The Day DeFi Almost Died | Ben Forman

Transcript

[Music] this episode is brought to you by velora velora is a self-custody mobile first wallet and the easiest way to send swap collect and purchase digital Goods on the cello blockchain download the app and start exploring today at valoraapp.com forward slash Empire alright everyone uh welcome back to another episode of Empire we've got the Roundup this week but we have a special guest which is uh who's Ben Foreman Ben a long time friend of block works also are we calling you Santiago's ex-boss or colleague uh Santi can we use the word boss here no like uh no no I used to work for Santiago no we are um former former uh teammates

former teammates still friends uh Ben is a repeat guest probably you know we've had a few people come on the Pod but Ben you've this is your third time now in the Pod I think so I think it was I was on Bel Air of once and then on on Empire one so this is my uh this is a uh my third time yeah so great to have you on again Ben you have unique perspective and everything that's going on in crypto um and so anyways this should be a great episode Ben Ben and it's Auntie I have a kickoff question for both of you all so just for listeners we're going to start off with a couple we usually do the Roundup on Friday so we're going to talk about a couple of the big news stories of the week specifically binance and maker

moving kind of towards the end game and then uh we'll we'll do a bit much uh deeper dive with Ben into like state of D5 state of venture um that I think will be really interesting but Ben and Santi question for both of you all to kick this off uh basically we saw binance who has like depending on what metrics you look at somewhere between 70 to 90 market share of all trading volume and crypto uh see uh their founder CZ was charged with evasion of federal law operating in illegal crypto derivatives exchange by the cftc it also just came out like a day or two later that binance was kind of hiding these substantial links to China uh for the last several years um would be curious to get your take on just like there's the I think Adam Cochran take which is that this is cftc

going for the jugular and that like this is the dagger that brings down binance and there's other takes being like this is just fun this is way overblown so what is your take on like signal to noise of this Finance uh lawsuit why don't you go first this is where the former boss kicks in yes sir um well I think it's too early to tell and I don't mean that as a cop-out answer it does feel I think the the cftc historically their win rate has been higher it's a very it's a it's like a 47-page stock well documented

uh among some more interesting things are how did they get access to his phone records and or signal and so I think it's it's a fairly meaty case I think the precedent here is also bitmex um you know they were charged with uh I think not having proper kyc anti-money laundering um policies in place that allowed for fraudulent activity to take place there's some records here as well in terms of you know some chats there with like there's some some links to you know Bad actors I guess so I don't know what the outcome of this will be um I'm not sure it's like a fatal blow I think binance continues to operate in

some capacity um maybe binance us has to shut down probably a huge fine as far as how Adam's point was it's going to be such a big find that you know basically CZ goes you know bankrupt and binance as well I'm not sure that's all correct but it's too early to tell I just I'm not an expert into how these cases get settled um and like for I guess the last point I'll make is in the bitmex case initially it felt like there's a huge blow bitmex is going to go out of business it makes certainly had a reputational hit I guess a more important question is if you're a fund if you're a institutional player in crypto are you going to be able to operate

um with binance and transact with them I would argue a lot of more established funds weren't even interacting with binance in the first place and so the question then becomes from a retail perspective does that actually hinder their business going forward where the the the power and influence of binance has the dominance that it has just goes down and candidly maybe that's a good thing right that I think that's that that's the main point Santi there was this um uh the winner mute founder and blinkum's uh Jenny um tweeted out he said what I genuinely didn't know in this whole binance thing was that it's not just retail that's not allowed to trade derivatives on finance but any us-based entity however sophisticated they may be and then he kind of subtweeted it and said all the largest U.S algo trading

firms have stopped trading derivatives on not just binance but all exchanges that's a fairly big development for the for the whole ecosystem not just for binance so Ben I'm curious to get your how do you contextualize something like this yeah I I think that um there are a few like kind of second derivative uh spillover effects of something like this like one is I just think it pulls even more activity on chain um you know following FTX like liquidity was kind of deleted a big chunk of liquidity was deleted um at a spot Market uh market makers pulled off many centralized exchanges and so if to the extent binance has to kind of curtail its trading activities that's that's a

further blow um but you know just you know you've seen recently kind of metamask users like really pick up uh the past few months I think they had like the single largest day of swap volume uh you know gnosis safe deposits have picked up a lot you know uniswap had one of its highest months of volume um on record so I think this kind of pulls more all human activity back on on chain or could um but look I think for a while we're not going to really know the outcome of this this is probably going to be a multi-year lawsuit and um I think for the time being uh um it's it's a bit more noise than signal until we really understand uh

more of the facts we'll go back to just emphasizing one point here because I have been getting ping more and more so by traditional players and be like it's hard to be to your question on Signal and noise there's a lot of noise on this I think a lot of people their interpretation of these lawsuits and enforcement actions is very kind of knee-jerk I think you always need to peel it back and say you have to wait until this goes to court a lot of times it just gets settled like Kraken settled but like Columbia's will go to court and it's been I think that's a more interesting thing that we should be paying attention to like you need to believe that the US has a very good judicial system that will interpret this and by the way that's the interpretation that we need because we need policy and

that's probably going to come in 2024 and so in many ways I think this is very positive for the space I mean Ben you and I used to talk about this we just so many people just say I love crypto I believe in it in spite of FDX in spite of Tara we go back to the episode of Morgan Stanley those guys are still going to continue to cover this space it's just like this lingering like regulation and lack of clarity that is really the most hurtful thing to the space and so all of these cases I think are going to push us closer to the direction of we're going to finally I think get some greater clarity Finance included yeah that's a good point santu I mean Ben what's your overall framework for this like I think at this point it feels pretty clear I

don't know what we want to call it operation choke point 2.0 or Crackdown on crypto you know kind of cutting off the the onboarding uh uh exchanges and folks venues and things like that like what is your framework for how you're viewing just like this big regulatory Crackdown in the states right now yeah look I I think it's I think it's a short and medium term headwind in in the U.S I think gensler's term officially ends in April 2026 is a five-year term so we're kind of two years in three years to go and maybe it ends earlier um but um I think this has a shelf life uh because whoever replaced Tim will I think odds are there'll be more um constructive and friendly towards

towards crypto um but look like the way I kind of look at this is crypto is a global asset class I think I think that's sometimes lost um you know the US has four percent of the global population uh 10 of crypto users are in the US 10 of crypto trading volume by our estimate is in the US so you know 90 is is kind of overseas I think only 30 percent of crypto developers are in the US uh so I I think underwrite you can underwrite a thesis around crypto you know xus and still believe in just a massive Tam um but um I mean look it's been it's been a very uncertain regulatory environment

it's very difficult to convince someone to build in crypto without in the US without that regulatory certainty um and so look like long term my my general view is you know good technology wins period um it's kind of like uh you know holding a balloon underwater um you know it eventually comes to the surface that's the kind of natural gravity of things um and um I I don't think we're gonna have perfect regulatory Clarity for a while but I I've always viewed kind of Regulation as more of opportunity than a risk and there's a question of like what's the market pricing in right now and I'm not sure it can get you know materially uh

you know I'm not sure how much worse it can get unless we go back to 1933 and there's executive order uh yeah I was gonna say don't say those things Ben I feel like anytime that uh Santi and I say it can't get worse it usually gets worse but yeah maybe I mean look like I also you know was was I I was at tpg in um uh 2011 2012 and we were we were looking at the Uber series B round and at the time literally everyone said hey this business model will ride sharing will never work the taxi Union will never allow it to happen um the I think like in Paris like the taxi unions were blocking the major highway and they shut it down in Austin

and then like people just realized like it is super it is a 10x 100 Improvement to use Uber over taxis and it won and it was like jurisdiction by jurisdiction and it took time and there wasn't Clarity but it ended up you know it ended up proliferating and same with Airbnb and you know the hotel Union so crypto is no different it's going up against finance and and money and gov which are controlled by government so this is like not unexpected and once there is regulatory Clarity in crypto you know the the kind of the investable opportunity set at that point will probably be diminished like we should all pack up and go home like the the reason there's an opportunity here is is because of the uh current uncertainty to

to something yeah what I mean how do YouTube uh maybe Ben we can start with you but Santi I want to get your take on this too like how do you both view the price action today and like it because I'm looking at these prices and it it almost does feel like a bit of a narrative violation um seeing I mean these are kind of rough numbers like Bitcoins up like 70 on the year eth is up 50 Solana is up up 2x Lido's up like 150 avax up 60 um Cosmos is up like 20 so we're in the in the light of like we've nuked every company half the reputations are dead uh we we like the whole industry if you if you don't work in the industry is kind

of a laughing stock but prices right now are are two times off the lows so I'm curious how how you like view this price action yeah well look I think um I I think that Tech has rallied this year overall like if you look at kind of the the big biggest five companies in the US they're up 19 year to date the s p is roughly up yeah kind of flat year to date so if you think about crypto as kind of being you know Tech beta plus plus it it kind of makes sense um but look like I I um I I think that this year in liquid markets um I think there's going to be a fair amount of return dispersion uh between

different names and in more of a token Pickers market and what what I'm kind of this doesn't directly answer your question but what I'm a little bit uh kind of um it makes me a bit more bearish overall is you know on the the 1.1 trillion of of crypto market cap there's roughly like five to six percent just inflation per year so 55 to 65 billion dollars of like Supply structurally coming online through token unlocks and staking rewards and I'm just not sure who's who's gonna buy all that um and so I um you know I I don't think retail can absorb all that

um I think institutions maybe come in and buy Bitcoin uh or ethereum but I don't think they're gonna they're you know going further down the list than that and I also think that crypto VC does not have a super strong bid right now um and so uh that makes me uh you know I I do think there is an element of like a relief rally that we've seen uh this quarter on some of those names uh uh but um but I think like again this year will be very like we'll we'll be very narrative driven and like if you own like the top quartile you know you could deliver significant Alpha versus being in the in the bottom quartile we'll have like a very

correlated uh you know Market environment you you still think it'll be narrative so we had Kane on the podcast and uh one thing Santi and him were getting into and and that episode drops on Monday for anyone who's listening but um one thing we got into is is uh like narrative driven rallies versus um and like narrative driven cycles and when that could end and when maybe Cycles will be driven by or like winners will be picked by things like cash flows instead of just narratives um and I I kind of hear you pushing back on that a little bit so maybe I used the wrong term and narrative I I think there'll be dispersion and performance and that performance will be driven by fundamentals and and narratives um

uh so you know just as an example like we were we were looking at some some interesting data so I mean last year if you look at in in 2022 kind of the top 250 tokens on coin market cap um and look at performance from like Jan 1 through through December 31st um you know the median name was down kind of 85 and like the median name and the top quartile was down 64 so there was like kind of nowhere nowhere really to hide but if you go back to like 2019 2020 kind of there was a lot more variance in the market and you had like D5 break out during certain time periods where you know the majors were basically flat um so uh you know there was

significantly more kind of dispersion I I do think fundamentals matter I think long-term fundamentals you know the market is a weighing machine not not a voting machine uh but um uh you know but the reality is is like we're the market is in crypto like these Dows are still in price Discovery they're a brand new asset class so we could have a debate around should maker Dow be valued at you know 10 times earnings or 100 times earnings and that probably matters more uh than whether earnings are 50 million or 70 million right that's like a 40 different versus a 10x different on multiple so I think multiples matter more multiples are

dictated more by by narrative than you know fundamentals like perceived growth and uh uh it really is what drives it I guess on this point Ben I'm really curious to get your thoughts generally overall on the crypto VC Market um I mean where you guys sit you traffic in both public and private markets um you have a growth fund you have a liquid fund you have a credit fund so you're doing a bunch of strategies but overall like walk us through like how for a founder or a project out there like how much capital is actually there to invest to absorb a lot of this Supply that comes online um I'm just sort of curious

um some of the trends and kind of things that you're observing the market yeah I I think this is a major challenge right now so if you kind of look at crypto VC there's been we were looking back since Inception there's been roughly like 85 billion dollars invested in crypto VC for the past like 13 14 years um about like 60 billion of that 85 billion was invested in the past two years and um you know like just rough math if you assume that 60 billion bought like 10 of of these companies that's like 600 billion dollars of kind of private company market cap that's been created in crypto over the past two years and my my sense is just like if we if we kind

of draw proxies to like public Tech and liquid tokens those names are there's probably 400 billion say two-thirds of like you know uh unrealized Mark to Market impact on those on the privates that have that have been deployed um and we haven't like we haven't really realized a lot of it like FTX was 32 billion block five was five if you kind of add up the names that have like where we've the pain has been experienced it's maybe like 50 billion but um what what I've what what um we're seeing is I mean there are just a lot of companies that are kind of zombies for for lack of a better term they they may have Runway but they have

you know no real product Market fit um you know they're burning cash uh or maybe they're making some Revenue but they have negative unit economics like their activity is is incentivized um and you know they're kind of fast approaching you know the the moment of Reckoning where maybe they're I think the majority of these teams are going to see Runway depleted by say Q4 of this year or or early next year um and uh so right now look we are yeah we've seen we've looked at deals where our teams have a couple months of Runway left and are trying to raise a bridge round um you know we've looked at teams that uh

you know where you know there's no hope of ever clearing the pref stack or we've looked at teams that have kind of been returning capital or trying to be Aqua hired but I you know there does feel like it does feel like we're going to see a lot of down rounds um a lot of pay to play uh and um I think this is kind of the mess that the the excess of the last few years uh that we're gonna have to like clean up as an industry um and look I don't want to be overly negative because like you know on the other hand I think there's a great deployment opportunity right now I think they're incredible Founders that are building and really really interesting

kind of verticals but also think it's it's important to be intellectually honest just about this kind of deferred pain deferred Mark to Market that is is coming over the next couple years I was having this conversation today with uh fund funds uh probably the largest one in crypto and they're like you know it felt like they were very impatient now I was like well wait a minute guys like impatient in the sense like tell me I think the specific question was like tell me an application that has real traction and and like killer use case I was like okay good point you got me cornered um and I guess the the question for you

is are you experiencing like do you feel like there's like a lot of fatigue in this like there's folks that increasing their skeptical critical of crypto look at it when you talk to potential LPS and they're like we just don't believe that the use case is there it's just this is just the casino and people speculate maybe that's a use case and we should just be more honest about it um but I'm I'm curious if you feel that that the bar is much higher for someone coming in to for them to invest in the space they'd rather just maybe go to AI or whatever yeah I mean I think particularly after chat GPT which you know got to I think 100 million users in two months it was like a very people like tangibly could understand the impact that that

technology has whereas you know with crypto uh you know there may be six seven million users on uh you know ethereum uh and it's been you know close to eight years uh so it's I I do think it's difficult for people to grasp like what the real use cases are and I think that's spot on like people don't really care about zero knowledge proofs or Layer Two scaling like the institutions that are allocating to the space what they're I think more focused on is like why does this technology matter and I I think for use cases uh you know like Santiago we obviously talked about this a ton like just I think stable coins are probably the the most real of any crypto

use case no clearing like 7.2 trillion dollars on on ethereum last year it's like 60 70 of visas settlement volume uh it is real and that it's gotten there in just a few years um and it's used in things like you know B2B payments and I I think that people can kind of grasp that but I do think that is like the key the next unlock um is is people like really being able to point their finger at a way that crypto is is actually like making a difference in their lives and maybe and maybe honestly like that a lot of the applications on blockchain within the D5 space are really more B2B so people just

start interacting with fintech companies and Banks and don't actually the complexity of defies abstracted away so they never really realize that they're you know remittance uh to family members in another country is you know being settled via you know bitso or you know being settled in stable coins uh but I think right now that is like the major that that is the major challenges nothing's really captured uh allocators attention how big of an impact do you think bass um has and and what are your general thoughts on this is coinbase L2 coin base no pun intended yeah I mean look I think it's I I think

it's uh a big opportunity um to to bring people hunching like coinbase has 110 million registered users and I mean the challenge has always been that flow from like depositing Fiat onto an exchange buying crypto but then from buying crypto like getting it onto your metamask wallet uh uh or your coinbase wallet or your rainbow wall it's difficult that step is more difficult and so if they can kind of hold users hands and bring them in I think I mean I think it's I think it could be you know we could see double or triple the amount of users on chain like without without too much

um you know without too many kind of underlying assumptions is my is my take yeah yeah because it feels to me like you need a hand holding experience like it's almost like in the early days of a smartphone you just had maybe email internet was really slow and then like apple really push it forward with like the App Store and there were certainly like there's a lot of apps right now in crypto there will be more and better ones uh but you need like a trusted App Store IE base in this case to hold you through that flow and it's almost like you don't really you blur the lines between what is on chain and off chain you just think okay I'm entering this crypto journey and coinbase will hold you you know we'll walk you through it uh and I think that's super important

for like 99 of users but do you think do you guys think that um this will almost be like building a website in no code like when we started block works we built our website on Squarespace and then it was like okay we need to graduate from Squarespace so we went to something called webflow which was like a little more advanced and then we're like okay now we're building like a real like Media company here we're gonna graduate to and from that and build like our own full infrastructure could you make a comparable thing to like okay we'll we'll start by using like arbitrums like L3 Builder or like coinbase bass but then like once you want to actually like build this performance thing maybe you do like the dydx move and like try to own the whole stack do you think there's an analogy to

be made there or no not with composability right because it's evm compatible so like it just doesn't really if you're a from a builder perspective not really from a user perspective doesn't really matter right as long as the website loads fast and you're not getting like your credit card stolen that's all you really care about right so I think uh look right now it's like we have the smartphone we have pretty good bandwidth I.E like transaction fees are negligible now and people were complaining about those like a year ago now you have a certain infrastructure Surplus you probably need really good apps so we don't we're working on that I'd say um but I want to get your take on

um just generally how you think about um this opportunity between like early stage where that market is because evaluations if they adjust it if they come down are they picking back up how much activity you're seeing there versus the opportunity kind of in the liquid market and how you think about kind of the opportunities in the in both uh sectors so look I I think the uh valuation environments like orders of magnitude different than it was 18 months ago you know pre-seed seed rounds are down to kind of the seven to Fifteen million dollar range and uh we were tracking this data internally back at the beginning of 2022 which was kind of close to close to the market

Peak uh the average early stage token deal we looked at in say January of last year was 72 million fully diluted so you've almost you've seen a material kind of compression and look like I think this is kind of back to where we were in 2015 2016 just broadly if you look at teams coming out of Y combinator you know the median seed round was maybe at eight nine ten million post if there was a killer team second time founder or someone building in a in a really hot kind of category maybe 20 maybe 25 but that would be on the absolute highest end so we're kind of back to where I I think we're back to

more rational kind of valuation environment on these pre-seed and Seed deals um I think similar like series A's are back to 40 to 60 million bees are maybe 100 to 250 million it's everything is really reset um I would say anything later than series B uh you know you're not seeing deals get done because those companies like want to avoid avoid down rounds so there is still activity in the very early stage Market uh uh which which I think is I think it's the best the best investment environment it reminds me of you know 2019 and uh early 2020 from just a valuation standpoint and

um the other thing is that's super interesting right now is just the secondary opportunities that have never existed in crypto before so the biggest bankruptcy Estates FTX Celsius Voyager they all ran big Venture portfolios um I think FTX has 552 line items in their portfolio of like Venture Investments they've made in crypto companies so they're you know the that estate is divesting those uh those names at like very material discounts to you know pry around um and then there's also kind of just secondary selling from investors who put Capital into companies in 2021 2022 more

I would say touristy Capital so generalist Venture funds crossover funds corporate Venture funds and now you know maybe don't have conviction in crypto so I think the fact that you can buy high quality growth names a big big discounts to pry around is kind of cannibalizing any demand for um you know primaries uh so it I think it's a pretty interesting investing environment relative to what we've seen at any time and you know anytime recently how does the on the FTX specifically I don't know if you've looked into this detail but like people started complaining wait a minute SPF is paying all these fees from presumably deposit or money we're bankrolling his lawyers

um is that the case where there could be a clawback so say that you were to buy um uh Banker like part of the FTX Ventures portfolio you buy the position then three years down the road the court says no no wait a minute that like that was used with misappropriated capital in the first place so you got to give it back is that like a scenario that you like does that does that make sense yeah so I I think typical so most of these asset sales that are being made from these Estates require Court approval to begin with so if there's any kind of concern around like avoidable preference payment or fraudulent conveyance like that would I think be considered prior

to approving okay and any of these asset sales and then also there's there's sometimes like this de minimis asset level exemption where if there's an asset that's being sold that's less than you know 25 million cost or 5 million at market then sometimes those have a more kind of expedited approval process um to get sold and they don't require as much kind of as much credit or approval they can get approved much more quickly so there's quite a bit I mean there's there's maybe like five to ten billion dollars of uh or probably closer to 10 billion dollars of like cost basis eventually Venture assets that are

sitting in across these across these bankruptcy uh States at the moment out of curiosity what kind of discount are is there not just for the FTX stuff but just generally in the market like is this like back to 60 70 80 90 discount like I'm curious Dante's ears are perking up yeah yeah no because I've seen it yeah yeah yeah yeah the short answer is yes like the discounts are are that material um in some cases I think this was announced like sui bought back uh a large they bought back their own position in uh that FTX had acquired I believe like a five or ten percent

discount so I think first look and like a lot of these these positions will have you know writer first refusals or transfer restrictions so it's not like anyone can just show up and buy and if you do agree to buy the company can kind of preempt you and buy back their own their own uh stock um but but generally like yes those those discounts are are very real because there's this other Market that we haven't talked about much on on on just this podcast in general and Empire but and in this episode which is um uh buying directly from treasuries so Ben we're talking about like the private Market deals that are kind of these down rounds then there's these public markets that might be undervalued like if you're a blue chip then there's this third bucket which is like the these deals that kind of look like private deals

because you're getting discounts you're getting lockups but you're going directly and buying a token can one of you guys just kind of give me an insight into like what that market looks like today God I think we invented that market didn't we Ben yeah no no we did yeah no we I think I think we did we like we called them like pipe tees so private investors yeah yeah like a pipe in public Equity land but in in crypto but yeah no Santiago go ahead and this is the verified what was the what was the first deal what was the first type t uh Ave probably returned our fund interesting shot at the standing and all the team that are doing great work listen we um yeah it was uh we went to

them and look people say oh you got a great deal it's like there was a lot of work that goes into convincing a team to open up and then sell you tokens even back in the bear Market it was like and so we we just we had so many meetings with them of like saying we got to restructure the token this was the time where like the token model was like pretty broken whereas like Distributing like fees to everyone and not just active stakers so we did a lot of work um at least verify is a fund we would go to the team do so much work show value up front and then you know to say Hey listen we're willing to be a long-term partner for you and you know would you I guess you could

sell in the open market what's going to be the signaling of that versus this is I would consider it this is like a a a a rate a fundraising of itself because you're you're parking tokens to a good custodian that is going to commit it to like there's some clause in there that was like we're going to help you in XYZ in a very concrete manner and so we did that with so many other projects after that and then others started copying the market like we were one of the largest investors in Lido and then like uh there was like a few funds I think it was dragonfly and like Paradigm that Paradigm did execute it on but it had to be on chain like it was like they formally wrote a proposal in the governance forum and said hey we want to buy X percent and the token holders

would vote and sometimes it would pass other times it didn't like when FTX Ventures uh funny enough for it was light speed wanted to buy sushi it got denied by the community and but um yeah I think for uh for a team it's you know you almost you always want to find a good partner right and this happens like as Ben said like pipes are fairly common like like Warren Buffett does this exceptionally well I think he probably is going to do more of these in this current environment he did that in the global financial crisis and you know for a team it's great and so far as you find a really good partner right that by the way it locks it up for multiple years right when you sell the open marketing it is like a private deal right and that you're a lot like let's

say you're back from the Lido treasury today you might get so light is trading at 2.2 fully diluted today at some discount you might get it at like a 30 discount but you're locked for a year or two basically yeah like basic structure yeah yeah you factor in a liquidity discount if there's a options market then you can also reference that as just or just generally look at the volatility of the token and say Hey listen if the ball the token is like 20 or so in the last like X percent what we should be getting probably that plus in the liquidity discount right yeah hopefully not the giving too much of the secret sauce here but teams can try to do it not all of them actually can do it because at the end of the day you really need a hustle to prove your worth so Ben

what does this market look like today right now yeah I mean I I think it's uh I think there's a little bit of adverse selection in the market today because token prices are down so much so teams to set then sell at like an additional discount of 30 40 50 uh is I think a lot for teams to kind of swallow so the teams that are doing it are um the ones that actually like need to extend their Runway or have like a very firm use case use of proceeds for that that Capital um back in in 2021 early 2022 I think there were like you know massive deals like this that were were getting done I think today it's a bit a bit less less

common that's interesting I didn't realize you guys started that with Ave that's cool I mean if anyone wants to contest that feel free to comment um yeah it was it was a big part of our strategy yeah Ben any other hidden stories from uh from the early verify deal uh days that you uh yeah we the best one for me is was and it's relevant in the sense of when people ask you like how big do you think the space is going to be it's sort of like this idea that you underestimate like what can happen the timing is really difficult but like I think we were having discussions around how big D5 could get how much Capital could be locked in some of these

protocols and like we were modeling out like Ave had like it was like four or five million in deposits maybe maybe a million it was like less than a million when we were looking at it and then all of a sudden that went to like 200 billion or I don't know if it no actually not 200 billion it was like it was like in the billions right like that to me was always like yeah you can think that you're smart you think like we're using these things and it all of a sudden it was like yeah how like you just go from less than a million to a couple billion and you're like okay well that happened yeah I mean I think like in every model that we built we were thinking linearly or more linearly in terms of growth and

like the just the pace of like acceleration uh the after D5 summer for that like next 12 to 18 months was like a far right tail like you know the upside case if far exceeded any kind of bull case that that we I think could have put together um now I think the story the one story that always sticks in my mind from um it kind of also reminds me a bit of today's environment was just black Thursday with maker Dao I mean that was in my like as I think back to like a watershed moment for the space I mean everything everything could have changed uh I think eth was hugging like 80 dollars at the time and if it would have

broken eighty dollars um maker Dow would have basically there's no defy you could argue there's like no no D yeah sets D5 back five years that was existential actually for people who don't know that story can can one of you maybe actually share that a little bit yeah then go for it uh so yeah so that was so this was in uh okay I think the second week of March uh in 2020 and this was kind of like right at the beginning of of the pandemic when lockdowns were starting and you know Equity markets were really trailing off and there was uh you know one one night I think was a Thursday night or Wednesday night into Thursday where

everything was down like Bitcoin and ether down 50 in in like 12 hours and um uh and and alts were down some some of them were down like 60 70 and it actually happened in like two phases so you know it was like six hour phase where Bitcoin like kind of went down 25 30 and then it people like kind of bought that dip and then it went down again and just crushed it crushed a number of funds a number of uh you know there was just a lot of a lot of stress in the system but specifically on maker Dow what happened is the collateralized depth positions which were people had posted Ethan borrowed

die were getting liquidated the issue was that the way the liquidations worked is people bid on the eth collateral and because gas prices were so high on the ethereum network uh people couldn't people were bidding far below like the value of those assets this was back when gas prices were like when the network got congested gas price because we didn't have like l2s back then so the the like no one could really bid on this collateral there was also only maybe like one or two people bidding because there weren't as many market makers and D5 at the time so basically like the collateral that was getting bid on was getting bit at a

meaningful haircut that was below the amount of debt that that maker that would issued and so there was impairment to the system uh and there were a few other Dynamics and sometimes you probably remember these more but basically dye was also breaking the the other Dynamic which was interesting is yeah dye was it dies of stable coins people know it was breaking above the peg it was trading at like a dollar and 20 cents because there was just no liquidity everyone wanted to buy die to deliver and um you know there was no liquidity on coinbase no no one could find it there's no curve all right curve is not even like not around at the time yeah so people had to um they had to so

so you know we there were maker calls all day eventually usdc was added as collateral so you could put one usdc in and borrow one die and that alleviated the pressure on die created and by the way had that not happen that's very contentious by the way and we were advocating for it because like guys if we don't do this is gonna like make her goes like that was the watershed moment where like people rallied behind usdc because it was like this is one of the more important things for this viability of maker and stability of of maker and yeah now we're in a world where uscc is a big part of the collateral base but there was a lot of really anti-uscc folks at the time and it came a moment of like come to Jesus moments

like guys we don't do this we don't know if we're gonna be here in 24 hours right then was there someone on the other end of this dude like I don't want to use the word exploding the protocol but like like shorting the hell out of the shorting the hell out of maker or I I I'm not sure I'm not sure there was maybe um yeah so there's always rumors of minors coordinating and you know I've heard I've heard some of those the it's hard to say but uh I think uh yeah I remember calling Ben this was the night before because I had to wake up super early that morning because I was giving a class at NYU and so we're in the San Francisco I woke up at like four or five in the morning and this was all happening and I thought

it was like I didn't have I went and grab coffee because I thought like my addiction to caffeine was to a point where I like was not reading prices correctly but uh I remember calling in the night before and it was like this is where the the big Catalyst there was I think the World Health Organization came out that morning saying covet is a global pandemic but more so I remember seeing a headline there was like super stupid like Mel Gibson and some other celebrity had gotten coveted and I called Ben and said hey man I feel like I feel like this is the moment where people say like oh Eve royalty and celebrities can't like protect themselves from this stuff then that's where like it it hits home and what was the NBA lockdown the day before black Thursday I remember that

yeah there's like a few like subtle things like that and I think that's something that I've come to appreciate just like in crypto like these very subtle like you can then extrapolate and say okay this is why like when you think about the the Wall Street bets phenomenon Silicon Valley Bank like I feel like we're in the state of the world where like the information propagation like coordination and then the coordination of that and like how actionable things it's just these things escalate super quickly um it was it was a fun 72 hours I'd say it's kind of amazing to think that you know like maker Dao has kind of survived as long as it has despite all these challenges and D5 survived as long as it happened absolutely yeah I mean and then the thing like people like we obviously

think that was a very scary moment because the the do you see something go down 80 you're like holy holy but like the sheer number the absolute number of liquidations that have happened since black Thursday there's been events where like there's been far greater you know sheer amount of dollar amount of liquidations that have happened had been absorbed by D5 in a fairly seamless Flawless Manner and so all the more impressive that uh you know Crypt has sort of built all this resiliency yeah I mean I think at the time there was maybe a five million dollar shortfall that I think was absorbed by by VCS which was actually a huge amount of VC Capital at the time to buy mkr at auction to cover the shortfall but I I think that it was it's

almost like a blessing in a way because if you can because that uh it stressed the system so we were able to identify these vulnerabilities and then patch them and you know build up kind of this this Lindy effect um so it's almost so so to some degree it was like a blessing that the system was stress tested then because if it wasn't stress tested then and the experience a small loss like it perhaps would have been bigger it's one of the subsequent crashes when there was far more uh die outstanding ballora is the ultimate wallet for exploring the cello ecosystem easily manage over 50 crypto assets and over 30 different dabs for swapping sending and managing your assets all from your mobile phone the

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think parify really made its name as kind of defy and being super active in D5 markets and it becoming a huge category um we had Kane on and we had the same I'll ask you the same question that I did him is like you know DJ and Spartan uh a very well known kind of alt uh personality and Twitter always likes to post the chart of D5 versus eth and you know d5's been sort of in this Mark in this kind of um down down Market well before Terra well before three arrows like it was just um it was coming off uh six months before kind of rates were even hiked and so what's what's kind of the state of D5 walk us through kind of what your thesis

has been how it has evolved and and what do you see kind of going forward like as you were as excited D5 today our DC opportunities elsewhere how do you think about all that yeah I think I I remain very excited about D5 but the areas in which I haven't I'm excited specifically of maybe shifted a bit um so I I think like big picture you know maybe there have been three to four thousand D5 projects that have kind of launched since D5 summer uh that you know decks we've seen and other other universes we we Monitor and maybe there are 30 to 40 of those that are you know even relevant today and maybe only five to

ten that actually truly matter um uh you know and maybe a subset of those will actually kind of survive long term so I think the vast majority of activity has been um you know there's been a lot of experiments and many of them have died by you know death by governance death by uh lack of originality or lack of community um or some sort of smart contract bug um so I I think this like first vintage of defy names was was really interesting I think like we learned a lot um but basically we really only have as I think about it product Market fit in two areas in defy today um you know spot trading on mostly on

amms and then borrowing and lending on compound and Ave and maybe there's a a little bit on on insurance and perps and things like that but there's not really um you know much else outside of that uh and where we've been more focused recently has been on this theme of kind of more permissioned defy and tokenization of real world assets and it's not mutually exclusive with kind of the permissionless D5 world that you know we've all come to to know and love um but it's interesting because I think it accesses like a very very large Tam and solves some very

um solves problems that are are really interesting and create a lot of value um so that is that's been a big area of focus for us so it's you know it's it's a more regulated defy where institutions that have gone through kycaml are trading lending borrowing buying Insurance you know issuing Securities but all in a permissioned regulatory compliant um you know environment um and so that's that's really where we've and we we can you know double click on this more but that's been I would say our our kind of major area of focus as of late yeah I'm curious uh to dive just a little bit deeper on that and and obviously uh sounds like liquidity has

really dried out like you have a lot of the centralized players have gone out of business because of terrible risk management and it's pretty hard there's like a few pieces of infrastructure that have really been gone away or just severely handicapped now in the centralized manner do you think that that shifts on chain at some point or are you excited and also looking at building a better Genesis with a better team and risk management in place or a Better Block fi I mean I'm I'm curious how you think this there's been a lot of Ashes currently that in the voids in the market particularly liquidity that needs to be kind of filled in where do you think that infrastructure gets built and by who yeah so I I think that and maybe

this is this is a contrarian take um you guys tell me but I I think that there's this narrative that C5 is dead and like not coming back and I think kind of the the blockifies of the world or different iterations of block fives with better risk management uh are gonna are gonna come back and they're gonna be important in the space but I think they'll look different so you know some sort of hybrid of C5 and defy where um you get the benefits of D5 like the transparency and the global nature and the programmability and and the the instant settlement but you'll have the front end of of a C5 uh platform which is you know more user friendly you can

pick up the phone and do you know you can get tax forms it's kyc AML there's kind of customer support and you kind of get like the best of of Both Worlds so so I think that that is um you know that's going to be a major a major a major theme I mean we have to ask ourselves like what's interesting right now is you know on maker Dow back to makered out or even compound or Ave people can borrow stables at a much much lower rate than you can borrow an OTC markets but people aren't doing it and I despite the fact that it's maybe six seven hundred basis points cheaper and so the question is why and um I I can tell you why

um uh you know my my thesis for it is just that um you know people don't want to the stress of interacting with smart contracts uh the infrastructure isn't totally there to you know get alerts in the middle of the night if the Market's trading down you know if if the Market's trading down um and you have a position with um you know Galaxy or you know Cumberland you know they give you time to post margin it's a bit more white glove experience and so people are willing to pay more for that that experience and so I think there's a way to really Bridge the Two Worlds uh um that you know would benefit both for anyone listening we I was telling this to one team that I invested in jpeg for

nfts just collado I said guys why can't someone build like a a smart contract that has a time lock where if you get liquidated it goes into this escrow account that has a time lock where you can refill collateral for 48 hours or some and you pay like an annual like Insurance fee that you pay the prime broker like and it's a fee for the protocol I'm like hey can Ave hey Stan you listening like why don't you just build this because I know for a fact a lot of funds for this reason don't use D5 because yeah you're right like black Thursday happens you get three calls to refill the collateral during those 24 hours and it's appreciated right you don't want to lose that collateral and I think there's a way to like work the this way in a programmable manner right and there's

some logic and a flow that that can work um speaking of like State like you reference like um you know borrowing stables and whatnot what um what's going through your mind when usdc depegs uh or Deepak like a couple weeks back you and I were talking about that but I'm just kind of curious like as a as a first question into generally what you think about stable coins Central like cbdc's um tether uscc and whatnot yeah I think my first like reaction was you know like any like Fiat back stablecoin is only as strong as the banking system that's that's behind it and so when it first traded off I mean like

when they gave disclosure around what their what their kind of banking exposure was and they Circle mentioned hey we have 3.3 billion dollars with Silicon Valley Bank of the 40 billion of usdc outstanding um I think that allowed kind of everyone to kind of sat size kind of the exact you know eight percent of the exact kind of shortfall that would be if as as if the money on svb got a zero recovery which I think would be a pretty aggressive assumption um I think I think the average in an average bank failure uninsured depositors have recouped like 77 cents on the dollar we were looking at some data so we um so so I was quite surprised to see usdc trade all the way down to 88 cents

and I think there was some weird Dynamics over that weekend where you know banking rails weren't live coinbase you couldn't convert you know uh you you couldn't convert uh USD into usdc one to one so there's very limited liquidity on centralized exchanges you also saw tether break break above the peg I mean it was it was a really it was a really fascinating environment my my thought in the aftermath of it the question I've been asking myself I'm curious to your guys take on this is like what are people going to think about usdc after this event well people have a more positive view on it like hey it was able to like actually survive um uh or will people not want to touch it anymore and that's been and I used I think you've seen since this event usdc

Supply come down from 40 billion to 33 34 billion and then tether Supply grow so maybe that says the market is I think it depends who you are Ben like I think I think if you're crypto native this is a supportive event for usdc this makes you almost instills more confidence in usdc you're like this was really battle tested and um and it and it gives me a bit of confidence that they'll kind of do what it takes to to make sure that it that that it remain that the peg maintains there is a cohort of people who work at traditional financial institutions who work in compliance departments that were completely spooked by this and we've had a couple of calls with these folks at the kind of major payment processors and and some of the

Bulge brackets who had considered touching usdc in one way or another that won't touch it with a 10-foot Pole now and that's because of their compliance departments um how how much of your business you reference like it's still uh fairly kind of difficult certain parts of what you're used to In traditional Finance your Prime brokerage like you're on ramps like the way you you know cross margining some of these things like the infrastructure to like operate as a fund manager and crypto is still very nascent and like when you come from traditional Finance you're like wow like we're in diapers here we have the Morgan Stanley team on they they kind of uh were of the same um uh belief how much has your life changed in terms

of how more difficult is it for you given everything that's going on in the banking crisis obviously we don't know you talk about like the d-peg in large part being because Banks like you didn't have the send Network which is a huge was a huge part of how Market make like how you'd settle trades especially on the weekend you have signature and silvergate basically gone out of the equation what does that mean for for like the stability of something like uscc what does that mean for generally the OTC market like liquidity in the market like and then maybe tying that into kind of this whole banking crisis and macro about uh we'll get to that in a bit yeah I mean there's a lot there I mean look like I think uh I was listening to another Empire episode and someone

brought up the the point that it's like actually it's very complex to operate a crypto fund all the infrastructure required so it like doesn't really make sense to do unless you're you know at scale and look I think things have gotten a little bit easier uh but um it's you you need to onboard with like 10 to 15 different counterparties uh OTC desks custodians exchanges on-chain uh infrastructure like fire blocks and copper um and you need to set up a number of complex like internal policies around how value is moved and it does make me jealous of uh friends who start you know

long short Equity hedge funds and literally just have one account they log into and can do everything from one one interface um so it the short answer is it actually hasn't gone in it's gotten a little easier but uh not nearly um uh where it needs to be um the uh I I think the um I guess the second part of your question is or or the the other pretty question is kind of around the the what's happened to the infrastructure recently and I I think that uh right now um you've seen you have a lot less OTC borrowing in lending that market is a shell of its former self a couple of I

mean maybe down 90 if you look at loans outstanding there's no real market for borrowing OTC and then uh you know the the spreads on even major tokens have widened out a lot um there's a lot less spot liquidity than there was previously um there's actually on chain is is actually kind of oftentimes the the best place to find liquidity um to find to find good execution but there this has caused some a a structural reset to the space um I I think on the banking side we uh in the aftermath of like svb signature

um and silvergate we've seen crypto companies able to open accounts elsewhere um at least what what we've seen so I think that's that's positive but who knows how long term that is and where things will will go next um and uh the I think on the last thing just broadly on like the banking crisis is it is interesting because we have seen just a Resurgence in a lot of stuff happening on chain like all the metrics are up right like I think q1 of of 2023 is going to be a lot better than Q4 of 2022 and

some of the month like certain months of q1 are going to be actually very very good uh as you look at everything like monthly actives trading volumes fees originations across across defy it's actually been it's picked up a lot you know so my sense is um kind of the bank account of Last Resort for a lot of companies in crypto will be just usdc in a Nosa safe uh wallet and um so I think that's that's been another kind of interesting uh interesting dynamic yeah absolutely and there's been obviously some folks that you know I

want to tie this into just a bit on the regulatory side of things that you kind of reference uh I think this act where at some point they made holding gold illegal in the U.S in the 30s um what probability do you ascribe to that event happening for crypto where the US government says hey you can't you can't hold crypto um like how regulation's always been a thing in crypto like there's always these walls of worry that we need to climb but I'm curious generally what you think um different scenarios for the regulatory environment what are the things that you're mostly interested in and maybe hopeful that can happen over the next you know 12 18 months I think if I had to like Peg a probability of like uh confiscation of

of property like of digital assets like I you know maybe this is naive or optimistic but I would say like low single digit percentage I mean I think it's non-zero but I just I I don't know that it's it's certainly not like the the base case um there's also a question of if that happens what happens to the pre what happens to market prices and I don't think it's the necessarily the answer is that there's a massive shock to to the downside I think like gold actually performed fairly well in the couple decades following the confiscations um as it was traded kind of globally um but look I I think regulation is just the biggest chat like it's it's been

both the biggest challenge the biggest opportunity in the space right now and I you know that's why um you know but and that's why I think it just has to be a focus of everyone in the industry um and I think as I think as as the technology gets better and as we prove like real use cases that actually provide people with value I think the regulation will will actually kind of follow and catch up to that I mean you're seeing this with a bit with chat GPT in the AI space right now where some people are saying hey we need to slow down like we're not aware of all the risks that this could uh you know inflict on humanity and other people are like well look this is other people that are pushing it forward or saying hey look like we we need to come you know we

don't want to slow this down because um this technology is incredibly useful it's not abstract anymore it's useful and we should you know we we should figure out some guard rails but we should we should push it forward and so I think in crypto right now like people just want to regulate it because it's like it's providing for most people very little value and so that to me is a big is is going to be critical yeah I don't think anyone at this point disagrees that their some regulation is good we just got to figure out a sensible regulation that kind of meets this new technology can't regulate new technology with necessarily old playbooks it needs to be somewhat adapted um we've covered a lot in this episode one of the things that I think we always appreciate is just getting your thoughts

on generally what are the things that you're mostly focused on in terms of like what are you paying attention to what are you reading kind of what's interesting to you in the market anything else you think is interesting so the one of the areas I mentioned it earlier that is is if you look at tokenization of real world assets it's had a bit of a Renaissance recently so we we kind of track an index of non stablecoin rwas because stable coins are the biggest rwa they're tokenized dollars but non-stable coin rwas are up like 5x in the past six seven months in terms of on-chain on-chain volumes and um some of that's interesting what are

these things yeah I was gonna say yeah yeah it's like things like treasuries tokenized credit um you know they're tokenized carbon credit markets a lot of the categories that are getting uh tackled first are more kind of some longer tail markets um but there's some in the commodity physical commodity space projects there that that have traction um but they're uh you know we're seeing real there's been actual progress recently which is encouraging because I mean this is obviously something people have talked about since 2017 like token let's tokenize real estate and then you know trade it on chain and it like it

hasn't worked um and so part of the question was like well why didn't it work people have been trying these experiments for a long time and I think it was it was lack of infrastructure right fire blocks and Anchorage were founded in 2018 uh you know coinbase custody was found in 20 like these things these products didn't exist until recently I think there was a scalability issue I think there was like perceived smart contract risk premium um there were all these issues and a lot of those a lot of those things have been kind of solved at this point um and so I'm paying very close attention to the to to those markets because I think that

if we have tokenized real world assets that are trading on permission smart contracts like that is like a very very real use case that Regulators are gonna I think take a lot less issue with because it's basically using blockchain as rails to facilitate normal Capital markets activity so you kind of have seen this you know KKR tokenized NLP stake in in one of their private Equity Funds on Avalanche you have some big institutions doing something similar on uh a permissioned lending protocol called credits um and I think a lot of these things are kind of gradually then suddenly in terms of their uh kind of uh uh adoption

profile and so that is to me is a big uh a big area of liftoff that were probably probably one of the biggest areas that we're we're focused on yeah I want to kind of close this great episode um on just historical perspectives because you've been around for space I want to do a quick fire around questions but before there uh maybe the more important question um what has been like the biggest learnings for you over last you know 12 months of crazy timeline that you know every Jason I used to joke because every time we'd say couldn't get worse it just got worse and I'm curious like you've been through many cycles not just in crypto

um and yeah what is the things that you look back on and say yeah I think this is like the biggest like takeaways or lessons or you know things that you've learned over the last 12 months yeah I I think there's how long do we have um this is an hours therapy session transitioning to more Wellness episode guys so yeah um no it's but we very long kind of internal reflection on on all the mistakes we've we've made um over the past years um and kind of tried to like group them into themes or buckets

um the I'll kind of rattle off just a couple I I think one is partnering with you want to partner with good really good people good Founders and there's no idea can be it's too great if the person leading it is is not like ethical or is not um really fundamentally aligned with what they're building I think there's a lot of like mercenary there there were a lot of mercenary founders that raised capital in this prior cycle that launched a token launched a network didn't really care about the blockchain space I'm kind of have dump their tokens or or kind of quiet

quit and you know we want to generally the lesson has been like partner with with missionaries not Mercenaries um and people that are aligned with like really building valuable products in the space and thinking long term uh yeah that that's that's a huge thing I I think the other is incentive alignment you know a lot of teams uh had very short vesting schedules the token price went up they maybe didn't need a token they launched it too early they got distracted by like their kind of paper wealth they maybe monetize some of that maybe they're not incentivized to continue to work on on

building um and that's why there was something like if you think about capitalism and like a lot of the biggest companies that a lot of the the value that's been created in the world today it's it's early stage Venture capitalists partnering with Founders and both groups are kind of illiquid locked in for 10 15 years and then there's an IPO and then that you know the founders can maybe take a little bit of chips off the table in an IPO but there's also regulation around how much they can sell so there's just this like very long-term incentive alignment and there's too much short-termism in crypto and so you know again like these are things that you know maybe we we learn the hard way

um the only the third one I'd mention I mean they're probably like 15 20 things I could could mention but the third one I would say is um the uh you know certainly like great ideas without killer execution are just completely worthless and there were um you know there was this amazing technology that just never got monetized or was never really I think explored to its full potential in this past cycle so maybe second third movers in this next cycle will be able to pick up where there's there's other teams left off um I don't know those are three we I know that I know we have a shelf life on this

this podcast but there there are a lot of others um those are my probably three three top of Mind ones those are really good ones like I would definitely agree the last point you make is a really good one which is sometimes I think my best investments have been a second or third iterations of a particular idea and I think we're in that environment where a lot of people it's like will be non-consensus to invest in another exchange or another you know trading desk like genesis like these businesses were like cash generative like super profitable viable businesses with real traction but people confuse and conflate to things it's like don't don't confuse terrible management that with it's not like banks are not a viable

business model because Silicon Valley went out of business it was just like they just there was a specific human error there on the execution side and I generally think there's gonna be really good opportunities and the same is true like the I don't think people properly are equipped on this non-linearity concept of understanding how quickly the infrastructure is developing in crypto it took forever for ethereum to like transition to prove a stake but the progress that has happened since then Beacon chain the merge and then you know uh account abstraction like all of those changes have vast and deep implications for how apps are developed the user experience that I think people if you're not really close to the metal it's hard to appreciate but I think a lot of we're in that state of the market where even

investors and you know people generally are very skeptical of this technology yet again um but don't have a finer appreciation for how how you know a good idea can work because the infrastructure has changed and I think that's very much true in an L2 context with account abstraction like these things plug together like ethereum is working very well and I think just people don't give it enough credit um because you know in six months it has changed in a very meaningful concrete manner and and so but you're always going to have the Skeptics of like this is technology like just honestly go invest in Ai and like you know call it a day and you know just but you know nonetheless um yeah no I think that's right I mean I

think it's spot on like people don't always diagnose like the why like why did an idea fail sometimes due to timing it was too early the infrastructure wasn't there um and and sometimes it's lack of execution but oftentimes the idea itself is like has a lot of Merit so I think that's yeah but I think that's spot on you read my mind because I want to go in a quick fire round and the first question is do you think that will uh an algorithmic stable coin will come to Market and be successful over a long enough time scale yes interesting how many hours okay you want to say some more I want to I want to ask a clarification question so like the algorithmic state I think also how do we

Define algorithmic stable coins with something like die or LUSD um or or fracks I guess be considered algorithmic or or kind of over collateral that like uh good question I guess frax is like I would say hybrid like collateral like so collateralized but it it's like less collateral over time I guess scenerys model yeah there's but like some like I guess more concretely like a Terra like fully algorithmic like Game Theory I think that's tough yeah I think some collateral is what you're saying but um some collateral or certainly over collateralized stable coins I think are you know that that are not backed by dollars in a bank account um I see those working I mean die is the

great case studies good point second Point uh do you think the U.S loses its Reserve status in a week where you've seen trades and commodity markets being now settled in different other types of currencies China trading with Saudi Arabia and whatnot like and if it happens in what time scale I I do think that it well look I think it will will eventually happen on on what time scale um it's tough to say but I mean if you look at our our you know the budget deficits our country's running if you look at our national debt um and debt to GDP which is kind of 110

120 and growing every year um if you look at like our social security and Medicare liabilities and like the demographic Trends in the US like it is mathematically very difficult to grow or tax your way out of this hole and so then I'm off wondering like well uh you know if if there is a shift to another Global Reserve currency like what does that look like how quickly does it happen the US is still kind of probably better than than the Euro the Yen the remnb so what like you know uh could it be gold could it be Bitcoin I I don't you know I I think those are probably the I mean I think

those are the best best I think Bitcoin is probably the best option but how what what that looks like uh is not clear I would say yeah in the next 20 years I I could see it um couldn't see that could see it happening yeah you have uh Blank Slate 100 bucks how much you allocate the Bitcoin underneath and what ratio I need to hold for like okay if you have to hold for yeah holding for constant for 10 years I think it has to be something that looks close to an equal weighting between Bitcoin and eth I think they're very different and they can both be successful independent of one another um but whether it's 40 60 or 60 40. I I think they're I think from in my mind

they're equal waiting and they're both I think incredibly attractive right now relative to the underlying kind of fundamentals uh behind both of them I mean especially if I can stake my eth over over the next 10 years uh is trading at a 20 times earnings ratio roughly uh as I'm looking at it so uh yeah look I probably 50 50. I think it's tough to say ones definitively uh you know better or worse than than the other in today's market yeah what do you think we see first uh crypto is sitting at 1.22 1.2 trillion market cap with his five six percent inflation what do you think we see first

500 billion or 10 trillion 10 trillion nice and what's the ratio of the market cap the Bitcoin dominance in that scenario I I think it's probably in the 30 to 40 percent range I also think a big chunk of that will a big chunk of the market if we get to that point will just be tokenized real world assets including perhaps a centralized like a cbdc maybe a cbdc um I think or just expansion of existing Fiat backstable coins or decentralized stable coins um

nice last two questions uh Jason if you want to ask more jump in please uh how many hours of sleep do you get and that's less or more than in the last 12 months I've been trying to improve my my sleep hygiene a lot so it's been a major 2023 Focus um I I aim for for eight hours a night but I I still have a bad habit of like checking my checking crypto prices um right before you go to bed yeah so you know what I started to do I I as you know I'm a terrible sleeper I started to put my phone in a different room thank you Jason I think I got this from you it's yeah I've been doing that for years honestly the best small thing like that like when I do this like I've a B test

well not a B test but we I don't have a simulation parallel universe but nights that I put my phone in another room I'll just sleep better this is not advice legal what about what about your alarm do you have like a man I don't know I also suck with snoozing I'll just like hit my phone so when it's in the other room it forces me to get out of bed and go right and go then I just turn my alarm off get in the shower and get started with that yeah yeah this is a hack this is a hack um and then perhaps uh last question for me is uh what would you tell a younger Ben that is getting started in crypto uh I I would say that as you think about investing in the space be very cognizant of uh what you know and what you don't

know and don't convince yourself you know something that you don't actually know so in other words I think being aware of of blind spots in the space is important so even when you have very high conviction on on an opportunity I think it kind of position sizing is important because it's it shows humility that hey you could be wrong on this so specifically you know what I think there are some things I've been very confident in these investment Theses over the years that maybe turned out okay but not nearly where I I thought they they would be and so I think it kind of comes down to like sizing sizing positions um in in a in a more humble manner where you have more diversity because you're

going to get a lot of things wrong in in the space that's one one of many pieces of uh advice I would have for myself I used to always say internally verify that thesis is half the battle position sizing is equally important people don't spend nearly enough time thinking about position sizing um and and calibrating that over time I'll cheat I said the last one but I'll follow up because it's a great answer uh is what is something that you change your mind recently you or as a team as a firm but maybe specifically just you Because by the way the listeners none of the stuff that Ben says actually represents the views of parify and I will say this because Michael when I was there I used to say this all the time so I'll just spare a band of saying this uh but nonetheless go for it yeah I

so I uh I think one of the things that's like changed kind of gradually over the past year this this is maybe like not a totally popular popular viewpoint but I I think a lot of the just permissionless D5 infrastructure or like a lot of the best projects and protocols that uh have had amazing runs over the past few years like May struggle just to to scale and fit into a world that are regulated um and so I love the idea like I think that that that that space will be around for uh for a long time and we'll

probably net grow but um I as I think about like what's best for the industry and like how important regulation is like I I'd love to see and you're kind of seeing it uh with some of these teams like building out ways for institutions to actually use their products is important I I just I guess to be concrete like what's changed is maybe my my estimate of the Tam of of that the the permissionless um defy Market I still think it's a lot bigger than it is today but um I think we need to go after um the the permission side as well yeah yeah definitely well it's been awesome man always a pleasure having you

on um and I don't know if there's anything else you want to cover but this is all I had so it's been a great discussion and all things um that we wanted to cover now thanks so much for uh for having me on it's always uh humbling to be here so really really appreciate it it's just nice even all the better when you when you don't share stories that embarrass me you know last time you shared one of my Harry Potter Lego collections so this time we've been spared Ben has been coming to uh blockworks events for Penthouse I think you're one of the first ones yeah one of the first Das uh events in like 2018 2019 when it was like 40 or when it was like 100 people now it's whatever thousand so yeah this is a rhetorical question because this is where Jason plugs get your tickets for

permissionless bye now are you speaking this year what was that are you speaking this year uh yeah I think I am I think good so we got two speakers by the way bet and Jason try to meet it asked me to buy tickets I'm like since when do speakers get to buy tickets for conferences Jesus Christ you know you know what speakers have to buy tickets for conferences is speakers who say they're going to speak one year and then and then bail last minute so robbed by Airlines but you're always welcome to come on the show and it's been a great chat and uh fun to see you in Santi banter as well um and yeah man this is great awesome

thanks thanks a lot thanks man thanks for coming out yeah I would tell people I would tell people to go follow Ben on Twitter but Ben doesn't have a formal he's probably you know the only person in crypto that doesn't have a Twitter account that we know of maybe one day he'll tell us what his alt account is maybe Deaton Spartan who knows maybe cheers you can email me or send me snail mail [Music]