The Exchanges

Q What does that mean? Like, just like, I mean, that goes against all kind of theory of diversification. It's kind of concentration risk to the extreme.

A I, I, I definitely don't believe in diversification. Um, I absolutely believe in concentration, but, but specifically what I'm referring to is, is Solana. I got into crypto in 2016. In 2017, I went to Devcon in Cancun. November 2017 was like the Pico top. All eyes on Ethereum. Vitalik gives, everyone's like sharding, scaling, plasma, some, something like we, we, what's the scaling plan? And absolute crickets, just nothing. And I remember leaving incredibly disappointed and frustrated. And that's when I started looking for alternative scaling approaches. Our first bet we made was EOS. That was absolutely wrong. There were a lot of valid technical criticisms that we ignored, um, and all of those technical criticisms turned out to be correct. Um, it was a absolutely forecastable set of errors, and we, we made them, uh, and fell on our face and got a lot of eggs thrown at us for it, rightfully so. However, the core thesis was there are valid alternative scaling solutions approaches other than the one in theory mistaking Focus on high performance system integrated systems, and we bet on Solana.

AI assessment note: “I definitely don't believe in diversification. Um, I absolutely believe in concentration”

Q We mentioned, you know, Kraken and Coinbase. I think a big question is also bluntly that you mentioned that Biden and, you know, the links to SPF and the funding. In terms of presidential elections, how do they impact the U.S. and, kind of, crypto markets in the U.S., do you think? And how impactful do you think the election is? I'd just love to hear your thoughts on that.

A Uh, very, very important. I mean, uh, Chair Clayton, who was the chairman of the ICC prior to Chair Gensler, was, it was just generally more, I'd say, like, libertarian free markets than Chair Gensler. Chair Gensler clearly has wanted to do more stuff and, you know, not only with crypto but with ESG and with regulating AI and, All the capital market structure with PFOF and Robin Hood, I mean, he's been very aggressive, um, on many fronts, uh, whereas Chair Clayton was, you know, was more, hey, like, let, let the market do what it will. And so, you know, if a Republican is elected, it's safe to assume that the new chair of the SEC that the president will appoint, uh, is much more likely to be closer to Chair Clayton in ethos than Chair Gensler.

AI assessment note: “very, very important... new chair of the SEC that the president will appoint”

Q What does that mean? Like, just like, I mean, that goes against all kind of theory of diversification. It's kind of concentration risk to the extreme.

A I, I, I definitely don't believe in diversification. Um, I absolutely believe in concentration, but, but specifically what I'm referring to is, is Solana. I got into crypto in 2016. In 2017, I went to Devcon in Cancun. November 2017 was like the Pico top. All eyes on Ethereum. Vitalik gives, everyone's like sharding, scaling, plasma, some, something like we, we, what's the scaling plan? And absolute crickets, just nothing. And I remember leaving incredibly disappointed and frustrated. And that's when I started looking for alternative scaling approaches. Our first bet we made was EOS. That was absolutely wrong. There were a lot of valid technical criticisms that we ignored, um, and all of those technical criticisms turned out to be correct. Um, it was a absolutely forecastable set of errors, and we, we made them, uh, and fell on our face and got a lot of eggs thrown at us for it, rightfully so. However, the core thesis was there are valid alternative scaling solutions approaches other than the one in theory mistaking Focus on high performance system integrated systems, and we bet on Solana.

AI assessment note: “I definitely don't believe in diversification. Um, I absolutely believe in concentration”

Q And what an incredible journey it's been. I, I often find that you actually learn a lot from the hard times. Um, one question that I love, um, is what lesson in the multi coin journey was the most painful to learn that you're also pleased to have been through?

A Um, we cannot be the best at everything. Um, we tried to for our first. 36 months, 24 to 36 months, uh, trade the market and do fundamental research and do venture. And we realized you cannot, you just cannot do all of the above. And so, um, you know, we, we scrapped the trading, the market, and I no longer look at the prices of anything. Um, we now are 100% focused on thesis formation with our, our holding period is indefinite. Um, it was a very painful lesson. We made a few trading mistakes that were, were very, very, very bad. Uh, fortunately they were not lethal and, uh, we survived and now know what, what is our strike zone?

AI assessment note: “we cannot be the best at everything. Um, we tried to for our first”

Q And what an incredible journey it's been. I, I often find that you actually learn a lot from the hard times. Um, one question that I love, um, is what lesson in the multi coin journey was the most painful to learn that you're also pleased to have been through?

A Um, we cannot be the best at everything. Um, we tried to for our first. 36 months, 24 to 36 months, uh, trade the market and do fundamental research and do venture. And we realized you cannot, you just cannot do all of the above. And so, um, you know, we, we scrapped the trading, the market, and I no longer look at the prices of anything. Um, we now are 100% focused on thesis formation with our, our holding period is indefinite. Um, it was a very painful lesson. We made a few trading mistakes that were, were very, very, very bad. Uh, fortunately they were not lethal and, uh, we survived and now know what, what is our strike zone?

AI assessment note: “we cannot be the best at everything. Um, we tried to for our first.”

Q I, I have to ask. What, you mentioned the three different types of network effect there. I did not understand one of them. So can you just help me understand what, what are the three different types and what, how are they different?

A Well, sorry. I mean, there's, there's lots of kinds of network effects. Um, I actually think the most important is inclusionary versus exclusionary. Um, but that's a separate, what I referenced earlier, which is just either are the network effects super linear, linear, or sublinear. Meaning like as, as you add each additional user to Facebook or each additional user to the helium network or whatever, um, what is the shape of that curve? Right? Um, where the x-axis number of users and y-axis is like value of network or something like that. Um, almost all network effects are sublinear. Um, almost all. Um, but also like to understand how the degree of, of the curve of that logarithmic curve You can reason about with a lot more precision than most people bother to try. Um, and then in the event where you think there are super linear network effects, or at least super linear for the first part of the curve, that can also change how you think about conviction and sizing. Um, we spend a lot of our energy debating what we think the shape of that curve is, and the more closer we are to super linear, the more convicted we'll get to size up.

AI assessment note: “either are the network effects super linear, linear, or sublinear.”

Q Okay, so I'm going to start off from a high level, and I'm going to specialize in asking stupid questions, saying you can provide the wisdom. So if we're candid, crypto is largely about speculation today. And my first question was, will crypto grow past speculation into something more? And I want to offer that as a free-for-all for anyone to grab first off.

A I guess I'll start here. I mean, the one right answer to the question is yes. The more nuanced answer is, uh, A, the speculation can be channeled productively, and I think that's underappreciated. D-PIN is really the kind of torchbearer, I think, on that front, where you can use the collective hive mind of people doing stuff in the real world and funding that, um, uh, collectively, uh, and produce real economic output that's tangible and measurable. The other way we'll obviously go beyond speculation is DeFi payment rails are Objectively better than traditional rails. Um, and you will see economic activity move off of traditional regulated rails to defy rails over time. That will take a while, uh, but it will happen. Nick, I'm sure you've got lots of other thoughts to add to that.

AI assessment note: “the one right answer to the question is yes.”

Q We mentioned, you know, Kraken and Coinbase. I think a big question is also bluntly that you mentioned that Biden and, you know, the links to SPF and the funding. In terms of presidential elections, how do they impact the U.S. and, kind of, crypto markets in the U.S., do you think? And how impactful do you think the election is? I'd just love to hear your thoughts on that.

A Uh, very, very important. I mean, uh, Chair Clayton, who was the chairman of the ICC prior to Chair Gensler, was, it was just generally more, I'd say, like, libertarian free markets than Chair Gensler. Chair Gensler clearly has wanted to do more stuff and, you know, not only with crypto but with ESG and with regulating AI and, All the capital market structure with PFOF and Robin Hood, I mean, he's been very aggressive, um, on many fronts, uh, whereas Chair Clayton was, you know, was more, hey, like, let, let the market do what it will. And so, you know, if a Republican is elected, it's safe to assume that the new chair of the SEC that the president will appoint, uh, is much more likely to be closer to Chair Clayton in ethos than Chair Gensler.

AI assessment note: “Uh, very, very important. I mean, uh, Chair Clayton”

Q Okay, so I'm going to start off from a high level, and I'm going to specialize in asking stupid questions, saying you can provide the wisdom. So if we're candid, crypto is largely about speculation today. And my first question was, will crypto grow past speculation into something more? And I want to offer that as a free-for-all for anyone to grab first off.

A I guess I'll start here. I mean, the one right answer to the question is yes. The more nuanced answer is, uh, A, the speculation can be channeled productively, and I think that's underappreciated. D-PIN is really the kind of torchbearer, I think, on that front, where you can use the collective hive mind of people doing stuff in the real world and funding that, um, uh, collectively, uh, and produce real economic output that's tangible and measurable. The other way we'll obviously go beyond speculation is DeFi payment rails are Objectively better than traditional rails. Um, and you will see economic activity move off of traditional regulated rails to defy rails over time. That will take a while, uh, but it will happen. Nick, I'm sure you've got lots of other thoughts to add to that.

AI assessment note: “the one right answer to the question is yes”

Q I, I have to ask. What, you mentioned the three different types of network effect there. I did not understand one of them. So can you just help me understand what, what are the three different types and what, how are they different?

A Well, sorry. I mean, there's, there's lots of kinds of network effects. Um, I actually think the most important is inclusionary versus exclusionary. Um, but that's a separate, what I referenced earlier, which is just either are the network effects super linear, linear, or sublinear. Meaning like as, as you add each additional user to Facebook or each additional user to the helium network or whatever, um, what is the shape of that curve? Right? Um, where the x-axis number of users and y-axis is like value of network or something like that. Um, almost all network effects are sublinear. Um, almost all. Um, but also like to understand how the degree of, of the curve of that logarithmic curve You can reason about with a lot more precision than most people bother to try. Um, and then in the event where you think there are super linear network effects, or at least super linear for the first part of the curve, that can also change how you think about conviction and sizing. Um, we spend a lot of our energy debating what we think the shape of that curve is, and the more closer we are to super linear, the more convicted we'll get to size up.

AI assessment note: “what I referenced earlier, which is just either are the network effects super linear, linear, or sublinear”

Q Before we dive into the deeper granular final one before we do that, what does high performance mean to you when I ask you that?

A In the context of investing, um, I think there's kind of a few levels to it. One is building the right culture and organization so that everyone on the team is the right frame and to execute. Um, and then I think the other part of that is your own cognitive performance. And I think that's primarily a function of health behaviors. Um, and, you know, making sure your sleep is there, your diet, your exercise, um, Um, supplements, meds, whatever you're going to do, but being very eyes wide open that your brain is a muscle and that you are training your brain and that you want to be having your brain perform at peak performance at all times.

AI assessment note: “In the context of investing, um, I think there's kind of a few levels to it.”

Q Before we dive into the deeper granular final one before we do that, what does high performance mean to you when I ask you that?

A In the context of investing, um, I think there's kind of a few levels to it. One is building the right culture and organization so that everyone on the team is the right frame and to execute. Um, and then I think the other part of that is your own cognitive performance. And I think that's primarily a function of health behaviors. Um, and, you know, making sure your sleep is there, your diet, your exercise, um, Um, supplements, meds, whatever you're going to do, but being very eyes wide open that your brain is a muscle and that you are training your brain and that you want to be having your brain perform at peak performance at all times.

AI assessment note: “In the context of investing, um, I think there's kind of a few levels”

Q With new technologies, you often see actually the opposite of what people expect, which is a concentration in wealth, a reduction in wealth distribution. Um, Do you think tokens do more to concentrate wealth, actually, as we've seen probably in the preceding two to three years, or do they do more to distribute wealth in a way that I think people envision and hope it does?

A Without question, tokens help distribute wealth. I mean, if you look at like tech startups today, like, you know, it's like VCs and employees are the only people with equity basically. Um, and there are a lot of businesses that like, it would have made a lot of sense and could have been quite value accretive to those businesses to somehow incentivize or reward either customers or suppliers or whatever with equity in some sort of more meaningful way. Um, businesses do not live in a, uh, I like where businesses have, uh, suppliers and customers and partners and whatever. The fact that norms today around business are those parties typically have no equity ownership. Um, I think we'll be looked upon, I think in 20 years we'll be looked back as a bug of, a bug of capital markets regulation, not as a feature.

AI assessment note: “Without question, tokens help distribute wealth.”

Q With new technologies, you often see actually the opposite of what people expect, which is a concentration in wealth, a reduction in wealth distribution. Um, Do you think tokens do more to concentrate wealth, actually, as we've seen probably in the preceding two to three years, or do they do more to distribute wealth in a way that I think people envision and hope it does?

A Without question, tokens help distribute wealth. I mean, if you look at like tech startups today, like, you know, it's like VCs and employees are the only people with equity basically. Um, and there are a lot of businesses that like, it would have made a lot of sense and could have been quite value accretive to those businesses to somehow incentivize or reward either customers or suppliers or whatever with equity in some sort of more meaningful way. Um, businesses do not live in a, uh, I like where businesses have, uh, suppliers and customers and partners and whatever. The fact that norms today around business are those parties typically have no equity ownership. Um, I think we'll be looked upon, I think in 20 years we'll be looked back as a bug of, a bug of capital markets regulation, not as a feature.

AI assessment note: “Without question, tokens help distribute wealth.”

Q I, I, I agree with you. Have you ever not loved it, Carl? Everyone has troughs.

A Oh yeah. We've done a bunch of stupid shit that I look back on and I'm like, oh, why do we do that? We, we do a quarterly decision review, um, looking back on decisions from the prior year, um, both in our hedge fund and our venture funds. Uh, and the primary purpose of that is really, uh, if, if things have gone wrong since then, Like, could we have forecasted that, right? Like, was there something we missed in our analysis? Um, some form of risk we did not identify that was, was plausible to identify at that point in time. Um, and then the other thing we are, we really, really focus on in those decisions is, um, you know, if we did something, did we size it correctly? And I think, I think VCs don't spend nearly enough energy on this. Um, it's, it's always easy to undersize.

AI assessment note: “Oh yeah. We've done a bunch of stupid shit that I look back on”

Q Listen, pleasure's all mine, but I want to start with a little bit on you before we dive into the nitty gritty. How did you make your way into the world of crypto and investing, and how did Multicoin come to be? Let's start there.

A Sure. So I did my last startup, uh, in 2013. It was called Pristine. We built software for Google Glass for surgeons. I know Glass was kind of a silly consumer product, but it was a very interesting tool for surgeons because they work with their hands. And are sterile and gloved up. Um, did that, raised venture, grew to a few million revenue, got to, um, 25, maybe 30 employees, and then Google killed Google Glass, uh, which was a problem for the business, as you would imagine. Uh, so after that happened, I pivoted the company, and the company was ultimately acquired for kind of scraps, so no one really had any money. Um, in 2016, I had to kind of find something new to do with myself. Um, I was pretty jaded with healthcare at this point.

AI assessment note: “in 2016, I had to kind of find something new to do with myself”

Q I, I, I agree with you. Have you ever not loved it, Carl? Everyone has troughs.

A Oh yeah. We've done a bunch of stupid shit that I look back on and I'm like, oh, why do we do that? We, we do a quarterly decision review, um, looking back on decisions from the prior year, um, both in our hedge fund and our venture funds. Uh, and the primary purpose of that is really, uh, if, if things have gone wrong since then, Like, could we have forecasted that, right? Like, was there something we missed in our analysis? Um, some form of risk we did not identify that was, was plausible to identify at that point in time. Um, and then the other thing we are, we really, really focus on in those decisions is, um, you know, if we did something, did we size it correctly? And I think, I think VCs don't spend nearly enough energy on this. Um, it's, it's always easy to undersize.

AI assessment note: “Oh yeah. We've done a bunch of stupid shit that I look back on”

Q to reduce the power of network effects, and I thought that sounded incredibly wise and intellectual, but I wanted to take it a step back and actually kind of ask, and forgive me for the base question here, what actually are tokens? How do they differ from equity? And how do you value them? And I know I sound stupid, but I find it helpful to ask the stupid questions.

A Tokens are assets. Um, assets can be priced. They can be valued. Some assets can have a DCF. Some cannot. Gold, for example, famously does not have a DCF. It's just a function of supply and demand. Um, uh, tokens are assets. Um, you would hope that in the long run, tokens have Some sort of discounted cash flow model that can be used to justify their value. Um, that may or may not be required in the future. Uh, and it may be required for some types of crypto assets. It may not be required for others. Um, those questions are still open. Uh, but at the end of the day, they're assets. Um, we spend most of our energy today focused on assets that we believe will be able to produce, um, some sort of discounted cash flow model in the future.

AI assessment note: “Tokens are assets. Um, assets can be priced. They can be valued.”

Q earlier about kind of utility value of Solana, and maybe just copying a lot of other projects. I'm sure when you look at a lot of crypto firm investment strategies, they seem to invest in just a lot of Copycat projects more generally with tokens, and then maybe pump and dump them on retail. First, like, is that fair? And does authenticity really matter? Can you help me understand that?

A Authenticity absolutely matters. If you have permissionless, uh, let's zoom out for a second here. Um, before America, people were like, what do you mean freedom of speech? What do you mean democracy and people voting? That's crazy. That's going to produce people are stupid and that's going to be bad. And like the people can't govern themselves. And like, that was the prevailing thing. That not only elites in Europe and other places believe, there's also, I think, a thing that most people who lived in other places also believed, because people could not fathom the notion of collective freedom for everybody. And we have now representative democracy and, you know, First Amendment and all those things. Turns out those are, those are net good. I look at the financial system, you know, money and finance are explicitly a form of speech, as is recognized in the United States. Today, the financial system is explicitly regulated and limited and censored in many, many ways. And when that's the world you've grown up in and lived in, It's very hard for you to appreciate what is the counterfactual world in which, um, those things are uncensored and open and free. And, uh, it's very easy to, to not appreciate the value of that. It's also very easy to then look at the, the very first instances of people expressing that freedom and doing so in negative ways and saying, ah, therefore freedom ba…

AI assessment note: “Authenticity absolutely matters.”

Q earlier about kind of utility value of Solana, and maybe just copying a lot of other projects. I'm sure when you look at a lot of crypto firm investment strategies, they seem to invest in just a lot of Copycat projects more generally with tokens, and then maybe pump and dump them on retail. First, like, is that fair? And does authenticity really matter? Can you help me understand that?

A Authenticity absolutely matters. If you have permissionless, uh, let's zoom out for a second here. Um, before America, people were like, what do you mean freedom of speech? What do you mean democracy and people voting? That's crazy. That's going to produce people are stupid and that's going to be bad. And like the people can't govern themselves. And like, that was the prevailing thing. That not only elites in Europe and other places believe, there's also, I think, a thing that most people who lived in other places also believed, because people could not fathom the notion of collective freedom for everybody. And we have now representative democracy and, you know, First Amendment and all those things. Turns out those are, those are net good. I look at the financial system, you know, money and finance are explicitly a form of speech, as is recognized in the United States. Today, the financial system is explicitly regulated and limited and censored in many, many ways. And when that's the world you've grown up in and lived in, It's very hard for you to appreciate what is the counterfactual world in which, um, those things are uncensored and open and free. And, uh, it's very easy to, to not appreciate the value of that. It's also very easy to then look at the, the very first instances of people expressing that freedom and doing so in negative ways and saying, ah, therefore freedom ba…

AI assessment note: “Authenticity absolutely matters. If you have permissionless, uh, let's zoom out for a second”

Q to reduce the power of network effects, and I thought that sounded incredibly wise and intellectual, but I wanted to take it a step back and actually kind of ask, and forgive me for the base question here, what actually are tokens? How do they differ from equity? And how do you value them? And I know I sound stupid, but I find it helpful to ask the stupid questions.

A Tokens are assets. Um, assets can be priced. They can be valued. Some assets can have a DCF. Some cannot. Gold, for example, famously does not have a DCF. It's just a function of supply and demand. Um, uh, tokens are assets. Um, you would hope that in the long run, tokens have Some sort of discounted cash flow model that can be used to justify their value. Um, that may or may not be required in the future. Uh, and it may be required for some types of crypto assets. It may not be required for others. Um, those questions are still open. Uh, but at the end of the day, they're assets. Um, we spend most of our energy today focused on assets that we believe will be able to produce, um, some sort of discounted cash flow model in the future.

AI assessment note: “Tokens are assets. Um, assets can be priced. They can be valued.”