Unchained - The High-Speed World Of ICOs: Smith and Crown Discuss Cryptoeconomics And The Future Of Tokens

Episode Date: August 22, 2017

Brian Lio, CEO of cryptofinance research site Smith and Crown, and head of research Matt Chwierut discuss how they do their research, how they decide which projects to cover in-depth rather than just list and when they provide advisory services for teams. They also discuss how they think the blockchain and crypto space will develop, the best structures for token sales, and why they joke that financial institutions haven't heard anything Smith and Crown has said. Smith and Crown: https://www.smithandcrown.com/ Show notes: http://www.forbes.com/sites/laurashin/2017/08/22/the-high-speed-world-of-icos-smith-and-crown-discuss-cryptoeconomics-and-the-future-of-tokens/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, a podcast about the big ideas and fascinating people in blockchain tech and crypto assets. I'm your host, Laura Shin, a senior editor at Forbes covering all things crypto. Thanks for tuning in. If you've been enjoying this podcast, help get the word out about the show. Share it on Facebook, Twitter, LinkedIn, or on your secret Slack and Telegram channels. And if you have a chance, give the show a rating or review on iTunes or wherever you listen to your podcasts. Big thanks to our sponsor, OnRamp. If you're having an ICO, a team. token sale, a token allocation event, a token generation event, or whatever else, projects are calling their sales nowadays, you need a website. Check out on ramp. This full service, creative, and design agency provides its clients with attractive and persuasive branding, websites, and marketing materials. Spark interest in your project, generate buzz. Check out think onramp.com.

So today, we're recording from beautiful Portland, Oregon, where I've come to see the eclipse. But that also gave me the perfect opportunity to talk with ICO site Smith and Crown because they are based here. So today on the show, I've got CEO Brian Leo and head of research Matt Sheroot. Brian and Matt, welcome to the show. Thanks, Lord. Great to be here. So let's talk first about what it is that you guys do. Sure. I'm happy to give an overview there. And just to be clear, this is Brian. He's talking. Yes, this is Brian. So Smith and Crown, verse and foremost, is a researcher. We've been around for over four years of

point and we study the breadth of the blockchain space. Right now, a lot of our research is focused on new assets that are coming online, and part of that is understanding how they issue tokens and wading deep into the world of token sales and ICOs, as it were. I had no idea you'd been around for four years. Yes, we've actually been around for quite some time. How did it start? So this was one of those things where I have another company that is a design and strategy group out of New York. And one day came across Bitcoin, as many of us had, and realized that this was something that was going to be what I worked on for the foreseeable future. And got so excited about it, started to put together a team slowly over the last few years. and we spent a lot of time looking at where it was that we could really make an impact in the space.

We were super passionate about it and we wanted to figure out where our unique set of experiences and talents could do the most good and make the largest impact. So over time, we built a team, we refined our vision, and then we started to publicly publish research just over two years ago or so. Okay. Okay. And Matt, how did you get involved with Smith and Crown? Brian and I have known each other since eighth grade, and this is our second startup together, a second company. So at some point, Brian pitched me on joining to help with their research efforts and a lot of the content development, applying new analytical methodologies to the crypto financial space. And I was a little skeptical. First, he was earlier to the crypto and Bitcoin scene than I was. But the more and more I started reading about it, the more and more I got really excited about it.

And so I started shifting more and more of my attention to working on this, to learning, and to understanding what Smith & Crom's role in this emerging industry would be. And so this was your second startup together. What was your first? So we actually worked on a documentary travel series together a number of years ago called Jet Set Zero. Oh, interesting. Very early days of web TV. Did you travel around?

Where did you guys go? We went all around the world. We actually started in Seattle, and then we traveled to Vietnam, Japan, South Korea, and Turkey. Oh, nice. Yeah. Wow, that sounds amazing. It was. It was quite an experience.

It was successful. That's laughing for its own right. He's like giggling and snickering. What's so funny? I just apologize to Brian for bringing that up. No, no. It was quite an adventure. Sure, not our most profitable endeavor, but certainly one rich with experiences.

Yes, I'm very familiar with that, having once been a travel writer, so I totally know how that goes. Yes, I'm sure you do. So, and then what were you guys doing? But you said that you had been, you had a design firm? Sure, yeah, it still do. So that was, you know, it's been quite a successful firm. It continues on. We brought on new partners that are handling a lot of the day-to-day operations.

It's called the Bright Iron Group. So, yeah, it was great. It gave us a real insight into user experience design, interface design, digital strategy, and products and so forth. And it got to help us understand a role that we might play in the space. We kept looking across, you know, we were very excited about Bitcoin in the larger industry, and we were trying to figure out where, you know, where can we play an important role to make an impact here. But I don't see the connection, like design, and then now you're going to be.

kind of doing research. Right. So, um, so the two things there. So, um, one is that when we were first in the space, it was still very much in the days where there were a lot of people who thought it is, Bitcoin is the one and only of Bitcoin forever and ever. Um, and that is the end. And we really saw this as a space that we were just scratching the surface of and it was going to be far more complex, far more dynamic, um, and far more strange than anyone expected. And so what we really saw as one of the critical pieces of that we didn't see being. addressed in a place where we could really help is, you know, how do you even wrap your head around it, even in the early days of it? So we saw the idea of high-quality intelligence and that a platform

with which to interact with that intelligence as a place where we could really play that role. And we worked for a lot of different companies of various sizes. And even in the traditional financial markets, we were really dissatisfied with the quality of interfaces and work that was out there, how people interact with intelligence, reports, analysis, information. So it was a problem that we had wanted to tackle for a while just in terms of the interface and design side. And then we saw this need not just for really compelling research, but also for accessible interfaces so that everyone could interact with it. And so, Matt, what was your background when you said he brought you on to do the content and research? Do you have more of that analytical background?

Yeah, a lot of my background has been research into emerging technologies. So I spent a number of years in the Valley and Silicon Valley with a group called Institute for the Future. They do. Oh, I know them. I have features research into emerging technologies. I did that for a while. I did some grad school work and focused a lot on smart cities and how cities are adapting emerging technologies.

And those are two big areas at a couple years doing economics consulting, which ended up helping quite a bit. And that was when I made the pivot to this space. And when did you join? It's a good question. It was a gradual transition into the team and then went full-time really last year. Okay.

And how many employees do you guys have now? There are 10 of us now, and we're hiring as fast as we can. Yeah, well, so I want to talk about that. Let's dive into the details on how you guys do your work. So how do you get your information? Sure. It's every possible source. When we first came into the space, again, there's, I mean, and still to this day,

is that if you want to provide information in the space, there just aren't consistent and reliable sources for the most part. So a lot of the research and sourcing we do has been through a very hands-on process. So one of the things that we've done is take pretty extended research trips, you know, across the U.S. and internationally as well. We'll actually head out to a region

and do three, four weeks plus. And every day is meeting new organizations and individuals in the space. We've got to building relationships and connections. and learning what we can just on the ground. So we've done some pretty extended trips in Israel and the surrounding areas all over Europe, extensively in the U.S., and we have some upcoming ones planned to Asia as well. But essentially is that it's a combination of every possible channel and news site

and information source and forum online combined with a couple hundred people that we know around the world that help us vet information, that feed us information that we can talk to about trends. So it's really kind of every possible channel that we can access, we combine. And so when you, oh, go ahead. No, I'll expand on that a little bit because it is very important how we arrive at what we're doing. And like early on when we started researching ICOs and token sales, we knew that this was, like we saw the long-term potential, this method of distributing a token, raising money, advertising, onboarding new users for a protocol. But at the time, if you wanted to learn about them. You were crawling through Bitcoin talk and Reddit and reading through white papers,

varying levels of sophistication and objectivity. And the barrier to information to access any of these opportunities was so, so high. And we saw that as a place where we could start to stitch together information from all these different sources, talking to the teams, talking to other teams that were doing something similar to try to create a coherent story about what these opportunities and with these companies and what these protocols actually are that would make sense to a third party. What percentage of the things that you write about do you actually talk to the team in person for? Oh, almost 100%. Oh, really?

For the stuff that we do that's a little bit longer form, there's a couple projects where we will just write a very small amount, and sometimes we don't speak to the teams, but those are just summaries of existing information. For stuff that's a little longer form, or if we're looking across markets at a number of different types of applications or a number of different industries, we'll talk to most of the teams. Okay. But, you know, for ones where you're just kind of grabbing info from like their website or whatever, what percentage of the site is that? We write on a pretty small percentage of the token sales that contact us. The inbound at this point is just, it's truly overwhelming. There's so,

there's so many. So it's really just a small subset of them that we go into depth and Correct. So anything that we write about, typically it's a group that we speak to. But the ones that we list, that's just to make that information accessible and consistent. So that's what I'm asking, what's the breakdown between what you write about and what you list? Oh, the percentage that we write about at this point, I don't know, it's a relatively small percentage. It's changed remarkably over time. We think of a number of different areas in the, in ICO history.

At the beginning, when it was started, MasterCoin is usually seen as the first official ICO in 2013, and there was an explosion of ICOs that included Mastercoin, Ethereum, NXT, number of protocols that are still around today. And then the long winter in the whole industry after the Bitcoin price crash and after Mount Cox, ICOs and token sales also really fell out of favor. No one was really doing them. And then we saw pickup early last year. You saw a couple more protocols and the emergence of more applications at the more tokens at the application layer. And it started to become more and more popular. And then about four months ago, the space absolutely exploded.

Right. So now, I would say five to ten percent, if I were to ballpark, of the entire market, if you define the market, as a project that announces some intent to raise funds through a token sale that we write about. We try to list everything. Our philosophy there is that there's not really a good place online where you can find a list that isn't a promotional or. or advertising platform. And so we don't charge projects to list on our Spithing Crown dashboard. We want it to be an open public information source that anyone can come and do their own research. And then we select a couple of those to go a little more in depth on, write about it, illustrate what they're doing, with their token, with industry.

Right. When you do that, are you intending it to be sort of like a quality marker that, you know, this is something people are aiming for to be written about on Smithing Crown? Not necessarily. Sometimes we pick projects just because they're doing something very novel or very ambitious, even if the, you know, chances for success seem slimmer than many other projects. And we'll sometimes pick projects that not other people, not a lot of other people or sites or places are writing about because we think what they're doing is actually very valuable. So we don't want it to just be, we don't think about it as just a proxy for all of the top sales. So how do you decide if some of them are just kind of more novel? And then there are certain ones I'm sure you just have to write about because they're highly anticipated. What are all the factors that go into deciding? Sure. Yeah, it's a variety of factors. I mean, it's relatively subjective, is that it's ones that, you know, as you mentioned,

if there's a lot of community interest around a project that increases the chances that we'll write about it because we think providing additional information and context will be particularly useful there. Sometimes it's a project where it happens to correspond with recent. we're doing internally. We're doing a bunch of research on a particular methodology or mechanism or attribute, and this project happens to incorporate those. So it's just an area of interest for us at the time. So, yeah, it's certainly, it's not intended to be an endorsement or a recommendation. Largely, it's, we figure the more research, thoughtful research that we can put out there that's accessible to people, the more good it does and the more people can take that and then build from it.

So we... Do you ever interview people and then not... Do you a long... write up about them if you're sort of feeling like maybe this team isn't going to pull it off? Sure. It's rare. Occasionally, but it's rare. Yeah. And then in terms of the formality, the interviews, too, I mean, we're at a place where, you know,

there are days where we could end up talking to three or four teams, you know. So in terms of, we get exposed to a lot, a lot of projects, and we talk with a lot of teams in different levels of formality. So, yeah, we talk to far more teams than we end up writing about. With MX Platinum, almost every. Every purchase made with your card can be covered with points, including new tastes, new fits, and virtually everything in between. That's the powerful backing of Amex. Conditions apply.

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I'm participating Canadian restaurants for a limited time. Franks Red Hot is a registered trademark of the Frenchest food company LLC. And actually to go back to the travel piece, why don't you just do those interviews by phone? Why do you go to these regents to talk to them? Sure. A lot of the interviews we do now are by phone. But sometimes in order to expand our network and actually be people, you have to be on the ground. Even in this highly effective virtual area we live in, it doesn't replace face-to-based conversations.

And a lot of this, too, is to really understand what's happening at the edges of the space, what's coming next. You have to sit down with people. You have to have coffee or beer or whatever and win their trust and get their real thoughts on what's happening and get their introductions to other people that are not known in the community or are not active players that don't have Twitter accounts. So we found in each one of these exercises that we've done, we've met incredible people, we've gotten a lot of really amazing insights, and the only ways that that would have happened is to be on the ground meeting people one day at a time. Yeah, so in that sense, your job and my job is very similar, but yet you choose to live in Portland where I really don't think there are a lot of, you know, there's a lot of activity

going on here. So, like for me, I moved to the Bay Area a little bit over a year ago, and one of the factors was there's a lot of activity there. I'm not going to lie. I actually wanted to move to Portland because I've got a ton of friends here. I love the city. And yeah, I mean, I like the Bay Area as well. But there was something about, like, my heart was telling me, go to Portland. But then it's like, just makes no sense on any rational levels. So I made that choice. So why do you guys choose to be based here? Sure. A lot of it was the, how logistics worked out at the time. I've mostly been based out of New York for the last eight years. But Matt and a few other members of our team actually ended up being based in Portland. And so it made sense the majority of the team was here. You know, let's spend something up. But also we found in terms of looking forward and building out the company is we're working on some of the most complicated and interesting problems that exist in the world today.

And when we're talking to new analysts or team members, whoever that may be, they're from every corner of the world. And when we're saying, you know, come move here. We like Portland because very high quality of life, very low comparable cost of living. So we see it as a really good place to build and expand our research practice. And then in terms of location of projects, this is such a geographically dispersed place. It would really hard for us to find a location that was centered at the heart of it, so to speak. You don't think the Bay Area has an advantage? I definitely do. I think that there are a lot of projects in the Bay Area, but I think that there are just as many interesting projects, so many other places in the world.

But not Portland. But not Portland. Yeah. Portland's a great place to do research from. And when you're traveling 80% of the time, it's a very nice place to return to. Oh, oh, you're traveling that much. Yes. Wow.

Okay. Okay. Well, kudos to you. I can't do that. Let's talk a little bit about how your work has changed over time. You guys were talking a little bit about that, about how, you know, there were very few ICOs kind of even less than a year ago. And then all of a sudden it's just like, sped up to, you know, 1,000% really quickly. So in the beginning, how were you finding these projects?

were you like seeking them out and did they not know about you guys and how are you or how are they coming to your attention? In the very early days, a lot of it was discovery on Bitcoin Talk. It was the platform of choice for announcing these. And that's we'd usually discover them. Sometimes they'd reach out to us. Sometimes we'd spend time on the forums and understand. We could encounter them in Twitter conversations.

But there weren't enough in any given month for us to feel like we're missing a really big piece of the action of what was going on. Teams are usually very accessible and open, and they still are, but then there's just very willing and excited that someone that had a little bit of a platform and a portal to the broader world and the broader industry wanted to talk to them. And so that ended up being a really big piece. And then as we put our nose to the grindstone and kept doing a lot of this work because we were really, really passionate about it, over time we grew as terms of a following in terms of popularity in terms of people referencing us and now it is much more people come and ask to be listed asked to be researched or interviewed

do you want to put an estimate of how many emails and Twitter messages and everything else you get a day or a week or a month or it's hard to say it's really increased I mean some days it can be a dozen two three dozen inbound just on getting project listings and so when you as you kind of noticed that things were changing. Sure. I think we started to see the signs of it, I don't think between six and eight months ago, is when it first started to pick up,

and then really it's been the last four months or so where things have really continued up on that trajectory. But yeah, I think, you know, as early as eight months ago, we really started to see that things were diverging from where they would, where the trend line was originally drawn. Was there like any moment when you were just like,

whoa, this is going to be huge? Well, it's kind of interesting for us is we always, this was kind of what we planned on. We always expected there to be this level of growth. I think it just, it just happens sooner than we thought it was going to. You know, if you look at the space, there's still a lot of challenges in terms of onboarding, accessibility, and usability across a number of key areas. And so we expected that to be a slightly larger barrier over the long term.

But in terms of the excitement, it just grew really fast. And we noticed it in a few different formats. You know, we, so we don't. just study token sales. We really study the entire breadth of the blockchain space, all assets, all projects. And so that's kind of what the token sale practice came out of. But, you know, in the work that we're doing, you know, we started noticing these trends where we would start to get a lot of calls from hedge funds or institutional investors or big financial organizations. And so pretty early on, we started to notice, hey, there's some key groups here. And we're getting

a lot of calls from a lot of high-level people, looking for information, being very interested in the space. So we started to adjust some of our estimates of how fast this was going to grow because a lot bigger players than were publicly revealing themselves were getting a lot. We're being very interested in the space. And that sort of clues you in that there was a lot more money coming into the space, like not even just people who've made big gains on their earlier crypto, but new money, fiat money coming in. Yeah, it's interesting. I mean, it's one of the reasons why we go and travel and spend as much

time as we do on the road meeting people is that we're in a very interesting position where we're going to have a lot of conversations with everyone from institutional investors and people who own investment banks all the way through to crypto anarchists. And everyone's got a different interesting view on this. And by combining all those conversations together, you can start to piece together the puzzle of who's interested, what are the levels of engagement, what are the things that hold people back, what are people really excited about? And you kind of stitch that together into a picture of where the

things are going. And so those institutional investors, when they were calling you, what is it that they wanted? They wanted kind of like more information than what you were putting on the site? Yeah. It's one of those things where I think it was pretty interesting. You have, you have a lot of people who, we were talking to a lot of people who are used to being, being able to understand whatever new industry they weighed into. Here's a new sector. This is the next one that we're going to put venture behind or incorporating a hedgeman or whatever that happens to be. People with decades of experience are used to being able to figure things out very quickly. So they thought, you know, blockchain, this is the next hot space.

We're going to get involved. And then they spend a couple weeks on it and they say, whoa, whoa, still don't get this. And then they start looking at them, do we hire an analyst? Do we build a team of analysts? You know, how do we even begin to wrap our heads around this? And then we'd get those calls around, how do I start? You know, what is this space? Help me get a handle on what's even going on here, how we participate, how we move forward.

So a variety of level of questions. but people understanding that this is an important thing to be aware of, to be involved in, and then this realization that you can't just get up on it in a week or two. Oh, yeah. Oh, yeah. I definitely agree with you there. Okay, so we're going to take a break now for an important word from our sponsor, OnRamp. With so many companies vying for people's attention now, it's important to stand out from the pack. If you're starting up a new decentralized project and want to help spread the word about it, check out OnRamp, a full-service creative agency that helps projects maximize awareness, gain traction, and accelerate growth.

OnRamp has helped numerous organizations do everything from create their branding and identity to redesign their existing website. Plus, they've helped blockchain startups and projects. Whether you're launching a new project, repositioning an existing organization, or just want to freshen your company's look, onRamp can come up with a tailored design project or a strategic marketing plan that ensures your lead in the market. Learn more and see examples of its work at thinkonramp.com. So how do you guys make money? That's a great question. When we get often.

So when we first started this and we said, we're a research group, we're going to study the breadth of the blockchain space. We're going to build a platform and tools around intelligence. People thought we were nuts. People in the industry thought we were nuts because why do you need an intelligence platform when it's just Bitcoin? And then people outside of the industry thought we were nuts because they said, what, Bitcoin, that's nonsense. So this is something that we've bootstrapped ourselves for years at this point. and with the idea of being able to very independently pursue the specific vision that we had. So our vision for how we make money is largely centered around the idea of launching an intelligence platform.

So like a Bloomberg for crypto or so. The idea is really is to make a platform that's as accessible as possible to people. Is that when you look at the tools that are out there today in traditional markets, they tend to be very, very expensive and tailored for this kind of financial elite. One of the things that's really exciting about the whole blockchain space is accessibility and inclusion, is that everyone all around the world will be able to access the assets and tools and utilities that the blockchain space provides. And so our vision really is for an intelligence platform that everyone can use, that provides information, analysis, analytics, in a way that's accessible and can act as an on-ramp. And then, you know, on top of that, we will build access to increasingly sophisticated. features for the people need it. So it's like a freemium model. Yeah, exactly. Exactly. I mean,

and it's one of the reasons why we publish so many of these reports online and so much information just to make it accessible, right? You know, there's been no shortage of people that have come to us and said, your model should be publishing nothing and charging banks a lot of money for these reports. And you have listened to nothing that we've said that it's antithetical to kind of our vision for this. So we want to make information accessible exactly and provide some base level of utility, much like we do on the site, to everyone, and then for people who need more sophistication to allow them to pay a subscription fee for that. So what are some of the different premium things that you're going to offer in charge for?

Well, it does. Have you started doing that? So this is something that we'll have a private beta for later this year and we'll roll out publicly early next year. Okay. Yeah. Okay. Do you want to talk a little bit about what you're planning?

Well, we'll get to that. Okay. You'll give that to me as an exclusive or something. I'll write it up on Forbes. That sounds very good. Okay. Awesome. That's a great.

That's a great deal. So in addition to that, kind of in the meantime, is, you know, so we largely see our efforts right now in concentrated in three big areas. So one is continuing to build out the platform. You know, we've spent years building out tools and processes and analytics beyond what we're publishing. And the goal is to use the platform to open those up and make them accessible to people. So that's where we're spending a lot of time and effort.

The second area that we spend a lot of time is on general advocacy and education. Again, we got in this space because we're really passionate idealists about the positive transformative power of the blockchain. We think this is something that we can't even begin to imagine its potential for changing the state of the world, reshaping industries and so forth. But for how excited we are about its positive potential with the growth that we're seeing right now, this is a delicate time. Things are happening very fast. Things can break, mistakes can be made when things happen so fast and there's so much capital involved. And so right now we see this as an area where education is so critical. So we're spending a lot of time trying to go speak at conferences,

trying to go give private talks, have dinners with people that are looking at the space who are going to bring in the significant resources or attention. We're going out to D.C. and trying to wave our hands around and provide education. To regulators, you mean? Yeah, we're doing some work with the Chamber of Digital Commerce and trying to help provide education. So we're putting a lot of effort just into general industry education where we can, because we feel as with all the attention on the space right now, people getting reliable quality information that's free of hype or a sales pitch or fear

is just so important for new established players that are getting in to understand it and to make good decisions. And to go back to earlier when you were saying that you go around and you give talks and stuff as well, what exactly are you educating people on in those talks? So the idea is to just generally provide an overview of this is the industry, this is its potential. these are the concerns of the industry. This is where we see it's going. It's very hard a lot of the stuff that gets written about the industry tends to capitalize on one sensational point or another.

And there's a lot of nuance. There's a lot of complexity there. So even if you're just trying to fall along with a lot of the headlines, it can be hard to get a sense for what's really going on. So it's a really wide variety of topics, but having time where we can sit down with people and give them that overview and then really answer more in-depth questions around how things work. And earlier when you were talking about kind of like the mistakes and risks and stuff like that, do you also do what we were talking about before the podcast about how people are throwing silly money in and they probably shouldn't and stuff like that? Do you give any advice like that? I mean, we just, a lot of what we say is, look, there's a lot of lessons that have already been learned.

We don't need to learn every lesson the hard way. You know, there's a, there's a lot of common sense. There's a lot of best practices that can be applied to the space that exists elsewhere. And so we think that education is an enormously important part of that, giving people access to resources and then following up and, you know, working closely with people who are going to come in and make an impact. A third area of our activity is actually around advisory services as well. So we do. So we have, we're in a unique position in that we have spent an enormous amount of time and resources studying how digital assets and tokens are designed, what their utilities and properties are, how their economies work or should work. And doing that modeling and thought across literally hundreds of projects.

Like the feel of crypto economics. Exactly. Yeah. So we spent an enormous amount of time on that. And so it's something we realized we started to see a lot of mistakes or missteps being made by projects that were designing tokens or economies or perhaps more established companies that are looking to get into the space and have a lot of questions about how you do this. You know, really, you know, I think that there is a lot of confidence out there. but the reality is at the very earliest stages of understanding how token economies work, how token rights and properties interact with each other, what makes for successful systems and not.

So what we started to do on a fairly limited basis, as we only have so many people, is to work with projects and organizations to help them better understand crypto-economics, to help them to act as a thinking partner specifically around these ideas of crypto-economic design. How do you structure a token? How do you structure distribution? What makes sense? And really, you know, I think there's been an unfortunate focus on the short term of issuing a token. I think it gets positioned in a lot of ways as a capital raise when really this is a very long-term decision where even small decisions can have large consequences.

And so what we try and do is help teams think through the crypto economic design as something that's fundamental to their team or project or organization and all of the long-term consequences and thoughts and modeling that goes into that. So, wow. So you're helping some of these teams. We are, yeah. And so it's, it really runs a gamut. Right now we're really focused on areas that we find where there's some complexity or a particular interest. You know, one area where we're seeing, you know, a lot of organizations reach out to is actually much larger established organizations that have been looking at the space. They think, you know, they perhaps have a business that could benefit from tokenization

in some way. Sort of like kick or investigate or one of those. Exactly. Yeah. So, so these large players are coming in and what they're looking for is, you know, where, you know, where can they get expert advice on this, and where can they get someone to help think through what that hybrid model looks like, how someone that can help them understand their existing business and lines of business and say, here's an opportunity to extend one or to introduce a token into this. And what does that look like? What are the pitfalls? What are the opportunities?

And really helping them think through the complexities of those decisions. This tokenization is, in terms of the process of a company integrating a token into their business model and one-way shape, or form is more than just doing the math on the crypto economics. That's a really big piece of it, the token design. We also have to think through, use your experience, and is it plausible to assume that people are going to use this token? Is this going to be fun? Does this make sense in terms of your product and your brand? And then long-term tokenizing is a huge, it's just a huge investment because it has a huge impact on your business model.

And having a token or some kind of a tokenization strategy marries you to the decisions that you made in ways that are very difficult to go. back on without breaking some kind of a promise with token holders. Right, or unless you bait governance in or something. Exactly. Yeah, exactly. You can propose changes. Well, so do you feel like if you're giving advice or advisory services to some of these teams, but you're also then serving us this resource?

Like, is there some kind of separation between the people who do the two different things? Yeah, it's a great question. And I honestly think a really important one. So our kind of our thesis on it, one, one. what we take pretty religiously is disclosure. I mean, we think that's, that's one of the big things that the space is going to go through is really the importance of disclosing relationships here.

So luckily, I mean, we work with the smallest fraction of the projects that come across our dashboard and that we list. And we have a very strict policy. Anything that we do any writing on where we have a relationship with them, any kind of financial or token-based relationship, very clearly disclaim that. You know, we want to make sure front and center that, you know, the, the writing should stand on its own, but that people understand there's a relationship there. It's clear, you know, we're on as advisors or we're providing advice or whatever that happens to be.

So we're something we take very seriously and we think is an important part, not just for us, but for many of the players in the industry. But is it also different of people? Yeah, we do separate people. So the people who end up doing their research and writing are different than the people who end up working on the project. Yeah. So what are some of your maybe working hypotheses around crypto economics? Like what do you think works? What doesn't work? Sure. Yeah, it's a great question. So there are a number of different areas that tokens and tokenization have proven very powerful. And we think far and away what we're going to see in tokens in five years, we couldn't even imagine today. It's really the frontier of creativity. I feel like every week I come across something that I haven't thought about before. I do think that there are a class of tokens that are a little bit more like, equities and stocks and companies, and there's a lot of regulatory issues around that.

Those are going to get worked out, and a lot of really smart lawyers and regulators actively thinking about this today around the world. But in many ways, tokenizing ownership over a protocol or ownership over the company behind it, they are very, very creative. And the equity as a share in a company is something that's been around for over 100 years, really interesting novel financial innovation. But it's not the only way you can imagine ownership over some kind of a joint endeavor. And so this has been a really interesting area of experimentation. And I think that as the regulatory issues get worked out,

people will be a little bit more creativity and experimentation. One, a second one is in tokens that more resemble digital products that are usable by consumers, particularly crowds and crowds of people. So very good at incentivizing crowds to take good actions on a platform to avoid bad actions. So what's an example? So a good example, and this actually isn't a token that went through a crowd sale, but numerai. They have a token of the numerare, and the purpose of the token is, I guess it was worth saying a couple words about them, what they did. We don't have a relationship with them or anything.

I just think what they do is really interesting. But they have a community of data scientists around the world that are constantly crunching, kind of de-identified data from stock markets and prices and weather. economic data to do predictive models on the performance of different stocks or industries. And the data scientists submit outcomes of their models every week to numeri, which takes those and uses it to improve their model. And they invest using those models. Yes. They have a big hedge fund.

Yeah, exactly. And then they compensate the data scientists who are the top performers across the platform. In Numerare, which is their token? Correct. And historically, it's been in BTC. but they're also distributing numerare. And the role that the numerator plays on their platform is that the data scientists stake it as some kind of an indication of confidence in their model in that individual week.

And that's really interesting because if they're wrong, it's not like numerai the company pockets the proceeds. Yeah, it gets burned. Yeah, exactly, exactly. And so from the standpoint of a data scientist, they know that that numerare is not being extracted by the company and that the outcome of what happens to that numerare is determined by the algorithm and by the performance of their individual model.

Right, how good their model is, yeah. Well, so, but just to go back to what you think the better ways to structure tokens are, is there anything else? Well, I think that it's in terms of, we get this question a lot. What's the best way to structure a token? What's the best way to do token distribution? And one of the things that we're trying to get out there is that there is no one right way. There is no one killer methodology or framework or whatever happens to be.

There's really this question of what is right for the organization. And this comes back to this focus on whether that you're using some kind of distribution event to distribute something because it has utility for people or whether you're just using it as a capital race. because if you're using a capital raise, then you're looking at a set of strategies to maximize that capital raise. But if you're looking at this in terms of distribution, then you really have to take that step back and think through what is this organization, what is the intention, who will use it, who are all the different members of the people who use it, what will they use it for? And with that, then you can say, well, here's a set of different attributes or utilities or properties

that the token can have. These are the ways the economy can function in order to incentivize and support these type of actions, but those could be radically different depending on the type of problem you're solving. And the same thing with distribution is that there's different distribution models out there that could be very different depending on whether you care, whether one person comes in and snatches up everything, or whether there's a specific group of people that you want to immediately be using this or be holding it or whatever that happens to be. Well, that's really interesting because then it's sort of just in my mind, I start thinking about like spectrums or quadrants and then kind of like different, you know, depending on what your goal is, different strategies

matching with that. So in terms of distribution, what do you feel is like a good way to structure a token sale to get a large number of people to buy? Yeah, I think we're still at the early stages of what good models for that look like. But it's interesting. We've seen some kind of novelty in this in experimentation. There was Erbit did something interesting where they had a mailing list, and they distributed these kind of airdrop these codes to their mailing list, and there were two codes per email and then they could be used to purchase a fixed amount of their tokens in their ecosystem. And each, what do you mean by two codes?

Every single person got the same number? They got, they got two codes. Each person got two unique codes that they could use. So they could, you know, use one code to purchase a unit and then they could go and sell the other code or share it with a friend or whatever they wanted. Oh, like you plus one, I see. Yeah, exactly. Or they could just give away both, whatever that happened to be.

But it was an interesting model in that. here's a group of people that were interested enough to follow along with them, and they wanted to give them the first chance to have this kind of capped participation in it, which it's certainly a novel thing, but some of these clever things only work so many times if that becomes the expectation, then you have people signing up with multiple addresses and so forth. So we think a part of this is going to be evolving. We're going to see a set of different popular versions of this emerge. Some of them are going to be tied to provable identities.

Some of these are going to be distributed to. internal users of an existing product or system or someone else's existing product or system. So part of this is going to be the challenges of identifying who you want to be participants and what's the best way to give them access and what quantities. And sometimes just open participation will make sense. And sometimes it'll be something specific or nuanced. That's one of the things about the space that I think can be very terrifying and overwhelming, but it's also the very exciting part of it is that the tools that people have,

in order to build projects in order to get initial participation, they're essentially limitless. There are so many different combinations. And we're just starting down the path. So a lot of the thinking that we do is saying, well, here's a bunch of models we've already seen, but what are the next steps on this looking like? How can these be improved? What are new ways to do this? And so it's very fun for us to get at work with teams that share that vision and share that

excitement for figuring out what are the new ways to do it. And I think we're going to continue to be surprised by some of the methodologies that get implemented by teams. Yeah. Well, so what you said about how once something kind of becomes a trend and, like, people try to game it, is it just forever going to be this kind of cat and mouse thing? I think yes and no. One of the biggest things that is more and more becoming part of the industry and part of the token sales space is some kind of KYC identification registration, which historically hasn't been a major piece of it. And not doing that poses a lot of dilemmas for projects, because if you can contribute anonymously from any individual address,

then you can essentially civil attack or try to get a larger share of any individual sale. Right. Civil attack is like having multiple addresses. Correct, correct. So Vitalik Beteran frame this really, really well, that you kind of are, either you limit the, amount of money that you raise or you uncap the number of people that can actually participate. Because if you don't have a capped raise, then anyone can contribute anything and you can maximize

participation. But if you cap the raise, then you can end up in situations like what happened with a basic attention token where a very small number of people got a very, very large portions. Right. And so that dilemma cannot really be solved without really, really clever mechanisms. He just framed that really, really well, but one of the pieces of that puzzle is KYC in some way, shape, or form. So if you're an individual and they try to cap it and maybe there's a strategy, like every individual address can only contribute this many dollars or this many ether, then you can just have a thousand addresses to still get a huge portion of the system. But if there's some kind of registration that prevents someone from creating a thousand addresses, then you have a little bit more flexibility in determining who can get involved, how at what levels they can get involved and why.

Sort of like coin list for the non-acredited too. Exactly. Yeah, exactly. And we think we'll see more and more of that in the space because it's a really interesting toolkit for projects to experiment with distribution. Because the distribution and the distribution strategy is just as important as every other piece and it really varies project to project. Yeah, and I actually wanted to ask you before you were saying, you know, sometimes people want to release token to a big network

and other times maybe they just want to maximize the amount of money they can raise. But is there anybody who doesn't want to release their tokens to a large number of people? I can't think of any scenario in which that would be a goal. Well, I mean, if you're just seeing this as a capital raise and you don't care where the money comes from, you know, then it doesn't matter if 100 people give you $1 or one person gives you $100. Yeah. So, anyway, yeah, and which is a different scenario.

And we, what excites us about the space and what we're looking at is, you know, using, using a distribution event for distribution as opposed to a capital race. But, you know, there are certainly people who use this as a mechanism solely for capital raising. And we'll see, I think we'll see that, you know, emerged and kind of carve out its own space. The kinds of tokens that more fit that, that mold are, for lack of a better word, like fee sharing and revenue sharing tokens. So the holder of the token is entitled to a portion of fees or revenue. is generated on some kind of a platform. And many people call it as like rent-seeking tokens because the token holder really plays

no role in the success. And what's an example in that? There are a number of examples, but they're often paired with other token functions or token properties. But an example might be the Digixtow token, where token holders get a portion of fees generated through the sale of digitized gold. Now, Digitow also has a governance function, which makes it really important to distribute. So a lot of the tokens end up having or embodying a number of different rights and a number of different properties.

Okay. So one thing that I'm so curious about is how much traffic does your site get and how much how has that changed? How does that change? Yeah. I don't know the numbers handy. We honestly, we're not tracking the numbers so closely. We had, for us, it was really about the who we're talking to and who's on the site. And we had some. we had some modest and ambitious goals for ourselves in terms of traffic. And at some point, we realized that traffic was like 4X, our most ambitious goals. And when we really stopped tracking it, we're so far beyond our estimates or projections for what we wanted in terms of traffic. And at this point, we're so completely inundated with inbound. So we're growing in some crazy week-on-week growth percentage at this point. I don't know the exact numbers.

But, yeah, we've stopped tracking it. It's getting so wild. Yeah, well, I've seen it also in my podcast downloads. So one other thing I was curious about is your Smith and Crown Index, what is it? And how did you, you know, decide what goes into it and all that? Sure. Yeah, I'll talk about this at a high level, and I can jump in all the details. So, yeah, this is something that we've had for a really long time.

It was, I mean, it was one of the first things that we worked on. I mean, literally years ago, and it's kind of evolved over time. But we were really looking for, you know, when you pull up, say, like, coin market cap and there's a thousand things on there, there's so much noise. We think it's very intimidating for newcomers to the space. And then even if you're looking at it, how is the market doing? Do you really want a lot of, you know, a lot of short-term volatility for tokens that really don't have any value and are essentially going nowhere? You know, do you want that being part of your overall market measure? So what we're doing with the index is trying to find a set of constituents that we think represent the overall market as a whole and use those to track to have a more accurate proxy for how are things doing, right?

How is as a benchmark that you can use? And this is something we're going to continue to be working on moving forward and have some cool announcements about coming up. But the idea is it provides an accurate benchmark across the industry. And so what metrics are you using to decide which tokens are included? And also then how do you decide the weightings and stuff? We look at a couple different factors. One of them is that we only look at fundamental blockchains. We don't include meta tokens.

And how do you define a meta token? Oh, one that's built on top of another blockchain. So a token is built on top of no ERC 20 tokens or their correlates in other on other blockchains. So that's a big one. so we're only looking at fundamental blockchains. Second, we look at... Which some other people might call that a protocol token. Is that correct?

Yeah, yeah, that's fair. I do think there's still a lot of semantics that are still being worked out exactly across the industry. But that's a totally fair way to put it. Okay. The other factors that we'd look at in terms of inclusion would be performance and activity on the blockchain itself. So is the blockchain gaining traction?

Is it actually being used? Is it so early staged that no one's really building on it? So projects that and blockchains that do have some moderate level of traction and existence and activity as part of it. And by traction, do you mean developer activity or trading volume or what? A lot of it could just be at the transaction level. So, yes. So it could be developers.

It's like what is being developed on the platform. It's how many wallets there are, how much transaction activity like is actually going over the blockchain itself. And we have to adjust that a little bit for trade volume. and for proof of work coins since they're distributing coins across the network quite a bit. But it's really who's using the network. Transaction and volume is one of them. Developer activity.

Community following is another really big thing that we look at. Just from the way you're describing this, it sounds like are you trying to maybe subtract some of the speculative activity? Is that what you're doing or is that included? Do you mean by speculative activity? You know, people sometimes are not really interested in the token itself, but they're like, okay, I expect this to go up and so there's a lot of training volume anymore. Oh, sure.

So market activity is definitely something we look at. So I said we'll do like blockchain level analysis of what's going on over the chain itself. And we also look at markets. So we'd look at factors like how many different markets and trade pairs does this individual crypto asset have across fiat and across crypto. So kind of how strong is it as part of that entire interconnected market? We'd look at trade volume over a pretty meaningful amount of time. So things that have short-term spikes in price, network value, or trade volume, you know,

look past a lot of the short-term stuff. Okay. Yeah. I guess what I was going at is sometimes the tokens are trading a lot, but then the actual utility in it is maybe a lot less. I know Brian was at Token Summit, and Chris Bruniske gave a great topic where he talked about, like, subtracting out the speculative value getting to the utility value. Yeah.

How do you decide the weightings for the index? Yeah, so the weighting is currently or done based on network value. So we call it market capitalization. We generally don't like that term because market capitalization is some value of a company shares. And as we've said, tokens are not shares. They're very, very different. They're very different even from each other.

I think actually Chris is the one who had the... Thank you. Network value. Exactly. Yeah, yeah. And brilliant. We use it a lot. And also for podcast listeners, you should go back and listen to the episode I did with

Chris and Adam White. It's more than a year ago, but even then Chris was A& Adam, of course, both were just really far thinking in this area. What problems do you still see that need to be solved in this space? You know, what concerns do you have? You know, on one hand, I think you have right now one of the big things that needs to be solved is just onboarding. I mean, we look at, when we look at the research and projects that we want to roll out, and we think of it as a series of bridges. So you have people that hear about this entire industry in space and they want to get involved. And what does that first bridge look like?

You have to introduce them to it. You want to provide a curated set of information that's intelligent that exposes them to projects and endeavors and sources of merit. And then once people start to get familiar with it, then the next step is perhaps to acquire some assets in the space. And that's where something like a Coinbase comes in. And then once you have those, maybe you want to go beyond what is the most of the most mainstream. And then, you know, again, providing that, that research and that insight and

the tools for that. But then, you know, where do you, where do you hold those tokens? How do you secure them? How do you make people feel comfortable with that? And then going beyond that, you know, how do people get more advanced than just holding, you know, a basket of assets and so forth? So in each one of those points, we see that as a bridge to, like, a new level of capability and understanding. And I think now for people that are dedicated enough and savvy enough, you can navigate all of those pathways, but it's, you know, it's narrow. You're kind of ford in the river on a lot of these. It's possible. But the more, I think that's a series, each one of those kind of bridges is an area where there's a lot of opportunity for people to come in and solve the problems of adoption and

onboarding, you know, as, you know, there will, we kind of see it as this way where there's a lot of people who want a password reset button. You know, they want insurance. They want security and custody, you know, and the idea is that there will be this kind of the city that's built. with laws and rules and custody and so forth that will help bring on enormous numbers of people and amounts of capital. But there's always a chance to kind of step outside the city walls and go down directly to a network level and transact in whatever way is possible. But the idea now is that there's so many talented people out there, there's so many organizations that want to get involved that are simply missing robust tools and on-ramps to come in and participate in

the industry. So I think anything that helps solve those problems is, pretty meaningful right now, and I do think there are a lot of problems on onboarding right now. So I think that's one big area. And then the other one is around clarity, too, is that this is very much the frontier in a lot of ways. And, you know, we're seeing with the SEC discussion and so forth is that it's not entirely clear where all the lines are for this. And, you know, we know for sure that there are a lot of players of all shapes and sizes waiting on the sidelines, very excited about that.

this, but are looking for more clarity. So I think that's another big issue with the space and a potential for problems. When you have people that are moving very fast, at very large scale and a lack of clarity, that can certainly cause issues. Where do you think all this activity is going? What do you think the future looks like for developers, for BCs, for investors, and for all of us, like, what will our lives look like five years from now? Pick your, you know, time to pick your timeframe.

Sure, sure. No, I think five years from now, we can't. I think anyone with a prediction for five years out, unless the prediction is we don't know what's going to happen is likely wrong. That's one of the things that we love about the space is that for as much time as we spend with a dedicated team researching this every day, there's still stuff that's new and novel and surprises us. And we spend a lot of time mapping out these technologies and projects and where they're going to go. Do you think people will own like 20 different tokens?

Sure. Yeah. Yeah, absolutely. I think we're going to see, I think that we're going to see a pretty rapid maturity in a lot of spaces. There are just so many people, smart people in every corner of the globe, building tools and projects. So I think we'll see an integration into everyday life in a much larger way than we see now. And not everyone will know that they're using tokens of the blockchain for all these activities, I think. A lot of these onboarding tools will use this behind the scene to power an experience or an application or a financial

transaction or whatever that happens to be, people don't need to directly interact with the idea of tokens. These can be the blockchain and these concepts can be behind the scenes, powering all sorts of experiences and infrastructure. But yeah, I think we'll see much more integration of them into daily life and the average user. Well, but is there anything in particular that you think you'll be doing with these tokens? Yeah, one thing that I've gotten really, really excited about is tokens have been increasingly used in things like social networks or areas where content and you,

user generated. And so you think in an average day, an internet user that is contributing to a number of these different platforms is contributing without any way of really recording that kind of contribution in a way that leaves the platforms. So it's going to constantly giving to all these different platforms you post on ready, you contribute to Wikipedia, you answer questions on stack exchange, you share photos or information or answers across a number of different platforms. And currently there's not a great way to accumulate or to measure the social capital that you're building in doing that. And tokens are one way where that could start to happen. We've seen a number of different models. Again, I think we're going to see stuff that

will just totally blow us away in five years. And like accruing to our identity. So if I like have good tweets plus good Facebook posts plus like interesting Reddit comments like all of that will. Correct. And people are talking about this in Web 2.0. Like it's not a totally new concept. Just blockchain is a technology that's around that allows that to be totally auditable. It makes it independent of the platform provider. As a previously, a company that just stores all this information on the central database can corrupt it, can lose it, can manipulate it. So this is a time when the tools for recording and tracking and trading that are independent of the platform and independent of any individual company that's running a website. And so we're starting to see

the foundations for what that could look like, that the value that you are constantly generating, creating on the internet. So that's one thing that excites me. And I see, we see a number of of different projects that are starting to explore this idea and starting to create those foundations for other ways of transferring those between different platforms. Yeah, and I even saw like a tweet from Naval Robicott, the Angelus founder the other day, saying something like, oh, you know, I will pay some prize or something to a team that comes up with a good to centralize Twitter. Twitter, right.

So, all right, so in terms of a more specific prediction, I think, you know, one of the longer term trends we're tracking that we think is pretty interesting is right now you see a lot of the activity of governments in this largely as being that of exploring regulatory practices. But what I think we'll see is with five years of adoption based on the path we have now, is the blockchain-based networks will be an important part of the global financial ecosystem. And you will see, you know, much like different countries right now have very vested interest in their own economic policy and global economic policy, having to move. from the stance of just regulation to active involvement in these global economic networks,

I think we're going to see a pretty big shift in that over the next five years, a realization that this is now a strategic economic activity, as opposed to something that can just be done by individuals and has to be carefully regulated. Yes. Well, I guess we'll see how it all plays out. So thank you both so much for coming on the show. Where can people learn more about your work and get in touch with you? Absolutely. Smithandcrown.com.

Okay. Great. And do you guys have a Twitter or anything? We do have a Twitter, Smith and Crown as well. Okay. All right. Great. Well, thanks so much. Thank you. It was great talking to you. Thanks, everyone for joining us today. If you're interested in learning more about Smith and Crown, check out the show notes, which are available on my forums page, Forbes.com slash sites slash Laura Shin. Unchained comes out every other Tuesday. Please share the podcast with friends and on social media. And remember to review, rate, and subscribe to it in iTunes or your preferred platform. Thanks again for listening. Thank you.