Unchained - OG Olaf Carlson-Wee on Why His Crypto Thesis Is Stronger Than Ever - Ep. 598

Episode Date: January 23, 2024

Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Polychain Capital founder and CIO Olaf Carlson-Wee has been through every single bubble in crypto history, from Bitcoin’s rise past the single digits in 2012 to the ICO craze of 2017 to 2021’s NFT mania, and he says his main thesis about crypto has remained consistent since the beginning. That is, that crypto constitutes an “incentive vortex” that will replace the world’s preoccupation with country-backed currencies.  Carlson-Wee, who was the first employee at Coinbase, joins Unchained to discuss the significance of the launch of spot Bitcoin ETFs, how he successfully navigated all the industry blow-ups in 2022, the challenges of balancing incentives for early adopters versus new users, why EigenLayer is so significant, why Worldcoin’s distribution strategy is a “disaster,” and the strange places that the intersection between crypto and AI could take us.  Show highlights: Why Olaf sees the current market as the cusp of another bull run and how his thesis has remained consistent since 2011​​ How the launch of spot Bitcoin ETFs marks a significant milestone  Why criticisms of the crypto space are really criticisms of money in general  The fundamental differences between Web3 applications and the Web2 ecosystem and why they matter The importance of fair token distribution in enhancing the value of Web3 projects When Olaf expects Bitcoin to replace legacy financial systems The areas and technologies Olaf and his fund are keen to invest in Why Olaf thinks a modular blockchain architecture is superior to a monolithic one in the long term How EigenLayer is innovating to enable new types of applications and whether it competes with Celestia How Polychain managed to avoid being hurt by the major market blowups of 2022, including Terra and FTX The evolution of the space from an ideologically driven to a more pragmatic approach The significance of incentive design in crypto ecosystems and the trade-offs involved in system design Olaf’s perspective on the recent rise of points systems The growth of privacy-focused crypto projects and the potential for private blockchains to become the norm Why he thinks Worldcoin’s distribution strategy is a “disaster” Olaf’s interest in the intersection of AI and crypto and potential developments in this area His bullish outlook on SocialFi and Web3 gaming Thank you to our sponsors! Popcorn Network Guest: Olaf Carlson-Wee, founder and CIO of Polychain Capital Previous appearances on Unchained: Olaf Carlson-Wee: 'If There Is a Money-Losing Exploit, the Money Is Gone'  Why The First Employee Of Coinbase Launched A Hedge Fund To the Moon and Back With Polychain's Olaf Carlson-Wee Special Episode with CNBC's Crypto Trader: Olaf Carlson-Wee on Why This Crypto Winter Is Different From Previous Ones All Things Cryptoeconomics, Pt. 1, With Olaf Carlson-Wee and Ryan Zurrer of Polychain Capital Links Olaf Carlson-Wee Forbes:  This Man Has Been Living On Bitcoin For 3 Years Why This Hedge Fund CEO Once 'Put Most Of My Meager Life Savings Into Bitcoin' TechCrunch: The future is a decentralized internet Blockworks: Why Polychain Capital Founder Never Sells His Crypto  CoinDesk: Olaf Carlson-Wee: Crypto Is the Great Wealth-Redistribution Machine Restaking/EigenLayer Unchained:  DeFi Protocol EigenLayer Reaches Restaking Capacity, Pushing TVL Past $1.4 Billion Do You Need to Think Twice Before Restaking Your Assets?  Olaf’s tweet on EigenLayer Crypto + AI Olaf’s tweet: “in crypto nearly 100% of value accrues to start-ups and outsiders, not existing establishment interests” Visit Unchained for more links and details Learn more about your ad choices. Visit megaphone.fm/adchoices

One thing that was a big moment for me, this happened probably about 10 years ago. But I was thinking about Bitcoin as this sort of abstract incentive machine that people get plugged into. And that, you know, the Bitcoin network or Ethereum network, you know, they're operated by machines. But ultimately, these systems control humans. Like they manipulate humans' incentives to drive humans to, like, work for them. And I had a big moment where I realized, wait a second, you got wrapped into this. Like, I work for Bitcoin. Like, I'm the guy who got wrapped into this incentive mechanism and now work for this thing.

Hi, everyone. Welcome to Unchained. You're a no-hype resource for all things crypto. I'm your host, Laura Shin. Author of The Cryptopians. I started covering crypto eight years ago, and as a senior editor of Forbes, was the mainstream reporter to cover cryptocurrency full-time. This is the January 23rd, 2024 episode of Unchained.

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reporting on the ground from where you live. telling the stories that matter to all of us, because local news is big news. Choose news, not noise. CBC News. Today's guest is Olaf Carlson-Wee, founder and CIO of Polly Chain Capital. Welcome, Olaf. Hey, Laura. Thanks for having me. Excited to see you again. I think you may be the only guest of mine to live through every single bubble in crypto. You live through a tiny bubble from single digits up to 30, $30 in June 2012.

You live through Bitcoin's first bubble past $100. It's first bubble past $1,000. The ICO craze of 2017, the DeFi Summer of 2020, NFTMania of 2021. And now we're recording as spot Bitcoin ETFs around the precipice of being launched here in the U.S. So for listeners, this episode will come out later, so they'll already have launched. But obviously, we're in this situation where prices are up, volume is up, the halving's coming up, and it basically looks like we're on the verge of another bull run. So what do you think this particular bull market will be about?

That's a great question. So in a way, one thing that's interesting to me is how much my general thesis has actually not changed since 2011, which is that this is sort of an incentive vortex that takes over, and eventually we all sort of work for these autonomous protocols. It's very similar to the way you sort of work for dollars or whatever, currency from the day you're born and you never really think that much about the fact that you're plugged into that system. It's just sort of like in the background, you take it for granted that you know, you go to school, you go to university, you get a job and it's sort of all working

for this big imaginary system. So I think in a way like not that much has changed and it's sort of this center, you know, spine of this whole thing that will never change. change, which is just sort of, you know, it's like a vortex for the world's time and capital. Now, for this particular sort of moment in crypto, I think that a lot of the infrastructure around smart contracts, you know, these namely are projects like, you know, Arbitrum and other layer two systems on Ethereum, systems that have been hardened like Solana, and then systems like Celestia, eigenlayer, that are a little bit more dev tool-oriented, but sort of unlock the ability to do new types of applications, I think that those novel apps are going to always, they've

always been a big part of each one of these cycles, is sort of this unlock that gets invented very quietly when nobody cares about this market, and then you sort of see it shine in in applications, you know, during the intensity of this, you know, bull market cycle. And so we saw this, like in 2012 kind of bear market, you saw things like Coinbase launch that enabled people to interact with these systems without, you know, using the command line on their computer. You know, then in 2015 bear market, you saw Ethereum launch and like the first, you know, primitive crowdfunding, smart contracts, things like that. You know, 2019 bare market, you saw sort of defy and NFTs.

And then this bear market, I think, is a lot of this more scalable infrastructure that's really going to unlock new types of applications. And I think particularly things like CryptoSocial or crypto-enabled video games and things like that that are a bit more consumer-oriented. And financial in nature, but not sort of as explicitly financial as, say, a Bitcoin, where you just sort of buy it and hold it as an investment vehicle. instead it's sort of a backbone of financial incentive that sits underneath the existing mechanics of like a social media application or it sits beneath the existing logic of a video game right

so i expect that to be a big theme here is okay it turns out all that stuff you know that people that i invest with we're building turns out it all matters and it's useful um even though, you know, it sounds a bit abstract. It's like early Ethereum, you know, you hear, okay, we're going to take this Turing complete virtual machine and embedded in the blockchain. It sounds like nonsense or just, you know, techno babble. It turns out that that's actually a really big deal and enables lots of new ways to use this stuff that people didn't know about. But it sort does have to get invented one day. So I think these inventions are going to play a big role in this cycle.

And, you know, I do think, you know, we're going into this kind of election year, and there's just going to be a little bit more of a, you know, very public narrative. Previously, these cycles, you know, 2021 was the first bull market that was sort of public, in a sense. I think this one will be very public. All the previous ones were pretty much limited to the folks inside crypto. Yeah. And I definitely want to dig in more on the social finance. on gaming questions, but we'll kind of go through, I guess, like lower layers of the tech stack before we get up to applications. But I also did want to ask you about Bitcoin because,

obviously, the way you got into this whole thing was through Bitcoin. You discovered that when you were in college. You wrote part of your college thesis on it. And so you and I are recording right before the launch. Obviously, this will come out after. But what are your thoughts as you see that spot Bitcoin ETFs are about to launch in the U.S.? Like, in what ways do you think the moment is significant and in what ways do you think it's not significant? Yeah. I mean, I think it's significant in a very similar way that the Coinbase launch was significant for Bitcoin a long time ago. It just makes it easier.

It doesn't really, like, invent a new thing per se, right? But it just makes it easier for regular people to get involved in this and invest in this. And it turns out that's a very big deal. Right. Like if you look at what happened to gold after gold ETFs were created, you know, I expect a very similar trajectory for Bitcoin. I think there's a huge number of people that don't want to set up a wallet but do want passive exposure to this whole thing. And a lot of the way they're going to do that is the way they get exposure to the stock market or bonds or things like that, which is, you know, ETF like instruments that trade on stock exchanges. So I do think it's a very big, deal in the scheme of like the trajectory of crypto. The way it's not a big deal is that it's just sort of a wrapper, right? It's like a wrapper for the underlying thing. It's not really a new invention. Like the creation of something like Ethereum or some of these more fundamental low level technologies that I mentioned to me is like a much bigger long term deal, right? Because

it enables people to use these things in ways that we couldn't imagine before. You know, we all know what's going to happen with the ETF. And it's not like the ETF is going to enable stuff that I could have never thought of, you know, 10 years from now. It's like, whoa, can you imagine how people are using the ETF, right? It's just, you know, it's just an investment wrapper that allows regular people to have easier access. But that, you know, I don't mean to say it's not a big deal.

I think it's a very big deal. And I agree with you that it feels broadly like 2024 is going to be a very good year for crypto. Yeah, yeah. Your team sent my team some recent remarks he made at your LP day, and one of your quotes was, most criticisms of crypto are actually criticisms of property, money, and markets. What did you mean by that? So, you know, when I said earlier, you're born into this system that ends up sort of guiding most of the big decisions of your life, like school and a job and where you live. There's this backbone thing that's like capitalism and the concept of money that you sort of

are born into and work for. So you sort of like work for money. But I think it's very rare that people ask the question like, wait, what the heck is this? You know, that'll be $100. It's like 100 what? And like I work, you know, so much for $20 an hour. And it's like 20 what an hour? Like, what's going on?

You know, and I think that it's funny that it's sort of this, it's so central to the backbone of the fabric of our society that nobody asks about it because it's so present that it's almost invisible. It's like a fish swimming in water, right? It doesn't think that it's wet. It's just like, this is just life, right? Now, when people criticize cryptocurrency, I think mostly what they're really criticized. is these systems of capitalism, private property, you know, money and markets. They'll say, you know, crypto's fake and made up, right?

And I'm like, yeah, so is whatever other system we have out there. Money is not something you can look at under a microscope, right? It's not like a physics-based thing. It's a sociological thing that only emerges in the interaction between different people. Like if you're the wealthiest person on earth, but everyone else on earth disappears, you know, you have nothing. Like the money is only useful in a social context relative to other people. And this sort of fake and made up feeling of crypto, I think is really a reflection that you're inside this fake and made up system as it is. You just never thought about it before.

And then, you know, criticisms like, well, there's inequality in crypto. Like there's these whales that own, it's these whales like all. have owned so much crypto. And it's like, yeah, do you know how dollars work? Like, there's like these whales that control these things and have a lot more than other people. You know, we can try to make equal rules, but we'll never have equal outcomes because people are different, right? They have different abilities. So you're never going to have sort of equal outcomes. I think it's just a fantasy. And the criticisms there of crypto are, again, really criticisms of money, markets, and capitalism, but people just never thought about it all before. And so, you know, I think most of

the negative things people say about crypto, they're just for the first time ever taking a first principled approach to thinking about the system that they're already in. So, you know, when people say Bitcoin is a pyramid scheme, you know, the people who are in it have an incentive for other people to buy into that imaginary reality. I mean, the same is. true of private property and the dollar, right? The people who have a lot of it have a huge shared, a huge collective incentive to make sure everybody else believes in it. So like if I have a billion dollars, that's only useful if everyone else agrees that I have the billion dollars and that that billion dollars can be traded for things. So I, you know, I think that most of

these criticisms, they're not incorrect. It's just that they're not unique to crypto. And people have just never thought about the system they're already embedded in before. Yeah, I've also faced those kinds of questions and comments. And my most frequent comeback is, you know, for the longest time, sea shells like cowrie shells were used as money. And like it's not anything new. Like, you know, this kind of social agreement and like fiction around money is just what money is. You also said in your LP day that Web3 apps are fundamentally different and it's critical to understand how the architect, actually bubbles up to the app experience as a founder every time web two turns right turn left not just

different the opposite can you elaborate on that yes so in the context of web two application logic we are used to building these sort of walled gardens where the logic is limited to inside the application right and the goal is to control that walled garden and extract value from the activities that happen inside it. So if you're inside Facebook or you're inside Instagram or you're inside TikTok, there's kind of this logic to that application that is, you know, it's decided by the developers of that system and they sort of monetize all these little interactions. So there's this interesting relationship between creators and fans across every single one of these platforms where the platform is sort of sitting there being a broker of these interactions.

and taking a bit of a fee, and there's a lot of jockeying around what type of fee can they create, how much can they jump in the middle, and how much does that sort of broker of that interaction really provide value between that creator and that fan, right? In the context of Web 3, the architecture is like open source, and so anybody can take like the underlying social graph and build their own version of the application logic. So you can take, just as a basic example, you can take the Twitter follower graph.

So who follows who? But then you can build your own feed based on that. So instead of having this one Twitter feed that's sort of determined by Twitter, Inc. Or X, I guess, you have, you know, potentially hundreds of competing different applications that all have their own feed logic based on your follower graph. So the follower graph, you know, might be sitting at that sort of blockchain protocol level. And because of that, it's open source and extensible.

What that also means is that people can build radically different applications based on that follower graph. So you can take the Twitter follower graph and say, you know what, I'm going to build Instagram based on that graph. And so you already have this experience every once in a while in Web 2 where you'll log in and it'll say like link your Twitter, right, or link your Instagram. And what they're doing is they're asking through a permission to API to talk to like the Instagram servers and the Twitter servers for permission to grab what is their proprietary data about who you follow and who follows you, and so that they can plug it into

their application. In a Web3 context, like, everything is open and everything, the way to think about it is, it's like Minecraft and modding in, like, video game communities. Like, in these communities, like, people take, like, an architecture of a video game, and then they mod it and they create, like, their own version, right? Oh, like, modify. Yeah, they modify the game. they kind of create their own weird little world, and it's like this open extensible thing.

And there was a short time period in Web 2 where these platforms did have like open APIs. But the problem was some of times people would use those open APIs to build apps that were competitive with that core app. So broadly, nobody really backs companies like this anymore. I think a very famous example of this was Zinga. You know, Zinga built on the Facebook API. They built a very successful business, but then they had issues with Facebook basically unplugging their access and all of a sudden Zinga crashes spectacularly.

And it's because they are not building on sort of this open system. It's like if, you know, you can't build Microsoft on Google, right, and then have Google be able to unplug you, right? you're never going to be able to have this genuinely competitive marketplace when it's all built on dependencies that potential competitors control. So this is sort of the application interface that the end user sees in crypto ends up having dramatically different logic because the underlying infrastructure is different logic.

And another example of this that's sort of do the opposite. it. If Satoshi Nakamoto owned 100% of the Bitcoin, right, Bitcoin would be worth zero. It would be worth nothing. The only way that they were able to create value for themselves was actually by giving away all the bitcoins, basically. And this is true of, you know, tokens that are tied to, you know, any sort of crypto app or crypto infrastructure. If the founder and founding team, like, keeps 100% of the tokens, they effectively have nothing. This is not. true of a traditional revenue generating business. Like if Jeff Bezos owns 100% of Amazon shares, it doesn't change that much fundamental logic about like Amazon the service. Now, in these

crypto systems, the underlying sort of quote cap table or ownership structure is very tightly tied with the functioning of that application. So if you consider Bitcoin the asset, part of the functioning of the Bitcoin network, it's like if Amazon shares, allowed you to buy goods on Amazon, right? There's like interaction between the ownership structure and the application logic itself. And so because of that, to create value for yourself as a crypto founder, if you have this crypto asset,

you actually want to dramatically give it away. Like, you want to give it away to as many people as you possibly get. And it's the exact opposite logic of building a traditional proprietary revenue generating business, which is like be very careful about who you let on your cap table. you want to have the least amount of owners possible. It's broadly, I think, the advice I would give people in that sense, and in the Web 3 sense, it's like give away the token to as many humans on Earth as possible. So, again, it's sort of this bizarre world, like opposite logic.

Like, lean into the open source developer community. Let them build on top of your application logic. Let them compete with your application interface. Because ultimately, all you're trying to do, is make the protocol successful. And so if you can have thousands of different applications built on top of your protocol, that is going to be what makes it successful, right? So instead of building this walled garden around the ownership structure,

you know, around the application logic, you know, and having things like patents on your software, it's sort of do the opposite every time. And there's more of a create value by giving it away, which is it, it can be tricky for people that are very deeply entrenched in that Web2 world to understand that logic. Yeah, there was another quote from the LP Day that I really liked. And in a way, this sort of just elaborates, I think, on the same thought. But, you know, if you have anything to add, let us know.

You said, crypto is not about payments like PayPal, Venmo, or Zellar. Crypto is about money. The socially constructed imaginary opt-in system we used to define and legitimize who owns what. So I love that. I don't know if there's anything else you want to add. I mean, it's, I, you know, I mentioned this a little bit earlier, but, you know, it's, it's, it's really this like incentive vortex. I mean, one thing that was a big moment for me, this, you know, this happened probably about 10 years ago. But I was thinking about Bitcoin as this sort of abstract incentive machine that people get plugged into.

And that, you know, the Bitcoin network or Ethereum network, you know, they're operated by, machines, but ultimately, these systems control humans. Like, they manipulate humans' incentives to drive humans to, like, work for them. And I had a big moment where I realized, wait a second, you got wrapped into this. Like, I work for Bitcoin. Like, I'm the guy who got wrapped into this incentive mechanism and now work for this thing. And it's not that, like, it's not that different. then being just born into the traditional old system.

And you're just like working for dollars, right? Like you never even think about it. It's the fish in water. Like it's so deeply entrenched in your logic of reality that you never step back to realize you're even in water. And so like it was fascinating for me like, you know, I was kind of a fish in the Bitcoin water a cent, in a sense. And it actually took me a moment to realize, wait a second, I just, you know, I'm one of these

people. And eventually it's going to get everyone, you know, it's just going to because it's this, it's such an elegantly designed incentive system and one that's immutable and no one can change. So it's infalliable in a way. And I think it outlives the, you know, monies of any nation state. And it's kind of a bet on the internet instead of nation states as like the defining logic of society, right? And I think it's very clear that's the direction we're going on a macro scale. broadly, you know, this is a very powerful machine that's beyond what anyone, including the people that have created these things, could have really ever comprehended. And it's sort of infinite branching complexity will eventually pull in everyone. And someday, you know, we'll all, you know, new

young people will be born and they'll just be the fish in water with cryptocurrency. Like, they won't even think about it. Like, why, why this? It's just going to be there in the background. Yeah. Honestly, right as you were speaking, I suddenly remembered how we met. Do you remember how we met? No, I don't remember. The very first article I ever wrote about you was about how you transacted only in Bitcoin. Oh, yes. I remember that. Yeah. The year that I wrote that, was that 2015? 2015, I remember that.

And so, you know, when you were talking about how you were the guy that got wrapped into quote-unquote working for Bitcoin, I mean, I remember you told me in your, for the article that you were like figured out a way to pay your rent in Bitcoin. You would always pay friends in Bitcoin. Your friends probably are so grateful to you because they're probably like so wealthy now from you like paying them for pizza and Bitcoin or for burritos or whatever. Yeah. But I just remember I asked you pretty much about. every aspect of your finances and how you manage to. Yeah. Yeah. And I, I, you know, a lot of my goal back then, too, was, you know, I was very dedicated to making Coinbase work where, you know, I was working full time on Coinbase, you know,

double full time, I would say, on Coinbase. And I wanted to sort of be a tester for every aspect of the product, right? So can we do payroll in Bitcoin? Can I, you know, pay my rent in Bitcoin? Can I buy regular stuff in Bitcoin? Can I send this to friends? Like, I just wanted to make sure that the product suite, you know, was capable of supporting, like, the full cycle of someone's life.

So someone's full financial life. Because my ultimate goal is, you know, I don't mean goal. It's just like what's going to happen in my mind. It's not a system that is going to exist alongside, the stuff we have today. It's going to be like that for a long time, and then eventually it replaces it. And I don't think anyone can do anything about it.

I just think it's already happening, and it's just going to keep happening. And do you think that transition from them coexisting to it just being crypto, do you think that happens in our lifetimes or not? Yeah. Yeah, I do. Interesting. I mean, I think I'll be, you know, I think I won't be like a young man when that happens.

But I think that once you get to like 50%, it's so clear, you know, that you're going to get to 100%. Sorry, what about the fact that mail, like snail mail and email continue to coexist? Yeah, but snail mail only continues to exist because of just absolute. bullshit reasons. Like weird regulatory things where you have to get it delivered or, you know, and it's also just spam. I think that snail mail existing

is because of like obscure subsidies, basically. I think if it was just like it had to compete on its own against email, like we wouldn't really have it the way we do today. All right. Well, so now we've gone through like a lot of theoretical stuff. We're going to get into some specific things. One thing that I wanted to ask about was just about Polly Chain. It was reported last July that Polly Chain has raised, or had raised

$200 million for its fourth fund, but was targeting a $400 million round. Did you close that round? Or, you know, or I don't know if you can talk about that. I can't really talk about it, but you'll, you know, I'm sure you'll hear about it when we have something to announce. Okay. But could you even talk about sort of what your thesis or strategy would be for? Well, yeah, I'm happy to talk about what I'm excited to invest in sort of over the next couple years. I mean, I've been investing in this category since the beginning, and I think it continues to be very important, which is just expanding like core low level functionality and scalability. I just don't think that project is done.

I think it takes a very long time. It's like getting the internet from, you know, dial-up modems to video streaming took a really long time. And I think crypto is no different. I think it's a little faster because we sort of have the internet to use to get it done faster. But it's, I don't think the project is done. I don't think the tech stack we have today is ready to replicate like the needs of the global

financial system and global property ownership systems. Like we're not ready. So I think that continues to be a very big category for me. And then I am very intrigued by, you know, adding like you have in video games and social media networks and things like that. you have these feedback loops that are non-financial that get people to log in and use the thing. Like, nobody is really getting paid to like, like the creators are in a way, but like the regular fans aren't really getting paid to use Instagram or Snapchat or, you know, at Twitter.

Like most people are on there for free, right? And they're on there for other reasons. A lot of what I'm excited about is can we add a financial incentive back? backbone, like in addition to these application loops that already exist. So, you know, actually you get paid a little bit of a kickback to use Instagram. Because you're actually providing value for the company and for the creator. But today, like, there's really no elegant mechanism to pay the users to do that. I do think adding this kind of financial backbone to application logic that we already know

about could be very explosive. So it's one area that I'm paying attention to, you know, it's still small. I mean, crypto consumer, you know, other than like these exchange platforms that are explicitly financial in nature, is still a very small and, you know, early market. Whereas the sort of infra and scaling side, that's a very established market. So I think we'll continue to be pretty focused on low-level protocols and infrastructure, like we sort of always have been. But we are sort of creeping up the stack as time goes on. Yeah, yeah, crypto just hasn't gotten to that place where, yeah, it really can go mainstream.

So in a moment, we're going to talk more about scaling choices, but first a quick word from the sponsors who make this show possible. Defi just got way easier with VaultCraft, a blockchain infrastructure for building, deploying, and monetizing non-custodial yield strategies in a few clicks. Forget spending months of R&D, capital, and human resources when you can now instantly launch your crypto fund with Valkcraft on any EVM chain. From wallets and institutional service providers to anon-DIFID gens, Volcraft supercharges your crypto assets by enabling instant cross-chain yield strategies that you can deploy in one minute.

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I think it would come down to precious metals. I hope we don't go cashless. I would say land is a safe investment. Technology companies. Solar energy. Robotic pollinators might be a thing. A wrestler to face a robot. That will have to happen.

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Back to my conversation with Olaf. At the moment, we have two blockchains that are in a similar space and they've taken very different approaches. It's obviously Ethereum and Salana that I'm talking about. There's also kind of an up-and-coming contender, Celestia, and that maybe you could say is going to take modularity up a notch. I've heard you say that you think the modular approach makes more sense. You've probably heard some people talk about Solana offering something more akin to an Apple-like experience. So I just wondered if you could talk a little bit about why it is that you view modular is superior, but what you make of that, you know, a commentary about, you know, Salana offering a better experience. Yeah. So I think in broad brushstrokes, the modular architecture is better suited for just long-term durability.

And you have more diversification in the different protocols people are using the different teams working on those systems. So if you look at like, call it the Ethereum modular. stack, right? You have core protocol development on Ethereum itself, but you also have all these different teams working on layer two systems. You have teams working on data availability like Celestia. You have teams working on capital efficiency like eigenlayer. And it's sort of this whole ecosystem of modular components that each sort of compete in their little arena, but sort of all combine to build sort of one stack. And I think it just means that there's less dependence on a single group or person. And architecturally, I think it's just the better way to build software. Like if you're building software, you don't want this one, like when you say monolithic code base in software, that's like a bad thing, right?

You don't want this one big piece of software. You want it to be broken up into smaller components that can be optimized in their own sort of avenue. It's not to say, though, in the sort of short to medium term, I think there's a lot to be said for like the simplicity from a user experience perspective of this kind of monolithic approach that you have like a Solana or like a finance chain kind of taking. Now, I don't think it has as nice of security properties for like long-term scalability. And I think sometimes there are shortcuts that need to be taken to make it work. And I also think just broadly, there's way more dependence on like a central dev team or even a single person, which I think just adds fragility

to the system. So, you know, if you look at the whole Ethereum modular stack, I don't really think there's like one person that this all rides on at all, you know, including Vitalik. If you look at Solana, I think a lot rides on Anatoli's shoulders and, and, and, making this work and just like the core Salonadev team. You know, because it is this monolithic thing that you're depending a little bit more on this team to continue to upgrade and maintain, right? So yeah, I do prefer the modular stack

like as a long-term architecture for this whole thing, but I think there's a ton of merit in the short and midterm for user experience in the kind of monolithic approach. One of the more significant events for Ethereum that's coming up is EigenLayer. And I think that's going to launch some time in the first half of 20204. If that succeeds, then how do you see that influencing the development of the Ethereum ecosystem?

Like, what will that future look like? Yeah. And so to be clear, EigenLayers live today, not with unlimited cap on funds and not with full functionality, but it's like a live on main thing right now. So the thing that is... that eigenlayer allows is for third-party bits of infrastructure or applications to basically plug in to the security afforded by Ethereum staking. And so people often call this restaking, where you can, as an Ethereum staker, take your eth that you have staked and say, you know what,

I'm going to plug in and stake on this other application and get paid a little yield over there too. traditionally to create the kind of security properties of Ethereum, you would have to literally launch a token and get it to the value of Ethereum. Like, that's the only way to do it. That's really hard, right? You have to, like, all that stuff I was talking about, like, this social, you know, this kind of imaginary social system that we all sort of opt into. I mean, it's very hard to bootstrap one of those to be worth, you know, a trillion dollars.

It's really hard. Now, with eigenlayer and restaking, application developers that want to secure like an Oracle system that feeds data that's not endogenous to the blockchain into the blockchain, or that want to secure something simple, like a trading card game that they have. And they want to make sure that, you know, the scarcity of the cards is true and blockchain-based. So you don't depend on, you know, some third-party card maker to, you know, enforce scarcity. you can just sort of plug into this security afforded by Ethereum without having to launch your own token and without having to bootstrap the value of that token.

So EigenLair is a great example of something where it is going to enable a ton of new applications. Nobody knows the extent to what all of those will be. Just in the way that Ethereum itself enabled so many different types of applications and nobody, not, nobody who made Ethereum imagined all the myriad of ways it would be used. I think that, you know, a system like eigenlayer has very similar properties where it's like, it's sort of this fundamental low-level unlock and we just try our best to see as far into the future as we can. But it's like at the end of the day, it's bigger than anyone can reasonably predict. But you're not talking with like different developers or seeing any activity.

gives a hint as to what you think. Yeah, I mean, I think the early stuff is secure middleware systems. So things like, you know, things like price feeds and things that have historically been really important. Like, blockchains don't know the price of the asset natively, which is, it's kind of weird. But like Ethereum, the blockchain, the protocol system, has no idea what the price of Ethereum is, relative to other assets. So that data and any other data, like what happened in the news,

who won the election, like, you know, the blockchain as a data structure doesn't know any of that stuff. Feeding that data into the blockchain, you know, enables this huge suite of applications, but it's really hard

because it's sort of an equivalent security property or security problem to finding a valid block and feeding it into the blockchain, right? Which we have, you know, obviously a lot of work goes into figuring out how to do that right. And so things like a data feed, it might sound pretty basic, but it's a really big deal, right?

Like being able to have a secure data feed without having to bootstrap your own token. So I think right now it's what I would describe as these middleware services. It's kind of like a blockchain SaaS, right? Like a lot of this middleware SaaS software that we saw explode over Web 2 over the past like 15 years with the advent of like cloud, I think this is, we're going to similarly see my best guess here is like a blockchain SaaS type of ecosystem in the early days. Yeah. And speaking of that, you've also invested in Celestia and I think it's like potentially competitive with the eigenlayer. So how would you compare those two? Well, so not really like Celestia is a data availability.

ability layer. And so it just is, it's kind of a, you know, the original name for Celestio was lazy ledger. And it's lazy because it only does one thing and it does it really well, right? And it does it in a secure manner. And so I think it's, it's part of the scaling stack and it similarly like unlocks new applications that I think weren't possible before. But it's really like this whole idea of restaking and, you know, shared economic security, that's quite unique to Eiglare. So I don't consider those competitive. Okay. So I do want to ask more about like innovations and where things are going, but I also just have to ask you about the year of 2022 in crypto. Obviously, it was just a crazy year.

It was, you know, Terra Luna, Celsius, 3AC, FTX, Voyager. I mean, DCG. Lots of things happened. And I wondered, you know, what your kind of takeaways or lessons were for yourself, for polychain, for the crypto community broadly. What are your thoughts? Yeah. So, you know, I, in a sense, am an investor in a risky and speculative asset class, right? I think that's inarguable. But because of that, I actually like to have extremely tight risk controls around the things we can control. And I don't want to ever get overconfident or add on risk that's like this unnecessary risk. Like we already have enough market, consumer adoption, tech not like hard, hardcore technology risk, security risks with these protocols. So I've

always been extremely paranoid from the beginning of Polychain about counterparty risk. And what I mean by that is, where are the coins? You know, are they sitting on exchanges? Let's say we do lending agreements. You know, who is that person we're lending to? If it's through one of these lending desks, who are they lending the coins to? And where are those coins ultimately living? Right. So I've had a lot of investors and other folks over the years say, okay, you're sitting on lots of crypto assets. Why don't you lend them? Because we don't, you know, we don't really engage in in lending at scale at all, at all. Like, we, we just have never done it.

And it's because it just takes on this extra counterparty risk to get, you know, get a little bit of return. But you're sort of missing the big picture, right, which is that if we play our cards, right, the return we're going to get is very, very good. And let's not take on this additional risk. So, you know, I was able to avoid every major blowup of 22. Like, you know, Tara Luna and UST, the entire lending collapse and contagion there,

the entire complex of like Sam Bankman-Fried companies and projects. And I really, you know, I really think it was like 80% because of real risk management philosophy that I'd had in place for years and years and 20% luck, right? Like, you know, there's always luck in these things. But, you know, I got pitched by Sam many, many times and passed every time because there was such an obvious and, like, irreconcilable conflict of interest between FTCS and Alameda. And that turned out to be the thing that destroyed the whole thing. And all the coins that they launched had like this low float like scheme, right, where you sort of have a mismatch between price and liquidity.

So it looks like it's worth $100 billion. dollars and it's but you really try to sell and get out and you get nothing and so there's just a lot of you know they're pretty basic tricks actually i thought um that and like for example luna ust like we had had this experiment play out for years i mean what is the only asset that you you know we really all agreed you don't want to have as collateral in the maker dow you know die stable coin system. It's MKR. It's like the one, it's the one thing that everyone agreed, like, let's not have that as collateral. Then you had things like empty set dollar that played out on smaller scale. It was very clear that this sort of collateralize itself like Luna UST relationship doesn't work.

Like it just, it just was so clear from the past experiments and years of research on this topic. So, you know, I think a lot of this stuff was people getting over their skis, overconfident, and not really thinking about the risks that they're taking on. Another part of my philosophy is not to use leverage. You know, I don't try to time the market and move up and down my exposure and lever up. You know, crypto, 50% drops in crypto are not black swan events. It happens like every two years. It's, you know, so if you're on. 2x leverage, you're just going to get blown out every other year in crypto.

It's not a reasonable way to trade in this market and survive for the long term and make returns sustainably. So, you know, I feel actually very, very good about the way that Polychain navigated 2022. Like, I think that we pretty much dodged everything. Obviously, we get taken down with the macro drawdown. But, you know, all the specific landmines we avoided stepping on. But so one thing that I'm confused about is Polychain did invest in Terraform Labs.

Yeah. So we actually, so this is one of these complex things is when we did, we invested in Luna. We actually led the seed ground of Luna. But back then, it was a very different project, right? Like these things can pivot and change. Once they sort of lasered in on this Luna collateralized. UST system, and like that's the project, right? It's not like this, before it was like this smart contract platform that was going to

target Korean developers. We had a bit, a little bit more of a thesis around geographic diversity of smart contract platforms that I think was not right in the end. And, you know, it plays out in small ways, like, you know, Tron feels geographically specific, whatever. So this is why we've made the investment in the first place. once they became this just stablecoin system, we exited. We didn't want anything to do with that anymore.

So why was that? What did you see at that time that made you know this is not for us? Well, I mean, I talked about these projects, MakerDAO, which was really the first, like, crypto-collateralized stablecoin project. And, you know, I did the first institutional investment in MakerDAO. I bought 4% you know of the maker Dow coins for I think like $40,000

you know a long time and you know we were involved in empty set dollar which was a very similar conceptually a similar project where you have like this kind of gold like asset

collateralizing a stable coin but you have only that gold-like asset collateralizing the stable coin. And both, you know, MakerDAO, you don't allow MKR as collateral to avoid this death spiral. And empty set dollar did death spiral to zero, as did like a couple empty set dollar forks.

This was the original idea behind this project basis that we invested in in 2018. This is like the team that's now behind Diso, I had a lot of exposure to this concept. Like, anyone who was in crypto a long time had had a lot of exposure to stable coin systems. And they're not easy. And, you know, it got so much bigger than I thought it could.

Like, MTCET dollar grew and blew up and these other projects, but they're at pretty small scale. Like, there's no headlines about these things. It's like weird crypto nerds trying out things. that got to this mainstream level that I did not, you know, I did not know. But the thing is it works as long as the price goes up. And then when the price starts going down, it like death spirals all the way to zero. So, you know, the mechanism in a way worked as as I thought it would.

And what about decentralized stable coins as a category overall? Are you just down on them? Or like I'm sure you're aware of Athena, which has a slightly different design as far as I understand. Like, do you think some version of a decentralized stable coin will work? Yeah, I mean, I think, you know, I think we've had them working for a while for years. They're just at smaller scale. They're harder to use. They're a little trickier to reason about the risk. They're more complex systems, right? I do think they're in many ways more durable, right? I just think a couple accounts could get frozen

and you have a system like tether in a pretty bad place or USDC and you can't go into Ethereum and like freeze the collateral right so I do think there's a sort of durability and security tradeoff versus just like ease of use and simplicity and so I think that the decentralized

you know, and it's not limited to stable coins. It's just like synthetic assets, right, where you have a price pointer for like the S&P 500 or Apple shares or the dollar, all these different assets, and you point it to a crypto asset and say this thing is going to track that price and it's going to be collateralized by some other asset that's like inside crypto. So like Ethereum or Bitcoin, these things that, where you're not like tracking it through a synthetic, you know,

price feed. Like that is the larger category that's bigger than just stable coins. And I think that's a, I think that's potentially a big category. So one thing that's been going on for quite a while in crypto, more than five years, is that the community in the U.S. has been dissatisfied with the regulatory status here. And I wondered for you, you know, you mentioned how you had a geographic thesis. But I wondered how the state of regulation in the U.S., you know, specifically the uncertainty has affected your investment strategy? It hasn't really affected the way we invest that much.

You know, the regulatory posture has never really changed that much since I started Polly Chain, which, you know, at this point, seven and a half years ago, it's, you know, it's unclear. there's not tons of clarity. We all try our best and we all try to be, you know, do the right thing. You know, there's so many bad actors in crypto that are just like outright fraud and thieves and things like that. That I think the regulators have their jobs cut out for them. And nobody wants those people. Like it, you know, the people that are just stealing, it's like this people inside crypto, outside crypto, we can all agree on this. Like, I think the more nuanced questions about, you know, technologists trying to build a new thing, right?

And they're not trying to steal from anyone, right? They're just trying it to build a new thing. But there's a lack of clarity on the best way to go about that. I think it's a tricky question. There's never really been an answer. I don't see a clear one in sight. So it hasn't really changed my investment philosophy very much. Okay.

Yeah, but I mean, I think what's interesting is, you know, you said, oh, they're going after like scammers, fraudsters. But then, you know, obviously they also are going after the likes of Coinbase and Cracken. And so it's, yeah, it's not always just that. But I did want to ask you about something else that was just an interesting comment. I just wanted to get your take on this. So we have this show here on our channel called The Chopping Block. And Haseeb Qureshio Dragonfly was talking. about Vatollick's recent blog post about getting back to the cypropunk ethos. And Haseeb said, you know, Vatelik was talking about things like governance or, you know, quadratic funding, public goods funding, privacy, stuff like that. And then he said, quote, in a way he's sort of dismissing the bank, the unbanked Tron, super low fees, all that kind of stuff that Tron is actually doing despite the fact that, yes, Justin's not the paragon of decentralization, but he's the practical guy who's getting stable coins

in the hands of people in emerging markets. What's your take on his seat's comments? Yeah, I mean, this is what I love about crypto. Anyone can go build anything and it's just like this one huge global competition where everyone can just come out of their basement, their garage with their newest protocol design

and just ship it, right? So, you know, I do think that there's a temptation to have like a nostalgia for like this really tiny crypto era, right? I have that. It's like going to like this like little Bitcoin meetup and there's like three other people that have ever heard the word Bitcoin and you're sitting there talking to them because they're the only people in the world that know what this thing is, right? There's like nostalgia for that.

And I do think a lot of the stuff that Vitalik is talking about are like important, you know, important experiments and there's some of those are things that just like people have talked about for years but haven't really taken off you know i i have a pretty pragmatist mindset right like i i don't pretend to know you know better than like your average consumer like what they want they know what they want and they're going to use what they want so like they it turns out that they might like USCT on tron more than they like quadratic funding of public goods right like it turns out that that's like what they want. And I think you have to just be a pragmatist and honest about that.

You know, as crypto gets bigger and bigger, you know, I think it's gotten appropriately, like less and less ideological, right? Like the early crypto people, I think it was very ideologically driven for a lot of early people. And I think increasingly it's more pragmatically driven. Like whether it's, oh, this is useful for me in this way or I want to make money with this. It's a less ideological kind of stance.

And I think that's just because it's getting bigger. Like once it's everyone, what's the ideology, right? It has to be like mainstream sort of, so much. That makes sense. I recently heard you say of ordnals on Bitcoin that you didn't see the point of building things like that on Bitcoin. But then I also saw you invest in Bionic, which is an ordnals marketplace. So I wondered, kind of your thoughts on that. Well, you know, I don't always get every single coin that people trade, but I do understand

the exchange business quite well. And you don't need to understand why everyone likes everything to run an exchange, right? And if there's a market there, then there's a market there, right? it's like, you know, if you're running Amazon, you're not going to understand why people want every widget that's on Amazon. And you don't have to sort of believe every widget is useful in order to run Amazon. You know, and I've got, just to be clear, like, I have absolutely nothing against ordinals. Like, there's nothing against this.

It just, it feels a bit like, let's run it back on Bitcoin. And it's like, well, we kind of already, we already sort of have a lot of this stuff. And we've had it for years in other systems. and then like, let's append it to Bitcoin, it feels like, you know, upgrading the old system rather than being like tip of the spear on new stuff. And so I tend to think more tip of the spear. Well, one, so for me, I guess when I think of ordnals on Bitcoin, to me, I remember, you know, like when I first heard of it, I was like, of course, because, you know, NFTs are about status.

And so then having your NFT on the OG blockchain, somehow it feels like it's a little bit extra or like more special or something. So like, what do you think of that? Yeah, I mean, I agree,

but it's like, you know, then I think about like the researchers building Celestia and Eigenlayer and it's like we're just, it's just in a different ballpark, right? It's like, but yeah, I think that it's, it's, I want to see every experiment run. Like, there's just, the thing I love is that, you know, the folks that created ordnals and the folks creating

marketplaces around ordinals and the people building, you know, new sort of drops inside ordinals, they're all like these outsiders that are just, you know, running around experimenting. And that turns out that that, you know, bubbling experimentation, like every once in a while, something really important pops up out of it. So I, you know, I'm really happy to see all the experimentation. I, you know, I really don't mean to come off negative on it. It's more just like, for me personally, it's more the tip of the spear research problems that I think are what I spend a bit more time on. So I now want to turn to crypto-executive. economics. We saw Axi Infinity was this game. It took off, but in an inorganic way,

and it ended up kind of fostering this short-term speculative activity rather than something more sustainable. And you talked about how gaming is an area that you think applications, you know, will be going next. And I wondered like how you prevent that type of situation. And it doesn't even have to just be blockchain games, but generally I think a lot of crypto projects kind of suffer from. that incentive. So what are your thoughts on that? Yeah. I mean, this incentive design is everything, right? It's like at the core of all this. And if you do the incentive design well, your thing will very efficiently get people to work for it, right, and get them to grow it. If you do it poorly, you get like these weird local maximus, like it explodes and then goes to zero and things

like that. So I, I, you know, this is, I think between myself and the other folks at Polly Chain, like, this is our specialty. This is like what we are good at. And I mean, I could talk for like 10 hours on incentive design. But there's, you know, I think very common tradeoff in all these is like time to like distribution and like the rate of growth. that that incentivizes. So, you know, as a basic example, what's the inflation rate, right? If the inflation rate is really high,

you're going to get a lot of new players entering, a lot of, like, new validators coming online, but then you sort of have the speculators saying, wait a second, maybe I don't want to own this asset relative to every other asset in the world that I could own with this money. And so you sort of get this problem where there's expansion,

but the thing you're expanding is like, doesn't have value. By contrast, let's say you just distribute a hundred of a single NFT and it's just, it's like Ether Rock. There's 100 of them and it's just done. It might be really valuable, but it's not really going to expand and grow new users, right? Because there's just 100. So like, you're kind of capped at 100 users in a way. So this is, that's a really primitive example of like the types of tradeoffs we have to think about when we design these systems, but like the happy medium is probably in the middle, right? It's not like this 10% a day inflation, nor is it like there's 100 ever and go away. So it's, again, this is very primitive,

but I think that incentivizing like growth relative to dilution is a very tricky one. It's kind of like venture capital, right? Do you raise a ton of money and take on a ton of dilution, or do you raise nothing and grow really slow and have zero dilution. And the answer is maybe in the middle somewhere. And then there's lots of mechanics about like skin in the game and holding. Right. So it's like if you stake for longer, your yield will be higher. Right. And like little, things like that, I think they're actually not little things. They're big things. Like if you get those designs right, it's everything. So yeah, I mean, I could talk about this. forever, but all this parameterization of like getting the incentive scheme right such that it is,

it drives in new users, but also rewards the early users. Like that is the core balance. And if you overly reward the early users, you don't get new people. And if you overly reward the new people, you don't get people that stick around. Well, there is one trend here that, you know, perhaps is. one of the solutions, which is points, which are mainly off-chain. And I wondered what you thought of them as, you know, in terms of design. Yeah, I mean, points are, points are just like pre-tokens. And I think the only reason to have points is to avoid a secondary market. So the thing

doesn't have a price, and to have a more careful regulatory approach than just like shipping out tokens. I think the main reason is the latter, actually, that points have grown so much. But do you find them useful for kind of helping you design a better crypto economic system? Yeah, I mean, points are big, you know, points are just tokens that you just can't trade them yet. So it's like it changes it because you can't trade them and there isn't a secondary price. But like ultimately it's pretty similar to thinking about like just token distribution with a traditional token. All right.

Let's now talk about privacy. I saw Serafim Checker of Athena Labs tweeted, found out today that Polyteen has a unit doing crazy privacy research. Tell us more about that. Yeah. So this is, you know, we have a whole research team. I think our resident expert in cryptography and privacy is Luke Pearson. You know, we've done a lot of work that Luke has spearheaded on especially like zero

knowledge cryptography. And it's a very complex area that, you know, by optimizing the math over the past like what five, six years, we have made these systems go from like imaginary to possible. And it's happened, I think, a little faster even than I anticipated. Like there has been sort of like, you know, thousand X speed improvements or processing power efficiency improvements. And a lot of that research like informs then what we,

invest in. Because a lot of what we invest in is like actually scientific breakthroughs. And it's like the rocket science of software, basically, is a lot of what we invest in. And so it's, we're just one step downstream from like core research where there's like this breakthrough in cryptography that then leads to an investment that we do. And I've heard you say that you think that crypto will trend toward a privacy by default design set up, but I'm sure you saw what happened with tornado cash. And so I wondered kind of how you're going to thread that needle or where you think that space is going given what happened with tornado cash. Yeah. It's tricky. I think, you know, I think it's a bit odd today. Like, we're again,

with crypto, we're a little bit fish and water on the fact that this is all transparent. Like, I think it's quite odd, actually, that this whole thing is like this public ledger. I think it makes a lot more sense for it to be secured by cryptography. So you have the same security guarantees that you would if it was public, but where it's, you know, private by default. So I do think, though, that if privacy adds usability problems or, you know, just makes it harder, then it's not going to be the default, right? So you might see a thing where, you know,

you have systems like signal and telegram that aren't as big as I message or WhatsApp, but they're still very big, right? It could end up sort of going that way. You know, if we can migrate these big systems to be private by default and not have it affect usability, then I think that's big. But it turns out, too, though,

that the transparency has led to a lot of, like, interesting use cases, the fact that it's transparent. So it's kind of like NFTs are a big part of this, like who owns these NFTs, being able to look at someone's portfolio, like, oh, that person, this influencer just bought this. There's a lot of, like, interesting stuff there that I think will always be there.

We don't want to lose that. I wanted to ask you about one of the more controversial projects from 2023, which is WorldCoin. People, I've talked to, we either have kind of one extreme view, like, oh, I really think it's the future. Other people are quite critical, and I just wondered what your take was. I think that the world coin distribution is a nightmare and it's enough of a disaster

to just make the project very hard I think the idea conceptually of biometric authentication that's privacy preserving to give you a crypto wallet is very interesting I love the idea conceptually like what I just said

Now, the instantiation of WorldCoin, like the issue is the coin distribution. But it's a big enough to do that. Remind me, it's because it's similar in that there's a low distribution and it gives it like an inflated market cap. Yeah. And it's just like too much value goes to the creators and early people when like the great thing about a project like WorldCoyne is that you could. biometrically give everyone an equivalent amount of money. So like you could, or just a more gentle curve, right? When I remember I was talking about incentivizing new people

versus incentivizing early adopters, right? I think it violently incentivizes the early adopters to the point where the project doesn't make sense to me. Like if you screw up that incentive system, it doesn't matter how cool that hardware you know, privacy-preserving iris scan is. It's just like the thing that you're giving out is like you screwed up the incentive design. Okay. Yeah. It's very interesting because I feel like I've just heard opinions all over the map on that one. I also wanted to ask you about blast,

which was also controversial for who bring up a bunch of money before it launched. And I wondered your opinion on that. Yeah, that I don't really understand. blast. I don't know what happened. It doesn't see. It doesn't make sense to me. I'm not I'm not like super deep with the project. So I, you know, I'm hesitant to, um, criticize it too much, you know, um, but I didn't, I don't really get it. Okay. So we're now going to enter the final phase of the interview where we talk a little bit more about, uh, some of the stuff that we started with, um, futuristic type things. I'll start with actually, AI, this didn't come up earlier, but I saw you tweeted in crypto, nearly 100% of value accrues

to startups and outsiders, not existing establishment interests. Value capture and AI technologies will be primarily by incumbents. There will be valuable startups. But for example, even Open AI realized they needed to align with legacy tech. And I've heard people talk about how in crypto, how they believe that AI will transact in crypto or that Dow's might manage AIs. But from that comment, it seemed like you thought crypto and AI will remain separate or how do you think they might intersect? That's just me. So I was, the way I would meant that is a commentary on being a venture investor. Right. Um, you know,

one thing I said is that even mediocre venture investors in crypto that time to market, okay, did quite well. I think that that won't be the case in AI. Like, I think that, you know, there is this, you're competing against the largest software corporations in the world. Those are your competitors, day one. In crypto, like, it's just different, right? It lends itself more to startups and outsiders. And that has been where the value capture is.

So in the intersection, though, one thing I'm really interested in is AI agents, like inside smart. contracts that like work for money. So you can imagine like a chat bot that learns what to say to like maximally extract value from the person that it's chatting with. This is not that different than what like an only fan's girl or like so-called e-girl might do. So they're sitting there like chatting and trying to like say here's my eth address like send me eth, right? You could have a bot do that, right? And you could have it learn how to be better and better at it. And you could sort of embed that inside a smart contract. And then you could like distribute a token that represents ownership in the bot, right? And then you have that Dow like representing the ownership units of like

some AI embedded agent. They get stuff like that that I can imagine getting very big. And you sort of have these AI agents that are like for profit and can be you can sort of like distribute ownership shares of them so you can imagine too like these influencers that aren't real people like the person that created this a long time ago as far as i know is like little michela where there's like this instagram account and it's like just not a person it looks like a person and they like wear Gucci stuff or whatever and they have a following sort of like traditional influencer but it's it's just computer generated images. You could imagine, like, each one of those having their own token ownership system. You can imagine an AI that makes influencers, like, just pumps them out over and over and over,

and that has its own token ownership system. That whole landscape, I think, could get really big and really weird. And it's, yeah, I'm very excited about that. So I'm quite excited about the crossover. I just think that like crypto investing is very dramatically different landscape than AI venture investing. Yeah. And it's interesting actually when you mentioned little Michaela. I don't know if you know Trevor McFedry's. He created that and then now does Friends with Benefits. So he's now in crypto. Oh, interesting. Yeah. We all end up here. Yeah. So you said that you've used Socialify as probably one of the applications that will likely take off next. So what are some problems you think that need to be solved in that space for that to become a bigger thing? You know, get paid to use

the internet, get paid to doomscroll, you know, these are like, I think, pretty killer things actually. There's a lot of very hard challenges around like spam and like bodding and stuff like that. So I don't, that sounds really conceptually simple. It's really not simple to design. but broadly like sharing value with users and influencers in a more efficient way than these platforms do today, and allowing there to be like just more platforms with like less gatekeeping around these closed gardens and closed logic, I think is all part of that next kind of growth era. And are there any particular social FI applications you're excited about? I mean, you saw like the early, early, like ideas of things with like friend tech.

There's one Tomo that I'm excited about. So I think it's very early innings, but the thing that gets the mechanism right will grow very fast. And then what about gaming? What do you think will, I mean, I just feel like this has been talked about is what's going to, you know, bring crypto mainstream. Hasn't quite happen yet. So what do you think needs to happen for that to become a thing? I just think we need a, you know, there's been like these video game designers that don't understand crypto that jump into crypto and like just bolt on a token and think that that works.

And then you have these crypto people that create like this really elegant mechanism, but like a really shitty game, right? So we need a pairing of these two worlds. I think it's oddly been a skill issue. of like the pairing of these two worlds that has prevented it from happening already. And are there any games that you're kind of keeping your eye on that you're thinking might become winners? We are in general, don't invest in like specific games or specific game studios. I think just in general that's a tricky category to be a venture investor in.

and it's even harder when you're depending on the double bank shot of like the crypto works and the game works. So none come to mind, but I, you know, I talk with a lot of folks about like the mechanism design underneath these things. All right, Olaf. Well, is there anything I did not ask you that you think, you know, that you'd want to talk about? We covered a lot. the only stuff I can think of would be like leaving crypto.

So inside crypto, I think we covered pretty much everything. Okay. And that leaving crypto as a topic is maybe a separate podcast. But you're not saying when you say leaving, are you saying you're thinking about leaving crypto? No, no. God no. I meant like as a topic like I have a lot of other interests. Yeah, that I could talk about. But, you know, I think inside crypto, we covered everything. Okay.

All right. Well, maybe we'll have you back to talk about the other stuff. All right. Well, are there any like handles or, you know, websites or whatever that you'd want to point the listeners to? You know, I just think all the names I mentioned, if you're not familiar with them, I would go poke around. I do think, you know, on the AI side, like the Project Bit Tents are very excited about. You know, I think any of the names you hear or words you hear that you're not familiar with, there's potentially really a real alpha there to just go poke around.

Okay, and your own handles? Oh, I'm on Twitter at ZX, OCW. Great. All right, well, it's been a pleasure having you on Unchained. Yeah, thanks, Laura. Pleasure as always. Thanks so much for joining us today. To learn more about Olaf and Pelleychain, check out the show notes for the

episode. Unchained is produced by me, Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Juan Aranovich, Megan Gavis, Nelson Wong, Shishak, and Mark Rukuria. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noel Atchison. Follow the CoinDesk Podcast Network for some of the best shows in crypto.