fast and cheap, you might want to build a L2, like an O-P stack fork on Ethereum, for example. If you're somebody else and you're building like, you know, like an NFT project that, you know, interacts with other applications or financial service that interacts with their financial services, the monolithic architecture might be preferable.

So I view it as like there's a tradeoff space and it depends on, this is by the way, the same is true in like infrastructure software, not outside of crypto, is that you end up having like different architectures work for different applications, right? And so I see it's the same thing here. I think it's great that we have so many strong technologists who are building kind of the best monolithic and the best modular architecture and that those exist and are available for application developers to build on top. And I think there can be multiple successful architectures. Ultimately, it's going to be driven by applications. I mean, the real thing now is we need those applications. applications to get built out and grow so that that in turn, you know, helps, helps develop

these, these, these, these, these, these blockchains. So. And if you were to pick, like, which applications you thought would work better on which system, like, what would you say? I think there's different tradeoffs. There's modular. I mean, modular is better for atomic composability, like, for just having, you know, things, services that interact with each other and call functions. And I mean, I'm getting a little bit technical, but like call functions, you know, sort of synchronous function calls. And so, you know, so if you have, you know, I think a lot of financial services apps want that kind of stuff as an example. I think probably games work better and modular.

I know I'm involved with a few games and they just, they just, you know, like their model is free to play and they want to have 100 million people, many of whom aren't paying for it. They have to have, you know, incredibly low gas fees and incredibly low latency. And so they just want to roll their own chains and do it that way. So, you know, so I think games might be one where you're going more modular as an example. So I don't know. I mean, I think we'll just have to see a play out. But I think it's good that we have a lot of application developers have a lot of choices. And restaking on Ethereum is going to be rolled out this year with Eigenlayer.

What do you think of eigenlayer and what impact do you think it'll have on Ethereum? I think that, you know, like I think there's just so many, it's one of the most, there are many of these, but it's a very, but I think it's a very, but I think it's, a very interesting intellectual, like intellectually is a very interesting idea. And it's very important because it unlocks a bunch of new design possibilities. And so because you can, you can do like, I just give you an example, like one idea people have been talking about is how do you build kind of distributed AI systems on top of blockchains? And one of the challenges of building a distributed AI system is you want to have a way to, like if I go and say, I send a job out to a bunch of computers to do some AI task.

And they send me results. Like, how do I know they didn't send me back garbage? How do I validate what they did? And that was actually correct, right? And today, you know, to do something like that, you'd have to build your own L1 from scratch. You know, you'd have to go build your own L1 and that kind of think of what like Filecoin did or something like this. They had built their own L1 and then they have to go recruit a network of validators and those validators are going to then go and, you know, it's like starting from scratch. Right. So what's really interesting about restaking is that you don't have to start from scratch. You can write some code that says, here's my code for doing AI algorithmic validation, right? But I'm going to piggyback off of this existing infrastructure of the Ethereum validator community, which is this rich, diverse, decentralized community. So it's a really interesting way to allow for many more sophisticated blockchain designs that don't have to start from scratch. Because starting from scratch with a new.

community is just a very, very hard kind of marketing problem. I don't know. It just, look, and it just shows you, I think just it's another testament to when you have open permissionless systems that anyone can build on, you just get all these kind of cool new ideas. Like that's just, you know, I think until Ion layer, at least to my knowledge, no one had thought of that. It was just like a brand new idea.

Maybe there's some precursor to it that I don't know if it. It just shows you kind of when you have these open permissionless systems that you get just all sorts of unexpected kind of new breakthroughs, right? which is just a sort of a broader testament to why we're believers in open innovation. Yeah. Honestly, it makes me think that we might see even more of a flourishing of an ecosystem on Ethereum. So in terms of applications, a lot of people see SocialFi as an area right for blockchain-based apps to take off.

What do you think of Socialify apps? Sorry, what do you think a Socialify app would have to do differently to compete with existing social media platforms. You say social file, you're referring to like Frentec or you're referring to, because I see it as like there's sort of, is that what you mean or do you mean? Well, yeah, it could be. Just any sort of decentralized social network. Yeah, well, so, I mean, because so like we have, you know, so there's, to me, there's different types. There's ones that are kind of more finance oriented like Frentec, and then there's ones that are less finance that are more sort of like traditional social networks like Farkaster.

Yeah, I think that, I guess I'd say a couple of things. I think, I think one very powerful force in technology is the power of software developers. I think that, you know, this is a point I try to build, sort of show in my book, but, you know, open source software, I think would surprise a lot of people is, you know, something on the order of high 90% of software in production in the world is open source software, which is software created by rag tag communities, you know, on the internet, which is kind of shocking that, like, Linux is by far the dominant operating system in the world and there's no company behind it. People that are outside of technology are sometimes surprised to learn that. And so the power of developers kind of coming together and building stuff is a very, very powerful thing. Bill Joy, the co-founder of Sun, Microsystems, had a famous saying that no matter how many smart people work for you, most of the smart people don't work for you, or I'm

butchering a statement, but most of the smart people work for somebody else. Meaning it's always more powerful to get a developer movement to help you. you build something, then it is to try to just get employees to help you build something, right? And so, and we've seen this again and again through the history of technology. So I think one of the powerful things with blockchain-based social networks, social FISA calling it, is this idea that you can build kind of a core protocol and an incentive system for developers to come and build on it. And they can build out new clients and analytic tools and distribution tools and build a rich ecosystem around it. For those who are around doing internet entrepreneurship in 2007 to 9,

range. They'll remember there was this huge developer ecosystem on Twitter. There was a VC firm started to literally invest in Twitter startups. That's how big of an ecosystem it was. I think that if we can get that force going of like you build these open kind of public goods, these open protocols, and then we get lots of developers building on them in the way they do with open source software. You could have, I mean, why does open source software win in the end? It's not out of like, because people like, oh, I want to pick open source software to be a better person. It's because it's better software because when you get you know Linux is a better operating system than Windows it's more secure it you know it's more modular it is more reliable like there's a whole bunch of reasons it's better

and it's better because it's open and the developers are better and it's a movement and I think the same forces that have driven open source software that drove the open internet um that we've seen throughout the history of computing can also drive a new wave of social networks that are open and permissionless and community owned and that, you know, and so it's not, so, I don't know, so that that's a very important force that I'm excited about and, you know, projects like Farcaster are trying to lean into that and experiment with that. But I mean, how do they, because all the users are elsewhere already, so how do they attract? Yeah, well, I think, I think that in terms of go-to-market, you're saying, yeah, I think that's an interesting question. I think that, um, a couple things.

You know, one is most social networks are kind of two-sided markets. I'm getting, now I'm putting on my web two hat by the way and not my web three head so this I'm giving you sort of best practice advice from the web two stuff one is that most social networks are two side of market so you think about youtube you have the creators you have the you know the viewers and twitter you have sort of the power influencers and you have the you know the more passive readers and so you know a lot of building a new social network is about getting those those kind of influential creator people either to switch or to or the new ones who pop up as they always are as you know as the world evolves to join that network, right?

So it's, so it's kind of, and often that happens in weird niches, right? Like you think about Twitch and other, you know, maybe it's some technical community. I think, you know, Farcasters hoping to get like a lot of the crypto community, as example, they already have a lot of the Ethereum community and kind of grow out from there. And then as crypto grows, maybe grow with it and then maybe leapfrog into other, you know, adjacent areas of technology. I'm not speaking for Farcaster here. I'm just speculating on how one might do that.

And look at, like, I think you have to look at this in the long arc of internet history. Like, maybe it sounds hyperbolic to say it, but I mean, we're 30 years into the internet, and it seems like the internet should be as important as, you know, one of the great inventions of all time, I think. I don't think it's hyperbolic to say that. I think there's lots of room for, in the long arc of history, for new systems to develop. And, you know, when YouTube started, it was funny. I remember this 2005, they had competitors.

the main competitors were these companies like Brightcove, which actually funny enough was like Jeremy Aller, who's now Circle. And I'm not criticizing Breitko, I'm a fan of theirs. But there was sort of these competitors who were taking like CBS and NFL content and putting on the internet.

And YouTube said, you know what, we're just going to make a website where anyone can upload content. And so they were basically making a bet that there would be a new wave of people that come on the internet that aren't popular today,

they become popular through social video. And, of course, they ended up being right. And, you know, and today, you know, you have YouTube influencers who have, you know, more followers than the NFL and CBI or whatever. I mean, it's just, you know, massively popular that didn't exist at the time. So I think that's the other thing to think about with these new technology movements is that a lot of times the audience and the creators and all the users will be, many of them will be just people who, who, you know, are only now coming onto the Internet or only now becoming influential on the Internet. I mean, you're trying to build these things for the long term and for, you know, future people and future ways of growth. All right. So I know we're running along, but I have just two last questions.

There's been a battle waged in the cryptic community over creator royalties in the last couple of years. And creators have kind of largely lost that battle with royalties not being supported when they were originally touted as a way for them. You had to solve a problem. So I was wondering, you know, what your thought was on how those should be handled. Yeah. So like I think creator royalties are very important. And I think that that there are various. So I think that that and they were like they were important part of how, of why NFTs appeal to creators. And so I think of it as sort of non-negotiable. We need to figure out the right way to to bring them back. There are technical nuances. So for example, if you, you know, enforce everything on chain. it makes it hard for like a user to move between one of their own walls to another. And we actually, you know, we have a research team now led by Tim Roughgarden. He's a professor at Columbia.

And actually one of the, our team has a number of members of our team been working on this problem and plan to publish. Everything they do is open source and they'll just publish it and won't be, you know, it's just going to be sort of a public good. And so we're working on a bunch of stuff there. So I think, I think it's, to me, it's kind of annoying that this became an issue. It feels like a own goal by the crypto community, like scoring on itself here that like this, I don't know. Like, I don't know why. It's unfortunate to me that people decided to build systems that fork around greater royalties.

But I think that there are ways to bring them back. And I think they will be brought back. And I think they're essential. I don't think it's, I think that people that are trying to work around them are being short-sighted because it's long-term. the only way to really grow, the NFT movement is going to be to ensure that creators are paid royalties. By the way, it may not be the optimal system is per trade. It may be other systems. There's other proposals like where you do it, you know, with other kind of systems that maybe encourage different behaviors,

but there needs to be a recurring revenue stream to creators because that's really, to me, one of the fundamental new promises of Web 3 is that unlike Web 2, creators will get paid properly. I see that as non-negotiable. Well, okay. So you agree with me because I agreed it was short-term thinking. Yeah, I think it's very short-term thinking. So last question. I know you're a fan of Carlotta Perez's book, Technological Revolutions and Financial Capital. And in it, she describes that when technologies become entrenched, that their downsides become apparent. So I wonder if crypto succeeds in the

way you are betting it will, what downsides do you think will become apparent over time? Well, I think, and you know, I tried to be open mind about this in my book. So like if you, you know, In the book, I deliberately bring in what I think of as the smartest objections. So as an example, in the take rate section, I bring in, like, Moxie Marlin Spike had this critique of, of systems like OpenC, and just generally blockchain-based systems and saying essentially there was a risk of what he called re-centralization, I think, which is essentially you start off decentralized and it's all these great things. But then over time, people will end up aggregating around these centralized hubs. And so I tried to kind of steal man in the book, the best objections, including his. And I think I'd like to think, I hope I did characterize his argument in a fair way. And I say in the book, instead of saying he's wrong, I said, that's a really good objection.

But I think that there are design lessons that we can take away from it. And if you design these systems correctly, you can eliminate or mitigate those risks. So I don't think it's a fatal objection, but I think it's a very forward-looking one that, that leads us to design lessons. And I think I did this throughout the book where it's sort of here are the, like with governance, I don't say this is a panacea, this is Rha,

this is some beautiful utopia. Like I just think this is an important new tool that we can now explore this. And here are some of the interesting directions we can go and here are some of the risk. By the way, with tokens and financial centers, I have a lot of sections of the book talking about the risks of it, saying that we don't want, you know,

I have a whole section on regulation. I, you know, it's not, I'm not, I'm not by any, I'm arguing for smart regulation, just to be clear.

So I try to take kind of a balanced view on it. And I do think, look, I think a lot of this stuff can be, if you think it through ahead of time and you design the systems in a smart way with those risks in mind, you can do a lot to mitigate them. And we now have, look, we have a lot more history of the Internet now than we ever did. Like when we started the Web 2 thing, it was, you know, 10 years of history. We have 30 years of history. We've seen a lot of experiments. And I think we can learn a lot from that. So I think really the question is, do we want to like, to me, we have enough history.

have enough ideas, we have enough tools. The really big question is, are we going to get together we, you know, the world, the community, the policymakers, and like actually have a constructive conversation about how do we enable responsible innovation and how do we design better systems? Or are we going to just sort of throw food, have a food fight and throw stuff at each other? And I'm hoping that we can do the former. And that's what I'm trying to do a small part of with my book. So, All right. Well, this has been an amazing conversation. Thanks so much. Where can people learn more about you and the book? Readwriteown.com is our kind of main site there and shows you where to buy it and has more links. So that's the best place to go. Perfect. Well, it's been a pleasure having you back on Unchained.

Thank you, Laura. Appreciate it. Thanks so much for joining us today to learn more about Chris and to buy his book. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with all from Nelson Wong, Matt Piltured, Wanner Ranavitch, Megan Gavis, Shashonk, and Market Korea. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily, five days a week, with host Noel Atchison.

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