#249 Ryan Zurrer: Polychain – A Crypto Hedge Fund Success Story

Transcript

Hi, welcome to Epicenter, a cryptocurrency show that interviews entrepreneurs, academics, and thought leaders in the blockchain and cryptocurrency technology spaces. My name is Meher Roy and My name is Sunny Agarwal. And today we have on with us Ryan Zurrer, who is one of the principal and venture partners at Polychain Capital. Ryan, great to have you on the show. Um, could you start off by telling us a little bit about your background and uh how you got involved in the cryptocurrency space? Well, thanks for having me on, guys. Uh I really appreciate it and I've been a a big fan of the show for for a long time.

Originally, I got involved in in blockchain and crypto, took sort of the proverbial um trip down the Bitcoin rabbit hole uh in 2012. Um at the time, I was running um a fairly large renewables company um in Brazil. Uh we're doing execution and deployment of of large-scale wind and some solar. Uh and I was sending remittances home, but was very dismayed at the cost, the overall kind of cost of remittance. A lot of people don't realize that as an individual, you end up paying a tourism dollar and not commercial dollar quite often, which adds um considerable cost to it.

And so, um discovered Bitcoin as sort of a new means or new rails for for sending remittance home. Um set up a a company in Brazil that did that professionally, which still operates today and still has um a really loyal following uh people who use it for payments and and um international transfers. Did some mining as well um back in those days. This was sort of like pre-knee of the curve on the the mining difficulty explosion and that started kind of late uh 2013.

Um and yeah, just you know, became very passionate um about the potential for this technology and where we were going with it and certainly, you know, sub-areas like uh smart contracts and governance were were primary interest. Um and then in 2014, became very dismayed with sort of the narrative in the the Bitcoin community and migrated um fully to focus on uh Ethereum and next-generation blockchains. Um continued to to angel invest um in the space. At the time, I had um a certain amount of access to excess legal resources. So, usually I'd reach out to a team

um just via cold call or cold email. Um offer to deploy some money, but also offer to deploy some help. So, either help with some legal stuff or um just whatever whatever I could. Uh and that's actually what brought me to um uh to Polychain. It's just cold calling Olaf and and offering to help. Cool. And so, you know, uh what made what brought you to Polychain specifically? Like, why did you choose to, you know, there were a lot couple other uh big like crypto hedge funds starting around the same time. What uh attracted you about what Olaf was doing?

Yeah, so um at the time, I was spending this kind of an irresponsible amount of time on crypto and and not nearly enough time on my business. Um and my board had sort of questioned uh questioned the amount of time I was spending on like traveling around and going to crypto conferences and and and not running um that organization and that team, which merited uh a focused CEO. And uh, I started out looking for somebody else to be able to manage my crypto portfolio for me so that I could refocus on my business. But then during the process of that uh, and meeting with some of those early crypto funds, so Olaf with with Polychain and um, Lucas Ryan with Metastable and uh, Jake

Brockman with with CoinFund. Um, it at that time it just sort of occurred to me uh, you know, how deeply passionate I was about about the space and still am today and how um, realistically this is what I wanted to spend my time on. Um, so when when I went back to my board and and sort of explained to them how yes, they do need a a focused CEO. Um, uh, they for one moment were were quite happy thinking that that I was going to refocus on the the task at hand and instead I resigned.

Um and decided to uh, seed Olaf and and then join Polychain as as the first employee. For many reasons, um, but primarily because I identified that he was a very pragmatic, very strategic, um, low ego investor which uh, it is very important. We shared a common thesis on the space that opportunity would accrue uh, deeper down the decentralized software stack known as Web 3.

Um, that there was sort of gray areas between like protocol and application layer, uh, but generally you kind of lower the better. Um, and our original call I think was scheduled to be 30 minutes and I think we cut it off at about two hours and change and before we both sort of like, "Okay, I got to go. I got to go." Um, so we hit it off personally um, right away and then I just liked his approach. And then very quickly around that time, Olaf was and Polychain was starting to consolidate kind of both sides of the equation. So, the top investors were starting to pile on.

Uh you know, Union Square, Andreessen Horowitz, Sequoia Capital, Bessemer, Bain, so on and so forth. Uh and then, also the top projects were sort of flocking to to Polychain in part because there was a validation of the investors and in part the investors were were coming in because of the validation of the top technical minds. Um so, there was already a a really great relationship with with the Polkadot project and and the Tezos project and ZeroX and Augur and um so on and so forth. And so, there was a momentum there that um kind of allowed us to sort of extend a lead on on the rest of the um you know, the rest of the industry

and and and fortunately, we as as of today have haven't really relinquished that lead. Um so, pretty happy with with the growth. The the the company changed and evolved quite quite quickly though as we started working together. And really, again, my MO was this like pure seed stage or almost pre-seed as we would call it today, um angel investing. And and so, I just wanted to come in and kind of do what, you know, do what I know how to do and what was working for me. Um and so, came in and we you know, we wrote the first SAFs and and certainly have executed the most SAFs um since then.

And uh and that has been the primary source of our alpha is connecting with entrepreneurs at a very early stage, um helping them through their the pain points that they face uh as they as they grow their their businesses. Um and then, you know, just being a mentor and being being available to to support the growth of of these protocols. So, Polychain ended up generating a lot of SAFTs, and we'll get into that later on in the conversation. But, you actually started off doing something like SAFTs in 2015. Is is that right?

With Maker and Augur on a personal capacity? Yeah. Yep. That's fair. Um you know, I'm not sure if we'd call the Maker one a SAFT. I think we like had to just post a transaction on the um on the uh on the message board, uh the Maker like Maker um forum at the time. I have been angel investing in the space since uh about 2013. And however, focused more on kind of next generation uh blockchains and and the Ethereum ecosystem specifically at that time from about 2015 and was focused mostly on tokens and token-enabled protocols. And

kind of getting out in front of eventual token crowd funds, which which became known as ICOs from about 2015 on. And so, that's you know, as I transitioned into Polychain, it just made sense to kind of continue to do the thing that that I knew how to do, um which was not trading. I'm not really an active trader. I don't really I can't really speak to like daily or weekly or monthly movements in in public uh crypto markets. Um I just focus on connecting with entrepreneurs at a very early stage and and um helping them grow.

Cool. Um So, actually for the benefit of our listeners um So, like Polychain is a crypto hedge fund, and it's I think the most successful crypto hedge fund or one of the most successful measured by assets under management. Could you tell us what is a crypto hedge fund, and how is it different from a venture capitalist? When we started Polychain, a crypto hedge fund in in our view was a fund that was exclusively focused on um blockchain tokens and sort of this new form of digital scarcity uh and making investments in these peer-to-peer

networks and that you know, use the token to drive in some kind of crypto economic model drive uh security and network effects. Uh and a crypto hedge fund is is exclusively focused in this area. Um however, the sort of the scope of a crypto fund has uh expanded in part because we identified around this time last year actually that it it was kind of be you know, summer of crypto love and and a lot of hype and mania around ICOs and and using tokens for anything.

Uh however, we saw sort of the mature uh entrepreneurs start to take a more cautioned approach to tokens and start to um take equity as their kind of first investment and and delay any structure with respect to a token and be more patient with a token. So, we expanded to also start making equity investments via venture vehicle. Um and I think many of the crypto funds that you see today and you know, and certainly going forward will have this very hybrid approach to invest, you know, in tokens, uh potentially trade tokens as well where where they're they have like a market making or more active trading mandate.

Um but then also not forget the opportunity that is implicit with uh with early stage seed equity investments of teams, you know, very special teams that go on to either produce an interesting protocol or in many cases our expectation is that some of these very special teams will go on to produce many protocols. Um and and so it it really has migrated, at least from our perspective, more towards a VC um look than say a hedge fund look. Now, there are many funds that are, you know, active quant trader um strategies and that's fine. That's really not our forte um and it's not

what we enjoy doing. Okay, so like the whole space of crypto hedge funds, it could have firms that specialize in the tokens that are already public and like exploiting opportunities there's like something like BlockTower might fit a description like that. Whereas like think that's fair. Whereas um like Polychain would fit the the stage where there's an entrepreneur with a very small team. There will be a token, but that token will be still probably a year or two away and the entrepreneur needs money.

That's when they approach Polychain. Uh Polychain puts in the money in the expectation that the firm will get tokens 2 years into the future. Not necessarily that the the firm expects to get tokens in the future. Uh I can fast that's certainly how it started out. But now, again, just because of the evolving regulatory market and and the evolving nature of our of our industry, we don't expect and we certainly don't try to push every project towards a, you know, some kind of tokenized model. Um there are many models in within crypto economics that don't imply token.

Um there are many ways to drive incentivization on on peer-to-peer networks that don't imply tokens. And then uh the last thing I would mention with respect to expectations of tokens or not is we're often having conversations with entrepreneurs today uh where we kind of come to the conclusion that, you know what? If you just charge a fee on your network, a very simple, transparent, small fee on on this network for the maintenance and security and all these other things that your team is providing, it's very doubtful that that fee is going to forked out. And it's much more likely that a token that is forked on that network gets forked out. Um so so we don't we

we today don't try to push um projects towards a a token model at all. Um that's that's a very important distinction. But certainly, there's some expectation of some monetization in the future. We try to be very experimental, um very patient with with respect to, you know, business models and how value's created. Um you know, our our sort of mandate mandate is that if you build something cool and interesting, you know, there will be value along the way. Um someone will figure out how to monetize that in appropriate fashion, but we're more interested in just like, you know, entrepreneurs building really cool technology uh deep down the the decentralized software stack.

So essentially, you guys are acting a little bit more as like a VC here, where like a very hands-on approach to like helping out the uh teams and stuff. What are some of the other ways that you help out the teams? Like, so you mentioned like helping them figure out like business models and whatnot. Uh what are What do you provide any other like services or like aid to the projects you're like investing in? Yeah. So this is very core to who we are. Um and to my knowledge, I I think we're probably the fund that deploys the most amount of capital outside of capital in into a project just in people helping our projects. Um nearly half of

our team works for um our sister company which is called PC 2030. Um PC 2030 is named after the futurist FM 2030. And it's the this whole team is um designed and focused on just adding value for projects. So there are seven verticals that we identified that most of the projects in our space um have issues with. Um seven major pain points. They are legal and regulatory, uh smart contract security audits and code reviews, uh community management and PR with we help more with community management um

and building a community than we will with say like traditional PR, although you know, we can help with traditional PR from time to time. Um crypto economic design and and then like token distribution uh mechanisms. So we get often into, you know, whether to do an airdrop or not to do an airdrop, different um token designs, different um funding mechanisms, so on and so forth. Uh that's something that we do in-house and our research team spends a lot of time on that. Uh from there recruiting and executive coaching is the thing that we spend the most amount of time and the most amount of resources on for our projects.

Uh cash management and OTC deals. So we want to make sure that our projects have enough cash on hand um and often that, you know, the easiest way to do that is to do an OTC deal. Uh and then business development. So like, you know, helping some projects connect with exchanges or connecting with other projects within our portfolio um that help their business grow. Because as this space matures, we're starting to see people need to take a more kind of pragmatic um approach to, you know, business development and actually forging relationships and and sort of getting out there and selling um selling what they have to a to a legitimate market and not just sort of expecting, you know, if they build it um everyone will come to their door.

Um so we spend a a lot of time, I spend almost half of my own time on on these support functions with projects. Each project sort of selects from this menu of seven items the things that they need. Almost all of the projects select um recruiting uh cuz that's obviously the biggest the biggest pain point that we see in the space today. And these services are available free to our projects uh and it you know, again, it's very very central to the thesis of our fund. Um you know, now that capital is no longer the scarce resource because a bunch of venture capitalists on Sand Hill Road are no longer the gatekeepers of capital, in order to survive and thrive as an institutional capital player, you have

to provide what is the scarce resource. And that again, it's not capital. It is all these other things. It's this real value add. So, in order to um get in front of the best entrepreneurs and technologists, in order to be leading, you know, the best rounds in the best projects, um you have to be known as, you know, the best highest value add player in the space and and we work very very hard um for our projects in this respect. So, traditionally what what has been the difference between a hedge fund and a and a VC fund? Like as as I understand it, it's it's really liquidity, right? So, when I let's say invest into a hedge fund, I can liquid like and I want to take

money out of the hedge fund I have put my money into, Mhm. I can send an order and maybe 15 days, a month, or 2 months later I'll have my money back. Whereas in a in a VC fund, I put my money in and then it's locked up for an extended period of time, maybe 10 years, Mhm. 7 years, and then I'll get lot more hopefully more money back than I put in. Uh and and like that's been the difference between uh these two worlds. Now, I see something interesting happening here. So, in the beginning like crypto hedge fund started with the expectation of trading with liquid cryptocurrencies.

And the one side, you have a firm like Polychain that began with that sort with that approach, and then transitioned and then pioneered the approach of like investing in SAFTS, uh which are more illiquid. Mhm. And on the other side, I I have personally met over the past months a few VC firms that started off as complete like totally traditional VCs doing angel rounds or pre-seed rounds or seed rounds, but now that are also investing in these SAFTS.

So, an example would be like I met this fund in New York called Notation Capital which uh which is willing to put money in the in in expectation of future tokens. So, crypto hedge funds are starting to behave more like VCs putting money to illiquid things. And VCs are also starting to behave a little like crypto hedge funds buying uh putting money into contracts that would give them tokens. Do you think like the future is that this crypto hedge fund and VC these two markets merge and they become just one market, the the VC market?

Yeah, I I think that's you know, a very good point um and and very well identified and and kind of like segregating the different categories here. Uh that a crypto fund can span the whole range of, you know uh illiquid uh venture capital investments to very liquid active trading uh hedge fund investments. And so now I would add the caveat that I have not seen a a crypto fund do both well.

Often you'll see crypto funds kind of pick a spot somewhere in that in that spectrum um and try to do that well or the ones that that succeeded have tried to to execute sort of one thing very well and obviously you know uh Polychain today sits further towards the you know the VC illiquid assets um because obviously SAFs are illiquid not for the length of time that a venture investment is but still um you know quite illiquid and then we do have a separate venture vehicle which is for those those very long horizon um equity plays.

You know then we have observed this trend of the traditional VCs observing that they like they really can't survive unless they play in this market. Um you know a lot a lot of VCs would have had to do some some explaining to their LPs in the last which are their limited partners or their investors for those who don't know. Um would have had to explain you know if they didn't have a really significant uh 2017 why that was the case because so many crypto funds did so well.

And so um we kind of observed in the early days of Polychain where we started doing well some of the our VC backers uh would call us and be all you know happy that like you're making money and we're making money and this is this is going great. And then over the course of about kind of June July last year the calls would be with somewhat more concern um in their voice where they started to want to participate more directly in some of these these SAFT rounds that we were doing and and we were happy to include them because, you know, fortunately this these are some of the leading venture investors in the world and this just adds more credence to our space as a whole.

Um but we we definitely saw some pressure for traditional VCs to venture into the space because it it was existential risk for them and remains existential risk for them. I think a a venture investor like a generalist investor that doesn't have any exposure to crypto um will probably underperform their peers over over the long term in the next say like call it decade. Um so it doesn't surprise us that there's this kind of melding of the worlds and we'll see crypto funds basically be anything in the in the range of of trader to to to illiquid seed stage assets and many funds doing all of the

above. Um whether many funds do all of the above well, that still remains to be seen. So you say that like you mentioned that um the crypto space has like act as an existential risk to like current VCs and stuff. So we've been talking a lot about the SAFT. One of the things that I like personally dislike about the SAFT is like it's basically restricts like only institutional investors are able to participate in the sales. And so do you think that like, you know, I feel like early last year in 2017 there was a lot of like talk about how ICOs are disrupting the VC space, but now it seems that it's been seeming to me that most of the

participants in token sales are essentially just VCs at this point and now, you know, common people who aren't institutional investors aren't able to uh participate. What are your, you know, thoughts around this? Yeah, so that's a really interesting point. It But, I mean, the the issue here rests in regulation. And that is, you know, it's very unfortunate that uh, to be considered an accredited or sophisticated investor such that you can participate in a private sale of securities, the only measure is one of of uh, capital uh, or income potential.

I really There should be like a technical test that you can go on maybe some like SEC website and fill out a technical test that you have the technical competence to um, to participate in a um, say in a SAF round or or some private sale of securities. Because, unfortunately, that has kind of given the institutional investors a little bit of of life again because, you know, they have this kind of walled garden that um, that they can get access to and obviously there's a certain amount of concern in the market about going out and doing public ICOs, especially here in America. I think you know, given the the level of competition that we see, also given the

fact that, you know, Ethereum and Bitcoin have spawned on the order of 20,000 millionaires in the last 3 years. So, now you have, you know, and out of that 20,000, more than half of them uh, are are fairly active investors at this point. So, it's not like they're you know, rounds are being totally consumed by uh, institutional capital players like these SAF rounds. Um, but it would be very good if we could get uh, updates to regulations that would allow uh, individuals to participate in these SAF rounds. Um, you know, based on some something other than, you know, whether they have a lot

of capital or whether they they a lot of money. Um, people should be should have the freedom to put their money to work where they want to put it to work. And especially as you see millennials with uh, lower, you know, investment appetite for traditional assets, um, there's a lot of pent-up capital there that could be intelligently deployed. Um, and not only intelligently deployed, but then, you know, people end up kind of onboarding migrating into the space as a result. So, you know, in line with point that I mentioned before that the really the biggest problem that we see in the space is is one of recruiting and talent. Um, I'm personally very much in favor of opening up um,

investment rounds to more individuals cuz it brings more more people in the space, it brings more awareness in the space. However, I'm also very pragmatic about, um, the realities that we face with respect to regulation and how long it takes for regulation to be updated to reality. It's not something that we can control, although we invite it. You know, I'm perfectly happy to share around with uh, a thousand individuals because I know those people are probably going to be fantastic value add. And we feel really comfortable about our value add, whether it's in comparison to an individual or whether it's comparison to another venture capital firm or um, or any institution.

Maybe like let's switch gears and talk about like Polychain and its and its journey and its success story. So, I think in the January of 2018, Forbes published an article that Polychain had greater than a billion under management, right? Mhm. And at that point when I read the story, I I read that number and I didn't appreciate it. But then a few months later, I I was in San Francisco and I visited like the A16Z office and I realized that Andreessen Horowitz, which is like this huge VC firm, itself manages between 2 and 3 billion in in funds. And then it dawned on me

that like Polychain, which is a crypto hedge fund founded in 2016, is uh is handling at at one point, or maybe even today, uh 40 to 50% of of that size. Is there a particular like reason for this success, do you think? Um why why did Polychain make it so big uh while there were other crypto hedge funds, uh like those mentioned before, which is like Metastable and CoinFund, founded at around the same time? I'm actually also going to butt in with an extra question here. Do you think the AUM, the assets under management, is the best metric for success of a fund, or is there some other better metrics that we

should be looking into as well? So, this Sunny, the second question, uh very well placed, and just quickly to to knock that out. AUM is absolutely not the the metric that we use to define success, nor, you know, be sort of a relevant metric to to to show where we are in in comparison to to others. Um it comes down to to alpha and to return for for investors, um you know, adjusted for risk, uh obviously. Um that's the that's the primary metric that we're all we're all here for. Um because AUM can be driven by fundraising as much as it can be driven by uh

returns. Um and we're fairly fortunate that that most of our AUM, the vast majority of our AUM, is organic and has been driven by returns. Um but somebody can show up tomorrow and raise billion-dollar fund, and then and then say, "Hey, you know, we're also billion-dollar fund." Um so, it's not something that we that we we look at. And then you'll notice that our our close partners, uh Andreessen Horowitz, recently raised a crypto a crypto specific fund cuz uh sort of the brilliant leader over there, Chris Dixon, wanted to really focus on crypto. And they kept it only to 300 million. Uh even though they could have raised, you know, some significant multiple of that. And

there's a reason for keeping a a fund a specific size, especially if you if you identify what I would say identify correctly as the the key opportunity lies mostly in kind of the seed and early stage space of of some of these um these very compelling uh protocols. And if you're playing there, you know, a lot of these entrepreneurs don't want a $10 million check from you. Um so in order to move the needle on a fund, you can't be say like a multi-billion dollar fund and still be deploying mostly at seed stage. So you've got to be coherent with the types of of um capital that that you're deploying.

And and AUM isn't necessarily a an an indicator of that. Going back to why why we saw the growth that we did, I think it was it came down to a certain conflicts of of of factors. Um one, we weren't the first crypto fund, but we were certainly there before the run-up and we were sort of the first to get scale. Um the first to sort of raise very significant sums of money and deploy that, you know, relatively early when Ethereum was single digit.

The second factor, which I think is maybe been the most important, and it's also important to remember that Andreessen Horowitz isn't like a 40-year, you know, VC fund. They started, to to my knowledge, I think around 2009. So they kind of came out of nowhere as well and and got scale and and got into billions fairly quickly um using the exact same road map that Polychain Capital did. Which is a focus on value add and deploying a lot of resources in having people, you know, doing real work for projects, getting really in the weeds, rolling up the sleeves, and being the closest partner, being, you know, an extra employee to uh to the startups in the portfolio. And

I confess when I moved out here uh about a year and a half ago, I was shocked. I would have thought that like every VC here in the Valley would have, you know, just teams of people doing technical due diligence and going through everything that it that that a team is is working on and including personality profiles and a whole bunch of other stuff before making investments. And then after investment, there would be at this other massive team that would help every project on everything from recruiting to to strategy and so on and so forth. And for the the vast majority um with very few exceptions and Andreessen being being obviously the most famous one, um they really don't do that. There is

there's you know, there's only talk of being value add. There isn't actually execution of that value add. And I was I was very surprised that we were just able to walk right up the fairway um offering this thing that seemed like a total no-brainer to me and that was um still very much a differentiated characteristic in the market. It It still today um completely baffles me that that um this isn't the MO like, you know, baseline model for every VC fund in the world and frankly just a ticket to the show. Like to even be able to play in the um you know, the best opportunities in the market, you should be able to demonstrate this

very robust team that has a track record of delivering significant value add projects. It It baffles me that that VCs don't have this. I mean, try to run like super lean teams and things like that. Um so, that I I would like to think is is, you know, one of the very key um items. And then, you know, focusing on the right stage. Uh some of those some of those um projects had great successes early on like you know, like a a Zerox, for example, which was one of our first SAFs. Um and and then Olaf, uh to his credit, um has gone on to make some very very shrewd uh trading decisions in certain

moments that have generated extraordinary alpha. Um unfortunately, I would love to be able to tell those stories. Unfortunately, I can't. Um but, really, um he has he has made some um some phenomenal moves in very key moments that have ended up what quickly, you know, I don't want to say like 2x or 3x, but quickly creating very significant alpha for for the fund um in a fairly short period of time. And then, with that, uh we tried to be kind of the leader on compliance.

Um so, to my knowledge, I believe we were the first um fund that was registered with the SEC. Now, this was this was forced on us because we were also the first to kind of go above $150 million, which is the cutoff um to not be registered as a a 3C7 fund. A- And so, that just forced us forward on compliance, which then brought us in a new cohort of investors where we went from being like the darling of angels and venture capitalists to more um an institutional exposure to crypto that, you know, large-scale sovereign wealth funds or endowments or very large um wealth funds could get that

you know, that minimal exposure that some of their investors are looking for into crypto via a balanced portfolio. Um And and so, I think it was mostly those factors, just kind of one of timing, which is the the single most important factor for success or failure in a in uh a startup. Um a focus on on value add and being pragmatic about the realities of of of our space. Um some some good decisions in the right moments, picking the right partners. Uh and then being a leader on compliance. And I think that's that's sort of been the story to to bring us where we are today.

So, I'm I'm I'm I'm actually curious like how Polychain is is structured. So, you've you've mentioned that like there's a separate firm that does VC-like activities. But like walk us through the overall structure and how you run your teams. Sure. Um so, it kind of I mean, Olaf is a CEO uh and extremely competent in both sides of the business um and a really special, very unique talent there. Um but then the the business sort of bifurcates into the fund ops side um which is run by Joe Eagan, who's a a 15-year Wall Street vet and had been CEO of some um some of the Tiger Tiger Cub uh hedge funds

uh over the last decade or so. Uh and he run and that's sort of, you know, investor relations and and and compliance and reporting and all these things that um frankly, I'm very happy to not be CEO anymore of a company and not have to deal with these things that I just don't like and don't want to think about. So, it's very nice to be able to just like have that and know that it works and I can kind of focus on things that I that I enjoy. And so then on my side of the business uh it again separates into into two parts. One is research and deal making.

Um and so we've got an extraordinarily talented team of um led by uh some dropouts from uh Dan Boneh's cryptography lab and and Stanford and um Andrew Miller's lab and uh we're continuing to add to this this research team all the time. Uh and so we get out and just using our networks and trying to understand the space as much as we can reading a lot of white papers. There's a lot of inbound. Um and we're just sort of like evaluating deals as they come in. Um and the inflow is is fairly significant but uh not unmanageable and very fortunately

the market has kind of started to self-select. So somebody making like the next kind of consumer chat app knows they don't really need to send that to Polychain Capital. Somebody building um uh you know like the next layer two off-chain computational verification tool, that's something that is definitely in our wheelhouse we're going to look at. Uh and then separate from that research team is uh PC 2030 which is just and it's a fairly like seamless flow. So you go from you know research and due diligence into into a deal and then once that deal is signed it becomes a PC 2030 project. Uh and then the team at PC 2030 comes in,

meets with the team, talks about it you know again everything from your cash management to your crypto economic model to token distribution to team compensation, recruiting, executive manage- executive coaching and so on and so forth and and just act as consultants to these teams or in some cases just full on team members. Like we have we have fully two employees in our office that are 100% exclusively dedicated to Definity. That's all they do is work for Definity. They're basically a Definity employee totally at Definity's um uh request and we have the same thing or almost the same thing with Polkadot

where there there are team members who um spend 90 plus percent of their time uh just focused on that project. So how many people uh are there right now overall at Polychain and like how or like and what's the distribution breakdown between these different divisions? So today we are 16. Five are uh PC23. There is uh four in uh research and then the rest is basically you know either front or ops, CFO, chief compliance, things like that um or myself and the law.

One of the questions uh came to my mind is crypto funds are different to VCs. Although as we observe there might be a merger and amalgamation of the two. Are there unique challenges that come with crypto funds that are unsolved today that you wish there were solutions for? We could we could have an entire an entire podcast just just on these challenges. Um I mean starting from from regulatory perspective. So just like when as we went and obtained our our um uh SEC registration uh and licensing, there are there was a conversation and

fortunately the SEC was very pragmatic about the conversation but there's a there had to be a conversation about what was even physically possible today. So for example, one of the huge challenges in the space is is around custody. Um so, when you're a when you're an RIA and registered with the SEC, you can't custody your own assets. Um however, you can't find today, anywhere to my knowledge, somebody who will custody um like a a prime broker or or a qualified custodian who is actively um you know, executing custody of say Monero or some of these high privacy tokens. Um so, there are are are tokens that are in our portfolio that you we can't get

third-party custody for even if, you know, we could go up to Jane Street or Goldman Sachs or whoever else and offer them whatever they want and they just can't do it. They don't have the technical skills. Um so, that's certainly one. Um certainly as we move and evolve into this, you know, what a lot of people call kind of this third generation of layer one chains, so these these new chains that are building on the lessons learned of Ethereum that have governance, have novel consensus mechanisms that are usually based on staking and not necessarily like resource-intensive proof of work and things like that. So, how do we how do we manage those assets for our clients coherently

given, you know, all of the regulatory red tape um and and you know, and requirements of an of an RIA. And and so, you know, if we're staking on behalf of our clients, then, you know, what are the implications of that in front of the SEC and, you know, do you have to have clients then opt in or negative opt out or or various things like that? From working with projects, uh there are a lot of questions around um that know, around uh securitization of of tokens.

Um for us it's fairly clear that a token sold for a network that is not yet live is a security and thus exclusively the domain of of um accredited investors and and institutions. Uh but you know, that could change and and will change and so there's this like constant evolving regulatory environment uh that present very very unique challenges. And then from there you get challenges with respect to um you know, to some investors, right? Some investors won't invest in something that has uh this type of risk profile combined with a significant lockup period. And so they

prefer kind of a hedge fund model. Um other investors have have a totally different profile. And so you know, our And again, our fund has evolved as well along along the way where primarily our investors were wealthy individuals, family offices, and a few VC VC firms. And now it's more sort of these these like I don't want to say more professional because some of our venture capital partners are are some of the most professional people we dealt with, but certainly more rigorous with respect to like institutional expectations, reporting, things like that.

You know, taxes has been a something that we've solved for the most part, but when we started that was certainly a a very unique challenge that um that wasn't clear uh at the time. You know, certainly going forward if I could like make a small wish list to sort and and this like could be a lot of a lot of opportunities that that people could could build uh in the space, it's around custody. Um it's around uh very easy uh uh to do uh staking. Um also we've sort of got to figure out governance and proxy voting um on behalf of uh of our LPs, things like that. Being able to do that

seamlessly um such that we don't have to like then you know, distract ourselves from our core business. Um that's certainly quite a quite a valuable opportunity that I think I think you'll see somebody take advantage of going forward. Certainly seems like a big big opportunity space, especially with the emergence of staking tokens. So, I'm now curious about like Polychain's thesis and what sort of guidelines you use in order to decide what to invest in.

Again, we are focused on sort of the infrastructure layer of the Web3 stack, let's say. Um so, again, that's that's kind of deeper down the stack. Uh we I would say endeavor to be um a significant holder of the infrastructure of of Web3. So, kind of think about like the roads and highways and airports of of Web3. Um those are the types of assets that we um we intend to to hold over a very long period of time and and we're relatively optimistic that that will be a fairly um valuable portfolio over over a period of time, but let's let's see how it goes.

And then, with respect to our decision-making process, there are sort of three major things that we have to be able to check the box on to consider an investment. Um and that is sort of you know, a very core technical um solution that uh is at the end of the day at you know, fundamentally a a technical solution being provided by a team that is a compelling innovation.

That compelling innovation typically implies that if network effects were to take hold then it's a defensible position, but that's not necessarily in a 100% of the cases. And then very strong technical teams. We are really not the fund that you know, a bunch of MBAs reach out to with a big slide deck. We're kind of a fund that you know, some strange geniuses with like some some random notes that you know, they're calling a white paper for the time being will reach out to and and work with an open-minded fashion on like building out what it is that they're

they're trying to create. Um, but it ends up being very counterintuitive investing. Uh, and this is why this is also probably why we've seen such significant growth against say like our peers. You know, kind of the standard VC garb for so many years was oh, you know, we back like great founders that are fantastic leaders and and you know, have this track record and so on and so forth and we don't really care if like somebody has you know, five exits and they you know, an MBA and and have done a bunch of B2B marketing and stuff like that. Um, what we often look for is like purely some kind of compelling

technical innovation and that for one reason or another in our space has often been the fruit of either an individual or a very small team of kind of quirky technologists, right? Like um, if you look at some of the wilder successes that we've seen in blockchain, often they were not led by your prototypical, you know, startup CEO. Uh obviously Ethereum being, you know, a case in point. Um however, when the technical innovation is very significant and can be confirmed by our team as, you know genuine plausible, and compelling, and this team has the capabilities to deliver it, that's really where we get excited. Um

and so we often are the ones who are backing, you know, the the quirky professor leaving um his cushy university job to to, you know, start out on his own. And then in those cases, that's really where PC 2030 comes in, and we try to kind of fence them in with enough support and operational staff such that they can focus on their innovation, and their business kind of gets built um for them. Uh and that's really kind of a key difference that um you know, that again is very core to our thesis, and and I haven't really seen a lot of people or a lot of um venture capitalists um you know, focus on since I've been here.

So you talk about this like infrastructure of the Web3. Um what are some of the like main projects that like you see like compromising these? Uh I know throughout this episode we've talked a lot of you mentioned quite a few times about Polkadot and Dfinity and I think Filecoin once or twice as well. Um why do you What led you to like look at uh these projects specifically? Like you mentioned you had like certain people who are full-time basically working on Dfinity and Polkadot. What what what's the reason for these projects as your sort of like feature products projects?

Yeah, so these are what we call our our major ecosystems. Um and essentially they are uh significant innovation at the layer one where there is some critical component of what will eventually make up the Web 3 stack being offered. And um you know, Polkadot's actually a good one to draw the infrastructure analogy to. Uh and incidentally, I come from a world of infrastructure, so often kind of use these as as heuristics, but I sort of liken Polkadot quite often to airport infrastructure. When you you know, if you we consider different blockchains disparate lands of one another, kind of like separate countries, the only way to

really connect with them and and communicate within these different countries sort of physically, or like transfer things, is kind of routing through the airports. Um and if you want to send something to a to a different country, it's you know, inevitably going to go through a port or airport. And Polkadot really looks like that, you know, being set up to be that routing mechanism. Now, kind of an interesting food for thought in conjunction with that is uh to my knowledge, airports are the highest um cost per or highest revenue per square meter and highest actual profit per square meter of any of the kind of the major standard um infrastructure components of our of our

world, like highways and roads and things like that. And so it's interesting to think about about Polkadot in or any of these sort of like parachain solutions in this kind of context that should they get scale, should they work, and that is you know, that's a big if, it remains a big if. Um they could be very important kind of crucial components of connecting disparate lands and kind of bringing blockchain out of the silo um era and into an interconnected era. And and so, you know, we're excited about that. Obviously, then file storage is a is one of these components, and then Definity makes sense um, just because it's an extraordinarily

high performance blockchain that allows, again, if it works, effectively unbounded computation, uh, on chain, uh, which which would be which would be very interesting. Um, it together with with this thesis on on the some of these major ecosystems, I should mention another thing that we, uh, that is kind of very core to, uh, you know, to our thesis today and and some of them that we're very excited about, which are what I call crypto financial primitives. Um, and crypto financial primitives are using sort of crypto and and blockchain technologies to uh, create some sort of financial mechanism that we may see in the world

today, um, but offering it in a dramatically more efficient fashion. So, I think we're going to see explosion of, um, of decentralized debt. Um, I think we're going to see an enormous explosion of, uh, sort of tokenized derivatives of certain assets. So, for example, um, I'm pretty excited about the tokenization of, uh, of a hash power derivative, so that miners or stakers can, say, hedge their their long position in, say, like, mining equipment and in the given token at hand with, uh, potentially a short position on hash power. And then they can have more

stable revenues as a as a result because it you know, for the most part, these miners and stakers on on these next generation networks will be increasingly professional. And so, these types of, uh, of uh, instruments that allow them to have more stable cash flows, you know, just genuinely make sense. There's a There's a whole range of of these projects building what I I crypto financial primitives. It could be that one of the first killer use cases is uh you know, financially driven or or financial financial primitives in these next generation blockchains. Like obviously,

you know, Bitcoin was primarily a financial instrument uh in its you know and and that is right now the killer use case. As we move forward, some of the initial next generation use cases could potentially be be financial instruments as well. And there's a lot of like exotic things that we can do once we add smart contracts um into the into the fold. So, pretty exciting uh pretty exciting space as well. So, on the infrastructure layer, you've told us you're thinking, which is like the blockchains are lands.

And then and then Definity, like Polkadot is a project is connects these lands. So like in that in that vision Definity is a high-performance blockchain or like high-performance land, high capacity, high-performance land. Polkadot is what will connect all of these blockchains. of the bridge. Um And so, the way that I sort of look at it as um and the way that these kind of work together is that Polkadot would allow you to say store files in IPFS, read them um IPFS and then use them say in a smart contract on a Definity on Definity.

Um but then because of the some of the the performance improvements that we see in in say in Definity, people who would otherwise use an alternative blockchain that they're may may be more native to now have a seamless way to transition and use sort of the benefits of Definity without say taking anything away from their position in in their existing blockchain. So, like uh Ethereum users, should they not be able to get off-chain computational verification correct, or should some of the scalability projects take, you know, much longer than expected, which I think seems like a reasonable presumption at

this at this point, may then migrate to Definity for certain intense computation, and then migrate back via Polkadot obviously reading reading files from IPFS, and and then migrate back to Ethereum when they want to interact with something in, you know, that is more relevant to to what they're doing in Ethereum. But, effectively, you know, something like Polkadot is a great enabler of um technical innovation because it allows kind of a full extension of what I would call um Smithian economics, where each country does sort of that that

thing that they're supposed like that they're specialized in doing, and then trades with another country. And so then you'll see like, you know, Filecoin does storage really well, and uh Definity does computation really well. And so then those countries will trade with one another for the thing that the other does very well, and um and be able to focus. And so you'll see, you know, high throughput chains uh with DAGs, and we're really excited about some of some of the innovation around the directed acyclic graph. Um you'll see uh you know, very high security chains, um that maybe have very high transaction costs, but that's by design and and a feature, not a bug,

um but needs to be by design, in fact. I and and you'll see sort of this like specialization of chains that then can be connected um to one another. And that's really where we'll start to get you know, the scalability issue solved. I don't think it's it's that one you know, I don't subscribe to to this whole maximalism thesis for anything, not for Ethereum or Bitcoin or anything that there will be one chain to rule them all. Cuz if that was the case, then we would need to change the name of our fund to mono chain. And you know, obviously if there's anything that's core to our thesis, it's that um it will be a poly chain future of Web 3.

So you have mentioned Dfinity as a high-performance blockchain. But then there are many projects building high-performance blockchains. There's EOS, there's Zilliqa, there's Algorand. What is so specific or fundamental about Dfinity that you see that project as being one of the base layers more so than the others? Yeah, that I and that's a good point. And so I should mention that you know, the reality is we don't know. I myself am am am personally excited about the technology being produced by Dfinity, but have great respect um and deep admiration for a lot of the work being done across the

space. So, you know, it's very plausible that Ethereum could could achieve its scalability goals and uh and and be a high-performance blockchain. It's very very plausible that you may see um a DAG like the Spectra protocol um come out and uh totally blow the socks off of everyone. And so this is why we take a a portfolio approach to the space. Um what specifically excites me about Dfinity and this project is a range of things, but certainly the unique way that they have achieved um sort of high transaction throughput and

and and transaction finality in a very quick period of time. So, if we go back if we go to a POS mechanism, even in delegated POS, we're looking at multiple blocks to confirm transaction finality. Where in Definity can be done two blocks and today today already that's sub 3 seconds. Um it'll be sub 1 second by the time the network is live. That's really difficult to to match in a POS system. It just you know, by the fundamental nature of a POS blockchain um and the probabilistic nature of of block confirmations, it um to achieve finality that quickly uh even with scalability uh again, maybe it happens, um but you know, we like to be experimental and we

like to support experimentation around threshold relay. We think um the probabilistic slot consensus, which is the kind of the primary uh invention by by the brilliant Dominic Williams, is a you know, one of those very compelling innovations that merits you know, merits interest, merits capital, merits experimentation. Um so, we'll we'll see how it plays out, um but you know, the way that threshold relay is able to achieve very quick transaction finality, I think it is certainly compelling in this moment and and you know, maybe in in someday in the future it's it's an important part of the Web 3 stack.

So, while we're on the topic of Definity, um what I don't know if you you've I think you did see my tweet from a couple of weeks ago. That was so lit. Thank you so much. Uh one of the thing So, I you know, for anyone who didn't see it, I was sort of doing like slight like joking jabs at like many of the different like Gen 3 blockchain projects. Uh you know, it wasn't like derogatory. I even hit attacked Cosmos, which is like what I work on. Yeah, and every single one was so on point. Yeah.

Right. And so, the one I put for Dfinity was actually blockchain's TM by Polychain 16Z. Yep. And that was sort of a little bit of a joke about like, you know, I it feels that the token distribution of of Dfinity is a little bit uh centralized, especially in the hands of uh you know, you guys Polychain and A16Z. What are your thoughts on like how how do you like make sure that like, yes, you're doing the best for your investors and whatnot, but at the same time you're still maintaining a decentralized system that usually entails some sort of highly decentralized token distribution?

Yeah uh this is a great point. And without getting too much into specifics, I can say that that Polychain and Andreessen's uh you know, percentage of the network is not that expressive. In fact, we own much more significant components of of many, many other networks, and certainly there's more centralization, say, in the Ethereum ownership or or other other live chains than what you're going to see in Dfinity. Um I do recognize, and we've had long conversations deep into the night on the issue of the fact that Dfinity today holds, say, maybe a higher percentage of tokens than

most of the uh most of the other networks. So, where Cosmos, if I remember correctly, sold somewhere around 80% of tokens in the crowd sale between um the public and private round, um Dfinity, via its various funding mechanisms all the way to network launch, will be kind of a little bit higher than half. However, this is a very This is a very directed approach by Dominic Williams and his and his team where he wanted to take a different approach than than some of these open source projects that are that are kind of more laissez faire about execution.

He wanted to run this like a Silicon Valley startup. He wanted to attract the best talent and be able to reward them handsomely. Um Dominic and his team were one of the first to in my opinion correctly identify that as the war for developer mindshare intensifies, um great talent in this space will require very compelling rewards to be focused on a single project. And um he again, I think correctly identified that there's a lot to be gained by having everybody in the same room. Even though we work in decentralization, we would like to have people all around the world and so on and so forth and support that,

but the reality is is is a team can work best when it's in the room together. So, he had to make a very significant sort of pool available to attract I mean, just a rockstar team, right? Andreas Rossberg, one of the creators of of eWASM. Um Ben Lynn, the L in BLS cryptography. Timo Hanke, who created ASIC Boost. Um you know, they're poaching at pace. They're poaching you know, really solid talent out of Google and Facebook and the FANGs over here almost on a weekly basis. Um you know, these guys who require compelling rewards, and so they had to make a larger allotment available for um team

rewards and like core developer rewards than had been had been made in the past. Um I was around and contributed to the bit debate back in the day when it was being decided what kind of founder rewards and and sort of organizational rewards Ethereum would would receive. I remember a fairly heated debate on that when it was originally closer to 30 and and some of the team members were were going to run a kind of a VC fund out of it and so on and so forth and I was very happy that kind of that came down, but I think um if we look at that that distribution at that time, the vast majority of the

people who received, you know, significant amounts of ETH are no longer with the project in any capacity, um no longer sort of pushing the Ethereum ecosystem forward. And so today, if we just look at that as a lesson learned, and we say, "Okay, well, instead of like distributing 10 or 15% all to, you know, the people who are around in this one moment, in this Genesis moment, why not like let's keep a bigger pool and distribute it over the long run, but hey, let's actually go out and very thoughtfully poach the like most talented developers on the planet and get them working on these tough problems and see if that can't create, you know, extraordinary value."

It may not work, right? Like the community Well, we're believers in the community approach. We're believers that a, you know, an incentivized open-source peer-to-peer community will develop faster than a centralized team. You know, I think this is why Ethereum um uh beat out the sort of enterprise blockchains that were sort of shilling themselves around 2014 and 2015. Um and and I think a a decentralized community-driven approach will probably be the winner in the end.

The The question is is sort of like is when do you put it out in the community? And in the in the competitive context of today, which is different than we were a few years ago, how do you kind of manage you know, some of these important innovations such that you can establish network effects and gain a lead. Um I don't pretend to to agree with 100% of their strategy. Um I do um say that we're open-minded to experimentation, and we support our founders. And so this is a strategy that the these founders have decided to go with. Um I actually wish that we had more of of the the network. We don't in fact have have as much of the network as

I would like. But we'll see how this we'll see how this plays out. I I don't think it's like you know, he's not trying to be the evil empire. Um he's just trying to be pragmatic that he's going to have to pay some guys, you know, seven-figure and eight-figure salaries down the road, and he he wants to be ready for that. One of the other um contrarian opinions uh Polychain has espoused publicly is on the issue of um the the Parity hack, and what should be done with the ether that was frozen or lost in this hack.

So, could you like explain the issue and your views on it um and how yeah yeah how you would like that issue to be dealt by the Ethereum community? So, uh long story short, uh a very significant amount of uh ETH was uh frozen in in addresses that are provably um or demonstrably belong to certain individuals that were using the Parity uh multi-sig um or a certain version of the Parity multi-sig uh last summer and then uh into last fall around around the time of

Devcon. Um and today this is about well, it fluctuates quite widely, but today it's a couple hundred million dollars um still. There's a range of of possibilities here. One is to do nothing. Um another is just a very simple clean um hard fork to clean up these addresses and and so just to have a process where people demonstrate that they're the owners of these addresses and and then they can receive, you know, receive that ETH back or or or have some kind of opcode upgrade to uh basically unfreeze this ETH. Uh this sort of like the condensed layman's version of of the debate.

The counterargument, which I I would like to preface by saying I respect and um and understand and respect many of the the talented important people who are uh who hold this uh to be their position. The counterargument is that, you know, this would affect immutability and um it would certainly create a fork and so thus another Ethereum classic uh situation along with, you know, whatever other sort of can of worms um pops up uh if we're to do to do the fork. There's a a bunch of other possibilities that

could be used to um to basically unfreeze this ETH. Most of the more realistic ones imply some kind of fork. And so then getting to my argument and I should say that this is very much something that is a very important to me as an active um member of the Ethereum community since literally day one. Uh where other people may not have such a um a strong conviction on this. And it my position is that we moved over to Ethereum.

Uh I sold all my Bitcoin in 2014 and moved over to Ethereum very happily. Uh because we were focused on development and evolution at that time. I've often said that for me Bitcoin appears to be going through some semblance to a classic case of innovator's dilemma. Where the need for innovation and change that gave rise to the invention in the first place has been totally replaced by this religious dogma and this rational infighting. And so I was I found it really refreshing moving over to Ethereum that we were focused on experimentation and pushing things forward and evolution. And and that you know, in the end it would be something

uh something more compelling, some something more interesting that that we could do many things with. And somewhere along the way, you know, probably when when the when the token started to appreciate significantly, there was this influx of you know, Bitcoin people into Ethereum as well. And and then the narrative started to be somewhat similar in certain respects. Where like this like huge dogmatic focus on on immutability immutability. And people forgetting that we're still very much in alpha, right? Like Serenity is what? A year away or more?

And my position is you can get dogmatic, you can get you know, focus on immutability and these types of things after Serenity. Before Serenity, this is experimental stuff. Like I'm sorry that markets are leading indicators and the market prices have kind of skated beyond what the realities of technology are in Ethereum's case today. That doesn't mean that from a technical perspective that we should be changing the way that we interact with one another. And yes, you know, absolutely it was a Parity bug.

It there are some coherent arguments that would also place us a significant amount of the blame around Solidity, and that's not the first time that we we as a community has have heard um issues with Solidity, but that's okay. You know, we should be more forgiving to all parties here, all right? Like we're this is vanguard area of of computer science. This is difficult stuff. And so, when you know, when we start to allow this immutability argument to sort of dominate the conversation, and then we're not actively evolving our protocol because of this fear, that's when I start to get afraid that we we're starting to lose the um

you know, the ethos that Ethereum was really founded on, which was to evolve and experiment and and create something new and better. Um and and it's quite disappointing because uh you know, I love this community very much, and um and I wish for it to be to be strong and to and to thrive. But, if we're going to drive out the innovators, if we're going to make um you know, if we're going to take development timelines which are already too very slow and make them many multiples because you can't possibly have any type of failure even before Serenity, then um you know, we're going to drive away the key innovators. Uh if we look at this Parity team, you know, who who in the

entire community has done more for Ethereum? Um you know, whether it's the the implementation, the wallets, um the protocol work, this team has has created an extraordinary amount of innovation that has driven the value of ether to to where it is. Um, and I don't think that they should be ostracized for, you know, for stumbling along the way. And I don't think that um, we should penalize them hundreds of millions of dollars for um, you know, for putting out free open-source software, especially when we are clearly still in beta.

Um, and we should recognize that we're in beta. And we're going to we're going to have hard forks anyways, right? So, along the process of hard forks, I would suggest that we have a cleanup. Um, uh, and that we, you know, and that we communicate to the world that we're about um, innovation and we're about evolution. Question then is, when do you say like innovation, like what do you Maybe this is a more general question that refers What do you see as like the whole point of Web 3? Like why exactly are we building all this stuff and what's the end goal?

Cuz see, for me, I you know, it's probably no secret at this point. I've like I've brought it up multiple times in the on the podcast. Like I'm a huge fan of Ethereum Classic. I was a very anti-DAO fork and stuff. And to me, this stuff has always been about immutability and like decentralization. And so, what is the purpose of pushing innovation if we're losing the whole point of what we're building? And like to me, I never understood why like we can have all sorts of innovation, but if we end up just using these things like cloud services, like it kind of lost the point. And we should be like, you know, there's also like a little bit of disconnect where it's like we're dealing with billions of dollars here

on experimental stuff. So, like at the point where you cross that billion-dollar threshold, like it's no longer experimental anymore, is it? Yeah, the problem is is the the valuation has been set by someone different than the the experimenter, right? Um so like I'm sitting here like building DApps and and and making protocol layer innovations, and then some guy on like Wall Street decides what I'm doing is now worth billions of dollars. Does that mean that I then have to like change what I what what I'm doing?

I I I suppose that that that is a fair argument. Um but more specifically to the the immutability argument, I'm all for immutability. I'm all for public, open, permissionless blockchains. Um I think, you know, and obviously immutability is a very core characteristic of that. What Where I'd like to draw the distinction is the point in which we agree as a community um to you know, to sort of strike the uh the line in the sand, and then from there, you know, things are genuinely immutable.

And my uh understanding, and to my great surprise this was apparently incorrect, was that the point where Ethereum would become immutable was Serenity. And so I am I'm very surprised now that um uh you know, that apparently it was actually Homestead. Nobody had informed me of that. Um and I mean if we if we go back through the history of our industry, there have been times when, you know, when the Bitcoin blockchain was rolled back um and had to be. Um and that was okay because there was only, you know, few dozen people around at that time, and so they, you know, through via social consensus decided that that was

perfectly fine. Um unfortunately again, somewhere along the way because markets are leading indicators and and and pricing has uh you know, has has created a certain amount of notoriety, uh we decided that at some like monetary level that then that is immu- like from there we have to be immutable. And I would actually just argue that it should be from some technical point in time. Um, which for me with specific to Ethereum, it should be Serenity. And before that, you know, let's see, let's just sort of be open-minded and reasonable as a community. Let's use governance mechanisms where they make sense.

Um, and and not just allow it all to be, you know, screaming on Twitter and things like that. Yeah, and so I agree with immutability. I just think that it should be implemented um, in a known moment in time based on technical milestones. What kind of governance mechanism do you propose that we use to make a decision like this then in in this beta period? Well, I I mean, we're obviously pro-governance. Um, and you know, I think just the enormous body of work uh, around the wisdom of the crowd and especially especially when the crowd is highly incentivized like what we see in

in our in our space. Um you you know, you get to a point where it's very difficult to deny that some relevant information could be garnered from listening to the crowd. Now, I understand the whole like, you know, you're going to just give power to the Plutarchs if you make a tokenized governance. That's a perfectly fine argument, but I think you know, one of the great things about tokenized governance is that we can take take it governance and make it multi-layered, make it liquid. We can add so much more granularity to to governance. We can do so much more than just like, you know, one token one vote or one person one vote or or so on and so forth. So, what I would propose is

um, a multi-layered governance mechanism that yes samples the Plutarch so samples the coin holders and and you know sees what they have to say. That does not mean that you have say an isolated carbon vote which happened which only my crypto wallets could participate in, right? It means a well-coordinated um properly communicated carbon vote takes place so that you can adequately gain a um an opinion from a large enough subset or sample of the population. I think you take in core developers um into the governance mechanism but

again there are biases that that exist there that should be you know that should be weighed against against other factors. um you know there are a range of uh of community events that are that are happening to sort of bring people together and and and discuss these matters. And so I think having a kind of a multi-level mechanism where um people building on Ethereum are have a vote, people who own signifi- ether have a vote, and people building Ethereum which is obviously you know kind of protocol layer also have a vote.

And if we get a significant buy-in kind of one side of the other then it's very clear that that's the direction we we should move but we need to be open-minded to having the sampling of different constituents of our community in a in a differentiated fashion so that um uh so that we get just sensible governance uh otherwise it's just you know he said said she said and and we don't we don't really know um what people actually want. Uh then And last point I would say is it it you know in conjunction with a vote we we would need to be very clear on what we're voting on.

And for me what I would like to see is as we move to Serenity probably just a very simple cleanup of these frozen ETH addresses. If somebody can prove demonstrably that it's their ETH and you know they can show kind of like how they came into it and and and you know and clearly it was in it was in this wallet and they're a a known entity why shouldn't they get their ETH back? Like that doesn't make any sense to me. Um and we're doing a hard fork anyways for Serenity so just do a quick sweep up um to gather those people most of which are builders and we want to incentivize to be in the space.

Um that is kind of like the thing that would would sort of make sense to for for me to to vote on. Um and yes it may create a fork but I know of no one in the Ethereum community and this may be a bit of a controversial statement but I'll make it anyways. So I know I know of no one who lost money on the Ethereum Classic fork right? Everyone got between a 10% 30% dividend. Yes it created some stress along the way but just like the Bitcoin Cash fork nobody lost money in that right? It it looked accretive to the investor almost from day one and in any reasonable period of time.

Um for me forks are a failure of governance. They're not a governance mechanism so we should not leave it to get to a fork. If we got to a fork then we failed at governance then we haven't created consensus. Um but at the same time it's not the worst possible outcome if some you know very strange subset of people want to go off and you know get dogmatic about the way that they are. I would prefer to kind of like continue to promote um uh inclusion of the technical community. But again, this is my opinion. I totally respect that other people have a different opinion.

Cool. So, we'll stop at at that. It's been a great episode and great time catching up with you, Ryan. We hope that you'll be back on the show sometime at a later date in a year or so and we'll catch up on the progress Polychain has made then. Well, thanks very much, guys. I thought this was great and I deeply respect the work that you guys do both with the show and and individually across the space. So, congrats for all the the great contributions that you're both making.

Thank you. And to our listeners, thank you for joining us. We release new episodes of Epicenter TV every Tuesday. You can subscribe to the show on iTunes, SoundCloud or your favorite podcast app for iOS and Android. You can also catch the video version of the show on youtube.com/epicenterbitcoin. We've recently created a Gitter community and you can join that at epicenter.tv/gitter. Finally, we'd love to listen about your like read your reviews on iTunes or on Twitter. So, please send us a note on how we did. We look forward to being back next week. Thank you.