Fireside Chat: USDC, Crypto Startups and Y Combinator with Nemil Dalal and Kartik Talwar

Transcript

[applause] >> Emil, I've known you for almost a decade. And I've known you in many different roles. And before the YC world started for you, um you famously were the head of Coinbase developer platform. And helped launch USDC especially from getting it from zero to one billion dollars. So my first kind of question to you before we get to the startup world is um walk us through sort of what were those early days like of launching USDC. And was there a playbook for how you kind of thought about getting USDC in front of everybody? Or did you have to figure things out? Or what were kind of some of the learnings from those very early

days? >> Thank you, Garry Tan. It's great to see you. 10 years, I think, we've known each other. It's a homecoming to come back to Ethereum. This is one of the first places that got me into crypto. I still remember in 2015-16 when there was a Time Square party and Joe Lubin hosted that. And they were just about to launch Ethereum. So it's really, really amazing to see. So at Coinbase I spent about seven years. And one of my first roles was leading USDC. I think first of all, what I want to say in crypto circles is that there's a lot of like I think sometimes purity tests. And I think a lot of people in crypto thought it was dumb and crazy that stablecoins were, you know, really it was about Bitcoin replacing everything.

And I actually just like I think the ethos that I have and I think a huge Y Combinator ethos is about just solve problems. And money movement is not solved. There's a huge, huge set of issues around the world today with money movement. And I think the blockchain can do an exceptional job there. And so I would say like we launched USDC in 2018 with Circle. And what is I think interesting at the time was I think one was there's a question of like do stablecoins should they exist? Is there a value to it or isn't the goal of just replace the dollar rather than like make it move better? And I think for us it felt clear that like the stability of the dollar was super valuable. It's a really important property and a lot of people

understood how to accept that. The second part was um that Tether was already big at the time and I remember getting up every morning and look at what the Tether market share was, what the market cap was. And at the time we thought a lot about like how do we come in as a new product in a highly regulated market. So, Tether was in Asia. It had at the time very opaque structure in terms of how it was structured. And we said, you know, how do we compete with that? And I I remember there were two like pushes people had to me at the time. One was um when you see something working, people want you to go do that same thing. And I think that's often a really bad way to think about it, but at the time it was like, oh, Tether's working. Coinbase,

you'd go to Asia, convince Asian investors because that's where all the Asian um exchanges are, uh and all these investors want really high yield, 10 15%. If you can figure out a way to promise them that, that's the way to grow. And so, that was one thing that we thought about. Um and I was like, this sounds crazy. We're like a US-based company who thinks deeply about regulation. How the hell are we ever going to execute something like this? And the second one with that a lot of people talked to me about was, this is amazing. Um so, and let's go sell it to banks. And this was 2018 and to me this was also crazy. And again, I was the one person who came from TradFi. I had worked in finance selling and working within banks. And when I talked to them, they all like looked at me like I was a

crazy person on this crypto thing. Really all they knew about it at the time was Bitcoin. And to them, whenever I would even consider talking about it, it was like, this is a beta dollar. Right? So, it's really hard to sell a really mature market that needs 100% guarantees on everything a beta version of product. And so, in those early months I was like de- deeply debating like what should our product strategy be? And I think my my biggest insight and the other one was Daniel Que, um who was one of the early, you know, early builders on USDC. Our basic insight was there's this amazing, amazing market of DeFi. It's just getting started. And again, this is 2018. And so >> the best you had was Maker DAO with the DAI.

>> Yeah. I think the only like signal then was basically Maker DAO. And I think Compound >> Compound, yeah. >> Compound was just about, I think they'd just raised their round. And I I had been auditing smart contracts for a bunch of teams, uh including DYDX and others. And we're like, this is it. Like, if DeFi's going to grow, they're going to need a dollar. They're going to need really good on and off-ramps. They're going to need something trusted, something that hopefully will hold the one-to-one backing. And so we said, okay, awesome. That's it. And so basically we launched the USDC bootstrap fund. We put a bunch of money into Uniswap. Um I ran into Stani here, um who was running a product called Ethlend at the time. Now Aave. Um and uh DYDX.

And there was a bunch of others that we basically put money into and said, "Hey, we're here to support you. Let us know what we can do. And we want to be the the stable coin of choice." And candidly is a huge testament to I think Circle and Coinbase's partnership to really get it off the ground. And then I'm so excited now that we're talking about banks and all that. This is like really exciting of where how far we've come. But it you have to like think a little differently when you're a challenger. And especially when you're a beta product, you can't just take the strategy of like the large incumbents um and and assume that works for you. >> And that's like a pretty good segway and just thinking about how do you solve problems now as a as a startup. Um I want to jump right into some of the

things that you and YC are curious about to see in the space. But one kind of maybe high-level question is how are you spending your time at YC? What does it mean to be a visiting partner for crypto? Are you working closely with the teams or is it mostly about just the interview phases? What is your role uh as part of the crypto project here? >> Yeah, so for folks who don't know Y Combinator, it's probably the most successful incubator in America. I think 5,000 plus teams have gone through it. Um household names from like Airbnb >> Coinbase. >> and DoorDash. And also Coinbase and Stripe and a lot of others were pushing Axiom and others are pushing the ball forward in crypto. And so, the the vision of YC always was work with founders, support them in various

different ways. So, we offer them $500,000 of initial capital. We offer them a 3-month program, an incubator. There's like a whole social scene around YC where teams help each other. So, there's so many stories of YC startups that started by selling to other YC startups, grew um grew grew grew. And that Stripe is a, you know, really good example of that um as well. And so, at YC these days, what I spend my time doing is one is my first um and deepest love is crypto and financial services. And so, I spend a ton of times with our teams in YC in crypto. And so, historically, there've been about a hundred plus startups that YC's funded so far in crypto. And my instinct is we're going to probably going to 10x that in the next decade. Um and the reason is that crypto is much more than

a niche product um that a few, you know, degens use. Really, I think nearly everyone in the country is going to use it. They just won't realize for a lot of them that they that they're using it. Um and so, I spend a lot of time with these startups um advising them. I talk to uh venture capitalists to help them uh get excited about the some of the startups in our funds. Um I spend time making sure that they get the right products that they need early on. And then there's a lot of just like nuance guidance around crypto. Like, when should you launch a token? Should you launch a token? Et cetera. That like I've had, you know, a decade plus. I think I started in Bitcoin in 2014.

>> every wave of ups and downs and uh just the things that have and haven't worked. And there's a lot of haven't worked. >> Yeah, and I think like one reflection I have, you probably may feel the same way, is like I joke that there's like two types of people in crypto. People who've been through one cycle and people who haven't. And if you've been through one cycle, you get a sense for the highs are never as high as they seem, and a lot of it is made on speculation and hype. Um and the lows are not as low as they seem. And the moments like this when I'm like, this is actually my favorite moment to build because a lot of the tourists are gone. A lot of the people here um are people who really deeply care about what they're building and they're trying to solve real

problems. While I feel like in bull markets, you attract a lot of people who are looking for token up off quick flips all that other stuff. >> No, I actually 100% agree and and one of the things um as ETHGlobal we notice is that um the correlation of how many developers we get at our hackathon goes up when the price is down. Um and uh it always inverses um which is very cuz you see a lot of people sign up but the sign up moves to general conferences but the builder events are always inversely correlated with the price and um it tracks because people are generally excited about technology do not care about any other factors.

They want to just see uh the outcomes. Um and kind of speaking of that, is there something that you're particularly looking for these days? Um kind of looking at the 2026 version of crypto and startups. Is there a wish list that YC's looking for? Do you kind of advise people to do certain categories of products or don't do certain category of products? Uh what is that general guidance look like for where you think the opportunity is? >> Yeah, so I'm actually going to tweet out a ton of ideas over the next few weeks um of what we're specifically excited to fund but I'll maybe give some a few themes that I think are interesting. One is everything related to stablecoins. I think we're excited to fund more stablecoins. We're also excited to fund a whole host of businesses that can be built on top of it. And I think maybe

one feedback for folks is I see probably the most popular case in in this is like stablecoin neobanks. And I think tons of these need to exist. And so I think for those we're often looking for like what is the wedge? >> And when you say that, are you referring to the fact that these need to exist across the world or are you saying that you actually have a case where there should be 50 other neobanks within just the US? >> I think in the US they're going to be like how many banks are there in the US? Like there's going to I think there's going to be a ton of different neobanks with different markets, different positionings. Um I think that because it can often be regulated, they'll definitely have to be different ones for different countries.

Um so think that like that like finance has historically not been a global phenomena. And I think crypto's changing that to some degree, but I think like licenses and things like that regulation mean that each country will also have their own unique takes on it. So, that's just like one massive category that we're excited about. The other big one is just tokenized stuff. And I think stocks is probably maybe the starting point, but I think like debt equity emerging market stocks I like we're looking at ways that we could tokenize YC's investments over time. I think early stage investments will be tokenized. You I mean all the token launches in crypto are early version of that. It just hasn't flowed to the rest of the market.

And then one of the things that I did at Coinbase was launch a protocol called X402. So, a team team and I worked together. We launched that and I think what we saw there was that there's a vision where like it's very clear-cut. Blockchain is an amazing API. It's open access and machines can use APIs really well. So, I think it's just a matter of time between AI meets crypto. I would just say the feedback I have for a lot of people building within that market has been there's a ton of infra. But I feel like before you build Stripe, you have to build like an amazon.com.

And what I mean by that is like a use case that is showing traction that is validating the premise and then like all the devtool and infra stuff matters a ton. And I think we're still in the earliest earliest phases of it. And by the way, the last thing I'll say on that one which is that maybe less popular statement at a crypto conference, but I think that like a lot of the genic finance stuff will probably be agnostic to crypto or credit cards. Like I think X402 now supports credit cards. >> Like HTTP requests do not need to have that context of the payment source in this scenario.

>> Exactly. And so, I think I think like one general mindset of YC that we have which I really enjoy is not about tech first, it's about solving problems first. And whatever Make something people want. Yeah, exactly. Make something people want is a is a slogan. And so whatever solves the problem, we're excited about. So Agent Five to me feels clear-cut. Then I'm like, probably there's some markets where crypto will start early, like smaller transactions are global. And then there other markets where where credit cards will probably have the right to win for now. And maybe over time you could switch out those rails. >> I think that's super helpful. May- maybe I'll ask a follow-up just for clarity and make sure that I didn't misinterpret it.

A lot of the things that you mentioned seem to be more on the side of like a wish list of where you see the opportunity is, but does that also map the type of companies that are applying right now? Or are you seeing a different group or different pattern or different common types of products? >> The the best ideas are ones that surprise us. >> That's fair. >> Like I I I think there's like one um >> I guess maybe I'm indirectly trying to ask where's the saturated space here for this? And if you're For example, if you're seeing one in three companies be a credit card company that's stable coin base, maybe projecting the next 12 months would be a different world where you'll see too much of that and that's not a good place to be in for a startup.

So are there any other patterns for what's common right now that's not on this list? Or just you feel like that might be not the best place to start now cuz somebody already has 6 to 12 month head start. It may not matter at the end, but just generally categorically what is super common? >> So I think the things that we see a lot are like dev tools for crypto, various parts of the stack, like on-ramps, off-ramps is like a really clear example of what we see. I would say from previous years we see a lot less like nodes, like really like foundational infra, more like the wallet level level a little bit higher has been like a big part of what we're seeing. Um we do see a lot of crossover to prediction markets. That's one thing that I that I didn't mention, but like we have a team

called Totalus in our current bunch that lets you parlay on anything. Um and they built on crypto rails. I I think by the way one theme is a lot of these teams in old markets they would have considered some of this crypto now they are a fintech play and crypto is one of the payment exactly >> um how are the founders that you're talking to these days thinking about launching a token or just generally being on the the decentralized side of things versus keeping things very traditional we're seeing less foundations start we're seeing less token launches people remain American basic horse has that affected anything or do you generally give any advice to founders these days >> yeah so

I think in general in bearish markets I think people launch a lot less tokens just cuz price doesn't go up and it's hard to be able to sell it into the market I'll actually like my controversial statement would probably be that like we think people should launch less tokens it's not to say that we think the blockchain is amazing we're going to launch tons of different tokens on it stable coins dead equity all this other stuff but I think a lot of the tokens we see people launching are what I call incentive tokens they're really like incentivized ways to get people to use it with the hope that they're going to use your product because the tokens coming out and I kind of liken that to like a marketing scheme where you're paying people to use your product and so a lot of times when I look at traction

in crypto I often have to decouple what is the token what is the general market and what is the actual reality of the product itself and a lot of other markets you don't have to do that you can just say like is people using it and why but in crypto it's basically like a lot of your these users are kind of like mercenaries who were there because the tokens there they can make money and then that's the only reason they're using it the other issue I have is that the tokens often make a worse user experience so I need a token to interface with it so if imagine for a moment if you'd like to log into Instagram you need a token or to show a wallet or things like that I think it really destroy the usage of a product like that and really kind of close the

size of that market where I think tokens are amazing are L1s L2s D5 protocols especially where there's like some network effect associated with it. So like DFI's are really good example where you need it because there's a market maker and there's the the fact that you want like open governance for it. So like the decentralized nature is a really core to a product like interesting setups we've seen which is yield optimizations cuz you may represent a bigger portion of of some pool. There's a lot of creative use cases in finance. >> Exactly. And I think like maybe that like a foundational thing is that like decentralization matters for certain things. Like in an L1 I think it's insanely crucial, but as a someone who ran USDC, like I think my point of view is like we should solve

pain points, not decentralization just for the sake of it. And I think at L1 it makes a ton of sense. You don't want someone to backdoor to the whole world assets, but that's very different from saying do we want to like make sure that like I don't know, your social network or the every layer on top, is that also decentralized and and what tax comes with that? >> Absolutely. Um I'm going to apologize for putting you up on the spot for this question, but how should founders think about regulation and just harder parts of businesses in finance now that they're doing this in the US.

We have definitely more clarity. We have slightly more optimism around doing crypto businesses legally and and properly. Um should there be things that they should be mindful of? Is there something that you advise that they do or don't do or should people just start launching banks and getting licenses immediately or still be startups where what matters is velocity? How does that change given that things is things are being classified mostly finance? >> So I have a funny story. Um the founder of Kalshi came to YC. He's a YC funded founder. And the story is crazy for anyone in crypto. He spent three years.

All he did was talk to lawyers. Didn't build a product at all. Um eventually like every lawyer told him no other than the hundredth one he talked to. And then eventually the the said no and he sued them. And won, and he launched. And the reason I thought it was really instructive was in crypto, I think the default would have been to say, "After a month, we're done. We're going to go offshore, have a Swiss foundation, and call it a day." And I think that the thing I'd say is that the pain is much harder, but if you're able to do it in certain markets, that is an insane insanely powerful moat. Um and you can't actually operate in those countries without it. And so what I like at least currently in the US is like I think the administration has been much more fair to crypto than I

think maybe historically that like last few years that we have, which is a really exciting thing, but it also doesn't mean there's no regulation. And so the way I think about it is like you basically have a choice. Do you go regulation forward, then you specialize often in one country to start with, um in the EU maybe across a few countries, or do you follow more like a Binance playbook? Do you go offshore, try to grow that way, and then come onshore over time? I think both are viable pathways. Um I think that like the I will say the founders are very different. So when I look for one founder, I don't think they can do the other one, cuz like the default for like a founder who's doing it the right way, like Brian Armstrong has videos from Coinbase in the early years where he was

like, "That's the important thing, to get the regulation, not like my job is to grow it as quickly as >> Not moving fast, breaking things here. >> Yeah. And what I just say is like you don't have to win the entire market. Like Binance and Coinbase both coexist in this world. They're both insanely insanely successful businesses. And so that you can do both. Um and another thing I'd say is like if you're doing a protocol, that's probably like more of an infra layer. Um and you may want to think about it globally, and a foundation makes a ton more sense, and offshore might make more sense. If you're thinking about like the end user UX and things like that, then I think it's more important to be onshore.

>> Amazing. My final question to you is for founders thinking about applying to YC um what should they know? What are some deadlines? What are some next steps? How can they get in touch with you or YC? And um any general advice to founders? >> Yeah. Well, we're super excited if you're a founder building, super excited to talk. Um I'm on Twitter at n e m i l d um and you can ping ping in my DMs. I try to do office hours. I did like about six or seven today. Um so I generally like to come to these events and do that. So I'll be at future uh ETH Global events. Really really excited for that. Um but you can apply at the Y Combinator website. We just wrapped up for our summer batch, but we are starting to think about the fall. So

if you want to apply, you can it's a rolling deadline. You can apply early. And we also have a startup school. I think we have a waitlist now in end of July that's in San Francisco. Um I think the last thing I'd just say is uh we spend a lot of time in the crypto world. There's an amazing world where crypto and AI come together. I think like AI's transforming the interface of finance and I see that pretty consistently. And so I think there's a magic of those worlds meeting. I often find um in New York it's very crypto and finance built and I find in San Francisco is only AI appealed. And there's a part of me that some of the best founders I talked to are actually like kind of putting those together, the right pieces. Not just like not just like a fake pitch, but actually putting

together the stuff that you have. >> that sends you money, but it actually is leverage for the problem you're trying to solve. >> I think like every exchange is probably an AI agent now. Um and that is the trading interface rather than the way that we did it. Um and so that's a really interesting example where like it could be crypto, it could not be crypto as well. Um but we're really excited to have you apply um and and excited to see what happens with the next bull. >> Amazing, Naval. Thank you so much for this chat and please give him a big round of applause. >> Thanks, Arthur.