Unchained - Dragonfly Capital on Why Ethereum Is So Far in the Lead - Ep.153

Episode Date: January 7, 2020

Alex Pack, founding partner of Dragonfly Capital, and Haseeb Qureshi, Dragonfly managing partner, talk about why Dragonfly has a global focus, how they choose investments, and why they try to be as agnostic as possible about asset type. They also discuss why most protocols, including Bitcoin, still look like venture bets, why, at the moment, Bitcoin looks like a better investment than anything built on top of Bitcoin, and why Lightning hasn't yet taken off and why they think it won't. We also cover what the future holds  for Bitcoin. They explain what they think will happen in the smart contract platform race, why Ethereum is so far in the lead and whether anything will become an Ethereum killer. We also cover Libra, and how Libra affects their investments in stablecoins, why Xi Jinping's "blockchain, not crypto" emphasis is a dead end, whether blockchain-based identity is an investable area, what they think the killer app is or will be and their predictions for 2020. Also, Haseeb, a former professional poker player, describes how poker playing is similar to crypto trading. Thank you to our sponsors!  CipherTrace: https://ciphertrace.com/unchained  Kraken: https://kraken.com/ Crypto.com: https://crypto.com/ Episode links:  Alex Pack: https://twitter.com/alpackap Haseeb Qureshi: https://twitter.com/hosseeb Dragonfly Capital: https://www.dcp.capital/ Dragonfly Capital’s blog: https://medium.com/dragonfly-research Forbes on Dragonfly Capital’s $100 million initial raise: https://www.forbes.com/sites/alexkonrad/2018/10/09/new-fund-dragonfly-bridges-china-us-crypto/#572aeb953c9a Venture Beat story: https://venturebeat.com/2018/10/09/dragonfly-capital-partners-scoops-up-100-million-for-cryptocurrency-investments/ https://www.globenewswire.com/news-release/2018/10/09/1618445/0/en/Dragonfly-Capital-Partners-Unveils-100-Million-Inaugural-Fund-for-Cryptocurrencies-Bridges-Gap-between-East-and-West.html DeFi cannibalizing POS security: https://medium.com/dragonfly-research/how-defi-cannibalizes-pos-security-84b146f00697 Mimblewimble blog post: https://medium.com/dragonfly-research/breaking-mimblewimble-privacy-model-84bcd67bfe52 Haseeb’s 2020 article on CoinDesk: https://www.coindesk.com/what-defi-needs-next-year-three-priorities Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. I know a bunch of you listen to Unchained at the gym. Since it's January, and I suspect some of you will be hitting the gym more than usual, why not get really met it and listen to Unchained while also wearing an Unchained t-shirt? You can buy shirts and other unchained items at shop.unchainedpodcast.com. Again, that's shop.unchained podcast.com. CipherTrace cutting-edge cryptocurrency intelligence powers anti-money laundering, blockchain analytics, and threat intel. Leading exchanges, virtual currency businesses, banks, and regulators themselves use CipherTrace to comply with regulation and to monitor compliance. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto in one place. Get a metal MCO visa card with up to 5% back on all your spending. the crypto.com app today. Cracken is the best exchange in the world for buying and selling digital assets.

It has the tightest security, deep liquidity, and a great fee structure with no minimum or hidden fees. Whether you're looking for a simple fiat on-ramp or futures trading, Cracken is the place for you. Today's guests are Haseeb Qureshi and Alex Pack, managing partners of Dragonfly Capital. Welcome, I'm Hasib and Alex. Hey, Laura. Thanks for having us. Yeah, thank you. Why don't we start with each of you giving your background and how you came to become managing partners at Dragonfly Capital?

Alex, why don't we start with you? Sure, thanks. So Dragonfly Capital is a global crypto venture fund. We're based in San Francisco and Beijing. We launched about two years ago. It's founded by myself and my partner, Beau Fung, and Sieve joined about a year later. So my brief background is I've been in venture capital most of my career. I started at a fintech firm in Hong Kong.

Then I was a partner at Angelist, then joined the venture arm of Bain Capital, the $100 billion private equity firm in SF, where I sort of helped them build out their early stage investing and started their crypto investing practice. And just to flesh out the Asia side of our story, my third partner is Bo. he's one of the early pioneers and leaders of the internet industry in China, founded one of the first China-focused internet VCs invested in some of the large Chinese internet companies. And he's also one of the early investors in many of the big blockchain businesses that are out of Asia like the exchange OKX. And ACC joined us a few months ago. Yeah.

So my background, just real briefly, before I joined Dragonfly, I was at Metastable Capital, which is another crypto hedge fund that's run by Naval Ravakant. And then before that, I was doing a lot of stuff in crypto. I was working on a defy and a stablecoin project as an entrepreneur. I worked for a little while at 21, which is now Earn.com, which is acquired by Coinbase. And then before that, I was at Airbnb as a software engineer. So I've had a pretty varied background. And then in my previous life, before I ever got into tech, I used to be a professional poker player.

and all of that kind of gives me a pretty different set of perspectives on what's going on in crypto, I think, relative to most people who come from more traditional VC backgrounds. Yeah, for sure. And Haseeb, I actually really wanted to ask you a lot about this. You know, you started doing this when you were 15. So he was like how that happened. And as far as I understood, I think you became like one of the top 10 in the world or something at some point. And you were teaching it.

And yeah, tell us that story. And just out of curiosity, also, how, if at all, that experience affects the way that you invest in crypto? Totally. So I'll give like a super abridged version. So I was 16 when I started playing poker. And I was like, I think it's really actually surprisingly analogous to like these really, really young crypto traders who made a bunch of money speculating. I think every generation has like its hustle for like young really smart people who don't want to go down the beaten path. And I think like a decade ago, it was online poker. And then maybe five years after that, it was like fantasy sports or something. And then now it seems to be like crypto trading where I was just, I was young, I was bored. I felt like I really wanted more of a challenge than kind of what, you know, sort of academia or just kind of going down this normal beaten path laid out for me.

I remember at the time I was in college and I was studying falafi. And I just, you know, nothing seemed as compelling as just this intellectual challenge of playing poker and making money. And I think, you know, now, so many years later, having come into crypto, one, it helps me understand a lot of the dynamics behind, you know, a lot of these, like, speculative manias, like online poker had many elements of that, especially after Chris Moneymaker in this big online poker boom that happened around like 2007 to 2010. But then at the same time, a lot of the skills that you need to have as a professional poker player around thinking about risk, thinking about psychology, thinking about game theory,

thinking about, you know, how, you know, different competitive dynamics, not just between people, but between, you know, in crypto, obviously you think between protocols. A lot of that kind of thinking, and the other thing, too, is thinking probabilistically, you know, all of that stuff, I think, has been really, really valuable in not just evaluating crypto projects, but in, you know, becoming a good investor. So all these things are, I think, super related. And it's part of the reason why we see a lot of ex-poker people make their way into crypto. So, Funny enough, I've met a lot of people from my past as a poker player who are now, you know, some of the biggest names in crypto. So there's a lot of overlap.

Wait, who are some of the others? Would I know any of them? Hasu. Hasu was a professional poker player before. Really? Hasu fly? Yeah, yeah. Who else? There's Doug Polk, who's like a big, he's kind of a big content creator. There are a few others. You know, honestly, like so many people have reached out to me and told me like, oh, yeah, I used to pay poker professionally back in the day, but who weren't, who weren't, like, quite on my radar back

when I was a poker player. But they're, but I've run to, oh, yeah, I'm just remembering some names like CalPig and, you know, a bunch of other random folks. A lot of people who are dabbling in 2017, but even, even some now who are still in the game. That's super interesting. I feel like maybe I could do a show on that, like, I don't know. 100%. It could be like, I can already think of it as like a listical, you know, 10 ways that poker can make you a better crypto trader. Oh, I could riff on that for a long time, but I'm going to spare you. Anyway, okay, so why don't we actually then just go back, you know, Alex, when you were talking about how you and Bo connected, like, you know, you were already investing in crypto stuff when you were at Bain. So why did you decide to start this new fund as opposed to, you know, continuing investing through Bain?

Yeah, I had a much, much more traditional. path into crypto, I suppose, than Haseeb with poker. So I've been doing it professionally, I suppose, as a VC since maybe 2014 at generalist big funds. The problem is it's very, you know, crypto, I think, is a new asset class, and it has resemblances to older asset classes, probably the most similarities to venture capital, like fintech investing. but it's only like somewhat like venture.

It's actually there's many ways in which it's way different. There's many ways, you know, there's liquidity and like the trading aspect of these tokens. There's the extraordinary deep technology. And then most importantly, for me, is the global aspect to crypto, which is that, you know, most of the usage of crypto today is overseas outside the U.S., primarily in Asia, actually, probably anywhere from 60 to 80% of all crypto usage, I think, in a very rough sense. is in Asia. And that's where I got turned on to crypto. I was at a VC firm in Hong Kong. Before that, you know, I'd sort of played around with Bitcoin in college. But I just felt like it had

it was very, it wasn't for me. Like I was not the end user or anyone around me, sort of Western affluent affluence were not the end user for cryptocurrencies. And when I went to Asia, to Hong Kong, you know, I saw a lot of consumers and end users who, for whom crypto solves a real problem. people who are underbanked or unbanked, and so forth. So for me, you know, bank capital mentors, we don't really do that much on the venture side outside of the U.S. So I had spent a bunch of my time trying to learn about what's going on in Asia. And that's how I connected with my now partner, Bo.

And yeah, it just became sort of apparent that to build the sort of global firm I wanted to build, I'd have to go, I'd have to do it myself and start this new franchise. So Dragonfly's portfolio includes a pretty big range of companies. You've got companies in Defi, others doing hardware. There are some exchanges, protocols, stable coins, analytics firms, custody, etc. What's your strategy for choosing investments? Like, you know, how do you feel like the space is going to develop and how do you choose investments within that?

Yeah. So we, our sort of overriding mission is we're looking at. to sort of build this global ecosystem and invest in the leading participants in the crypto economy across what they're doing and try to be relatively agnostic about things like geography and even asset type.

I think it's probably the biggest mistakes I made. Actually, by far the biggest mistakes I made as a venture capitalist was just in crypto, was just ignoring, you know, like ignoring Ethereum or something because I felt like we couldn't do tokens. Even though I met Vitalik years ago, during the pre-sale in Hong Kong. And many VCs have this story.

So I think having no blinders on is very important. Generally, the biggest trend that we see and that sort of guides our strategy is that in the Western world is where most of the technology is. Most of the deep cryptography, most of the actual commits, and people that are building the really core,

layer one protocols and so forth, come out of the West. And so we primarily invest in layer 1 tokens, defy products, very deep technologies that come out of, and the West is sort of a broad term.

I mean, it's, you know, where's Ethereum based, right? It could be California, could be Boston, like Toronto, Israel. Yeah, Berlin, of course. And then in the East is

where a lot of the adoption is. So we primarily invest in, you know, exchanges, trading firms and sort of trading platforms and wallets and a lot of the, on the end-user products that come out of Asia, greater China area.

And are you just trying to pick kind of like one company in each of those areas? So I don't think we think so much in terms of one company from each area. It's really hard to draw a strict analogy between what we do and traditional VC. Because I think, you know, a lot of traditional VC kind of comes out of looking backwards through a history of, you know, 30 to 50 years of investing in these particular industries. and seeing, okay, what did it look like when the winners played out? You know, what sort of companies, what sort of business models, what sort of categories

were they that actually succeeded? And so if you look at crypto and if you assume that crypto is a different asset class, and therefore it has different behavior and value accretes to protocols differently, which I think is at this point pretty obvious, then it's pretty hard to say, well, probably we should invest the same way that VCs invest. So the notions like, you know, you should only invest in one company in each category, Well, it might be like, what is a category? Is a category a layer one?

Well, then in that case, like, you know, Bitcoin might be your only investment and you wouldn't touch Ethereum. Or is a category, you know, trading. Well, there's trading in China. There's trading in, you know, the U.S. There's trading in different products. And so it's pretty hard to draw clear boundaries without really having the foresight to know how is this market going to play out.

How are these spaces going to get partitioned in the future? So I think the hardest part about being a crypto investor in that, that sense is keeping your mind open to being changed very rapidly about what ends up becoming valuable. We fundamentally believe that there's going to be, you know, Bitcoin isn't the only thing that's going to succeed in the space. There are going to be other investments that succeed, you know, at least in the rough order of magnitude as a Bitcoin or Ethereum. But they might look very different from a Bitcoin or Ethereum. And it's way too early to call now and say, you know, what are the patterns of how those investments are going to play out?

So we try to remain agnostic and we try to also let our minds be changed year over year and not get stuck on any particular paradigm. So if you were back in 2016 or 2017 and you were like, okay, great, this is how value gets created in crypto, you would be totally unequipped to invest in the landscape today because crypto just looks completely different than it did two or three years ago. And I suspect that two or three years from now we'll see the same level of transformation just because the space moves so quickly. Yeah, I literally feel like every year there's like a new. trend or two. One other thing I was curious about with you, your strategy is so at least like when you initially raised your first $100 million in the fall of 2018, or I think that's your only raise, you said you would invest in three types of assets, crypto-native funds, decentralized protocols and applications, and then pick and shovel tech startups that build bridges between the decentralized

and centralized worlds. But for the first one, crypto-native funds, like I just was confused. is like, why would you invest in other funds or, like, more to the point, why would your LPs invest in you in order to invest in those other funds? Like, aren't they just kind of paying fees twice or like I kind of didn't understand that part? Yeah, so part of our strategy, in our core part of our strategy is fund of fund in the beginning. But we do it as VCs with a long-term approach. So actually, oddly enough, this approach is quite a bit more common. in crypto than in other types of investing. I did it at Bain Capital. We invested in several funds, several of the same funds. And then Sequoia, Founders Fund, Bessemer, USV, and Dresen Horowitz,

they all had investments in about three to four or more different crypto funds. And I think still today, most of them do. So for us, the thinking was it's a frontier asset class and industry. There's a lot going on around the world. There's a lot of different categories. And our goal is to get our LPs a sort of single diversified exposure to what is happening in crypto. And along the way to be part of this global ecosystem of information flows and deal flow and things like that to make sure you know what's going on in the space at all times. And so for that, investing, co-investing with funds, investing alongside them, you know, we're investors in paradigm and polychain and Metastable and a few others.

That just made perfect sense because fund managers and investors, they're a core part of the ecosystem. Actually, they're probably more important almost in the ecosystem of crypto than they are in traditional venture. There's no boards and there's like governance and they're staking. And so investors are sort of, they're doing more work than typical investing and they're sort of part of the ecosystem overall. And do you also buy things kind of as basic, I guess I would say, as like Bitcoin and Ethereum as well to give your investors' exposure to that? Because I know that was a thing with some funds early on, but I don't even know if, you know, people, if you guys do that anymore. So we do, yeah. So we do buy just like, you know, public liquid crypto assets because,

I mean, ultimately, as investors, our goal is to give our LPs the best, you know, and sort of highest value exposure to crypto. And it's a question that we constantly ask ourselves of where does value accrue, you know? And so it might well be that value accrues to like companies that are building on top of Ethereum or on top of Bitcoin or on top of Tazos or Algarand or any one of these publicly tradable assets. But it's very clear, I mean, two things. One is that it's really not obvious where value accrues. And as an investor, you need to make, like, you know, only investing in second layer protocols or businesses is ultimately a bet that that's where value is going to accrue. And so if you think it's going to accrue to the underlying protocol instead, then

sometimes you might say, like, well, you know, these guys are building on top of Tazos, but I think it's really Tazos is going to capture the value, not this, this, project. But then second is that most of these protocols, they really actually still look like venture bets in the sense that it might look like, okay, there's been a lot of price appreciation and these things are really grown. But it's pretty clear that most of these things, and depending on who you ask, I would definitely put Bitcoin in this basket. They're still very binary bets in the sense that either these things work and they become what they say they're going to become, such as digital gold or the world computer or whatever, or they basically don't work and it becomes sort of

wash. And so, you know, Bitcoin right now is like a call option on this digital gold thing. Ethereum is a call option on it winning the smart contract platform for the world and smart contracts being a thing. All these things still have that very, very asymmetric return profile. And so I think for us, we constantly ask ourselves a question of what do we think is the best investment, given where things are today. And sometimes we're more bullish on particular venture deals and sometimes we're more bullish on the underlying protocols. So it really depends. So since this is the first episode of 2020, we're just going to go through kind of all the really big things, themes in crypto. So let's start with Bitcoin.

From your perspective as investors, how do you see Bitcoin? And at this moment in time, what investable opportunities do you see related to Bitcoin? And, well, let's just start there. So I think Bitcoin, it's been pretty hard, you know, as investors when we look at, Bitcoin. There are two questions you need to ask yourself. So one is, is Bitcoin itself undervalued or overvalued in a way that I can detect right now? And if so, how much do I think it's, I think that's the case? And the second is, what about the Bitcoin ecosystem? What about things like lightning? What about things like liquid or other businesses that

are built on top of Bitcoin? So for the latter, businesses built on top of Bitcoin, I think it's been pretty hard to see any successes so far. Bitcoin is sort of the perfect example of Joel Mnegro's famous Fat Protocols thesis, that Bitcoin basically eats everything on top. Anything besides basically exchanges, which is purely facilitate trading and speculation, anything besides that just has totally failed to capture any value. So when we look at Bitcoin, the question that we always ask ourselves is, you know, is it better if we think Bitcoin is, if we're bullish on Bitcoin, which we are, to just invest in Bitcoin or to invest in proxies for the growth of Bitcoin, which might be

venture companies that are building on top of Bitcoin. And so far, I think that this has been pretty resoundingly in favor of Bitcoin itself. And I think I'd say, yeah, we're pretty bullish on Bitcoin, especially at the prices that we see today. Although, you know, this might not come out for a couple weeks, in which case maybe the price has changed. Yeah, I would classify the centralized businesses that are sort of in the trading and fiat on-ramp space as kind of the Bitcoin ecosystem. So much more broadly, actually, than Hasib does, where he's sort of just talking about the decentralized. applications. I think trading and speculation and store of value transfer is that is the application of Bitcoin today. And it's the latest stage of all the use cases in crypto today by far.

So for us, what interests us most is, yeah, how are people going to get their first Bitcoin, where are they going to trade it, and things like that. And that's thriving. I mean, that's an enormous industry. And it's actually a fairly large percentage of, of in terms of market cap, like mining and the big exchanges, it's a fairly large percentage of the overall Bitcoin market cap at this point. And what do you think about lightning? You know, there's been a lot of talk about that, but I don't know if it's really taken off the way people expected,

especially in recent months, it looks like it's actually kind of decreased in activity. Although I did read something saying that there's a lot of unaccounted for activity that's private. Do you think it has taken off? I mean, I think you answered your own question there. Lightning clearly hasn't taken off. If it has, we all would know it. There wouldn't be any question of whether there's never a question if something has taken off.

The only question is why it hasn't. So I've never been a bull on lightning. I think for a couple years, I've been like the annoying friend who's always like, yeah, I don't think this thing is going to work. I don't think it's going to go anywhere. For a few reasons. One is that I think it's not a hard explanation that like Bitcoin clearly, most of the reason why people want it is to hold it not to transact for small amounts of money.

So, you know, lightning in and of itself, it just isn't really serving this big wellspring of demand for sending Bitcoin to your friends. But then second, over and above that, I just think like the lightning model as just as a mechanism for payments just isn't economically sustainable. Like the fees that are getting paid out to lightning nodes that actually route payments are just not enough for them to want to lock up Bitcoin on this thing when they can basically get better yields elsewhere. The fees that are being paid on lightning are minuscule. And so that really prevents it from growing and creating this flywheel because it's just so capital-intensive. So I think, you know, early on, it was easy to be ideological about these things. Now that there are

a bunch of competing ways to pay people using crypto, it's hard to just kind of ride or die on ideology. So I think it sounds a lot more plausible to me that if people want to pay each other with Bitcoin in a decentralized way, it might end up happening, you know, like on. to tokenize Bitcoin on some other mechanism that is just much more capital efficient and doesn't require huge Bitcoin holders to lock up tons of capital and create this network of, you know, I just don't see how that works in the limit without incentives really coming into play. Oh, interesting. Well, so since a lot of layer 2 development on Bitcoin has, you know, or people have said that that will basically be lightning. If you don't think lightning will take off,

then what do you think will happen to Bitcoin? I think Bitcoin will continue to be what it is. which is, you know, overwhelmingly today, like all of the side chain and the, you know, like things like RSC and any augmentations on top of Bitcoin have really been tiny ornaments on top of what the real market is. The real market is, I want to buy and hold Bitcoin because I see it as a digital store value. That overwhelmingly is, I think, what Bitcoin is going to be used for. And that sort of use case actually is totally fine with the state of Bitcoin clearing today. And maybe it gets augmented with things like liquid for cross-exchange transfers and things like that.

But I don't expect Bitcoin to actually change that much, except in relatively minor ways through its technological roadmap of just making things more efficient at the margin and maybe marginally more private. Yeah, I think the idea that Bitcoin would ever be a medium exchange has always been a bit of a libertarian pipe dream. Yeah, well, there was that point. period in 2014 when all those retailers started accepting it, but then, like, nobody was spending it. But we still have people today saying that they're going to get retailers to accept Bitcoin and people are going to spend their Bitcoin. So I don't know. I thought we learned that lesson years ago, but maybe I'm wrong. I mean, there's no, like, why don't they accept gold at this point or copper or silver? Like, nobody's claiming for that. And, see, what did you just say?

I just said that's the power of ideology. In a way, like, I'm glad those people are there because they are the people who are propelling Bitcoin forward. You know, like Bitcoin would not be where it is today without its religious accolites who are like, yeah, you know what? I still believe that Bitcoin is going to be used for payments. And I'm glad they're trying, but I don't think they're right. I don't think it's going to work.

But if without those people there, all we have left are like the rationalists who will just like, you know, basically, who will leave the room the most at the first side of of danger. So it takes all kinds. So Haseev, I know that at one point you also said that you thought Ethereum would clearly beat Bitcoin and that later you had to revise your thesis. So can you explain why it was that you used to think Ethereum would clearly clearly beat Bitcoin? Wow, great research. I didn't even know that. Yeah, yeah, yeah. Well, so this was very, very early when I first got into crypto. So, you know, I'd known about Bitcoin for a long time, just like, you know, it's one of those things that like your friends used to buy drugs or, you know, just whatever, right?

It was sort of on the periphery of my attention. And then when I first started getting into the space full-time, you learn about Bitcoin, which is like this thing that doesn't really do very much. It's got this terrible scripting language, and it's got all these weird edge cases and back-ported things. Then there's Ethereum, which can do anything. And it's, like, got this awesome welcoming community. And I'm like, okay, there's no way that this, like, crumudgeonly old thing is going to win

over this, like, new shiny thing that can do strictly more, right? Which I think is a very common belief by developers who come into crypto. and see these two things as like open source projects. But the reality, of course, that Bitcoin is a lot more than just an open source project. And at the time, I just didn't really grasp that. And this was around the time, you know, the ICO boom was just like really kicking off. And there was all of this momentum behind Ethereum. And it really took me, it honestly didn't take me that long to like really realize

what it was that I didn't understand about what made Bitcoin so powerful. Is that in a way, the fact that it's, the fact that it's so static, the fact that it doesn't change, is a large part of what makes Bitcoin so valuable. And it's a property that Ethereum cannot emulate because Ethereum is trying to be a different thing. It's not trying to be digital gold. It's not trying to be this unalterable vision of $21 million deflationary, blah, blah, blah, store of value.

Ethereum's trying to be something else. And so it cannot out Bitcoin, Bitcoin. And so after, I think after, you know, there was this moment when people thought about, oh, crap, like there might be a flippinging, like Ethereum might actually become more valuable than Bitcoin. And I think after the deflation of the ICO bubble, when Ethereum dropped from $1,200 down to, you know, sub-100, I think that was kind of like, you know, there's this line in the wire that, I think it's Omar who says, if you, if you aim at the king, you best not miss. And I think that that was sort of the nail in the coffin for Ethereum, that Ethereum, once it, once it aimed at Bitcoin

and missed, I think like, it's sort of the game is over. Bitcoin. Bitcoin kind of wins. And I think it's pretty hard for anybody at this point to dethrone Bitcoin as being the claimant to what will be the digital store of value or the digital gold. It's sort of like you can eventually find a shinier metal than gold, like maybe platinum or something else. I have no idea if it is. But it's sort of too late. Gold has already been just impressed into all of our minds as being somehow the most gold that anything can be. And I think that's kind of happened to Bitcoin. interesting so we're going to discuss a little bit more about ethereum but also really big projects including

libra china and more on dragonflies area of expertise in asia but first a quick word from the sponsors who make this show possible today's episode is brought to you by crackin crackin is the best exchange in the world for buying and selling digital assets with all the recent exchange hacks and other troubles you want to trade on an exchange you can trust crackens focus on security is utterly amazing. Their liquidity is deep and their fee structure is great, with no minimum or hidden fees. They even reward you for trading so you can make more trades for less. If you're a beginner, you will find an easy on-ramp from five Fiat currencies, and if you're an advanced trader, you'll love their 5x margin and futures trading. To learn more,

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without compromising legitimate investigations. Cypertrace is working on this vision of the future. Sign up to stay up to date on the Privacy Enhanced Compliance Initiative and receive authoritative crypto-aML reports quarterly. www.w.com slash keep crypto clean. Back to my conversation with Haseeb Qureshi and Alex Pack of Dragonfly Capital. So we're still a ways off from Ethereum 2.0 launching with full capability. And yet, I feel like there's this smart contract platform race that's about to really get started

with all these Ethereum killers coming online. So how do you think that whole thing will shake out? Like, what do you think is the likelihood that Ethereum will lose its lead? And if Ethereum does get killed, what do you think will kill it? So that's a really big question. And the way you frame that was that there was a battle coming up. And I think a lot of people thought that that battle was coming up six months ago when a lot of the earlier folks were launching, such as Tesos and Algorand and Hashgraph.

So actually, to my mind, we're like halfway through that battle. And everybody, every soldier that's come up to line has just gotten decapitated so far. So already, I think, we know more than we did six months ago of why Ethereum is so far in the lead. And we know more about how much harder it's going to be for somebody to dethrone Ethereum. So, you know, we, early on, I think, you know, six, nine months ago, I really strongly believe that overwhelming likelihood was that Ethereum was not going to make it. that they just had too much technical debt. Their roadmap was way too long. People were not going to wait until 2022 or whatever for Ethereum 2.0 to get there.

And the pent-of-demand for using smart contracts was just going to mean that whoever got there first, whoever really offered a high-throughput decentralized blockchain was just going to win the day and that, you know, that, like, Ethereum is like MS DOS and these guys are, you know, somebody else is like the actual technology that we'll end up using. And the probabilities now, I think, have updated to, to, now being that Ethereum is the favorite to retain its lead. And there are a few reasons for that. One, I think, is that there's, one is that Ethereum has just really short up its roadmap a lot. There's a lot more clarity now on how to actually get there, which doesn't mean any faster of a timeline,

but it does literally mean the more time that we wait, the closer Ethereum is to launching. And all that time, you know, the longer we wait, you know, every day that passes that Ethereum doesn't get dethroned, it's more likely Ethereum wins. The second thing is that it's become really clear. One of the really dominant applications for crypto is defy. And that wasn't really that obvious a year ago, but it's become much more obvious today. And the thing about defy is that defy, one, it's only working on Ethereum. And defy has a huge network effect, meaning that it's very hard to spin up a fledgling

defy ecosystem on a chain that doesn't have other assets, doesn't have interoperability with other chains, and doesn't have high-quality collateral. So if you're trying to build a defy ecosystem on EOS, for example, you can try, and there is like a small DFI ecosystem on EOS. But the problem is like EOS doesn't have a lot of stable coins. EOS itself isn't as high quality collateral as ETH. It's just not as liquid. It's more volatile. And at the end of the day, those network effects just like really keep ETH locked in as being the home for DFI.

And most of DFI doesn't require super hardcore scalability because, you know, most of the applications today, you know, if you're taking out a giant CDP on Maker, you don't need 500 TPS in order to do that. So, and the last thing has really been almost all of the startups that we have seen that are not building their own chains are building on Ethereum. So very few companies are making bets. You know, there are a few things at the margin that are saying, okay, we're going to build on Pocod and be a relay, or we're going to integrate with a relay chain, or we're building on Cosmos SDK. We want to be part of the cosmos ecosystem. But almost everybody else is building on Ethereum because it's just the only game in town. It's, you know, to quote a famous bank robber, people build on Ethereum because that's

where the money is. And so if you're building a product that needs to integrate with money, you have to go build on Ethereum. So it's very possible that if somebody brings their own distribution, so, you know, like a telegram, although, you know, Telegram has its own problems as we've seen with recent regulation, you know, I really didn't know what to think if Telegram were to come into crypto and bring with it a huge new ecosystem of developers. And same with Libra.

The Libra, if it were to launch it a little. way that allowed external developers to build stuff. They would just be bringing a huge growing of the pie in terms of the number of developers and entrepreneurs who'd be building on top of them. But if you're only targeting crypto developers today, it's just really, really hard to stand out as a smart contract platform. So I think there are a lot of platforms that are launching soon that have better designs and have better architectures and will come out to market with a much more scalable product. But the thing they're really going to have to prove themselves on is just how do they win developers? How do they win the hard?

hearts and minds of people who right now, like the best developer experiences and all the other things they want to enter it with, they live in one place. And that's Ethereum. Well, I have a question for you because you made a strong case for like how if you were building a defy app, you would want to do that on Ethereum. But let's say that I wanted to build some kind of crypto gaming, something rather, where throughput really was important, then would somebody like that who, you know, maybe couldn't really tap into the network effect of defy. Would that person have a different incentive when it came to choosing blockchains to develop on? Absolutely. I think that's one of the things that we've seen chains start to specialize on. And a lot of chains have really tried to brand themselves

actually as like, we're friendly for gaming. We're friendly for high throughput use cases. The problem is that, you know, those things, one, they don't really seem to generate network effects, right? So if there's a game that has really, really high throughput on, let's say EOS or let's say Algorand, right? That might be a great platform for that game, but that game isn't necessarily going to attract a lot of other users. It isn't necessarily going to attract a lot of other assets. It isn't going to attract a lot of other applications.

Because so far, at least what we've seen with the games, that they're not particularly interoperable. And the other thing is that Ethereum is getting really, really close to developing a more robust layer two story of how you can develop high throughput applications, but just on layer two, getting security from layer one. So, you know, companies like Matter Labs with their ZK roll-ups approach or optimistic with optimistic roll-ups, these things are moving head really rapidly. So I think a lot of people see, okay, well, if I just wait, and then, you know, once these things

are ready, I can just deploy an Ethereum and, you know, benefit from the fact that I don't need to onboard my user into a whole new blockchain that they've never heard of. I can do it all within the Ethereum ecosystem. Cool. Okay. So out of curiosity, then, like, how do you, I mean, you're investors. So are you more trying to invest in things building on Ethereum? Or are you still looking at investing things that may compete with Ethereum?

Well, to be clear, we invest in a lot of platforms that compete with Ethereum. So what I'm saying there is not that I think Ethereum is definitely going to win. What I'm saying there is that the Ethereum's lead has grown a lot. But there's a lot of game left to be played. Right? Like three years until Ethereum fully launches Ethereum 2.0 with SmartCom. contracts in, I think, what's a reasonable timeline two to three years, that's a long time. And if we see a blockchain platform really get product market fit before then, which, you know,

beyond just what we see today, which is like crypto-native speculation, I think you could see a very, very rapid transition outside of Ethereum to something else being the dominant platform. But it could also well be that Ethereum sort of stays the way it is as like the defy chain, where if you want to do sort of crypto-native speculation or take out loans or do this kind of stuff, All of that stuff happens on Ethereum, but the other big use cases for blockchain, such as gaming or such as, you know, like STOs or something like that might happen on a totally different chain. So we might see a splintering of applications across chains. I think it's really early to say there's a natural effect that things want to be together. Things want to be interoperable.

You know, things want to live in the same ecosystem. But if the platforms, like if the applications require super high throughput and properties that Ethereum can't give it, then they may just go elsewhere. So we have a lot of investments actually in platforms that are competitive with Ethereum. And I think they're really awesome. I think they have a really good fighting chance. But I think, you know, they know they're fighting a juggernaut right now. And that juggernaut has grown stronger in the last six months. And the one major exception to this story is the geographic factor.

There are some regions, especially China, really, where usage may in fact be fractured and the dominant global smart contract platform loses to a regional competitive. competitor. And this is because of cultural issues, language issues, which is actually bigger than you might expect. And, you know, just sort of government nationalist influence. China is very publicly advocated for using Chinese technology infrastructure. We see this with Alibaba cloud displacing AWS and things like that. And that influence is where corporates and all sorts of parties decide to build on top of in the smart contract universe. Yeah. So we're going to talk about China in a little bit, but actually, I want to talk about Libra first. Hasib did mention Libra. And I actually wanted to ask you,

you know, so the launch of Libra seems somewhat imminent. I don't think we have an actual time frame, but maybe, I don't know, in the next year or so. And they did already launch a test net for developers. So I'm just curious to know, first of all, why don't we just talk about this aspect first? how do you think that Libra will affect existing stablecoin projects? And, you know, how does the launch of Libra, or how will the launch of Libra affect your investment strategy when it comes to stable coins? That's a super difficult question to answer, because I think, honestly, we know surprisingly little about how the Libra is going to play out. If the Libra actually does launch, in what form it's going to launch is a very open question right now. So, you know, to my mind,

I think the likelihood that the Libra launches in the way that we are originally imagining, basically a network that looks like what they described in the initial white paper and all the documents that they first published earlier in 2019, I think there's almost no way that we see exactly that. The amount of pushback they've received from regulators around the world, especially in the U.S., I think it's very likely that we see either some regulatory categorization that gives regulators a lot more oversight over the Libra than what they were originally expecting to get. And ultimately, you just can't really expect being a player on the size of Facebook to be able

to sneak in through some kind of loophole and essentially offer an entirely new currency or entirely new, whatever you want to call it, ETF or whatever notion you want to apply to what exactly the Libra is without being subject to really, really stringent regulations. So if we assume that what the Libra is going to launch is actually a smart contract platform that does have this stable coin that pretty much anybody can acquire on the underlying Libra platform, Calibra might have AML and KYC, but the underlying Libra chain allows anybody to send and receive Libra's, I think that's like massive, massive, massive change to the landscape of what crypto ends up looking like.

And it has a huge consequence for stablecoins. But I think that universe is like long on. I think there's no way the Libra launches and looks like that. If the Libra does launch, I imagine it's probably fairly neutered. It probably is closed off to various jurisdictions. And I would also guess that the ability for people to write arbitrary smart contracts and really do the kinds of things that we expect of in crypto, of like people to build decentralized companies and decentralized products

that can basically do whatever they want, I expect that to be very limited if Libra actually launches in a big way. So I think it's pretty hard to prognosticate right now. given how little we know. But, you know, no matter what, Libra will have a big impact. It's just hard to know exactly what that looks like. Alex, did you want to add something? Sure. Yeah, I think to the second part of your question, you know, we only invest in decentralized stable coins. I don't think there's a great economic model for Fiat back stable coins. And actually, it's really more of a feature to increase usage of something else like trading for Bitfinex and Tether or usage of a payment platform like Calibra and Libra. And I doubt that Libra, especially in its form that Nassib describes, predicts, I doubt it will compete much with decentralized table coins.

It's probably not going to be that censorship resistant. But I think certainly it will onboard a ton of new users and wallets into crypto. And this is particularly important because crypto is as much as social revolution as a technical run. And just like trading on the internet with eBay, it requires people to change their trust model, which could take a few months, a few years, or decades sometimes, right? I mean, that's not inconceivable. And Libra helps speed that along significantly if it gets traction. And out of curiosity, you know, because you were talking about how Libra will probably launch

quite differently from how it was originally envisioned, and, you know, it might be more neutered. Do you know of any developers who are interested in building on Libra? I know that they've had a lot of interest in their, I can't remember what it's called, like their developer boot camp or some kind of, some kind of startup school type thing for Libra. I know they've been running those sorts of things, and I know they've received a lot of interest. But I wouldn't read too much into, like, the Libra test net and the code as being any indication of when they're actually going to launch a monetary network. You know, like it's very clear that the regulatory go-to-market for Libra is happening in parallel to the technical go-to-market.

And their technical go-to-market is awesome and fantastic, and I have all the respect in the world for. what they're doing on the protocol front. But the regulatory front is they're not going to be ready within a year. Like there's almost no way because there's just so many unanswered questions. And I don't think you're going to get the green light from any major country to launching their jurisdiction within a year. Like things like this don't move that fast. Well, and then also I was wondering, would you invest in something that was building on the Libra network? or would you be nervous to do so, you know, for, I don't know, regulatory reasons or because there's a sort of general anti-Facebook bias from a lot of regulators overall?

I think for us we'd want to see, you'd just see more clarity around what the Libra is going to be. You know, I think there's actually decent money at this point that the Libra just gets shuttered completely. And I think a lot of that also depends on who wins the 2020 election might really, really influence the outcome of Facebook. But the reality is Facebook has just so many things on their mind right now that if as this antitrust probe increases in seriousness and again like a change of party in the White House might really, really change the dynamics of how that antitrust investigation goes. Facebook just might say like, look, we are, we're not in a position to want to like bring down more scrutiny on ourselves. We're just going to play nice and like shut this thing down quietly. So I think there's a lot of there's just a lot of uncertainty on where this thing plays out. So it'd be hard to invest right now in somebody building on top of Libra unless they were sufficiently agnostic to where they were going to build on.

And they're like, okay, well, if Libra is not there, we'll build on something else. But somebody who's going all in on Libra, I think right now it's a tough time to make that bet. All right. So now let's switch to Asia. I'm sort of going chronologically, you know, Bitcoin, then Ethereum, then Libra, then China, because things have happened broadly in crypto. So, but why don't we just start with the kind of broad question, which is, I'm just curious, and I ask this of all the various crypto people who kind of work in both Asia and the West. But how would you characterize the differences between crypto in Asia versus in the West?

Sure. Asia is even more fast-paced and frenetic than the West when it comes to crypto. Things are changing so, so radically. And the reason is because it's where the true crypto users are. It's where the action is happening. The most organic early users of crypto assets, they've always been in Asia. It's very ripe for adoption of crypto's digital finance applications. I mean, you never, this sort of confluence of widespread internet adoption and smartphone penetration

that's even higher than it is in the U.S. in many ways. Rising incomes, new middle class, but very low financial of the economy. A lot of people underbanked, a lot of limited access to global financial. financial products and capital markets, this means there's so much pent-up demand for crypto. And unfortunately, you know, unfortunately, most of the core technology is still not in Asia, or however you want to make of that. It just has so happens. Crypto is very, the technology that underpins it used to be quite obscure, right?

There's not many cryptographers. There were like a handful of zero-knowledge-proof researchers in the whole world before crypto blew up. And really none of them were in China or Asia. They were in big universities or cryptography centers in the West. So projects in that space tend to be a lot rougher. But there's just way more innovation and experimentation, I should say. Platform tokens like B&B really all got their start in Asia, sort of corporate coins, innovations on how you do,

like how an exchange operates, giving it back to the, their customers, the gamification of finance or the financialization of games is all happening in Asia. So really, all the stuff that is like tweaking how users will interact with crypto is getting their start, it's getting its start in Asia. That's, yeah, that's really interesting because I definitely feel like the lower level stuff tends to be more Western, but that, yeah, when it comes to people actually using this rather than just speculating or hoarding. It does feel like Asia's a little bit ahead. One thing that I was wondering is so obviously now, you know, you guys do have this office in Beijing. So now that Xi Jinping came

out all in favor of blockchain, but it's blockchain, not Bitcoin or crypto, I'm curious to know how that's affected your investment strategy. Like, am I right in assuming that the kinds of efforts that China is interested in are not the kinds that would be open to investment from, you know, Dragonfly Capital? I think that's, that's broadly correct. But it's, it's a little different than how it's, well, actually, so, so what's happening in Asia, I think, is playing, is what's been playing out in the U.S. actually for the last five years in crypto, too, but on a hyperscale. In many ways, she's, you know, speech on October 24th, it was one of the greatest endorsements and sort of implicit allocation of resources to an early stage technology in a very long time, maybe ever.

And so you have this rush of like government-related entities and banks and corporations that are racing to show how innovative they are with blockchain and that they understand it. You have massive education campaigns. Every university is going to have a blockchain class. That's great. I think high level. But yeah, the Chinese vision for crypto is very different from our vision. But it's not just a Chinese vision.

This happened in the U.S. too, where the first time people in suits interacted with crypto in the U.S., government agencies and big corporations, they all got it wrong. They all said blockchain, not Bitcoin. They were into enterprise and private blockchains, things that weren't super disruptive that felt safe to them to play around with in their innovation labs. And same thing is happening in China today, you know, just on a couple year delay. And it takes a while to play out. A lot of these proof of concepts that are going on in Boeing and Goldman Set, J.P. Morgan, things like that. They're taking four or five years for their bosses to realize that it's a dead end. And they should stop doing this.

So I think that exact thing will play out in Asia. There will be a multi-year period where there's this frenzy around enterprise use cases. And then, you know, the technology, the best tech always wins eventually if it's massively better. so they'll come around to it eventually. Oh, wow. One thing I want to add... Oh, go ahead. Yeah.

One thing I want to add just kind of for color is that, you know, one of the knock-on effects of what's going on in China is just, you know, yes, there's sort of this misapplied enthusiasm about blockchain, not Bitcoin. But there's also like a normalization of a lot of the stuff that's going on in crypto that so far has been very pushed underground and kind of has these negative associations that now suddenly has kind of come into the daylight. So one, you have a much larger pipeline of just young, smart students and engineers and entrepreneurs who are now learning about blockchain and crypto and are sort of set on that path

where it's now sort of much more normalized to be studying the stuff and to be in the space. Actually, so one of our junior partners, Mia, she was recounting a story of how she's been in crypto for a few years. And her grandparents just had basically no idea what crypto was other than that. that they heard Bitcoin and they associated with being a scam. And so they were kind of vaguely embarrassed of what their daughter was doing. And then after President Xi's speech, they were just like, oh, we get it now. And it was like, really? You get it now? I don't think you get it. They're like, no, no, no, it's great. What you're doing is like for the future of China and it's

awesome. And so just little things like that, you know, they sound, they sound silly, but they really do add up in just sort of completing the picture of what makes the space healthy in a certain region. And we think that that's kind of probably what will be the biggest knock on effect of of what happened in China. Well, I actually want to ask about what Alex kind of implied at the end of his answer where he was sort of saying that, oh, you know, eventually they'll realize like these enterprise blockchains are, you know, not going to work out. And so he kind of seemed to imply that they'll then turn to public blockchains. But I'm just thinking about, you know, like DCEP, that's kind of, I mean, that's a stable coin, right? So in a way, if people have something that's, you know,

stable and usable. You know, I don't know how, like, a part of me is like, is that just going to kill all the Chinese crypto projects? Do you know what I mean? Well, maybe I can take a crack at that. So I think, so DCEP, I mean, I wouldn't even call DCP a stable coin. Like literally, DCP doesn't use a blockchain. It uses UTXOs and private keys, but it's not a blockchain.

It's just a central bank digital currency. The, you know, I totally hear what you're saying in that like, well, maybe that means they just throw the whole thing off and they realize crypto is useless. I think the claim that Alex and I want to make is even stronger than that is that the real value of blockchains is in coordination and it's in permissionless innovation. And we think that eventually wins out because it is valuable, because it creates more valuable businesses, it creates more value for more possibilities of trade and free access. And in the long run, that wins because it's just better for human beings. right so if you know we believe that eventually there will be experimentation along the lines of public blockchains because of course there will like you know people people always want to push the frontier

forward and people always want to try out things that they think might become more economically valuable and if we're right that public blockchains produce more value in some for some intrinsic reason over these private enterprise gated blockchains then they'll win and if we're wrong about that and they don't they aren't actually more valuable then probably this whole enterprise is doomed and the only thing that mattered was Bitcoin and all this smart contract and permissionless finance and innovation and blah, blah, blah.

If all this stuff is totally wrong, then, you know, mea Koppel, we got it wrong. But we think the rules apply just as much in China as they do anywhere else. And ultimately public blockchains will, you know, they'll find the value in it

because entrepreneurs will find the value in it. Well, but one question about that is, I feel like, you know, with the internet, a lot of people were like, oh, this is going to kind of open up China. But here we are now in this, you know, era where, you know, they kind of basically just have their own internet. So do you think that they really will, you know, turn to public blockchains? Because what if they're just like, no, we're going to

have like public Chinese blockchains and, you know, people will just interact in China or transact within China with each other. I mean, it's like, it's like, you know, such a huge market that they could kind of exist in that world and not realize that it's, you know, that it's like limited, which I think is basically how the, how they interact on the internet. internet now there. They like don't miss Google and Twitter. So I, first of all, I completely agree with that. And I think what you're pointing at is a real question that I don't think we have a strong answer to of will it be a global single platform that unites everybody who uses a public blockchain? Or will it be, you know, there's like

Ethereum for like a bunch of people and then there's like this other one for this country and another one for this country. Probably, you know, it's too early to say. And it's hard to know the answer to that. And also, you know, it could well be that it could go either way and it's just super path dependent on, you know, where is it that, like right now, if you look today at Ethereum, right, Ethereum's localization for China is just abysmal, you know. A lot of the services that you think are like, okay, well, this is defy, anybody can use this around the world. Like, they don't even have Chinese UIs. Like literally people in China need to know English in order to interact with a lot of these things. So there's a, there's a degree to which, like, it might just be as simple as,

look, these guys just built products for China. And everybody in China or anybody who can speak Chinese can use these products. And that's why they won. And it wasn't some intrinsic deep reason why the whole world needs to get connected. It's just that, look, public blockchains are awesome because permissionless innovation is awesome. And you guys just didn't build the right tools for these people. So I don't know. I think it's early to say, but I totally see to your point that it really could go either way at this point.

All right. So we're going to actually switch topics because since this is the first episode of 2020, I want to look forward. But one thing that I wanted to ask about was 2019 kind of saw the beginning of this revival in Daos. But that's, you know, that's kind of like a governance area. And I just wondered, is that one of those trends that like doesn't really lend itself to investing, you know, or if that's not the case, then how do you invest in something in a trend like that? So I think DAWS, I really hesitate to think of DAWS as like a trend or like, a specific thing because people mean so many different things by DAOs, you know, like, is Maker

Dow one of the DAOs? Like, is it when you think about DAOs? Do you think about on-chain governance? Is that in the category of DAWs? Or do you think like Mollock Dow? Or do you think things like Nexus Mutual, you know, Dow's on the whole, which really just kind of breaks down to on-chain governance in some sense, if you want to be sufficiently general about it?

Clearly, that's a trend that's growing. And I think, like, there are a lot of things that are investable in that category. But then there are, you know, like the sort of much more speculative, much more more cyphorpunk types of DAOs like Mollock Dow or things that look like it. And there, I just think we haven't really seen anything of meaningful scale. You know, the last meaningful scale, Dow, Dow, you know, like sort of emblematic Dao's, was the Dow. And since then, I think everything has just been really tiny, you know.

And in a sense, like, you know, people knock on the Dow, the Dow, the Dow was actually like a pretty straightforward, you know, it made sense as an idea. Like, okay, it's like decentralized venture firm. All right, that kind of makes sense. Let's see how it goes. it didn't go well. And I think it remains to be seen, like, what are the things that DAOs will do better

than other forms of firms? And we haven't gotten an answer to that yet. And so I think people are kind of jumping the gun thinking like, well, Dow's should exist because they're DAWS and DAWS are awesome. And I think DAWs are cool. They're like super interesting. But I also want to know the answer of like,

what do they do better than other firms? And so if I see something that answers that question for me, then I'm going to happily invest. Yeah, I think, you know, governance is a very obviously good use case for crypto. I mean, the purpose of governance is to govern shared resources and shared value. And so now you have a digital native value. You can have digital native governance over those things. But it's really an innovation on what a company is and what an equity, right?

That's what a Dow is. But, you know, investing in companies, quote unquote, that's not an investment thesis. So it's an underlying tool that enables, you know, new forms of companies. you still need to figure out which company to invest in. I mean, same thing with ICOs, right? Or startups. I mean, just because not all utility token or whatever, all tokens. In fact, 99% of tokens are garbage.

Just like 99% of unfiltered startups are garbage. And they don't make sense. It's like why are using a token, things like that? And we're going to have the same question with DAOs. Hopefully it's not as frenzied as with ICOs, where there's just like thousands of DAOs. and the tokens for them go up. But it might be.

It very well might be. But just like with ICOs and tokens, there will be some great use cases and new innovative things enabled by the underlying governance tech. So Hasib, I saw that you wrote one of those essays for CoinDesk. And one of the things that you mentioned was about how you think identity is like one of the next steps

necessary for the space. But I also wondered again, like with Dow's, is that an investable area? Is that something that you can make money from? That's a good question. I think to clarify, I think identity is important to get into the next step of credit, right? Getting credit on the blockchain. And that said, I don't know how far away that step is.

And I suspect it's pretty far. Like I would be very surprised if anybody does a really, really good shot at identity in 2020 because it's intrinsically really hard. And there's just a lot of other low-hanging fruit. before that's the next thing that we need to crack. That said, is identity investable? Like, if I see a credible enough approach to it, yes. But identity is also, to some degree,

what makes it really hard is that it's a public good. You know, it's like pure infrastructure in the deepest sense. And I think a lot of times, you know, in 2017, I think a lot of people got into their heads, this really, really nefarious meme that infrastructure is magically investable. You know, like for some reason, if you have infrastructure and it's valuable, you can make money off it. And in general, that's obviously not true. And there are some exceptions to that that are really interesting,

like Ethereum or Bitcoin. Like, that's super interesting that you can invest in this public good and make money. But in general, that's not the case. And you should, you know, you should be surprised when that actually is the case that public goods do end up becoming investable. So something like an identity provider, it's just really, really hard to find the right business model for something like that. And because it, you know, sort of requires people willing to pay for supplying that identity. And that ecosystem just doesn't exist yet. So I think it would be really, really hard.

But if I saw the right entrepreneur and the right go to market, I think it could be really, really interesting. All right. So to wrap up, why don't we have you guys each give a prediction for 2020? And also, I'm just curious to know what you think will be the first killer app for crypto. So two questions and one. All right. I think Alex goes first. Sorry.

Alex dropped off. So what was first? A prediction for 2020. A prediction for 2020 and also what you think the first killer app will be in crypto. Okay. Let's see. I think the first killer app is already here. It's very clearly trading and hoddling store of value assets.

You know, that's not as sexy an answer as possible. But, you know, and then defy, is the higher level version of that. So once you have an asset, you seek to use it as collateral. Like, owning a house or owning art is only the first thing you do with it or owning gold. Then you use it as collateral for other things. And that's what, you know, DeFi projects like MakerDAO or compound do. And so we're seeing the sort of systematic building out of this early use case of figuring out how to collateralize, you know, digital native store values.

And that might take a very long time, but it's already here. I mean, it's already, crypto's a couple hundred billion dollar business. So it's already here and it's growing. What do you think it will take for those to go mainstream? Go mainstream. There's a few things. One, you do need more scalability to go very mainstream. Defy projects tend to be the most high, like, economically efficient uses of blockchains today

because you could put a lot of value through each transatlantic. action. But it's not infinitely scalable. So you need better solutions to layer one and layer two. And then two, I think it's just about having more endpoints and building out the U.X and not just UX, but building out the security and the tooling to make sure people trust that these D5 projects, you know, they won't get hacked immediately or things like that. Same with Bitcoin, right? I mean, the first few years, there were math, like it was very questionable whether you should own much of your assets in Bitcoin. Like, it easily could be, for, hacked or something at a fundamental level.

So I think that's going to have to happen to the Ethereum defy ecosystem. All right. And then prediction for 2020? Let's see. I think one thing that's interesting in the, we follow the exchange landscape quite a bit because exchanges are sort of the closest things to crypto-native companies. They're centralized today. You know, they look like they don't, they're not run on blockchains or anything like that.

but they're as close to the future of a decentralized, you know, autonomous company as you get. And so I think one thing about the exchange landscape is they're morphing very aggressively into basically like financial portals and quasi banks. And they're basically becoming the distribution channel for all crypto products. And they have all the users. And so they're aggressively building out bank, you know, you could take loans out. you can have deposits and do custody from your exchange. But you can also use a Dex. You'll be able to use a lot more DeFi products in the coming months, games and all the other applications as well.

Once these decentralized applications take off, I think barring a big growth of like Calibra or Telegram, like a big new distribution channel coming in from the old world, these exchanges are going to actually look a lot more like portals. from the internet era than just a traditional exchange like the New York Stock Exchange. Okay, Haseem, Killer App and 2020 prediction. So Killer App, I would say, is almost without a doubt stable coins. So in some sense, like the Libra kind of made it clear that people are actually already terrified that this stable coin thing is just going to take over the world, which I think is a little bit premature. I think is directionally correct.

So stable coins, I think, will be huge and will probably be the first really widespread killer app of crypto. And then prediction for 2020, I would say 2020 is probably the year that we're going to see synthetics, synthetic assets really, really start to take off aside from the US dollar. So right now, you know, the biggest synthetic asset that we have is MakerDAO, and that produces a synthetic US dollar. But I think there's going to be a lot more synthetic assets that get created and more creativity around distribution where essentially at some point in the future, one of my big theses

about crypto is that the internet did a lot to disrupt many, many different markets, but the one thing that it really did not touch is finance. Finance is basically the same before and after the internet. But crypto is sort of going to do to finance what the internet did to all those other industries. And a lot of that is this vision that some random person anywhere in the world can open a mobile phone and buy a synthetic asset. whatever it is that they want. So if I'm, you know, some random guy in Africa or Indonesia or China, I can just get on my phone, I can, you know, deposit some money, and then I can buy a synthetic exposure to the S&P 500 or a Treasury bond or, you know, a Netflix stock or whatever it is that I want.

So, you know, finance getting completely democratized and disaggregated by the blockchain. That, I think, will begin in 2020. Yeah, I had like a funny thing happen to me the other day where I was walking down the street. I passed by a bank. And I, I like, I don't even know what I was thinking. I just wasn't thinking anything. But I just heard this voice in my head, like, that's not going to be here in five years. And I remember being like, whoa. Like, like what, like, like, like, I wasn't intentionally thinking that thought, but it just popped in my head. And I had the vision of, you know, like Virgin Records and like Blockbuster and Barnes, no, or not borders. Like, and it was just so funny that it just like popped in my mind.

And I was like, maybe not exactly five, but definitely 10. Yeah, yeah. Five is a bit aggressive. But yeah, I think it's clear that like this is going to be a blockbuster. I mean, I would privacy concerns decide, I would love to just put a camera outside some of these. And like, who goes into banks anymore? I just want to talk to these people and figure out what they're doing from a customer development perspective. They're older.

They're older. My parents definitely, yeah. Yeah. Yeah. Sure. Anyway, okay, well, this has been a great conversation. Where can people learn more about each of you and Dragonfly? Hello? I see what's our website again?

Okay. All right. Yeah, you can find me on Twitter. I'm at Haaseeb, H-O-S-E-B, and you can learn more about Dragonfly at DCP. Capital. We put up a bunch of research and blog posts just kind of analyzing the space from different angles. Yeah, I'm bummed I didn't get to ask you about any of your blog posts. There were so many good ones.

I'll just link to them in the show notes. you guys. Totally, totally. But I've talked about some of them on my other show before anyway, so people have heard about some of your cool blog posts. Great. Well, feel free to yell at me afterwards if you don't like them. Alex, do you want to share your Twitter?

Oh, it's Alpaca P, A-L-P-A-C-K-A-P. Don't just look up my name, Alex Pack, and check out our medium on www.com. Yeah, I do really recommend the medium. You guys, it was very great. That's where most of our interesting content lines. Yeah. Yeah. Thanks for having us, Laura.

This is a lot of fun. Yeah. Yeah. Well, thank you both for coming on Unchained. Thanks. Thank you. Thanks so much for joining us today. So learn more about Haseeb, Alex, and Dragonfly Capital.

Check out the show notes inside your podcast player. Want to show your love for Unchained? Check out our T-shirts, mugs, hats, and stickers at shop. Unchained podcast.com. Unchained is produced by me, Laura Shin, with help from factual recording, Anthony June, Daniel Ness, Josh Durham, and the team at CLK transcription. Thanks for listening.