Unchained - The Catalysts for This Crypto Bull Market: AI, DeFi, Real World Assets? - Ep. 615

Episode Date: March 5, 2024

Listen to the episode on Apple Podcasts, Spotify, Fountain, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. In this episode of Unchained, Alex Pack, managing partner at Hack VC discusses the firm's recent $150 million fundraise, the challenges of raising capital in a bear market, and the firm's focus on early-stage Web3 infrastructure. He also shares his thoughts on the intersection of crypto and AI, the future of DeFi, and the importance of security in the crypto space. Pack believes that the current infrastructure of crypto is still in its early stages and needs significant improvement before it can reach mainstream adoption. He also sees potential in the development of more secure smart contracts and the integration of AI into decentralized applications. Show highlights: How Hack VC was able to raise $150 million in a bear market, especially after the blowups of FTX, 3AC, and Terra Alex's interaction with SBF, whom he calls a "sociopath," and why he didn't invest in FTX Hack VC's philosophy to "back hackers" in crypto The goals behind Zuzalu, the new community that resembles Balaji Srinivasan's idea of a network state What the main focus of Hack VC's investments are, including scalability, AI, and DeFi Why Alex believes that "we are still so early" How Alex believes crypto and artificial intelligence will intersect  The role of AI agents and how to use them in decentralized applications Why he thinks that EigenLayer is a great solution for middleware applications Alex's opinion on the modular vs. monolithic approach for scaling blockchains How DeFi survived the last bear market, contrasted with the collapses of CeFi companies like Celsius, BlockFi and FTX Whether algorithmic stablecoins can ever work and what Alex thinks of Ethena's USDe How to improve security in crypto, according to Alex Why the outcome of the Bitcoin ETFs exceeded Alex's expectations What he believes the catalysts are for the next bull market Thank you to our sponsors! Polkadot Guest: Alex Pack, Managing partner at Hack VC Previous appearances on Unchained: Dragonfly Capital on Why Ethereum Is So Far in the Lead ‘The Last Big Whale’: Why the Crypto Contagion of 2022 Eventually Hit Genesis Links New fund Bloomberg: Hack VC Raises $150 Million for Bets on Battered Crypto Industry  Hack VC Closes $150M Venture Fund I, Bringing AUM to $425M Stablecoins: Unchained: What Is Ethena’s USDe Synethic Dollar? A Beginner’s Guide What Is Terra and Why Did It Fail? Why It's so Hard to Keep Stablecoins Stable  What Is Depegging in Crypto and Why Does It Occur? What Is Real-World Asset (RWA) Tokenization? A Beginner's Guide EigenLayer ecosystem Unchained: What Is EigenLayer? A Guide to the Decentralized ETH Restaking Protocol The Block: AltLayer closes $14.4 million strategic round co-led by Polychain and Hack VC Modular vs. monolithic approach Unchained:  What Are Modular Blockchains? A Beginner's Guide Three Crypto Pioneers on Crypto’s Monolithic vs. Modular Debate Crypto x AI crossover io.net and Ritual Collaborate to Boost Global AI Compute Landscape  Ritual x EigenLayer: Restaking for AI Unchained: 5 Use Cases of AI in Blockchain Zuzalu Decrypt: I Spent a Month Inside Vitalik Buterin’s Social Experiment—Here’s What It Was Really Like Learn more about your ad choices. Visit megaphone.fm/adchoices

In my opinion, we're still so early in the space. And if you think about the problem, like, the big problem is that I kind of think from an analogy perspective, we're closest to like mid-90s internet, right? And the similarities with some differences, but the similarities are like there's millions or maybe tens of millions of users of this stuff. 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 first Main Tree Meterporter to cover cryptocurrency full-time. This is the March 5th, 2024 episode of Unchained.

Pocodot is a leading Layer Zero blockchain with over 2,000 developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem, making it faster, more secure, and adaptable. Perfect for GameFi and DeFi to build, grow, and scale. Join the community at PogoDOT.network slash ecosystem slash community. The scorebed app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking.

Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or? The score bet. Trusted sports content, seamless sports betting.

Download today. 19 plus Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conixontario.ca. With Amex Platinum, you have access to over 1,400 airport lounges worldwide. So your experience before takeoff is a taste of what's to come. That's the powerful backing of Amex. Conditions apply. Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void. And it gets harder to separate truth from fiction.

That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. Today's guest is Alex Pack, managing partner at HackVC. Welcome, Alex. Thanks for having me, Laura.

You recently announced that HackVC raised a $150 million fund. Congratulations. And if you're announcing now, you must have raised that money in a bare market. And I'm curious what that was like, especially kind of in the post-FTX Terra, Celsius, 3AC, etc. World. And I know this is a multi-part question, but then also since you've been in crypto for so long, like how would you compare fundraising this time around to past fundraising efforts? Yeah, totally. I think you're absolutely right. The fundraising environment in later 22, 23 was more challenging than in some prior periods. I've been in crypto for 10 years. Like I started in 2014. I've been an institutional VC the whole time. So these sort of cycles of investor interest and investment interest and prices and so forth are not new to me. But, you know, every cycle comes new investors and they go through the same sort of worries. And so,

forth. We were still oversubscribed by the end. So it wasn't terrible. But, you know, for us actually, and I'll just sort of say the reason behind the fund, too, the 150 million venture fund we raised was pretty opportunistic. So it's a fund that invests alongside our existing, like we raised a $200 million vehicle in 2021. That was sort of peak bull market era. We didn't have to raise it. We did it because we wanted to double down on the opportunity in early stage Web 3, which is where we focus. So now we have all the capital to deploy behind our feces. I think for us, maybe there's, maybe this also question of why not just wait a little bit until it's easier.

For us, it's just very on brand to be kind of raised in a bare market, sort of part of our investment approach. I think to a lot of LPs, LPs like people invest in venture funds, we're sort of known as like the fundamental value investors in crypto VC. So we're not momentum guys. We don't even use the word narrative like in our investment team meetings. We try to ban it narrative memes, things like that. We don't even do like NFTs, gaming, metaverse, sort of these categories that a bit more meme,

Mimi driven. We do primarily early stage infra. We're very thesis driven. We spend most of our time researching the fundamentals, thinking about whether it can be transformative for Web3. And that just comes from my background. I've been an institutional VC for a long time. One of my first roles in the space was at Bing Capital Ventures, where I helped build out

their early crypto program. And we were one of the first, like, big VCP firms to even do tokens at all, which seemed crazy at the time. We were probably the first arm of a PE fund. You know, Bain has like hundreds of billions in our management to do Web3 in a dedicated way at all. And then, you know, after that, I started one of the first true venture style, crypto funds in Asia called Dragonfly. So for us, again, we're trying to do the fundamental research. We actually do models for a lot of our investments. And we try to invest in technologies, not just because they're cool. That's part of it, of course, but also that they solve real problems for the industry, supposed to maybe just

science project projects. And so, you know, usually a good time or pretty decent time to invest as a fundamental investor is in a bear market, right? Because it's almost definitionally true. If your job is to sort of pick underappreciated assets, back categories before they have a narrative around them, then that's like a mispricing. And mispricings are more likely, you know, these things are more likely to occur in bear markets, right? So we felt if we didn't kind of put our necks out and say, hey, like, this is probably the time that you want to be doing some fundamental style, you know, value-based investing in crypto. Now, as opposed to, you know, when Bitcoin was at 65K, I guess the first time Bitcoin

was at 65K two years ago, it would be kind of off-brand for us. But were LPs kind of asking you different kinds of questions in the post-FTX Terra Celsius 3A world or not really? Well, different from past. The particulars are different, you know, the case studies like FTX blow up, Terra blow up, what is an Alco stable coin, things like that. were different. But to be honest, the main questions are always pretty, the main questions of skepticism are all pretty similar. They're like, is all of this stuff, is like crypto going to

become illegal? Is it all just scams? Are there any real use cases? What are the use cases of crypto? Those are the kind of questions that have been happening for since 2014, like since I got into the space, really. And you have to explain like, okay, well, there's a few things change. Like Ethereum came out since then, smart contracts. Bitcoin is better proof. I mean, You know, this technology may seem very nebulous and obscure, but it actually is really impactful. It leads to more use cases and so forth. There's like a big rate of change over time. But if you're just looking at the like the mainstream media at least, maybe not you, but just the press headlines, you don't see the details. You just sort of see like this thing blew up and this thing crashed. And you're like, okay, well, has anything changed in the last 10 years?

right. Okay. So yeah, I mean, a lot of it, I guess, is not that different from like past type of questions, but maybe just a little bit more of them. Well, it's flashier too. I mean, like, it's sort of macrober to just, I'm pronouncing that word right, to describe, you know, FTX, the FTX blow up as flashy, but it was way more in the public conscious than when Mount Cox blew up in 2014, right? Even though Mount Cox actually took down, like, there were way more of a percentage of the total crypto market cap was lost in like the Mount Gox Exchange hack in 2014 than an FTI. Like a much larger and even and you know, Bitcoin fell way more. There was no ether at the time, but I think right, Bitcoin fell way more at the time than

it did from from all time high to trow then. But it just, it wasn't as much in the public conscious. You didn't have this, you know, founder who is going off in Congress and everything like that to add like the flash and gruesomeness to it. Yeah. And, I have to ask you, you know, I mean, it's pretty famous now you had this incident with Sam Pink BN-Fried where he wrote a tweet thread about what he called a horror story involving a crypto VC, which was you. And I know you've talked about this incident multiple times, but I do have to ask you now that the trials over, his sentencing is coming up, and we're seeing crypto already in the early stages of this bull market. Like, you know, it really feels like we're kind of moving past that

whole period. When you look back, like what are your takeaways and also did this like tiff that you had with Sam benefit you in any way when you went to raise money. I was so curious about that. Well, it's interesting question. When you get to pat, like, I guess, yeah, I was one of the first investors to pass on investing in Sam, but I didn't, I didn't like short FtX. You know, I didn't like make money on that trade. Whereas like Michael Burry, people, all the guys that you write about that were written about like the big short and stuff, they actively shorted. They made a bunch of money off of the 2008 financial crisis. You can't really. do that in crypto. If you try to short FTT or somehow synthetically short the FTX, you're just

going to get wrecked, right? Because Sam's going to come after you and he's going to pump his own coin. That's not a good move. So it's not like I don't have like this case study of like I made all this money off of FTX or anything. It was more just avoiding catastrophes by dint of doing like a lot of diligence, you know? Like my story was I kind of committed to invest with him on a handshake basis after just a couple weeks. And it was like for the same reason that everybody else committed to it. Like it was like,

this guy seemed so smart, and he's got these baggy shorts, and he's so different, he's a contrarian, and he's such a super genius, and he's got these big ideas. He's take over the world. He's like a character out of Silicon Valley, right?

He's like the ideal founder you want it back. And your first impression of him is really good. And of course, it's all like a facade, right? It's like an American psycho first scene of, you know, he's like carefully. An American psycho, he's like, and try to make himself look very good and, you know, Christian Bale's character. But in, and now in the modern day era of like Silicon Valley back these sort of weird nerdy types,

it's how do I make myself look totally disheveled? Like I just rolled out of bed, but it's still very carefully done. And so, but then we did six months of diligence and passed after that, which was a very long period of time. I wouldn't recommend doing that much diligence for a couple million dollar check. So that's like a good story. And that sort of goes along with our approach to investing, which is we try to do our homework. We try not. not to be very FOMO-E and sort of chase these rounds that are super hot. And, you know, the founders, like, it's closing in two days or something. We're like, okay, great, have fun.

So I guess in that sense, it was a story relevant to sort of our approach. But in general, it's a black mark on our industry, right? It's not a good thing. I mean, it's a good thing that, my opinion, he's in jail and that this is happened earlier than later. But of course, it's still a blemish, obviously, on our industry. Okay. But like I did ask you also, did your TIF with him benefit you at all?

I was just curious about that. I mean, I don't know. I like to think that one of my most important takeaways from that situation was you probably just shouldn't back like sociopaths. There are a lot of them in not just our industry, but as CEOs. Actually sociopaths are highly overrepresented among CEOs. I don't know if it's in tech, but in all business, right? and a lot of them can make you good money, you know, like backing them. They're very ruthless. But they often throw you under the bus at the end, which is kind of what happened with Sam.

So in that sense, I'm hoping that, and maybe this podcast will help, like get out the word. Like, hey, like, if you're like really sociopathic, just don't pitch me. Like, there's other investors that will take your money. Like, go to them, you know, just because then I'll, so that, in that sense, I'm hoping that is helpful for, you know, my returns or whatever over time. Okay. I get the feeling that an actual sociopathic founder would be more tempted to pitch you, but anyway. Oh, God. Reverse psychology, right? Yeah. Let's talk about hack VC. The name of your firm, I believe, comes from the fact that you guys back the hackers of the internet. It's what I've read in your materials. And you have something called Hack Labs.

Why don't you, yeah, just talk about this philosophy and then maybe explain what Hack Labs is and why you think it's important for a VC. to have a team that does those kinds of things. Totally, yeah. Hack Labs. And also the other part that it actually came from is Hack Summit. So Hack Summit is this open source developer community that we've been running, like my partner, Ed, too, even before Crypto. It was just like a well-known open-source software conference.

And we did virtual conferences and I would do hackathons and hacker houses. And of course, like Web3 is all open-source software, right? So it lended itself very easily and we sort of pivoted smoothly into that. And that's his community, like 130,000 engineers, developers, people who go to our, who've been to our events and conferences and things like that. And it's sort of a developer community of our own that, yeah, hackers we back, right, can use to bootstrap their own developer ecosystems. So that's one. And then, yeah, the other big differentiator of our fund is hacklabs. So we actually use the protocols that we invest in.

And we built out a lot of, we have a team of engineers and former quant researchers and traders and smart contract engineers, things like that. And we built out a lot of, I would guess, it's like we're an institution, so institutional grade tooling to be able to not just staking and governance, but also like participating in defy networks and providing liquidity. And that's very important to us. Again, we mostly just back infrastructure, whether it's D5, central life financial infrastructure or, you know, deep tech protocols. And so being able to use the protocols that we back is really helpful to us in our diligence and to actually supporting our portfolio. and then having HAC Summit as this sort of big community that they can tap into, right? Because most of them are trying to build their own developer ecosystems or communities themselves. And they could sort of latch on to ours, speak at our events, you know, do events with us, things like that.

That stuff is very helpful. And then the third thing about our firm is just, yeah, I've been doing this for a while. And I don't know what the count is of how many deals I've invested in over the years. It's like a hundred plus. So if I haven't invested in something, I probably passed on it. Like that's just a negative. But, you know, so we have it like a negative. network and we have a lot of relationships and sort of advice from over the years backing unicorns

previously that we can use to help our founders. And really, yeah, like just get in the weeds with them. That's the idea behind hack VC. Like, we're hackers ourselves. We want to back hackers. Like, we want to get in the weeds with you guys as founders that we back. And something interesting is you guys begin hosting hackathons with Zuzaloo, which is the new, or I don't know if I'm saying it correctly, the new community initiative co-founded by Vitalik Boutarin and I guess one of your venture partners. So how did that idea come about? And, What's the goal of that? I call it Zuzu for sure, but it's not even, it's like, anyway, it's a, the name of the,

of the thing was, was so that it had no SEO whatsoever and it didn't come from anything and was like totally agnostic of meaning. But, yeah, Zuzalu was this event that Vitalik and one of our venture partners co-founded with Vitalik and as a core organizing member of. And I just think it's very cool. It's a sort of attempt at like operationalizing, Bologies network state concepts and not starting with like, okay, let's go build a government or let's go negotiate with nation states or anything like that. But it's starting with the idea of like,

how can we build a permanent hacker house or hackathon and then expand from there into maybe like a San Francisco or a college campus or something like that. So the first event was in Montenegro and it was basically a takeover of sort of a small resortish town. And, there were a few hundred people there full-time and another thousand part-time. And I don't think they wanted to do any press just because Battalic doesn't, I mean, it's not, like, he just doesn't really care that much, you know, but there were all these articles at the time about like, is this like the crypto illuminati, like everybody's meeting in this weird, like back, like, you know, rural area, all the elites in crypto or something.

But the idea was just, I mean, it was amazing. Like, I loved it. It was a month or two long. Yeah, it was two months long. It was, there were seminars. There were themes. It wasn't just crypto either and it definitely wasn't just Ethereum.

There was a longevity track. There was an AI track, a governance track and people would fly in for weekends and there would be seminars then you would like have dinner and drink with like the person leading the seminar, right? The seminar or the or speaking at the event

or something like that. So it was very, it reminded me of like my college days, right, at a liberal arts college. And yeah, there's a bunch more. There's some of them happened around Denver, around DevConnect.

We like it because it's like, Hack Summit, we do events anyway. Like, we do, we build developer and, like, build our communities anyway. So we thought it was in theme. And it was like sort of a little bit of giving back too. So yeah, I think, I think it's very interesting. I think, like, one of these, it's one of the, this whole

network state and building a new community because like San Francisco is failing and there's no amazing city for being a builder or being a tech founder, let alone a crypto founder with the regulatory issues and everything else. This adjacent idea of like, hey, like, maybe we should just build our own, like,

or country or something over time, feels very crypto-y and very, like, free, right? And I find it personally quite fascinating, even if it doesn't totally intersect with what we do day-to-day investing. And so did, like, was there a particular goal for it or, like, has anything kind of more concrete come out of it? Well, they've built, like, we sponsored hacker hackathons there,

and there have been some pretty cool open-source public goods projects that came out of it. There's this thing called ZooPass, which they use as their, like, ZK-based ticketing and identity system. And yeah, I think it's really cool. There's a few other things like that that are sort of open source community building tooling that sometimes intersect crypto, sometimes don't. And what else came out of it? I mean, it was like the first time a lot of big teams in crypto met each other for the first.

Like it served as sort of like off-sites for, I think, like, big L2 projects and things like that. So the goal is always like how do you advance the space in some way? how do you build things, right? I don't know if, well, I guess it'll take a few years to find out if it was YC successful, like if there were amazing team, billion-dollar teams founded there, or, you know, that met there or projects that started as hacker, hackathon there. But, you know, it was pretty interesting so far at least. All right. So now let's talk about your new fund and, and I guess the other funds you have not deployed. Like, when it comes to deploying all that money, what is your area of focus or what are your areas of focus? Sure. So we're pretty thesis-driven

in our approach, which is a bit of a buzzword so I can get into what that means. Generally, though, we focus on early stage Web3 infrastructure, whether it's centralized or centralized, that's needed to take Web3 mainstream, right? And that's kind of our big mission, like working backwards, how do we get, how do we solve the problems that make Web 3 usable for, I don't know, like my grandparents or something, right? And there's a lot of subs themes throughout that. It's changed over time. I would say some of the big ones we're looking at now are just more infrastructure. structure to make blockchains more scalable and secure in particular. We're very excited about

sort of the Web 3 AI intersection. I think that's like a whole paradigm shift waiting to happen, although it's early. And then I think defy is very important. I kind of view stable coins as part of defy and stable coins are just like unambiguously the killer app of crypto outside the first one of, okay, that's like buy Bitcoin. It's like digital gold, I guess. But it's a use case, but it's a use case where you sort of just sit on it, but it's fine. But so it's like I think the most used use case, right? Buy stable coins, do payments, and then it's like your gateway to defy. So that part is still very exciting to us, and we're looking at ways to sort of, in financial infrastructure to make defy more interactable with the real world, right? Like real world

assets, make it more capital efficient. I would take those are, those are three of the big ones we've been, we've been focusing on in the last year or two. In my opinion, we're still so early in the space. And if you think about the problem, like the big problem is that I kind of think from an analogy perspective, we're closest to like mid-90s internet, right? And the similarities with some differences, but the similarities are like, there's millions or maybe tens of millions of users of this stuff. And it is truly useful to a small but growing group of people, you know, stable coin and so forth. But it's incredibly hard to use. It's slow. It's really not secure. And the security thing, by the way, we could touch on that too. That's like a huge area that I think

once you solve some of the early scalability issues in the last few years, it's really important. important. Like with the internet, you had viruses that were prevalent everywhere. And you had sort of even more these these more like practical security issues of like, you know, like scary predators and chat rooms. That was what the internet was known for. You know, you don't know who you're talking to, all this stuff, right? And in crypto, that's, you have smart contract hacks and you have scammers who are just like constantly trying to, you know, fish your, take your NFTs and stuff like that. And those are like the equivalent of, you know, in the internet era. And so, you know, my is like you wouldn't let your grandma or your mom even use the internet back in the early 90s.

They would log on and immediately get you a bunch of viruses, you know, break your computer. And you wouldn't let your grandma use metamath today, right? I certainly would not. I mean, it's like a minefield. And so, you know, we're trying to invest in the technology infrastructure that will change that. And it might take some time, you know, like the internet had been around for decades during the 90s. And it was still, like arguably mainstream adoption didn't happen until like the mid 2000, even maybe post like mobile phone, like post iPhone, right? So it took another 10 to 15 years for true mainstream adoption to happen. But you have to start somewhere and it was a productive time to invest and be in the space regardless in the internet era.

Let's actually start kind of at the more cutting edge of that part of the list. You know, you've invested a lot at the intersection of crypto and AI. And you said you believe that HackVC is actually the most active Western investor in the space. So talk a little bit about how you think these two technologies will come together. Yeah. Some of that is actually, we've done a lot, Like myself and some of my other partners have done a lot of like angel investing and prior investments, even in just general AI. So yeah, one of our big investments in a prior fund is Jasper AI. And it's just, it was one of the very first sort of applications on top of chat GBT. And it came out before chat GBT even came out. And now it's sort of this like enterprise grade tool for marketing teams at big companies to use generative AI. And we've even done other things that have. And so we probably back like three. different AI companies over the years. Quite a few of those are unicorns. But the Web3 AI intersection, I think is super fascinating. I think generally these two things like trends, Web3 and General of

AI in particular, are probably the most important technology trends of the last century or like, you know, whatever, like since 2000. And they are starting to intersect finally with Gen AI and with blockchain's getting more scalable. So there's kind of two ways to think about it. There's like how, and from office as infrastructure investors, right? Like infrastructure that helps blockchain applications and DAPs integrate generative AI. That's very cool. And then on the other hand, like the infrastructure that gives generate AI applications, the benefits of blockchain tech and sort of how does crypto help AI, right?

I don't know which one you want me to start with. I could do both. Yeah, go ahead and start wherever you prefer. Okay. Yeah. The area where I think crypto helps AI is the most. fun and active today. Like it's it's a real problem. So right now the biggest problem in in AI like development and AI building is like compute and how do you get more GPUs and then how do you like the

like the inequity problem too of how do you actually get GPUs to startups and founders and developers and hackers which is where I think most of the main innovation in the last few decades has come from. Right. So you know the big US tech cos are hoarding GPUs like I I think meta announced in their last earnings, they have like $10 billion of H-100s. And it's impossible, like, it's basically impossible to get GPUs outside the U.S. at all, even if you're a big company, right? And wait, in H-100, it's like a type of GPU or? H-1-1-100 is like the best.

It's like the premium GPU that you use for, from Nvidia that you use for high-end, general AI applications, LLMs, like, text video, stuff like that. It's the gold standard. Like, everyone's trying. I think they're cost like $40,000 or $50,000. a pop. And yeah, people, it's like a marker of prestige, if you can get one or how many you have. So they're always sold out, right? And even Sam Altman is running around trying to, like allegedly trying to spend $7 trillion to like build his own, I don't know what is it, TSMC or Nvidia

comp to get more compute, right? So if, so if it's this hard for like Open AI and Sam to get it, you want to spend trillions of dollars raised from the Saudis, you know, like obviously like really hard for founders that we back to get this set of stuff. So I view it like the $7 trillion problem in AI. And I think crypto is actually really good at solving this. Like most of crypto is just decentralized marketplaces. I mean, Ethereum is kind of a decentralized marketplace for compute, like for CPUs. In a way, you have things like file coin and Rwe for file storage.

And then I view a lot of defy as just sort of like these markets that are able, like democratized access to financial products, right? So we started backing a lot of these like decentralized GPU networks. And I think these could be, you know, these are like the next Ethereum's in many ways, like ways for anybody around the world to offer, you know, Airbnb for GPUs, basically, ways for anybody around the world to offer or start provisioning GPU resources. And I think more of those sort of networks will emerge over time. Once there's more models and once more of them become open source, we could these things

like decentralized, like blockchain powered networks or marketplaces for AI models, for AI agents and so forth, but compute is the very bottom of the stack, right? That's the most essential part. And so then the idea is that basically you could decentralize compute and then there would be this like, I guess, broad, democratized ownership of it or something. Is that? Or at least access. I don't know about like ownership. I guess you could have a token and then the network is owned, whatever. That's what I meant by ownership token. That's cool too. But I would say simply the Airbnb for GPUs and having it be secure 24-7, permission list, composable, open API, all that sort of stuff, right? That's the stuff that is really impactful.

Because, like, yeah, we have, I mean, there's decentralized GPU networks today that have clients from Web 2. You know, they're not using it for even decentralized application purposes, you know, and they're not necessarily super crypto-pilled. But they're just like, yeah, like I need, I need H-100 resource. I need compute, you know. And I need it 24-7. Like, I need it during, you know, there might be periods where I need more of it and I need less of it.

And I had to buy a bunch of them. But now, like, there's this period where I'm not doing any training whatsoever. So I might as well, like, rent out the space on it on a network. Yeah, that's very cool for startups. Because, you know, like AWS and meta, they just, they have a big balance sheet and they sort of get to run these marketplaces on their own, right? I mean, like, Meta has tons of uses for these GPUs. They have lots of different divisions. AWS2. They could like, they could give it to other people or they could give it to like, you know, Amazon businesses, things like that. But startups,

there's no way to just like easily rent out your GPU for an hour or two or access it during periods of like peak demand or something like that. All right. So in a moment, we're going to talk a little bit more about how crypto and AI can work together. But first, a quick word from the sponsors who make this show possible. Pocodot is the largest layer zero blockchain with over 2,000 developers, and the anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with 8 times higher transaction throughput and twice as fast block times, perfectly tailored core time for the needs of every protocol, trustless bridges

internally and into Ethereum, Cosmos, NIR, and Binance Smart Chain, revised tokenomics, and the implementation of a token burn to reduce inflation. Perfect for GameFi and Defy to build, grow, and scale with one of the most active crypto communities in the space. Pocodot recently announced a partnership with mythical games, bringing top games like NFT rivals with over 650,000 players, and 43 million transactions, to pave the way for GameFi and the PogoDot ecosystem. Get your Web3 ideas to market fast, with economics that work for you. Think big, build bigger with Pocod.

Join the community at Pocodot.network slash ecosystem slash. community. Everyone needs help with something. If investing is your something, we get it. Cooperators' financial representatives are here to help. With genuine advice that puts your needs first, we got you. For all your holistic investment and life insurance advice needs, talk to us today. Cooperators, investing in your future together.

Mutual funds are offered through Cooperators Financial Investment Services Inc. To Canadian residents except those in Quebec in the territories. Segregated funds are administered by cooperators' life insurance company. Life Insurance is underwritten by Cooperator's Life Insurance Company. When McDonald's partnered with Franks Redhot, they said they could put that shit on everything. So that's exactly what McDonald's did. They put it on your McChrispy.

They put it in your hot honey macnuggets dip. They even put it in the creamy garlic sauce on your McMuffin. The McDonald's Frank's Red Hot menu. They put that shit on everything. Breakfast available until 11 a.m. At participating Canadian restaurants for a limited time. Frank's Red Hot is a registered trademark of the French's Food Company LLC.

Investing is all about the future. So what do you think's going to happen? Bitcoin is sort of inevitable at this point. I think it would come down to precious metals. I hope we don't go cashless. I would say land is a safe investment. Technology companies. Solar energy.

Robotic pollinators might be a thing. A wrestler to face a robot, that will have to happen. So whatever you think is going to happen in the future, you can invest in it at Wealth Simple. Start now at WealthSimple.com. Back to my conversation with Alex. So I also just wanted to mention that two of your investments, Ritual and EigenLayer, they bring together crypto and AI.

And I just wanted to hear you talk a little bit about your investment thesis for each and how you see that partnership between the two protocols working. Yeah. These are kind of combining two of our themes. So I'm trying to find out where to start. Ritual is awesome. I think it's kind of on the other end. of the spectrum of what I was talking about.

It's sort of like this middleware solution for bringing generative AI and AI agents and open source models into decentralized applications. So it's like, okay, how do you... And this is very important, I think, because the bigger problem here is like, how do you have an economic layer for AI agents? Today, AI agent, like, LLN,

and by the way, what is an AI agent? It's like an LLM, an annual model, is kind of an AI agent. It's an agent in the sense that it can execute complex tasks on behalf of users. and act pretty autonomously, right? So you could think of like, okay,

Jasper AI is like, your marketing team in a box or you have other apps that are like your AI lawyer, your AI accountant. And so these are agents, right? They do things for you. But the problem today is that these things are very siloed

and they have no financial layer. Like if you just go to the chat GPD plugin storage, I think they even discontinued because this idea, like, it was so early and the web was like so non-composable that didn't really work. So today, LLMs, like,

can't touch money at all. You can go and be like, hey, like, can you plan a trip for me to France or something, right? And they're like, oh, you should maybe buy this ticket. But they can't actually execute any of those tasks. Now, that said, maybe you don't want them to execute all of them immediately because they might hallucinate and buy you a first class seat or something. Whatever. Those are like implementation details that we'll get solved one day.

So crypto is amazing because it's a way to, you plug your AI agent into a smart contract and all of a sudden your smart contract can start buying and selling things with, or your AI agent can start buying and selling things with stable coins. It could like invest for you. It can do all sorts of crazy things. And that I think broadly is what ritual in many ways is trying to do, right? It's sort of this middleware that makes it really easy for blockchains to, and smart content, you know, Dapp developers to build this stuff. Okay, great. Now there's this other problem with eigenlayer, that eigenlayer is trying to solve, which is like a lot of middleware in, and middleware is, I mean, I guess it's like in the name, but middleware is like in between application,

and very low level infrastructure, it's basically infrastructure. It's things like or or query layers, like the graph in crypto. These things are sort of a fit in a very weird place in crypto today in that they're usually not low enough level that they need to be a whole protocol.

And there's no like chain link L1, I guess yet, I don't know, or the graph L1 or L2 or something like that. It makes sense for them. They don't need to be that secure, but they are like essential plumbing in the crypto industry. And they can be attacked very easily and things like that.

So what eigenlayer does, eigenlayer is basically a protocol. It's part of this sort of shared security category. There's other ones called Babylon, which we've also, we led there around recently, an alt layer, which is big in the eigen layer ecosystem. That basically allow you to sort of restake your ether or Bitcoin and create like a trusted, like a blockchain level security

without having to roll your own POS network or whatever you do consensus, right? And so that's great because that's like, eigenlayer is like an ideal solution, I think, for all sorts of middleware. Oracles, like, open, like, decentralized databases, Xx or it's in the back end of a decentralized application, all sorts of things like that.

And it makes a lot of sense for ritual. It makes a lot of sense for all sorts of applications. All right. So one other thing that is talked about quite a bit in the crypto space nowadays is the modular versus monolithic blockchain architecture debate. And HackVC is firmly on the modular side of the debate. So I wanted to hear you talk about your conviction in that.

Like, why do you believe that that's the future? Yeah, I wouldn't, I mean, I wouldn't say I'm like very firmly or ideologically on one side or the other. Okay, maybe I, I don't know, I read something where I got that impression. I mean, look, people say that about us. Like, we invest in a lot of modular infrastructure. It's definitely a core thesis. I find it funny, though, because, like, kind of the first, like, modular infrastructure. investment we made was like, and I did this many years ago at a prior firm was like the Cosmos

and Adam like the Cosmos ecosystem. And back then it was just like interoperability. Like let's like make it easier for blockchains to talk to each other. And it's like also isn't that modularity, but it all it all sort of things take on narratives. Right. For us it's pretty simple. I think yeah, modularity versus monolithic is a great way to signal two different approaches to scaling blockchains and building better user experiences for people using blockchains, right? And monolithic approaches are, and the examples are typically like, I guess, like, open source, Google, Linux like that, or even Microsoft on the one hand, versus like Apple on the other. And the tradeoffs are like, if you have a monolithic approach and you bundle all the services

you need to make a blockchain really simple, you can make user experience better and you can often compose ability is a little bit better. And you create like this great little walled garden, or it doesn't have to be walled garden, but this great little ecosystem that all work, everything works with each other. You don't get random errors. And that's what like using the iPhone,

like iOS app store is like, right? Like no app you download is like a virus and it usually works well with other apps and so forth. And so the big one in this space, I guess, is Solana. And like personally, I do think that using DFI, in Solana today is like a more pleasant and easy experience because you're not dealing with all these bridges, all these like sort of subcoins and, you know, it's like the gas is just in one. You only have to pay gas in one, you know, in Seoul, stuff like that. So today, that's the benefit

of Monolithic. And sorry, this is the opposite of what you asked me. But so that's like, so monolithic like optimizes for today, I think. And then modularity though, I think like a modular approach optimizes for tomorrow or five to ten years out, something like that, right? And the modular thesis is very simple. It's like, there's, we're really early in blockchain. The infrastructure is super early. It's super bad by any standards. And the main, the most important thing is not solving for like short-term user experience benefits, but for like, just just get like some massive, maybe multiple big tech infrastructural paradigm shifts first before we start optimizing for user experience. And I, I do believe that. Like, I think like, yes, like, you know, maybe.

Phantom or whatever is a little easier to use in MetaMath today, but ultimately, like, neither of them are anywhere close to usability for mainstream audiences. And so with modular architecture, the benefit is you get to specialize, right? And via specialization, you get optimization. And so you can solve the Trilemma more easily. The Trilemma is like, you know, scalability, decentralization, and security. And you can just uplevel all three of them. Like, you could have one blockchain that focus, or one piece of a blockchain that focuses on scalability, one that focuses on, you know, security, you know, things like that, right? They don't have to meet these tradeoffs and then developers can, now it gets complicated for developers because they're like, what tax stack do I use? And it

gets weirdly ideological because, you know, nowadays you see this trend where like, you know, like a project is kind of trying to reinvigorate themselves. They've been around for years, like an application, or their token is not doing so great. And they're like, we just move to Solana or we just like started using Celestia for a data availability layer. And I just, I'm like trying to imagine what this would be like in Web 2 where you have like an old app that's not getting much use. And they're like, guys, like we just move to Snowflake. Like we switch from AWS to like Google Cloud. Like big press announcement, you know. But that's what blockchain. I mean, you know, they're communities and ecosystems as well as this piece of technologies. So these ideologies form. But yeah, I would say from us from a practical perspective, modularity salt like a lot of this modular blockchain solve very practical problems. They help, you know, bring better security, better scalability, and so forth, then we like that. So let's now talk about Defi. As you mentioned, you have your labs where you are, you know, experimenting in Defi. Defi kind of had its Defi summer and then, you know, obviously we went

through the 2022 period. Where do you see you going in this cycle? Like what are the areas that you're focused on or find most interesting? Yeah. For me, we started, I mean, I started investing in Defi, like, I don't know, like many, many years ago, like several years before there was like a word for defy. And back then I was just saying, like I like sort of financial applications ish for blockchains. At this point, I think defy and especially stable coins within it basically represent the biggest use case for crypto outside of like the Bitcoin store value thesis. And then the other thing is it's basically, it's also sort of middleware at this point, right? Because if you sort of dig in beyond the hype of like, why would anyone one day use a blockchain-based game or a blockchain-based

social network or whatever? It's because you're able to inject this financial, like, layer to it. And you're able to turn them into money games and, you know, reward, like, all sorts of, like, sort of financial games and, like, features you're able to, like, build in natively into these application. That's maybe why they're better than Web2 games or Web2 social. products. And even ownership is part of that, right? Like, ownership is like, you give yourself a share of something, right? Or a token. And so I view Defi as also essential infrastructure and plumbing for any of these other

consumer applications to work. They need to plug into them, right? And that's why you saw like Stepin at one point was the biggest app on Solana by far. But it was like Stepin was the biggest user of gas. And then right behind it was Orca because everyone was just like buying and selling these. I don't remember what they were, shoes or something, right? And so you needed Orca, like, Orca was the decentralized exchange. You needed Orca for it to work, right? And then eventually they're like, oh, the Orca's like taking so much value. We're going to build our own Orca, whatever, right? So that's why we're pretty excited about Defi. It's infrastructure and it's also like the biggest use case today. And I would say the other good

thing about Defi is it kind of didn't blow up the vast cycle. Like a lot of CFi just sort of collapsed. And Defi, especially like, you know, Ethereum-based defy that totally open source, you didn't have any major like under collateralization events on you know compound ave things like that makered out and break their pen and this is pretty remarkable given that you know there were like massive moves in the price of the volatility of these crypto assets that back this stuff so what i think we have today in defy is we have this sort of pretty cool kind of scary jungle gym or like like like jungle rather not even jungles of jungle where you can it's like it's like there's like it's like It's like a carnival, but it's a, it works with like high-speed roller coasters, and it's very intense,

but it works really well, but it works for a very small number of use cases, like overclouded lending, trading crypto assets, and it's very separate from the real world. So to get that, you really just need more real-world assets. Like in many ways, stable coins were the thing that brought defy to, you know, brought traction up a ton, and then, and it's sort of the opposite too, like, defy also helps stable coins and help build it. And so I think we just need more real-world assets. Like, that's the easiest way to sort of like see Defi the space, things like getting T-bills on chain, getting better stable coins that are more transparent and open source and all that fun stuff. So we invest in a lot of things like that.

And then the other thing I'll say is we're, it's hard to like put stats around this, but we're definitely one of the more active institutions in Defi today, providing TVL, you know, going in pools, being liquidity providers. And it is like really, really, really challenging to do it in a regulated compliant fashion. We're like in the U.S. We're SEC registered. We're an RIA, registered investment advisor. And so we have high standards around reporting, around audits. And we have this team of like great engineers who came from big like, you know, prop trading firms, me, you know, Fang, stuff like that. And for like the first six to 12 months of joining us, they were basically just building like accounting.

infrastructure, you know. But accounting is like insane. I mean, if you ever tried to do your taxes after you do like, because, you know, like one little thing like provide some liquidity to this pool ends up being 15 discrete transactions, right? Like do bridge to this. And then you get gas. And then there's like dust along the way and you buy gas on this chain and that and you bridge and all the stuff. right. So yeah, solving some of those sort of building blocks, like how do you do accounting and stuff like that is also very important. But yeah, the juice is worth the squeeze for sure. I think it's a really central area to spend time in and it needs to, yeah, if it improves, the whole ecosystem improves. And you mentioned stable coins, which obviously played a very central role in the year of 2022.

You have experience investing in Maker, Terra, liquidity. What's your take on kind of where stable coins need to go at this point? And yeah, just whether or not you think decentralized stable coins will work at all. So stable coins were like the very, it was the best of time. it was the worst of times for stable. On the one hand, it was definitely the best of times because, you know, to put numbers around how well stable, stable corners were basically the use case

that did not really fall much at all, despite the, you know, the 70, 80% drops and like wealth in the space. So, yeah, the high level stats, I'm sure people say this on the, on your pot all the time, but it's like, you know, they're doing more volume a day. They're settling more volume, like,

or transferring or settling more dollars worth of value every day than like all the card networks, Visa, MasterCard. They're doing like 50 billion plus a day. And then the fact that like everyone's like some quarters, tether makes more in profit than BlackRock, which is like the largest asset manager and one of the largest financial service companies on earth is just nuts. Like if it was public and a little bit more regulated and so forth, it would be one of the largest financial service companies on earth. So yeah, to ignore this category, it would be quite stupid, I think. and to ignore interesting experiments would also be quite stupid, I think.

And so what do I mean by interesting experiments? On the other hand, you had situations like Tara and these Algo stable coins that just went extremely, grew extremely fast and then fell literally within a couple days and caused all these issues. And so I've been investing in stable coins for many years. And I remember back in 2017, there was a particular surge in like alignment, like ideology around like an X maxi. You know, they were like, there are Bitcoin maxis.

there were ETH Maxis, and there were even Bitcoin Cash Maxis. That was like a big thing back then. And I used to, yeah, back in the day, old, old history. And I used to joke like, I'm a stablecoin maxi. Like I just want stablecoins to work. Whether they're on Bitcoin or Eith or, you know, whatever, that's the most important. And I think that's played out. But yeah, there's all sorts of these experiments still happening.

I think Tara was an experiment that also got muddled with a lot of fraud and was a very reckless experiment. But there's things like Athena today. There's all these sort of, you know, almost every decentralized derivative protocol. And you didn't invest in Athena, but do you think something like that could work? Yeah, totally. Look, I mean, I thought, I thought Terra, like an algorithmic stable coin could work. And I wouldn't be surprised if, like, a much better, sensible version of Terra does actually work over time. So your take on Terra was that the issue was fraud?

A lot of, well, I don't know about specifically Tara. I mean, there was a lot of alleged fraud. But I would say, maybe can I step back and give like a historic on a lot of. analogy. Like, just to make it clear. So, yeah, I view all these things as basically financial experiments. Athena, we can get to it. Athena is basically doing the basis trade on ETH, but tokenized. And I think, I think calling it a stable coin is probably a misnomer.

I think it's more like a structured product or a interesting synthetic asset. And at way basis, you're talking about with this like early stable coin that like sit, it was the same. Unrelated. Athena is like the basis trade is when you, it's like an arbitrage trade where you are the funding rate and you're able to earn in a market neutral way like maybe 10 to 20 or 30 percent returns. But the returns are very volatile. They depend on basically how out of whack like the derivative markets are versus the underlying spot or markets between exchanges. And that's, so it's a very common type of trade. Like a lot of trading firms have been doing this for years. And this is basically a Athena is a way to package it and offer it to everyday users, right? Most of these things in crypto, these experiments, have very clear TradFi analogies, actually. It's not just Athena. And like the basis trades work for, now, sometimes the basis trade collapses and breaks and you could trade poorly, and that's, you know, market making, trading firms blow up all the time.

And it's basically the same situation as Terra. So if you were to analogize Terra to like TradFi and the, you know, the 2000-year history of finance, basically it's a decentralized, centralized, centralization. bank and not just Terra, but algorithmic stable coins, that does three things. One, it creates this asset that is peg to another asset, so it maintains a peg. And two, it does it without being fully collateralized. And three, it does that by basically promising shares of future profits to investors. And that's kind of what the Luna token was, like share of future seniorage. So that's like, has that ever happened before? Have there ever been some central banks that

maintained a peg without being fully collateralized. Yeah, like tons of them do this. There are dozens of historical antecedents going back like centuries. So today we're not on a gold standard so we don't do this. But for about 100 years prior to World War I, most Western nations maintained a gold standard. So that means they peg their local currency, the franc, the pound, whatever, the dollar, you know, for the U.S. They pegged their currency to the price of gold. But at almost no time did the, and this was like, you know, the 1800s, early 1900s, at almost no time, practically speaking, did all of these countries at once have enough gold, like have an equal amount of gold in the reserves that they could to back their currency. But even just, even just

the logistics of like moving all that gold around, like shipping it across continents and stuff, would have made it impractical. So what they do instead, they basically created central banks, all the central banks were basically started in this time period, this hundred year period. the Bank of France, like Bank of England, etc. And they create the central banks. And the job of the central bank was to defend the peg from a tax. And they would do this by either, sometimes they would sell shares in their banks, which are kind of the equivalent of like owning Luna or, or like the, you know, the equity coin or something. Or they would do government bonds. They would sell government bonds. That were denominating their own local currencies. They would like sell bonds or their own

shares in their, and bonds would offer interest rates, right? So they would entice speculators or investors to go buy the bonds. And they would, they would buy the bonds in their local currency. and so that took the currency out of circulation. And then when they would sell bonds, this would also increase the interest rate and other government bonds like selling bonds, though it was the price of the bond. And then there's an inverse relationship between the price or bond and its yield, right? So it would increase the interest rate in this jurisdiction. And then that would encourage even more speculators to come in and buy the local currency

in order to then, you know, buy government bonds and collect the high interest rate. Right. So this worked out like fine for a lot of countries and a lot of currencies for many years. But also it didn't. Like, it wasn't like 100% success rate. I mean, you know, Germany, there are lots of situations of hyperinflation in this period too. Yeah, it would fall apart if the central bank got the algorithm wrong of buying and selling

or if the reserve ratio got really low. And the reserve ratio for Terra was really, really like, so to speak. There were, you know, there was like Bitcoin reserves, but it was like a half-hard effort at the end. But yeah, like this high-level concept of let's have a central bank and let's give it the job of maintaining a peg by giving. giving out like some sort of promise of future returns is fundamentally like a sound concept. And it's basically, it's almost exactly this concept of using interest rates to maintain currency

pegs and influence the economy. It's like exactly what the Fed does today. It's called open market operations. They go out and they buy and sell bonds. And by doing that, they manipulate the interest rate. And they could either do that to maintain a peg if you're like a fully or moderately back country, a multi-back reserve system, or you do it to like influence the economy and get you out of recession or not or something like that. So, yeah, where am I going with this? Basically, there's a lot of these, I think the thing that it explains and the thing that draws me to think, you know, even things I haven't invested in like Athena, the reason

I find them cool, is I think it's, it does show how powerful defy and the crypto-based financial system is in the sense that, like the idea that anyone can spin up their own central bank to algorithm, like, manage a peg. And you could create structured products to do so as well. also I think the Terra model of Luna was so bad. Like it was like, yeah, they could have done bonds. They could have tranched it. They could have had an algorithm in Detroit. There's all sorts of things they could have done.

But the idea that you could do this is pretty, just like in your garage or whatever in your house, is pretty cool because the only people that could do this before were nation states. And which is to say, like, if you had a military and you had territorial sovereignty over your state. And now you can create like your own financial ecosystem without like having a military without threats of violence, without actual use of violence. And that is pretty awesome.

Like, yes, of course, not all experiments are the same. There should for sure be regulations around this and disclosures and things like that. Even the fact that Tara was like, and I think Athena, that fact that these guys are calling themselves stable coins, I mean, I think, I'm guessing Athena probably has a lot more disclosures than Tara did. But there's problems, of course, but it speaks to the flexibility and nuance that you can do and building complex systems in defy. So that was my little professor, financial history.

monologue. No, I loved it. And it was, even that was a stable coin question, it was sort of a defy answer, which I thought was interesting. So earlier, you talked about how security is still a major issue in crypto. And I wanted to hear kind of like how you guys are thinking about trying to invest in this area to, you know, address that issue. Because I agree, it is such a huge issue. And it's not, crypto is not going to go mainstream until we resolve that. Yeah. It's really tough. it's there's so many hacks there's bridge hacks

and then there's differences between a hack and also a scam are very hard to tell sometimes we think I think there's kind of two ways to think

about security there's more secure smart contracts that's the first way and that absolutely has to happen so the good news is there are

interesting ways to have a lot higher security guarantees that your smart contracts are right now the model

of ensuring that you have secure smart contracts is just insane amounts of audits. Like we had a protocol that launched, I think it's launching down, and they literally did seven audits. And it's just, I mean, I think it'll cost you like a million dollars, right? It's insane.

Like you look at, I find the crypto, by the way, crypto is like probably the highest margin like industry I've ever invested in. It's like finance meet software and all the software is like open source, you know, so. So it's funny to like look at the cost structure of some of these crypto protocols. calls and it's basically all just audits and legal fees. So if you could take those out, that's great on its own. That's solved that problem. The margin problem. But yeah, like this, and then doing an audit every time you want to push a V2 is also crazy, right? So you need a way to do like continuous audits and so forth. So it's not good right now. One way is you can,

is you can maybe have just better programming languages. Like the EVM is basically solidity. That's like, or is solidity, which is basically JavaScript, which is like a very not like, Like rocket chips are not coded in like solidity because they like it's easy to make a small error. So you want to have languages like move is a very interesting one that the meta Facebook team created. So you know, we're investors in SWE. Aptos is also doing it. There's a lot of ideas around how you could bring the move language to Ethereum as well, right? And get like composability there.

So I think that's interesting if you get programming languages that are just much harder to like much easier to code in at the low level and much higher security guarantees in language. formal verification as a service is also really cool. It might be like the very big brain problem that's hard to solve, but if you solve it, it's a big problem. So that's some of it. I mean, I even think we may want to have reversible blockchains under certain circumstances. And yeah, like, do all blockchains have to be fully,

like the settlement is final forever? Like, you know, the way the optimistic roll-ups work is you can, like, there's a trial period and you can contest it and things like that. maybe we roll that out to financial transactions as well, right? So I think that could be one solution. It's hard to tell, though, right? And then, you know, purists hate this stuff. But again, we're trying to actually invest in tech that is not interesting to purists,

but interesting to solving problems for users. So that's a lot of stuff. Then the other level is like kind of what eigenlayer and shared security protocols are doing, which is how do you make blockchain level security cheaper and easier? And that, you know, Celestea is solving this problem. Like, what if you just have a just-a-data-availability layer? and then it can be much cheaper. And the sort of security benefits you get

versus cost is like a higher ratio. That stuff is very cool too and also solves these problems, of course. Like when you have a lot more, when it's much harder to attack a blockchain or attack a DAP, that benefits users at the end of day too, right? All right.

So now let's just turn to where we are at this moment in time in crypto because we've just had these Bitcoin ETFs approved. We're seeing that this is definitely getting us into the, I guess early stages of the Bitcoin bull market, possibly a whole crypto bull market. We have the having coming up. I'm just curious for your thoughts on where the markets will go in 2024 and what you think might be kind of the major tech catalysts of this bull market.

Yeah. I will say one catalyst that even took me by surprise is obviously the ETF. I would say, I just feel like I was blown away by it exceeded my expectations. I kind of was thinking that, like, there's two benefits of the ETF, right? One is regulatory clarity. And that's good. Like, the SEC said that 11 ETFs can go out after blocking it for years. So hard to imagine that crypto and the eventual adoption of crypto into tradfai and integration of crypto in the financial system is not going to happen, or at least is going to be blocked systematically by, you know, one guy or one agency. So that was a genuinely positive, like, structural change, right? And I think a lot of us sort of saw it coming, but with the grade scale

lawsuits and ripple lawsuit, stuff like that. But it is, it is very positive. It's sort of, yeah, it bodes well for regulatory stuff in the U.S. So I was like, okay, like, even if the ETF don't do well, still good, like still positive, right? Fortunately, it also did really, really well, right? It, like, exceeded all expectations. I look back. I just wanted to see, like, did it actually exceed expectations or is it just, and I saw there was like, I think Alex Thorne came on your show a few months ago from Galaxy. And he gave what I, like, I think he's a great researcher. But he gave what I kind of thought was supposed to, like, you know, a lot of equity research analysts. They love giving like a really, really big number. It's big attention.

So he gave, I think, like a really huge number. It was like $14 billion of inflows in the first year. And we're already at like $7.5 billion. We're halfway, we're more than halfway there. So even like let's go as big as we can for good media attention or whatever. Yeah, no, but he said, yeah, he said that was conservative. So, but still. Okay, sure. It's conservative. Great. Well, like, I would have been thrilled if there was 14 billion. That would have been amazing. So that's a catalyst for sure. But the bigger catalyst, I think, are just the infrastructure pieces and the early use cases.

So stablecoin growth, I think is the biggest. Really, these things, you should think of these things both as on-ramps, right? Both the Bitcoin ETF and both stablecoins are like, they're kind of like gateway drugs into the broader crypto market, right? Well, I think stablecoins are, but ETFs are more like, they're just more passive. So I don't know if they're an on-ramp. I think, like, they're definitely definitionally an on-ramp. but I hear what you're saying in the sense that it's...

Like, you don't own those private keys. That's right. Like, yeah, once you get that Bitcoin, you can't do anything with it. And you're not, you're not setting up a wallet. Like, you're not, it's not like incredibly easy for you to then take that asset and move it into defy, like it is in stable coins, which, and I think a lot of people, they buy their first stable coin on finance or something. But yeah, often they move it right into defy. It's composable. So it's not quite as good an on-ramp, no doubt.

but I think it's maybe more like culturally an on-ramp, getting people financially invested, getting people thinking about this sort of thing. And then you start thinking, and you have Bitcoin ETF, then you start thinking, well, maybe I should buy all my Bitcoin outright, or maybe I should buy some other these at, like what are these other alt-coins doing? So, but yeah, like, there's more room to make better TradFi on-Ramps for sure. But it solves a need, right? It solves like a, it solves a need by lowering the barrier to entry into the space, right?

So those are the, those are the benefits. dicey to these things, and those are the catalysts. How do we get stable coins into more people's hands? How do we get, you know, people get their first crypto asset and so forth? And like a reason for them to actually get their first crypto asset. The infrastructure stuff is kind of stuff we've been talking about. It's like the somewhat boring stuff that is like the behemoth in the background that actually causes like the earthquakes and causes the tsunamis to actually occur on the front end. And that's like, that's like steady pace, really. Like I don't, I don't think there was actually any slowdown and infrastructure development at all in the bare market.

Like, I don't, I don't, it's possible as even anti-correlated. Like, I mean, it's very hard to measure. Like, how do you measure like pace of infrastructure development? But it may be slightly negative correlated or at least uncorrelated to the price of Bitcoin, right? Yeah, I guess, but my question is if, like, 2017 was the ICA craze, 2021 was NFTs, then like, what do you think this bull market will be about? Well, I don't think, first, I don't think it has to be something totally new. Like, I think that's a very, like, tailwags a doll dog kind of thinking a little bit, where it's like, it's got to be some new flashy narrative. So, you know, it's like Bitcoin L2s and there's gaming,

and there's lots of narratives that just sort of pop and fall down. And at the end of the day, we, you know, I think of all technology as like, there's the why now of why people, like, and all, all, like, startups, protocols, whatever. It's what's the problem it's solving today? How does it make it easier for people to do their existing activities or whatever? So just more like better stable coins that are faster and more secure and more composable and things like that or that offer yield or whatever. Like that alone is like if you can do that, the tam is trillions, right? So you can like 10, X the size in the market that way.

You don't need to have some new flashy thing to entertain people for a couple months. The other thing in Defi is like it's totally, yeah, I mean, like building more institutional tooling in Defi is another thing that could bring 100x more users to Defi. Building more capital efficient systems, the fact that everything's over collateralized,

except Terra, that was obviously a bad example of undercollarization. But yeah, if you could create like these sort of synthetic asset experiments that are actually smart ways to do under collateralization, that then brings that, like the the market size of like over collateralized lending versus under collateralized lending is just like just a hundred like an order or two orders of magnitude bigger than the others so so what is that

like capital efficient defy i know that's not the sexiest thing like capital efficient defy or like a few more real world assets or bet of stable coins i think that's the big stuff to be honest that those are like the lowest hanging fruits that could bring you 10 to 100x more users in my opinion I mean, maybe this is the cycle when finally that phrase, like, wall of institutional money will actually mean a thing. Yeah. I think that's very possible. Again, it's like, what is it doing?

Is it just going to buy Bitcoin because it's like a new gold? Like that, I mean, yeah, that actually now that said that sounds great. Like that's doable as well. But what I hope will happen as well will be more. Yeah, the infrastructure really improves a zero to one use cases and makes new things possible. So I think Defi has like 100x room to grow from where it is just by these sort of relatively small fixes. There's other stuff that's interesting, of course, like socialify. We've seeded a few things in social crypto.

I will just say as investors, it's, I mean, by the way, no financial advice, all those caveats. But one reason we like infrastructure is it's kind of an investment in everything built on top, right? And same with Defi if you need Defi protocols and if you need, you know, things like Eigenlayer or new blockchains to build your social applications on top of. That's good. It usually accrues some value that way. It is tough, though, because it's very hard to predict like what will hit in social, for instance, or when, right? We backed a project called BitCloud, or now it's called DeSoe in the early days. And it was like a decentralized Twitter. And this was before Elon bought Twitter and changed it. And, you know, at the time, Twitter was totally ossified. It had never really. shipped new product in years. And it was banning lots of people left, all this stuff, right? And they got pretty big for a crypto project. They got millions of users and they got a New Yorker article.

That's kind of my, maybe I'm like, my sort of like, East Coast, like whatever upbringing, middle class upbringing. It's like, when you get a New Yorker article about you, like you're in the main, like people are paying attention to you, right?

And it was like this very like black mirror kind of like, oh, the future of social when everyone has their own coin and stuff. but it didn't take off too much. And now they're building infrastructure mostly. They're mostly like a layer one blockchain that builds infrastructure to support other types of social applications on top. So nothing has hit yet in a big way there.

And, you know, Frentek did the same thing. It was very similar to Big Cloud. And it kind of went up and down in a very, you know, like a Christmas tree way going up and then down. So it's hard to predict these things, but I think we understand the pieces of infrastructure that are required to make these things happen.

happen at least. All right, Alex. Well, this has been a super fun conversation. Where can people learn more about you and hack VC? Yeah, hack.vc. We got the, we got the domain. So I would just go there and you could probably find my Twitter from there and all that fun stuff. Perfect. Well, it's been a pleasure having you on Unchained. Totally. Thank you. Thanks so much for joining us today to learn more about Alex and HackVC. Check up the show notes for this episode. Unchained is produced by me, Laura Shin, without from Nelson Wong, Matt Pilchard, Wanner Vanovich, Mechangavis, Shashonk, and Margaret Curia.

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 Atreson. Follow the Coin Desk Podcast Network for some of the best shows in crypto.