May 2, 2018 · 49m · y-combinator
Crypto Investors - Linda Xie and Avichal Garg · Y Combinator
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In this Y Combinator podcast episode, crypto investors Linda Xie and Avichal Garg discuss the foundational principles, scaling challenges, regulatory dynamics, and prospective opportunities within the blockchain ecosystem. They explore how smart contracts, privacy protocols, and layer-2 scaling solutions will drive the long-term evolution and mainstream adoption of decentralized applications.
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 partners as informed peer 2.7 Guest teaching 2.7 Guest disagreement 0.2 The partners pushing back 0.4
speaking balance: gold is the partners, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 7:21 Avichal rejects short-term dApp timeline hype
Avichal politely but firmly rejects aggressive mainstream timelines, projecting realistic decentralized app adoption to be seven to ten years away.
Hardest push from the partners ▶ 30:08 Craig challenges Linda on whether mega-raise capital can be spentCraig directly interrupts Linda's assertion that teams cannot possibly spend hundreds of millions, arguing that founders will inevitably find ways to spend whatever capital they raise.
Biggest teaching moment ▶ 38:44 Linda explains blockchain tracing and metadata leakageDrawing on her background in blockchain forensics at Coinbase, Linda educates the host on why optional privacy paints a target on users and fails against transaction tracing.
The partners hold their own ▶ 48:54 Craig synthesizes mainstream adoption through invisible infrastructureCraig demonstrates strong product intuition by drawing a direct parallel between invisible crypto onboarding and consumers not caring what backend programming language powers Facebook.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The partners as informed peer | Guest teaching | Guest disagreement | The partners pushing back | Why |
|---|---|---|---|---|---|---|
| Guest Introductions and Backgrounds in Crypto | 1 | 2 | 0 | 0 | Craig opens the episode by asking for foundational definitions of blockchain, crypto assets, and smart contracts. Linda and Avichal provide structured technical explanations while Craig listens attentively. | |
| Primary Use Cases for Smart Contracts and Decentralized Networks | 2 | 2 | 0 | 0 | Craig fields an audience question regarding realistic use cases expected to go mainstream within three years. Linda and Avichal break down decentralized exchanges, non-fungible collectibles like CryptoKitties, and programmable payment rails. | |
| DApp Adoption Timelines and Blockchain Technical Scaling Solutions | 2 | 4 | 1 | 0 | Craig asks for specific technical bottlenecks facing dApp adoption. Linda delivers an in-depth breakdown of scaling architectures including state channels, Plasma child chains, and TrueBit computational error verification. | |
| Technological Evolution Analogies and Global Crypto Adoption Hubs | 4 | 2 | 0 | 1 | Craig offers thoughtful historical parallels to early web design and urban leapfrogging infrastructure in medieval versus modern cities. Avichal and Linda discuss how underserved markets drive novel applications while Silicon Valley maintains institutional scaling knowledge. | |
| Regulatory Landscapes, Tax Incentives, and SEC Approaches | 3 | 3 | 0 | 0 | The conversation covers regulatory arbitrage, state tax migrations, and SEC oversight. Avichal highlights how regulators subtly persuaded Bitcoin ETF applicants to withdraw filings rather than issuing formal rejections. | |
| Investor Protections, Token Classification, and Combating ICO Scams | 3 | 3 | 0 | 1 | Craig questions the validity and risks of the unregulated ICO market. Linda and Avichal discuss regulatory compliance frameworks like Harbor Protocol, self-policing community vigilance, and the shutdown of speculative projects like Crypto All Stars. | |
| High-Opportunity Sectors for Founders in the Crypto Space | 2 | 2 | 0 | 0 | Craig asks where future venture opportunities lie, prompting Avichal to enumerate key categories across infrastructure, developer tooling, and oracles. The group humorously examines how adult entertainment and gambling historically pioneer new technologies. | |
| ICO Fundraising Dynamics, Tokenomics, and Founder Best Practices | 4 | 2 | 1 | 2 | Craig challenges the notion that mega-raise capital cannot be spent, humorously predicting founders will always find ways to burn cash. Linda and Avichal offer practical advisory guidance for founders, recommending traditional equity raises, vesting lockups, and avoiding toxic retail hype channels. | |
| Mandatory vs. Optional Privacy and Selective Transparency | 2 | 4 | 0 | 0 | Craig introduces a listener question on mandatory versus optional transaction privacy. Linda explains how optional privacy leaks metadata through ledger analysis, while Avichal draws a comparison to the historical browser battles to legitimize HTTPS and SSL encryption. | |
| Sovereign Cryptocurrencies and Invisible Onboarding Ramps | 4 | 3 | 0 | 0 | Avichal warns about the surveillance risks of central bank digital currencies, while Linda points to institutional experiments in Dubai and Venezuela. Craig concludes by observing that true mainstream adoption happens invisibly when underlying tech stacks are abstracted away from users. |
Statements from this episode (21)
Xie (2018): DEXs and digital collectibles will go mainstream within three years
“Yeah, the two ones that I think will go mainstream are decentralized exchange and probably gaming, something along the lines of collectibles.”
Garg: Programmable money payment rails like Lightning Network will get built out
“Or the big one, the other big one I'd add basically is, is programmable money. I think like payment, the payment rails will all get built out. Things like lightning network and plasma or zero fee payment networks that are coming up. And I think the merchant si…”
Garg: Privacy tokens like Monero have real utility unlike speculative ICO tokens
“I think private, privacy tokens are actually a thing. Like if you talk to a lot of people, hey, if XYZ thing went away, would you care about it? They're like, yeah, it would be kind of unfortunate if that went away, or I'd lose a lot of money because I was in …”
Garg: Mainstream dApp adoption is probably 7 to 10 years away
“I think it's probably like seven to 10 years out for most of these. I think we're really, really early in most of these cases.”
Xie: Decentralized apps are 3 to 5 years from mainstream adoption
“I think my time span is just a little bit short and maybe like three to five, but I think that there's a lot of scaling issues that need to be solved before anything can go mainstream.”
Garg: Early crypto dApps will be ports of existing products
“I think the early ideas will look like ports of stuff that we're used to.”
Xie: Crypto adoption will take off in unbanked and inflationary countries first
“I think it's gonna be in countries where people don't have bank accounts primarily, and they now need a method of actually storing their own funds or countries where the currency is just getting inflated away, and so the currency is not valuable.”
Garg: The biggest crypto winners will likely re-centralize in Silicon Valley
“I think you could have the inspiration for ideas come from underserved markets, but I wouldn't be surprised if the really big winners in crypto actually sort of re-centralize around Silicon Valley.”
Xie: Overly restrictive US crypto regulation will drive developers abroad
“So right now I think the US is being smart and not trying to be overly restrictive because they'll know that it'll push out a lot of the development, especially let's say if you were to just really be harsh on people that were developing on these projects. And…”
Garg (2018): US regulators have been measured and smart about crypto
“I actually think the US government Has been really, really smart about this and pretty measured and sophisticated, because I think they understand there's a lot of potential for innovation here and a lot of value to be created and they don't want to crush that…”
Xie: US security tokens belong under SEC regulation, unlike governance tokens
“If something straight up looks like a security token and you're issuing it in the US, I think that rightfully falls under the SEC regulation.
So I do believe in compliance, and that's actually something I really like about this new protocol, Harbor Protocol, w…”
Xie: Crypto identity projects are rudimentary compared to traditional finance
“Things like you port and civic, but they're really rudimentary compared to the identity systems that exist in, in like regular financial systems. So I'd really like to see people work on that problem.”
Xie: Decentralized governance research presents a massive startup opportunity
“I think there's massive opportunity to really figure out what's the best way to handle governance in a decentralized manner. I think that that's going to be a massive potential.”
Garg: ICOs are essentially a gambling use case
“In some sense ICOs are kind of the gaming use case, right? It's kind of like a gambling, it's a gambling use case, right? And like, that's actually kind of what's happening is people are just gambling as real money.”
Xie: Very few crypto projects actually need to conduct token sales
“So a very, very few times is it reasonable, in my opinion, to do a token sale. There's a lot of really great projects that can do decentralized applications or create their own blockchain or whatever, but they don't actually need to do a token sale. They can j…”
Garg: Crypto founders will re-aggregate towards value-add early-stage investors
“So I think what we're gonna see is a lot of people returning to that idea of, oh, well I could get money from five different places, who can actually add value to my company for the next three to five years and help me build this company? So I think we'll see …”
Xie (2018): 60% of token sale funds are raised in presales
“I saw some stat on that. It was saying like nowadays, 60% of the funds raised in a general token sale is, is actually raised in the presale round.”
Xie: Privacy coins must have mandatory default privacy to work
“So I essentially think that it needs to be mandatory privacy if you're going to actually have a privacy coin. If it's ever if it's ever optional, you get looked at if you're starting to use a privacy feature, like why are you using this privacy feature? Do you…”
Xie: Bitcoin is very easy to trace via counterparty metadata
“And so Bitcoin is very easy to trace and a lot of people give information away about other people. So even if you're being really smart and someone transacts with you, they give away, away information about you.”
Garg: The biggest risk in crypto is state adoption for surveillance
“I think the bigger and scarier potential risk is that governments fully embrace crypto in the wrong way.”
Garg: Crypto will go mainstream via invisible blockchain infrastructure
“At some point in like the next five years, it's not going to be that you're a crypto company, it's that you offer some value to the people who use your product, and it just so happens that you sit on top of blockchain, or you use crypto economics, or whatever …”