387. Why Now is the Best Time to be Investing in Crypto and Web3, What’s Next in NFTs, and The Future of Crypto Regulation (David Pakman)

David Pakman of Coinfund joins Nate to discuss Why Now is the Best Time to be Investing in Crypto and Web3, What’s Next in NFTs, and The Future of Crypto Regulation . In this episode, we cover:

  • The difference between Crypto-native and Crypto-dabble firms.
  • Catalysts driving adoption of Bitcoin & Crypto Currency.
  • Consumer use case for Crypto Currencies?
  • What’s Next in NFTs
  • Advice for web3 founders.
  • Why we don’t want five companies to control the future.

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Transcribed with AI:

David Pakman joins us today from New York City. David is a Managing Partner and the Head of Venture Investments at coinfund, a firm that specializes investing in web3 and crypto startups. Through his career, David has made investments in Dapper labs, Rarible and Dollar Shave Club to name a few. Prior to joining CoinFund, David was a partner at Venrock and a co-founder at Apple Music Group. David, welcome to the show!
That’s great to be here, Nate. Thanks for having me. Of course,
you know, maybe to start Can you give us your one to two minute backstory and your path to becoming an investor?
Yes, sure. I’m a. I’m a computer science engineer. I worked for Apple in Cupertino for a number of years, and was able to shift from a product management role there into a role around a passion area of mine, I was really into music my whole life. And so I was able to convince Apple to start this group, those became known as the Apple Music Group. And I helped build and run that for a number of years. I left Apple and Cupertino and, and and either helped build or started three different tech startups, mostly in kind of web one, web two, all focused on digital entertainment, had some successes there some nice outcomes. And after that I did sort of what most of my mentors did. After building successful startups, I became a VC. I joined Venrock as a partner about 15 years ago, and I was there for 13 years. I focused on early stage, consumer and enterprise tech companies. And I was fortunate to find my way into some good deals, I led the Series A round for Dollar Shave Club and sat on the board that was a fun exit to Unilever. I was involved in nest, where Venrock made the series B investment there. I led the series, a investment in dapper labs, the inventors of NFT standard, and I sit on the board there. And then I ended up at Coin Fund, which is a company firm that we partnered with at Venrock. They’re a crypto native, original servo GVC, focusing on all aspects of crypto and I run our venture fund.
So can you talk a little bit more about the transition from Venrock to coin fund, I know you were dabbling in crypto towards the end of your time at Venrock. And spending probably even the majority of your time, but why ultimately make the switch from Venrock, which is a great firm to coin Fund, which is you know, an emerging firm.
Yeah, I guess, love Venrock they’ve were very good to me still are today. They’re important LPS of ours and, and really my mentors, they they taught me venture, you’re not born knowing how to be a venture investor. It’s really kind of an apprenticeship model. And I was lucky to be around some really great world class investors there who helped me learn how to be a venture investor. But crypto is so vast and deep. Like there’s way it’s basically a parallel ecosystem or architecture for the internet. And I was the only person at Venrock interested in crypto and I lacked some thought partners or compatriots to help me cover this space and, and push me to learn more and help me learn. So we went outside the firm actually, to find that expertise. And in 2018, or 2017, somewhere around that timeframe. My partners and I made an investment in this firm coin fund to act as some eyes and ears and really help us learn crypto, and through interacting with them, and appreciating how much more they knew than I did. It just made me starved to sit in a room with people much smarter than I was about crypto. I didn’t like being the smartest person in crypto at Venrock. Because I knew so little. And so it’s nice to be at Queensland where I’m honestly, you know, I think one of the least experienced people in crypto compared to all the OGS who’ve been at it for forever. And there’s it’s just such a complex ecosystem that touches kind of everything. So I just came to the conclusion that if you like investing in crypto, it’s better to be at a crypto native firm, you’re more likely to win deals. First of all right? Won’t most entrepreneurs want to work with a firm who’s completely aligned and focused on crypto, but you’re also likely to make better investment decisions?
Is there any thing structurally different about firms that only invest in crypto versus those that dabble in like a Venrock? Have you noticed any key differences?
Yes, most traditional VCs do not register with the SEC as an RIA, and they take advantage of an exemption in the securities regulations that allow you to be a VC if, if you follow some particular rules, one of them is that you don’t buy more. You don’t invest more than 20% of your committed capital on secondary marketplaces, which is another way of saying you can’t buy tokens unless you buy them directly from I’m companies. And then there’s a bunch of other disadvantages you’re placed under if you afford yourself this exemption. In addition, if you are at a firm that raises a generalist fund, well, then your LPS don’t expect you to do that many deals in any one sub sector. So how many deals can you do in crypto if you’re the one partner at a generalist fund, and crypto is vast with 1000s of companies and lots of layers. So it’s really hard to cover the space, if you’re only doing a couple of deals. So a crypto native firm like ours, were registered with the SEC, we’re an RIA, we don’t have to live under that exemption, we can buy and sell tokens on secondary markets as part of our investment strategy, which we think is important in crypto. And we can invest in nothing but crypto, all of our LPs are there for crypto, there are other small technical things like we can stake our tokens, which I think is a critical component in crypto without worrying about the tax consequences or other issues that may arise to LPs.
I want to talk about some of the layers in crypto and what three that you’re alluding to. But we’re at an interesting time. I mean, this is two, three weeks after the banking crisis. And we’ll talk about what the fallout of the crisis means for the crypto and web three market. But in general, how do you assess and size up the crypto and web three landscape today?
Well, I guess I should just sort of caveat it with like, I’m a long term investor, you appreciate this as a as someone in similar boat, the investments of venture investor makes come to fruition over like a six to 10 year time period. So whatever is happening in the markets today is just not that critical. what is critical is that good things happen over a long period of time. So I am happy to talk about like, where are we in in the crypto cycles, but I think it’s less important than where we’re going and what evidence is there that we’re going there. So in some ways, you know, we’re, we’re like 11 years into crypto, right, going back to the Bitcoin white paper. And we have 1000s of projects, maybe even 10s of 1000s. Lots of software written some of it useful, some of it not. We have somewhere between 100 and 200 million people who have tried or touched crypto in some way, but very few of them active today. You know, in the US Coinbase has maybe eight or 9 million monthly actives. There was at its peak may be 30 million monthly actives, and Metamask, which is probably the most widely used while it so you know, I don’t know do we have somewhere between 10 and 30 or 40 million monthly actives, it’s hard to know what’s happening in China. So it’s a very small number. And in terms of number of developers, it looks like maybe somewhere in the 10s of 1000s to hundreds of 1000s of developers active maybe a million. So it’s small relative to tech. But it is absolutely one of the most interesting areas that developers are focused on and in, in software and hardware investing, as you and I were talking about earlier, you basically have to follow where the developers are going. They are the tip of the spear, that the entrepreneurs and this Dev, so we’re building software, that’s where the world’s going because they’re going to build it. And the data is that that crypto is one of the top three most highest growth rate areas in tech AI being one, probably like clean tech or climate tech being one. And crypto. And so if you’re one of the 500,000 tech people who have been laid off in the last four or five months, and you’re thinking of where you’re going, what interests what areas are interesting to you, you’re probably not saying enterprise SAS, right. Like that’s not the hot, interesting area. But like what’s happening in crypto, what’s happening in AI? This is this is what you’re thinking about. So it holds a lot of potential energy with all these people writing software. But what has to be proven is that there’s use cases for all this and widespread, but even even with the numbers I just described, it’s still an asset class that’s been worth between 1 trillion and $3 trillion, you know, in its first 10 years, which is an extraordinary amount of value creation, given the speculative nature of the future.
Yeah, yeah. So I guess to touch on one of these catalysts that is going to drive adoption of some of these applications and use cases. Again, I mentioned the banking crisis a moment ago, but as a result, we saw eath and Bitcoin go way up. And at the same time, despite the despite the run and the increase of the value of of both of them respectively, many of the same time are saying this is very short lived. People are shorting this positions and claiming that it’s a temporary run. I’m curious, I know it’s not the six to 10 year horizon, but in the near term, a lot of people are wondering, you know, where are we going to net out like, where are we at in the cycle? Is eath and Bitcoin going to stay at the current level? Is it going to go back down? So respect to the crisis, like how Do you think all of this is going to net out? As a result of people wondering are bank safe? And are they better off putting their money in in Bitcoin or Ethereum? I’m curious, from your perspective, is this a net positive? Or what is going to be the outcome? From the banking crisis specifically on Ethereum? Bitcoin? And then also cryptocurrency at large?
Yeah, I guess you’re really asking two main questions. So one is like, where are we in the cycle? And I think, you know, we’re at a, we’re a little bit up from a trough. But But that’s exactly where we are in tech, right? Maybe the best way to think about crypto pricing is along the lines of how you think of unprofitable tech. Right. So if there is like a Goldman Sachs unprofitable internet company, or unprofitable tech company index, that index was down like 80%, after the Fed started raising interest rates, so in a risk off environment, when interest rates are rising, the cash consuming companies unprofitable ones are the ones who get slashed the most because the DCF changes, right. And so I think you can think a lot about most of crypto assets as as risk on assets that go up when money is cheap. And people are comfortable taking speculation for yield. And they go down when money is expensive, and you get, you know, high interest rates with the safety of treasuries. So I would point out, though, that Bitcoin went down less than sort of the unprofitable internet tech companies and and is Bitcoin and a bunch of the alternative coins are up, you know, 30 to 40%. Since December, and so we’ve, there’s there’s there’s activity in the space. But again, I don’t care or focus on this, it’s it’s a question that a lot of people ask about, but it’s not what I’m trying to do. I’m not an investor trying to get a return in the next three or four months to tell you where to put your money. The questions that I can help you think about are why is this interesting over a long the long term? And that may be as the second part of your question. One thing that most people in the country believe to be true is that like banks are safe. I deposit money in there, and I can get it out. And at least in the US, they’re only safe, provided you have less than $250,000 per bank per account owner. And that assumes that the FDIC lives up to their obligations, which they always have. So it seems like a safe assumption. But we learned that in a rising interest rate environment, like even banks can break and SVB was one of the first to break but but not nearly one of the only ones that’s precarious. Yet in the entire year, since some are really year and three months, since the Fed began raising rates. One thing that has not happened is crypto technology breaking. So Aetherium and Bitcoin have gone on to work perfectly. Without fail, the network’s have not been down the smart contracts. And the core consensus mechanisms have not been hacked. There’s plenty of failed companies that were built on top of Aetherium and other crypto assets that were failed because of fraud, or mismanagement by the founders by humans. But the tech continues to work great. And you know, in the weekend before SBB, was shut down, what allowed the essence of the FDIC and the banking regulators time to think it through was the fact that the banking system goes to sleep at Friday at 4pm. And doesn’t go back on until Monday at nine. And that caused a huge amount of consternation for a lot of tech founders, who had to know whether they were going to make payroll on Monday or Tuesday, which depended entirely on them being able to get a wire instruction through to the bank. And no one knew what was going to happen or not. In fact, most of those wire instructions that went in Thursday afternoon just failed. Well, that that hasn’t happened on Aetherium and Bitcoin. You can make your trades 24 hours a day. And over the course of a few seconds or a few minutes, you know, they go through, and they haven’t broken. So an alternate form of moving money or value around the internet is working fine without any middleman without needing to trust any regulator. And the important thing to remember, of course, is that the internet and money in general is supranational. I mean, fiat money is national, but the concept of money is not. And so if you can create supranational national X national that bigger than state mechanisms for moving assets around which which has already been created, then you have really an innovation that could be broad and profound, right? It can touch billions of people, and you don’t have to wait for your bank to reopen to get access to your money. So I think your point, Nate is that a big contrast became apparent over the course of that weekend, where if you had Bitcoin, you could move your money around there was no you didn’t need anyone is permission, no one was down. And I think that’s an important observation.
Yeah, I, you know, I’m thinking about these catalysts for the adoption of what theory and crypto over the course of the next six to 10 years. And I think a banking crisis again exposes the shortcomings of the traditional banking system to put simply, and the benefits of putting your money in Bitcoin and Aetherium, as you just highlighted, and it had me thinking, obviously, this is one very salient one. And from someone who spends a lot of time in their space, though, like, what are some of the other catalysts that you see over the course of the next five years or so like, as you think about what these other catalysts could be, to onboard users to web three, and crypto, what aside from a banking crisis comes to mind? Or what do you foresee as being some of these potential moments? That could be a spur of change or a catalyst for growth for the onboarding? During crypto?
Yeah, it’s a great question. I think the first thing to remember is for the most part, beyond Bitcoin, everything in crypto is really a deset of developer technologies today. So the customers for most of the stuff that’s been invented our devs there are a lot of times people are asking what’s going to be the catalyst, what they mean is like, what’s going to be a catalyst to drive adoption? They mean, what’s going to be the catalyst to drive consumer adoption. Right now, we are mostly focused on what are the catalysts to drive developer adoption, because that’s what most of the products are. And so let’s talk about those. One thing that devs like to do is they like to develop on software platforms that are not going to go away or change, somewhat whimsically. If you are betting your life on an operating system, or developer tools, or a software platform or an API, and building a company around it, you don’t want some whimsical billionaire, to change their mind about whether you’re allowed to build on it or not. But the history of web two shows us that that’s exactly what happened. That a lot of giant software platforms like Facebook and Twitter that had API’s that 1000s or 10s of 1000s of developers built upon, were later got the rug pulled out from under them, when their whimsical CEOs decided that’s not a strategy we’re undertaking anymore. But blockchains are API’s platforms on which you build that cannot whimsically be changed, they are permanent. And they only change if the entire if the majority of the community votes to change them. So that’s sort of one main poll that developers like is the certainty that the API is not going to change. And then the permission lessness that lets you build on it, you don’t need to ask Elon Musk permission about whether your app is allowed to live on top of the Twitter API. When you build on a theory, you don’t ask anyone’s permission, you just deploy developers love this. So that’s a novel and important developer innovation. The second thing is, many of us both developers and users of web to software platforms have been helping contribute to their success, but have had no ownership in their success. We are the product, even though we are adding our content, we’re putting our pictures on Instagram or tweets on Twitter, we’re helping make the service awesome, but we don’t get any stock or payment to us in return for doing that. But in crypto developers and users can get tokens, we can get some ownership in the network. And we can also be rewarded with more tokens, the more we do on those networks. So that’s another reason why developers like to build on platforms because they’re paid in some way, they’re paid forward in the hope that the tokens depreciate in value. So these are two novel innovations that are attracting developers today. There are many more, but I pay attention to what the developers care about. And that is shifting, we have more developers every day building on top of crypto platforms and and that therefore means fewer going to build on top of Facebook or, you know, Amazon Web Services are the more typical platforms of before. The other question you’re asking, though, is okay, but what’s the consumer use case? Okay, well, I think the one to really pay some attention to is gaining all of the reasons why web gaming can be successful are really good reasons that should attract a lot of consumers. Now, whether it’s buying media that you own, like NF T’s you know, buying a digital song or buying a JPEG or a famous moment in sports that you own, that is some lightweight gaming and collectability. Or whether it’s you playing games, where the activities that you undertake and the value that you build a cruise to you your your sword becomes more enchanted, but you own that sword and can sell it outside the game. You can take game assets, you can own them, you can trade them, and you can use them in other games. I think these are very compelling narratives that will excite a lot of gamers as web three games come on the market.
Do you see a as as you mentioned, you follow the dead And they sort of show you the way, do you find that there’s a disproportionate amount of dabs focused on gaming? Or if you were to segment the areas where devs are spending the most time specifically developing on top of one of these networks? Where are they spending time? So if gaming is one, I’m curious if there’s a disproportionate number there. And then what are some of the other areas where you see devs? Really focus on? Yeah, so
I would say first, most apps are on infrastructure, they’re just building more software on top of blockchains. Because we lack a bunch of stuff that we have in web two, we don’t have it web three. So they’re building things like decentralized versions, though, but they’re building like decentralized databases, decentralized identity structures. While it’s an onboarding to make things easier, they’re building decentralized Resource Networks, like storage, or AI training, hardware. So that’s where a lot of people are building. They’re building defy decentralized finance. So I’ll give you a really interesting example, we have a company called Moon mortgage. Up there, as we talked about before, there are 10s of millions people in the world who own some crypto, some of that crypto is worth a lot of money, because people bought Bitcoin or Aetherium, when it was very low. And, and even today, it’s up much higher than it was, you know, five years ago, that is an asset that contributes to someone’s net worth what suppose you want to buy something expensive, like a house? Well, when you go to try to get a loan from a bank, they say, you know, fill out this form of your net worth, show me your assets, and what they mean is like, show me your bank accounts and your brokerage accounts. But if you say, Well, let me show you my bitcoin. It’s, you know, $350,000 a Bitcoin. And I’d like to buy a $250,000 house, they say, I’m sorry, I don’t know, if you don’t value at zero. Well, then you could underwrite someone to get a mortgage, by their crypto assets. So there are this is an example of defy building an alternative version of the finance system that will give you a mortgage or underwrite you for a mortgage. But look at your crypto assets, not just your traditional finance assets. So defy is an area where where people are, where debts are spending time. So I see I see defy, I see infrastructure. I see NF T’s and web three gaming. And there are a couple other areas too. But those are probably the three most active areas for developers today.
Do you think we’re getting close on the infrastructure side to having the you know, the tooling from end to end to build some of these applications that serve the end consumer use cases? I feel like one of the common things that I hear about is we’re only seeing infrastructure get built, but at the same time, so much of it is necessary. So I’m wondering where are we at in terms of the lifecycle of being able to allow a dev to plug in and not develop all of these infrastructure components themselves? And have you know, the AWS equivalent of the web two ready to go? The Identity Management like an Okta, etcetera, curious to get your perspective just on where we’re at in that lifecycle?
Honestly, I don’t think we’re close. I mean, I’m disappointed with that answer. But I know how rich the web two stack is, it’s unbelievably evolved at this point, because it built on top of the web one stack. And web two was not really a major architectural change. You know, I think of web two as mobile, social and cloud. But the cloud stuff, we just took the same software we were using in web one, we put it in the cloud, right? So I don’t need to buy a server, I just rent one from Amazon. Mobile apps were a little different. But it’s still there’s a server on the back end sending a bunch of data that gets rendered, you know, maybe not in the browser, but in an app. And I can do a little compute on the device, it wasn’t a wholesale change. Shifting to web three is a pretty big change, I have to rethink my data model entirely. Where do I store my user data, I can’t know my customer, I can only know them by a wallet address. The customer data is self sovereign to them, I don’t get to keep it overnight, to do things like aI on it, write machine learning and build up a better homepage for them the next time they log in. So there’s really big mental change. And the truth is, there’s just not nearly that full stack that exists yet. There are some people really working to solve that, though. I mean, we’ve seen a lot of software. But I’ll just give you a small example. Pretty much any app that you open today, built by a large tech company, almost everything you’re seeing has been machine learned, like the the ordering of the lists, obviously, the feeds you’re seeing in any news reader or social media app, there’s a machine learning model running behind the scenes to personalize the delivery of that content to you. It’s really hard to do that today, in web three. So most people are building web 2.5 apps where it’s like a hybrid app where we use some of the web three principles, but we use an awful lot of web to technology, and we violate some of the decentralized principles in order to do so. I think it’s a really good idea. I’m seeing a lot more of that, especially in gaming. And so I don’t I’m not opposed to that at all. But I mean, the interest, we have a lot more software to build, disappointingly so. But it’s true.
Is there any concern from your standpoint that all this different infrastructure will be built, and the application layer will not catch up to the infrastructure, and a lot of these companies will be stuck with a small subset of customers to serve. And, you know, they won’t be able to hit Escape Velocity, because there just are not enough people utilizing the infrastructure.
Oh, absolutely. Like, that’s definitely going to happen and sort of the rule of startups right as most don’t succeed. And so that’ll be true. And web three, also, we were already a few generations in to web three technology, and a bunch of the early ones either have failed or don’t exist, or the sort of zombie ish, you know, still plugging along, but not a lot of people use them. In fact, you’ve pointed to really my the biggest question I asked about everything I’m looking at from an investment perspective is show me your traction? Like where do you have your confidence that you have product market fit, and even if it’s developer, product market fit? Show me the devs that are using the tech show me what they’re building on it? And then show me them sticking around and building more? See, because you got to start with that loop somewhere. Right. So yeah, I think I think a bunch of it’ll fail. I guess there’s, there’s, there’s a possibility that this is a big nothing burger, and there’s absolutely not going to be you know, any web three daps that catch on, that would be an easier thing to believe if there had been none so far, but there actually have been quite a few. And so we can go back and look at at crypto Kitties and, and NBA Top Shot and NFL all day and, and so rare. And so here’s a group of NFT collectibles, mostly in sports that have had somewhere between hundreds of 1000s and millions of users. And and those people have spent a lot of money. We have NF T’s more broadly with with profile pictures and those 10k collections we’ve had about, you know, like, you know, like 50 billion gross traded hands in two and a half years run NF T’s. It’s a massive number that makes NF t’s the most successful consumer product since the smartphone. So if we didn’t if we weren’t able to point at some of these examples, I think we could be morose and be like, maybe nothing’s ever going to happen here. But I think things have happened and more well,
do you advise? do you advise web three founders to build their companies differently at all? Like, do they need to be more patient because so much of this is out of their control in a way right where it the market is developing in parallel. And there’s a real risk of trying to build the company too quickly, overextending their cash position and going out of business before the timing is right. And all these applications catch on. And we’ve seen timing be such a critical element to evaluate whether it’s, you know, went through crypto, but almost any market, right? So I’m curious, from your perspective, having worked with web two companies, now working with web three companies as a board member? How do you advise CEOs differently than those of web two companies?
I think there are major differences. But a lot of that has to do with are you creating a token? How much of your enterprise value will accrue to your equity versus your token? What’s the tokenomics? How you sell the token? Who’s it released to? What’s the economics the the reward structure, the usage structure? When people use your network? Do they pay in tokens do you do to offer reward tokens to developers for for doing what for running nodes or for you know, transactions on a network? These are web three specific questions that we work with our companies on the core questions of like don’t burn too much money until you have product market fit and look for traction like this is standard rulebook stuff that we’ve we’ve all been thinking about in startups for decades. And that all applies here. It all applies here. But there are a lot of web three specific questions that are very different. And this is why I think we tend to invest in sort of web three native crypto native founding teams that wants to embrace crypto, this could be a mistake, that there may be plenty of web two teams that just want to capture a couple small incorporate a couple small attributes of web three into their next app or the next game. And that approach is a credible one that I’m spending some time with a few entrepreneurs on, and will remain to be seen whether that’s a really interesting path, right? Where you don’t have to be full on crypto in order to be successful, but you can start to incorporate some of the basics. I’ll give you an example. At eath Denver. There’s a bunch of tools that people are showing off that that take the big popular 3d gaming engines, like Unity, and unreal, and add the ability to have in game assets that are actually NF Ts, and then to right back to the NFT as the game advances the qualities or the attributes of the of those items. So the example you’re using before you know, you slay a dragon with a sword, the sword becomes enchanted. Now we will right back to the the NFT, which was a sword and mark that it’s now an enchanted sword. And so it has a new attribute, which could create some more value or more rarity. Maybe you’re really a web, the earlier web to Game Dev that does awesome 3d, first person shooter games in unity. And you want to just add the NFT bonus right to your endgame items. But you don’t want to like, like, build a game engine that’s running on Aetherium. Right, that would really work. So sort of partially on chain games is the way we talk about this. And I think it’s fully credible. And there were a lot of games that were being debuted at eath, Denver that were built in this way. I think it’s interesting.
Prior to the show, you mentioned over email, that your expectation, so there are a lot of valuable things. Excuse me, I’m gonna have to repeat that question. It’s okay. Prior to the show, you mentioned over email that your expectation is that there are a lot of valuable things. Are there a lot of things that people are excited about today that are not likely to be valuable in the long run? Right, like things that are just overhyped? I think many would claim that crypto and web three actually fall under that sentiment. But I’m curious from your perspective, like what are what are some of the other areas that you’re overly that people are overly excited about that you’re very skeptical about? And it’s sort of a two part question. The second part here is, you’re obviously obviously very bullish on web three, and crypto, hence, your move to coin fund. And you acknowledge the fact that, you know, there could be a zero burger at the end of this, I think it’s unlikely as well, but it’s possible. So why, like, what are you holding your belief on specifically with web three, and crypto and what areas you think others are being overly zealous of?
I’ll take the second question first. So like, you know, why do I believe that it’s, it’s the right decision to devote the rest of my investing career to the 10 year, next 10 years of web three and crypto. And it’s just because the pattern that I’ve seen over 30 years in tech now is that we have these major architectural changes every 10 to 15 years. And they those those architectural changes themselves take 10 or 15 years to fully process and seep in. But I believe that we’re undergoing it. And the evidence is the stuff that we talked about how many developers and how many projects, but when you talk to the developers who are building in web three, they are drawn to it, not because it’s easy, because it’s hard right now. And not because like, there’s immediate riches, because there’s not anymore. But because they believe in the ethos behind it, as we talked about in the beginning of the podcast, they want to own the networks that they make successful, they want to get paid for their work, they’re tired of being exploited by platforms. And they’re tired, again, of the broad pools, where they devote years to building companies on platforms that then depart for them deep up from them, or disadvantage them in some way. And so that’s a very powerful notion. I also think that like most of the internet, is built by geeks deserves small, niche communities that are super passionate about certain things. This was Linux and Google it’s robotics, right? And which is, you know, probably going to impact the future of automobiles with self driving cars at some point. And, and this was happening in crypto now is a minority of super passionate. technologists are building decentralized architecture as a reaction to not just the the tech of web two, but maybe even some of the political environment we find ourselves in over over the last 10 years where we have institutions that are less powerful to solve big problems. And so and they maybe were not as believing in in the pure principles of democracy is the perfect way to govern system. So we want to create alternate government governing systems like Dows. So this is a purposeful driven architectural change. And that’s what excites me the most. So that was the second question about why the first one was what other people believe in that I don’t believe in.
Yeah, what areas do you think right now are overhyped? I mean, right now, the craze is definitely generative AI, maybe, you know, be curious to get your quick two cents on that and whether or not you think it’s overhyped? Or what other areas come to mind that you think people are overly excited about the you’re questioning the long term enterprise value over the next five to 10 years?
Yeah, I think just the the echo chamber of Twitter is what creates the Breathless focus on things in the short term and they’re sort of undeserving of it and the media follows that and the media loves to build up that breathless thing just so they can rip it all down when it when it doesn’t manifest as great as we all said it was. I’m not going to comment actually on your question about like, where are we in the AI cycle or is is generative AI hype drove? Because true. Since like I kind of retired from focusing, you know, on on that exclusively, you know, two years ago to focus more broadly on on crypto. And what we are focused on is, where’s the intersection of crypto or web three, and AI. And I think that’s a real interesting case today. Because if you are following large language models and and generative AI, then what you’re seeing is there’s like five companies in the world that are going to control these massive large language modules, which would depending on your view, or either the future of humanity or the end of humanity. And so crypto looks at that and says, That’s not good. We don’t want five companies to control the future or the end of humanity, we want an alternate path where all of us control this. And that is a decentralized version of AI. We want the models to be decentralized. We want the hardware on which they are trained, to be decentralized. We want the networks where they are deployed on to be decentralized, so that we all own in them, and we can all vote to control their future, but not have Sam Altman decide the future of humanity and not have Google decide the future of humanity. So that’s my that’s my sort of focus area there. You know, I think I think people have been there probably, we’re all pretty incensed about, there’s this question about whether the US is going to get crypto right or not. And this is a very popular topic among people in web three, where we have a sort of administration in the US that was kind of burned by Sam bank and Fried’s foe generosity, spreading a lot of donations that may or may not have been his own money. And that has created this big backlash. But what’s so strange to me about that is America was always the leader in in the major tech movements of the past, and then benefited enormously from this by having millions of startups and millions of jobs created, and then technological leadership that follows from it. And so if we’re right, that web three and crypto really are the third generation of the internet, the new way for the next 15 to 20 years that apps will be built, and maybe also impact like the global financial system and maybe create, you know, a more equitable global banking system. Or maybe if T’s really create a much larger IP industry, then then you want to want to play some leadership here. And right now, the US is doing its best to kick it off shore. And I think that’s really, that’s really concerning me, because we are seeing evidence that startups that would have been us startups are being founded in Europe and the UK, just because there’s more crypto friendly certainty there. And regulation is the first time I’ve ever seen it happen in tech.
What do you think is the most likely scenario for the way that the US regulatory environment shapes up in the way that they deal with cryptocurrencies?
I think it looks to me right now that they’re going to get it wrong in the next 18 or 24 months, that will create a bunch of alternative approaches in Asia, Europe and UK right now look super promising. And then those experiments will be run. And if we get scores, or hundreds or 1000s of crypto companies or projects in those Providence’s and those start to become successful in the US is going to go away, because someone will wake up over here and be like, This is not good for us the way it could become unbelievably threatening. Today, the dollar is really the settlement currency of the world. And on in crypto, the stable coin is sort of the settlement asset of the crypto economy. And right now, most stable coins are denominated in dollars, which is good for the US. But if the US makes stable coins, really unfavorable, then there will be more success around euro or pound sterling dominated stable coins. And if that happens, and there’s already some evidence that this that share shift is underway, that threatens the dollar, which is actually probably more of a threat to the US than than anything else. And that would probably I assume, wake up a lot of people in government.
Interesting. If we could feature anyone on the show, who should we interview on? What topic would you like to hear them speak about?
Yeah, I find Sam Harris. If you know me a podcaster. And sort of neuroscientists who writes a lot of books, I find, he seems to be able to come to the right point of view on just about any topic. So, you know, I think you should interview him, and you should throw AI at him since he thinks a lot about that. I think that would be good. I like I like I like creative people. I like to ask creative people the questions about what the people who’ve been very successful, successful as a creative person, that what do you do to do what you’re going to do next? Like I feel like when you have so much to prove, it’s kind of easier to be creative, but when you have nothing to prove, can you still compel yourself to create so I don’t know you know, Lin Manuel Miranda? or, you know, Eric Clapton or you know, anybody who’s just like, super can’t How do you push yourself? Because I think it’s easy to push yourself to work hard, but but it’s sometimes hard to push up to create heart. I might, I might ask you to get a few of those books on,
we’ll see what we can do. What book article or video? Would you recommend to listeners? Like? Is there anything that you listen to or consume on a weekly cadence?
I listen to a lot of podcasts, a lot of web three stuff, you would expect that, but I think I do my best thinking when I’m when I’m reading books. And so I think Shoe Dog was was a great book, you know, the story of Nike by Phil Knight, because as an entrepreneur, it’s so easy to see a company that is hugely successful, that was near complete failure multiple times. Right, like just, it’s great book. Yeah, it was was was sort of successful, despite the fact that it almost completely failed. I don’t know how many different times. And I think that was an important one to look at, because of what we just went through with SBBs failure. You know, if you had a lender that swept cash every time, the total cash balance of the company was less than the amount that they borrowed, you know, you will, that company would have failed. Right? So I don’t know, I think that’s a that’s an important one. I think. The other book I like, is a book about decision making. Since I think that that’s kind of what we’re doing most of the time. It’s called How to decide by Annie Duke, which was a great book for me to think through the complexity of decision making. I mean, you know, at the core, and investment is a decision. And, you know, it kind of plays on the system one and system two type of thinking that, you know, we’ve got Nobel Prize winning thoughts on so I don’t know, I find that one to be useful.
And then last but not least, David, what is the best way for listeners to connect with you and coin fund?
The best way is either over Twitter, I’m on Pac Man, Pa que ma n but I don’t know, I might be spending a little bit less time on there these these days. So you know, I’m David at coin fund.io. We’d love to hear from anyone who’s building in web three.
Awesome. Well, David, thank you again for the time. It’ll be interesting to see the the way the next few years unfold here.
Having me on congrats to you on your success. And I appreciate you seeking me out for this.
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot them an email, let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same accomplishment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening
Transcribed by https://otter.ai