Jan 2, 2019 · 34m · a16z
a16z Podcast | Mental Models for Understanding Crypto Tokens
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In this episode of the a16z Podcast, Chris Dixon and Nick Tomaino discuss mental models for crypto tokens, distinguishing usage tokens from work tokens, while examining key infrastructure needs like stablecoins, scaling solutions, blockchain forks, and evaluation frameworks for crypto investments.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 7.9 Guest teaching 4.3 Guest disagreement 1.7 The host pushing back 3.6
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 28:32 Nick sticking to his deep crypto founder preference
Nick politely resists Chris's pushback, maintaining that infrastructure middleware requires founders with deep crypto context despite incoming traditional CS talent.
Hardest push from the host ▶ 27:51 Challenging guest's preference for crypto-native foundersChris directly refuses Nick's framing that top protocol founders must be crypto insiders, arguing that maturing tech ecosystems attract elite traditional CS talent who build critical infrastructure.
Biggest teaching moment ▶ 15:05 Explaining algorithmic central bank token mechanicsNick educates the audience and host on how algorithmic stablecoins automatically contract and expand token supply via bonds to maintain a fiat price peg.
The host holds their own ▶ 16:47 Explaining forks as a governance check mechanismChris demonstrates domain mastery by framing blockchain forks as an unprecedented anti-rent-extraction check on maintainers using an intuitive Facebook clone analogy.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Usage Tokens vs. Work Tokens Framework | 7 | 4 | 1 | 2 | Host Chris Dixon actively enriches the guest's token framework by introducing historical IP and domain name analogies along with a Facebook voting concept. Nick provides clear definitions of token models while maintaining a completely collaborative dynamic. | |
| Traditional Asset Tokenization and ICO Risk Warning | 6 | 3 | 1 | 3 | Chris leads the discussion by framing traditional asset tokenization as a regulatory workaround rather than core crypto innovation, which Nick agrees with. Both speakers issue warnings regarding speculative ICO behavior in an aligned manner. | |
| Decentralized Exchanges and Near-Term Crypto Applications | 8 | 4 | 1 | 2 | Chris demonstrates deep technical understanding by breaking down the hybrid off-chain orderbook and on-chain settlement architecture of 0x. Nick explains the high gas costs of fully on-chain exchanges, creating a highly technical peer dialogue. | |
| Missing Middleware: Stablecoins and Decentralized Identity | 8 | 5 | 2 | 2 | Chris categorizes stablecoins into asset-backed and algorithmic types while highlighting economic reflexivity in monetary pegs. Nick details the internal bond and supply adjustment mechanics used by algorithmic central bank protocols. | |
| The Mechanics and Economic Impact of Blockchain Forks | 9 | 2 | 1 | 3 | Chris articulates a clear theory of forks as anti-rent-extraction governance checks using an intuitive Facebook data clone analogy. Nick admits ignorance regarding the origins of Bitcoin Gold while Chris points out absurd market valuation anomalies. | |
| Blockchain Scalability, Interoperability, and Talent Influx | 8 | 6 | 3 | 6 | Chris raises a sharp critique that token economic incentives might cause splintered developer efforts instead of unified open-source standards like Linux. Nick counters by reframing multi-chain experimentation as a massively accelerated idea maze. | |
| Future Predictions and the Shift to Proof of Stake | 9 | 6 | 3 | 7 | Chris directly challenges Nick's requirement for founders to have deep crypto history, drawing a parallel to classic CS talent entering the early internet. Nick acknowledges the valid point but maintains his preference for crypto-native builders. |
Statements from this episode (22)
Tomaino: 24 of top 25 tokens on CoinMarketCap are usage tokens
“And so, if you look right now at kind of coinmarketcap.com, the top 25 tokens by market value, I think 24 of the 25 are usage tokens.”
Dixon: Many ICOs masquerade as usage tokens just to raise money
“And I think what you were saying about ICOs is a lot of sort of masquerading is that there are obviously people taking advantage of With the, you know, just the money flowing in, and sort of taking what is probably just a normal company that's not a protocol, …”
Tomaino: Future crypto tokens will combine usage and work utility
“And by the way, these aren't mutually exclusive, so you can have tokens that are both usage and work tokens, and I think many tokens in the future will likely be that.”
Tomaino: Proof-of-stake will make decentralized organizations more inclusive
“So I think when we see proof of stake, we're going to start to see kind of more inclusive ways to create decentralized organizations that lots of people can participate in.”
Dixon: Traditional asset tokenization is uninteresting and a regulatory workaround
“My own view is that's far less interesting, and that's not even part of the crypto movement in a way. To me, it's not really a Cryptocurrency concept. And it just may just be a kind of regulatory workaround or something.”
Nick Tomaino: November 2017 saw $400 million in ICO token sales
“My sense was that the ICOs had slowed down quite a bit, but there were still four hundred million in token sales in November alone.”
Dixon: Early 2018 crypto asset prices have outpaced actual technological progress
“Put a very, very small amount of money into them because it's super risky, and I think a lot of people, including me, think it's very likely we're in a boom part of a cycle, and while I think we're very, very excited about the long-term technological prospects…”
Tomaino: Over $4 billion raised in token sales to date
“There's been over four billion dollars in token sales,”
Tomaino: Well-funded ICO projects will take years to ship products
“A lot of these big projects that have raised a ton of money aren't likely going to ship anything for many years in some cases.”
Tomaino: Near-term crypto wins come from serving crypto-native users
“I'm most excited about projects that are solving problems for the existing crypto community rather than the broader landscape.”
Tomaino: Decentralized stablecoins are essential missing middleware in crypto
“The volatility of Bitcoin and Ether are such that they're moving five or 10% in a given day, and no one that's actually using it as a medium of exchange for something or placing bets would actually want to use that, right? So a decentralized stablecoin, in my …”
Dixon: Forking prevents rent extraction by keeping network maintainers in check
“And one of the important things about it is it keeps the people governing the network in check, right? If they start to extract rent or do other things that are bad, the community can just fork them.”
Dixon: Bitcoin Cash's $26B market cap exceeds the entire 2016 crypto market
“Bitcoin Cash has like a, what is it, a twenty six billion dollar market cap now, which is more than the entire crypto space a year ago.”
Tomaino: Blockchain forks created significantly more value in 2017 than ICOs
“You know, we hear so much about the ICO boom, but in terms of, kind of, like, total value created this year, there's actually been way more value created by forks than ICOs.”
Tomaino: Ethereum processes 15 TPS, Bitcoin processes 7 TPS
“Ethereum can process roughly 15, Bitcoin roughly seven”
Dixon: Seeing 5 qualified crypto teams weekly versus 5 yearly in 2014
“I probably see five, what I would call, like, highly qualified teams a week now, whereas I might have seen five highly qualified teams, like, in the year of 2014.”
Dixon: Most Big Tech talent moving into crypto builds on Ethereum
“At least what I'm seeing is lots of teams leaving GAFA companies, Google, Facebook, et cetera, and getting into this, and like really good teams. People with real, you know, strong engineering and product backgrounds. And I think for me, at least, it's the vas…”
Tomaino: Hundreds of millions are spent externally securing Bitcoin
“So, you know, hundreds of millions of dollars are being spent external to the network of Bitcoin just to secure the network.”
Tomaino: Miner control over blockchain networks creates governance friction
“I think mining, like, miners controlling a network has proven to be pretty problematic. And so I think kind of aligning stakeholders and miners and putting them, you know, as one will be important in terms of, you know, progress in making changes to protocols …”
Dixon: ICOs are not necessary for crypto network success
“There's been so much attention on ICOs that, by the way, you don't need an ICO. Bitcoin never had an ICO. Ethereum had a very, relatively speaking, small one, eighteen million. And I don't think that was a key part of the network success.”