From Custody to Capital Markets Infrastructure

Transcript

[music] For this one, I'd like to bring on Diego, who is a general partner, Han Ventures, and also one of the co-founders of Anchorage, one of the amazing custodians in in one in the crypto world. And uh we're going to talk about everything from startups to how institutions are coming into this space. He's been in this ecosystem for over a decade from kind of the early Bitcoin era to how everything has evolved now. So without further ado, let's welcome Diego on stage. >> Thank you for the kind words. We've known each other for a very long time.

>> We have. Um I'm not sure if you remember this, but um I met you when you were still at Square. We had lunch a long time ago and uh it was just a casual lunch, but we didn't realize until it was like, "Hey, it was you and Nathan." Uh from from those early days, I >> I do not remember this. It was uh it was me and uh and Jamie Wong if you remember him. >> Oh yes, of course. >> So uh >> did you know so funny story about Jamie Wong. He had an offer from Anchorage. Um he was at this other company that I told him was going to be worthless. That company was called Figma. So [laughter] it wasn't worthless. Uh which is good.

He made a lot of money. >> Uh so let's get how we originally met. And of course I've known you from the early days of of Anchorage. And uh I think a lot of people know you here from kind of building Anchorage as a custody service and and now a bank and um one interesting piece is there now you're spending a lot more of your time on the investing side and kind of the thing I'm curious about is what have you noticed that's been different about basically being on the investing side compared to being a founder before and and kind of are there parallels are there kind of full resets you had to do? How has kind of your mentality shifted uh in this new role?

>> So so two things. Number one, I don't know if I could do this role if it was with a 100% of my time. Okay, so the fact that I'm spending 20% of my time at Anchorage, you know, I'm also the chairman of NAR. Um, I also spend a lot of time on the port coast. I'm on the board of a bank called Arabore. So that's a lot of work and it's a lot of operational work. So that leaves my operator, you know, 20% of my busy. >> Yes. If I did 100% investing, I think my brain would rot candidly. So >> I I kind of agree [laughter] >> in terms of the change. It's kind of interesting because one of the reasons why I started investing with more of my time is I have over 200 angel investments and I really wanted to professionalize my mini golf into golf

even though I play neither by the way I don't know I mean it's the same mechanics I hear it's a club there's a ball and there's a hole but very different sport right between mini golf and golf and that's how I felt about angel investment in actual venture capital so obviously the check sides are much larger our second funds at Han ventures is a billion dollars so $500 million early stage $500 million grow stage check sizes are much larger. Due diligence is very different. Number of checks is very different. And just the instincts that you need to kind of like do one of these investments is is is significantly different, but I love other people's businesses. And I've always at Anchorage, you know, had blinders on and had business envy. In this time, I get just get to look at all sorts of businesses that are pretty

cool. >> That's the best part. I feel like it keeps you curious enough to explore and actually spend more time with things that uh are exceptionally doing well. Um you also have seen a lot of change. I mean when Anchorage was starting is one of the only custodians out there and you kind of went down the hard route of getting all the licenses, approvals, almost a decade long journey. Um the question I have is how do you think about the world now given that all the hard work that you put in sort of you know it forced you to do do hard things early and wait a lot but now we're seeing things move so much faster like kind of compared to Anchorage Airborne had a much shorter start and got to almost the same sort of takeoff path. Um do you feel like that's

like a great thing for for the ecosystem? Do you still feel like people are moving fast now because they're taking in with somewhat more shortcuts or or do you feel like this is kind of what had to happen and we're just in like the golden time of people starting really really good financial uh companies with crypto being a priority? So, I I definitely feel like we blazed the trail. And the proof point is that Anchorage was literally the only federal chartered bank that did crypto for almost six years. And now everybody's applying for a charter. And they're not only applying for the charter, they're applying for the exact same trust charter that we applied for and that we proven was actually practical. A lot of companies like Arabore are doing something different. They're taking advantage of a much friendlier administration in the United States to

actually just go fullon FDIC insured bank. And I I want to say that Arabore is sort of a different beast. It is the combination of a lot of tailwinds have in the US. It's the combination of the fact that crypto companies are obviously growing and they were underserved for a long time. AI companies need better partners and defense tech companies were actually unbanked for a very long time. If you take all of this together, their goal is to actually be a GIP. And so crypto and stable coins are a component of it of course. Yeah. >> Yeah. But it's modern infrastructure, but very different from what Anchorage is doing. The thing that makes me suffer the most is like I every day under Biden, I was punched in the face. I woke up and I got punched in the face. The

administration made me feel as an American that I was somehow a criminal for trying to get a bank and for operating a legitimate business in the United States that was regulated trying to serve the crypto markets. And that was extremely hard. And so now I don't see people suffering that. Um, of course there's always a change in administration that is possible. So maybe they'll come back. But that we we suffered a lot for it. And so I'm very proud of what we've accomplished. The other thing that I have to say is that our path to Anchorage was the best security to security engineers building a custodian. And then we knew that we wanted the best regulatory apparatus that paired the best with the best security. And banks are compounders like Anchorage. So over the years, the more capital they have, the better they become. They usually don't compound as

as fast of a rate as a traditional startup in a traditional, you know, SAS type product before the SAS apocalypse, but they are compounders. They have staying power. They stay for a very long time. >> That makes a lot of sense. But then what what I'd love to kind of get your thoughts on is how do you sort of categorize Anchorage now and all the new kind of entrance um for kind of what they're focused on? Are we trying to build a better system? we're always trying to, you know, we put lipstick on the same system and making just small tweaks so that it kind of looks fast enough, but it's not actually a a replacement. Um, how is finance evolving that becomes more crypto friendly or just actually not the same architecture from decades ago?

>> So, look, I created Anchorage because I've never thought that crypto was going to be a replacement of traditional financial system. I I didn't think that was practical. In fact, I'm quoted in a million places saying that success is when traditional financial industry and traditional financial companies are using our rails, which they are now. They're using stable coins. They're tokenizing assets. They're u you know taking custody and using Bitcoin as collateral. That is success. Now, what people thought was going to happen was somehow all of the value was going to acrue to the new companies that were actually building in this ecosystem. But the reality is that that's not practical. These companies already have the rags, they already have distribution. So there was always going to be a split and now the question is was it going to be 2080 or 8020 and the

current world is looking like it's a lot closer to 2080 and people wanted it to be 8020 but that's just you know matter of percentage now in terms of is it a replacement I don't think it's a replacement I think it's an extension we are extending the traditional financial indust industry and we win if we don't compromise on the base set of assumptions that we had when we all created this ecosystem which are around self-custodial industry ization if we allow ourselves to have financial products under a regime in which is self-custodial and under networks that are let's call them sufficially decentralized uh which is the term that SEC likes to use I think we're winning even though a lot of the the revenue and the value may acrew the traditional financial industries we force them out

of their cocoon think about it this way if it was 10 years ago you could not possibly have gotten a payments license or the ability to actually offer your customers a or a bank account >> or a bank account or even like buying and selling securities like under tokenized securities. You couldn't possibly have thought to do that in under 18 to 24 months. It was just not possible and there was a lot of gatekeepers and there was a lot of money that was actually had to be paid and a lot of fees right now. How many crypto neo banks do you know? how many you know crypto cards you know the casts the red opayes the ether fries like there's a million of these things and that is the proof point that we've actually created something meaningful that extends traditional financial system and creates something new and so that is what we

wanted and I think that is success if you the entrepreneurs can in 15 minutes actually create a new bank we have won and so I think we're winning even though it is absolutely true that obviously like the tokens that people wanted to have the value that that that they thought was going to be life-changing for them. That didn't happen. And a lot of the value that is being accured is being accured to traditional financial companies. Even Anchorage, right? We're a bank. We're a federal bank. So, some people look at us as cryptonative because I guess I am crypto native. The founders are crypto native, but as a company, we're as far away from crypto native as you can be because we literally have the OC charter, right?

>> No, I think that's a good way to look at things. And then maybe one thing I'd love to kind of get some additional commentary on is does that change the definition of what you think stable coins do because in a way what you're implying if I understood that right is it's just a faster ledger but it's not really a bigger innovation um and kind of where do stable coins rank in this new categorization of efficiency or adjacent sort of improvements. >> Yeah. Yeah. So, so I think one of the cool things that I think about civil coins that is pretty interesting as a concept is bank accounts were always whitelists. And what I mean by that is bank accounts were definitionally something that you could only open if your institution and the individual were KYC and KYB and I knew exactly who you

were and I knew exactly from which institution the payment was coming from in the deposit was coming from and for which institution the deposit was going to. So that was the status of the of the world before. With stable coins, we've actually created something that is actually not whitelist, it's blacklist. It is inverted the onus of evidence. And what I mean by that is if you do fraud with USDC, Circle is a centralized company with a CEO and they will block your USDC. They will freeze it. So technically, it is not a decentralized stable coin. It is fully centralized. However, it is a blacklist. If you don't do something malicious, obviously wrong, then by all means, you can just like integrate with USDC right now. have a deposit, move funds, and that is a gamecher in terms of innovation and is a

gamecher in terms of we actually had before. And so ultimately, you can call it a ledger. It's the same dollar that we wrapped. It's not a new type of asset and currency, but we've been able to again xfiltrate the >> velocity of basically we took it out of the core of the financial system and we took it in our hands. But it is the same system. So is it a winning move? We could have created something new. So Libra, if you guys remember when Facebook was trying to create their currency, it was an actual basket of currencies. So it was a new currency. It was not supposed to be just a stable coin, right? That was the original purpose. That's cool as an idea. Maybe it will come up again at some point. But if people thought that that was going to be the end goal in success, then we're

not there. But if people thought that we were going to take into our own hands, into our own systems the dollar, then we absolutely have done it. I'll ask this anyway and I'll I'll I'll be okay if you don't get if you don't want to answer this thing, but what are your thoughts on >> Have I ever not answered a question? [laughter] >> How do you kind of think about OST here and um and does that sort of contradict any of these kind of views on just consortium based kind of innovation doesn't necessarily have the same drive to uh to get distribution?

>> I think all of the attempts that we need to do, we're going to do them. We're going to try everything and that's I mean it's valid. It's on target if it's going to succeed or not unlikely but I think we should try it and there is a chance that it succeeds for a specific subsegment of the industry that we don't we're not looking at right now. So it could be that for example for e-commerce e-commerce transactions something that is a consortious consortium coin that whose payments are already traditionally between the card networks the acquirers and the merchants maybe that loop gets done in an actual consortium type of stable coin that's possible for example I would not have guessed that zel would have been the winner in peer-to-peer payments in the United States and it absolutely is it is what 10 times bigger

than like square cash and PayPal they are the absolute winners So stuff like that actually happens. Zel is a consortium. Zel is exactly this type of thing. If the payments are primarily working in these financial institutions, maybe there's a chance that they actually end up in these consortiums uh layer ones. Now anything that touches cross border definitionally won't won't happen and I think that is much harder to happen because even these consortiums are usually like local quote unquote. >> Yeah. And I think kind of just at the end of the day, I feel like what's unique now is distribution is actually part of the equation, not just the kind of beginnings. And kind of compared to Libra days, it was the announcement but not the end goal of how it gets to the

hands. And now we're working reverse. >> And by the way, on the announcement, I will say that if your announcement includes includes logos of companies that didn't know that their logos were on it, something smells fishy. So I will just say that. I will leave it out there. occasionally not a good sign. U I want to switch back to investing a little bit. Um you're talking to a lot of companies who are obviously trying to come build into this kind of new financial infrastructure and uh you kind of spend a lot of your time on kind of later stage early um later stage traditional kind of uh finance heavy u projects versus kind of early crypto protocols. Um what are kind of some of the open opportunities that you feel like are just not being addressed as much? Obviously, like I'm sure you're

not as excited about a new crypto credit card showing up these days, but I'm sure there's something that you're missing or you feel like is not being tackled on enough. Are there still open areas that people are just underserving? I >> I'm sure there are. One of the reasons why I'm an investor right now is because I feel like the founders are actually the ones with the most creativity. If I felt like I had the most creativity right now and I had the best ideas, I would be building the company, right? And so let's just make sure that like as a seed of investor the founders are the heroes of the journey and I can have ideas and suggestions but by all means I don't know right I will say one thing which is definitely not Agentic Finance that is not where [laughter] there's a lot of stuff happening

>> me one question >> yeah right it's very popular I love it finance is very popular one of the places where I feel like we've spent so much money and we have actually not gotten the outcomes that we wanted is on this and that is becoming more and more important are everything that is these uh cryptographic verifications of behavior. Let me just give you a very concrete example. Um we now have a world with artificial intelligence. We have all of these um ledgers of behavior of the thinking of these models and none of these things are cryptographically guaranteed and that's kind of interesting. So there's a lot of there's a lot of outcomes that are coming in demand that is coming from all this emergence of agents. Sure. But even just the models

behaviors themselves that are perfectly suited for us to put them in decentralized indelible ledgers that actually have cryptographic signatures such that the models can't lie to you about what was asked, what was delivered and what was the reasoning and thinking and I can't help but wondering like we have built the perfect technology for this. Why is it not being applied? Why is not being used? And we're at the edge where actual zero knowledge proofs and all these we spent billions of dollars on these things. They have become efficient enough for you to have. For example, imagine like the outcome and the output of an actual model that has the thinking flow be cryptographically signed and then in zero knowledge proof that it followed some graph or some sequence to reach the outcome and you

actually have proof points that this answer came from the right model and it came with this line of thinking and it did not lie to you and this outcome was actually the outcome that I was expected and all these things just make a lot of sense like they have utility, they have validity. when models are escaping the sandbox and hacking production servers like hugging face like you kind of need this vision >> also but inherently they're also probabilistic so you kind of actually want a better trace to really see that uh this was not a one-off or this is consistent behavior >> that's right and so if we have technology that allows us to actually store these things decentralize them make sure that there's indelible ledgers that store them why are we not using them and if you think about the attacker model by definition an agent with

intelligence is the attacker model that we designed Bitcoin for it is an economic solution. >> So basically the e bitcoin was created under an attacker model where anybody could participate on the internet and engage with the system and any rationally economic actor would behave correctly and would help the system come to consensus because of the set of incentives we've created. But guess what an agent is? It is an economic actor that actually has intelligence. And so by all means the types of behaviors and systems that we've created are exactly the systems and behaviors and system that are going to be needed for this future world of agentic finance. And so that is pretty cool as a thought and I spend a lot of time thinking about this but I don't see anything coming out of it. And I wonder why >> I think it's one of those things where

people are just comfortable with not having enough incidents that have backfired to like make that an active thing. Whereas especially in our ecosystem, the number of hacks and just individual cases of people getting screwed have uh really forced them to actively think about this thing and I feel like uh SAS world has not caught up to that just yet. But >> but but you're seeing it a little bit. Let me just say like for example there's one of these crypto funds that now is trying to collaborate on um a provable compiler or >> Oh, sure. >> And that's it's not the same thing at all.

>> That's determin Yeah, that's a lot more determinism baked in. But it's basically what I'm trying to get to. We have built all the technology that is necessary to cryptographically verify and improve every single layer of the internet stack that we've created and we haven't quite applied it and so we are seeing a little bits of it but we haven't quite applied it all the way. >> I think that's totally fair. Yeah. Um well luckily I am very happy with Cloudflare pushing the boundaries on actually making those things part of the network stack and u they kind of end up in a way pioneering a lot of these things. So, uh, even just X42 being like a big part of this and actually introducing more primitives really, uh, does simplify that. So, I feel like we're at the very beginnings of that, but I think it's an excellent

point on actually verifying compute being a pretty big category. Um, I do have a couple smaller questions. Um, one thing I'd love to kind of know is when a lot of the portfolio companies that come to you, whether they're Han Investments or the 200 angel investments you've done, um, especially over the last kind of 12 months, what have what have been some common themes of the type of asks they've had for you on on the help they need? Um, what are kind of the common things that you feel like people are commonly getting stuck on or really seems to be like repetitive? Um, what should those kind of things be that we can kind of part to uh to the attendees?

>> So, it's a really interesting question. Let me start with I have a very biased sample of requests because our brand I mean the firm >> other than getting a license faster. >> Well fair fair. Um so people come to me if they want to start a bank usually. Um but they generally come to me if they want to do anything in regulated financial products. So yes the lensure the regulators but Han Ventures I mean was started by Katy Han. She was an ex-federal prosecutor. So usually they're on the bleeding edge and on the gray area of something and they want help in the United States to make sure that they're on the right side of the law and they're actually, you know, connected to the right people. And with me there's also a lot of concerns around security. So people come, you know, architecture, how these things are

built. Anchorage, you know, has many tens of billions of dollars of assets on the platform. So the types of securities that you have to build for those types of systems are very different than traditional systems. People are seeing these hacks. So they're coming to me with these things. Um, and then otherwise it's the normal stuff. Look, building businesses hasn't changed. And even though everything has been written about startups, it continues to be hard to hire your first general counsel, to hire your first CP of engineering, you know, to hire, to fire, to to to make plans for your SDRs and things like that. And now in this world of agent, you know, how much of it can be slop and how much of it I can actually automate and how much of it can't. And then one thing that is growing is uh how are my

peers doing or how are these other startups doing on the curve of AI adoption. So people are very interested in knowing, you know, how much AI are these other companies using? Are they using more than me or less than me? That's kind of an interesting question that people are all trying to compare themselves one to another. >> Well, that's a very interesting comment, huh? I wonder sort of uh what that benchmark looks like. Um and kind of the last question that I have for you is um you've been in the space long enough, you've seen a lot of these cycles. Um we're not in like a great one right now. uh but also kind of from that same perspective, this seems to be the best time to invest and start things. So what's kind of the advice you would give to founders who are choosing to start

something here in crypto um compared to kind of going to AI or any other industry or just seeing through the tough times? What should they keep in mind? How should they think about anyone from their mental state to just what the opportunity is and uh how can we sort of get more people to build uh right now? >> Yeah. Yeah. So the the general thing that I say is for people not to think that they're starting in crypto, but instead for people to build a company learning the lessons that crypto learned or using the building blocks that crypto has learned to use in the right places. Usually the mistake that people do is as you know, you know, I'm going to start a token and then I'll think about the business. That usually doesn't work as we've seen. Now there are businesses in which tokens may actually be the thing

that supercharges uh whatever network effect that you have. But for that you already have to have a really good viewpoint over what the business is and how it accrudes value. And so it's just the main thing is what lessons have if crypto actually like come out of crypto and that we can learn to build businesses. And sometimes it's going to be you know no token whatsoever. That's fine. Maybe sometimes it's just indelible ledgers byzantineful tolerance distributed systems that are safe. That's a perfectly fine conclusion or type of uh software to have taken out of crypto. And sometimes it's going to be the actual um arbitrage. There's a lot of arbitrage happening right now with stable coins. So, cryptonio banks that allow you self-custodial stable coins are a good way for you to hold dollar accounts without actually having the regulatory apparatus that you need to

hold dollar accounts. That's very clear. And the next step is the same way that dollarization and access to stable coin from the international market is one of the reasons why stable coins become so popular. The next step is after you have dollars, you want access to the American stock market. That's the next obvious step. Now I have dollars, now I want Tesla or I want SpaceX or whatever it is. And so you have to think about the breadcrumbs of what stable coins have actually achieved and why they've been successful. What is the lesson there and how does apply to N plus1 versus just um you know applying the same mechanisms and methods and the same ideas. These things may not have tokens. We thought that crypto was going to be 90% tokens or 8020 and it actually may be just 2080 where tokens are going to be the

minority of the cases where these things actually make sense and for the rest of it we're just using the building blocks that we've built in the correct way. I feel like the the classic YC advice of make something people want kind of sticks around no matter what category you're in. >> Still works in 2026. >> Still works 15 years later. So, uh, Diego, thank you so much for that amazing conversation. Please give him a big round of applause. >> [music]