Olaf Carlson-Wee: Polychain Capital and the Rise of Protocol Tokens (Episode 173)

Transcript

[Music] this episode of epicenter is brought to you by Jax Jax is a userfriendly wallet that works across all your devices and handles both Bitcoin and ether go to jx. and embrace the future of cryptocurrency wallets hi welcome to Center the show which talks about the Technologies projects and startups driving decentralization and the global blockchain Revolution my name is Sebestian qu and my name is Brian pman cran we're here today with Olaf Carlson we he is the founder of Po chain and he

was also the first employee at coinbase so he's been in the space for quite a long time in poly chain for those who haven't seen the news that it has been covered quite a few times recently is kind of a new hedge fund or investment fund that's investing in different I CEOs and different tokens uh so kind of this new Beast of a venture capital hedge fund type institution so thanks so much for coming on Olaf yeah thanks for having me so Olaf you've been uh in the blockchain in the Bitcoin space for a very long time do you mind sharing with us like how do you originally hear about it and how did you get started in this whole field yeah absolutely so I heard about Bitcoin in mid

2011 and pretty pretty much was immediately sort of enamored uh with the technology and kind of the prospects of a true programmatic money source that was controlled basically by nodes on the internet instead of a centralized entity which I think was um obviously a completely new type of technology so I uh became pretty convinced pretty quickly that this was the most important technology that I might see in my life Lifetime and um so I started reading a lot about it and that was kind of yeah summer of 2011 and I kind of went down the rabbit hole there um and you know

wired most of my meager life savings being an indebted college student uh to Japan um to purchase Bitcoin buying Bitcoin with cash and all sorts of things like that so um I decided that I liked the concept so much and was so fascinated by it that I actually wanted to complete my undergraduate thesis on bitcoin so I was going into my senior year at University um that that fall of 2011 and I decided to complete my undergraduate thesis on cryptocurrency at that time what what were you majoring in uh sociology okay interesting and what was

the reception by your thesis the supervisors and the academics there on that topic so it took a bit of convincing to say the least I think at that time Bitcoin was incredibly nent so uh writing a research thesis right on something where there's clearly not a lot of research um from the traditional academic world at least um definitely was a hard cell uh but that said I I I do think that my professors were able to wrap their heads around it and say you know this is obviously very interesting so um given that we kind of grabbed some um Theory from other areas and from uh computer science and kind of Applied

that to bitcoin so was what was the approach then because I mean back back in 2011 this was very much a sort of economic few as an economical experience or uh a computer science experiment experiment what what was your approach from the sociological point of view yeah I was thinking a lot about uh what are the implications um if a kind of nonstate nonbank based internet uh Value store which can communicate between machines were to grow in size by a million times um really what would be the implications there and I think uh we've seen some of

this played out I I think I was probably mostly wrong uh in 2011 I think it's uh the space has expanded a lot more quickly than I anticipated um but yeah it was it was mostly kind of what are the implications for society and for individuals if that happens and then so you went on to live on bitcoin purely for uh for a little while can you tell us a bit about that experience yeah absolutely so when I joined coinbase I opted into being paid exclusively in Bitcoin and I was paid in Bitcoin at coinbase for three and a half years so during that time um it really changes your mentality because it

actually costs money then to exit Bitcoin and go to dollars so your kind of default is is Bitcoin um so during that time as much as possible I was trying to dog food the coinbase product as well and basically interact with our own Merchant partners and like the shift debit card and uh use my mobile bit coin coinbase wallet and things like that so during that time I was paying my rent in Bitcoin and I was purchasing a lot of my very large purchases like planes tickets or um you know hotel rooms with Bitcoin uh then over time you know it was paying my friends in Bitcoin when they would

you know we got out to uh some pizza or something I would have them buy my slice and then I would pay them in kind of peer-to-peer in Bitcoin so I was trying to do that as much as possible I you know I I wasn't um you know 100% uh on bitcoin as in you know there were just pragmatic expenses uh like gasoline or or healthc care or something like that that you just got to pay in dollars so um I was doing that as well so you mentioned the coinbase you joined you were the first employees that correct or what was it like when you how do you end up joining coinbase great question so um I was looking at the at the Bitcoin space very

closely uh throughout 2012 and the Bitcoin price had sort of crashed so to speak um I still felt like the technology was going to change the world and there were not that many companies at that time uh there was not a lot of venture investment in companies and a lot of the companies that did exist I didn't see a a great future for having interacted with a lot of them um you know by purchasing Bitcoin uh I I didn't feel like there was a sophisticated player in the space yet so coinbase came out and I was actually the 30th user of coinbase so I was very early to their website and I liked the product a lot I basically

thought that it was sophisticated and uh it was easy you know I didn't have to do anything complicated and this is going to sound silly to listeners now but I was able to purchase Bitcoin online and uh that was something that coinbase sort of uniquely enabled and at that time the easiest way to buy Bitcoin was really to go to a physical location with cash and purchase it from another person or deposit cash into someone's bank account uh now with coinbase I was able to purchase using a bank account just over my internet connection and that um is actually really hard from coinbase's perspective to accept those

payments via the internet but they were able to do it I received my Bitcoin was able to transfer it off site uh and basically yeah was sold so I cold emailed jobs coinbase.com in about February 2013 and I uh received a reply from Fred the co-founder in about 15 minutes and the rest is history I guess I went in and met Brian and Fred at the time they were working out of an apartment in Soma and had had maybe a seed round of funding about $500,000 or something like that uh spoke to them for a very long time and I think there was a good fit I really liked them quite a bit and uh I thought they had a very long-term Vision

you know for building sort of an Empire which is what I wanted to to be a part of so joined coinbase as the first employee and uh we raised that series a r round of $5 million from Union Square Ventures probably uh two or three months later and with regards to that that vision and sort of the Enthusiast the enthusiasm that you had back then like many of us first coming into Bitcoin were pretty enthusiastic do you think that they've over time stayed true to that Vision yeah so um not you know a ton of people know Brian from coinbase really well he is more dedicated to Bringing cryptocurrency to everyone in the world

than anyone I've ever met so I I think that um Brian being the CEO and founder you know and really being the person who is is driving um the the culture of the company driving the vision of the company um he is extremely focused and dedicated on bringing this 100% to the mainstream and getting Bitcoin on every mobile phone in the world in everyone's pocket whether they have a bank account or not um and really making sure that all of the tooling around cryptocurrency exists so that people can uh really gain um more freedom than they might have otherwise by being able to

both potentially control their own finances as well as um interact with new types of products that maybe weren't possible before cryptocurrency was created so coinbase has been going through a lot of changes too I mean recently they've become more interested in ethereum they launched exchange uh it seems like they are kind of getting interested in the whole uh token sales Ico uh realm what's your view of where the company is at and where it is going so first uh we actually um had vitalic come to the office and sort of tried to recruit him in 2013 uh turned out to be

a great thing that he did not join us because um I'm I'm very happy that he went on to create a theorum instead um but we read the white paper when that came out uh kind of the day it came out and I was kind of following the project the whole time uh but it was really once that the network launched that we started taking it more seriously and um during that time uh I was in a role at coinbase where I was doing work that was a bit more experimental and um I got very very interested in the ethereum ecosystem and just what was possible with this turn complete scripting language and I realized that it was really enabling a

whole Suite of applications that were were much easier or or to do with ethereum or just straight impossible to do with Bitcoin um so you know really one of my last pushes at coinbase was to get them to adopt ethereum this wasn't just me I think Fred uh the co-founder was was also very interested in this handful of other people on the team but um I I do think there were a a handful of people at the company that were really pushing at that um once coinbase adopted ethereum that's when I really realized that the um timing and sort of just General market was ready for something like

polychain um and that was a lot of the inspiration for leaving coinbase in order to start poly chain um but I think overall you know the ethereum ecosystem is really active right now and there's a lot of um experimentation happening there's a lot of interesting work happening in smart contracts and kind of experimental applications run through smart contracts so uh if you're in the crypto space and you're not paying attention to ethereum you're you're missing a lot of where the activity is and so uh coinbase we've always been you know whether it's through our prod it's not usually through the products but more the team looking at that Cutting Edge and um I think in you know ethereum

and icos and this kind of tokenization and ethereum as a token platform uh we've been thinking about that stuff a lot so um yeah I I I think it takes a while sometimes for um coin bases at a very massive scale so to to ship products to 5 million users safely um is difficult so internally um a lot of the discussion is usually months and months ahead of of actual product launches now you mentioned and you know we can probably come back to this later on the show but you know you you mentioned that a lot of the action is in the ethereum space right now and anyone not watching the ethereum space is missing out on a lot um I'm curious I I'm you know I definitely agree with

that I mean we were just at edcon a few weeks ago here in Paris and you know a lot of the enthusiasm the enthusiasm around ethereum sort of you know Echoes uh the enthusiasm that we've seen at a you know uh at the Bitcoin uh Foundation conference uh in Amsterdam or you know any of other conferences around that time um what are your feelings about the Bitcoin space right now where it's at as opposed to like where it may have been a few years ago you know I I think uh Bitcoin is really different in that because it doesn't really enable Smart contracts there isn't an interesting application layer that is on the protocol um it's it's really more about

companies you know private companies building on top of Bitcoin I think historically Bitcoin companies have not been successful if you take like a large swath um there's been 1.4 billion from Venture investors invested in Bitcoin companies and I think I can count on one hand the companies that really have objectively sort of performed well and maybe I can count them on one finger even um if if we're talking about coinbase so I I I think um you know there has been not as much adoption in a lot of the areas people originally thought there might be like say

e-commerce you know Merchant payments um even remittances peer-to-peer remittances for example Le um I don't think have moved very quickly so um all that combined with you know a a sort of toxic meltdown um within the community around debates around the best way to scale the protocol um to me has has created a vacuum for actually something like ethereum to come in and offer what I view as a lot more um Innovation where it's not just competing with existing business models it's not a better remittance or a better bank transfer it's actually enabling new behaviors

that were not possible before when I'm playing Blackjack against a smart contract um that's new to me that's interesting and to me that I see that as kind of the tip of the iceberg right and you know this I this blackjack game might be um a prototype it's slow it's maybe a little buggy um but it is enabling something that just simply was not possible before and that's why it's so interesting to me so I think I think the Bitcoin space is um despite the price Rising I think is stagnating a little bit and I think Bitcoin is increasingly becoming uh mostly sort of an eold or store value and like you know developments like the Bitcoin ETF um if

that were to be passed um would sort of solidify that a bit more so um I think Bitcoin is very interesting still as as eold and as a store of value because that you know I don't mean to belittle that that is a massive use case uh but you know I'm increasingly becoming skeptical of of short or midterm uh Bitcoin empowering a lot of uh the original use cases that people imagined yeah I totally agree I mean it definitely has sort of solidified its position as Eagle now it's unclear where that will go now you know with with with all these debates around block side and what have you and just the the inability for the community I think just to come

to consensus around like these massive issues um you know and that on top of uh sort of bitcoin's inability to uh to to to build these other these other you know interesting applications that we're now seeing with ethereum or you know other types of protocols so um I mean I I I'm I'm still optimistic uh that um you know know the Bitcoin protocol will will last and will hold this position as sort of the um the um leading you know cryptocurrency for for you know payments now whether those will whether it will enable uh micro

payments or not is one question you know uh whether it'll be like a micro payment uh enabling platform or simply doing settlements and and as an eold uh but um but yeah I do have reservations like like yourself and I think I think Brian probably uh has similar views what's what's been interesting I've been recently was tweeting a bunch of times which created this like huge discussions and one of the things that was uh what was interesting when you know when I got into Bitcoin right it was like mid 2013 and then people were saying like oh Bitcoin is you know you can do uh transfer right like for basically nothing to anybody in the world and it

arrives instantly right and then you people were always saying oh the the credit cards they're so expensive and they're ripping people off Etc and now you're having these discussions and people are like no it was never supposed to be cheap that's what I find so fascinating about this whole debate I was watching that whole Twitter storm and to see people totally dismiss uh the instant micro payment you know buying coffee with Bitcoin use case when those same people probably know three years ago were were touting that as the M major functionality and feature is just it's incredible to me well and I mean I think there's a couple things

there one is there's um there's I I think genuinely perhaps unforeseen uh concerns around the scaling of the technology so I think a lot of the people saying this is going to be better than Western Union this is going to be micro payments um I I think we you know some people weren't really thinking about how uh scaling would be addressed because um you know even to reach a global scale you you you need to move to these Layer Two um networks like lightning uh like the lightning Network so I think uh lightning network will work eventually um the the thing is that um there's a huge amount of cognitive

dissonance right when when you signed up for this project you invested money in this project Etc that says um oh we're building a Global electronic cash Network and um suddenly it cost a dollar to send a payment on that Network and it didn't used to I think there's a lot of cognitive distance where you want to kind of justify it or or say that it's all going to as as planned um when I think the reality is no one um is happy right that it costs a dollar instead of a penny uh to you know initiate a Bitcoin transaction but um you know I think it's just something we need to deal with uh and kind of accept the reality of um instead of trying to

redefine uh the goal posts right and and change in our heads what the goal actually was um so yeah I I definitely feel that yeah and another another uh another thing that some guy was arguing was that oh usability right cuz he was like oh it was never supposed to be more user friendly than currencies like there's no chance that cryptocurrency can ever be more use friendly your currency and I also remember right like 2013 people would always show like look if you want to book a flight with a credit card you have to give all this information address Etc how easy is it with Bitcoin to scan a QR code now people are saying like no no it's not supposed to be user friendly yeah moving

the go posts yeah so yeah you you said you you recently left uh coinbase to start Paul chain what is Paul chain and uh what's what's its structure like yeah so uh polychain manages a hedge fund that invests exclusively in protocols so we don't hold shares of any companies we only invest in uh you know cryptocurrencies blockchainbased assets um and other kind of protocol tokens and um when you when you say hedge fund can you for people who aren't familiar with with that how does a hedge fund work yeah so uh basically a hedge

fund has a number of partners that all pull money and then a manager um basically invests that money on behalf of all of the partners um and so so that manager generally has very unique strategy um that that's sort of uh uncorrelated with the market or um you know is is is a better uh it's better at generating alpha or value than um something like passively investing in the S&P or or passively um in this case maybe passively buying Bitcoin and um I mean we're going to get a little bit more into the needy and grey of investment

strategy but I guess to con contextualize this a little bit right one of the challenges and we've had conversations I think also with investors about this a long time ago uh is that VCS for example aren't allowed really or at least for the most part to invest in these assets right so it's kind of this space Also where institutional investors existing institutional investors can't really compete I think um institutional investors you know then there's a lot of different um groups of institutional investors so there's Venture investors there's family offices um there's institutions and endowments um and these are all really

different groups of people that actually have very different um needs and and different legal obligations and things like that um so I think we focus a lot in in the crypto World on Venture Capital um but venture capital is actually a pretty small portion of just kind of the overall investable money that people are trying to deploy um I think if you have very high conviction as one of um a manager of one of these firms in general it is possible to go to your partners and um or your your LPS your limited partners and uh convince them that this is such a big opportunity that we're actually going to um participate here and I think it's it's

perhaps somewhat unusual for um Venture investors to become Partners in a fund um but that's what has happened with polychain uh because there's High conviction here and it you know poly chain as you said can be sort of an Avenue for these investors to gain exposure to this uh asset class without having to purchase them directly So when you say that poly chain will invest in protocols uh give us some examples of types of protocols that you may invest in and and types of um sort of technologies that you wouldn't invest in then yeah absolutely so um I I can only talk about Investments we've made that are that are public um but you know in

the portfolio we of course hold the much larger cap things like um Bitcoin and ethereum uh we also are invested in a lot of uh smaller more emerging protocols um so for example uh mkr or maker is a uh erc20 token on top of ethereum that we made sort of a public investment in uh we also invested in things that aren't um built on ethereum so for example tasos uh which is a also a turing complete blockchain like ethereum but it has some really interesting qualities that differentiate it and I think

provide some usefulness um outside of what ethereum does so um it's really all over the place anything that is based on the blockchain um we can invest in anything that's kind of an open source protocol you'll invest in like lowlevel protocols like ethereum but also applications built on top yes of those protocols yeah well and we yeah any anything that sort of is is um because I you know even those higher level protocols I guess I use the word protocol a little Loosely here uh but yeah we'll invest in application specific tokens as well as low-level protocols okay so you mentioned before that you were just to revisit very briefly what

we were talking before that you were raising some money uh was coming from VCS that essentially use pchain as a sort of Avenue to invest in tokens so how much uh you know what's the size of your fund now and where would you like to take that and do you do you think much of it is going to come from VCS who are interested in this space or are you more what kind of uh investors are you looking for yeah so um we currently have 15 million under management 15 million Us doll um I I think this fund will be capped um at some level um some it's it's hard to say exactly because as the space expands

it actually becomes possible to manage more and more money uh but in this case you know a lot of funds uh hedge funds will grow to billions of dollars in the Cur with the current size of the space this fund's strategy would not scale to that uh so this fund will be capped at some level um I I think most of the investors that are are going to invest in polychain fund are not VCS um and like I said you know most startups are familiar exclusively with Venture investors um but I'm actually I work a lot more closely with fund allocators so these are in general um Family offices so family office is basically a very a

micro investment firm set up by a high- net worth individual to manage their assets and family offices don't have the kind of resources in general that a venture investor does so family offices don't sit take seats on boards um they generally don't want voting rights uh they want to be passive investors so uh family offices are some of the most common Partners in hedge funds they're some of the most common fund allocators especially for emerging funds um you know once once we have say a twoyear track record at that point we can start talking to more uh large scale allocators and these are things like endowments um or foundations managing uh

money but generally speaking Venture investors are actually not who uh we're talking to because Venture investors aren't usually who can allocate to funds yeah I mean of course there's also a little bit of a a bizarre situation with a a venture investor because they're getting money from somebody else and then then they take their like fee for making the right allocations but then they give it to you and you invest it and you take another fee right so it's hard to justify that even yep exactly let's take a short break to talk about Jax Jax is your wallet your complete user interface to cover all your blockchain needs I've been using it and I've been loving it now Jack

supports a lot of different cryptocurrency suppos Bitcoin ether Litecoin ethereum classic zcash or rep and their adding many more keep responding to users needs now with Jack the nice thing is that you can manage all of those coins within a single wallet and you are in control of your own private Keys they're not on their server and there's a single 12 word seed that you can use to back up your wallet all your coins and sync them across different devices talking about devices they're on pretty much any device that you can think of you can get it on PC Mac Linux you can get it on smartphones like Android and Apple an iPhone you can get it on tablets or you can there are even browser

extensions for Chrome and Firefox and on top of that in Jack you can actually exchange different cryptocurrencies for each other because they've integrated a shape shift and more Partnerships and interations are coming down the line in 2017 that are going to make Jax even better so Jax is really making blockchain and cryptocurrencies accessible for the masses easy to use for the masses make sure sure to get your own Jack wallet that Jack at IO or you can get it from any of the app stores you are using we'd like to thank Jacks for their support of epicenter how would you summarize the the investment thesis of poly chain so really broadly speaking and I think many listeners might kind of agree

with this assessment um so the market capitalization of all blockchainbased assets um has grown precipitously um so when I wrote my undergr graduate thesis and published that I think you know early 2012 um the market capitalization was 50 million do of basically all blockchain based assets and um now it's closer to $25 billion dollar um or you know a 500x increase in value and um that's been fantastic growth over the last uh five and five years but I think that um we will continue to see um you know immense

growth in this space so someday I believe that there will be trillions of dollars uh stored in blockchainbased assets and some of this will be sort of native or endogenous to the blockchain some of this will be real world or more traditional types of assets encoded into the blockchain um so we're talking about a a area that is extremely nent and I believe will grow substantially um over the next five or 10 years um that's pretty easy um to see I think a lot of people see that um more specifically though you know how do you invest once you see that um so we're very much interested in the what I would

call sort of the the decentralized or the web 3 internet stack so um when you think about Twitter the protocol competing with Twitter the company um you know that's really exciting to me um and kind of a peer-to-peer sensorless version of Twitter is really exciting to me that's totally Global and not run by specific company but rather is just completely a protocol now the issue there though is that Twitter the company and the platform is built on a massive stack of web technologies that are often sort of invisible to the end user um so this is like HTTP and and kind of being in the browser this is SSL so that your traffic's encrypted um th this is just

kind of your server stack so you're you're interacting with like a Twitter data center um you also have a stable login and and you know identity and reputation on Twitter um all of these are are components of this internet stack that was built long before Twitter and that Twitter sort of had to combine in modular pieces in order to get the Twitter platform um into place so I I think I think it's a little early right now for something like the protocol the reason being that we need things like ipfs and file coin uh things like Gollum um you know which which is a computational Marketplace um things like uport and

kind of identity and reputation systems um we need you know projects like metamask that enable you to interact with smart contracts in the browser you really need this these kind of low-level infrastructure and kind of middleware layer to rebuild that whole web you know the decentralized stack or or the web 3 stack which kind of mimics a lot of the centralized web stack and you need to be able to combine all of that stack in in in kind of modular Parts in order to get the more emergent um Behavior like Twitter the protocol so um to us you know projects that are enabling that distributed or decentralized web stack are very very

interesting yeah I I I totally agree with that I mean one of the things that I often say to people when comparing so you know traditional web Stacks to these decentralized technology stack is if you can look at just about any type of application that we build on web Stacks say an e-commerce website and you know you have a uh an array of stacks right so you can build e-commerce websites on like Magento PHP MySQL Apache Apache Linux you know you can do you can do it like maybe on like a an asp stack and there Stacks that are there and they're validated and tested and they're they work and people use them massively but in the blockchain space you know there are applications there are use cases there are types of things that people are doing but these Stacks are not well

defined um interoperable like the the different layers are not always super interoperable together and a lot of the Technologies are still kind of in a very nent state so I'm I'm I'm really interested in seeing you know those Stacks starting to um starting to form and you know these uh you know like Technologies coming together around specific use cases and people pointing to those as um as sort of you know references on how you build a certain type of app on a blockchain do you do you see some of that starting to emerge uh you know do are there applications where you can see you know sort of stacks uh emerging yeah

and I you know I almost wouldn't call them applications because I think applications sort of assumes um a what I would call like an average or normal end user um I think we're looking at right now more like middleware um so for example something like Gollum um which is a a peer-to-peer Marketplace for computation uh powered by an erc20 token on ethereum called GNT or gum Network token uh I I think that um Gollum to me won't really be used by sort of normal people I view Gollum as being a developer tool so that a developer can build um you know an emergent kind of end user application um and I I think

you know file coin which powers ipfs or the interplanetary file system which is a distributed server architecture um I think similarly you know I I see ipfs really being a tool for developers to build more complicated emergent applications um so I think we're seeing that kind of middleware layer you know and you're seeing that on the not just on the kind of web 3 side but also on the on the financial side so um I think maker uh maker Dow or mkr um you know the ultimate goal of that project is to build a stable cryptocurrency that's fully decentralized and um that to me is is is sort of the equivalent of the kind of

financial middleware right so the a stable coin um in itself isn't necessarily the application it it's really that the stable coin stays stable while you're in escrow waiting for an e-commerce purchase to complete or while you're um giving out a loan right that that the the actual asset you loaned isn't changing in value uh for the duration of that loan so to me um I I view a stable coin also sort of as as that kind of lower level or middleware layer that enables um more advanced end user applications like peer-to-peer loans peer-to-peer credit things like that yeah okay that that makes sense so then you know the stack could be

composed of you know different front-end applications front end um uh tools uh some storage you know a coin uh you know smart Contracting language and then with that you can build you know perhaps some sort of application like I don't know Fidelity point system or like a e-commerce payment system or some something like that um you wrote uh somewhere I read that you that you wrote that we're moving towards a system where smart contracts are like Lego pieces and and in this you know if we if you sort of take this idea of you know Stacks um you know what type of pieces then could we see uh emerging within you know those different application types yeah so um and and the context uh there was we were

talking about the Dow um and kind of you know what went wrong there and I think part of it was um and like the the first person that really talked to me about this um eloquently was Nikolai who's the lead developer behind maker um I I think you know thinking about the architecture of smart contracts is really important and so when you're building a traditional uh web application you you generally want to architect these days the the kind of most premier way to do this is a service oriented architecture or SOA and this is where um you know your architecture of your application isn't on one monolithic code base but is

rather on different um modular parts that each serve a very precise function but that can all interact this means that um if one modular piece fails um like maybe only your site's API goes down but the web interface stays out for all your users um so this is the the benefit of a service oriented architecture is that you don't get catastrophic systemwide failure you know an individual piece can be upgraded or fail or things like that without bringing down the whole system so when we're thinking about how to build really complex um smart contract built based applications like for example a user uh uh you know controlled and owned Venture

firm which is what the Dow was trying to do I don't think um on principle you know that that is an untenable idea I think it's it's technically possible um it's just a question of how to architect that so that it's kind of the safest and I think um The Lego pieces metaphor resonates with me because each smart uh contract can perform a very specific function can be extremely uh battle tested you know both in the field as well as by security researchers it can be very carefully audited um and just used widely such that we can feel confident that that very specific small modular smart contract

works and from there smart contracts can be combined to build more complicated emergent Behavior sort of like Lego pieces um each individual piece is very simple um but when you combine them of course you get sort of very quickly an exponentially Rising number of possible combinations so um I think that's probably um where smart contract you know smart contracts will go in the future is a kind of more modular set of very well battle tested contracts um but we see I think these things are so emergent it's hard to know sometimes there's been a lot of um of this kind of fundamental technology built in the past right that powers the internet HTTP SMTP Etc and it seems like the pattern in the

past was that those protocols weren't monetized but that then on top of it you know people will build Gmail and Google and Twitter and all of those things uh and those would turn out to be big businesses so here right when we're looking at what you were talking about now those would be projects that are kind of more building uh replacing these fundamental uh protocol layers and and then you know you pointed out that okay once those pieces are in place it would be possible to build you know decentralized Gmail decentralized Twitter Etc do you think that in the end we will though see a kind of a shift of where the money is

made and the is created towards the protocol or do you also feel like that the biggest uh returns in the end will be uh on the level of these applications that we build on top but it's just you know it's too early right now so I have a pretty strong opinion on this um I I really do think that in this space the value will be created at the protocol level and not at the application layer um I don't think this is an entirely new idea if you look historically the the best bet in the entire Bitcoin space was Bitcoin the protocol um not any of the specific companies built on top even coinbase which say for the seed round

investors in coinbase that has been an absolutely fabulous return um but when they did that seed round uh Bitcoin was about $5 and if they would have purchased Bitcoin I think they would see pretty similar fabulous return um so to me um this isn't a totally new idea you know and the best investment in the ethereum ecosystem obviously is ether or has been ether historically um more so than it was any investment in any private company built on ethereum so um I think this is starting to be empirically true I think looking forward um when you can bet on the protocol because all applications built on top of

the protocol require you to actually utilize that protocol um I think this means that really disproportionate value goes to that protocol layer more so than the applications built on top of it um and Union Square Ventures who's um one of poly Chain's investors um they have a strong thesis around this as well and um Joel manro who who works at USV and is a a great thinker in this space uh wrote a post about this called um fat protocols and this is about how value in this space is created um more so at the protocol layer than the application layer and what what I would suggest is if you look back in time um at at sort

of the emergence of just the normal web the normal internet um we might think of the best investments as Google Facebook Amazon things like that um I would challenge that if it were possible to own say one% of the tcpip protocol that that actually would have been the best investment you could have made made um because the tcpip protocol or the SMTP protocol or whatever it is um grows in use um for each application built on top so you know that protocol um it it basically becomes more and more valuable with each individual application that's built on top of it um so to me being able to buy ether um and invest in the

protocol of ethereum and basically being you know what is essentially an equity owner in ethereum um is extremely powerful if any of these networks um or protocols becomes ubiquitous on the internet like I believe say ethereum could be um the upside of that investment is astronomical um so even if that probability is viewed as very low um I I think um things like ethereum are a fabulous bet even if you're extremely skeptical because the upside is so great cool excellent no I think that was a well well well put now let's move to one of the topics that's probably on many people's mind which is the topic of

crowd sales and uh and what's often called icos so those have been really uh taking off I think I saw some stats that in the last was it six months or something there was as much money invested in the whole blockchain Space through icos uh as was through traditional VC uh and that that you know probably or maybe this was for last year and that this year you know there a good chance is even going to overtake that what's your view of the current um state of this Ico and crowd sale uh wave so on a very high level I think it's incredibly interesting that we are seeing um what what I would call a

handful of unprecedented effects um and I I'll I'll say what I think those are so one is that um broadly speaking we are seeing open-- Source uh Founders so founders of peer-to-peer open- Source protocols um are able to raise money just to develop their protocol um I think this is absolutely amazing because open source has always been um built usually for ideological reasons um and it it never really has been monetized in this way where you have a great idea um you have an excellent white paper you assemble an excellent exent team and now you can actually uh you know be

monetized to actually bu you know build that protocol build that period per Network um that's had never really happened before Additionally the fact that these teams can take an equity stake in their networks um and actually you know hold some of the tokens for themselves and gain um the upside that looks sort of like a startup founder um when you start a company you know you you're usually the largest Equity owner in that company and if that if you can make that company a 100 times larger you know the value of that Equity goes up by 100 times and I think that we're seeing that effect that kind of economic incentive mechanism from startups uh be mimicked by um open- Source Founders and

I I think that's also a sort of unprecedented Effect one that these projects can get money and two that the creators are really incentivized financially to build a successful project um on the flip side of that and and these kind of crowd sales is that the users of the network are the equity owners of the network so um you know when you're on Twitter or you're on Facebook or you're on Uber or Airbnb Etsy Tumblr whatever um you're contributing to that platform but you do not own that platform somebody else owns it and ultimately is extracting value from all of the interactions between the people on that platform um in the case of these uh peer-to-peer

models um the users are the equity owners and when you contribute value in a sense you also gain a very a piece of that value u based on your Equity ownership so this idea of Founders um of Open Source and peer-to-peer protocols being able to monetize um their networks um to have an equity stake in their Network and also for that Network to be owned by the users all of of these in my mind are pretty much unprecedented effects um and the fact that ethereum has been become really a platform for the launch of digital assets um through the erc20 standard um so that you know developers can focus just on their you

know specific application that this token is powering instead of having to rebuild uh mining algorithms consensus mechanisms and the whole kind of blockchain stack and getting to scale um so that you're your blockchain is secure the fact that all of that is abstracted Away by ethereum and that developers can just focus on the actual digital asset and the mechanics of that uh digital asset is um amazing so to me you know on a really high level I think we're seeing um a lot of Trends here with crowd sales that um are are very big and very important to look at carefully um now all of that said I think these specific mechanisms we're seeing often play out in the space right

now um are pretty basic as in um there's a reason Venture Capital works the way it does and has kind of emerged the way it does so for example when you raise money for a company you don't take one big lump sum and then you know use that money forever um you raise a seed round a series a round series B round and you kind of take Capital at different um different amounts of capital at different uh stages of your company that Mak s and you get diluted in different amounts based on those kinds of round of funding and everything so right now I think with icos we're we're not quite there we're mostly in like a you know hey I'm launching I'm raising money and it's a done deal um and so I I think we're actually going to see the

ecosystem move more towards a uh the the structures that traditional Venture financing created uh because I think I think they were created for a pretty good reason um but yeah I I am as you can probably tell I'm obviously very excited about um the prospects of of monetizing peer-to-peer networks and um really rewarding the creators of those peer-to-peer networks yeah no I think you're put putting out very well and I think you totally right to that raising in different stages and you know not selling all the tokens kind of in one go uh is going to be quite important for projects and and I wouldn't be surprised if you're going to see some some

challenges for projects down the line that you know that waste all that money at once I mean I think even ethereum they got kind of Lucky with The Ether price just taking off uh at the right time but otherwise the ethereum foundation would have run out of money at this point so so given that what is your because you know looking at this from you could look at these projects and you see the amount of money they're raising and kind of stage they're at and often you know if they went to a VC they probably wouldn't be uh far enough and they probably wouldn't be able to raise significant amounts of money or often they might say okay we're

going to maybe invest in a seed seed round kind company but now they're raising maybe 10 million or something do you think that there is a problem of of just too much money going into his projects and then being overvalued so I I have a couple thoughts there so one is that um I think it's great that these projects are being opened up to people outside of venture capital um and I think that it's fantastic that startup style returns um have been given to regular people like purchasers of Bitcoin from the early days purchases of ether in say the crowd sale of ethereum um have seen fantastic

returns and they were not Venture investors um so right now just in a macro environment we're in a place where um you know Venture is limited to a kind of elite group of people uh that all have to be accredited investors or or qualified clients um and and basically have stringent net worth requirements most of these requirements were put in place um after the um Great Depression in like the 30s so um to me that limits all the best investment opportunities or or rather the The Highest Potential upside investment opportunities um to a very exclusive and Elite group of people

um instead with these token sales that it kind of democratizes that access and gives anyone access to these very early stage projects um so maybe what we're seeing is that there's more market demand for these early stage projects than people thought and when you open that up to the to anyone that actually um it's sort of like a Kickstarter style um fund raise where you can raise a little bit from a lot of different people instead of you know a couple huge checks from one or two Venture investors um so maybe there's just more money on the sidelines for early stage projects than people realized um the second thing though is I I do think specifically for some of the projects in the space there

is um in my view a bit of irrational exuberance I would call it around some of these token launches um now that said I I think individuals can disagree with the market but um I I I do trust that um the market is efficient in in some way so um the amount of money being put in here um you know who who knows basically um May maybe some of these projects um end up being THX returns and in that case um the maybe seemingly High valuation at this early stage for a lot of these projects maybe was justified because there was sort of a unicorn so

to speak among them yeah so around you know this idea of irrational exuberance around some of these projects and you I I do do agree that some projects you know we we see all this money flowing in and and there's nothing really behind it or perhaps uh you know technically it's not on solid the projects aren't being built on Solid ground or that kind of thing um do you think that you know at some point we may see some sort of a crowd sale bubble that could affect uh negatively the the price of the underlying assets like Bitcoin and and ether if there's a crowd sale bubble I think we're maybe already past the peak um you know uh with with the Dow and a lot of projects late last year so um you

know I I think it's possible uh I I at the same time though I I think this kind of crowdfunding mechanism um is here to stay and even if there are kind of um waxes and waines or swings in in the activity um I think net net um that irrational exuberance is maybe um it's it's often the the signal of a larger Trend so uh with Bit You could argue say that in Bitcoin in 2013 when the price went to a000 that that was really irrational exuberance um but now I I think we see in hindsight that um a lot of those people maybe were right it's just the timing was maybe off a

little bit um and people were seeing something really big that just wasn't quite production ready that year um but was maybe production ready two or three years out so um yeah I think we could see swings but um I think that this this idea of token launching and and raising money through tokens is here to stay you mentioned the Dao from an an investor perspective what effect do you think that may have have on um their desire to invest in you know in these tokens and future crowd sales so the Dow was extraordinarily intellectually interesting in that um I do think that

future Dows will work and will be a very important part of this ecosystem so I think the unfortunate part of that effect is that it made people um skeptical of the concept of a dow um when I actually think that that's a very important concept um and and a dow just quickly being a decentralized autonomous organization so I think this idea of conferring voting rights and fund allocation based on the community um for a very specific purpose actually you know has its use cases potentially and is a very big idea I think it's a classic example of something that

uniquely enabled by uh this technology and and really wasn't possible before um now that said um I think there was obviously way too much money dumped into the Dow for where it was as a project um and I I think that that should have been like a tiny experiment that got a little bit out of hand um so to me um yeah it it it maybe correctly tempered investors interests and showed them you can't just dump money into anything you have to actually you know still have a very critical lens um when you're examining these projects um but

at the same time you know I I get partially why that happened it's just because the Dow was so intellectually interesting um that it was hard not to participate for some people because they felt like oh I you know I want to be part of the future essentially um even though from an in investor perspective as in was the DOW going to make um spectacular Venture returns probably not and I I think a lot of people probably knew that yeah I mean I I see where you're coming from on the other hand I think to an investor to properly evaluate and assess whether or not a project is technically viable which you know for all intents and purposes the the the Dow uh crash or hack was a was a technical issue I think for most people

who invested in it even observers of the space there was really no way of knowing that that would happen do you think that perhaps this is instilled some sort skep perhaps instilled some skepticism uh for investors to you know maybe invest in some uh really interesting uh projects but because um they don't have the ability or uh the experience to examine them uh technically May uh hinder the space uh with regards to you know raising s of you know Venture money and like money from um not from within the space but yeah like investor money yeah um I think if if it created any skepticism it's healthy

skepticism uh I I think it's really important that people understand what they're investing in uh which I think in the case of the Dow a lot of people really didn't um and and maybe didn't understand the the risk right any investment and anything in in this ecosystem is extraordinarily risky and you know including ethereum including Bitcoin so I I think that um a lot of people maybe forget that do you think that investors really get how risky it is I mean because there's there's obviously sort of the the speculative risk and that sort of stuff but do people when you when when you really start looking into these Technologies I mean even as observers of the space like you know we

can we can say that these are not Battleground tested Technologies like you know we're not really sure what's going to happen when ethereum moves to proof of stake like these do there's enormous risk around all these um projects um uh that we sort of take for granted but do you think people really comprehend the amount of risk I think so I mean I don't know I think some people do others maybe not um you know I I think that the upside is so large and that's one thing that everyone gets um that on some level the risk assessment um is is like it still makes sense to invest in some of these things

even if you think there's a 1% chance of success because the upside is more than 100x in which case if as an investment you know that's a good investment so um I I I think you know and you could even say that about ether itself that you know I consider ethereum very risky um obviously I'm very excited about ethereum I think ethereum um the the upside on the market cap is is massive and I think the probability of failure is it's pretty high too so um you know knowing there's a lot of risk doesn't mean you you shouldn't invest but um yeah I think it's across the board people's different assessment there so before we wrap up here I wanted to ask

you about uh yeah so about Bitcoin and ether these underlying assets uh recently you know we've seen the price of Bitcoin come up to the levels that it was back in the early uh 2014 and even higher and the and also we've seen the price of ethereum of ether uh come up uh to you know sort of like $20 right now uh there's there's a lot of um there's a lot of speculation around you know the these underlying Technologies and that's what's driving the price up when we see more and more apps being developed uh on the core protocols what do you think will drive the price uh of of these core core tokens in the

future I mean just more use cases for real consumers um like real people that aren't kind of weird crypto Geeks um I think that's going to be the key driver is if we can um see something like Twitter the protocol get really big you know because um you users are remunerated um in in a in a creative way and suddenly you get money for retweets and some 14-year-old makes million dollars like um that's big right so um I think it's going to need to at the end of the day of course be kind of scal scaled end user applications um in the meantime though it's it's mostly people betting on the future and betting on

that future sort of speculatively uh based on progress in the ecosystem um and increasing that probability of those end user applications emerging I I think it's it's hard to know exactly what drives um all these prices but I think it's it's often just people realizing how big the potential is here well Olaf uh thanks so much for coming on and and sharing a bit about poly chain in Your Vision today it was super interesting talking with you and I I'm excited to see where the fund goes and where this whole Space goes as well I mean I think you are also at the very very beginning of what's probably going to be a whole

wave of investment funds that are going to pursue similar strategies like you so that's extremely exciting to to learn about yeah and uh thanks for having me and and yeah I do think that this space is seeing unprecedented growth right now so I'm I'm sure there will be many uh other funds doing what I'm doing cool so uh there there are quite a few resources I mean Olaf's articles and some other articles and some of the concepts we've talked about about so we'll link to those in the show notes now uh just one piece of information for our listeners as well so we have you you probably notice we have often been releasing episodes on Tuesday instead of Monday like we used to so we are uh moving to releasing them on Tuesday basically

always and we think we should be able to release them on time that way uh almost always I'm sure sometimes it will be Wednesday still but uh but so yeah so keep a keep a look out for the episodes on Tuesday day and yeah with that we are at the end of our shows thanks so much for tuning in once again uh we are part of the ler Bitcoin Network so you can find this show and other shows on L of bitcoin.com and uh yeah thanks so much if you want to support the show then please leave us an iTunes review and we look forward to being back next week [Music]

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