After the Ledger Hack and Quantum Warnings, Is Self-Custody 'Slowly Dying'?

Transcript

I made the point with Robin Hood that like Robin Hood was making several millions of dollars a day and basically Ethereum base layer was acrewing $100 like literally a hundred to $200, right? >> Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host Laura Thanks for joining this live stream. This episode is brought to you by Nexo, the premier digital assets wealth platform. Earn daily interest on your crypto or borrow funds all through one platform trusted by more than 10 million clients. Find out more at nexo.com. Geo restrictions to eligibility and terms apply. Before we get started, I want to

ask you for something. We're making a bunch of decisions right now about Unchained. What we make next, when we go live, what we should be doing more of, and I'd rather hear from you before we make them than after. So, we put together a survey. It takes just a few minutes. It's anonymous and there's a box where you can tell me what we could be doing better. I read all the responses. The link is in the show notes or you can snap the QR code on screen or go to unchained crypto.com/servey. Thanks. Today's guest is Lorenzo Valente, director of research digital assets at Arc Invest. Welcome, Lorenzo. Hi Laura, thanks for having me. Excited to be here.

>> Yeah, excited to chat with you. It's a very interesting time in the industry. We're, you know, hopefully I think coming out of this bare market and you sit at this intersection of investing and Frontier Tech, of course, being at Arc is probably one of the best known investment firms sitting at that intersection. And everyone's talking about how we're in this era of crypto adoption and how the previous speculative periods of crypto will at least be tamer if not kind of go by the wayside. How are you thinking about it?

What era do you think we're in and what's investable this time around? >> Yeah, it's a good question. So just a preface we we're obviously more of a tradet manager and we have the ETFs and so we we're more like late stage investors I would describe probably and so I think as we look at the space right now it's going through I think 2026 is going to be a pivotal year regardless of what happened with clarity but I think it's definitely marking the end of an era and the beginning of a new one and I think there's a few big trends I think we're seeing just massive consolidation in the industry massive you have like a record number of projects protocols application that are just closing and

sun setting which I think is good overall I think from the investment side the first kind of part of the era was more you know we were in the pioneering and discovery phase and I think the winners were really the ones setting kind of new standard or discovering or tweaking some of the primitives that you know the AMMs the money markets a lot of what build basically the successful protocols I think that is changing right now right I think we've kind of discovered most of the primitives and things that we can do on chain and basically the second part of this era at least for us it's not so much about underwriting net new applications or protocols but more so seeing hey the

ones that are working like how big can they get right like what are the modes that they have and how big can they get and so it's not really like the zero to one part but more like the one to 100 right like which are the protocols which are the companies that can grow kind of exponentially and that can continue to grow and merge basically with tread fight we'll talk about tokenization which is a market much much bigger than crypto I also think was mostly a retail focused market a lot of the wins in terms of layer ones applications like pretty much any company was mostly like a retail facing product and the people using the protocols and application in products were more than dens like early believers in the industry and clearly

like that phase of the market is completely is just ending right and I think now it's much more institutional and seeing like how we can on board you know treadfi institutions and people that are really like the persons that move real money and use cases that actually matter at size right which is like payments crossber payments trading all basically adjacent topics around finance which is I think after basically 10 years I think Ethereum launched in 2015 it's kind of the core use case and best PMF for crypto right now >> yeah and I did want to ask you earlier when you talked about how you're making

assessments of companies and protocols that can go from one to 100 what factors are you looking at what do you think are the makeorb breakak characteristics for this next phase. >> I think one of the main questions is where does value crew, which is kind of the big question in crypto, right? And I think now that we're merging with Treadfi and tokenization in general and RWAS, it's a question like that is just even more important right now, right? because you have some of these companies with big balance sheet with you know a very good technology that are integrating crypto and now basically the cost of integrating the cost of developing with AI it's essentially going to zero right so I think a lot of the modes that we

had in the industry in the last kind of 5 to 10 years they're just not as powerful right I think one of the other things is I think when we look like five years ago there was you just didn't have a lot of crypto companies that were big right? Like they weren't like you didn't have a lot of companies that were doing upwards of 100 or $200 million of of AR for example and so it was just much easier to compete right because everything was kind of new and you can bootstrap something like in six months to a year and now things have completely changed in my opinion where now you have huge companies they're public like publicly traded companies they have management teams they have people that

have been building technology for 10 years. They have huge balance sheet. And so obviously right now if you're a stablecoin startup and you come and you see, hey, like we're doing this product in stablecoin, like now you have Tether and Circle that are just like humongous like huge companies. They're compounding. They're doing extremely well. And so I think it's just like changed a lot, right? I think for the actual companies that we're underwriting and we're looking at and see how far can they get, it's essentially seeing how crypto can merge with RWAS and with off-chain assets, right? At ARC, like we've been studying like Bitcoin, Ethereum, layer ones, and all these crypto assets for a year, we have a pretty good idea how big they're going to get like in the next 5 to 10 years.

And so that kind of underwriting process is done, right? I think the bigger part of the market right now and where we see like a lot of growth is just like stocks, equity, you know, obviously equities, fixed income, art is in general and all like new kind of asset classes like prediction markets, compute where we're spending a lot of times these new asset classes. Can you use crypto technology and or like crypto primitives to unlock like even more value for those asset classes which is kind of order of magnitudes bigger? So those are kind of the questions that we're asking ourselves right now. And even I think a lot of companies that have been super successful right now. If they're not able to make this transition, I think we'll get overrun by other companies.

>> And so when you said cryptographic primitives, what do you mean? Because as I'm sure you're aware, there's a lot of questions about cryptography right now as well. So before we move into all that, because that's its whole, you know, ball of wax. What what did you mean by that? a lot of the things that we've kind of invented in crypto like perpetual futures, AMMs like unis swap like those sorts of building blocks of what's been DeFi but essentially like call calling it DeFi. Can you merge current DeFi with RWAS essentially? And you know it can you does your protocol or your company has like a realistic path to actually supporting some of those like those asset classes? That's kind of the big question right now. Or is it going to

remain like a niche? And look, there's still players I think that are going to be very big that support Ethereum, Bitcoin, and some of these assets that are some kind of smaller, but those that's one of the questions that, you know, that we ask ourselves. >> All right. So, let's now talk about what I alluded to a moment ago, which is we're in this very remarkable period where people are expressing fears that quantum computing could break cryptography, potentially even public key cryptography. I don't know if you saw that tweet from Matt Green. That was kind of disturbing. And Matt Green's a famous cryptographer. This all got kicked off last week when Justin Drake tweeted, quote, "In my opinion, it is now reasonable to brace for the

possibility that ECDSA breaks before Qday. In the worst case, in months, not years." And then he wrote, "By break, I mean fast private key recovery, eg in one week, on available hardware, eg a large GPU cluster." Wow. How do you think about investing in this era when it seems like so many kind of foundational assumptions may no longer hold? >> It's definitely something that we're talking a lot about. And I think you know crypto is kind of a bubble and I think sometimes crypto people think like you know institutions allocating money to the space they're looking at you know

what is the inflation rate of Salana versus Ethereum or like what is the revenue it's like they don't they don't know any of that but like if you ask some of these institutions what they care a lot and we get a lot of questions and probably 70% of the question we get from RAA is like wealth management platform and like people that manage money for as a professional professionals. It's questions like that. Hey, like what happens with Quantum? Like are the signatures are they going to have to transition? Like which blockchain is like has a better road map? Those are really the questions that they care about.

>> I have to say that I find that impressive that they were that sophisticated. So kudos to them. >> Yeah, I think maybe because quantum is more of a general technology that they've heard also like in other fields, right? And so I think that's really the thing that kind of makes the headline, but they definitely know about it. And so I think that that's one thing that we hear a lot for specifically kind of quantum and AI and the Justin tweets. It's scary honestly, right? Like I mean I think quantum like internally and I'm not the one specifically that has done the work on that, but it's certainly something that we see more like in the 10 to 20 years kind of forecast in terms of where it's coming. Now I think what you've seen from some of the companies like from some of the models like

openthropic and the discoveries they've made in such a short amount of time is just very hard to you know it's scary because like one of the discoveries was the Navier Stoke conjecture which was a millennium prize problem. So it was one of the seven problems that you know people in the math community like they win Phil's medal for discovering things like that. So it was really like a problem that has been around for centuries and very very difficult and so I think just with AI and the pace of improvement right now it's just very hard to project yourself because I think when we talked internally like a year ago we say hey like this technology is probably going to pull forward like two year what we

see in two years it's going to pull forward now basically so what do you see in two years that can happen now right and then like in the past six months it's hey like this technology can probably pull forward for like 10 years like what do you see in like and like in the last two months what open to say what can happen in the next like 30 to 50 years because it's going to get pulled like now basically it's just like timelines that are very hard to imagine as a as a human being in terms of investments and thesis internally so it's it's definitely scary look I'm I'm not a cryptographer and obviously a lot has been said about ECDSA which is kind of the core elliptic curve cryptography that that Bitcoin and and Ethereum serve But

I think internally we think, you know, self-custody is just like a harder and harder cell in terms of of crypto and kind of the core crypto ethos. We've been having this thesis internally that you know cryp self custody is slowly dying and I think this is just accelerating and we can talk about why and I think it's one of the core reasons DeFi is actually not growing is because like we don't have anyone that's willing to self custody and so we're waiting for the Robin Hoods the Coinbase and other applications to actually kind of on board users so that's number one I think number two the other thing that is scary is the solution to that which is other sets of signatures that like they're not well known,

they're not well tested and people have very divergent opinions about it, right? And so that is also the scariest part where I think a lot of the layer ones that we built, Bitcoin, Ethereum and and others honestly now they have s like an amount of governance like we asked the miners there's onchain votes like there's the DAO there's the community there's the users the stakers and clearly this this seems like a topic where you want like founder mo mode you want someone to say hey we're going to make this transition we're going to do this we're going to use this signatures and we're going to do this before next like mid next year basically and it seems like at least like my concern is like a lot of these will get will get

you know kind of lost in governance and like you know votes and stuff like that and so that's also the part that that is a bit a bit scary I think other than that look like there are solutions again like I've said there there are other signatures like in the Ethereum road map they've been thinking about this for years there are a lot of startups kind of helping on that but I AI is definitely a force now that is forcing you to basically think about the future not the future where we see in investing which is probably like five years 10 years for venture fund but more like 20 or 30 years and it's something that we've kind of never done. So yeah it's scary.

>> Yeah we have a question from the chat that's an interesting question. It says why do people assume that quantum won't help crypto? Why don't people assume that there will be a quantum coin? quantum security is theoretically amazing. So, I have my own answer to that, but I'd be curious to hear yours. >> I mean, I think it could help just like as they like a lot of people are saying, hey, like this kind of fear about AI models breaking ECDSA like they're also going to help us create kind of solutions. It's true. I think the part where I'm not totally sure is just we have noise in crypto in terms of hacks, fishing, like wallets being drained like yearly that is like already in the

billions of dollars, right? Like if you add like all the hacks and all the fishing scams and we can talk about what happened with Ledger, which was like more than$und00 million. If you add all of this, like you have a noise in crypto that is sizable, right? Like I mean North Korea kind of has a job out of it basically where they steal like billions of dollars like yearly out of crypto, right? And so I just think like, you know, maybe like the we we won't know exactly for sure when when someone has kind of broken ECDSA or it's the Q day, like maybe they'll just start kind of slowly stealing like within the noise of crypto.

Unless you have a huge spike where you see, hey, like there's definitely something going or an address has stolen an amount that is really like an outlier, I'm just afraid that it's going to get lost in the noise, which is pretty constant or even growing for some of the years. I agree. I think it could help. I think it depends a lot what the closed models do with the new releases, but you also have open models out there, right? Like you guys have talked like in some of the shows and those can be used by anyone, right? And so that's just harder to kind of control. >> Yeah. Yeah. It's exactly that. Like somebody could in secret harvest a lot of stuff and then wait to attack. And so it's like the fear the fearful thing will happen first. And yeah, later maybe

crypto can take advantage of quantum. But in the meantime, you know, there's potentially a bunch of projects that are going to be sitting ducks. All right. So, in a moment, we're going to talk a little bit more about which companies and protocols are well poised to withstand the threat from Quantum. But first, we'll take a quick word from the sponsors who make the show possible. What if your crypto could do more than just sit in your wallet? Nexo is a digital assets wealth platform where you can generate daily interest on your crypto or borrow funds against your assets. Today, Nexo serves more than 10 million clients. Find out more at nexo.com.

One more thing, we've got a listener survey open. It takes just a few minutes. It's anonymous and it changes what we make next. Use the QR code on screen or go to unchainedcrypto.com/servey. The link is in the show notes. Back to my conversation with Lorenzo. So there's been a lot of conversation about how different protocols and ecosystems and companies are facing different kind of levels of threat from quantum.

You probably are aware of this with Bitcoin in particular, but I was curious if you could just talk a little bit about how it is that you're thinking about the threat to different types of companies and protocols and which ones you're more bullish on. >> Yeah. So are we talking specifically about quantum also like AI threats to public key signatures and cryptography in general? >> No, go ahead talk about both. >> Yeah. So I think you know internally like we've kind of discussed this. I think for us some of the so if if you see the hacks in the industry which is something I was actually looking at the other day you know most of those are in kind of Asian exchanges and brokers and platforms right and so I think right now

from a user perspective internally I think some of the centralized exchanges are actually best equipped to deal with this right because you need to be able to keep up in terms of research you need to be able to have like the best security setups. I think as we discussed previously, I don't think the net new marginal user in crypto and I'm pretty sure of that will want to use either like a hardware wallet or want to self-custody through like a browser kind of wallet, right? And I think that has many consequences. I think the coin misses, the Robin Hoods, the people that really abstract the crypto complexity, they're going to board the net marginal user and they're going to be best equipped just like same for the ETFs,

right? I think we were talking about this today. Like if I had a normie friend that comes to me and that wants to buy Bitcoin for the first time, I would probably recommend him an ETF to be completely transparent, which was not the case like I think three or four years ago. And I think internally even for people like myself which you know I've been self-custodying for years I'm actually thinking now of consolidating a lot of the custody that I have because it's just like so hard to keep up with what it's happening in terms of AI breakthroughs quantum and you don't only have that like even crypto protocols like closing right like I I don't know if you know you've seen this but like abstract which is a layer 2 is closing and they're basically giving their users

like a month to to withdraw draw funds, which is completely nuts, like a month, like imagine you're on holiday like in Australia for two months and you come back, it's like they should give at least a year or something like you know that makes more sense. And so I think from that perspective, they're just so many angles right now where you could either lose your funds or forget about it. And so I think some of these institutions are actually like very well positioned to add more assets onto their platform and to on board the next new user. And so I think from the companies it's kind of the barbell strategy of what we think like crypto protocols and companies will do well either the ones that sit very close to the user that

owns the user relationship like the exchanges the brokers or basically crypto infra that can get that is infrastructure and then that will get used by like a TAM that is massive right where you have multiple companies building on top of it. So for example like the Salanas, the Ethereums, the unis swaps, the az right where you basically have other companies or the morphos where you can build businesses on top of that infrastructure and where actually the TAM is much much bigger where it's basically almost the entire world like in terms of addressable market right anything that sits in between where you don't have the user relationship and your non core infrastructure that is basically used by

a lot a lot of people whether it's trading borrow land or custodying or whatever you're doing, I think you're just going to have a very very tough time, right? Because you're going to get squeezed in the middle. And so those are kind of the two types of companies that we're looking at right now. >> Oh, so interesting. And it makes a lot of sense. One question I did want to ask you about the hacks was you said that if a normie friend came to you and they wanted to buy Bitcoin, you would recommend they get an ETF. How do you think about the threat level to owning spot on an exchange? Do you consider the ETF still safer or do you consider custody Bitcoin at a crypto exchange also safe?

>> Yeah, that's a great question. So, you've seen BitGet for example, the crypto exchanges have an emergency fund, right? Obviously, that they can use in these sorts of hack and for now it seems like the buy bit one, the BitGet one, they've been able to compensate users, right? But it does seem like this is something that happens and I think actually for a certain set of companies like the exchanges. I think honestly security and regulation is starting to be a bigger and bigger moat right. I think internally five years ago it was more technology. Hey assets do you have what can you trade? Can you trade options? Can you trade per? And I think that part is kind of not commoditized but I think a lot of people are competing there now. I think if you're an exchange that you have a perfect

track record of security, you've never had axe for example, you have a set of licenses that you operate in a lot of different jurisdiction. I almost feel like right now that's kind of the boring thing that is becoming a mode, right? If you ask me Laura, like between spot bitcoin on an exchange or an ETF, the exchange matter a lot right now. If I had to custoch, I would definitely do a lot of research on what are the security setups. Has there been previous incidents? How are they dealing with incidents? Do they have an emergency fund? How big is the emergency fund? Those things start to matter a lot actually. And I think for that honestly, it seems like the US exchanges have an advantage. They're just much more regulated. They're public companies. You

have public balance sheet incomes. You just have a clear picture of the company that you probably don't have with some exchanges in Europe and in Asia. So that's probably the advice I would give right now. As for the security setup, like clearly there are a lot of differences between exchanges. I think that is going to get kind of consolidated. I assume like some of the US exchanges have teams that are thinking very very deeply about this. So like how does quantum affect their security kind of setup? How does AI affect their their security setup? How are they going to transitions? How is all the partners that they have like custodians or exchanges or brokers that they work with, how is it going to plug into? And so that's definitely some of the research that would probably never

have done like three or four years ago that now I think is just very important. >> It's so similar to like the kelp thing where you need to ask questions about really obscure parts of the setup to have an understanding of what the true security threat is. Before we move because we're definitely going to talk more about that, but before we move on, I did want to ask you about Bitcoin in particular when it comes to the quantum threat because obviously it's has a sort of unique set of issues with like Satoshi's coins also the kind of conservative nature of the community even how decentralized it is and how hard they sometimes find it to come to consensus. So I was curious what your

opinion is on how well Bitcoin can face the quantum threat. and what they should do about some of the dilemmas. >> I think as you said, the Satoshi coins make this case particularly different than the others. Look, there's been a lot written about this. Should they burn the coins? Should they wait until the coins are moved? Should they use the coin to basically pay for tail emissions and miners? There's a lot of theories out there. Honestly, we've been having a lot of talks internally with some of the biggest players in the industry and also the core dev team. We're in the kind of consortium with Micro Strategy and some of the other companies that are thinking about this and I think internally things have changed a lot from a year ago. I think people are much more in tune with

this and they know that the problem is kind of real. So I actually think like much more positive than a year ago. I think they'll find a solution before kind of Qday and there will be a transition. I don't know exactly what will be done with Satoshi's coins, but I think I've had to be I think I was much more worried a year ago than today. I think people are aware of this and they're working on it and there's actually solutions that are being drafted. And so I'm sure the community will arrive to a conclusion and also there are just more companies that are depending on Bitcoin right now than like two or three years ago. like as I said like you have the ATF issuers, you have the exchanges, you have the devs, the miners, and so I think there's just like more people thinking about the problem

and so somehow I think they're going to be able to find a solution in time. >> Okay. Well, that's that's positive and reassuring. Hopefully, you're right. So, let's now talk about these additional hacks. You alluded to the allegger one earlier. So obviously this one is I mean it's just yeah it reminds me of all these North Korea hacks that we've been seeing because you know the issue here was a reseller was sold to a new company. The former owner I saw this today said on Twitter that he was forbidden to tell the community about the sale until October 19th which is next week. And so far it looks like about $und00 million has been stolen. This is all from you

know individual devices. So the other thing though is like this is just weeks after the bit hack for $400 million and that was a a sort of similar situation. They were using this third party vendor and allegedly DPRK is the one who had compromised that third party vendor to get into Bett's machinery. So, how do you think about these types of security issues in terms of how somebody can protect themselves against these types of situations, but also how the industry can grow into this era of so-called adoption when it actually feels like it's so vulnerable?

>> So, I think on one hand, like we just talked about like AI and the quantum thread, which is more like I would put it like mathematical, right? like it's you have to kind of figure out the math and now like as you said like the bit and ledger one it's more on the UX UI and kind of security right and it seems like the hardware wallet space honestly is such a is very very hard right because there are so many supply chain attacks that you can do either like data leaks I mean between you know between uh treor ledger and cold card like all the big wallet providers basically they've all had like several problems like in the last two to three years, right? So,

it's like there's nowhere to hide honestly like from the user perspective, there is literally nowhere to hide. I think it's a tough space also, Laura, because it's honestly like this. I don't know what the revenue pull is, but clearly it's not a part of the industry that makes enough money to basically entice other big players to come build and kind of think about it, right? It's like a ledger has been around for almost 10 years and cold card and treor are smaller players and they are smaller players. Thinking about this, but the reality is like the hardware wallet is so specific to crypto. It's kind of the same problem with miners and AS6 and Bitcoin. It's like they're produced solely for this. There is no overlap to any other kind of security problem of

more like consumer or like finance that I think it's just a place where it's very niche. you kind of have three or five vendors that have been around for 10 years. Nobody wants to get in the space because there's not a lot of money to be made quite honestly, which is kind of the same with miners. And so I think it's just a space where there hasn't been a lot of innovation. It's a very hard space to build and I think it's very hard to monetize in terms of hardware wallets. like yeah it seems like this problem in particular was pretty crazy where they were basically implant within the hardware wallet custom hardware to be able to steal basically the seed phrase and it was through a third party vendor in Malaysia that was approved but it wasn't really ledger and so I think all of this to the

end user is just so complicated to manage honestly and they don't have time to do this and so I think I come back to where I think the marginal end user in crypto is and I think it's going to be through kind of centralized exchange and other forms of custody basically then that are not like self-custody. >> Yeah. Which is so interesting given the way crypto started and the whole movements that kind of launched it toward the mainstream. So now let's switch topics because I notice you have been tweeting a fair bit about Ethereum this year. It sort of looks like your position has changed a little bit because you started the year saying I think ETH is starting to look really uniquely positioned from a macro

perspective. You cited quantum readiness, flexibility around upgrades or a few other factors. At that time I think I agreed with you. Then in July you tweeted about Ethereum's economics not being priced fairly especially in relationship to for example Robin Hood chain. And I was curious for your opinions now currently on both Ethereum the network and ETH the asset. >> Yeah. And they're two separate things. So I think it's good that we touch on both. I think from the network perspective in terms of value acrruel I think it's pretty clear that where we are today the value acrruel is pretty broken right. I think imagining a world

where Ethereum acres several billions of dollar is just very hard to imagine if not clearly impossible right because we have two things it's basically the base layer is used to store assets like not much activity is happening at the base layer so it doesn't produce like it it's not producing a lot of fees and basically activity has been outsourced to these layer twos and frankly like mainly two layer twos it's base and Robin Hood and Like there are other layer 2s like lighter and but it's basically like five to seven layer twos that have like 99% of the of the activity and those fees are not is they're not acrewing to to Ethereum right like I I made the point with Robin

Hood like Robin Hood was making several millions of dollars a day and basically Ethereum base layer was acrewing $100 like literally a hundred to $200 right and so I think from a value crew perspective like it's pretty clear and I've written about this where Ethereum has this franchise model where basically it's scaling through franchises right like really base and Robin Hood you can think of it as a McDonald's franchise right I think just the Ethereum foundation and people around Ethereum haven't internalized it and they're not realizing but growth is not happening anymore at the Ethereum layer one right and so I think just Eth

is just you know it hasn't done very well because I people are starting to price that. I think number two is tokenization is just changing the whole the entire market structure and I think also people are not realizing where if you see like the tokenized equities and the trading volume it's basically all happening on Salana base and Robin Hood right and so internally as we think okay what is going to grow the most like in the next two to three years and we think it's going to be RWAS like I do think Ethereum the asset is going to continue to But it's going to be most like I think the winner is going to be RWAS if nothing is happening on the Ethereum

base layer and all the activity is happening on base Robin Hood and other layer twos like I don't see why Ethereum L1 just doesn't become just a layer where you post proof right like where it's basically a DA layer where Ethereum B like where Robin Hood base and other layer 2s post their proof which is literally what happens today and then you have like kind of I think 50 to 100 billion worth of stable coins and Ethereum obviously which you know if you fast forward like you'd imagine like some of that being pulled into like the layer 2s if most of the activity happens there right I think the Ethereum people think that it's the opposite way like

because there's a lot of assets on Ethereum L1 it'll pull the activity but like the net new user doesn't care about you know a token a bit fund like you know that is issued on L1 like they want to trade the circle stock they want to trade Nvidia and that is happening on base and Robin Hood and so I think there's just like a dichotomy here where Ethereum needs to choose exactly what is its strategy right that's not happening on Salana because everything is happening at that base layer but I think they should just embrace this and say hey we either want to scale the L1 and we're actually going to make efforts to have activity we're going to scale the throughput and we want applications to be here or we fully become a franchise model where we're going to support the

L2s and we're going to support them in a better way but activity is going to happen at the layer 2 level right and we're going to try to acrew more volume and kind of change the economics I think right now it's just playing both games and not very well basically and I think the overlap between the users that you have right now and the Treadfi OG users is just very small actually right and so I think the N user user doesn't care much about what is happening on Ethereum moan which was kind of the same thesis we had with Bitcoin and Bitcoin layer 2.

We just thought like in terms of the demography of like people that have Bitcoin, they're like white 45 year old people that were early in tech like in the 2000 2010, right? They're not the same people that are going to want to bridge Bitcoin to NL2 and then stake it in DeFi and do weird stuff and like take risks, right? And I think the same thing is happening on Ethereum and and crypto in general with RWAS and this kind of new set of users basically if that makes sense.

I think like one of the kind of ironies really is that the value acrruel or the thesis around activity and the value of Ethereum that worked during the NFT era because people wanted NFTTS that were on the Ethereum L1 and those NFTts were considered more valuable and it's so interesting because the reason for that was literally just about status, which is so funny. Like just having an NFT on the Athereum L1 gave it some extra I don't know special sauce we'll just call it. And so it's sort of ironic

because it's completely not like there's no like logical or rational like you can't put that into a tokconomic system. You know what I mean? But that was like the one time when actually those lined up and benefited Ethereum. Yeah, I think it's hard. Look, we're also like pretty like we're also very humble and when I say this is it's there's a nonzero probability I think that some of these layer ones actually don't make any money and become like very very valuable networks over time, right? Like if you look at Bitcoin, Bitcoin will never do like you can't value Bitcoin on like discounted cash flow or EV to EBIDA like multiples because it it doesn't make any

money, right? And I'm not saying that you can have like something very similar to Ethereum because I think that kind of non-programmable store of value, you probably can have like, you know, 10 layer ones playing in that field. I don't see it impossible a world in 5 to 10 years where there's probably like $5 trillion worth of assets on Ethereum and Ethereum is not making a lot of money and Ethereum is still very valuable. Like if the asset is valued like very properly, I think it's a very small probability. It's probably one that I don't want to bet on, right? like I'd rather have Ethereum actually make money, but I think it's one that is possible. It's a very small possibility, but I think it's definitely one.

>> The issue about the Bitcoin one though is that if that actually happens, then Bitcoin security is effed. Then the whole value of the coin is effed. Yeah, they in my opinion need to solve the security issue. All right, let's actually keep talking about tokconomics. You told me before the show you think buybacks are dumb. It was a word you used. you think they get too much attention. I would love to hear more about your thesis there. >> Yeah, look, I think and they're dumb. It's probably a strong word. I think people have become crazy with this topic, honestly. Like it's it's crypto Twitter only talks about that. Like I think there there's two things. I agree that the dual equity and token model for a lot of these projects has been just a

huge problem in terms of investor value acral and interest in general in the companies right I think the remedy to that has basically been some of the companies and these protocols say hey we want to signal that the token has importance so we're going to buy back the token and we're going to burn the token so people that have the token are happy basically right in some sense I agree Right. I think it's just taken to an irrational place where you have very early stage startups like literally startups that raise one two three years ago that are using 100% of their revenue to buy back the token, right? And I just found that completely crazy, right?

Because it's clearly not the right way to allocate capital if you're a startup. And I tweeted about this. It's pretty funny. You have the AI venture market where literally investors are calling the startups and they're preempting rounds like a week after they raise to give them more money. And in crypto, we have like one or two year old startups that are, you know, they're saying, "Hey, like the best way we can invest capital is just going to be to buy back and burn our our model." And honestly, like from the investor perspective, it's such a turnoff because basically you're telling me like, "Hey, we think we're the best. we think there's nowhere to grow and like the best use of capital is just to to to buy back the token and obviously we know that's not the real

answer for a lot of these companies but they're basically getting bullied into buy back you know into buying and and burning the token and I think that's just like it's just crazy right so I think one thing that's one thing the second thing is I think generally some companies don't see uh a path to like becoming 10x bigger and so they're using that basically to to allocate the capital and make kind of investors happy, right? Like I would rather a founder like come to me and say, "Hey, like like my stable coin is like billion dollars of supply. I see like a clear market or pathway to becoming like 50 billion. I'm going to use the capital to do this like 100%. Like I I'd rather

have that instead of kind of buying back the the token. One thing that people forget also, Laura, is like you had a lot of past companies that were super successful successful that were that were doing the same thing. I bet a lot of those companies wish they hadn't, right? Like if you go back and you see like the DYDX, the OpenC's, the Blurs, like some of those companies have similar tokconomics and clearly they're dead now. So it wasn't a good use of capital at that time. You know what I mean? And so I don't want to be like, you know, that sarcastic, but I think people are just focusing too much on the buyback and like value acral kind of thing.

>> Yeah, your comments here remind me of how after the pump ICO, somebody tweeted, "Okay, so we sent you all this money to buy these coins, but now you're going to use that money to buy the coins back from us." And I thought it was hilarious. like yeah that's basically what's going on here. It is. >> So, >> it is literally and that's why I think like for some of these companies like per pump for example like I would much rather have the team say hey we're doing this memecoin market. This is a market that we think can grow to this. We want to expand to this and this and we think it's going to take this much money and

resources and this is how big we see the market and how we can grow into it. I don't want them to buy back the token, right? like it doesn't do anything for the protocol in the long run. And so yeah, and as you said, like for companies and protocols that have actually raised a lot of money, it makes even less sense to be honest. >> But out of curiosity, so you also think that about Hyperlquid because obviously that's sort of like the darling in this category. >> It is the darling and I think right now obviously hype has most of the market share, but I think yeah, I think it's not the best use case. I tweeted about this. I was half joking but I was half serious like when I posted that Hyperlid should buy Gemini in the US and I think they should acquire the exchange. I

think to to be completely honest like and I've I've discussed this a lot with the team. I think L1's have been very very monolithic as to the strategy right I think in terms of distribution like acquiring other companies acquiring technology acquiring talent I think there's a lot of things that you can do with the token and they actually have these huge market caps like at peak Ethereum was worth like more than $500 billion you know if you use like 1% of market cap you can acquire something for5 billion dollars that's a lot of money like you could acquire a lot of things with that. I'm just giving, you know, an example. So for Hype, look, I think they're going to have more competition. I think PES is

going to get very, very competitive. I think it's a market that is going to become increasingly regulated. You now have per like approved in the US. I think you're going to have stock per also approved. So Coinbase, Robin Hood, you know, the backpacks of the world, they're all going to compete there. And so I think you want to be in a position where you have resources to be able to compete, right? not buying back and burning the token. And look, like maybe you can do that, but it doesn't have to be programmatic and like something like set in stone, you know what I mean? Like you can decide on the month-to-month basis, you know, like it depends on market cycles, right? Like your token may be worth like a hundred billion one day and like the month after that it's maybe worth like 60 billion and maybe

the strategy isn't the same basically. So that's kind of what I'm saying. >> Oh, interesting. Okay. Yeah. I've had other investors on the show who said the opposite that they thought programmatic would signal something to the investor and basically create more confidence in the token. But anyway, okay, >> slow on that. Just slow on that. That doesn't make the same way like a team can make a buyback programmatic which means like you know it's basically automated. they can do the same the day after where they basically, you know, they go back to the old model. And so it doesn't give you any more confidence that it's programmatic, right? Like tomorrow the hype team could come and say, "Hey guys, we're not going to burn like any tokens. We're going to go to zero, right?" And they could do that.

And so clearly the automatic thing doesn't mean much, right? Like at the end of the day, I think that's what people forget about these protocols and teams. You have to underwrite the team. And so you have to there's some trust in the team that they're going to do the right thing, right? Like if you have to encode some of this stuff like that early into the project, it's not good. Like it's kind of a red flag to be honest. >> Oh wow. Interesting. So you tweeted that you think tokenized equities could surpass stable coins in onchain supply in three years. That was remarkable. ARC itself is bringing its $ 1.3 billion venture fund ARC VX on chain through securitize.

And you know I also want to just mention the the call you made is is so interesting because tokenized equities just recently passed 1% of global stable coin supply which you also tweeted about. So given kind of how big stable coins are compared to tokenized equities right now, why are you so bullish tokenization that you think it would soon outpace stable coin supply? >> Yeah. So I think if you look if you look at the market right now, you roughly have like 300 billion worth of stable coins, right? Between like all the issues basically you take all the ishores. I think mainly even in the stable coin story like it's super super early. You know people talk about

payments and like crossber payments and like remittances and stuff like that. The reality if you look on chain and kind of the use cases it's mostly basically the PMF is exporting the dollar to emerging markets right like that that's the real PMF of of stable coins today. I think it's great. I think it it means like we're very very early on and I think more use cases like remittances I think there's a lot of great companies working on this. They're going to happen at some point. I think if you see like of the US capital markets, I think the demand to do things with US stocks and getting access to US stocks is extremely large in emerging markets and offshore basically, right?

And so I think you'll see something very similar actually where the first leg of growth of tokenized stocks, I think it's going to be very concentrated in a few stocks. It's going to be basically exporting the asset to other countries, distributing the asset. And so right now we're very very early. If you see like tokenized equities per is the dominant kind of trading primitive I think spot is going to take more time because you need you know you have the asset you have to store the asset you know now you have the innovation exemption you actually have to plug into the US equities and you have to work with a bunch of the custodians the clearing houses and all that stuff so

it's going to take longer but I think in terms of appeal and what we've built in crypto like the biggest PMF is finance like I think blockchains are very very good at moving storing and managing money and assets that represent basically that have value right and so I think equities are just like the normal evolution we're very bullish honestly on tokenization and that's why we've tokenized our venture fund I think stable coins again I think they're going to continue to grow probably like 40 plus% kagger a year like compounded over the next few years but I think equity and you'll have like different flavors are also going to grow a lot. I'll also say one thing like most of the yield that we have in crypto is very circular,

right? Like most of the fixedish income kind of yield in crypto depends either on leverage, you know, borrow markets or looping basically ETH or Salana yield essentially like a lot of the yield that you can see on a morph for all of these markets. I think just equities they bring like a new set of assets. they're volatile like in a different way. And so also like in terms of yield, I think it's going to bring like more uncorrelated yield that is not correlated to the big three basically Bitcoin, ETH and Soul. And that is going to be like very very healthy for markets. It's going to attract like a different set of users basically. So that's why like we're just very excited about RWAS in general and what we tokenized the venture fund.

>> Yeah. I mean I was also wondering if when you did that if you had thoughts on how it might affect the trading of it. I understand obviously you know tokenized equities are so small right now so there is that also which will have its own effect but do you think it will just look you know in terms of the trading it'll look exactly like you know how it does in tradi? >> Yeah so it's a good question. So right now you can basically subscribe and redeem to the fund on chain basically through securitiz but there's no there's no secondary trading market right right now enabled just yet and so I think there's it's really like the the what we did

with securitize it's really the first step right we wanted to tokenize the fund but I think the real work really starts now I think more guidance obviously over the next kind of months will help. I think there's a lot of utility that we can bring to the tokenized venture fund than stuff that you cannot do in thread fights with like the normal shares and we're very excited. But in terms of pricing right now, if you subscribe to the venture fund, the nav is basically public, right? So the nav will be the same offchain and onchain essentially, right? And so there is no secondary liquidity market onchain just now. I think perhaps it's something that you will enable at some point. So again like still very early. I think we're very confident for

us really it was can we get to a new set of users like basically onchain users and we really think of as crypto like as a new distribution platform. Can we be early to this game because we're ARC invest generally we're very good when we're early at things like that and then can we increase the time like can we expand to other geographies? Can we distribute the fund to geographies like in a more efficient way than the traditional way and so those are really the things that we were kind of looking at but right now again very early I think there's a lot of work to be done still >> let's talk we're kind of at time but I really want to ask you two more questions so let's just quickly talk about where the agentic commerce competition is going you had a tweet

about the announcement from Cloudflare and what you thought the impact would be on L1's. Tell us about that thesis. >> Yeah. So I think Cloudflare obviously with AI things are changing a lot in terms of internet traffic, right? I think they announced in their last earnings call that now more than 50% of the internet traffic is basically bots through AI, right? Which was pretty shocking. And obviously they need a way to, you know, to limit that, right?

because basically that's kind of the role that Cloudflare has on the internet right now. And so if you look at kind of the podcast and interviews, it seems like, you know, using blockchain technology and basically the AI agent or bot, you know, having to pay basically a nano transaction to be able to access content or website is something that Cloudfare is kind of looking at, right? And so I think it's just very interesting that more of a tread fight company obviously is thinking about this like the intersection of crypto and L1 and how it can provide like a solution to to basically agentic commerce and agentic you know just internet traffic in general. I think we're still very far away in terms of throughput like if you

look Matthews I think it's the CEO of Cloudflare we're talking about like 10 to 100 million TPS and so we're very very far from that. But look, I I think there are teams that are that are working on that. We're very excited. You know, for example, like layer zero is going to launch their their L1 like in the next few months. I think in terms of throughput, they're going to be able to deliver things that are really impressive. So, I think in terms of the use cases, we're still pretty far from the 10 to 100 million TPS. I know a lot of people are talking about Agentic Commerce and Agentic Workflows in general on crypto. So I think it's exciting but it's still very early and I think the uses that we're seeing through MPP and the X42 protocol of Coinbase and

Circle it's very very nent right now. So we're looking at it but I think it's very early >> and so how do you think this will impact L1's? I think we need to increase throughput escal like orders of magnitude still right I think right now the salana sui apttos we don't have much activity going right now right like I think it's still pretty small the use cases and so people are okay with the throughput right now I think throughput is going to be the major vector for some of these use cases and we're still orders of magnitude and so I think we still need teams working on that and again I think there are teams But I think we're probably two or three

orders of magnitude away and so we still need to scale these L1's very very aggressively basically. >> Okay. So last question. Stable coins have come up a few times in the conversation and obviously there's a lot of new entrance to the competition, but I know that you are bullish on Circle and Tether who are the incumbents. Why is it that you think that this competition in a way has kind of already been called? >> I think people are underestimating basically the network effects around you know like network effects and liquidity mode of tether and and circle essentially I think broadly like people

think of the stable coin market of this market where with like thousands of players and really like it's not the reality. The reality is like if you see what has been used so far and what is being used onchain, they're basically like two stable coins which is USDC and USDC. Like the rest really don't really matter honestly. And you've seen obviously announcement of stable coin consortiums and other players trying to tackle that market share. I think it's just like overall a business that is super complex to build, right? Like people see Circle and Tether as this kind of ERC20 stable coin on Ethereum and other blockchains, but really like it's it's a business where

you need like you know tens of licenses in different countries. You need to be regulated. I think the risk for businesses to switch is actually huge. Honestly, like I was thinking about this, it it's like you know 3% yield or whatever you can pass on to the users for institutions like the risk is enormous. Like we've talked about and now even with AI with quantum like just security and reliability around these assets is just huge for exchanges, right? One of the things that I kind of wrote in one of the essays was Binance. Binance has 50 billion worth of stable co like literally has I think 45 billions worth of of USDT. They're not getting any yield on that. They haven't been getting

any yield for over 10 years. Well, I was asking myself this when I was writing this is why haven't they switched to another stable coin? I'm sure there's a 100 stable coins that are willing to pay Binance at least 60 70 80% of the net interest margin. And so I think the thought process was like why hasn't this happened? I think people are just underestimating the stickiness of these stable coins. They're kind of liquidity supernovas where they power so many other companies in the ecosystem. There's a lot of people that rely on them and just like the main trading pairs like Bitcoin, Ethereum liquidity, they're built around. So I think the switching cost to companies such as

Binance, they're just huge. The risk is huge. They're not going to switch for 60% of the name or like even 80% of the name. That's our thesis. And so I think Circle is becoming like a much broader internet money company type of business. Like I think in five years people were know for other things that are they're not like USDC and some of the products that they have right now. And so generally I would say people are heavily underestimating how hard it is to launch a stable coin network that is big, right? that scales into the hundreds of billions. And so that was kind of the thesis around the tweet and some of the comments.

>> Okay. Yeah. I mean, I think Binance did have its stable coin, but some New York regulator went after them for some reason. It was the Paxos. >> Yeah, it was Paxos partnership. Yeah, exactly. And so they went after the stable coin and they basically had it to they had to shut it down, I think. >> Yeah. And I don't remember how big it got but >> I think it was in the pretty big like 15 I would say like probably 15 20 billion. Like it was pretty big, right? But I don't imagine like any other company in the world wanting to use like a Binance stable coin if you know what I mean. And not because B it's just like in terms of incentives like they're not very aligned, right? And I think that's sort of the problem that we have with some of

these other stable coins that are not very neutral or they're like consortiums where you have like a thousand companies and then like you know what's the strategy? Who's aligned around kind of the incentives and the economics? So that was kind of my point as well. >> There was a period where I think I thought that it would have been a good idea for Coinbase to buy Circle, but actually just the point you made about neutrality I think is actually a reason why it is good that USDC is owned by Circle instead. Anyway, Lorenzo, this has been so great chatting with you.

Thank you so much for coming on Unchained. >> It was great, Laura. Thanks for having me. >> And thanks to everyone for joining this live stream and we will catch you Wednesday. Bye for now. Nothing you hear on Unchained is investment advice. This show is forformational and entertainment purposes only. And my guest and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com.