Unchained - The Chopping Block: VC vs. Liquid Funds, Friend.Tech’s Decline, Crypto Startup Exits - Ep. 704

Episode Date: September 13, 2024

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest news in crypto. This week the squad is joined by special guest Jason Choi, co-founder of Tangent. In this episode the crew tackles the overvaluation of crypto projects by VCs, Friend.Tech’s 96% token crash, and the ethics of early token launches They also explore how airdrop farming skews user metrics, the volatility of memecoins, and whether VCs are extracting more value from crypto than they contribute. Tune in for insights into the ever-evolving crypto landscape! Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights 🔹 Friend.Tech Token Crash: Friend.Tech’s token dropped 96%, highlighting the risks of launching tokens without sustainable product planning and user retention strategies. 🔹 Project Exits and Ethics: Early token launches raise concerns about ethical obligations when teams abandon projects, with accusations of rug-pulling increasing. 🔹 Airdrop Farming’s Impact: Airdrop farming distorts true user engagement, leading to inflated metrics that misrepresent product-market fit and real user growth. 🔹 Venture Capital in Crypto: Low barriers for VCs have led to inflated project valuations, often resulting in overhyped, underdelivered crypto ventures. 🔹 Challenges of Early Token Launches: Early token releases often harm long-term project potential by confusing market signals and damaging user retention. 🔹 VC vs. Liquid Funds: Debate over whether venture capital is extracting value from crypto or whether liquid funds can improve market efficiency. 🔹 Hedge Funds and Market Efficiency: Hedge funds may improve market liquidity, but their impact on long-term crypto growth remains under scrutiny. 🔹 Speculative Markets and Long-Term Value: The crypto market continues to grapple with balancing short-term speculative plays and the creation of sustainable, long-term value.   Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly  ⭐️Tarun Chitra, Managing Partner at Robot Ventures   Guest ⭐️Jason Choi, Co-Founder of Tangent Disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices

The vast majority of VCs out there in crypto are pretty bad because the bar for quality was so low to enter back in like 2019, 2020. So there's self-select for bad projects that come to market at valuations that are way above what they should be. So it just ends up being a one-way ticket for those VCs to get to cash out those projects. So that kind of phenomenon formed a very cynical view of what VCs are. But I think that's why we kind of, we're very selective in terms of who we work with. We love kind of co-investing with Dragonfly, for instance, because of the kind of similar taste. that we have in terms of selecting what we hope, ideally our good This is why we brought you on the pod.

Yeah, we paid him to say this to be clear. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. I'm named to trading firms who are very involved. I like that ETH is the ultimate. Defi Protocol is part of the antidote to this problem.

Hello everybody, welcome with the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the critical topics of the day. So quick intro, Strzica got Tom, the Defy Maven and Master of Memes. Hello, everyone.

Next we've got Tarun, the Gigabrain, and Grand Puba at Gauntlet. Yo. Joining us today, we have a special guest, Jason Choi, startup tycoon at Tangerent.

Hey, everybody. Thanks for having me. Great to have you, and I'm a sieve the head hype man to dragon fly. So we're early-station investors in crypto, but I want to caveat

that nothing we say here is an investment advice, legal advice, or even life advice. Please see Chopping Block at XYZ for more disclosures. So it's been a very very politics-filled week. I actually don't know. So, Jason, you're based in Singapore,

I believe. How much is U.S. politics a topic of conversation in, like, Singaporean circles? Oh, it's everything now. It's literally everything. I think every day, everybody's just following U.S. hours. So I'm usually operating in U.S. hours for the past few weeks. It's a joke that we've kind of turned into a macro fund because we just fed watching and just like watching all the political debates. It's my least favorite part of the crypto cycle, to be honest. Okay. So you're following the debates. You're following all the barbs. You're following like, okay, so you can't get away from this. You might as in the world you are. You can't get away. No, not at all. Not at all. That's unfortunate. You said, have you been following World Liberty

Financial, the Trump family defy thing? Only tangentially, I heard that it was something to do with Avey and that that kind of coincides with, I think, a pretty big revival in the Avey price for the token. But other than that, haven't really been following that, that specific. project. Is there something that we should be paying attention to? Is there, guys? Nobody knows. You know, you know, all I know is anytime I say anything about this, I always get DMs that are kind of wild. So I've recuse myself from any comment at all doing with World Financial. You got to give us some, what are the comments you're getting? I think like in some of the prior episodes I said something like, oh, it's like a rug pull or a kind

the poor man's exit scam. And, you know, of course, there were some people who really didn't like that characterization. So I, I rescind my statements, not because I don't believe them, just because I don't need the cantankerous

rather than the drama. Yeah. Okay. I did notice the YouTube comments were getting pretty spicy. Yeah, yeah. That's kind of why I'm like, actually,

I don't want to cover this shit anymore. Well, well, lucky for you. There is nothing in this week. that's really noteworthy about World Liberty Financial, but I'm sure there will be more coming once we get more details about their game plan. But so one story that was dominating the news cycle this week was Frentec.

So Frentec, you guys might remember. It was an OG, well, I don't know that OG, but it was a social, socialify project that basically allowed you to bet on creators and join their creator chats by buying their token. It was a speculative frenzy that I think was mostly in 2023, largely through the summer and then it kind of started trickling down. Eventually they launched a token this year.

And that token has not performed particularly well from when it came out. It's kind of been down only more or less. So the token is down 96% from the all-time high. And it was originally trading around 230 million fully diluted evaluation. It's now trading around 10 million. So everyone has kind of had their critiques of Frentek over the years. not what the story is primarily about. About a week ago, or sorry, about four days ago, the project transferred control of the contracts to a null address, basically meaning they burned their own

admin keys. Immediately on this, on this news, the FrenToken price plummeted, and people claimed that FrenTech is exit scamming, quote unquote. And exit scamming in this case means that, you know, they launch a token and now they're leaving and they're abandoning the project and it's all vaporware because it doesn't work. Now, the interesting wrinkle here is that FrenTech did not sell their token. None of the token went to investors from what we understand. No, the token was even owned by the team.

So it was a purely, quote unquote, fair launched token. But nevertheless, the team also went and further tweeted that we have no plans to shutter or discontinue. The application is still running. Everybody seems to have interpreted this as FrenTech somehow, quote unquote, rugging or just exiting or quitting or whatever.

But according to the, the team, they have not done that. That being said, it's triggered this broader conversation about what are the obligations of teams that build crypto products and that launch tokens. And part of the reason why it's such a weird story is because Frentic didn't sell their token to retail and they didn't hold the tokens themselves that they issued with Frentek. So I want to go around the horn here and get reactions to the Frentec drama and what you think it means more broadly for what the obligations are of entrepreneurs who launch products in crypto. Jason, what do we start with you? Yeah, I don't know if I'm a masochist. So I'm down really bad on

Frontec. Well, not really, really bad. But I did buy the tokens alongside the tokens. You didn't just get the tokens. You just have had a big air drop, right? You mean, you were active. I owned your token. I was in the club. Yeah, I own your key as well. And I was quite active on the platform. I was like, unabashedly kind of excited about the platform when it first came out. So I actually bought the tokens. I think I was one of the largest holders in the world, at least on the public wallet this. So now I'm like down 96%. But I would still like to think that, you know, from racist perspective, like he launched an app that we liked that people actually used at least for a while. People loved it. He kind of Thayer launched the token. It wasn't like it was a massive

insider sale or anything. I think what he fucked up on was the retention of the users and also the timing of the token launch, which we can get into. But I think all in all, this was very, very crypto. I think it was just disappointing because the kind of expectations were so high for the product. But what do you mean it's very crypto? What does that mean? It's very crypto in the sense that, you know, it was an anonymous developer. We had a lot of these in the last Defy summer, but not really this cycle. We have an anonymous developer built an application that everybody kind of congregated around. And it's very crypto in the sense that crypto tends to have one topic that kind of captures everyone's attention. So everyone just talked about the same thing for like

four weeks. So that was kind of the Frontex moment. And from that, we also engendered a lot of clones. Right. You have, I think, Stars Arena and Avent. You have a bunch of other clones. So that, that to me reminded me a lot of early days of DeFi summer. So I was excited that, hey, maybe we could get a wave of new social applications from this. But that didn't really happen just yet. Tom, what's your take? Yeah, I think there's kind of a spectrum here of like sort of team obligations or like rug pulliness.

And I think kind of one of the most rugged pulliness would be like, just think like the shittiest ICOs where it's like you raise a bunch of money and you sell all these promises. and, you know, wishes, and then you never ship anything, and the team kind of gradually fades away. And I think those are to the teams that they kind of the SEC ended up going after in 2017. And then you have, you know, meme coin. Or NFTs or NFTs, like the stoner cats are the world. I actually, I mean, I think NFT is also a spectrum. You know, stoner cats, you know, maybe don't promise that you're going to go, you know,

develop a TV show. But if you're just selling a JPEG or whatever, fine. And then you have kind of meme coins, right, where it's like, okay, someone launches it. but there's no expectation or promise or there's not really sort of a, you know, vision. It's just like, it is what it is. You're buying an open market. If you want to buy, great. If you don't, also fine.

But that is sort of the game. And like, you know, ForensTech, like I said, the team did not get token allocation. They built a thing. It works. It feels weird that people are almost like more mad at Racer and the Frontex team than like these other teams, even though I would say arguably they, you know, Or rather, it feels weird that there's like a larger onus on race or having actually built something than any of the other teams who, like, didn't do that. I think there's, there are weirdly kind of misaligned incentives, though, in that it's like by the team not retaining the token, you know, they were monetizing, you know, through the fees, right? And they made like, you know, 52 mil in fees from people swapping on the platform and sending of the team.

And so, you know, normally those would go into like a Dow Treasury and maybe, you know, the team would get a grant. from the Treasury and it felt given anything like okay actually the monetization vector on Front Tech is like totally privatized and team is just you know cashing in all these swap fees and you know the protocol stuff is it's it's like in another world this is exactly what people want it's decentralized it's you know no admin it's you kind of do it yourself and no one's gonna step in and rug pull you and you know maybe depending on what side of the bed people get on or how kind of the momentum builds it's now become this this big negative so I don't know I think there are like

more egregious examples of this happening in crypto. And so I don't know why the Front Tech team is kind of getting called out. Well, so to your point, Tom, a lot of the reason why people are mad is because everybody knows that Frontec, the company, made 50 million plus in the swap fees over the course of the year and half. And none of it has gone into the Front Tech token. And the claim, at least I saw Haseu made this claim, I think, most provocatively, is that, you know, when you drop a token, you sort of give an implication that everybody understands that this this is going to be a thing that accrues value in the universe of this product, right?

And the reality is that it never really accrued, I mean, what's the value of friend? It's like a token for joining clubs, I guess, or something. I can't remember what the token does at this point. But it's not the thing that accrues value from the business, right? The business accrued $52 million of value and that's it, the end. And so there is a, you know, the steel man for the side of the argument is that there is a violation of expectations that they knew people had when they decide to do it this do it this way. I definitely see that.

I think, again, in a more, you know, maybe conventional project where there is a team allocation and the team sells a token and, you know, there was money going into a multi-sig and the team just runs away with the money. Or, again, we've kind of talked about this in the ICO context. Like, that feels, I think people have more of a reason to be upset. Those are all very transparent. Like nothing changed from inception to now in terms of where the. fees were going, how the fees were being paid out, how the system actually worked.

Like, yeah, I definitely, at a high level and at a very superficial level, I can see why people would think that and think they're bad, but this feels like they're like idiosyncrasies to the way Frontec was set up that makes me feel like you can't get bad. Like it was effectively a mean token that was always the case that was very obvious if you did any modicum of research and maybe people who didn't and how they're mad. But I agree for a lot of those other scenarios, I see Huss's point. I would agree if someone launched a Deepi protocol and kind of did this exact same thing. I feel like a lot of the problems could have been solved if they just kind of launched a token later.

I think they basically just launched a token way too early before there was any value or cruel mechanism. And they didn't really hit any type of product market fit loop. I think there was a lot of virility in the beginning of the application, but they didn't figure out like two big issues. I think one that people were citing was that it self-selects for very small groups, for instance. because when buy the keys, it's all baked into the pricing curve so that you very quickly price out people out of friend tech groups because keys will rise to like 5E very, very quickly and suddenly, you know, it's very hard to scale a group beyond like 30 people.

So they never really figure out that scaling part. And then the second part is, I think the value derived for creators on the platform is up front, right? You basically make money from fees when someone buy your keys. and you're not really incentivized to keep providing value once somebody's in that group because you're not really making money as people engage. And you could say that, okay, if you don't engage, people can sell your keys, but you're also not really that disincentifies to not engage because the creators themselves may not even hold the keys

because unlike some of the other social platforms, the creators were not given keys in the beginning. You have to actually go and buy your keys. And I know a lot of creators didn't buy their own keys. So those were kind of two big product questions that they haven't answered. I think if they figured that out before they launched the token, then it's, it might have, you know, maintain a bit of excitement. But if I remember correctly, they launched the token when the user curve was kind of clipping off. So it was almost like a Hail Mary attempt

to get people back because they know this promise of anirdrop could get people excited about the platform again. So maybe they rushed the token. But maybe there was some other... But I mean, it wasn't a Hail Mary. Like it worked, right? It did get this big spike of users and people coming back on. I remember when all of us got back on the platform and were like, oh, there's new features and there's this club thing. And it was just so bro. and things just didn't work and like it was super unintuitive and it's like, wait, why am I doing this? So I think they, like, I wouldn't consider that a Hail Mary. I would say like they kind of wasted the second bullet that they had, which was bringing people

back on the platform for theirdrop. And it's a tough spot to be in as a startup, which is that you've kind of got this like one moment. Like it's like, you know, like a comedian getting on TV for the first time. And it's like, if you fuck this up, like you're never invited back on any show ever. and that sort of feels like what Frentec had is that like, oh, we finally, you know, got booked for the biggest show in crypto and they blew it. And I think after that, it's really, really hard to have another moment. Terun, what's your, what's your take on the Frentek situation?

I have the least emotional connection. I think the way the rest of the commentators do. You were active on Frenton. Why? Why? Why? I don't know, not not. I wouldn't call myself a creator. I'd call myself a consumer. I had your key you were active what are you talking about sure I guess in the beginning for like a little bit

but it just like somehow then it just became this thing where like people are buying your key to like ask you questions and it was like I don't have I can't just like be a Cora answer like chat GPT exists stop fucking asking me questions

but I guess like the thing I would say that is a little weird is like, FriendTag actually got the pump. dot fund meta just wrong. Like, you know, like, but they, they created it at first. Arguably, this idea of like burning the key, taking the fees is exactly the entire meme coin game, right?

It's like the person puts in liquidity, they burn the key, the fees get kept split between the creator and the platform. In some ways, that's exactly what Frontec did. But they kind of did it in a way that, like, had no ability. to that that was like almost a little too early because it felt like the Frentec thing suddenly became the meta on Solana and just like took off and it just was that wasn't true for them right to Jason's point I think what Frenti figured out or sorry what a pumped up fun figured out is that you start with a bonding curve but then you can't stay bonding curve forever because it just it just like

pops out and you have to you have to say okay we've we've hit this inflection point now we're going to convert, you know, Anselm's keys to be an AMM or something else instead of being a bonnet-guards. And this is kind of why I think the people might be annoyed at Frontex is like they also now see this thing in the future that did better, like a mechanism that did better. And so it's easy to hate the one, the initial one. But I feel like they were on the right track, right, to that, to that in the sense that they kind of were they kind you could argue friend tech kind of figured out the meme coin stuff before the

meme coins started taking off that's an interesting claim um i think it's like not quite right i mean it was speculative for sure but i kind of think those rooms yeah but like the social stuff seemed very fake like at some point i remember going back in and all my keyholders were bots asking me the same question like 500 times why were they asking you questions i don't know it's just like i think they were hoping that based on how much they were engaging, they would get a bigger air drop because this was like people trying to figure out how the air drop farm. It was like something, something was very weird that was going on. And it felt a little fake at some point. Like I think in the beginning it started as a, you know, the rooms were kind of an interesting, you know,

unique thing. But then at some point I think that I think maybe you just hate your fans. Have you considered that as an explanation? Are you telling me your thoughts? Those are people. Very offensive. You apologize. Darud, you might be the one who's a bod. I don't know what to tell you. All right. Maybe I should just start an only only fans and see if it works. Hey. I don't buy your only fans key.

Now the moment I thought they actually broke into mainstream was when the only fans people started coming on to Front Tech because there was a moment when it wasn't just crypto jerk anymore. It was like actual only fans. It's true. But then, you know, only fans somehow got $8 billion in revenue instead. Yeah, and 80% of them went to creators as well, not the founders. They did have some homegrown talent on Frontex, right? There was like Levi and some other folks that kind of got big on the platform. I don't know what happened to those people, but I feel like that is like a good signal

of something happening on creator platforms and that you can have people who basically make their own enterprise, you know, through the platform itself. Yeah, it was definitely the early shoots of something that could have worked. But it felt like the frantic team didn't iterate enough on the core ideas of the product. I think they sort of saw that like, oh, people love this. It's going crazy. Obviously, their infrastructure was just incredibly bad, like just embarrassingly terrible. They were way too slow to add features and like make the chat experience good.

But I think they almost got caught in their own trap of a product that started working. and it sort of convinced them to stay very close to where they started. Right? Like, Frentec didn't really evolve outside of the, okay, it's, you know, you chat to people who own your key. And that's it. And we sort of, you know, I don't think they were willing to experiment enough to find a new meta.

And maybe it was something that was really closer in spirit to meme coins. Because at a certain point, yeah, like this idea that, okay, you're going to be early to join a group chat with somebody, Like, yeah, I mean, to your point, to ruin, I kind of experienced the same thing, which is that I just kind of, you know, got fatigued with the idea of like, okay, I open an app and I answer questions from random people every day. And, you know, it's not that fun.

It's not that different. It's not dynamic. It got really repetitive. And then the questions you get, initially the questions are very interesting. And then the questions become like, oh, you know, what token do you think is going up? What do you bullish on? Exactly.

That stuff was annoying. I also just kind of found the, the racer Twitter presence during that time was just like a little bit obnoxious. You know, to me honest, I'm not going to lie, that made me stop using it. Also, it's like reading Racers' Twitter. I was like, okay, I'm done here. Because I thought Racers' Twitter used to be funny. And then it started being like, I hate all these people who think I'm like robbing them.

And then it's, you know, at some point I was like, yeah, but they're your users. I don't know what else you expected. I've heard there's a lot of drama around Racer. He's a pretty volatile person. Obviously, you can see that from Twitter, but I think that's also true from people who've interacted with him personally. I only meant it more as like, I used to love Racer's Twitter.

I was always like very deep cut kind of esoterica. But then once he started Frentic, it kind of like ruined his content. And then I was like, okay, so clearly not only was this product, like not making me make any good content on it, It made the creator get worse at making his good content. Like, that sucks. That's like a lose-lose situation forever. You had to be by the key.

You had to be in the racer room for the good content, the public stuff, you know, not giving away for free. That's smart. You start them on the drip and then bring them in. Yeah, I don't know. I really, I really miss the old racer Twitter account. I still think about it sometimes. I think it got banned or something?

The original one, but then Alt, I think, just went private. And then, yeah. Yeah, yeah. So his new account is private. Anyway, yeah, whatever. I think in a sense, like, Frentec is sort of a stand-in for a broader conversation that's happening

because the reality is that, yeah, Frent-Tech, actually, they're not rug-pulling, and race are still there. He's just, you know, whatever. There's all this weirdness around Frent-Tec itself. But I guess I want to focus in the question about how founders in crypto are supposed to throw in the towel. It's very normal in startups for startups

to shut down. And we're, you know, everybody, I think in the investor side is going through this of, you know, startups from an earlier vintage from the 2020 era, the 2018 era, finally running out of steam and realizing, hey, you know, we're not going to make it. This thing is never going to be what we want it to be. And, you know, it's time to, it's time to exit stage right. And crypto is, I think it's a weird place for how you shut down things. I think in normal. Because your token will never die. Well, there's that. There's that. But there's just no norms, right? there's no like playbook about how you, how you exit,

how you quit, like what your obligations are. So curious, what have you guys seen in terms of companies that are navigating this? Because I have a few portfolio companies that are going through this.

And the thing I see across the board is that nobody really knows how they're supposed to do it. It is unfortunate our one co-host who should have the strongest opinion on this topic that's not here this week. Given that he has done it. Well,

but Jason, you're a tangent which is the fund that you run is a very early stage incubatory kind of fund so i have to imagine you see a lot of this just because you know at the very earliest stages a lot of things are very hit or miss some things never go on to raise a subsequent round what do you see like if you had to give advice or a playbook to a founder what would you tell them is like hey if you think it's not working here's what you're just to do it's actually very easy in the very early stages because there's no token the moment you launch a token you suddenly instead of of having like four or five stakeholders that are like angel investors and maybe one lead VC,

you suddenly have like 20,000 if you're very decentralized or like a few thousand stakeholders that you have to contend with. So in the very early stages, a lot of the wind downs basically just look like, hey, we're going to work with our lawyers to wind down to entity. We're going to refund our investors prorata and that's pretty much it. It's a very, very straightforward process. I think the moment you have a token, then it becomes very, very difficult. So I think you solve the problem by kind of going back to what I was talking about earlier, which is timing your token launch, right? You don't really launch your token unless you are ready to inject steroids into your go-to-market market, right? And until you know that you've hit some form of product

market fit and you really want to kind of, you know, add some fuel to this growth. But and hopefully by then your project isn't really at the stage where it's going to completely die off. Now, that being said, there was one example. I think they're going through legal proceeding. So I can't name what it is, but they did kind of wind down, I think, last cycle, and they actually are in the process of figuring out how to, I think, almost sunset the token and then refund investors pro rata. So there might be more details on that once the whole process is wrapped up. But yeah, TLDR, once you have a token, it's kind of fucked.

But before you have a token, it's very easy. Do you know examples of like tokens that have wound down? Like FTT still exists. It still trades, despite the fact that obviously, Nothing will ever happen to it. You know, the original Luna is still trading. What are you talking about? I mean, clearly they think that it's tied to something that's happening with the bankruptcy.

I guess Luna is still around as well. Yeah, Luna 1 or I guess now it's called Luna 2? Or no, which one is it? Is the original Luna 1 or is it Luna 2? I think Luna, there's Luna Classic. And then, yeah. Luna Classic. That's the nomenclature we prefer in crypto is the classic.

But, I mean, this actually happened this week, I think Vega. They're like a derivatives, decentralized derivatives platform that has its own chain. They put forth the proposal to basically sunset the chain and wind it down. And a similar kind of thing, I mean, again, it's presented as sort of a community vote opt-in thing, but it's also like the team is kind of throwing in the towel and kind of stepping away.

I think it reminds me. Fay was the other example. Yeah. They did the sort of the buyback scheme, which I think is also a good way to do it. Rari, yep. It reminds me a little bit of kind of like the, discussion around sort of IoT smart home kind of devices when the company that manufactures them

goes to fong or wants to deprecate them, but they're relying on some third-party server to actually give them instructions and keep them operational. And people always get pisses. Like, why did you brick my device that I spent $1,000 on? You know, you should be open sourcing it and let me run my own server if I want to do that. And I think the best companies, if they can do that, there are obviously costs and, you know, legal headaches in actually open sourcing, you know, that kind of stuff and very few teams do it. But I think if you can, ideally, like, that's kind of the best path. And I think in crypto, there's probably a similar kind of analog where it's like, if you want to do a, you know, community takeover kind of thing, great, like open source the

front end and let people do it themselves and let people govern it. Like, you can go do that. But I think if you just kind of do a unilateral wind down, it's a little bit trickier. Yeah, that's a good point. And in order to get there, it does require full decentralization, or at least being pretty close to full decentralization. If you think of something like Frentec, like Frentec, you know, they have servers. They host the chat messages.

They like do, you know, there's all this stuff that actually creates a functioning app. And Frentec without the app is kind of, you know, it's nothing. It's like, what are you even talking about? What is Frentec without an app? So I think for some things it's more plausible than others, but I think it's actually quite rare to have a product that is at full decentralization and sunsets. I think that I have almost never seen.

I mean, I guess Faye is an example. I guess maybe Rari as well are examples of that. But it's very, very rare, right? Most of the time what happens is that, you know, it's like Eith Classic or, you know, one of these things that just, yeah, as long as somebody out there is willing to run the infrastructure, it still exists and continue to trade forever. Yeah, and I guess the bar for what's considered debt in tokens is quite different as well. So you guys say that the tokens never die, but I think there will always be some people. that trade some token that's tied to some sort of debt app. But if you look at the liquidity of those things, there's probably like $30 worth of

liquidity. So if something trading like $30 a day and if still trading at like a $5 million dollar valuation, is it still alive? I think that probably doesn't pass the bar. So the tokens, yes, they're still on chain. And they might even still be on some exchanges somewhere if there's someone seeding liquidity for them. But by most definitions, they're basically dead.

Okay, so I want to pivot a little bit to talking about a conversation that's been very active on Twitter that Jason, I wanted to get your take on. So a tangent, my understanding is that you guys are both doing early stage, you know, startup investing, and you're also doing liquid markets and, you know, on chain activities. Is that correct? Yeah, that's right. Okay. So there's been a conversation that's been very active on Twitter, and we've talked about it a little bit on the show, but I wanted to pull you into it, talking about the dynamic between VC funds and liquid funds. And I think much of it traces to a tweet that was originally put out by Arthur Chong, where he claimed that at this stage in crypto, VC funds are net extractive to crypto. And they're taking more money out of the crypto ecosystem than they're putting in. And I think that the intuition behind this is that, well, the VC funds, you know, they fund new projects,

they invest in them at low valuations, then those projects, they mature, they get big, they go launch on the big exchanges, and then the VC sell their tokens. and as a result, they're pulling money out of the ecosystem as opposed to putting money into the ecosystem. And as a result, this claim is that more VC funds are bad for the space and they should instead be allocating their capital into liquids, buying liquids on the market. And this seems to be now increasingly common sentiment.

More and more people are viving with the story that VC funds are extractive and or net negative for the space. You used to be at Spartan, which both does liquid markets and venture. And so I think you're in an interesting position to weigh in here. What is your take on this drama and how do you fall out with respect to what you guys do at tangent? Yeah, I think that is a little bit reductive in the sense that obviously not all VCs are the same. I think the bar for creating funds in crypto is relatively low in 2020 compared to, say, like, Web 2 funds, because it is everybody's first rodeo.

And as such, we have a large number of funds that are, you know, their bar for quality for projects is quite low as well. So you get a lot of random bullshit that's funded and some of them come to market and people bit them and you just create a lot of charts that go one way. So that's kind of created the impression that, okay, VC just buy low and then, you know, try to get their tokens listed on an exchange at a very high unreasonable valuation and just sell all the way. So that's certainly, you know, we see that quite a bit.

But I wouldn't say that that is an indictment of the entire venture capital, you know, space in crypto. You know, where we fall out on this is, I think there is an element of the space that is over allocated to. So there's a bit too much capital chasing too few quality deals. And we know that, you know, like with kind of Web2 venture, it probably becomes more of a power law where you have a bunch of VCs that are very good at what they do that are very good at kind of name picking as well that would probably dominate the whole space. So when we first started tangent, our idea was like, we don't really want to compete with these guys because I think there's a big gap in the earlier stage where people are underfinanced. So funds are basically too big to kind of work with these very early stage companies. So we wanted to kind of write smaller checks and work with those guys. And then I guess going back to the point that Arthur was making, I think there is probably a dearth of sophisticated price discovery in liquid markets.

If you look at how valuations for startups are decided, I think it's more or less, there's a bunch of sophisticated funder funds that are competing to find the right price for a deal. In the public markets, I don't think there's really that much of a consensus on what tokens should be value at right now. And I think that's probably what Arthur was trying to say is that, okay, we need more rigorous price discovery. And we kind of already see that in defy. But we haven't seen that in any other vertical yet. So at least that's my understanding of what he's trying to get at. I actually didn't see the tweet yet. You know, the nice thing about crypto is that it completely blurs the line between private and public investing almost always, right?

Like everyone is somehow, you know, like it's kind of crazy when you compare it to like, I don't know, private equity where it's like the only liquidity I guess I sell once and then I return, right? I distribute the fine. I'm not like sitting here like buying liquids or selling my distributions as I'm getting them, whatever. Right. And I think because of that, there's kind of this natural thing where the notion of VC is very different in crypto than it is in traditional markets, where, you know, the expected lifetime or time to first liquidity for an investment is quite high, but also the expected failure

of first investment is quite high. And so I think because of those differences in parameters is kind of just like a different version of the market. I think the investors in private markets have a lot more influence on the public market valuation in crypto than in normal investing. You know, like normal venture investing. I honestly think the VCs don't have much control over the final public price. There's like a whole industry around how IPOs are done. and who gets financed and how the kind of book is built and how the banks kind of run things. And that's a completely different here where, you know, investors will be trying to source

liquidity for projects when they're launched and help them meet market makers and, you know, actually do a lot of that themselves. So you just have a very different structure. And I think inherently, that's probably why the price discovery is kind of poor. I also think the private market pricing, maybe slightly different to Jason. not actually the private market pricing is even more inefficient than the public market pricing because oftentimes the final price the deal is done at is not the price that the investor thinks is fair or wants to pay it might be much higher due to competitive pressure like to win the deal they had to go

over what they wanted by some amount of you know some percent i think the kind of like auction the kind of like weird auction that goes on in private markets can oftentimes be extremely inefficient in terms of like the deadweight loss. So are you claiming there's like a winner's curse in? Yeah, there can be a winner's curse. There can be a winner's curse in venture. I think the difference is that people in crypto are willing to take the bet on the winner's curse type of thing.

Sorry, so winner's curse is to give some familiarity to our listeners, is a phenomenon that was actually first discovered in the 1960s when the U.S. government was auctioning off oil tracts in Alaska. And what the U.S. government would do is they would say, hey, oil company, you can take one sample from this land and then decide how much you want to bid. So like the due diligence was like someone goes out to land. They stick something in the ground. They do a bunch of measurements.

At that time, I don't think they're doing sonar or inverse problem stuff. And you then from there figure out your bid. And the weird thing about that is, well, maybe one of the bidders sampled. the part where there's a ton of oil and they think, oh, the entire pot of land is covered in oil. And another person sampled something where there's no oil. And so the real price should have been the average of what all the bidders knew. But the thing is they're not sharing information. Like they're keeping that private.

So then whoever wins is the person who overbid, they got the sample that happened to have the most oil. So they think it has the highest resale value. So the winner's curse is like, even though you win the auction, you're winning an auction that's like supposed to have some resource. that you're going to extract from, in this case, like the asset that you want to resell later. And it turns out that, you know, you overpaid because you made the wrong measurement. Or in this case, you kind of you included the impact of competition, the fact that more people were bidding into what your implied valuation was, right? Like if you do that too much, then it becomes kind of you can have this winner's curse-like phenomenon.

That's an interesting claim. why do you think that crypto venture, are you saying all venture has this winner's curse property or uniquely crypto venture? I think all venture has it. I think in crypto venture, it's a bit higher. Why do you think that? Yeah, because I think the private market investors are also public market investors. They will be involved in the liquidity formation process when the token is being launched.

They'll oftentimes be involved in doing deals with market makers for providing. providing supply. They will be doing all of these things that in normal public markets are intermediated by banks and the pricing is done by banks and the books are built by banks who are not the owner of the asset, right? There's usually a third party. Let me just parse this for the audience. What Tarun is claiming is that most venture deals that are competitive end up being priced too high and the person who wins the deal is going to lose money in expected value. No, no, no. I'm not necessarily saying they're going to lose money and expective value, assuming that they do no intervention.

But my point is, I think in crypto markets, the private funds can do much more intervention in the market in how the asset becomes public than in public markets. And I think in public equity markets, there's very little a private fund can do. So there's no winner's curse because the funds are incorporating their ability to help the project. Yes, yes.

Yeah, yeah, exactly. That's why they're willing to. So on paper, it looks like there's a winner's curse if they couldn't influence the kind of liquidity event. but because they have so much more influence, I think it actually changes their bidding procedure. Yeah, I don't know if I believe any of this. Like, I think you're like, I mean, A, just like empirically,

like the returns are pretty darn good. And so like we don't actually see any sort of winner's curse in the returns. I think I gave, I told you a winner's curse relative to the. But even in venture, right? I mean, just go look at the returns for, you know, I don't know what you're talking about. Do you do not remember when every fucking. week, there would be a partner, a benchmark complaining about banks fucking mispricing their stuff

and like, oh, they hate how the pricing was done, how it launched. Are you ignoring all the 2010's venture funds? All they would do is complain about how they had no control over the launch price. It changed how they were pricing seed rounds. It changed how they're pricing series A round. Yeah, which is how they're supposed to do it, right? It's supposed to propagate up the price signal. But I'm thinking, crypto, because there's more of an influence, you don't have this effect where like you have this kind of like this winners curse type of thing because you don't have the realized gain you can influence what you realize gain is. I think there's maybe marginally more influence, but I mean, I can't speak to every other fund.

I think the influence is pretty small at the end of the day. It's like you said, it's like you do an intro to a market maker, but it's not exactly like you're out here like, you know, negotiating terms. You might loan your asset to the market maker. You might, you know, there's a lot of stuff people do. I would say that in normal markets, that's always disintermediated by a third party, which is not necessarily true here. Oh, yeah, I don't know about that. But I was also going to say, you know, this is not a pure sort of commodity auction.

Like, it is not always the case. And it's usually not the case that the winner is the person who is willing to pay the most or the cheapest capital. Like, there's almost always actually cheaper capital out there for teams that want to take it. This is always kind of like, you know, the meme. It's like when, you know, European Family Office leads your. you know, series A or whatever. And, and it's like, yeah, there's there's cheap money out there if you want to go get it. Don't we're going to lose all our European family offices.

Sorry. Keep dragging on them like that. The venture funds that you know and love are not the highest bidders usually. And that in many reflects is like why the returns are good. I would say that one difference, I think, between crypto and tech venture. And if this data were public or whatever, you could probably try to tease this out is I think there's a much higher value for brand and tech venture because you have a longer duration before liquidity. So like people are willing to take a way bigger discount for like the higher

higher brand. Whereas in crypto, I think people are like willing to, the tolerance for that's much lower. I think it was higher like in 2019. I think it's a road. I think it's the other way around. I think it's the other way around. I think like, look, if you are, you know, a SaaS company or an infrastructure company or whatever, like, you know, having benchmark versus Sequoia versus like, you know, I don't know, just some, you know, pension fund or something, doesn't really materially change your ability to get customers, do your sales cycle, like, you know, sell them to the Fortune 500. That's definitely not true because, like, a lot of the brand name funds, like, find you your

customers for you. Like, that's like half of the value. Yes. I think early stage, yes. I think at the later stages, I think it's much more commoditized. Right. But the point is crypto doesn't have those later, crypto doesn't have later stage. It only has early stage before liquidity, effective, early relative to those SaaS companies.

There's no series D or series F. I mean, in terms of the quantum of capital there is, right? Not necessarily in the literal stages. I agree. But in the staging mechanism, there's not. It goes to liquidity event quicker, right? It's like goes to liquidity event at Series B effectively. Yeah, but it does.

I mean, I think it is very true that in crypto, brand has a higher premium than it generally does in regular venture. Now, look, if you're a pre-seed or seed, brand is almost everything, because everything is signaling and you have no fucking product. So yes. But I think if you look at like a series A or a series B, it really does feel to me that if you have an A tier fund coming in in crypto versus like a D tier, you know, random, you know, fund that nobody's ever heard of, there's huge pricing differential between those two deals. And so I think to Tom's point, it is kind of like a multi-dimensional bid where you're bidding with both capital and prestige. And the way you trade off capital for prestige, like I think that that conversion

rate is higher in crypto than I would say it is in most traditional venture, most of the time. I agree with you for really late stage, like series F or whatever, series E, D, fine. But I think it's in early stage tech investing for like, if I look at AI investing, I actually really feel like the brand thing is like almost even more important. I think for AI investing, you're probably right just because it's so frenzied and crazy and, you know, But the SaaS stuff in 2015 was the same way. My point is like all these people who were complaining about banks, they were complaining about it. And they were doing the SaaS deals at that time.

Right, right. But that's the thing. There's still a lot of SaaS deals happening. There's still FinTech deals happening. There's still, you know, most of the industry is not AI. Although it is the shiniest, tautest thing. And that's where I think the brand premium. Percentage of funding allocated has been crazy the last few months.

I do feel your point around like 20, 20, 21. There's a whole like, you know, Tiger is going to eat everybody's lunch. And, you know, these crossings. are going to come in and just bit everything up. And like that obviously ended up being sort of a terrible thesis and not really happening in a sense that, you know, they did have a winner's curse. But I think that was an apparation. That's not normally how venture markets work.

I don't think it's really how they're working today. And I don't know, I find it hard to kind of, you know, project off of, you know, a few data points from a few years ago. Yeah, I just had a chance to pull up Arthur's tweet as well. So I think just to kind of bring it back to that point about liquids and venture, so I think the issue that you first raised to see, I think is actually quite multivariate. So what I think is happening is the public market in crypto is placing a massive premium above probably where the project should be value when they list. And this basically gives VCs a large paper market.

So let's say we invest in a new layer one at like 30 mil FDV. it comes to, when the token launches like three months later, it launches at a billion because the market is buying it up at a billion dollars. So it's almost like against your fiduciary duty to not sell when VCs fester tokens. So you basically have this phenomenon where the public market is creating a conduit for VCs to cash out too. So I think that's probably what Arthur means. And I think this happens because of the liquidity window point that Tarun brought up.

Because in crypto, instead of waiting an average of like seven to 11 years to go from startup to a public company, you have a token. You could have a token within two months of the company being incorporated. So in most cases, you don't really. Oh, I'm going to push back on this. There's nobody launching tokens within two months of starting something. There are people. You just made me. You're an incubator.

Like, how many of your projects launch a token within two months? So maybe not two months, but compared to like the seven to 11 years. You know, okay, shorter than seven to 11 years. Hey, hey, a meme coin has launched even faster

than three months, buddy. It's every 15 minutes. It's every 15 minutes. So that liquidity window kind of, you know, forces, it creates this dynamic

where projects don't really have the time usually to kind of live up to the dream. And it's not just, you know, it's not just because VCs are, you know, bidding products a run away or because tokens are being launched too quickly.

It's also because the market is placing such a huge, speculative premium on almost anything that comes to crypto with a slight sliver of promise. And it's often very hard to live up to that kind of valuation very early on. So I think the solution is, I think actually self-corrects, right? As long as, and then retails are already starting to realize this cycle that, okay, if we just buy tokens that launch at like a few billion FDV out the gate, we probably lose money. I think we ran the numbers for all of the token launches in the past six months of note, right?

So outside of anything, any of the liquid meme coins, almost every single one is down, you know, the past six months. So I think people are starting to realize this. So this gap is probably going to self-correct. So hopefully it's an issue that that goes away over time by itself. Well, I mean, the market is down massively over the last six months. So you have to correct for the fact that almost everything's down like 50% in all coins. Part of the reason why I resist this is I'm a VC shill, so, you know, I'll own that fine. And ironically, we do also have a liquid fund that we manage, but a very different kind of liquid fund than Arthur does.

Arthur's like very directional trading in and out of things. And we don't operate that way. We're more buy and hold. But I resist very much this framing that he gives, which is that, okay, liquid funds are good for the space. VC funds are bad for the space. And like, you know, it sort of gives away the game in the sense that like it sort of assumes that nothing we're building here is actually valuable. and it's all like kind of a, you know, just shell game that we're playing with retail,

which I'm like, okay, if you believe that, then why the fuck are you, you know, or whatever, maybe he thinks he can just make money anyway. But, like, I don't believe that. And if you start from the assumption, they're like, well, actually, you know, the things that were VC funded in prior cycles, you know, whether they be the polymarkets of the world

or the salinas of the world or the avalanches of the world or the circles or the tethers or the coin bases. Like all of these things made crypto-based, They made the whole thing more valuable, and they made more people come in through the front door to buy everything in the space, right? Like, Bitcoin would probably be worth less. Ethereum would be worth less if we didn't have all this other stuff that was built that was funded primarily by venture capital. And the idea that, well, we're done now. There's nothing more to build. Anything more that you build is going to be extractive.

So leave it alone. Don't fund new projects. Instead, you know, come buy tokens. I think is just incredibly, I think history is not going to be friendly to that view of how to think about a new technology. The second thing they'll say is that this idea, okay, well, fine, but liquid funds are obviously, okay,

maybe venture funds are okay, they fund new things, and maybe some of them will be good, most of them will go to zero, but that's how venture works in every industry. But in tokens, you know, in buying liquid tokens, you know, maybe, okay, but it's still true that liquid, we really have a deal with the liquid funds, and liquid funds are really good for the space, and we need more of them.

Now, you said, Jason, that, well, the reason why is that a lot of these all-coin markets are not very efficient, and more liquid funds will make things more efficient, and that's good. I would kind of argue that if you're claiming that liquid funds coming into the space, like more liquid funds is good for crypto, what you're sort of implying is that these liquid funds will have bad performance. What I mean by that is that, like, the job of a liquid fund is to come in with, you know, let's say you raise $100 million. And your job is so like 2x that, 3x that, right? And then, of course, you're going to book carry, you're going to take that money back out, and you're like trading in, you find a narrative early, you buy into it, then you sell

out of it, then you go do something else. But you are not long-term capital. You're recycling in and out of narratives and memes and whatever. You're arbitraging, you're front-running, you're not front-running in a negative way, but front-running in a sense of speculating on something before it happens. And if you're doing your job right, you're taking out more money than you're putting in, right? if you have 100% performance as a liquid fund and you take that money out, you have net extracted from crypto and you've definitely not funded any new development.

Look, as someone who's been on both the normal trad-fi side and then also the private side in crypto, the same exact type of argument exists in normal trad-fi shit. Everyone in normal finance is like, oh, those VCs, those fucking idiots, like they're just marking up each other's books and like, you know, like what's the point of what they're doing? It's all, it's all a Ponzi scheme. And then, you know, like, it's not going to work. You might just well just have put your capital into my liquid hedge fund that is returning X. Like, you know, like, if you read the AQR founder's blog, it's like filled with shit like that, right? Like he's, that's like all he writes nowadays. And so I think this is just a natural

tension of like two different like this like, this constant tension between like the like kind of long-term but very uncertain return part of the world and like the like, I need to know everything right now part of the world. And I do feel like this is a classic tension in capitalism. It's not like a resolved thing. It's like it's a core conflict that leads to trading activity existing. I think to his point, it's kind of unfortunate, I do feel like crypto public markets are uniquely bad at actually providing and raising capital to the teams that are issuing tokens. It's not like public equities markets where the team needs more capital, they can issue new shares, they can issue corporate debt, whatever. Like very rarely when a team

actually sell tokens on the open market, always when people are doing treasury sales, they're actually selling them to VC. So it's not as if, you know, again, for this sort of equity's, you know, hedge fund analog, it's like, oh, great, great, you want to go issue new shares, we'll go, you know, buy them because we're bullish and like now you have more money to go do the thing. It's like you're just kind of trading back and forth. Like there's not, the team can actually very easily tap into crypto, public markets the same way they can in equities. And so they're not actually not super efficient for funding these teams. It doesn't surprise me that hedge fund people sling mod at VC people, that VC people sling mod at hedge fund people.

What's weird about this whole thing is that the chorus of crypto Twitter is overwhelmingly on the side of the hedge fund people. which is very strange to me because hedge fund people, like they're literally directly trading against retail, right? Have you not? Did you not follow the whole GameStop thing? This is just the same. This is like the opposite version of that. In GameStop, they hated the hedge fund, right?

They hear they're like, they love the hedge fund. It's the opposite version. It's so straight. And I'm like, am I missing something? Is there? I don't know. I don't know. Because most retail's participation in this space is through liquid tokens, right?

most people are buying tokens. Most people don't have propriety access to Deoflow. So they kind of empathize with the liquid funds a bit more. But I want to go back to Haseep's point because when I first mentioned that Arthur's tweet is a bit reductive. I think it's exactly because of what Haseeb was saying. And Haseeb you explained in a much more eloquent way than my rambling did. But it's basically because I think different quality VCs shape the perception of VC funds a lot.

So ideally projects that are funded by high quality VCs, they ideally are real products that could bring in more people and as such more capital. So I think what Arthur is referring to is that the vast majority of VCs out there in crypto are pretty bad because the bar for quality was so low to enter back in like 2019, 2020. So there's self-select for bad projects that come to market at valuations that are way above what they should be. So it just ends up being a one-way ticket for those VCs to get to cash out those projects. So that kind of phenomenon formed a very cynical view of what VCs are. But I think that's why we kind of, we're very selective in terms of who we work with. We love kind of co-investing with Dragonfly, for instance.

of the kind of, you know, similar taste that we have in terms of selecting what we hope, ideally... This is why we brought you on the pod. Yeah. We paid them to say this, to be clear. Page show. Yeah, exactly. The second point I want to make...

So the second point I want to make, before I wrap it quickly. So on the liquid fund point, I do think that the point about liquid funds being very extractive is also reductive because there's so many different strategies in liquid funds, right? So even if you look at very high frequency trading funds, you could argue that they're adding a lot more liquidity death to markets that otherwise would not have been around. But then a lot of the funds in crypto actually share more in similarity with VC funds than like Tradfi hedge funds as well. So a lot of them are very thesis driven because of the space is so early stage that these thesis driven funds, they basically put out long form blockposts about exactly why they're bullish on a thing and they hold it actually for a year or two. And that, I think that type of stuff helps to make markets more efficient in that it shapes the thought of the market and reallocates capital from more vaporware projects to hopefully more high quality projects just by kind of, you know, having these fund managers share the views publicly.

So I do think those create quite a lot of value for the space. But obviously, fun guys still hate BC guys and then, you know, vice versa. I think that's ever, that's ever how it changing. Sure, sure, sure. So your claim is that, well, there are some hedge funds that maybe are not so great, but there are some sort of Berkshire Hathaway style, quote-unquote, hedge funds that are actually really good and they make the market more efficient. What are the types of hedge funds that under your story here are not positive for the space?

Haseeb wants the dirt today. Well, I want to zoom in on what you mean because it was a little hand wavy, right? Is like, are arbitrage funds bad? Are long-short funds bad? Like, which funds would you claim don't fall into those categories? I guess bad for whom. Bad for... That's bad for everyone else.

That's a claim. Bad for everyone else. Yeah, it's very hard to like qualify what funds... So I think for VC side is very clear, right? If you're a VC that constantly funds like deliberate rock pools, then that's clearly a bad thing. But for liquid funds, you know, it's an open market. Everybody can participate however they want. And nobody is kind of structurally supporting...

I don't think there's a fund strategy I know of that is legal, that is kind of causing... constantly just funding scams. Okay. So your claim that, I mean, there are people who like insider trade and stuff. I think that's clearly not helping markets. Or I don't know, maybe it is. I don't know. Who knows?

But it sounds like you're walking back a little bit from that claim that, well, there's some hedge funds that are good. There are some that are bad. It sounds like you're basically saying, well, basically all hedge funds are good. As long as you follow the rules, you know, it's fine. It's like positive sum across the board. I think there's a very clear line between legal. and kind of fair gain by the rules of the market and kind of good or bad.

So I'm just saying most of the hedge funds, as long as you're not doing illegal stuff, I don't think, I don't, at least I don't feel like I'm in a position to kind of qualify, hey, this is a bad fund, this is a good fund for this space. But what I would consider to be the most value additive to this space are these thesis-driven ones that kind of share their thesis. You know, if given a choice between, if I must kind of qualify, okay, which fund is better, quote-unquote, for the space, you know, a high-frequency trading firm, versus a thesis-driven fund, I would like to see more thesis-driven funds just to kind of get

more sophisticated price discovery on tokens and reallocate kind of retail capital from bad projects to good projects. But, you know, I'd argue they serve very, very different functions. So it's very hard for me to say that, hey, this type of fetch fund, this strategy is really just net bad for this space. Yeah. Turin, what's your intuition on that question? I guess like there is a sense in which, you know, I feel like the kind of weasel word

hidden there with the illegal thing because it's like, well, there's a very fine line in crypto comparatively to other markets where there's like certain definitions that would probably call things illegal or not. But I think like obviously the types of things like there's tons of firms, I wouldn't say necessarily hedge funds. It might just be prop capital that definitely love wash trading and like, you know, I don't know. You can't you kind of hope that like the the market actually would get to the point that it you know it there's sufficiently high cost to wash trading that like you're disincentivized which is like the goal crypto's goal of preventing watch trading versus like you know traditional markets it's like i have the SEC investigate

five years too late um because like they always they are they always their data analysis is always like very late compared to when the infraction happens if you look at the violence um and I just don't think there we've, we've kind of created that yet. And so there is, there is definitely a large segment of the market that probably does make money doing that. Now, it's technically probably not illegal for some of the assets. Like, you know, like for NFT wash trading, right? Like if NFTs were collectibles, I don't know. This is a very weird answer to the question I asked you.

You're like going through the different strategies for wash trading, different assets. Well, I'm just trying to say that there's a non-zero and non. This is not an investment advice. I just want to reiterate that as much as I possibly can. I'm just saying there's a non-zero number of funds that do that, that are making positive profits that I would say it's probably not positive profits from rebates and other token incentives, whatever, where I don't think they're really contributing anything to price discovery.

Yeah, NFT watch trading bad. I think it's pretty agreeable. So we establish NFT Wax trading is bad. Okay. I think we're in agreement. Can you go any further afield, Teroon? about other hedge fund strategies? Well, I would say there's a lack of certain strategies that I think is actually bad,

which is like more obvious than the ones that are bad, right? Like in normal markets, I think the idea that like I can I can kind of find ways of making almost self-financing portfolios, self-financing meaning like the expected growth in the asset funds, the funding cost of say like an option premium or whatever. It's much easier to do that. And crypto, the problem is like your only sort of derivative exposure, 90% of the time is only a perp. And that's not self-financing because you have to keep paying the funding rate.

They're a staking, right, right, correct. But the staking has duration mismatch stuff, right? So I'm just saying like there's a lot of stuff that I think could be better. And there's not. And this is one of the reasons I feel like you don't see as many like longer term, traditional Stadar B looking funds and you see a lot more like short duration or really long buy and hold but there's no one in the kind of like middle as much like if I took a plot of funds and I like took some like a plot of like you know the distribution of like the median frequency they trade at

you know I think a normal market would look kind of like Gaussian crypto markets would look like bimodal and I think that that's sort of that there's something missing in the middle and then like each time there's like a new defy thing or a new staking type of mechanism you start seeing those two but modes get closer but it still hasn't merged and it doesn't feel like it's there yet.

I think that not having the mid-frequency is kind of bad but that that's not like that's like a lack of strategy rather than existence of threat. Yeah I'm not sure these funds exist. I think like everyone said there's some prop funds that might do this but if I must point out

like a netbat's strategy for type of hedge fund. It's probably the systematic airdrop farmers. I know I'm going to get a lot of shit for this because AirDrop farmers hate me for some reason, but I think they're not bad for the space because you create just very, you create very confusing metrics for founders, right? When you suddenly get like 10,000 new users and it sounds very confounding kind of messaging to the founders in terms of like what is actually hitting product market fit. And then these AirDrop farmers, they're literally extracting value from products. because they're not going to be sticking around, right?

I think there's a lot of studies done on different projects where users fall off by 80%. Users fall off by 80% after the add drop is done. So I don't see how that is good for any founder or any project on the space as a whole. But as far as I know, at least in my circle, I don't know of any funds that kind of systematically do this as a strategy. Maybe there's individuals to do this. So I wouldn't say that that's hate, you know, there's hedge funds out there that's like secretly farming all these protocols and that's bad.

Yeah. That's the other side of my watch trading argument. And like the people who are doing that are generally doing it for this reason. I mean, you got to be pretty small, I think, to be wash trading it. Or not washing it to be air drop farming at scale. I think the scalability of that strategy is such that it's really only like, you know, these two-person prop teams that are doing this kind of stuff at scale as far as I know. It's just, you know, it's just not.

Hey, the peak, the peak pendle TVL was not zero. Yeah, I think I think at peak it was a little bit more scalable, but I think it's less so now. I feel like I've kind of spoken my truth. on this subject. I don't know. I wish for more efficient, more transparent, more, you know, sophisticated markets. And slowly, but surely, we are getting there. Believe it or not, I think sometimes it doesn't feel like it. But I think this space has matured compared to, I don't know, 10 years ago. Yeah, I think having now gone through this full circle conversation, I think I more or less agree with Jason is that, you know, I think for hedge funds, you know,

for hedge funds that are short-term, they're improving liquidity. For hedge funds that are medium-term, they're making markets more efficient and reallocating capital in some way. You know, Tom makes the point that's like, well, reallocating capital in crypto doesn't really mean anything because the teams can't really tap into public markets. But they sort of can. You know, there's the DWFs of the world.

There's the, you know, the VCs, they mark their discounts to the public markets. And so, like, there is some price signal that propagates back from the public markets. So I think the reality is that probably all these, things are more or less fine and there is some there's some dead weight loss somewhere from funds that you know some hedge funds that are just not really doing anything useful for anyone they're just competing to compete and um i think that's normal but the first cut assumption should be that like everything's probably fine unless you are really doing something that's obviously just uh making things worse for people like you know wash trading or um air drop farming or whatever that is is just kind of uh you know

picking up things in a way that it is counter to what is intended, whether it's counter to the rules of how an exchange dot operator, counter to the rules of how an air drop is supposed to be working. I think, okay, here's another characterization of what I think might be bad, is like the ability for me to make a riskless profit doing an activity that doesn't impact the either long-term liquidity or long-term price of the asset, right? Like the wash trading just to get the farming incentive is like, the farming incentive was bad because I didn't have to really take me risk to wash trade because

it's subsidizing literally all of my risk, right? I think like you, if you're going to be in these markets, you should have to take some risk, right? Like, you should actually really Now I would say farmers are taking on. For sure. No, no, now they are, right, but it took, it took a while, right? But I don't think the risk is what makes it nonproductive, right? Like, it's nonproductive still, even though the farmers are taking risk. No, but I think the risk is a deterrent to kind of like to the metrics being gained, right? By it. So that's a good thing.

That means that like if I'm taking a risk, I'm willing to improve this project's metric because I think there's some outcome that's positive and it has to be positive for both of us, right? And like that's that's kind of where you want the equilibrium to go versus like, I don't have to take me risk. I get a free risk, risk free return. And like the project doesn't get any benefit. Like its metrics are just like, you know, Bart Simpson.

Yeah, fair enough. All right. So I know we're up on time. I want to give just one last thing, question I want to ask Jason, and then we'll wrap. Token 2049 is next week. Massive conference. I think I believe all four of us are going to be there. What should people who are coming to Singapore look out for, Jason, give us some wrecks or just like high level, how we should be thinking about it. Yes, come beat me up at our jiu-jitsu event. We're doing a tangent jiu-jitsu event. So if you have some experience, come on the mats. You can bully me. If you don't like my takes on Twitter, you can take it out on me. I'd love to see some of you guys out there. AirDrop Farmers Only. Yes, AirDrop Farmers Only. We're also doing an event with Dragonfly, I think, a Thursday evening. So our port code should be receiving that link if you haven't already. But yeah, in general, I'm excited to meet a lot of you guys in person finally. I love that Jason is the Dragonfly Marketing Department.

He's going to be sending us an invoice right after the show. Cool, awesome. Well, Jason, great to have you on. And looking forward to seeing you in person in Singapore. We'll be doing a couple of live shows in Singapore. Stay on the lookout for that. We should have at least one of them live by next week. But until then, do everybody.

Thanks, guys.