Apps Are Taking Over Crypto | 6th Man Ventures

Transcript

I think developing a great experience or a great game is like by far the most important thing because if you do that with we're very confident that revenue will come. But because crypto is fundamentally built on a financial system, there's almost no reason that revenue shouldn't be available day one. [Music] Nothing said on Zerx Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio, Ryan, and our guests may hold positions in the company's funds or projects discussed. What's up, guys?

Welcome back to another episode of Xerx Research. Today, I'm joined by Carl Vogel and Mike Dudes from Sixman Ventures. Um, as well as Ryan uh from Blockworks Research. Carl, Mike, thanks for coming on. Thanks for having me. Excited to chat. Um I guess to get us started I want to chat to you guys about investing in app over infrastructure because typically uh I feel like most people associate VCs with investing in infra. Um what are I guess do you think we have too much infrastructure and that's why you're focused on apps or do you just see there being more opportunity in investing in apps as opposed to infrastructure? Yeah, it's a it's a great question. I'll start actually. I was at uh Salana Crossroads before recently being a token and I was on a VC panel there and basically this

is the number one question we see that comes up on any sort of venture conversation is where should capital be allocated in the ecosystem and are we overindexing to one area versus the other. My general take is we have too many investments in generalizable block space and what I mean is if you look at the total generalized block space out there in other words not specific to a particular use case just general L1 space I haven't done the math but I would assume we're using less than 1% and maybe even less than 0.1% of available block space block space with actual information and as part of that it creates this flywheel where investors

invest in an L1 and an overpriced valuation. This L1 runs a playbook to try to get some sort of ecosystem going on it runs some sort of likely alternative market making strategy to keep the the token price at an arbitrarily high valuation. And so what you end up with is this cycle of investors saying if I invest in L1 it'll at least trade at 500 million to a billion dollars. And so that playbook has been run a lot and for a long time it was actually the right strategy. I mean if you think back to the fat protocol thesis I don't know when it was introduced but its general framing is unlike in web 2 where the applications accured all of the value compared to the you know cloud providers generally in crypto especially because of priority

fees and minor uh extractable value basically the L1's themselves are going to acrue a dominant share of the value and that's what we've seen however like stepping back us at sixman ventures our background is in consumer and in mainly building applications and uh companies on the on the blockchain. And so as part of that, our thesis has always been we want to invest not in the infrastructure per se or explicitly but in the ecosystems and apps are going to be bringing hundreds of millions of users on chain. Otherwise, what are we doing here? And as part of that thesis that led us to the Salana ecosystem in 2020 because it was the only place to build high performing applications and what we've seen is since that period of time

apps have actually done quite well or a handful of apps have done quite well. If you look at the revenue generated by uh OpenC during the last cycle, you look at the revenue of Steppen, you look at the revenue of Magic Eden, uh this cycle, I think the two largest what I'll call fat app winners have been Hyperlquid and Pump Outf fun. And as part of that, they've demonstrated that by creating a compelling product experience, you can generate hundreds of millions of dollars in revenue. And I think apps are therefore now becoming more acceptable to VCs to invest in because they actually see that some of these are able to generate revenue. So stepping back, we have way too much generalizable L1

block space in our personal view. There are particular types of infrastructure which I think we are underdeveloped as an ecosystem but across the board um that that playbook has been run. So two things that help if you want to dive yeah dive anywhere specific but that's that's my high level framing. Two other things that I'll add are uh the reason so much capital is allocated to infrastructure and historically has been is because you can actually write larger checks into these things and that is the business model of many of the mega VCs and the majority of capital raised in the space. So you do have some sort of incentives that don't necessarily align with what's actually ultimately needed in the ecosystem for use. Um second piece is to that apps don't always require as much capital to get to you

know wild uh revenue generation outcomes. You know hyperlquid I think they didn't raise any outside capital and invested I think tens of millions not hundreds of millions like you see in many L12s got pumped up fund I believe raised you know less than $3 million and has done almost 700 million in revenue. So they're not as capital intensive and it is actually harder to do. The reason we do it is because we are company builders. you know, our partnership has started six companies between us. Uh, and we have spent a lot of time building businesses and there's a deep need for that in the market. So, we actually also have what we believe to be a competitive advantage and helping people who want to build durable businesses that will generate fees in the future and we think there's going to be a lot more of those

and it's not just in the speculative stuff, Herbs trading and memecoins, but you're starting to see it in stable coins. Uh, you're starting to see it in deep pin and and I'm sure we'll talk more about that in this conversation. Yeah. Um, I want to dive into the apps, but before we get started on that, I want to ask um, do you think that uh, the L1 or the L2, the chain premium is going to go away soon with the generalizable blockchains being overinvested into? Do you think we're going to I guess we're kind of seeing it now, but do you think that trend continues? Have we found the final alternative for a chain or not yet? Yes.

Well, I'll start and then Carl can go deeper. Uh what I think you're going to see is a bifurcation and I do think the market will correct and a number of the extraneous unused uh L2s and general purpose L1s truly will uh trend towards zero and you're already seeing that with a bunch of the EVM L2s trending towards zero pretty quickly. Uh you're also going to see that with like DA layers and other sort of key infrastructure that just goes unused. uh what you then will see is the handful of chains that actually do build real ecosystems where fees are generated you know the Salana the world probably hyperlquid and there will be others I believe would increase in value you know Athena launched their chain of securitiz like if there's actual usage there there could be a lot

of upside on things like that uh but again the rest go zero the one category that's going to continue to be sort of a thorn and probably pretty frustrating is the OG L1s that trade like memes right the Cardanos of the world and the coins. Um, you just they have broad distribution, they have brands, uh, but I think we don't really consider those when we think of venture investable things. Yeah, I think it's I think it's a really good summary. I think it's a really good summary. Perfect. Um, okay. Kind of bouncing off that, do you So, you said you guys are company builders um and you work very closely with teams. Do you tell them to launch on specific chains?

Um, is that part of your focus? So, I'll start again. We would say that there's a handful of chains that we think uh have reached sort of a level of stability, a level of capital availability uh and a level of you know number of participants where it makes sense for somebody to launch where they're not taking on a significant additional risk beyond company building. It's hard enough to build an early stage company whether it's consumer or a business app or product. uh taking on chain risk and and using one that gives you a grant that has nobody on the chain is just a risk you should not be taking and I see too many people fail in that.

So we will recommend a handful of ecosystems that we think uh you know that have demonstrated success like Salana that are emerging to have different app use cases like Bass uh you know but we wouldn't recommend that you go build on you know some a Bitcoin L2 or one of the generalizable um you know alt EVMS right now. Uh the interesting one obviously is and and Carl can probably expand upon this but it does feel like that ecosystem is starting to uh gain momentum in a couple of different use cases and it's sort of just moving out of the risk stage of will that go away.

Yep. And one other one I would add is uh Monad to that list. So, um, we're really big fans of Kone and what Monad is building. And in an in an industry that has a lot of, let's say, grift and unused block space, I think Monad has been able to uh, develop an unbelievably strong community and also an underlying technology and thesis that is compelling to people and builders looking to launch high performance applications. Um, so I think has been in the game for a long time. I think with the let's say restructuring at Appdos and obviously what's happened at Movement Labs, I think they they're really emerging as one of the primary destinations for

developers looking to build on Move. Um and so we're already starting to see that. We've done a number of suite investments over the years and and we have a good relationship with that team and I expect uh they'll continue to grow. Um, so those are the other two, but again, in a case like Monad, we've talked to a number of terrific teams. And Mike and I have both angled into the ecosystem, but it's a little bit challenging to underwrite a consumer product at a high valuation on an unlaunched chain. It's just risk compounding on risk. So, uh, we do see a lot of builders moving to Salana and Bass. And it's interesting, you know, we're we're also friends with um Alliance and their data would support a similar thesis that Bass and Salana tend to be the two places where most consumer uh projects are being built.

That makes sense. Um I want to kind of dive deeper on that Monad point because um I think on our side we also see a lot of people say Monad is great. Um because I I do think that the approach that they're taking like they're on both the software and hardware side is unique in that it is trying to bring the EVM um back but like you said it's unlaunched and I'm curious how that um you said you can't underwrite it but I'm curious what your thoughts are on when would you say Monad is not a success um or how would you say it's not a success because they raised a lot of money um and I guess that's my question like do you think the EVM is necessary that people can't just choose Salana over the EVM. Yeah, I mean there's a number of ways to to look at

this. I think ultimately Monad going live this year with a complete ecosystem of high performance teams where a user can can come in and engage with a variety of different products. I think to me that is the number one metric of success. Um and I think they're well on their way to do so. I think from an investor perspective, you have to look at ultimately where the token trades and relative to its overall place and significance in the crypto ecosystem. And so, you know, it might be a success for ecosystem and for developers and community, but ultimately if the token is only trading at a third of what, you know, paradigm leve investment in then I would say from their perspective, it's

like not a success just on on paper and definition. But I think it's also important to recognize that sometimes these take time to develop. Um I think there's if you look at the case of sui and other ecosystems it takes years sometimes to truly develop a set of strong uh you know a strong cohort of developers. So I don't want to put too much pressure on an ecosystem that on day one launch they have uh you know hundreds of thousands and millions of users active and let's say 500 you know transactions per second as like the only way that a chain can achieve success. Um but I just look at the high level markers and you know the last piece of this is when I go to a a conference you know I'm always looking to meet new people and maintain relationships but

the third is understand developer sentiment and when I I guess another measure of success is if I'm a developer do I see a thriving opportunity to build a business if it if I do so on monad and that's true for an ecosystem and that would be a number one metric that and just heristic from talking to developers where do they want to build where are they excited and where they see the users and support from uh an ecosystem. That makes sense. Um I guess uh Ryan might be a bit upset about this question, but in terms of um revenue generated based off of volume, I feel like before, like over the past two years, we weren't thinking about revenue that much, but now everybody obviously realizes that these are businesses which

need revenue. Um and the two that you mentioned, pumped up fund and hyperlquid are generating revenue of volume and trading. Do you see there being um I guess over the next few years a shift towards alternative ways of generating revenue when you talk to these apps? Are you saying you need to be taking a percent off of your volume and that's how you should generate revenue or are there other um systems that you've seen apps consider? Um I imagine so. So so I think what's nice about like the the two best business models in crypto are issuance and trading. And so as part of that, you look at things like pump in particular, even hyperlid where they're actually creating a market. Um, you can make

money both on the market generation and the trading of that market. And so what's if you think about web 2, it took you many years to actually truly start to monetize your product. You first learn to get users and grow potentially an ecosystem. And you know, only then do you start thinking about revenue. But in crypto, because trading is such a core component of these experiences, it's kind of um it it'd be kind of weird for founders not to focus not to have some sort of revenue generation mechanism day one. And that's one of the reasons that these these teams have been able to generate so much revenue on so little capital invested into the business. Um, so look, I think developing a great experience or a great game is like by

far the most important thing because if you do that with we're very confident that revenue will come, but because crypto is fundamentally built on a financial system, there's almost no reason that revenue shouldn't be available day one. That's it. Yeah. And I would Sorry. Yeah, I was going to say and just like looking beyond the trading volume, I think there's many ways to start monetizing these where uh you could have ad networks and various sorts of um users being able to use their data in productive ways where they're actually able to generate some sort of income from sharing data with particular uh partners in that ecosystem, whether it's for ads, whether it's for direct marketing or other campaigns. But I think like at this point we still h we

still haven't built that many fun apps as a crypto ecosystem. And so by far like revenue and monetization is not the core thing we look for in any sort of business at its early stage. But as we do look forward over the next call it 3 to 5 years. So the things that we're investing in today we do think that there will be uh more and and frankly probably looking more like traditional uh types of revenue generation models. So obviously you know things like DPIN where you have called a decentralized compute network or a decentralized mapping network uh and so you will have kind of traditional demand for those networks even if the supply is uh you know created in a unique way from how it's done and called a traditional

web 2 business but the sort of pricing will be kind of like fee for usage. Uh another category would simply be stable coins things like money movement. uh you know you'll charge folks maybe on volume or number of transactions uh and then you know how that fee gets back to either equity or token holders is still TBD in many cases but the business model is very traditional and the last one I'll mention is things like a and chamino and money markets right you have these big lending markets where they do have traditional fee generation models it's just a matter of who gets those uh those flows again equity holders uh versus token holders and I think we're in this interesting and weird transition ition period where folks are experimenting into again who captures

the value, equity holders, uh is it, you know, the Dow voting to move uh fees out to token holders, but I think it'll become much clearer over the next couple years. I I think that this is super interesting. I was thinking about it this morning. Crypto has this really awesome and we're kind of going off script here so this is my bad but crypto has this really interesting monetization model where like you can be very profitable on day one but at the same time like web two is really exciting because the marginal user does not pay to access the system like like Facebook can add an incremental user at no cost to that user. It's not the same for crypto. Um I'm wondering to think about what about these two models and and kind

of um the the friction that they present in in uh in web 3. Yeah. The I guess my thing I actually I I presented on this at Salana Crossroads. I built a framework on like how I think about consumer. I think if you're not involving money in the core product flows then the qu next question is does it actually need to be built on blockchain rails? Uh it is incredibly challenging to build on blockchain relative to web 2 and you know crypto fundamentally is a financial ledger. So if money is moving as part of the core flows of the platform, then monetization of that is sort of like a pretty natural step that users

would engage in. Um I also think generally users in order to stand out in crypto uh or just in in general in the attention market that we have across both web 2 and web 3 um users tend to engage with a product for fame, fortune or fun. And I think if you're just building something that's fun where there's no opportunity to get like famous on it or like the growth of virality or to make a fortune on the product again then it probably doesn't need to be built on on crypto rails. So my general take is like users can come in and like have a wallet but fundamentally if guys a financial ledger if you're not yeah if you're not making money if if money's if money's part of

the core flow then you kind of have to be playing some sort of like cost to move that money trade that money or you know be part of that be part of that ecosystem generally. That makes sense. Um, by the way, I love going off script. So, if we want to continue off script, we can. I think in sometimes that's where the really interesting things happen. So, we can go on script or off script. Um, whatever you want. Um, I wanted to I want to take it back on script unfortunately. I apologize. I just I had I have this question I want to ask because I don't get to um pump fund is is a difficult topic um specifically to talk about with people

because not a lot of people know that much about pump fun like there's a general surface level that we all know but um you guys did you guys are investors so I want to ask um we've seen a lot of launchpads a memecoin launchpads on base um on Salana now we have the radium one um there's also another one the bonk but I think that might be using radium I want understand how you guys are how you see this market shaping up. Um specifically, do you think it's a win or take all or do you think there's enough speculation and gambling to go around for all of them? Yeah. So I look to date, so you know, we've been investors of the company now for a little over a year and you know, we've seen dozens of substantial attempts to uh, you know, create

alternative call it, you know, token and and again it's just a sort of byproduct of what people are interested in that pump. Fun is looked at as a memecoin launchpad. are other types of tokens launched uh on the platform but I'm not going to you know blow smoke and say that it's the majority are memes okay and that's what the flavor of the day is but it's generalizable and it could be other things when we invested in it was simply create a token really simply that anybody can do and it was a magical moment so uh pump created a magical moment uh not only just creating the token but then getting that you know sort of the bonding curve and the locked liquidity immediately when it went off the bonding curve uh it was a massive massive unlocked and what happened is it was so magical and they had a

multi-month head start that a really big ecosystem developed around it uh and that has acted uh as a mo for them right you have everything from like telegram bots to deck screener and other tools that just kind of popped up uh radium originally and now pump has its own AMM uh but basically what we've seen is that the things that people uh competitors are trying to attack them on uh are things that ultimately the customer doesn't care about uh and the customer and Alon has said this a number of times is kind of like the den the token purchaser not necessarily the creator and the that's the person that you want to be serving and and they serve them

really really well again they have a like really deep liquidity they have a big audience of people in there uh and then there's the social layer that's just as important so people are talking about you know the pump tokens for a good six to nine month period having pump at the end of the contract address was a signal that you know this isn't a rug. This is uh you know something that's quote unquote legitimate. I know it sounds funny to many people to say that but it really did act as as a meaningful symbol and the thing just works. Uh you know we had people two weeks in saying this was going to be a 3-week trend and on the rate that it's going it's actually accelerating again.

Pump's doing more than a million and a half dollars in revenue per day. They're at above a $500 million revenue run rate right now. Uh and so there have been many uh competitors launched that aren't even doing you know 1% of pump's volume. Uh and I think they're an incredible team. People underestimate how much you know team and relentlessness and deep insight and being the original one matters. Uh you know as I said they've already built an AMM. Uh they take risks uh and then they'll back up from them you know it's not working and rejigger and then relaunch. uh you've seen that with their streaming function that they recently relaunched uh which was their second key insight. Um the last thing I'll say is and they relaunched

obviously which with much more moderation. Last thing I'll say is they have a vision that I don't think other teams have. They don't think of themselves as a crypto company. They think of themselves as a social company. You asked about Facebook and adding the marginal user at very little cost. I mean they can do that and you know there are costs to them but not to the user in very large numbers to just start streaming. So they have a sector of people who can be creators who can stream who can launch a coin and actually might be able to make money from doing that you know so it actually could be better in the long run than Facebook or Tik Tok where I'm making money from day one directly from what I'm doing versus via an advertiser or a sponsor you know that I'm talking about

or who's slapping an ad on my creator stuff. So, you know, they've really had a bunch of key insights in a short period of time. There's no question that they're probably not going to have 95% plus market share in this category of token, you know, issuance and creation attention in three to five years. But I think they're going to have a really significant and larger share than people expect today of a much larger market because they're thinking about this in this like creator social lens that's much bigger um than even the crypto market in its entirety today. X Bitcoin.

Yeah, I can I just add to that? I think it was really well said like when people like last year Pump was a a memecoin launchpad or the first half of last year, but now it's a c it's a creator platform. Um, and as part of that, when people talk about it as a memecoin launchpad, we're going to build a better one. It's kind of like they're playing last year's game. It's like you missed the plot. You're 12 months too late. Like they're already on to the next thing. And um you know I think they I don't want to say this for them but I'm pretty sure the exact phrasing was uh they they want to become Tik Tok cross Robin Hood like that kind of social finance layer where creators and their communities can grow together. That's where they're heading and there's a whole new set of features that are going

to be coming out and are being explored that are not just we're going to launch a token and you know make it easy like that that's that's already they've already moved well beyond that and people love it. The last thing I'll say about this whole category is, you know, I'll be in Telegram chats with friends and acquaintances and while they're saying, "Hey, this thing's nihilistic and extractive and, you know, this that and the other thing," they're dropping contract addresses in and, you know, saying, "Hey, grab this one this runner. Here's the narrative, blah blah blah blah blah." So, it's just it's clear that it's human behavior that people are enjoying and, you know, you just don't fight against human nature.

Uh I I totally second that, Mike, and that might be true for uh me and Bakar and many of the same Telegram groups and um who have similar opinions. Um why why um why streaming? Um you know, you could look out into the market and you could say that um textbased social has been m much more popular with cryptonatives. Um and maybe it's like a ticker fits better perhaps in textbased social than it does in streaming. Um, at the same time like video is an increasingly dominant form of entertainment on mobile. So like I don't know why did why did pump choose streaming over text? Great question. So uh I think it's not accurate that most

of it's happening in Telegram. I think it's downstream of streaming. I mean, if you remember the infamous LA vape cabal that was directing, you know, so many of the sort of dollar flows and ideas, the folks in that cabal, uh, and it even got to sort of the more main mainstream streamers were streaming tickers, talking about them, showing trading non-stop in the same way that for the last 10-15 years, people have been doing that for gaming. Uh even last cycle by the way when ICOs were happening the distribution of that to broader retail was happening through YouTube and other places not like through the things that really deep crypto market participants think. The Uber driver was seeing the YouTube crazy you know $10,000 gain on XRP. Again I'm not saying that's healthy

but um the the trend is actually less towards textbased interactions amongst normal people and much more quick hit videos. I even see it, you know, with my own kids who over the next decade will graduate into that cohort of people who are getting their information, their ideas and how to spend money, etc. from quick hit video or longer streaming and live video. That's a bit of a scary thought, but I will say I completely agree in that Twitter is dead amongst normal people and most people stream like younger people stream and they also use Discord a lot. Um, we've moved away from micro blogging, which is why a lot of times I feel like when decentralized social media emulates social media, they go for like Twitter. Um, when in fact nobody

else uses Twitter. It doesn't make a lot of sense. Um, that pump ending thing is very very true. I remember the first few months when it started um, we would just if something was didn't end with pump, we would just say I'm not going to buy this. It's irrelevant. It doesn't Yeah. By the way, Bonk is intelligently and I, you know, I have a strong bias like I'm friendly with and you helped launch Bonk years ago. I'm not involved, you know, day-to-day at this point, but you know, they have bonk at the end of the bonk launch tickers and that does signify some affiliation in the same way that having a Penguin PFP uh or a Cryptounk, you know, profile pick signaled a sort of affiliation. I just think yeah, the pump one is a little bit broader and

more mainstream at this point. Yeah, that makes sense. Um, could I ask a question? Sorry. Is uh just on the launchpad model while while we're still there, is there are there network effects to that model is is there durability there or or is that a commodity product or feature? I think people thought it was so I don't think it so it's not it started out as the bonding curve and then the initial lock liquidity and hey, I have confidence this token's not going to immediately rug. So that was number one. That is that is replicable. But as I was saying, I think the pump has done a good job of continuing to support and build out the ecosystem around them, integrate it really rapidly with all the the um Telegram bots um with many of the chat

groups and again they're now moving towards they built their own AMM so they get more of the life cycle of a token more guarantees creators. They have a huge war chest to incentivize uh sort of the demand I'm sorry the supply side which I think will be really powerful. Uh but yeah, the same things that were defensible maybe are an advantage 9 12 months ago as Carl said earlier aren't the things that will be the moat today. Uh really the only moat is how ingenious are the founders at seeing you know around the next corner. And by the way we saw this with our best portfolio companies from last cycle. Magic Eden being one of them who realized NFTTS were you know sort of not going to be the big sustainable thing and they elegantly transitioned crosschain to support all chains of NFTs. Then they

developed their own wallet. Then they are now moving towards uh you know they have the wallet and they're moving more towards swaps you know inside of the wallet and liquid tokens and they're doing a great job of that. So you're really the moat is increasingly in crypto is as much people uh as it is technological and and I think specifically on the technological I would say it's a standard. So for example um when AMMs first came out sort of XY equals K it was if you could become part of that standard people immediately understood how to engage with the product and how to provide liquidity and the considerations around that for permanent loss back when before the internet was encrypted in parts you know it was hey don't go to that website

if there's not an HTTP like an S at the end of that it was like oh it's not safe like don't go there so I think same thing with the pump ender I think is that is actually more durable than you know anything about the design of their bonding curve or or anything else. on the technology side the standard even you know on the NF NFT side like specifically it was the Metaplex standard and it was like oh well if you become part of the standard now you're immediately uh composable with all the wallets and there's a robust ecosystem that you can plug into and I I think that's where ultimately um the the power comes from the question then is how do they build out this pump standard like right now they're just using a regular SPL but maybe there's time where there's a specific memecoin standard maybe it

has to do with a portion of trading revenue going back to the creator. So the creator doesn't need to sell, they just keep monetizing it. Like you can imagine as that standard gets stronger, the moat just gets stronger as well. What's up guys? Today we're joined by Antonio from DYDX. Antonio, thank you so much for coming on again. Thank you for having me. You mentioned a sort of multi-product platform um potentially coming with DYDX um spot markets, lending, um maybe a wallet. Can you expand a bit on that and also what would that I guess timeline look like?

Yeah, absolutely. And just to be clear, these are all things that are very much in the speculation phase and are mostly in my minds. It's not something we're actively working on right now. Again, we're just laser focused on making DYDX perks the best they can be. But happy to talk transparently about it. Um, to start from the beginning, I I really feel like to me at least, it's becoming clear what the winning DeFi product is overall. And I think it's going to be one that's more vertically integrated, at least from an enduser end product perspective. It's like there's going to be a number of platforms and each one is going to have a launchpad like a pumpf funex um like a unis swap or radium a perks

platform um potentially like NFTs if if that market ever comes back um and potentially in probably lending as well and margin trading there and that'll all be wrapped up in one end userfacing product that will look something similar to a wallet. Um, and I really think that this is the way things are going and this is and and I I see the the consolidation happen and sort of the verticalization happening on this timeline and and that's part of where I get this like the big the really big winners are going to happen in the next two to three years from. Um, and I think those really big winners are going to look like this this super DeFi app and it's kind of going to be a Robin Hood type product for DeFi and you can just do one thing in all these places rather

than like you got to go to a different website and connect your wallet and bridge funds. It's like that's that's like okay for right now, but people are just want to go to the app store and be like, you know, DeFi like app and press that and then like lending spot per all this stuff. So, I think that's where we're going. And there's a real question as to how does dydx interface with that. Um, and I think there's two potential ways if if we take this this premise as probably the way things are going that makes sense for us from a strategic perspective. The first one is that we could build that all ourselves and we could try to make a play for building that DeFi super app and we could build the wallets, build this build or acquire

like the spot decks and lending side and and all these types of things. Um, and that that's absolutely a big option and it's something that I am considering um probably on the like six to 18 month timeline. Um, so I think there could be some exciting developments for Dydx there on that timeline. And then the second way we could approach it is really to try to be the pers provider for other people who are building this enduserfacing product to sort of be more like a radium or like a unis swap um at least at the protocol level and for each one of these players that are trying to build this defy super app or at least as many as possible to be the per provider and maybe you go to like a given wallet

that you already use and it's just like magically it now it has a tab that's per hood that's used by DYDX or sorry like fulfilled by DYDX like that could be a a big goal there and this is still something like we're we're generally going after both of these strategies right now um but I think in in the next three to six months we'll have a lot more clarity on how the market is shaking out and what the best strategy for us is what should people look forward to um over the next three months with regards to DYDX what do you want them to um be looking into to be going.

Yeah. So, I think over the next three months and first of all, just acknowledge the current market that we're in in crypto right now. Obviously, prices are are getting hammered. Obviously, trading volumes are down, vibes are bad, these sort of things. For those of you that are still tuning into this kind of podcast on a very technical dive into a technical product within crypto, um there there is kind of this belief in in things going back long term and people are still trading like they're trading less, but I think this is a great time just to really explore what's out there and re-evaluate what the landscape looks like. Um, chances are like people will be making more money in the bull market whenever that

comes versus it's kind of bare market. You can still make money in it. That's actually one of the cool things about perks too is you can go short if you want to. Um, but but probably like vibes are going to be better, profits may be better in in in a bull market. So um the thing I would say and this is just general advice um not DYDX specific is take this time to evaluate the landscape, evaluate new types of products um see and decide for yourself where things are going and where you should be to situate yourself for 6 months from now, 12 months from now. So you know if and when there is a big new influx of new types of users, you already know that platform. you already know how how to use it and that that'll give you a significant advantage over

time. Um so so that's one of the big things in terms of specifically DYDX what to look forward to. Um it's just we're really trying to get in the cadence of shipping fast of launching a lot of new types of things and these are things that you know don't sound as sexy as like you know permissionless market listings or mega vaults or these kind of things and we've launched that but they're things that are important. It's like in the next month we're launching T-WP orders. We're launching scale orders, just new types of ways to um do risk management and enter and exit from positions. These kinds of things. We're putting a lot of work into reliability, putting a lot of work into making sure liquidity is excellent, um putting a lot of work into making sure onboarding and

depositing and withdrawing, all this stuff just works seamlessly. Um, and then hopefully in I I don't know if it'll be exactly three months, but but hopefully a little bit after that, we're really going to start seeing Dydx focus more on integrations and again just being available to more users in more places and hopefully it'll just pop up in in more of the apps that you're already using. Fantastic. Um, that's great advice and looking forward to what you guys going to be doing over the next few months. Thanks for taking the time today, Antonio. I really appreciate it. This was fun.

Yeah, absolutely. Thanks for having me. How do you guys define consumer crypto? I feel like it's kind of convoluted within um crypto. What would you say it exactly is? I mean, it's not important to us. Yeah. What I'd say is like we we do like the application layer. So consumer is sort of the what's most commonly associated with us just based on our history of investing in top tier teams that have made a dramatic impact on the market from Magic Eden to Stephen to pump. Um but I I think like we don't say oh is this a consumer company or a gaming company. In fact there's a lot of hybrid between those. um we invested in a company sleepagotchi and they have their uh game coming out very soon and

like it's a game but it's also hypersocial and so I think it the lines get blurred so it's it's not an important distinction in the way we think. Um if I had to come up with an answer it's probably there's a there's a social element to it that does not exist but then again fundamentally most of the great games out there are fundamentally social. So I think it's pretty blurred. And then what I would say I would add to that is really consumer crypto can go across multiple things that we call other subsegments right like stable consumer stablecoin the ability uh to effectively give somebody anywhere in the world a self-custody account by which they can you know access money

like I can send money to somebody in Latin America they can send money to me instantaneously in USD uh and then have the ability to layer for example, on top of that stable coin, you know, neo bankank uh defy products, which can be consumer defy. So, hey, you know, we can basically lend out your stable coin and earn a yield that might be higher than you'd be able to earn in traditional markets or maybe you don't even have access to traditional markets. But it gets back to Carl's point on you know this thing has to be about money and it doesn't have to be again about a speculative token but you can start to mix these pieces together onchain give access to people who don't have it currently and then give them direct access so that they don't have a bank intermediary that can cut them off that

can censor them and you know just a lot of powerful unlocks that can happen you know the same thing we think deepen in many cases is consumer crypto because hey I can earn tokens for having you know the hive app or dash cam on my car or I can earn, you know, by having a dawn internet um node, you know, in my house, things like that. Uh so there's a lot of opportunities where consumer crypto maybe isn't obvious in the way that we think of it as like speculative games and trading. Uh but they're sort of again traditional business models, but that can either empower the consumer in specific ways with new financial tools they didn't have before or allow them to earn. for example, in things like deepen where they didn't have the way to earn from excess capacity in their time before.

Makes sense. Um, I'm going to start asking about specific sectors a bit more. Um, I want to start off with deepen. Ryan is very interested in deepen, but I don't really get it. Um, over the past year, we've seen it do relatively well at some points and then not so well at other points. I can you to me it seems like the main issue is and this is within all of crypto is there needs to be a token to pay. Um but the issue is that that token is fluctuates in price. So it it can cause some issues in how people are getting paid. Um do you see that as being a roadblock going forward?

Um do you think more of them need to start paying in USDC, USDT, etc.? Um and second of all, where do you see the deepen market headed? Um, is it still going to be network-based or are we going to get more and more um exotic deepen products? I I mean, in fact, I think we need to move less exotic into more things that companies want to buy. Um, Deepen's had a pretty tough year the past year. Um, I was reflecting back in late 2023, early 2024, Deepen had this call it 5 to 7x price run. I think that was engineered a lot by investors and liquid funds, but there was no rational reason why all of

a sudden these things traded up 5x from where they were. And since then, basically there's just been a slow decline in price um generally that has been in excess of where the market has gone. Um I think the re there's kind of a couple things going on with Deepen right now. One is um this might be a hot take but deepen has been hijacked in terms of uh investors and let's say founders and teams that are looking to create value for themselves not for the community. And what I mean by that is if you look at the revenues that are a like they just haven't generated that many revenues. If you look I was actually looking at deep ninja today. It's a great site built by our friends at uh

EV3. Um, and like none of these teams have more than $10 million of ARR going to the token. And you're like, so we have these protocols valued at hundreds of millions and in some cases billions of dollars and we have like less than $10 million in recurring revenue or any any revenue whatsoever if you just annualize it. Um, so I think like the expectations put on deepin have uh are in extreme excess of the underlying fundamentals. Um secondly is that the revenue is actually not going to the token. I was talking to a major Dpin leader and roughly only 30% of revenue actually goes to the token and I was

recently talking to another known deepin leader like protocol and you know they didn't even know offhand what percent of the revenue went to the token and so basically in my view we actually have a bunch of centralized companies that are using a token for distribution which is by the way a fine business model but it's not actually deepened in any meaningful most of the value flow is not actually going to the token. So I think deepens kind of lost its way a little bit if I'm just being perfectly honest. Um we've also seen every sort of deepen being developed but very few of them actually focusing on getting demand in um they can but they we can build supply for any sort of network that we want. So I think like that's the context I have. So we're

extreme I'm like fundamentally it's one of my most exciting areas to invest in the fact that I worked at Google and SP before in IoT. I have a background in hardware from nuclear submarine design. There's crypto elements. So it's sort of like the perfect place for me to dive in. But we haven't seen as many exciting teams as I thought we were going to over the course of the past 12 months. Um, I think what we have is a lot of terrific engineers and founders, but we haven't yet figured out how to take these systems and productize them in a way that companies are willing to pay large amounts of money. And so that might be that we're generating data that isn't helpful or maybe it's purely just a a sort of broken sales process that's

taking place. Um, so what we really look for now in deepen projects is not just can they build the system, but can they hire the executive team that can actually sell this data with the required SLAs's that's required for larger enterprises actually sign multi-million dollar uh contracts. Um, I'll pause there because that was sort of a lot of context on on deepen. Let me know if you want to dive into anything more specific on that. Yeah, what I'd like to add is uh to your question of so I do think in many cases it makes sense to have deep pin uh networks on crypto rails uh for payments. I do think we may start to see uh more USC payments to your question than payments in the

native tokens because the market has basically said uh participants have said mainly because of what Carl was saying there's not really value acrruel to the tokens and most current constructs um andor you know there just isn't demand when people receive them. You receive your Bitcoin as a minor people do sell their Bitcoin but there's like demand for it on the other side. there really isn't that marginal buyer for a deepen token. No smart, you know, financial person is going to look at many of these protocols and say, "I want to buy that from the Hivemap or or um sorry, I don't want to mention specific ones or, you know, Helium." They're some of the best projects, but there's just historically not been a lot of demand for these

tokens. Their trading volume is low because the financial investor doesn't see a reason to purchase that token from the the minor. Okay? So, you're getting them sold. They have sell pressure. there's not a marginal buyer, there's no volume, and the prices don't go anywhere. Uh there are ways to change that by making the token more valuable. Hey, maybe you get uh you more benefits for for staking and but you're going to need fee acrruel. We get the question about buyback and burn. I know Carl doesn't love that as a general purpose model. It really all does boil down to the labs entities, the equity holders that sit on top of these protocols need to start treating them not just as protocols that they can build equity

based businesses on top of, but ones where they actually do value the protocol participants with that sort of web 3 ethos. Uh, and I think this is what Carl was getting at where we're going to actually drive value to the token and give people reason to hold it. Otherwise, we're just going to see no volumes and plummeting prices. uh and it's not clear that they'll become great venture businesses even if they're interesting uh products and valuable networks for the world. I think that makes sense. Um I feel like we never had that second wave of protocols for deepen where we had it within like other parts of crypto where the equity token um dichotomy got fixed up a little bit and it was a bit more clear with value approval. um especially after the SEC change happened there was

like a shift it's starting it's starting a little bit I would say like we are investors for example in IO.net net. So I think in areas like compute in areas we invested in data hive there's another one called grass that are basically you know using a distributed group of folks to um you know to obtain again one of them Ionet compute uh you know data hive data and uh but again the long-term key here those are like virtual networks in a way it's it's all about compute uh but I do think they are a second wave of the deep pin thesis so again distributed supply with some demand. uh but but and there is a chance and these teams are now approaching it and we're counseling

the teams that we've invested in to begin in earnest as they're generating revenue in real AR to uh to move that token not to equity holders uh and in totality but towards token holders because the investors in these protocols now we're doing it right are both equity holders and token holders right and so there's only so much value in the network let's move it out to the place where uh the actual participants uh again the suppliers and the folks for buy demand exist. I I think deepen like the path dependency kind of sucked. Um and and just to be clear like I I like the deepin model. I I wouldn't like I don't like love deepin as like a sector like I'm not saying like buy the deepin

ETF and get like beta exposure. I think you have to be really highly selective. Um but I think the path dependency really sucked. Like the crypto kind of just realized over the last 18 months that valuations matter and that maybe you should take a look at revenue. And the interesting thing about a lot of the the deep networks is that like they have longer sales cycles than uh a DEX for example. It's like open up a spot dex um the traders come in and they spend money and you see number go up. But like in many of these instances like for data dows or for something like a hivemapper or even perhaps a helium that are working on these larger single customer deals could take a long time for that revenue to get into in the door and like

these things were trading at times at multi-billion dollar valuations. So I think like that path dependency of like wa watching this like token premium kind of dissipate at the same time that these tokens were or that these teams were going to these enterprises and saying like yeah there's a token it's kind of weird. The SEC like kind of hates us. Maybe they'll like us one day. Oh by the way like we're selling useful service for you. Like and then to watch token price go down like I think they just got hit um by pretty negative path dependency. um you guys are a little closer to the metal than we are. Like do you think that that's a legitimate framing?

Um I do think there was the token model like if you said hey there was no SEC considerations or there was a very clear maybe more specifically there was a very clear path to distribute revenues as you would a traditional equity and there's a way for token based projects to do that. Um, I think we'd probably see some changes in the model, but I might even go so far to say is revenue is a meme. And what I mean is we haven't figured out in crypto how to pay money from these treasuries back to the users themselves. Like you look at unis swap and others like the fee switch is still off, right? And so actually like sure it's generating revenue and these teams are generating revenue. The only thing that signifies is a demand signal on the other side. But for any sort of

valuebased investor, it's still not like I'm not getting any dividends from these things. I'm not actually that revenue is in no way impacting my ability to hold this token. So I would say still revenue is a meme. I think in most things like you could probably say it's a meme and it's mostly right. I think before it was just the the growth of the network and the vision was the meme. Now revenue is a meme where we're applying a premium but we actually haven't closed the loop and how do we build a fundamental based business here. Um, I I do think with improvements in market structure it will help, but I don't see that really materializing and teams really using this new structure for like until next cycle. Like that's not going to really influence things over the next six to

six to 12 months. I think um Mike, you brought up compute networks. Um, what they haven't worked out very well so far. Um the one that you did bring up which I feel like has actually done relatively okay is grass. Um I think data hive is a competitor to grass but we've seen that people aren't particularly interested in GPUs but they are interested in I guess AI labs um are interested in data. Do you see there being a shift in that like on our end Ryan correct me if I'm wrong but we don't really see how compute is going to be like decentralized comput is going to be able to compete um versus data feels more like a natural fit. I'm curious if you guys have a different take on that.

Basically, look, another issue with deep pin is revenues are not posted on chain. Um, we know the grass team, we like the grass team, but like my general take is with any deepen project, if that revenue is not flowing on chain, is it really a deepen project? And then secondly is can I even trust it? Like I can't trust a team, any team that they say we're making this much revenue, but it's not actually like visible. Like how are you? And by the way, in in traditional equities, nothing's unchained, but there's clear disclosures, right, that are audited. Like we there's not like audited disclosures coming from these teams. Um, so to say that Grass is working, I I don't know. Maybe like it could be. I just I just don't have a strong point of view on that. I can tell

from our company data hive, there are definitely buyers of this type of data out there. So, it's reasonable to assume that this has uh substantial revenue potential. Um on the on the side around compute I I mean we see that you know Ionet and others are doing millions of dollars in revenue and if not like tens of millions of dollars. So I think fun like from a thesis perspective distributed compute with low latency is a superior product than what you can get through a centralized solution. So fundamentally to me like the thesis is still right for these networks. Um, and I do think they're going to continue to grow. Like I don't think distributed compute is over. In fact, it's like one

of the I think bright spots of the DP ecosystem because it's so widely applicable to any startup and company building in this AI space which is the most fundamental technology we've seen for the past decade. Um, that's that's my take. Yeah. I mean, so Ionet does have real revenues to your point. They don't report all of them publicly. uh but you know they're doing on an annualized basis many tens of millions of dollars in total network earnings. So you know how much so there's two numbers but the point is the folks who are providing compute are earning uh on an annualized basis you know mid nine fig uh sorry mid eight figures.

Perfect. Um I want to get into I asked this to free VCs over the last week. I want to ask you guys as well. Should VCs benchmark the Bitcoin or not? This is I guess it's like Yeah, I listen to like an I listen like I see and Glor go on for you know 20 30 minutes on this I feel like. Uh so I would I would strongly say no at this point if we talk to an LP like we're we're you know in the process of beginning or the beginning the process to raise you know our third fund and if I you know when I talk to a new LP I I I will say look if you're not allocated to Bitcoin I'd highly recommend you you should be uh

but that is a different product than the one that we are selling and we believe that you should also be allocating Uh and you know Bitcoin is a you know sort of global store of value. It's it's sort of hard money. Call it digital gold. Uh I wouldn't say it's reached you know this store of value end point soon. So you're making a sort of bet on future appreciation and that does overtake gold. It's better version. It's portable etc. That's just a different product than what uh people are purchasing which is effectively like onchain like Salana says internet capital markets. That's where we're investing. And internet capital markets, by the way, includes a bunch of other things. It includes the stuff we call web 3. But effectively, it's people, you know, working with

transacting in a new form of money and new uh internet financial networks like stable coin networks, which are very different than sort of Visa or Mastercard. You know, DeFi, which is very different than how banking makes uh bankers make their money where they're lending out your capital um you know, kind of on their rules and paying you a little bit. Point being uh you know these are the benchmark just is not Bitcoin anymore. Now the next question would be okay what is what is the benchmark and it's really difficult uh for a venture fund and I think it depends on the venture fund and what they're investing in. So we're saying we invest at the app layer like okay so maybe we are technology beta at this point and you should be looking at

something like the NASDAQ. I haven't thought deeply about what the right benchmark is, but it's probably something closer to that than to Bitcoin. Yeah. And the other thing is like people always and by the way like our fund is exceeding Bitcoin in terms of when people bought in to when we raised the fund to now like absolutely beating Bitcoin by a substantial amount. Um but the thing too is like we offer it's a different product. It's much lower volatility. Like if you look at our our gains and it's basically just gone straight up to the right. Um, a lot and if you're a manager at a family office and you lose 10% on the month or the quarter, like you could get fired.

Like a lot of these traditional institutions don't want that level of volatility. They want it in specific areas, but like to say, "Oh, my entire crypto exposure is just peak volatility is outside of their mandate versus having a diverse mix of structured products that can smooth out volatility." And so because venture funds, especially like ours and I'm assuming most of the top funds, they can in the venture fund themselves also do liquid assets. So we can take on higher degrees of volatility while also making sure we have an underlying strong base of like high growth companies in the portfolio. So it's a different product.

I think it's a weird I think it's a weird benchmark to set out. It's kind of like saying if you're a web two SAS VC, should you benchmark against like Bitcoin? It's like, well, no, like it's just a different asset class with a different um set of priorities, outcomes, and and volatility structure. Have you guys found yourselves um investing in more liquid venture bets like a or etc. or are you still doing mainly um private markets? We've so what we found is we didn't when we started fund two or front two like three years ago we didn't think oh we're going to become liquid traders like that wasn't in our vision but what we what you know as venture firms like ideally

one of our best strengths is developing a strong thesis on how a market is going to evolve and because many of these companies in crypto are not just private there's liquid components to them it would almost be irresponsible for us to not take that thesis and say there's liquid investments today that align to the thesis that we have. And so we found ourselves starting to buy large amounts of Salana and large amounts of Bitcoin and other assets when they were uh much lower in price because it aligned to our thesis on how crypto is going to evolve. And as a fund, we're continuing to buy liquid assets that align to the thesis that we're already developing as part of the private um private market structure.

Um, and I expect we're going to keep doing more of it because honestly, we just keep being better at that as we continue as a fund. That makes sense. Um, do you believe that we will see more liquid funds? Um, because like historically I feel like crypto has been dominated by the VCs. Do you see there being more liquid funds going forward? Not if they not if they continue to lose 15 to 20% in a single month. I mean, I think it's like the the thing is we always oscillate in the market in terms of how the like what what what the investors want, right? There's times where in a bare market, they really want venture funds because they know that they're investing at great valuations into the next generation of companies and can capitalize. But in a bull market

where there's peak volatility, they're like, "Oh, if I get into a liquid fund, I can start to realize, let's say, an immediate 50% gain on something within the course of a month." And so it just oscillates. Like we've been in this game long enough where we've seen peak demand for venture, peak demand for liquid. In fact, now like I would say six months ago, there's peak demand for liquid funds. And now I think we're starting to see more of a demand back to venture or some more evergreen type structure that takes these both these products together into one. And you know generally I think it's a it's a little bit of a weird distinction because we know and love a lot of the top liquid funds. They have venture portfolios like they have venture side markets carve out. Likewise we're a venture fund that has a large

amount of liquid carve out. So ultimately hybrid is the best structure and over time we see more and more funds evolving into a hybrid structure across both. Yeah. Particularly, I don't think we're going to see a massive increase in the number of liquid funds because I think but what I do think you're going to see the best investors who for the last 10 years a large portion of them have been VCs getting into liquid tokens in more size and more variety. But a pure liquid fund I still believe today is at a disadvantage because the market is not rational. It is extremely difficult to underwrite specific liquid token purchases uh because there's a lot of uncertainty around again whether fee

switches will be activated. Will people uh invest based on fundamentals? If they invest based on fundamentals, what will those fundamentals be? And we're just seeing far too much skew in the market from specific exchanges, marketing activities that often aren't organic, market making strategies that aren't organic. And you know, I tweeted about one example this morning. I could not tell you at all why Soul Layer, which has less than a million souls staked, is trading at 2x the FDV of Jetto, which has 20 times as much soul staked, generates significant revenue, has a fullyfledged uh governance process that will drive revenue back to token

holders. I don't get it at all. The market is not rational. there's a price dislocation there. Uh and so I don't see how uh you can have a purely successful purely liquid token strategy right now when that soul layer token has 5xed uh since February and I think GTO you know might even be down uh but it's just clearly a stronger protocol today. And by the way you could argue growth neither one they're not solar is not growing their stake at a faster rate than Jetto. So it's it's a puzzler there. That's just one case study. Uh and disclosure, we are investors in jetto. But the point is there's a number of those across every uh sector that you look at.

I I think over the past month, people have realized how serious um market maker engineering can be within crypto. And I feel like Solair is I mean, I don't know. Um it could be people think it's a growth story, but to me it seems like it's part of um a different sect of price. Um yeah, what what I what I will say there is like we've um started to understand how it happens and just through conversations and rooms with different people. I think the biggest mistake the market could make is assuming that movement labs is the end of it. Like there's many protocols out there that are following similar strategies. And I guess I would just as an investor to like any all of

your investors without giving true financial advice just like look at the fundamentals and it's easy to chase something that has no liquidity and it seems to only go up when the market is going down but like know that at some point um those prices will not be sustained especially once uh market makers turn off uh certain programs so or investors unlock and there's a lot more you know yeah supply overhang and things like that. So markets need to mature. I do think so. Just to get back to your original question, there will be more liquid funds and much more liquid capital manage in the future. We believe crypto as a non- Bitcoin asset class will continue to grow in size and importance and usage. Uh but I don't think uh it's going to be very easy to be a liquid fund over the transition

period of the next three years. That makes sense. Um Carl, you don't like buyback and burn when I don't mind it. um in specific cases, wh why don't you like buy back and burn? I agree that there's definitely better ways to return um value to tokens, but do what do you think is the better alternative and um why don't you like it? I think spending the money on actual real growth like this is basically just financial engineering. And look, if you're a massive public company with a huge trash uh cash treasury, sure, then that might be a great strategy. But like these things are so volatile with most of the time very little underlying revenue that

it's it's hard to sit there and say, "Hey, the best thing we can do with our capital is simply to like buy back our token." It's like, "No, why don't you go market? Why don't you go open like operations in new regions? Like why don't you do any one of these other methods to actually grow your underlying business?" It's like the best thing we can do is just buy back the token. And here's the thing. I think like buyback and burn is like it's a meme itself, but like fundamentally if the company's actually produced more revenue and more growth with that, like obviously there's some sort of return on invested capital of or R O that if I take this money and put it in eventually that should come back to my business in some sort of fundamentals. So it's ludicrous to me

that companies are doing large buyback and burns um with their with their tokens instead of actually trying to grow their core business at these stages. again, you're super mature, you're a Google or something, sure. But like it's it's crazy for me to see at this stage. I I agree with you, Carl. Um but I actually heard interesting push back that got me thinking um within the last few weeks. The framing was that um yes, of course, if you're a growth stage company, it makes sense to reinvest in the business, expand the business. However, crypto businesses are essentially small businesses and like any small business, you should return

you should return capital to you know you pay yourself a big salary. You give yourself a 15% dividend a year like this investor which prominent in the space actually thinks that the you you should think of these businesses more like small or medium-sized businesses that return large amounts of capital per year rather than these like growth stage entities. I'm wondering what you think about that push back. Um I think if you're I mean we talk about we're going to repplatform America's infrastructure with Deepin and like if that's the vision then we can't be saying we're a small business that's like generating $300 a month and we want to increase it to $500 a month. So I guess I would just to me it seems like

it's a different vision um that you're aiming for. I I do think for a protocol like a or something that is highly uh let's say solidified or oified and like is not planning on mass amounts of growth. I do think there's cases where you could say hey like we're not in a growth stage anymore like our growth is actually just financial um attribution and liquidity growth and these other things that don't require underlying capital investment. But like for the vast vast vast majority of projects, they're not at that stage. And they're trying to like, you know, become a new paradigm, man. You're not going to do it by destroying your growth capital. Um, so I that's that's my initial take. I'd obviously love to get more specific there if we had particular companies we

could we could chat through. Also, I've never done I've never done the math on this, but like we have teams talk to us, hey, should we burn 10% of the token supply? I haven't done the math to see how much capital you destroy versus like the growth in market cap. I haven't done that math. That actually really interesting math to see. But like my expectation is that most of the market doesn't give it like a if you burn tokens and that you probably destroy more value than you actually increase on the on the back side of that. Yeah, I think I agree there. And also like I I I totally think it's context specific. Like if you are the fifth DEX on Avac and you came across a bunch of revenue like perhaps it does make sense to return the capital there if you think

that your growth is limited, right? It's like it's highly context specific. One thing, one push back that I've had is um if I think a certain amount of buyback makes some sense just because the market's not mature and the market acts based on um how the team acts and market cap and price is more important than I think maybe in traditional businesses. So, it makes sense to put some percent towards the buyback in revenue while keeping the majority of it for growth. Um, I think it might help signal to people that were doing something to return value. Um, because I feel like typically investors are kind

of spooked about the equity token split and also because people don't return value towards the token a lot. Um, but apart from that, I completely agree with you Carl in that if you're an early stage business, you should be reinvesting in your growth. The only one that I think is acceptable and potentially because of my bias is hyperlquid. Um but anything apart from that I think they should just be reinvested. Yeah. And and I guess that what we really need is new market structure where the there's different ways to return value beyond just like burning burning the token, right? Like that's that's the ultimate thing is that that would help and then perhaps teams would then just actually return capital rather than like doing this inefficient process of burning and then hoping that people like will actually like value that in

the market itself over time. Yeah, I I feel like it's an outdated thing that is stuck from the past SEC era where we couldn't do a lot of these things and hopefully going forward it'll be fixed. Um I have one more question and that is the lack of DPI in the broader VC space. Um do you you guys know more about this? Um, do you want to chat a bit about that? Uh, what specifically? Like are you saying is it a good thing? Is it a bad thing? Like where where do you want to where do you want to take it? I'm interested in how it's affected market structure. Um, I think that you know it's been a tough time for um VCs who perhaps raised in 21, right?

Um, and there's been historical kind of lack of DPI recently like how has that affect how has that affected market structure and what you guys do in competition in the VC space? Yeah. Yeah. So, I'll start there. I think that uh one thing that we've seen is a move towards uh a number of firms that will do some of the uh later stage like closer to TGE investments uh and then work really hard on you know token as the product centralized listings working with market makers who can support price and sort of high FTV low float uh and then combining that with a strategy of trying to offload uh an OTC and private market some of their tokens so that they

can return capital so that they can raise their next funds. So you are seeing I believe a misallocation of capital and a strategy towards pushing value to projects as we were talking about earlier in the conversation that may not be as long-term sustainable as the things that you know you or I would like to see funded that people will be using in 10 12 years but those businesses take a lot longer to build the flywheel and look a little bit you know a lot more like traditional businesses to get to that point. Uh but yeah, uh the difficulty of many funds raising in 23 and 24 uh led many folks to kind of go further out on the close to token launch uh spectrum and to actually do deals at much higher

valuations that distorted the market so they could get into the deals. Uh, and I'll be honest, it is actually working for some of those funds, meaning they are starting to be able to return capital faster than some funds that have taken that sort of longerterm view. I don't think those funds will perform as well as the investors taking a longer term view. But if you think of that venture model which is raise new funds every three to four years uh you know basically in the short term in some cases you do have an advantage for folks who I think are being a little bit cynical and therefore distorting what gets funded. Yeah. And I guess just to add on to that um we're fortunate that our 21 Vintage has already returned um

the fund and then more to investors. So we're we're not in that same situation as other funds fortunately. Um, I think it depends on like DPI at what cost. In other words, there's investors we see we see all these OTC deals going on and there's specific investors that almost always sell their SAFS. And you know, as long-term investors, I think if there's a firm that I know is repeatedly selling their SFS at uh let's say a certain discount in order to get liquidity to return it to investors. You know, I s start to question if there's a pattern here. Is that the type of person we want investing in our portfolio or somehow now is this cap table going to get altered or, you know, bastardized in some way? Like we we're long-term investors and like we we plan on being

long-term and not selling any sort of SAF just to make DPI to make some LP happy. Um the other thing that's going so I guess the question is DPI at what cost? The other thing is like the market I think everyone's very optimistic over the next year. And so it's like yes, we could do tens of millions of dollars of DPI immediately today, but my question is why would I do that if I'm optimistic that in six to 12 months it's going to be 2x the value on some of these liquid tokens or more. So it would almost be foolish and not a fiduciary to then distribute all this capital and then not allow our LPS to return on the back side of that. So that's the question is yeah any any fund could do DPI but it's we're just very optimistic and it's much

better for the long-term health of the fund to realize those returns at the right price versus in today's market. Perfect. Um I have one last question. Um one is how has the vent VC um landscape changed over the past few years? The second one is do you guys think that we are the valuations are a bit high right now? I guess in general any private market insights um I would appreciate I can have one first. Um my so how's it changed? I think you're starting to see a reordering of firms like I think three years ago we we barely existed. So I

don't think people would come to us as this tier one firm that has a mega brand 3 years ago. But what we've seen is there was some old guard VCs that have let's say been everyone knows playing these market manipulation type games and potentially their brand equity has reduced over time compared to where it was 3 to four years ago. And likewise, there's another generation of firms which I would certainly categorize our ourselves and some other firms that we know that have really grown over the past three to four years to become a tier one firm. So we've definitely seen a restructuring and I think the firms that have played by the rules or been uh good actors in the space mostly no firm

is perfect but good actors mostly have like continue to outperform in terms of brand equity. you know, like I would say both like Dragonfly and Multicoin just continue to be like exceptional brands that people are attracted to. Um, and you know, they've, you know, mostly been good actors in the space relative to some of the other stuff that we see across like different investors. So, this reordering has been really good and we've, you know, seen like this take place. Um the other major change on the valuation side is people are becoming much more pragmatic and what we've seen is the founders that want to work with top tier funds are like they want to take a reasonable valuation um and they won't go with the tier 2 or tier three

fund for a higher valuation. So to be honest like there's some deals that we see that are just at such a ridiculous price we don't even consider it. But like generally deals that are really interesting with really say grade A founders are being done at reasonable prices most of the time. Um so I I you know to us valuation is not the reason we may not write a check in many cases. It's just that there's something about the thesis. We don't like the founder's not strong enough in particular areas. Um so it's very few times been a major detractor to us. The one area I'd say maybe just it's an important exception and um is on the consumer side. Consumer requires a decent amount of luck to get right. Like

you have to take a bunch of different product iterations and swings and then you only might get lucky. It has a lower likelihood of falcon than something like infrastructure which is more of a more of a beta play. And so as part of that, you just can't underwrite consumer deals at high valuations because you need a lot more shots to target in order to generate some of those generational companies like Pump. Um, so we're very specific on consumer valuation, but we've earned the brand that people want to work with us and like we can come up with a price that's still very healthy and reasonable and higher than what you would get in the web 2 equivalent. Yeah.

One other change uh that we've seen is a move towards equity based businesses being something you know things that are investable and and not just again infrastructure equity businesses which I think was the case in the past. It might be exchanges, you know, it might have been like, you know, trading desks and, you know, big big things like that uh that were generating cash fees that could pay out dividends, custody businesses. You're starting to see things in stable coin and payments and crypto AI that will use blockchain rails but may not need their own proprietary token. Um but you know hey the fact you can do microp payments the fact that you can have you know provenence and proof of identity uh it's like things like that where the equity can be valuable

because there will be real fee generation and a blockchain is necessary for some part of the business. So we're doing more investments in that vein but uh you know in addition to moving a portion to just pure liquid uh and then doing the sort of hybrid investments that have historically been our bread and butter which is you get an equity plus a token Perfect. Um Ryan, anything else you want to ask? You're good. This is great. Maybe maybe I'll just end with like a lot of the conversation today is like much more sober than let's say conversation 6 months ago where it's like peak optimism. I think it's much more sober in the areas we covered. But we're also highly optimistic and we see a growing disparity between founders truly looking

to build generational businesses on crypto and just the regular grifters. it's getting easier and easier to actually tell these people apart. Um, so we're incredibly excited for the growth of our portfolio. We have a number of breakout companies that are just continuing to consume revenue and mind share. Um, and we're still actively investing in that next generation. I know a lot of funds right now aren't deploying. A lot of them are struggling to raise their next fund and they're vastly slowing down. Uh, maybe I'll just end with sixman is open for business. Um, we continue to write checks and we're very eager to look at the next generation of companies.

Fantastic. Um guys, thank you so much for coming on that. This was fantastic. Thanks for having us. It was great. Really appreciate it, guys. Thanks so much. [Music]