Unchained - Nick Tomaino on 1confirmation's $125 Million Fund and What Future NFTs Will Look Like - Ep.242

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained. You're a no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started coming crypto six years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Sign up for the Unchained Daily newsletter, where you will get all of the top crypto news of the day. Also in the daily, you can find out how to pre-order my book, The Cryptopians, Idealism, greed, lies, and the making of the first big cryptocurrency craze. Head to Unchainedpodcast.com, and the sign-up for the email newsletter is right on the homepage. TASOS is smart money. That's redefining what it means to hold an exchange value in a digitally connected world. Discover how people are reimagining the world around you on Tazos. Today's episode is sponsored by EY blockchain. Ernst & Young is committed to supporting integration of the world's business ecosystems on the public Ethereum blockchain.

Starting point is 00:00:58 The crypto.com app lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins. Paid weekly. Download the crypto.com app and get $25 with the code, Laura. The link is in the description. Today's guest is Nick Tomato, founder at One Confirmation. Welcome, Nick. How's it going, Laura? Good to see you. Nice to see you.

Starting point is 00:01:25 You just closed your third round. Congratulations. It's a $125 million new venture fund. But before we get into that, since we've actually never had you on the show for a long interview just about you, why don't you tell us about your background and One Confirmation. Sure. So my background, I kind of fell down the rabbit hole. back in 2013. And I was just a random person on the internet in Portland, Maine. And a lot of people talk about, you know, why they fell down the rabbit hole, whether it's for technology or economics. And for me, what initially drew me was kind of the social movement that I saw happening online back then.

Starting point is 00:02:05 I, like a lot of people, read this Wired article about this magic internet money that was being used to buy guns and drugs on Silk Road. That was the early media narrative, as you well know. I think wasn't it a Gawker article or maybe maybe it was a different one? There were a few. I think, you know, different publications we're writing about at that time to get clicks. And I've always been an online community person. So dating back to like middle school when I was interested in comic books, high school when I was interested in sneakers, I've always wanted to dive online to online forums to see

Starting point is 00:02:36 kind of who was talking about things that I was interested in. So when I first read this article, I was intrigued. I jumped on to Bitcoin Talk, which is the first online forum that Satoshi actually created, and R-slash Bitcoin. And what I saw was kind of underneath the surface of the media headlines, there was this really passionate community of people from around the world who weren't aligned by physical location, meaning they weren't in any one particular location, but they were aligned by a shared belief system, meaning they all kind of believed in the values of Bitcoin and economic incentives, meaning they all owned Bitcoin.

Starting point is 00:03:13 And to me, what got me so excited was what I saw these people forming based on, you know, values and economics. And I saw a social movement happening. And that's when I kind of decided I want to do something in crypto, talked to, you know, every different founder in the space. At this time, you know, I was meeting with, you know, the Bit Instant team in New York City and Skyping with Mount Gawks. These are some of the early leaders at the time. I connected with Brian and Fred of Coinbase. And actually, I was one of the first couple hundred users of Coinbase product, which kind of led me there, reached out to Brian, and then joined shortly after that.

Starting point is 00:03:58 So that was kind of how I, you know, a long-winded way of telling you how I got in the crypto space and what drew me. And yeah, I had a great experience at Coinbase. And back in 2017, started one confirmation. and there we are. And so far across your two previous funds, you had raised $70 million. What has your investment thesis been over time and how have your bets played out? So our thesis is very simple, back kind of authentic founders that have deep historical

Starting point is 00:04:29 context on crypto that are building products that we understand as users. I think like there's a ton of different ways to make money in crypto. for us, we've kind of stuck to what we understand and what we get excited about as users. And that has treated us well. And that's kind of what we're going to continue to do. I think there's a lot of investors in the space that are trading based on memes or, you know, fundamentals or, you know, there's a whole bunch of ways to make money. But for us, it's products that we get excited about as users.

Starting point is 00:05:05 And again, that's kind of what led me to Coinbase. back in 2013. You know, back then I was buying Bitcoin by taking out cash from an ATM, wiring it to Muggox via Western Union. And that was, you know, the best way to buy Bitcoin at that time, right? And then companies came along and was just this product that made it dead simple. And, you know, that's kind of what drew me. And so we kind of let the products guide our investment thinking.

Starting point is 00:05:35 And yeah, it's gone, you know, pretty well. I mean, it's kind of allowed us to invest in DFI before DFI was a category, NFTs before NFTs was a category. And yeah, now these categories are, of course, very hot. But we're kind of thinking about, you know, what's next. I think by focusing on product, it allows you to kind of ignore a lot of the noise in the space. That's really interesting. Yeah, I have plenty of questions for you about NFTs and DFI because obviously I did see you were so early on those trends.

Starting point is 00:06:05 As for this latest fund of $125 million, what do you plan to do with that money? We're going to continue, you know, the strategy that we have been executing, which is, you know, invest in companies, cryptocurrencies and in NFTs as well. We tend to focus on bleeding edge technologies, right? So we like to be early money in at the kind of pre-seed or seed stage and write checks, you know, anywhere between a million and three million. and we also take kind of core cryptocurrency positions. So that's kind of the strategy that we've been executing. And yeah, the new fund, it's really just a continuation of what we've been doing. And it's a slightly bigger fund.

Starting point is 00:06:51 So some of the sizes of investments and things like that may increase a little. But we really just want to kind of continue what we're doing. I think Focus has treated. as well. All right. So let's talk about NFTs. As we mentioned, you were very early on the NFT bandwagon. And I have been noticing you've, you know, invested in kind of a diversity of different NFT plays. There's OpenC, which is a bigger platform, superware, which is pretty focused. Bort or Forte, I'm not sure how to say that. So first of all, let's just, you know, talk NFTs generally. Why do you think they've taken off so much in the last several months?

Starting point is 00:07:33 Well, I think they're bringing new people into the space in a way that nothing else in cryptocurrency has, right? Like I've been waiting for, you know, my brother, for example, who's like outside of crypto and, you know, isn't that interested in finance to, you know, get excited about crypto. And that's happened with, you know, something like top shots, right? So kind of NFTs are bringing in people who are interested in sports or music or. or art, you know, culture outside of crypto in a way that nothing else has. Up until NFTs, it was very kind of finance money. And certainly kind of finance money is part of NFTs as well. You know, it is for a lot of people still about, you know, making money.

Starting point is 00:08:23 But it's kind of combining, you know, finance and culture in a really exciting way. And I think it's just getting started. NFTs right now are mostly just kind of static files that you can't do much with, right? You can show them off in your home on a digital frame or you could show them off on your OpenC profile, but you can't use them in, you know, virtual worlds or in games and things like that. And I think that stuff's all coming. But yeah, I think what really catalyzed it in the past six months was just so much culture coming in and making money.

Starting point is 00:09:02 And so, yeah, to be clear, it's still, you know, mostly about making money now, but it's, it's kind of combining culture and money in a fun way. Yeah, it's interesting that you say that because this also is the first time I got my sister interested in a crypto and she's an entrepreneur in fashion. And yeah, NFTs are also what finally drew her because otherwise my whole family was like, why are you always talking about this stuff? Yeah, yeah. And particularly, I would add what I really love about it, is it enables a new business model for creatives, right? And like, I've always thought that, you know, the first couple hundred million people that get into crypto,

Starting point is 00:09:41 it would be, they would buy it and invest in it. But like the, you know, the billions of people that come in, I think their first way is going to be earning it. And so how easy it is for, you know, a creator to go on, you know, open sea and use their create tool to sell an NFT or, you know, a really talented artist to go on Super Air and sell kind of a, you know, a premium piece of crypto art. Like that is really powerful. And it's bringing in new people, you know, to earn rather than to invest or to speculate. And that's, that's super exciting to me.

Starting point is 00:10:19 So it's interesting that we're talking about this because I did see that you did tell the New York Times that we're in an NFT bubble. And also I saw you told Cheddar that there will be a secondary market, but you also said, quote, well, some of the stuff that's getting bought now at millions dollars go down in value. I would say so. So kind of where do you see this vision with NFTs going? Do you expect a lot of these buyers will make money? Or is it just mostly the creators that will? Or how will this kind of market end up, you know, looking a few years down the line? I think it's, you know, the bubble is better for creators than retail, especially. regulators, right? What I like about this NFT bubble is it's like, you know, it's artists and creatives,

Starting point is 00:11:06 and it's not like opportunistic business people for the most part that are like, you know, launching a $100 million ICO, right? So it's, but I, but I think there are a lot of parallels to the, you know, 2017 ICO boom in that, you know, there's kind of an explosion of people creating and there's an explosion of kind of retail demand to invest in these things. And, you know, And, you know, just like in 2017, we saw, you know, Floyd Mayweather endorsing ICOs. Now we're seeing a different iteration of, you know, celebrities that are launching NFTs. And I think it's not to write them all off. I think there are some that kind of understand what's happening and are doing it in an authentic way that I think could create long-term value for the retail investors that are investing in these things.

Starting point is 00:12:00 But I think there's also a lot of, you know, cash grabs just like there were in, in 2017. So, yeah, I would say there's probably a small percentage of the NFTs being created right now that I would say will have, you know, long-term value. That said, just like in 2017, where a lot of these, you know, what would seem like scams, you know, they're still here. And that could the same could happen for NFTs, right? because value is just about belief. And if you have people believing that these things have value, then they're going to continue to have value. Well, so I know that as an investor, this may not be your area exactly, but I'm sure you've

Starting point is 00:12:44 thought about this. And I just wondered, you know, at this moment, as you mentioned, NFTs tend to be pretty static. There isn't a lot people can do with them. And so that kind of leads us to this moment where the main use case is speculation. But I was just wondering over time, what do you think will eventually make a good NFT or what sort of creative things do you see coming down the pike that you expect will become bigger trends? Well, one thing I'm super excited about is, you know, NFTs within virtual worlds, right? The Metaverse, which, you know, a lot of people are excited about, you know, a recent example is Mebits, which, you know, you probably saw a project.

Starting point is 00:13:28 launched by the Larva Labs team, you know, the same team behind Cryptopunks. And I think, you know, I'm not sure that Meibs is going to be kind of, you know, the winner here. But the idea of like a 3D avatar that you can use as your avatar within a virtual world, as opposed to a static image that you could use maybe as a, you know, your avie on Twitter, for example, I think that's a step in the right direction. So I think kind of NFTs that you can use within virtual worlds, either as your identity or maybe, you know, to compete, you know, to play games and things like that, that's super exciting. I mean, a lot, you know, a lot of the NFTOGs remember the, you know, when CryptoKitties launched,

Starting point is 00:14:17 and there was an ecosystem, a small ecosystem that emerged on top where you could race your CryptoKitty, right? I forget what the name of that project was, but that was pretty cool. And I think we're going to start, we're already seeing that with things like Zed Run. I'm not sure if you looked at that or covered that in the past, but that's gotten a lot of excitement. It's basically virtual horses that you can collect and then compete in horse races. So this type of thing, I think, is still incredibly early. And I think when you can, you know, we see the attachment people have to have to their NFTs now when it's just a static file. But imagine when you can actually use these to compete and to make more money and things like that. That's super exciting. And so as we mentioned earlier,

Starting point is 00:15:03 you have invested in these different types of platforms. You know, for instance, OpenC is kind of like a catch-all platform. And then there are others like Superware that are focused on a specific niche. How do you think competition between these types of platforms will shake out? Well, I think I get to ask this question a lot because there's a lot of new NFT marketplaces popping up. And I think really just like any other type of marketplace, the long-term differentiation is kind of brand and product. I think that's how they're all competing right now. So OpenC, for example, has a really strong brand as kind of the leading secondary marketplace for NFTs. And they have a really good product.

Starting point is 00:15:45 And they've kind of innovated on product, you know, at a really fast clip and added features that users want and really, and stayed focused on that. So there's definitely, you know, an opportunity for other marketplaces focused on kind of other niches to build their brand around that niche, maybe focus on primary rather than secondary and build a really good product. And that's kind of, that's happening, right? we're starting to see marketplaces for, you know, music NFTs or different types of sports NFTs. And I think that's just going to continue. But yeah, at the end of the day, I think it's like to win as an NFT marketplace, you really, you know, you need to focus on building a really strong brand. And there's a lot of ways to differentiate your brand and build a great product. So in a way, maybe what you're describing is that some of the specialized ones will be kind of like more primary sales. And then

Starting point is 00:16:44 something like an OpenC will be more focused on secondary sales? Is that kind of where you were going with that? Well, that is the case, right? So OpenC is like, why they've really succeeded is they've been a general purpose platform for all NFTs, right? And Devin and Alex are really tapped into what's happening in NFTs and they've been really quick to add new NFT projects, right? So for example, you know, a couple of weeks ago, Meibits launched and Mebitts very quick. was added to the OpenC platform and very quickly tens of millions of dollars worth of secondary trading was happening on OpenC. The whole OpenCCy business, you know, the reason why they launched it in the first place is Cryptokitties popped up and Cryptokitties was charging something like

Starting point is 00:17:32 5% to buy, you know, on the CryptoKitties marketplace. And what makes an NFT, right? At the end of the day, it's true ownership. So the idea of like a marketplace, control. controlling the buying and selling of that NFT doesn't make a ton of sense. OpenC saw that. They launched a, you know, a secondary marketplace and they decided to charge 2.5% instead of, you know, percent, right? So that's kind of the OpenC business. But there is room for primary marketplaces. I tend to think OpenC for a secondary marketplace, OpenC is likely the winner. I think OpenC is going to be a multi-billion dollar company. You know, if you look at their GMV gross merchandise value over the past three months,

Starting point is 00:18:21 it's been over 100 million. They're going to have their biggest month ever this month. That's OpenC, but I think, you know, like we just invested in a marketplace for music NFTs. I think music NFTs are going to start exploding. So far, it's really been visual creators that are really capitalizing on this. but imagine when audio creators, and there are some that are doing, like, you know, Blau, he's created some awesome kind of audio plus visual stuff.

Starting point is 00:18:49 But I'm pretty excited about just purely audio NFTs really exploding in activity. And, you know, we just invested in a platform that's doing primary audio NFTs and building a strong brand around that because they understand the music space really well. They're going to curate to get really high-end. you know, emerging artists on the platform and things like that. And so what does that look like? Because I, in a way, it's funny because the logical side of my brain still feels like it doesn't get NFTs.

Starting point is 00:19:24 And yet when the Kings of Leon, NFT was announced, I was like, I have to have that. And so I'm like a. Yeah. Yeah. I even, by the way, I paid $90 in gas fees for a $65. Yeah. But anyway, I, so I, you know, obviously I seem to get it on an emotional level. But so I was wondering for these music NFTs, are they going to be based on scarcity or is it still going to be something, you know, like the Kings of Leon NFT?

Starting point is 00:19:49 I could get that on my Apple music. So like, and yet at the same time, I felt the need to buy the NFTs. So I was what, you know, just for these music NFTs that you're talking about, are they ones that, you know, people will be able to get through their subscription music service or will it be something that is scarce? So I think collecting NFTs is all about authentic ownership, right? It's not about. owning a piece of music that no one else can listen to, but it's owning the true creation that was created by the artists that you love. That is the case with digital art, right? Like this, Robbie Barat, I own this. Anyone could show that off in a digital frame, but only I own the authentic version of that, right? And I think if Robbie Barat grows in importance in the world, then there will be demand in the future for authentic ownership. And so the same is true with music.

Starting point is 00:20:46 Like what I like about Catalog is the name of this marketplace that we recently invested in, catalog.org. And what I like about this marketplace is the team behind it is really plugged into indie music, right? And like indie music is not well suited for like the existing platforms. Like if you're someone brand new, Spotify, it's really hard to get distribution on Spotify. And SoundCloud, like five years ago, used to be really good for this, but SoundCloud also changed their algorithm. And so for like brand new artists, it's hard to break through and connect with your fans.

Starting point is 00:21:25 And I think there's an opportunity for a new kind of indie music discovery platform. And so what catalog is doing is kind of trying to bootstrap this new discovery platform. with a business model that can get these artists who have maybe 10 fans, but that really love them, that are willing to pay $1,000 for their authentic piece. So the hope is, like, I've started collecting stuff on catalog for some, you know, new artists that I love. And for me, it's not because I, like, want to be the only one to listen to this or it's, the music is scarce.

Starting point is 00:22:03 It's because the authentic ownership is scarce. and I hope that the artist that I buy on catalog end up blowing up, getting huge on Spotify, and then I think there's going to be more demand for like that authentic, you know, first work that they dropped on catalog. You know what I mean? Okay. Right. Right.

Starting point is 00:22:22 Yeah. It's like having a signed version of the book or something. Yep. Right. Yep. Okay. Obviously, you've been talking about this on my show for months now. And I still have heard of me as like, wait, why do these have value?

Starting point is 00:22:35 Well, one thing, I've written a blog post about this, and I think this is, this can be a helpful mental model. It's like humans fundamentally desire what others desire, and they desire what's scarce. And like, you think about, you know, if you own a house, right? I mean, part of owning a house is, you know, you want to show it off to your friends and your neighbors or whatever. when you own a house, you show it off to a very limited number of people. Owning an NFT, it's kind of, it's this global thing that you could show it off to the world. And so I think that explains why, like, people are willing to pay millions of dollars. I know people that have paid millions of dollars for crypto punks that, you know, that don't own their house.

Starting point is 00:23:23 And I think that's part of it. It's this, like, kind of belief that more and more people in the future will desire this thing. and it's at like a global scale in a way that even like home ownership isn't. So I'm kind of very bullish on the long-term value of kind of very blue chip or high-end NFTs. I think you talk about a bubble. I think just like, you know, in 2017, like the high quality, you know, assets were good buys even at that time.

Starting point is 00:23:53 I think kind of the same is likely to be true about NFTs. Because again, it's just like why do, why does any cryptocurrency have? value. It's belief. It's the fact that people, other people desire these things. Once the desire, you know, gets going, it can, especially with like internet-based products, get really big. Yeah. I mean, obviously the difference with these cryptocurrencies is that they have utility. Like Bitcoin has utility. Ether has utility. And yet at the same time, I, while you were talking, I just had this vision of Instagram feeds, right? It's like people kind of share. show off their experiences, but now with NFTs, they'll sort of show off their possessions. And I think

Starting point is 00:24:36 it's like a different way of showing status, which, you know, now that I think about it, I did see some commentary saying NFTs are basically a way to show status. And I think maybe the more I think about it, maybe that's what it is. But anyway, I like, it's a hugely fascinating thing to me, because obviously this just has taken off. It's gotten a bunch of non-crypto friends of mine interested. And yeah, like I said, the logical side of my brain is like, why? I don't get it. But just to challenge you on that, I mean, there certainly are some cryptocurrencies now

Starting point is 00:25:11 that have utility and that a lot of people are using. But, you know, Cardano has a $75 billion market cap right now, right? Is that because Cardano has utility, Aida, or whatever their cryptocurrency is? You know, this is a good question because every time, well, not, I don't know if every time, but often when I tweet now, I get spammed by these Cardano supporters who want me to do an interview on, yeah. And so, I mean, it's fascinating, you know. Another good example is Dogecoin. Exactly. Yeah. I mean, these cryptocurrencies, it's belief, right? Why is everyone spamming you about Cardano? It's not because these, Cardano is used. useful to these people. It's because they own it and they believe it's valuable and they believe it's going to increase in value and they want you to talk about it. So I think NFTs are a good

Starting point is 00:26:05 parallel. It's like it's the meme. But I think it's even more interesting because there's actually like a human creator behind it as opposed to these cryptocurrencies. So I actually think people could feel more attachment to a lot of these NFTs than they do, you know, these cryptocurrencies. Yeah. Yeah, I could see that. That makes sense. So I want to ask you a question about two people that I think you know well, who were recently in my show, Mark Cuban, who is an investor in one confirmation, and Devin Finzer,

Starting point is 00:26:44 the co-founder and CEO of OpenC. And so Mark told me that his last. light bulb moment around NFTs was when he realized that creators could get royalties in perpetuity off the secondary sales. And then later, when I interviewed Devin, he said he thought people would try to get around paying those royalties and that basically like, that's not going to be a thing. I don't know if he went that far, but, you know, he kind of said like the likelihood you're going to get the royalties as a creator is, you know, you may not get them. So it's just curious to hear your take. How do you think that's going to play out? Do you expect that buyers will,

Starting point is 00:27:20 try to pay that cut to the creators or that they'll try to circumvent that? I think there's definitely, I mean, the data has already shown that there are, there are collectors that want to honor that, right? And so Super Rare, for example, has paid out millions of dollars in royalties to crypto artists on Super Rare. So I think that's an important thing. It's hard to enforce, right? Because, again, an NFT is about true ownership and, you know, people being able to do whatever they want with it.

Starting point is 00:27:58 And so there may always be a marketplace that allows you to buy and sell it without giving that artists the royalty. And there's probably a segment of people that will always want to do that on the buyer side. But look, particularly on Super Air, I can just say, like, there's a collector community that really values what the artists are doing and appreciates artists work and and wants to support artists. And it is really powerful that, you know, an artist, you know, if we ever sell this Robbie Barat, you know, Robbie will get a, you know, a significant cut of that. And Robbie himself has already made, you know, tens of thousands of dollars in royalties from secondary sales on, you know, on super rare. So I would say it's definitely happening. I think.

Starting point is 00:28:49 think it's going to continue to be kind of a thing, how big it is, and how much people actually honor that. I'm not exactly sure. So just for the people listening on audio, Nick, when he references this, he keeps pointing to a framed painting behind you, but I realize now it must be digital because I see a cord hanging from it. So is that an NFT? And then that was a physical version that you got as for buying the NFT? This is a digital frame. So this is a digital frame. So this is a called a mural canvas too, which you could buy for, you know, 400 bucks and, you know, put it on your wall and show off your, you know, your NFT collection. So, you know, you download an app and yeah, I basically have an app that I can change it. And it's fun, right? I can show off my,

Starting point is 00:29:37 there's a coldie Vitalik, which is one of my favorites. Wait, a what type of Vitalik? Coldie is one of the OG crypto artists. He's an awesome artist. He's one of the, and one of the first creators on Super Air as well. So this is one of his best works, in my opinion. Oh, wow. Yeah, people, if you're listening on audio, you should come check out the video to see this version of Vitalik. It looks like, yeah, like a video game version of Vitalik or something. Yeah. Yeah. All right. So in a moment, we're going to have one more question about NFTs that I am curious about. But first a quick word from the sponsors who make this show possible. TASOS lets you easily exchange smart money throughout our digital world. As self-upgradable blockchain with a proven track record, TASOS seamlessly adopts tomorrow's

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Starting point is 00:31:52 into zero knowledge privacy technologies, accounting and tax rules, as well as the future of finance. Sign up and learn more at eY.com slash global blockchain summit or blockchain.e.y.com. Back to my conversation with Nick Tomato. So one other thing that has been happening now that NFTs are taking off and normies are entering crypto is that we've seen a lot of pushback against proof of work mining increase. And I wondered, how do you see these environmental concerns affecting mainstream adoption? And what do you think is the best way to address that? All cryptocurrencies are narrative-based. And I think this is a narrative that is certainly picking up steam. And it's particularly picked up steam within the art community. It kind of,

Starting point is 00:32:42 you know, with Elon's tweet, you know, last week, it's, it's gotten even crazier. But a couple months ago, there was a lot within the crypto art community, actually, you know, talking about this. And artists tend to, I think, be socially minded. And they actually, you know, were talking about this first. And, you know, there was a segment of Ethereum artists who left to, you know, to go to a platform on Tezos, for example, because, you know, Ethereum is still proof of work and Tezos is proof of stake. So I'm TBD on, like, how big of a impact this has in the long term. Wait, because Ethereum's moving to proof of stake or why? Well, I just mean, like, people caring about this environmental proof of work narrative generally.

Starting point is 00:33:34 Wait, really? I feel like it's just getting worse. Well, it seems to be right now. I don't know. I'm, it seems to be particularly from people that don't like Bitcoin that, you know, don't see value in Bitcoin. And I, I listened to actually part of your podcast last week, I think. You had some really good guys. I forget who. Oh, Alex and Alex Gladstein and James McGuinness talking about proof of work and the environmental impact. Yes. Yeah. Yeah. Yeah, that was a great podcast. Yeah, if people missed that, they should listen to that.

Starting point is 00:34:12 And again, I don't, like, I spend all my time on, like, new products and cryptocurrency, so I don't understand much of what's going on or have much time to devote to environmental stuff. But from my perspective, it's a narrative that people seem to care about at this current moment. But the main reason they care about it is because they don't see utility in Bitcoin. And so I think as more people care about Bitcoin and more people are, around the world recognize, you know, the utility of Bitcoin, I think that, you know, that the narrative could die. I mean, one thing I was thinking about is like, if you think about Tesla, right, Tesla obviously, you know, electric cars better for the environment, but why do people buy Teslas?

Starting point is 00:35:02 I'm sure there are some people that buy it for that. But like, you know, I have a Tesla. I have a lot of friends that have Teslas. And all the people I know, they didn't buy. it because, you know, it's great for the environment. They bought it because it's a great product. And it's great that it's great for the environment. But it's a very, I mean, compared to any other car, it's just the best product, I think. You know, I think in the long run, the best products will win. And the, you know, the environmental stuff will, will prove to be a bit overblown. That's my kind of view. I also recognize that environmental issues are are becoming increasingly important. And this could be kind of a blind spot for me.

Starting point is 00:35:45 But that's going to be. Yeah. Yeah. I will have to disagree with you. So we'll have to check back in a few years because from my perspective, I think that people are viewing climate change as becoming a worse problem that should have been addressed longer ago. And so the more time that elapses with it not being addressed, the worst, the problem gets. And the harder it is to fix it. So I feel like kind of the desperation of people who care about that issue is getting even stronger moment by moment. I mean, now with this new administration being more friendly to environmental initiatives that might lessen. But yeah. So we'll have to see how this plays out. But I don't disagree with that, though. But I think what I'm saying is that like, you know,

Starting point is 00:36:27 a lot of people that are saying this about Bitcoin don't understand the facts of what actually is better for the environment. Like, you know, the traditional fiat, system and payment infrastructure or Bitcoin. Like, there's no doubt that people are going to increasingly care about the environment, but I just think the narrative, the reality is different than the narrative. And as the product of Bitcoin proves to be more and more useful, the mainstream perception of that will adjust for that. That's kind of...

Starting point is 00:37:03 Yeah, yeah. And actually, this goes back to that episode that you referred to, because in that episode, Alex Gladstein of the Human Rights Foundation gives a really detailed description of how the U.S. dollar is essentially something called a petro dollar and how it's basically fossil fuel money. So it is interesting that Bitcoin is taking the brunt of this criticism when actually the U.S. dollar really is heavily tied to fossil fuel. So all right. So let's switch tax. We kind of keep going off on tangent. So I have a whole host of other topics I wanted to touch on. So Ethereum is facing issues with

Starting point is 00:37:44 scaling to layer too quickly enough to meet demand. And I don't know if you saw this tweets from that Kane Warwick of synthetics had in it. He talked about how this problem has given a foothold to competitors like Binance Smart Chain and Solana. And I wondered, you know, for you as an investor, like how are you and your portfolio companies thinking about how to scale? Like, there's this period now where defy is a bit fragmented in layer two. So are you advising portfolio companies to all try to go

Starting point is 00:38:14 in the same layer two? Are you having them check out building on other protocols entirely? Or, you know, how do you think this period is going to play out? Well, I would say it reminds me a lot of kind of the 2015-16

Starting point is 00:38:32 era of crypto where there was Bitcoin, that was working really well, that had a really passionate community of people. And then something else came along like Ethereum that the tribal bitcoins didn't like and thought everything was going to happen on Bitcoin. And, you know, people are still,

Starting point is 00:38:55 I think there's still people out there that are waiting for rootstock or some of these side chains initiatives, right? There's still people that think defy is going to happen on Bitcoin. And it just shows you how biased people are and how tribal people in crypto are, right? So I use that example to say, like, look, we're incredibly bullish on Ethereum and the Ethereum ecosystem.

Starting point is 00:39:23 Pretty much everything we've invested in as a fund to date. All the applications have been on Ethereum, and it's working really well. But I'm not someone who thinks everything is going to happen. on Ethereum, right? That view gets you a lot of likes on Twitter. It's kind of playing the card of the tribe, right? But I think one thing I've always liked about Ethereum is kind of a more open ethos. And while there are some of these tribal people within, I mean, like, Vitalik is not himself tribal at all. And the culture of Ethereum is more open and inclusive. And it's always been. And so I hope the Ethereum community can kind of,

Starting point is 00:40:06 follow Vitalik's lead on that and be open-minded to, you know, the idea of not everything happening on Ethereum. I think just like in 2016, like there are a lot of, you know, some promising initiatives at the layer two that are bringing scalability of Ethereum and some of that stuff may happen. It's probably going to take a lot longer than, you know, we think. And I think if you're a, a, you know, a crypto art marketplace that where people are buying a piece of crypto art for thousands of dollars, then paying 50 or 90 dollars for a transaction is okay, right? But, you know, for a $100, you know, asset within a game or something, it's just not viable. I don't want to dismiss layer too because we have a few portfolio companies in particular

Starting point is 00:41:00 that are using Maddoch right now. And, you know, well, I think. Polygon. Yeah, everyone still says Madic. Right. It's a more unique name, but anyway. Yeah. Yeah. But yeah, we're very excited about other layer one chains like Pocod and Cosmos that are bringing in new developers and enabling new use cases that Ethereum simply can't support right now.

Starting point is 00:41:30 Right. And those use cases, the naysayers will say, well, we're all. of those use cases. You know, these platforms have been around for many years now. But it feels to me like we're still kind of, we're in like the 2017 period for Ethereum, where back in 2017, it was all speculation. There wasn't billions of dollars tied up, you know, in, in Ethereum smart contracts. I think we're kind of in that period for other layer ones.

Starting point is 00:42:00 And I think it's still, I'm open-minded. I don't have a strong view on, you know, which of those are going to win. How I think about it is that it's likely going to be a platform that offers something kind of new and different. So I don't love when I hear like a platform just talking about scalability benefits and just like kind of executing the Ethereum idea better. What I'm most excited about is like kind of new. ideas that are pushing the space forward in different ways. So what I mean by this, I mean, one example is governance, right? Like, Pocodot has a, this radical approach to on-chain governance.

Starting point is 00:42:49 And, you know, Ethereum is all about governance minimization, right? And kind of Vitalik has never been in favor of kind of on-chain governance. And I think something like Pocod and their radical approach to on-chain governance is this kind fundamentally new idea to crypto that is pushing the space forward, whereas something like finance smart chain or Solana, they're really copying Ethereum and just trying to do it better. And I don't think that's likely to really push the space forward and win in the long term, although I could be wrong. Oh, this is so fascinating.

Starting point is 00:43:25 Everything that you just said. So a couple of different questions. So first of all, earlier when you said that some of your portfolio companies were on Polygon or Matic. Is that because you kind of tried to get a bunch of them onto the same layer two? Like, do you feel that this period where the, you know, different smart contracts can be fragmented on different layer twos as a problem? No.

Starting point is 00:43:50 No, like, we don't really push. I mean, we'll give our feedback, but like we let, you know, our portfolio companies kind of do their own thing, right? So we're not necessarily directing them to any way. one, you know, layer two. What I would say is I'm pretty excited about bridges that it kind of make layer two's interoperable. Actually, one of our portfolio companies started as a Ethereum, which was a smart contract wallet, and they've kind of pivoted to creating Hop Exchange, which is kind of a bridge that connects, that makes it, you know, easy to go from one layer two to

Starting point is 00:44:27 another. And I think that's something that, you know, that is interesting and they could play out. And Hobbs not the only one. There's another one I think called Kinext. So there are teams that are working on making this seamless. And I think the truth is there's not one layer two solution that has enough kind of momentum that there's one clear one to go to, right? They all have different tradeoffs, you know, like DYDX is in our fund one. You know, I know you've had Antonio on before.

Starting point is 00:45:01 one of the one of the one of the most underrated products in defy i think and they're they're building on starkware right and that starkware has its own set of pros and cons that that you know Antonio really liked so i think it's it's still kind of wide open and uh i'm all for kind of different experimentation and i think that in the long run it's possible that they are connected um but it may be clunky. It may, you know, make sense to be on another chain as well. Like, I'm not, I'm not someone that thinks everything needs to be on Ethereum, although I do think Ethereum has the best, as good a chance of any as being the long-term winner. Okay. Yeah. That was my other question for you is just, it sort of seems like what you're saying is that you feel like for, for a smart contract

Starting point is 00:45:53 platform, that Ethereum kind of has the lead and that it's going to be hard for anybody else to take that mantle. And so that's why for anything else like you wouldn't, you know, if you're going to invest in something that even seems slightly competitive, it has to have a different feature like what you were saying about Pocod and its governance. Is that? Yes. Okay. Yes. Yeah, let's talk a little bit more about Pocodot. Because, I mean, you have really invested in a lot of Pocodot ventures, Pocododot itself, Kusama, Akala, Edward. And so I wanted to hear a little bit more about how you don't view it as competitive because I'm sure you're well aware there are many people in Ethereum who do view it

Starting point is 00:46:32 as competitive. I don't know. Is it competitive or is it kind of cooperative, right? I view like Bitcoin, you know, I guess it depends how you look at it, right? But like I think how we should look at it is that projects that are pushing the space forward are only good for, you know, the existing, you know, incumbents, right? Which I would say Bitcoin and Ethereum are. are. So, you know, like Ethereum, while it's cut into the market share of Bitcoin, I would argue it's been very positive for Bitcoin. And Bitcoin wouldn't have the market cap that it has now if Ethereum wasn't around. Because Ethereum, all the innovation stuff, Defi and NFTs that we've talked about that's bringing new people to the space, it's really, it's Ethereum. So I think

Starting point is 00:47:21 we should be open-minded about the fact in the Ethereum community that like there could be something else that comes along. Could it cut into, if you're looking at the total pie of, you know, smart contract platforms, could it cut into the pie? Yes. But I think it would grow the pie immensely and potentially, you know, thinking about it as kind of cooperative rather than competitive, I think is a more healthy way, you know, to look at this. But yeah, I would say what I like about Pocodot, and particularly like the radical approach on chain governance, is this idea of like a 12-member council, right, that is making decisions. And, you know, there are great things about governance minimization. It makes it tough to change. If you have a, have like a product that just exists,

Starting point is 00:48:16 it's a good approach. And so it's good for something like a store value like Bitcoin. Maybe it's good for like a dex that just works like uniswap. But if you're any type of product that needs to rapidly evolve, I think the $100 billion question is how do you create some type of decentralized governance that can actually evolve? No one's really done that, right? Ethereum effectively has the same governance as Bitcoin. It's been really slow to evolve.

Starting point is 00:48:52 It's been able to evolve better than Bitcoin because Battalix, the benevolent dictator who's still around and kind of rally the whole group, right? But I'm very excited about this idea of like a decentralized governance that, you know, gives power to token holders, but can evolve faster than, you know, the governance minimization approach that we're kind of seeing as commonplace in crypto today. And that's kind of the promise of something like Pocod. And I think the, I think the Pocodot governance is wildly like unappreciated and unexplored. And I'm not saying it's like fully fleshed out and it's necessarily working great yet. But I think this idea of like, you know, voting in a council, the council can make decisions quick. But if the majority of token holders disagree with the decisions, they can vote against those decisions. So the council doesn't have unilateral power.

Starting point is 00:49:52 I think that is a really powerful idea that's going to exist in some kind of way, shape, or form in the future. And that's why I like the Pocodots really bring something new to the table that no one else in crypto is really doing. Yeah, I'm also hugely fascinated by these governance issues. And that's something I'm really keeping my eye on. But let's switch tax for a moment. I wanted to ask about Coinbase, because obviously, as we discussed you were, an early employee there. And I'm sure you're aware oftentimes in crypto, there's this comparison made between investments made at the protocol level and investments made in applications. And I was curious,

Starting point is 00:50:31 as somebody who probably just experienced a nice little windfall from the Coinbase Direct listing, but who also has probably made a lot of money via tokens themselves, what's your take on that fat protocol thesis? Can the earnings from applications still compete with earnings from protocols? I think the upside is just greater if you're a cryptocurrency-based project. I think kind of what we've seen over the past three months with even Coinbase's valuation, right? The fact that Cardano, again, not to bring it up again, but is valued more like I think, you know, that's like a 50% higher valuation than Coinbase right now shows that for whatever reason this like new. paradigm of crypto, people think about value differently. Well, not for whatever reason. I think a big reason is that anyone can participate. So you have just a bigger pie of potential investors,

Starting point is 00:51:30 right? And that's a big piece of it. And yeah, I mean, the Coinbase IPO was great in the sense that for the people that pay attention to Wall Street and read the New York Times and care about that world, it was more validation for crypto. But I think it wasn't that big of a deal to crypto people. And I'm a crypto person, right? So like a token as a way to capture value is kind of definitely the model that I believe in more. So I mean, I haven't sold any of my Coinbase stock. You know, I'm kind of believer in Coinbase has this utility. for the ecosystem. But in terms of where I see upside, it's very much in the cryptocurrencies rather than the companies that are trading on Wall Street. Okay. So maybe the FAP Protocols thesis is

Starting point is 00:52:32 still in place. So as we discussed earlier, you've invested a lot in these various DFI protocols. What sort of threat do you think DECS and other decentralized applications or DFI in general could pose to Coinbase eventually? I think it's definitely a threat. I don't think it's a huge threat. I mean, it's a threat to Coinbase's crypto to crypto business, but the moat that Coinbase has is the regulatory moat, right? And the bridge to fiat currencies.

Starting point is 00:53:06 And so Defi is not going to be able to play there. I don't think. I mean, there's been initiatives. I remember there was like an Omisei Go one many years ago, but I think there's still more money that's outside of crypto than in crypto. And being a on-ramp to crypto is a good business. So I don't know. Like people in crypto, again, it's just like tribal nature that like, uniswap, you know, winning and Coinbase losing or something like that.

Starting point is 00:53:49 But I think that's because people are tribal and competitive, but like it's more cooperative and collaborative. And I think Dex is growing. I actually see as good for Coinbase because, you know, more people are getting utility out of cryptocurrency. That's going to bring more people in. That's good for the core Coinbase business model. So I don't know.

Starting point is 00:54:14 I've never viewed Coinbase as like a super innovative company that's like doing new products to push the space forward in a big way. It's just like this utility for the ecosystem that I think works really well. It's really valuable and it's good at executing. And I think there's certainly room for that to exist and, you know, Dex's to exist and thrive. All right. So let's kind of pull this all together just for the rest of the year. Obviously, this bull cycle has been super interesting because at least to my eyes, it has been driven by a few different things. Obviously, there's this trend with Bitcoin being taken up by institutions in a big way, as we've discussed, NFTs, taking off amongst normies. And then Defi kind of had its

Starting point is 00:55:10 moment, but, you know, the gas fees kind of limit, you know, who can participate in that. And, you know, for whatever other trend you want to pull together, where do you see the rest of this year going, which I think most people would say they're expecting, you know, this full cycle to last kind of through that period. Yeah. I'm not sure about the cycle. And, you know, I always say, like, I'm not a trader. I'm not good at timing markets.

Starting point is 00:55:33 But I could tell you the types of new products that I'm most excited about that I think we could see an explosion in, or what I call. all defy and NFTs for the masses, right? I think as you alluded to, and we talked about the fees on Ethereum right now for the majority of Ethereum applications price out the masses, right? It's like it's still mostly rich people and crypto rich and, and I think that needs to change. I think and I think that's going to change once we see applications on new chains and we see layer two is really thriving.

Starting point is 00:56:12 And so I'm really excited about, you know, people being able to make a unisop trade for $100, right, and buy $100 worth Ethereum really easily. You know, people buying a $100 or a $50 NFT on OpenC within a game. Things like that, I think, is likely to be the next leg up for crypto, whether that happens in the next six months or, you know, it takes. a couple of years. I'm not sure. But for us, that's what we're kind of going to be investing in over the next several years. And I think it's a good long-term bet. And then earlier, when you were talking about Pocodon and the governance, I was curious also for your take on certain things that

Starting point is 00:56:56 a lot of people are interested in, but haven't really taken off yet, but you think, you know, will in the future. And I wondered if Dow's was one of them. And if there's anything else that you see on the horizon that you want to mention, I'd like to hear what you're seeing there and where you think it'll go. Yeah, I think Dow's, um, Dows are already happening, right? And I think there's a lot of people that have like, uh, kind of anointed DOWs as the next thing after,

Starting point is 00:57:20 uh, defy and NFTs, right? I don't know. I mean, I'm not super bullish on that. Um, as Dows being like a thing that really brings in new people. Um, I think Dows like, uh, you know, on train treasuries, you know, are happening. and voting on how to allocate funds on an untrained treasury, that's happening for many Ethereum projects and Pocodot projects now. I think an open question is like, will there be a product or a tool that makes it easy for anyone to spin up their own Dow, you know, for anything? And that's something that I've been excited about, but there's challenges with it. So yeah, I don't know. I'm bullish on

Starting point is 00:58:08 doubt, right? Anyone who's in cryptocurrency is like Bitcoin was the first Dow. Any truly decentralized cryptocurrency is in effect a Dow. I'd love to see an explosion of Dow's. I haven't seen any product that, you know, is enabling that. I guess another category that I'm very excited about that I think we will see in the next five years. I don't know it's going to be one year or five years is decentralized media, right? And NFTs itself is kind of a version of centralized media. You know, we all see the issues with the centralized social media companies, for example. Can someone kind of crack the code, if you will, and create a product that people really want to use because of the product, not just because of the investment opportunity, right?

Starting point is 00:59:02 And, you know, we've seen things like Steam in the past and, you know, BitClout now, which is trying to, like, bootstrap this thing by getting people excited from speculation. And I'm not super bullish on that. I'm more bullish on, like, something crypto-native that the crypto community really, you know, gets behind from a product perspective and that something new and different that ultimately, you know, the whole world uses. I think that will happen, like, in the next five years. I don't think we've seen, I don't think it's been built yet.

Starting point is 00:59:37 All right. Okay. Well, this has been such a fascinating discussion. I'm so glad we were able to connect. Where can people learn more about you and your work? Yeah, I guess just go to oneconfirmation.com. That's our site. One confirmation on Twitter.

Starting point is 00:59:51 I'm also NTMoney on Twitter. Follow Richard Chen as well. My partner, Richard Chen 39 on Twitter. And yeah, that's about it. All right, great. Well, thanks so much for coming on Unchains. Thanks, Laura. It's fun. I appreciate you. Thanks so much for joining us today. To learn more about Nick and One Confirmation, check out the show notes for this episode. Sign it for my newsletter to get the top crypto news

Starting point is 01:00:15 of the day and to find out how to pre-order my book, The Cryptopians, Idealism, Greed, lies in the making of the first big cryptocurrency craze. You can sign up right on the homepage at Unchainedpodcast.com. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, and Mark Murdoch. Thanks for listening. Thank you.

Unchained - Nick Tomaino on 1confirmation's $125 Million Fund and What Future NFTs Will Look Like - Ep.242

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