Managing a Crypto Fund (with Kyle Samani from Multicoin Capital)
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All right, LPs, welcome back. It's been a little while. We are excited to have another awesome guest here on the LP show, Kyle from Multicoin Capital. This is especially appropriate given our recent spate of crypto focused episodes with obviously Ethereum and

Solana, so much exciting stuff going on in the space. Kyle and Multicoin have been one of the most successful crypto dedicated funds over the past few years. You are the first crypto dedicated investor that we've had on the show. You were the first check into several projects that now have a multi-billion dollar market cap, including, of course, Solana.

which we'll talk a lot about. But Kyle, welcome to the show. So great to have you. Hey, Ben and David, thanks so much for having me on the show. It's an honor to be the first crypto fund on the show. After hearing so many other well-known investment firms here, it's kind of like a dream come true. So thank you for letting me be on. Thank you for joining us. Our pleasure. Let's just jump right into your theses at Multicoin. As we

As we understand it, you have three crypto mega theses. Can you tell us about them? And then maybe let's walk through each one. Sure. Happy to dive into these. So on our website, we have these kind of outlined like at one of the main menu items at the top. We're going to dig into them more. But really the three core theses that guide our investments have been and we expect will continue to be over the next decade, what we call open finance, which is really a super set of DeFi projects.

Web3, and then kind of the opportunity for non-sovereign money. So I'll unpack each of those. In the case of open finance, the simplest way to think about it is kind of just DeFi stuff, which if you've been poking around crypto, DeFi is probably the largest and most well-known subsector within crypto. And obviously kind of the well-known teams building their Uniswap, Compound, Aave, Serum, those kinds of things.

And I think the opportunity for DeFi is relatively clear to most finance folks once you dig into it and kind of get past some minimum threshold of understanding. But if I were to simplify it as much as possible, I would really say really the core innovation of DeFi is making all financial assets, whether they're equities or bonds or FX or commodities or whatever, interoperable and composable with all other financial contracts.

Ooh, Kyle, I'm going to play definition master. So interoperable and composable. What do those mean? So composable meaning you can use like, let's say a crypto token as collateral to take out a loan would be kind of the simplest definition, looking at kind of composable, and then interoperable. Well, that's more interoperable, I guess. And then composable being more like, hey, you can use the LP token to

Like if you're a liquidity provider in one of these systems, you can use that as collateral in another system, which provides very interesting new ways to rehypothecate assets that just provides more capital efficiency than was possible before. The way I kind of think about it, tell me if I'm right or wrong here, is sort of like kind of like in programming, like you can use the outputs of something as inputs into something else. Is that a fair definition of composability? Yeah.

I would say that's in programming terms, that's good. In financial terms, I would actually just say allowing any asset on your balance sheet to be theoretically re-hypothecated into any other position.

Which historically has been on a technical basis, basically not possible and only been possible by basically kind of merging balance sheets with some larger entity that can kind of offset risk and margin and do all those things for you. And now you can actually have the assets do that themselves because these assets are interoperable with each other.

We're already into like my most recent realization about CryptoLand as someone who is not endemic or native to the space, which is there is always a programming mental model and a finance mental model in order to sort of understand something that exists in crypto because it has just fascinating parallels to both. Yeah, I mean, in many ways, we're just building a new set of financial rails, at least it pertains to DeFi. And so being able to understand both the programming concepts and the financial concepts and how those things interrelate is kind of key to...

success in the space. The really key thing for DeFi is really understanding, A, you can re-hypothecate assets trivially. And the reason you can re-hypothecate assets trivially is because all assets, whether those are equities, bonds, FX, commodities, crypto native tokens, whatever, are all using the same basic standard of basically asset representation.

If you look today at equities, for example, versus commodities, like the systems on which those trade are completely separate and unrelated systems. And that's also true, not just within a single country, but that also varies between countries. You have different regulations and different stock exchanges and stuff. And that's like fundamentally why finance feels so disjointed is because all of the systems are literally different and there are no common standards.

Everything is kind of negotiated, you know, to the extent that you can move your Apple shares from Robinhood to interactive brokers. That's like done in an almost like bilateral transaction way instead of like some sort of open standard that everyone agrees on. Not to mention takes forever and a ton of fees. Right. It's just ridiculous.

And so that's kind of the core breakthrough of DeFi. It's auditable, it's instant, it's global. Those are also kind of nice things too. But really the key thing is interoperability and rehypothecation. Those are really the more powerful financial primitives here.

On top of DeFi, then there's an opportunity to just build businesses on top of that, that are going to commercialize DeFi and bring it to market in various ways. That kind of broadly is what we call open finance. Are there other aspects of open finance that you see as opportunities beyond the strictly DeFi applications today that you said them all, the Uniswaps, the Compounds, the Aves? Are there other types of...

of things that you think could be more broadly built than are happening today? So the core of the DeFi ecosystem today is financial primitives. And when I say financial primitive, if I were to define that term, I would say a financial primitive is a contract by which two or more parties exchange risk. So we've seen people build our financial primitives for basically trading every form of risk that's out there. Really, there's like seven or so, maybe 10 ways that like the vast majority of risk in the world is traded.

It's actually like remarkably few power, like 99% of global finance. It's like spot trading futures and options, some perpetual contracts, some interest rate swaps and credit default swaps and bonds and like maybe some CDOs or something like those seven or eight things combined. It's like basically all the finance where you're seeing people build in defy is basically just those primitives, right? So you can construct these contracts in a permissionless public auditable way. And that's all happening. That's all good and well, but,

Today, that exists kind of sort of in a vacuum where it's just people doing that. All of these systems conveniently happen to have their own native tokens. Those native tokens, if they're designed well, can accrue some value. And then people can speculate on those tokens using those financial primitives basically to gain leverage or to hedge out specific risks. So it's all like very circular and it feels like a giant casino. And that is a fundamentally accurate description of what is happening today in DeFi.

The big open question is how do you bridge that into real economic activity? Today, it's not really happening in a meaningful way. It may happen tomorrow. Probably the single biggest point of friction still in enabling that bridge to happen is just on ramps and off ramps. It's just still too difficult in most countries around the world to make that process trivial. And when you say real economic activity, what

I want to unpack that a little bit. There's one angle you could take that which is real in quotes, sort of interacting with the real economy as we know it, everything non-crypto. There's another one that is literally being value creative rather than value rearranging. And I'm curious which you think is sort of the bigger problem right now in DeFi.

I mean, what interests me is value creation specifically. I don't actually care if you touch the physical world or not. It just needs to actually unlock capital formation in some way that was previously not possible before.

How exactly that happens is actually relatively unclear. I don't have a strong view of how that happens. I do think there are, you know, in the next five years going to be 10 or 20, 30,000 entrepreneurs who are going to swing at that in various ways. And a handful of them are going to produce monster outcomes. That I think is very high probability, but I don't have any particular view on how that's going to happen.

I'm seeing a huge percentage of entrepreneurs and especially young entrepreneurs that I'm meeting want to go into DeFi right now. I'm wondering if you're seeing the same thing. Well, people don't call me for like cybersecurity or, you know, like whatever enterprise SaaS or whatever. I don't get those phone calls. You know, I'd say probably 70 to 80% of what we look at is DeFi.

Yeah, I guess that was my question. Like within the crypto sphere broadly, DeFi is certainly the hottest thing right now for entrepreneurs to go pursue. I would say it's the largest N in terms of net new startups. That's very, very, very probably true by a meaningful margin. I think it is no longer the place to look for exceptional returns. Valuations are too high.

And there's too many startups that are too competitive. So unless you just get lucky, like there's just too many red oceans in DeFi right now. When you say valuations are too high, what does that mean in the world of crypto where very often people are financing the companies with token sales?

It is common today to see pre-launch tokens at 100 million plus valuation. Where that represents the market cap of all tokens that are and those tokens are currently held by the company. It's just an issuer. I don't even know. I'm not even going to call it a company because in some cases, it's not even a company. Let's just say issuer.

But yeah, where the fully diluted market cap of all of the tokens is more than 100 million. The product does not yet exist. And the product will be launched in a matter of two months because it's actually not very hard to build.

That is unfortunately commonplace today. I'm curious, and I bet a lot of our listeners will be too. What's the accepted paradigm for funding a crypto company these days? Is it token sales out of a foundation? Or are you also doing equity into C-Corps or whatever the entrepreneurs prefer? Yeah.

So the answer is it varies both by historical fact pattern and history of the company as well as geography where they're based and what we believe and what the entrepreneur believes will be the value capture mechanism for whatever it is that they're building. There is no universal answer to this.

Multi coin is a primarily token focused investor. In our hedge fund, we're effectively 100% tokens. And in our venture funds, we have been historically by 85% tokens and expect to maintain that ratio moving forward. The actual mechanics of how we get there varies. There are safes with a token warrant. There are safeties with conversion clauses. There's safes plus teas where you get both.

There's investing in a C Corp and then they issue a token later. Those are probably the four most common mechanical ways to get there, but they all have slightly different tax implications, slightly different legal implications, and the use of them varies based on the number of these kind of inputs.

So what's an example where I would actually want to own shares of a C-Corp in this landscape, like other than maybe a centralized exchange? I could imagine why I'd want shares of Coinbase, obviously, because we saw that accrued a lot of enterprise value. So for most DeFi token thingies, there really isn't a reason to own equity.

unless you expect that team to launch multiple tokens over time and you want to have some claim on that. Now you may say that seems problematic to launch multiple tokens. I would say that's something that I used to strictly believe is true. I now believe it is

It depends on the facts and circumstances, depending on the background of the team, what they want to do and other things. But there is actually value in sometimes separating things into two or even three different tokens, as opposed to trying to bundle them all into one. There's also arguments, again, depending on the situation that you should bundle them all into one as well. But crypto has taught me that having firm views on things like the output of the team should be focused on a value accrual to a single asset and I'm investing in that asset. I no longer believe that's a universal truth.

So that's kind of one answer to your question. The other answer to your question is why would you ever own equity is in some particularly weird instances, there is actually justification for owning like, like where equity and tokens will accrue value separately. This is very uncommon sub 5% probably of the time.

Unfortunately, probably the most egregious abuses of this are Ripple and EOS, where those two things did diverge for very problematic reasons and just unethical, generally shitty reasons. But like others, for example, like Helium fundamentally makes sense that those things should be different and should accrue value for different reasons. That was kind of what I was thinking about with Helium. Correct. Yeah.

We've since done another deal recently that weirdly bridges... It's not announced yet, but weirdly bridges equity and tokens. But that is uncommon and makes structuring very difficult. I'll say structuring the Helium deal still to this day was the single most difficult structuring we've ever done. Since we're here with Helium, and I think this is one of the most novel, crazy, cool concepts of bridging the physical world and crypto, can you explain Helium for folks who haven't looked into it? Sure. So...

The website's helium.com. Helium is a new business model for deploying and managing wireless networks. So what does that mean? Today, if you're AT&T or Verizon and you want to deploy, let's say a 5G network in a city, what do you do? Well, approximately you like look at a map of the city, you figure out where you want to put the towers, you call the people who own the land, you rent the lands. There's companies like American Tower that do this, but you rent the land from guys like American Tower.

You negotiate with the city to make sure you have all the licenses and whatever authorizations and approvals to put up a bunch of towers and stuff. You run a bunch of backhaul to those towers or again, American tower has already done it and you have to pay them to access it. You have obviously ongoing maintenance with people driving around and stuff and

You build up a massive storefront, right? Kind of nationwide storefront and hire a bunch of marketing and salespeople. You run a ton of commercials. You finance this by raising tens of billions of dollars of debt. And the only way you'll ever convince any debt providers to provide you that debt at a reasonable cost of capital is by saying, look, we're going to lock our customers into two-year contracts so that they can't get out so that you have certainty that we'll make our future debt payments.

Sounds like innovation in this area might be slow because the amount of friction required to be a participant. Right. But I think it's particularly worth noting that, you know, the capital market structure of financing this is intimately tied to how the services are consumed. That's one of the key links I wanted to make. The other is just to notice how much physical infrastructure goes, you know, labor costs, land costs, personnel costs. There's just massive costs there. Helium is basically the exact opposite of that.

So in Helium, the basic idea is, hey, you're a random guy at home, or maybe you own a small business like a gas station or like a local hotel or something. You want to make some extra money, or you just, you have crappy coverage in your area and you want better coverage. You buy a hotspot that is about the size of your router, you know, call it six by six. You plug it in the wall, just needs electricity and ethernet. Super simple. You put that thing in your window. It's got a little antenna on the back.

And that thing creates radio waves and sends them out into the world. And any device walking around nearby that wants to access your hotspot can pay you as the hotspot owner per byte of data transferred. It's a remarkably simple concept. There's like, like obviously like this should exist, but

But of course requires tremendous scale for it actually to be useful. Yes. A few additional comments there. So one, and most importantly is in this model, you literally physically remove 99% of the cost of the system and send it to zero. The land cost goes to zero labor costs goes to zero backhaul costs goes to zero. You just physically remove costs from the system. And really, and it's like 98 or 99% just goes immediately to zero. It's pretty amazing. Yeah.

That's comment number one. Comment number two is it by definition is more localized because if there's a part of a city block or a neighborhood or whatever, you're between some hills and the coverage sucks, then like if someone lives there and they are annoyed, then like they'll set up a hotspot, you know, and solve their own problem. So it by definition creates incentives for much more resiliency and just general better coverage.

The big challenge here, of course, is like a network like this is not useful until you have some minimum level of scale. And that's kind of been one of the key problems with pulling this off before. A lot of people have tried variation to this model over the year. And this company, Helium, is eight, 10 years old. Like they've been at it for a while. Yeah.

So Helium Inc launched in 2013. Well, it's a couple more comments before I get to that. So V1 of the Helium network, which is live today, is not running 4G or 5G that your phone uses. V1 of the Helium network is running what's called LoRaWAN, which is in the 900 megahertz frequency bands. And these radio waves are really, really long range, like five to 10 miles. But the data rates are very low and the battery consumption is very low. So it's

So it's for like IoT type devices rather than phones. Yes, exactly. So like basically anything that you want to put a GPS chip on and track it over a long period of time without changing the battery. So GPS dog collars, inventory tracking, all kinds of stuff like that.

Basically anything that's about smart cities, more or less like this model applies to. People are using this now to like forest fire detectors. People are doing this with farming to like detect the moisture in the soil to like do more like scientific measurements of farming, like agricultural stuff. There's companies now making smart mousetraps that use helium. It's literally building a better mousetrap.

People are doing water sensor leaks inside of buildings. I mean, just like all kinds of wacky stuff. But basically, if your goal is detect the current state of the physical world and then relay that to a server somewhere, like that's what the Helium Network is for.

So today the Helium network has about 60,000 hotspots live and deployed around the world. If you go to network.helium.com, you can see a live map of them. There's another 500,000 hotspots that have been backordered, but not yet shipped. The reason they're backordered is like the chip shortage out of China or whatever. It's like hitting the Helium supply chain as well. So they're very backordered on chips. But there's just a ton of hotspots that have been ordered for this network.

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You need a few things. One is you need a way to do micropayments between people. And like Visa and MasterCard or even Stripe, none of these guys are even close to being able to do what you'd really need to do to make this work. So that's kind of reason number one, you need crypto. Reason number two is a little more difficult to understand, but is actually super important, which is in a network like this,

You need to incentivize the creation of supply ahead of demand. No one is going to integrate the system into their business unless they know the supply is there.

You need to create some incentive for people to deploy hotspots, even if they know no one will use the network for six months or 12 months or even 24 months. You just need to have stuff in the world. And so the Helium system accomplishes this with mining, just like Bitcoin mining. But instead of running these hashing algorithms and generating all this heat, doing all these dumb computations, the system in Helium does what's called proof of coverage.

Proof of coverage is the idea where a hotspot is saying, look, I'm here, this is my location. I am actually, in fact, providing coverage over these number of square miles in my vicinity. And proof of coverage, the way that you prove that you're providing coverage is other hotspots have to challenge where you claim to be saying you are. And you're having like a real time battle basically with an attestation to say, look, I am in fact here, I am in fact providing coverage over this area.

And so like the longer you're leaving your hotspot live, the more of the token you're accruing. Correct. So there's a bunch of math on how you determine, you know, the number of tokens that go to each hotspot or whatever. But the reason specifically a blockchain is involved is like, again, the point of this network is that Helium Inc. does not own and operate the network. The point of the network is that everyone in the world is collectively owning and operating the network. And so you need some sort of substrate network.

or some sort of logically centralized coordination point for all these challenges to be recorded and documented and authorized, such that all other participants in the network can verify the legitimacy of them. And all of that is coordinated over the Helium blockchain itself. And that's super important to incentivize this whole thing to make it work.

I guess the point that I really wanted to arrive at here, which this was a key thing for me, which is cryptocurrencies, or let's just say tokens, can help solve the chicken or the egg problem common in marketplaces if you really need to provide some incentive to make someone an early adopter before the other side of the marketplace shows up. And I think that that is incredibly clever to use it for that purpose. Yes.

Both an amazing feature of crypto as well as one of the most weird kind of consumer behavior things you see in crypto capital markets is crypto, it's extremely effective for bootstrapping the supply side of a network, even if there's effectively no demand. Speculation as a go-to-market. Yes, it sounds kind of horrific on the surface, but actually in practice, if constructed well and executed well, is extremely effective. Helium probably being the best example of that.

Right. People are actually buying hotspots and putting them in their windows.

Yes. I mean, there is physical infrastructure now created in the real world, right? As a result of this. And like the number of backordered hotspots is 10 times the current install base. It's wild. That feedback loop is amazing. And then the other really interesting angle to this, and this is where the reflexivity kicks in, is, and I'm not saying this is necessarily the right way to think about prices, but this behavior is very, very common across crypto markets, is people

people who are speculating on these things, if they see the supply side growing, even if the demand side is not growing, they will think, oh, this is working and they will buy the token. Buying the token justifies effectively more subsidies on the supply side of the network. And you get this reflex of up circle.

Obviously, that's dangerous and creates other problems later on and whatever. And you can't fight gravity forever. And it works reflexively downward. Yes, correct. If you're creating reflexive up, by definition, you are creating risk of reflexive down. But like in the case of Helium, for example, that's maybe okay because at least now you've physically installed massive amount of infrastructure in the real world. And there's really no incentive to unplug your hotspot once you've installed it. And so you get very, very interesting results.

kind of emerge and capital market structures emerge from these types of dynamics. Let's jump maybe to Web3 next. I'm assuming that Helium is sort of like a outside of your three main mega theses. Yeah, I mean, look, when we started Multicoin, we could have never conceived Helium as like a concept. That was not...

Something we understood. It, I guess, is Web3-ish. I mean, it is kind of about self-sovereign ownership and not depending on telecoms and stuff. But anyways, getting back to Web3, Web3 is a term thrown around a fair bit among crypto people. There's really not a good universal definition to what it means. Did Gavin Wood actually... He didn't coin it, but he started the Web3 Foundation, right? Yeah.

Yeah, so there's this thing called the Web3 Foundation, which is the foundation that basically builds Polkadot, which is one of the blockchain things that doesn't actually work, but people think it works. They have a lot of money and make a lot of noise. But yeah, anyways, they call themselves Web3 Foundation. That makes this even more confusing, unfortunately, because...

Web3 is, I think, most of the crypto community uses it. It's not in reference to the Web3 Foundation. It is in reference to just broadly what I would call a set of technologies that enable self-sovereign ownership of data access infrastructure. A very, very loose definition. And if you do it that way, helium kind of falls under that bucket. In practice today, what you're seeing with Web3 is it's primarily still...

infrastructure, and then you're just starting to see kind of the first types of consumer applications in this bucket. So, for example, the application probably worth noting is the Graph. We were the first investors in the Graph and it's been one of our best performers. And the Graph is an indexing and querying layer for public data focused for now on Web3 and they'll probably broaden beyond Web3 data sets. That's

at some point later. So what's an example of that then? So like, I mean, the Ethereum blockchain is the primary example of Web3 data. Sorry, of what the graph would do, indexing and querying. Right. So a very simple model for all blockchains is that they're a database. That's not like strictly true, but it's close enough to be true for our purposes. With a database, you have two basic operations. You have writes and you have reads. You write stuff to it and then later you read stuff from it.

When people talk about scaling blockchains, they're referring to scaling the rights to those. So like you see TPS number transactions per second numbers for Ethereum, Solana, whatever they're referring to rights.

Scaling reads is a very separate problem. And in fact, if you look at basically all consumer applications on the internet, the ratio of reads to writes is like a thousand to one because it's like you send an email once and that email can make it forwarded 50 times. And like, or like you post on Instagram, you have a thousand followers, right? Like usually those thousand followers is going to see the picture. So reads like for whatever you think rights are like reads is like a thousand X or maybe even 10,000 X is what you should expect.

And scaling reads is a totally different problem space than scaling writes. And so the graph is basically providing a generalizable indexing and query layer to index data out of public blockchains and other Web3 data sets, index them to be performant for real-time queries, and then actually a real-time query service where it's not hosted by a single company, but where there's a decentralized network of nodes that provide the service.

And so today the graph is running about a billion queries per day are hitting the graph just for a sense of scale. So anyways, that's like a good example of Web3 infrastructure. I assume like something like BitClout would be another Web3 example. Yeah. So I would say today the largest Web3 native consumer application is probably Audius. Audius is...

For simple purposes, censorship resistant SoundCloud, where we're fortunate to be one of the lead investors before the token launched. Audius today is about four and a half million monthly actives. Today there's a really thriving community of electronic music artists and listeners and curators and remixers and stuff who kind of live on the Audius platform. Audius is decentralized, so there's no central server. That's kind of how you make it censorship resistant.

And you know like Deadmau5 is on there, RIC is on there, a whole bunch of well-known artists are on there. They're not releasing their main albums because of conflicts with record labels but like they're actually publishing a lot of like individual singles and remixes and stuff on Audius and they have a pretty thriving community there.

So Audius is, you've probably heard the word NFT by now if you're listening to this. And, you know, Audius has a lot of pretty obvious things to do with NFTs and can eventually do some more even interesting things to kind of reshape capital formation in the music business over time. So Audius is a really good example of a Web3 native application.

And that's operating today at some reasonable level of scale. The other, you know, I'd say really obvious kind of sector there is, I mean, NFTs, I guess you can call them web three. They are, you know, about like enabling creators to monetize, you know, their own identity or their own likeness, right. In, in various kind of interesting creative waves. I think that's pretty web three lines. And then, you know, the perhaps logical extreme of all of that is to just issue a coin in your own name that who knows what that coin is for or what it should be worth, right.

and BitCloud is kind of the most well-known, I'd say, of those today. The social token space is huge.

extremely interesting and is one of my kind of favorite ideas I've just ever seen. It will be very much abused by a lot of creators on the internet, but I think in a few years time will produce one of the most interesting asset classes like in the world. So unpacking that phrase social token, that being that people can buy into a representation of a person or idea or pseudonymous person.

That's probably too strictly defined. I would say a social token is just a token that represents the meme, which is that meme is the likeness of the person or whatever it is. Obviously, a lot of crypto already has this like with Bitcoin and ETH specifically because they're like, there's no DCF.

I mean, Bitcoin specifically, or Joge, is just a memetic asset. You know, now GameStop and AMC are effectively just memes as well. Completely decoupled from the potential future cash flows of the underlying business. Correct. There's obviously no DCF that gets you there. Even Tesla is to a large degree a meme. Elon Musk knows that he is a meme, and he very much plays into that. Well, I think on BitClout, Elon's account, which he hasn't even claimed yet, I think is the highest trading coin on BitClout. Yeah.

On BitCloud, I think that's right. It was last time I checked, probably still is. When I say the Retrocial token, I would just say it is a token that doesn't represent value. It doesn't represent DCF. It doesn't represent any specific form of utility or real world engagement necessarily. It can represent any or all of those things, depending on what the creator does with the coin, but it's simply a meme.

memes are circular, right? Like it's a Keynesian beauty contest. If I think that you think this coin is undervalued, I'm incentivized to buy it because I think you think it's undervalued. Of course, all of this stuff is circular, right? But also like Elon Musk coins should probably be worth more than Kyle Samani coin. Like I think like 100% of the world population would agree on that. If you just give everyone a coin, like what do they do?

we've kind of been building towards this like with things like Patreon and obviously you know we're creators we're in the creator community like and certainly LP's listening to this like one of the reasons why somebody would become an acquired LP maybe the biggest reason is just they like Ben and me you know so

that's the same motivating factor that would drive somebody to buy calcium on a coin. That's exactly right. When buying a meme coin is an expression of identity, like you buy a fancy purse or a fancy shirt or whatever, because, you know, identity reasons like this is just another outlet, right? To express identity in some ways, brand affiliation, whatever, in the form of buying a meme coin.

What's going to be really interesting to see is what different kinds of creators do to imbue value in their coins, right? So like you own 100 coins with me, you can get lunch with me once a month or whatever. I mean, there's like simple things like that. Obviously, if you're like an artist, it's like, hey, you own my coins, you get privileged access to my concerts, right?

There's a lot of fairly obvious things to do of that nature. I think you could potentially see really interesting things between creator collaborations where if you own coins of these six people who live in this TikTok hype house, you can come party with us. The design space of ways to say, if you own my coin, we can do something in the real world is fascinating. Well, it's also a way to quantify...

the influence of a person in a way that was never possible before. Yeah, I mean, I think there was like Clout, I think was kind of the original one that tried this right. And then I'm sure there's been two or three or four since then. I don't even know. This is going to happen where like a bunch of celebrities are going to get into a pissing match over who has a higher market cap.

And like, they're going to do all kinds of like shady things to like pump their token price. Like that's going to happen. All of which happened on Twitter, by the way, like the whole, um, Aston Kutcher and CNN, right. The race to a million followers. Like, yeah. When you realize it's just about egos and the incentives are there, like, of course it's, it's going to happen. And that in and of itself is going to be newsworthy. And that's going to cause other creators to jump in the fray and like do other weird things. Um,

There's no way this doesn't happen because the incentives are too strongly there for it not to happen. Yeah. Okay, so what we were talking before the show on Web3, I want to make sure we hit... You talked about not overly relying on Web2 and Web1 models. And maybe we're doing this with BitClout. We're like, oh, it's Twitter on crypto. But let's think beyond that. I am so guilty of this. This is the number one sort of logical straw man that I paint myself into when thinking about...

web three is like, yeah, but it doesn't do enough web two stuff good enough. That's one angle to it. Certainly most of the web three thingies are kind of crappy relative to their web two comps as it pertains to like general call it UX and performance and all those things that that's almost universally true, although increasingly less true. But yeah, we're talking before the show, there was like a couple of things that I thought was really interesting and I think that have helped us kind of perform well as investors and

I'll give kind of a couple of examples here. So when people talk about kind of old internet, one of the common things you see crypto people say is like, oh, crypto is the new internet.

What does that mean? Usually what they're trying to say is like, it's a very large new design space. It has all kinds of applications that we can't imagine what they are yet. It's going to produce trillions of dollars of value. And I think all of those statements are very likely to be true. I would not be doing what I'm doing unless I agreed with that. But beyond that, the analogies fall apart very quickly. But anyway, people kind of run with that analogy and try and extend it to analogize other things. For example...

One of the common ones you see is like, how do you think about scaling a system? The internet works and like the internet is like this OSI model that I think came out in the late 80s. And you've got the ethernet layer and then like TCP layer and then IP layer and HTTP and whatever. You have like the kind of internet stack. That stack is more or less unchanged today. And obviously each of those layers is modular and composable with the other layers and stuff.

And people look at that and say, aha, the internet is based on this modular OSI stack thing. Therefore, crypto must also be based on this modular OSI stack thing. That's true in some sense. I mean, obviously, like you don't have monolithic spaghetti code bases that like is never going to work for just kind of human organizational reasons because people have to build the stuff and manage the stuff.

And in fact, I'm kind of the person who popularized the idea of the Web3 stack and have done a bunch of blog posts on it with a bunch of fancy graphics. I do believe in this kind of stack thing for at least some angles of Web3. But people have, I think, overused that analogy when talking specifically about the problem of scaling layer ones, which scaling layer ones is the single most important question in crypto, has been for years, and will continue to be for the next few years at least.

We've talked about this a lot. The Bitcoin network, the Ethereum virtual machine, Solana, Polkadot, base layer chains. Yeah, so there's a whole bunch of these things. People look at that OSI model like, aha, there were the seven layers of the thing and therefore crypto should scale in like these layers things. The appeal of that sounds logical. It's like, oh, modularization and abstraction. Like, aha, like these are classic computer science concepts like back to Unix and stuff and like object-oriented programming and all of those things kind of are congruent.

The problem is that crypto, specifically scaling layer ones, introduces one new dynamic that's really never been present before in the history of software, which is anti-network effects. Meaning specifically, the more people who use the system, the worse the system gets for all those users because of gas fees.

Never before in the history of software has this ever been true. Too much congestion on the network because it is a bandwidth constrained system means that the system falls down for everyone or gets prohibitively expensive for most applications of the system. Or in fact, usually it's both of those things. Correct. Technically speaking, the problem is actually not internet bandwidth. The primary constraint is actually computation, whatever, just net throughput of the system.

And so because of that fundamental new dynamic at play, it changes how you need to think about optimization to just simply be as efficient as humanly possible. Because if every marginal user makes the system worse, then for every ounce of physical compute that exists, you just cannot have any overhead in the system, given that reality. When I look at all the Layer 2 stuff, for example, and then state channels and moving between all these different Layer 2s and all these things,

What I really see is you're creating more physical transactions on the network or more transactions in the ledger across layer one and or layer two and or multiple layer twos, depending on specifically what's happening. And then also you're creating latency. Literally, it just takes time for all of those things to propagate and go through. The trade-off here is...

when you scale in layers, so to speak, is the system actually becomes objectively worse. And it's not even like there's some implicit hidden cost somewhere that is invisible to the user. The cost is explicit to the user in both money terms and in latency terms. That was never a thing before in the history of software, where that was a trade-off you had to make to get layers. Those kinds of analogies I really struggle with

when people try and reason about these crypto systems because just the nature of the systems themselves have changed.

Yeah, to boil it down to a visualization, and this is an audio program, so maybe it's a bad thing to do, but I'm going to try it. If you've got a graph and the x-axis is number of participants in the system or users, and the y-axis is usefulness of the system to a given user, it's actually parabolic, where as you start to bootstrap it, it gains utility, but then at some point it hits some number of users where it actually loses utility, and thus you have to kind of like

That's exactly correct.

And that's a constraint to deal with. Because again, literally what you're saying with these systems is every single human on the earth is sharing some constrained resource set. Before in all of web one and web two, it was like, oh, our servers are overloaded. Scale horizontally, add more servers. Yeah. Right. And or ship people more phones and more hardware and stuff. That is just no longer an option. We're all on one big virtual machine together. So be as efficient as possible on the VM. Yeah.

I mean, really every one or 2% optimization matters. And the other thing that's key here is if you look at specifically what ends up happening at gas prices, when you approach 100% utilization is gas prices actually stay relatively low, even at like 20, 30, 40, 50, 60, 70%. The gas prices don't move up much.

When you cross about 70% or so, they start to creep up. And when you cross 90%, it just becomes a vertical line where like every 1% growth in marginal demand represents like a 10X growth in gas cost.

At that point, the people who want to transact really want to transact because they're going to lose even more money otherwise. It's like if you're moving $20 million around, you don't care if your transaction fee is $1,000 or $5,000. The running jokes of Ethereum is that Ethereum is just a playground for whales. It's rooted in reality. I mean, like gas fees have come down a bit recently. But like on Sunday, gas fees were $400, which is doing a trade on Uniswap is $100. It's just like this is like not the future of finance. Whoa.

Hence Solana. There's another point that you were making other than the OSI model, which was around JavaScript. So I'd love to hear your thoughts around that. Yeah, so this is just kind of another example, but kind of same general idea, which is that like, again, when you appreciate the fact that there were anti-network effects in these systems and therefore optimization really matters, you

Well, like, what does that mean for like the actual execution environment and programming language for, you know, developers? Because again, every piece of inefficient, stupid code one developer writes makes the system worse for all other developers and all other users. And it's permissionless and anyone can upload any piece of code at any time. This is like a weird thing that's never existed before. The kind of specific context I bring this up in is in the context of Solidity, which is the primary programming language for Ethereum.

Solidity looks like JavaScript and feels like JavaScript in a lot of ways. Perhaps most importantly is that the Ethereum virtual machine is a single threaded process. And so conceptually, if I send David money and if Ben sends Bob money over there, whatever, there's no dependencies between those transactions.

In principle, those transactions should be able to be executed in parallel if you have a multi-core machine. In the EVM, the key problem you have to deal with here is any given transaction can touch any part of the global state, can theoretically write to any part of the global state. And so if you have a bunch of transactions and you don't know what those transactions are going to do in it ahead of time and you start executing them, if you execute them in parallel and then they run into each other at the same time, this is how you basically break determinism in one of these systems. That's not going to work.

And so the EVM doesn't even attempt to solve this problem. It just says, okay, we'll just run everything in serially and just run them one after another or sequentially.

So you guarantee no collisions. So Solana deals with this problem. And the way they deal with the problem is every transaction has a header. And the header specifies all the parts of the state that the transaction may or may not touch. So like even if you have branching if logic, for example, then you would include all of the potential branches of that if logic, right? So that ahead of time. And then the scheduler in the system basically says, okay, I know these, you know, 2000 transactions have no collisions. And therefore I can execute them all concurrently.

Anyways, I want to come back to the original point, which is Ethereum folks often say that like solidity is like JavaScript and JavaScript, you know, runs the internet and therefore solidity can run blockchains is kind of the, basically the analogy they're mapping over. But again, my browser front end has nothing to do with your browser front end. And obviously you literally have double the computation between those two things in crypto. We're all sharing the same computer. And so like every ounce of optimization does matter. You just can't do these things. Well,

Whenever I look at these systems, I really try and understand as you scale them, what are actually going to be the constraints you're going to hit and think very mechanically about what does that mean for the user experience and developer experience and what costs can be hidden. If you can figure out a way to hide the cost, that's great. I'm all for figuring out ways to hide costs. If you cannot hide the cost, that creates serious, serious problems.

Should we switch over to maybe your last megathesis next, which is non-sovereign money? Let's do it. I mean, we've had a lot of tangents here, but this has been fun. Oh, this is great. Megathesis number three is probably what we call the opportunity for non-sovereign money. The simplest incarnation of this is just Bitcoin as digital gold. It's not the wrong mental model, but I'd say it's incomplete and understated.

So I wrote a blog post probably two or three years ago. It was probably at some point in 2018 called Paths to $100 Trillion. I guess we can probably put it in the show notes. My view is basically kind of the TAM for crypto is about $100 trillion. And I walk through in a separate post, how do you get to $100 trillion for all this stuff? Maybe you think it's $20 trillion or whatever. I don't know. But somewhere between $20 and $100, let's just say.

There's kind of like, what are the theories for how you get there? And there's basically three primary theories as it pertains to non-sovereign money for how you get there. One is the store value hypothesis, which is basically like, look, gold has been the best store of value historically because of historical reasons. It has all these nice chemical properties. It doesn't rust. It's stable through time, but you can't forge it. All these things, right? And therefore that makes gold the best store of value over time.

Therefore, Bitcoin should try and recreate gold more or less, right? As kind of perfectly as possible. One of the implications of that is basically the system should not change or should change as slowly as possible. That's kind of theory number one. That's a very kind of monetary centric, like macroeconomic kind of money centric view of the systems.

Theory number two is what we call the utility hypothesis. And this is a theory that we believe in, which is that the system that is the most useful will ultimately accrue the most value because all of these layer ones, whether it's Bitcoin or Ethereum or Solana or any of these other ones, they all have these basic monetary properties of a known supply schedule, or if not perfectly known, at least reasonably close to perfectly known supply schedules. They're censorship resistant, they're decentralized. They have all these kind of properties that money needs to have.

They all have those properties. And therefore the one that is the most useful will end up kind of becoming the money thing, both because it has those properties and because it is useful for stuff. And then the third hypothesis is basically the stablecoin hypothesis, which is that if you can create a stablecoin,

that is not actually tied like to the banking system in any way or has any vector of centralization in it at all and that actually can remain price stable to some unit of account that a large percentage of the global population is interested in, let's say probably the dollar, that that can kind of become like the global money thing. Now, obviously, it's,

That creates some weird problems as you get past 5 or 10 or 20 trillion. But it's kind of an interesting theory for how you get there. The problem with hypothesis number three is that no one's figured that out yet. And it's theoretically economically impossible. This is what MakerDAO is trying to do. Maker is...

capital inefficient, like to the point that it will not scale. And secondly, Maker today is a more than 50% centralized system. More than half of the collateral in Maker is USDC. It's just no longer intellectually what it originally was. Although it was very cool at inception. But I'd say most, you know, deep crypto folks would agree that like one and or some combination of those theories is likely what gets you to very, very, very, very, very large crypto outcomes.

Our view is that theory number two is the one that will win because theory number three is economically impossible. And theory number one is just boring and not fun. I actually hadn't heard that perspective before. In our Ethereum episode, we talked extensively about utility tokens and especially how utility tokens allowed Ethereum to be considered not a security because, of course, they have a utility immediately in a system. But that...

because something is the most useful utility token, therefore people will...

value it with some intrinsic utility value, and therefore it can be used as a currency by the most people. To be clear, the utility hypothesis does not presuppose that whether it's ETH or SOL or something else, it does not presuppose that that is actually used as money at all. To be money, you need stability for both buyers and sellers so that people can denominate their balance sheets correctly. And the probability that that happens is, I'd say, quite low. It's more that this thing has

values that gold has and that it can't be manipulated by governments right it has those kinds of non-sovereign monetary values or i should say store of wealth values and then it also happens to have these utility values used in these systems to pay for gas fees you burn some of the fees whenever you use the system which creates some interesting deflationary pressures which is super interesting for a store value asset so i think that's kind of more the theory but

if you want to just extrapolate this kind of further and for the public's here, so without experiment, let's just say three years from now, you know, Ethereum has a billion daily users who are doing something on the system. I don't really care what it is. And like Bitcoin is, you know, this today, it's like a million daily users, probably not even that who actually use Bitcoin at some point.

what do the world's capital allocators think? Like, are they like, aha, Bitcoin is the purest one. It had the cleanest story. And like the 21 million is like God-given supply story. And like, this is it. And it won. Or do they say, you know what? This Bitcoin thing was cool. It was like a good innovation. But like everything happens in Ethereum land now. And like, I'm going to buy some ETH. I should probably hold some ETH, yeah. Right. And like the more utility that there is in these systems, the more stark that contrast becomes. It's interesting. I mean, you can sort of already...

squint and see that starting to happen. That is definitely happening today with a meaningful percentage of new allocators getting into crypto. The divergence between the current state of smart contract chains like Ethereum and Solana and Bitcoin is going to grow at least 10x in the next two years, if not like 100x. And that's going to become very, very painful for the Bitcoin community to stomach that.

This is probably a good transition point then to the other major topic we want to cover with you, which is like...

You started a crypto firm. How do you do that? What is a crypto firm? The two ways I want to slice this are how did you go from being someone completely outside the ecosystem? You were an entrepreneur before, you're a technical background, getting into this. And then what stats can you kind of tell us about Multicoin today to help us sort of have some shape around what exactly it is you're doing? You mentioned venture fund, hedge fund, like

What's going on? So grew up in Austin. That's where the firm is based. My dad's a computer scientist I'm was very fortunate to grow up around computers started programming and I was a little kid About 10 or 11 or so went to NYU studied finance I met to char mad at NYU to charge like my co-founder and the other managing partner and my best friend We've been best friends for 12 13 years now we kind of bonded in college over our shared interest at the intersection of software and finance and

After college, got into health IT. Health IT was kind of the, this is like when electronic health records were like the hot thing around circa 2011, 2012 timeframe. Did that for a year, learned a lot about health IT, enterprise sales, and then started my first startup in May of 2013 called Pristine. Pristine built software for Google Glass for surgeons. I know Glass was a very stupid consumer product.

but it was actually an amazing product for surgeons because surgeons are sterile. It was the only place where it got adoption, right? It was one of the few use cases for Glass that actually made a fair bit of sense. So I did that, built software for Glass, raised some venture, grew to about almost 30 people, and then Google killed Google Glass, which was a problem, as you might imagine for us. I learned what platform risk meant in a real way. I got rugged in crypto terms. You got rugged. Yeah.

After that happened, I pivoted the company and the company was ultimately acquired for like a little IP and engineering talent acquisition thing. I had to find something new to do with myself. It was early 2016 now. I started playing around with some of Stripe's APIs. I was kind of curious about Stripe. I'd read about it. I didn't really know much about it.

And I pretty quickly discovered the limit of what Stripe's APIs could do, which was basically just take payments and like some subscriptions and stuff. But it didn't do more than that at the time. I know there's more now. I heard about this Ethereum thing and I was like, oh, what's this Ethereum thing? Programmable money. What does that mean? And kind of started playing around with the Ethereum APIs. And I was like, oh, this is infinitely more extensible than Stripe. And it struck me quite early that this was going to be important. So that kind of pulled me into crypto.

um and over the course of 2016 started reading and learning about crypto um investing my own money in my own time by the spring of 2017 tushar and i had kind of developed a 40 hour a week internet hobby and we're like okay you know like we can do this professionally we don't have to do this as a side hobby anymore so we made the decision in may of 17 to launch multi-coin we launched our hedge fund on october 1st of 2017 we added our venture fund one in july of 18 and we're now deploying out of venture fund two

What's the distinction between the two and how did you think about it? This is part of my question behind like, what is a crypto fund and how is it different? Every crypto investment firm does it differently. There is no right answer. The problem is that if you want to be a long-term oriented fundamental investor in crypto, a meaningful amount of stuff happens in the private markets that both you want exposure to for the

If you are dealing in the private markets and the earlier stage stuff, you are learning things about what are the next wave of entrepreneurs building and what are the impacts of those things going to be on the public markets. The same works in reverse. And the private public market dividing crypto is what your token is traded on an exchange? Yes. Yes. Specifically, the token is trading with reasonable volumes.

Similarly, the same dynamic works in reverse, which is, for example, if you trade, let's say, derivatives actively on FTX or Binance, for example, it makes you a far more qualified underwriter of basically all of the DeFi derivatives protocols. That's just one simple example. This idea extends to other things within crypto too. You just can develop conviction on DeFi derivatives protocol, like how are they constructed and then how concentrated should you go based on that kind of a thing, right? The educational dynamics of

as an investment firm, if you really want to be the best you can be at asset selection, you need to be playing in both sides of the market.

You need to understand how is the capital market structure evolving in public markets. And that's evolved tremendously in the last three or four years and will continue to evolve. Our default assumption, given that reality, is you need to play on both sides of the market. That's kind of constraint number one. Given that constraint, it's like, well, how do you structure the vehicle correctly to do that? And the reality is there's not a good answer to this question. I'd say most firms have said we manage a single venture fund.

We deploy as a pretty standard capital call-down vehicle. Some of them have interesting recycling provisions to deal with some weird crypto things like yield farming and stuff. Some don't. Some, you know, are buying Bitcoin and ETH. Some are saying no. You know, LPs go buy your Bitcoin and ETH somewhere else and we'll do other stuff for you. That varies pretty widely. I was talking with somebody about this recently at

who runs a crypto fund. And this person said that they used to think that way. But then they sort of realized like, well, my LPs could go buy Bitcoin and ETH, but they're not going to. So I actually am kind of providing a service for them.

Yeah. So I mean, it depends on who your LP base is. Our LP base is not representative of most venture firms. Our LP base is predominantly family offices, almost all of whom own BTC and or ETH outside of us. And we generally encourage them to own BTC and ETH outside of us because we are probably underexposed to those two assets. We have zero exposure to BTC or ETH in our venture funds and small positions in our hedge funds. So anyways, like coming back to this, right? So you've got like

early stage investing you've got maybe mid-stage investing maybe some of its equities maybe some of its tokens maybe some of its you know you're buying some liquid later stage stuff maybe you want to have flexibility to do some derivatives things like depending on what you do or not

There's just a lot of complexity to this. And you need to have a long time horizon for the illiquid things. But like a lot of these things have day-to-day marks. A lot of these things, even once they go liquid, you have a lockup for 24 months. The messiness of the kind of capital markets, there's a very messy capital market structure and kind of just balance sheet management structure.

You can lump it all into a venture fund and say, look, it's a venture fund and we just do this normal venture thingy and call down capital and do that. We thought that was suboptimal because there's also just a lot of money in the world that says, I don't want a venture fund. This stuff is liquid. It has a price every day. I don't want to commit to 10 years. Can I get exposure to all that stuff that you like that I don't have to commit to a 10-year vehicle? Yeah.

And it's a pretty reasonable thing to believe as an LP. And so we concluded that the optimal thing to do was to separate those. And it was, we have a hedge fund and we have a venture fund. The firm that's most comparable is probably Polychain. They also have a hedge fund and a venture fund. I'm not sure exactly how Polychain does it. I think they do more equity in their venture fund and less tokens, but that may not be strictly true. We actually don't care about the instrument we're buying that's irrelevant to us.

when we think about which vehicle it goes in. Obviously this does create in generally some degree of fund conflict that's inevitable. We're very transparent with our LPs about that, but ultimately we concluded to balance our own needs as large investors in our own funds, as well as the realities of like how capital and the world thinks about liquidity versus illiquidity. We thought it was best to separate those vehicles. And that way you can have different LPs with different risk tolerances and different liquidity horizons in separate buckets.

How has the crypto fund management space evolved in the only few years since you've been doing this? I would imagine hugely. Yeah. So it's evolved a lot. When we launched in 2017, you know, there was like a handful of VC guys like Polychain and Metastable. And I guess those Metastable has kind of gone away. Like us and Scalar and CoinFund and a few others. There weren't many.

And there were a few trading firms, but again, very small number of trading firms. Over the course of the late 17, early 18, a whole ton launched. Most of them were able to get, you know, barely get to 5 or 10 million of AUM and ended up shutting down kind of over the course of 18 and 19, just couldn't survive that long. Today, you know, in the wake of 18 and 19, a handful of additional firms kind of popped up. And today there's a pretty thriving ecosystem of, I'll call it venture-oriented firms that, you know, are long-term fundamental investors. There's

12 to 20 reputable ones in the United States. A lot more than that in Asia. Generally less reputable, but some of them are reputable. So there's a ton of capital chasing deals. The other interesting thing that's happened is a bunch of founders made life-changing money and are now aggressive angels. And then a bunch of just random family offices have become VC guys, even though they

It might probably lack the sophistication to do VC, but there's a lot of that money sloshing around crypto too. So early stage deals have become a lot more competitive in that time. Yeah, I was going to ask, what is the dynamic as a fund manager here? Is it just like the venture industry where y'all are sort of

frenemies or is it more like the hedge fund industry where your counterparty's on trades or both? I'd say more frenemies in the private markets, more counterparties in the public markets. It's gotten a little strange because, for example, anything that is DeFi that's halfway credible just instantly fills up. You have these weird lemming dynamics where it's just like, oh, it's DeFi. Oh, the founder is reasonably credible. Like,

It's like the round's done. In some ways, it sounds lazy and sloppy, which it is, but actually it's kind of justified. And the reason it's justified is in traditional venture, you like buy equity in this company and then like, you know, just like assume a 90% failure rate where you go to zero or something close to zero. In crypto, the token will launch like two months later,

And like it's not even that like you're going to dump on like you may have no intention of dumping on retail in six months or even 12 months. Hey, if it's been two years and like maybe it's working out, maybe it's not really working out.

you know you'll probably get your money back out. Like in many ways, these capital markets are actually just, it's just easier for that reason. And because it's easier, it draws a lot more capital into it. And so like we've actually, I'd say stopped trying to do DeFi deals at least recently in the last few months for the most part, because they're just like, if you say the word DeFi and the founder can like breathe five sentences in the coherent, you know, in English, like the round gets done.

So coming from an early stage VC, which is what I am, are there stages? Like I would tell you, I'm a general partner at $100 million fund. We write $1 to $3 million checks in the earliest stages of a company. Is there a pitch like that for crypto funds? Or like we do everything and is a kind of elastic size? Most of the firms are less rigid, substantially less rigid than what you just described.

There are a handful, like especially like the $10 million funds that are like, hey, look, we don't do anything of $25 million entry kind of a thing. Multi coin is not very rigid. We have entries as high as $5 billion in our current venture fund as low as $10 million. So we don't have any formal constraints. We also like our check sizes are like $500 to $15 million like out of $100 million fund.

We have fewer constraints and we've been clear with our LPs about that. But that's only possible though because the time horizon liquidity is much shorter. Again, it's not, hey, our tokens unlock in six months and we're going to sell in six months in one day. But it's just possible in a way it's not in the venture world. Correct. But we know that, hey, we can feel confident. I think this is going to compound pretty well for the next 18 months. But you never know how the competitive dynamics in some market are going to change because

18 months from now like right and so like if we lose conviction 18 months from now for whatever reason like we probably have the opportunity to get to get some liquidity that is just not possible in traditional venture world how do you think about capital and fund allocation then in this world

Yeah, so again, we manage a hedge fund and a venture fund. And so the answer is different for the two funds because of the time horizons for the two funds and recycling provisions available for the different funds. You mentioned recycling just now and a minute ago, too. Like, I see now why recycling provisions should be very different in this world than in the traditional venture world. Correct. And then when you add liquidity farming in there, that gets even more different. And then, like, for example, I think every crypto venture fund should have the ability to short funds.

They will hopefully never elect to use that provision, but like they should be able to. And most of those LPAs do not provide for that. Ours does because in the event we own a token, the token opens up at 400x and like we invested a month ago, we want to be able to hedge as much of the position as possible without actually selling our core position. Like, you know, it's just like you get these weird things that happen that you don't want them to happen. Like it's actually bad for

in the long term for that to happen. But also like as a fiduciary, like, am I just going to ignore the fact that I'm up 400 X in a month? You know, if, if venture firms couldn't hedge their portfolios, they probably should. Right. So, so, so you get just these kinds of weird, weird things in crypto that, that just aren't,

applicable elsewhere. There's one more short segment that I want to ask you about in our time together here. And because this is acquired and we do a bear case and a bull case on our big episodes, we've talked a lot about the bull case for crypto. And I think it's the natural thing to talk about on most of this episode, given especially your comment around the case for $100 trillion. What's the bear case in your mind? What are the sort of key risks as you look at the whole ecosystem? Yeah.

I mean, the biggest one for sure is like just broadly regulatory slash governments, whatever. What does that mean specifically is a little harder to nail down. You can see, you know, extreme cases where like,

Trump, let's say a couple years ago, a year ago, or even today with the Democratic administration, becomes very, very hostile to crypto. That's totally on the table. Whether it's justified or not is a separate question. But like Elizabeth Warren has, I think, actually recently been making many factually incorrect statements about Bitcoin specifically, like mining distribution and Chinese control and stupid stuff like that, that I know her advisors are telling her are factually incorrect, but she chooses to say them anyways. On government risk more broadly, let's play...

Tyler Cowen overrated, underrated. Do you think that risk is overvalued, undervalued, properly valued by the markets today? Man, that's tough because I don't have a sense for what the markets are placing that risk at. I don't know.

i'm generally an optimist that these things will be worked through i believe that crypto is deeply aligned with kind of core human rights that are like embodied by the constitution and other kind of deeply at a minimum american values and perhaps other national values as well the kind of sovereignty being kind of just the general underlying theme of all of this stuff

And that I, you know, based on my respect for kind of rule of law in American history, I'm optimistic that like those things will be upheld in the medium to long term. But that doesn't mean there won't be serious, serious turbulence in the short term.

So I'd say the longer the horizon, the more optimistic I am. I think that the idea of challenging the dollar is like very dumb and I don't think that's like a thing. And I think it's counterproductive for like maxi type people to talk about that stuff. The best outcome for crypto is not Bitcoin replaces the dollar or like soul replaces the dollar. It's too myopic thinking of like in strictly monetary terms and not thinking enough in tech terms, which is what are new kinds of businesses and services that can be unlocked and new ways to connect businesses

and demand for whatever the thing is in kind of crypto native ways. And what are new ways to have capital formation and, you know, trading activity that are just not possible before. And like, that's like the right model, like mental model for the world. The problem is like to some degree,

everything I just said, excluding the monetary stuff, monetary policy stuff, is in some degree in conflict with like securities laws and or derivatives trading laws, which is problematic, but can be resolved over time. And I don't think it's a national security threat or like long-term dollar stability threat. The bigger problem is like, there's like money crypto and tech crypto, and most outside observers cannot understand

tell the difference between those two things and like if you're a senior government official um and or you work at the fed or whatever or like even fincen and you're like ah this is a natural security threat these money crypto people are going to take down the dollar like that like and you kind of just you know throw the baby out with the bath water right it's kind of what ends up happening here that's like a real problem i'm optimistic that it like won't happen in a terribly aggressive way at least in the united states again the rest of the world like i'm

I'm definitely not qualified to reason about short-term horizons, always weird short-term turbulence risks, medium to long-term. If you believe in kind of core ideas of sovereignty, if you believe in federalism, if you believe in decentralized control and power, which again are all kind of core ideas embedded in the American Constitution, then I'd say I'm optimistic that those forces will prevail. Any other big risk you see besides government right now? It feels like technical risk is kind of low right now.

Yeah, I'm not really worried about, you know, I'd say two or three years ago, it was unclear how these systems were going to scale. That risk is very, very, very substantially reduced in the last few years. Other risks, I mean, look, is there like a catastrophic bug in Bitcoin? Like, there's all these kind of weird, weird, weird tail risks that are possible technically. But again, I think those are all at this point.

you know, entering black swan territory type of low. And also just like, it feels like as the whole crypto space continues to expand, like, okay, like, you know, not that any of us want a big security bug in Bitcoin, but like, if there is, there's still going to be lots of other stuff going on. And like, it's not just about Bitcoin anymore. Correct. It's diversifying. And so those other kinds of things help mitigate that. I agree. I mean, I think the other risk is just like,

Again, the majority of crypto market cap is still Bitcoin. And what drives Bitcoin, or I should say, what will drive Bitcoin from, say, $600 billion or whatever, $700 billion to, you know, a trillion or two or three trillion, is really just kind of inflationary concerns, like concerns about inflation, basically. I don't think anything is going to drive Bitcoin meaningfully higher other than, like, general inflation stuff. And...

Because of that, like if inflation concerns and near term decrease, that may prevent Bitcoin from moving, which actually may prevent other new dollars from flowing into the space because Bitcoin is where everyone starts. And if you don't make it past Bitcoin, a lot of people won't even make it to ETH or anything else. Again, that gets resolved in time just naturally, but, you know, could end up delaying the general capital allocation cycle by 12, 24, maybe 36 months.

Is there any chance that Web 3 as it's coined today is really like the interactive TV where this whole thing could go away and the next technology wave, like the real internet actually hasn't come along yet. And this is like a half step.

from the previous generation, but like isn't going to tip to be the next multi-trillion dollar value creating economic wave? I mean, the answer to your question is yes, that risk is real. I can't like tell you with, you know, super high confidence that it's going guaranteed to happen. What I can tell you is...

There are definitely some category of web three native applications that will matter that cannot be done in a web two native way. That like for sure is the case. The question is, is it five or 50 or 500 or 5,000 or 50,000, right? Like kind of what, what, how many of them really are there and how many potential users are there for those apps? That's harder to reason about.

And the answer to those questions are definitely not clear today for sure. The other kind of relevant question is like, do Twitter and Facebook kind of like managed to retool themselves into web three native thingies, which I'd say I'm more optimistic than, than most that they will, at least for their core behavioral feedback loops. I think probably displacing Twitter's feedback loop I think is extremely low. Interesting. So you're, you would be in abstracts longer on Twitter than bit cloud.

I don't think BitClout's a Twitter competitor at all. I realize BitClout's UI today looks like a Twitter clone. That's actually a distraction from like, BitClout specifically is a exchange for trading memes where those memes are the meme of your likeness. They didn't just make it an exchange. They were like, let's make it look like Twitter and you can like talk and stuff and like have a reason to trade based on clever tweets and stuff. But like BitClout is a meme exchange protocol, not a Twitter clone.

Twitter clone has a thing that was built on BitClout. So for example, like I'm extremely bullish, the idea of social tokens. And if you multiply, you know, 7 billion people times, I don't know, whatever percentage of them are creators times like market cap of what those coins can achieve. Like to me, that's a no brainer that hits a trillion dollars, like no brainer. You get to a trillion if that idea is even mildly successful, which I think it will be.

So like stuff like that is pretty big. There are definitely classes of infrastructure, things like the graph and are we even live peer and others in that kind of category that unlock net new technical primitives that were not possible before or are actually cheaper than centralized alternatives in some instances. There will for sure be some of those things that will work at large scale. Market cap there, I don't know, 100 billion on the low end. I don't know what you get to on the high end. Depends on how successful those things are.

But I'm optimistic there. I mean, look, Audius has got 5 million users. Unclear how you got the 50 million. There's a whole bunch of other, you know, like Web3 native thingies coming around, like Web3 native apps that are, you know, have some chat functionalities, have some social functionalities, have some meme trading functionalities. Yeah, I don't know how big those markets are going to be, right? Like, that's too hard to reason about today. And then there's all this weird stuff like Helium that, like, you just, is just, like, totally...

No way to predict that at all. I'd say I'm optimistic that the low end of OM3 is a trillion. The question is, is the high end 10 trillion or 100 trillion? I don't know. But I think most of that is actually social tokens and helium. Those are the two highest conviction subsegments there. I think helium is a clear path to 100 billion. Beyond that, we'll see. But

I do not take it for granted that like this stuff will displace telegram and Google and Facebook and Twitter. I think that view is very likely to be wrong. Like I think 90% plus probability to be wrong. I do think that at least the existing social giants will figure out how to incorporate the stuff when it makes sense. Well, shoot. I mean, it's not like Amazon and eBay stopped existing when web 2.0 came around. Correct.

Also, also that exactly. I think there will be net new social behaviors that are unlocked that are crypto native. That I think is likely to happen. Social token being the largest and most obvious one, but also like that may very well get bootstrapped into Twitter and Facebook, right? Like you can see a world where two years from now, like crater coins are worth 20 billion and it's thriving. And then Twitter puts that in there or TikTok puts that in there, you know, like,

It's going to get really weird and cool, but also messy. Yeah. That is a beautiful summary of the episodes. I think that's the right note to leave it on. Dave and I have been talking about the purpose of Acquired recently, and we kind of have been settling on this line that our goal is anytime we do an episode to be mind expanding. And there's no doubt that that's what this was today. So thank you for coming on. Two questions for you to leave listeners with. One,

What is your favorite sort of accessible place or list of places that people should go if they want to learn more about crypto and blockchains and keep up with this all? Yeah, so I think for general news, the block is without question kind of the best, best news source. Our blog is good for like really in depth analyses of subjects, although our cadence is, you know, low ish, like call it once a month.

Then I'd say just follow most of the crypto fund managers, right? So just kind of Google all the major crypto funds. You know, half of them have blogs and publish good stuff on their blogs. That's pretty helpful and insightful. I'd say that's the best for like in-depth kind of reading on a reasonable cadence. If you want to kind of get deeper into like the rabbit hole slash crypto community, crypto Twitter is where it's at.

How do you get into crypto Twitter? It's not easy. Knowing who to follow and who you want to follow and who's the maxis and who's toxic and who's reasonable. If I look at the list of people you follow, is that a good place to start? It's not a bad place to start. My follow list is probably too noisy for most people, but it's not a horrible place to start.

That's great. Well, that leads to our second question is, of all the very smart LPs that we have out there, some are founders, some are investors, who might want to get in touch with you for a variety of reasons. How should they do that? Yeah, so you can just email me, kyle at multicoin.capital, or just DM me on Twitter. My Twitter DMs are open. My Twitter name is just at KyleSimone. Awesome. Well, thank you so much for joining us. Hey, Ben, David, thank you all for having me on the show.

it's an honor to be here. It's been a blast. Listeners, we'll see you next time. We'll see you next time.