Why Crypto Funds Have to Become Tech Companies - Ryan Yi, CoinFund

Transcript

[Music] hello and welcome to the blockchain and us we're pioneers and thought leaders talked about their journey in blockchain technology crypto assets and a token economy and I'm your host manuel staggers this episode has support from my very own the blockchain and us a newsletter get an email from me every two weeks with a very short summary of new podcast episodes so you can immediately pick those interviews you'd like to listen to to stay up-to-date just visit www.nasa.gov/twan [Music] he Ryan is an investment analyst at coin fund where he focuses on high-level

research and constructing investment strategies before that he completed his master's in financial math from MIT where he also conducted research on crypto asset class economics with the MIT digital currency initiative and he holds a BA in economics and philosophy from Northwestern University and now to the conversation with Ryan yi hi Ryan and many thanks for taking time today thank you for having me Ryan you're focusing deeply on research in the blockchain space and your work in at coin fund which has some very interesting views on the roles of investors in the future in the blockchain space and but first I'd like

to speak a little bit about your research work so what are you currently investigating sure so a little bit of background on myself you know I I like to kind of you know research is a very broad topic right and especially in the script of space where where you can kind of research many different assets and many different kind of angles of these assets so I would say kind of my primary role at coin fund is that you know because we're an investment firm that in this and kind of all life cycles of assets and projects you know one of our main businesses and and focuses is early

stage investment right so you know I I'm usually kind of like the first line of defense when projects come to us for investment you know I kind of due diligence their product what are the building what's the technology stack that they're considering and also on top of that kind of the token model if there is a token model associated with the product and diligence in that so I would say that's kind of the primary focus of what I do here at Kuni but I think sort of secondarily what I also focus on is is kind of what you touched upon at the beginning is sort of this generalized mining initiative right right so I think there are you know especially for kind

of you know projects that already have liquid tokens or have tokens as part of their as part of that play sort of an important role in the in the function of that product it becomes really interesting because if we kind of take the broader view that decentralized networks essentially are providing services every network has different types of stakeholders and players right so you know if we want to take sort of the base case like Bitcoin for example we have you know very simple if you have Bitcoin miners we have full nodes we have the users we have investors who may also be users and then we have exchanges

where you can you know basically trade Bitcoin for other crypto assets and so you know the thing is that bitcoins you know people are still having debates about what what bitcoins use case is eventually going to be but you can already see that you know in Bitcoin as for the first decentralized network at scale you know we have kind of a diversified set of stakeholders now you know and I think one thing that crypto has been doing which is you know pretty exciting is we are we are kind of coming up with new design iterations of you know the validators of these networks the incentives behind these networks and

how do you actually secure some of these base layer protocol right so you know kind of the first shift that's been kind of happening in mass you know in the second half of this year and I think we'll continue to see into 2019 is to shift from hardware security models so proof-of-work into more capital based security models which is more you know known as proof of stake and so as a fund whose role is you know capital allocators but then these economies interestingly you know it does enter kind of the domain space of not just crypto funds and crypto investors but also you know companies like you know exchanges like coinbase

where a lot of you know their their model is based around capital formation of these assets I think we're gonna begin to see and I think we've already begun to see sort of staking as a service companies you know where they're essentially you know kind of miners but for the staking networks and then we see all sorts of ancillary financial services to support these things like lending markets and borrowing markets and so I think we're still in the early innings and that's kind of a long-winded answer I have a whole bunch of questions on generalized mining that I wanted to to visit a little bit later but let's first speak a little bit about how

you're looking at some of the projects that coin fund is investing and then we'll visit generalized mining in you know what will be the bulk of this conversation so basically when you look at new projects that you may or may not invest in what's most important for you sure so you know I think the first question I always ask is you know why blockchain or why decentralization and there is no kind of like clear-cut answer to that I think it's kind of a case-by-case basis especially you know to the type of product or service that's being offered but you know usually the way you know one of one of the easy answers that I'm know relatively

comfortable with is you know we can use decentralization you know for coordination kind of if we think about the group the reason why sort of the the growth of public blockchains in general is the fact that anybody in the world could come and you don't mind Bitcoin at a certain point right and I think if you wanted to extend that more formally you know with etherium specifically I think aetherium has kind of allowed for you know an entire universe and developers to come in and the community come around different types of standards and you know sort of difference sort of concurrence community guidelines and and

products that are kind of working together right so you know in one of the early answers you know that that I always ask or questions I'm sorry that I ask projects is why blockchain right what type of benefit actually comes from you know decentralizing the specific product or service and you know is it sort of coordination from a global supply level and also is it kind of at the developer base kind of a way to bring global talents in the table as well but those those are all kind of asset tokens right or utility tokens that you're speaking about I mean do you also get people pitching you security tokens straight-up investments right so so I think so that's the second part of

the question right so so the first part of the research process is you know why block shake and why decentralization and then sort of related to that is you know why token and those are actually two very separate questions so you know I think one of the things that we're seeing now is you know we have products that are you know building on top of aetherium that are actually opting not to do or introduce a token into their product right so a lot of these decentralized finance projects like like Dharma like set protocol dy/dx you know you'll actually see that they don't take the view of trying to introduce the token mainly because they think it's actually a big friction for users and you know there may or may not

be value accrual even when you you know introduce a token into that mix right so and then you know I think after why token the next question is like you know how token I guess if you were to describe that right so how does that token actually function within that economy you know if there is adoption of your product is there actual value accrual - the token um and how kind of do you understand that as an investor and they'll just project so I think sort of one point that you touched upon which security tokens is it is exactly kind of early evidence as to why that model can kind of be abused for their incentive

services so my main issue with sort of security tokens and I think one of the questions that people kind of have to ask is you're essentially kind of balancing for income income sheet risk and balance sheet risk and here's what I mean right so the cool part about security tokens is that you know they essentially sell you know some securitized asset you know which is a crypto native or crypto based and it's supposed to you know give you rights to some portion of the income sheet right so why their last revenues or that's profits or you know anywhere in between now you know the thing is that they can

whoever's issuing this can design it in any way that they want so they can you know provide they can basically guarantee very sort of high high percentage of you know let's say revenue - the token holders or they can provide very low percentage of tokens start low percentage of whatever revenues - the token holders and I think what we're seeing early on is that this kind of allows for a lot of financial engineering which may or may not be in the best case of the people at the table so here's an example right so I think recently I was pitched a security token that would provide ten percent of

overall revenues to the product but the actual token they were offering only ten percent of the total why to the investors mmm so what's interesting with that is you know I think most people would kind of look at the utmost researchers would just look at it as you know what's a 10x you know in terms of like the revenue multiple but in actuality if you look at the asset that's being sold it's more like 10% of 10% all right 1% exactly and so so you know that that is kind of more of a conversation around you know if you are you know sort of sharing it not only at kind of like the income sheet level

but also what type of sort of balance sheet risk are you introducing what's kind of the actual implied valuation now I think I think because the models over time are going to become better and I think one of the sort of simple examples that I like to use as to why security tokens are gonna have a market is you know imagine if uber had offered a security token that gave rights to the revenue now that's actually very attractive because you know in the current equity model of uber I'm betting on their operations whereas you know if I got a security token that gave me rights to the revenue I'm purely taking a bet on Hoover's growth right so those are actually two very different I'm sort

of a looook rules and you know can introduce different types of investors that have maybe different risk profiles right and so I think over time something these models will become better but I think sort of in the early innings a lot of them suffer from the type of financial engineering data that no we had just discussed yeah yeah I think that spot-on I'd like to ask a follow-up question on that value accrual to the token and especially I'm interested in the case of tokens that have a utility or are supposed to have a utility at some point in the future how do you go about in you know examining how value could possibly accrue to tokens like these yes so I think it kind of comes

down to like what is the the you know the term utility token it means very different things for many different people and so I kind of kind of shy away from using the word utility token or when I use the word utility token I think I'm purely using it as like a payment token hmm what words that you use what do you think is better I use payment token just because I think there are tokens that can you know be used within a product or service that are not necessarily just you know purely for paying for products and services right so I think the way that I like to ask is so so a couple things right so what exactly is the

interaction between the token and the product and those can mean many different things right so one of one model is and I think we kind of saw this early on was like early altcoin rush which were basically just you know Forks of the Bitcoin code and a lot of that was you know things like you could pay tokens you know for the service provider but you would have to use it within our specific token and you can't use anything else now the the reason why that you know that didn't work for most of the time is you know obviously the volatility of the underlying crypto asset but also what we're getting is you know sort of different coins that people

would maybe want to accept that have more stability and value right so one of the questions I often ask you know sort of these payments open people is you know in the world where stable coins you know have a lot of volume you know as a service provider or as a person that's paying for the service you know what's my incentive to actually use your token right and so it becomes you know in the face of stable coins for example maybe some of the use case sorted the demand for the underlying you know it's just simply payment token might go away now that doesn't mean that there can be no tokens that are used for payment

services that can you know potentially introduce incentives right so I think by neskowin is a great example of a coin that that really kind of got it right in the sense that you know early on a lot of the usage of BMB was for discounts right so if you were a power trader or a power user of Finance and you know you're making many trades per day and you're paying a lot in exchange transaction fees actually there became an incentive at a point where you would actually train in b and b because you would offset a lot of that cost right and so i think early on i think so the discount token use case was sort of sort of a way where in which you know payment tokens

could be made you know available right but the thing is i think we're still in the early days and I think sort of proof mistake tokens or staking tokens is is you know for better for worse is going to be one of the trends that we're gonna see because because I think and at least most models of staking tokens basically value accrual it looks like something that most investors are used to and you know staking tokens if you do stake them basically give you rights to two things all right they give you rights to the underlying protocol inflation so you know let's let's call that the block reward in those cases and they also give you rights to any transaction fees that

are generated on that network which may or may not be in the underlying crypto asset so you know if we were to take out kind of a first variable this almost kind of looks like a discounted cash flow analysis right if you kind of look at okay this is the number of transactions that I'm expected to have on a certain network when we get kind of backtrack that based on you know some kind of discount rate and come to a fair value of the asset if I do stake it today right and then but then the part that it does the part that kind of separates it from most traditional I guess this kind of cash flow analyses is the fact that there is like an underlying yield to the asset in inflation and you know how much that actually affects into price I think is

still to be determined mm-hmm yeah interesting I just wanted to ask what kind of models and economic approaches you know you use to determine the value I mean you just mentioned DCF but I think that's a tough one right because it's very hard to come up with some cash flows if there are currently none all right so so what what kind of models are you using then yeah I mean so you know I the reason I brought up the DCF is more so around this idea of you know everyone's I mean the flaw with the DCF is that everybody can just plug in any

number that they want and and then he does kind of raid and actually where I remember eight numbers at the end exactly and I was in a conversation I forget what somebody and you know I think they're like hey I used this discount rate to value descriptive asset and this other person was valuing the same asset and used a different discount rate and that come up with wildly different numbers for the price sure which was I mean yeah which is missing right but I mean it kind of also comes down to like what kind of vertical are you building it right though so for example you know smart contract platforms you know tend to be kind of a one in which we're we're beginning to

see you know a little bit more competition in Sony etherium abuse is the biggest one out there you know I think with the launch of iOS and the launch of you know today's O's and many of these other platforms like cosmos and polka dot you know if you do believe that one day some of these protocols can compete with aetherium you know you have kind of a sense of you know what what the market cap or you know coin supply cap of ethereum is today and you can kind of backtrack and to give kind of a rough rough estimation of what the market might value so we have DCF we have replacement value what's another good one I mean the I mean there's like I mean there's there's many uh you know

so so for example the likes of with a discount so can model it could be what are people willing to pay you know in terms of services and then based on that is there a certain threshold of discount that that user might want and then through that you can you know kind of backtrack into some sort of fundamental value of that underlying token right so I think all this to say these are just frameworks ultimately it's a case-by-case kind of decision and also it kind of depends on on the vertical right so the truth is not all I would say not one sort of asset is like the same as any other in crypto there's always going to

be differences and you know I think one of the sort of early thoughts is there are also kind of like non quantifiable metrics right so exactly but the theory and today I think you know some of the some of the bull arguments are mainly around the community and you know our team all of us just went to DEFCON a recent one Prague and I think just just being there and seeing this community growing to what it is versus when it you know kind of first launched it's been kind of amazing to see grow right and so that's that's something that I don't know if you could put a dollar value on or maybe the network value one currently and I there may be you know you kind of have to discount other smart contract

platforms in the sense that they do have to build that sense of community over time yeah as well right yeah good point just this morning I had a conversation about Metcalfe's law with somebody the number the square of the number of nodes connected in network is proportional to its value and and I was wondering how do you account for this in a blockchain system yeah I mean well network effects I mean you'd also said it right it's so important to have a good community to have many nodes in a network that support the network and but still right there must be a value to it because one

will be more valuable than the other and and so I've just sometimes I mean I'm just wondering hope I'm not thrilling too hard here but just thought no actually this is kind of the I'm actually glad you bring this up because you know one of the things that we're seeing these days is you know like like I said early we were being you see projects that do not have tokens right and we're actually seeing projects that are building very similar products that have a token equivalent right so you know bank or has bank or token but there's also a project that basically does what bank or does but without a token so it's called unis swap which recently launched and there's neo

different different projects you know also sort of getting with that but that's interesting because I think one of the pro things about not having a token is you know obviously the user experience is is much more better and you don't have to force you know this token upon your users to actually have to go by to interact with the product but having said that you know the con is I think it's tougher to kind of bring investors to the table it's tougher to you know kind of get a community to come around a token that they can all buy and you know get get kind of community support behind and so you know that it kind of is there's there's kind of a delicate middle ground there that I think eventually projects have to decide because I think if you kind of skew too

much focused on the token you know you may introduce you know you might bring speculators to the table that may not actually be a creative to your product and then at the same time you know you might have a project that doesn't have a token and that is their easy to use but you know there may not be a viable business model there you know to produce it long term and so there's some in-between there I don't know exactly what that's going to look like but I can I can bet that we're going to begin to see kind of you know products that are able to build around certain like token communities and then kind of extend from there and I think one of my early pieces is that I think a lot of these

decentralized finance companies like I said we should don't have a token well eventually kind of you know come around you know like the staple token for the defined community so maybe like that's maker down and and they're kind of like the kind of the central token for people to you know actually interact with die and use die as their stable point of choice mm-hmm yeah interesting cool well I mean let's speak a little bit about generalized mining and just before I thought when you said some projects don't have tokens for generalize mining you need a token right I mean it's a whole value proposition there that yet there will be delegated proof of sake and you can somehow earn

tokens by assuming several roles on on the network so you you already briefly described in the India when you when you said what you're working on what generalized mining is but can you just summarize your definition of of generalized mining sure so I would say that's you know the way to look at it is there are many decentralized networks today right and these decentralized networks need different types of participants whether that's on the supply side on the demand side on the investor side and because each system is going to be different the

way that the value accrues to different types of people within those systems is going to be on a case-by-case basis and our view is that and actually we've helped this view for a very long time is if you actually you know wants to be a really good investor into some of these systems you know you can buy the token or you can buy the curricular asset but the other two but you buying the token is really an admission of you understand that economic system really well or that decentralized network really well and you believe that the value might accrue to the token right and so but the thing is that's not always the case and sometimes what when you just like you know passively holding a token you might

be you know diluted because of inflation and the underlying protocol and things of that nature so the way I look at journalize mining is is a very and it's in the in the word it is a very general approach of active participation in networks and the reason why we use the word mining is I think it's kind of an easy way to understand that you know being on the supply side of some of these few centralized networks is a way to gain value right and I think you know it Maine doing a billion dollar IPO is kind of evidence of that kind of value accrual yes that's right so and I actually wanted to touch upon a point that you mentioned a couple minutes ago around around needing a

token for generalized mining I actually disagree right so the way at least here at coin fun and myself look at a generalized mining is that it's more of an opportunity around being able to do service provision to a certain decentralized network and like I said it can be very general so I think the reason why most people equate you know proof of stake or delegate our liquid proof mistake course taking economics with generalized mining is that it's kind of the first iteration of you know a generalized mining strategy and the truth is that you know a lot of the setup that's required to do generalized

mining strategies look very much like you know sending ups taking services so you know just Security tax operations you know having the necessary software and proprietary algorithms that you might want and building a community I think a lot of these taking as a service companies are sort of spitting that out but the way that we look at it is that generalized mining is way bigger and thinking is just kind of like the first iteration of that so for example so maker Dow right maker Dow a stable clean system they if you're familiar with how they actually keep the token stable is you know they have a bunch of

collateralized debt positions in the maker now economy and then there is a certain like threshold that makes that a collateral position risky right and that usually means the underlying the price of the underlying collateral is a you know approaching the liquidation price and so in order to cover the deficit that was created by that collateral position what the system actually does is that they you know put up for auction actually some of the underlying collateral well and you know people in the system can actually bid to buy that collateral usually at a discount or else they just buy it at market price and you know big basically the system will take those proceeds and then be able to cover up any of the debt that

was created by that CVP right so in that sense like that's actually an opportunity to be able to buy underlying collateral assets at a discount and that's actually a way to generate returns but there's actually no you know it's not represented by any like one single token right that's more of an understanding of the underlying economic system and you know so I think so maker Dow is is you know they're launching multi collateral and they're basically providing an update to the type of auction system and which they're calling keepers and you know we we infants you participate in that as well as a fund but that's kind of an example of

something that is not proof of stake but is I consider kind of like in the domain of generalized Mike mmm-hmm interesting that's cool I mean proof of stake or delegated proof of stake alone right it's already hard to wrap one's head around you know what what roles miners or stay curse would take you know in generalized mining but that's that's very interesting what you brought up there so so basically the way I understand it or the way I understood always what what you and Jake Brookman you know meant with a generalized mining was that you have to somehow get involved in the network to combat the dilution of the tokens that you hold and unless you get involved you won't be able to realize the full value off of

the tokens that the network can provide I mean is that correct yeah I think that's I think that's that's definitely a great way to explain it I think the basic definition journalist mining 101 the other way to explain it is and this is kind of the way that I think a coin phone is as kind of taking the approach up is yeah at the end of the day these are all still investment decisions right you know well I don't think it's in our interest to support networks that we don't have a strong investment thesis around right and so you know I'm or I like to look kind of at generalized

mining as more of an extension of sort of the the core investment strategy in terms of neo there are projects out there you know that we support because we think they're building really cool things and you know some of these networks especially in the early days are gonna need aligned stakeholders you know so in a group is a system it will be like the quote/unquote minors or validators of that system or an NIC or dau it might be the people that you know keep the price stable and you know if you can you know as a fund you know are already going to be going along on these assets it kind of makes sense to also you know stake on these networks to get some of the rewards but also to make

sure that you know you are you know participating day to day and kind of understanding what's happening within the ecosystem right and I think I was actually listening to a previous episode of yours that you had with one of our co-workers Alex Vulcan which was basically saying that you know assets are really interesting because holding the actual asset makes you by definition you know have to understand the underlying technology and the actual interaction of like how this asset is used with a certain product right so you know even when you you know I think the hump is a little bit tough for kind of

mainstream folk but you know I think most of the aha moments that I get when I show my friends were not in crypto is you know I will send them some eath and then I'll kind of like open menasor open radar relay for them and then you know they'll actually you know do like a small trade on the decentralized exchange and then at that moment they realized like okay like you know I am more comfortable with like how ether is used within this ecosystem and you know how you know actually going through the process of paying for transactions kind of brings you closer to understanding you know what is this asset how is it being used and then you know then they become more interested in like okay this is a decent trust exchange product

within aetherium what are the other Dex's in ethereum and then the they go down to proverbial radical as many people in crypto go Ryan yeah and I think that's that's what you tend to see is that you know investors or moat a lot of the excitement especially when when I first got into the space was you know it was very easy and I was a graduate student at the time you know it was very easy for me to buy these assets but also once I bought these assets you know I became way more ingrained into you know the happenings of the community what were the new projects that are going on you know the different types of standards within certain ecosystems and so I think you know it's already kind of happened at

the retail level or is beginning to happen at the retail level especially kind of in the early days and basically I look at generalized mining as an institutionalized form of that strategy and it's more around being a very kind of smart investor and you know having a very deep understanding of the products and the economic systems in which you're you're actually supporting yeah so it's almost a research strategy exactly and and and circle last point is you know even games like film or 3d if you're familiar with it so phone with 3d they're very you know briefly was it was basically this game that was built on aetherium and it was kind of like like a Ponzi scheme lottery game where there is

like a timer and if you wanted to basically the game was if you held a certain key when the timer was expired you would have you would basically have like the winning lottery ticket to all the underlying pool of ether that was sent into that pool and the thing is that you have to buy keys with ether and the thing is that there's only ever gonna be one winner and so you're basically betting on the fact that other people are not gonna buy it the key after you write it was this like big game and it was like and you know clearly a Ponzi scheme but you know it was one of the new most viral apps actually of atheria in the second half

eighteen Austrian economics at its best but you know if you actually look at the way the person that won FOMA 3d and i won't go to the into it there sims are some good research that was done but basically the person clogged the etherium network and specifically the blocks that contained transactions from the phone with 3d contract right and so you know if you actually look at how the person wanted it was a person that really deeply understood you know how that contract of was Appa was committing transactions but also a deep understanding of how no aetherium actually minds box right so I kind of look at that and I like to say you know that like winning phone or 3d

or trying to hack that phone with 3d like winning that game is kind of also in the domain of generalized mining right because that is a kind of a way to generate you know extra returns and there is no there's no token part or anything right it's more that it's a more comes from a deep understanding of you know that game and the game theory the technology yeah no I totally understand basically you want proprietary knowledge that you that you gain by being deeply involved in the network but what you just described it's not necessarily supporting the network right making it more sustainable it's more like exploiting the things that you found out so it may be that you know by by doing what what this guy did you know by by doing this trick or whatever

tactics used he may have you know ruined the reputation off off of the underlying blockchain which in this case me you know was was the etherium so you know it was a small risk right that that would happen but the way I always understood generalized mining was that you were actually one to see the network succeed right beyond just financial gains in the short term but you want long-term adoption you want a stronger network so basically you say good I'm operating at a loss or at zero profit at the very beginning but in the long run if I support the network with my generalized mining activities it will see more value streaming to the network yeah I think

that's a great point there's definitely like a loss loss leading aspect of generalized mining especially for early early networks that may not have you know kind of price or market formation behind assets currently but you know you do believe in that in that Network long term but I'm actually glad you brought this up this idea of good money versus bad money mm-hmm right I think one of the things that we have not really seen yet but is definitely going to be an issue as you know some of these sort of capital based security models and the networks that they support grown to maturity is you know this idea of being able to kind of take down a network

right so let's say you know you support this one network and and you're trying to you know kind of attack another network you know can you actually structure because these are all crypto assets at the end of the day can you structure some sort of derivative where there is a large payout for a certain network to be actually attacked and for that you know underlying crypto asset to really follow down in price and so it becomes really kind of sticky because in proof of state systems security is directly correlated to the price of the asset right and so I don't know I think this is a one of those things that you know a lot of people are asked like how our derivatives kind of an attack surface

and you know it what is kind of the the possibility or feasibility of bad money right indicate in the context of generalized mining and I don't think anybody has a good answer yet right because we're still in the early stages that these networks but I think over time what we're gonna see is you know definitely sort of you know actors that are trying new you know if you want to call them good movie or bad money and you know want to kind of profit off of you know things in the network that may or may not be beneficial and I think sort of the answer to that or at least answer that I've I've kind of been thinking in my mind is eventually the network through some sort of governance is gonna have to you know fight off that

sort of bad money derivative kind of attack you know though that that's a question more around how well can you kind of communicate to the community that this is happening you know is is this based on on chain evidence or off chain evidence and the other things of that nature but I think we're still maybe like a year or two years away from that being really kind of a material of risk branya Wow cool let's take a quick break for a message from our sponsors this episode has support from my very own the blockchain and us newsletter get an email from me every two weeks with a very short summary of new podcast episodes so you can immediately pick

those interviews you'd like to listen to to stay up-to-date just visit www.cannainsider.com/careers [Music] that do ya short answer is yes right I think right now you know I think that's advantageous to you know I have a generalized mining strategy I think over time it has to become the status quo because you know let's say there's a

fund that is going along on a certain asset what's called ether and then you know there's a fund that has a generalized mining strategy that's actually been staking ether you know let's assume you know aetherium moves super stake you know and I don't know let's say the underlying price of the asset has some return but the fund that was actually staking that ether has compounding returns on top of that right because they're getting the inflationary reward so just from a Returns perspective you know and staking is kind of like the most basic example of that yeah you can already outperform other funds that are just taking specifically sort of price risk this is a thing is I

don't think funds realize yet that that a lot of value is going to end up going to these types of projects but also like I think projects that we've talked to recently is you know a lot of them are using some form of staking economics and the truth is that you know they want their early station reporters on their early stage investors to be aligned right so what they'll do actually nowadays and and I've noticed this among kind of like the really high quality projects is you know they actually want investors that could stake assets on their on their network especially in early stages and because of regulation you know a lot of these assets are gonna be locked up for a year

at least and so it actually makes sense for that year while it's locked to be staking it as a fund and so you know not only is it kind of like at the at the fun level but also for projects that are looking for investors we've we've gotten feedback that you know there are projects that actually will choose to have investors in their round that can actually be a creative to them and you know provide staking services to actually support that network long term then during the ico craze is that you had all these funds you know that would invest and basically be you know just like flip flip those assets right and just like dump it pump and dump those tokens into the market whereas you know if we're if we you know are trying to

actually build decentralized networks at scale it would make sense that staking is basically skin in the game for funds to actually put their money where their mouth is to you know support these networks no it's it's a very good point and I see I see that point from the perspective of you know a founder of a project of course I would also want an investor like this but you know in reality of course you know if you look at a hedge fund at a Wall Street hedge fund how they operated in the past that's exactly what they didn't want they didn't want any skin in the game and they wanted to be able to you know trade in and out of investments without you know much cost and so what what you're saying there right if funds will

have to have a generalized mining strategy for for their investments or for bulk of their investments that will totally change the way they operate yeah no I totally agree so funds will have to be more like technology companies right they will have to be more like startups like like tech firms instead of insecurely like Wall Street like hedge funds yes totally agree and you know there is actually a really great blog post by my coinbase and it was basically the topic was is coinbase a finance company or is it a technology company all right and you know I think you can kind of extend that to crypto funds because you know that we do live kind of on the capital side of these markets and you know the truth

with crypto and the beauty of crypto is that it's basically a native integration of you know capital and technology and in a way that I think we haven't really sort of experienced before and so as as a fund not only are you allocating capital you're allocating you know your belief in technology and your expertise in underlying economic systems as well and yeah I I would hope that you know a lot of you know investors that are you know you know if the truth is like if you're investing in crypto you're investing in early-stage things and one of the best ways especially in the early stages of a network is to have alignment of your different stakeholders and I think one of the I think one of the good things that are going to come out of you

know sort of ease the proliferation of staking networks is you know a better alignment of those types of stakeholders but I guess the other point that I want to make very briefly is you know proof of stake is a very generic term right and the implementation is going to be very different depending on the system and so as a fund you know you also have to do that research internally about which networks actually makes sense and what type of risk that you actually want to take and you know I think you kind of touched upon this where you know it sounds expensive for fun to actually roll out a generalized mining strategy and it's true right because there's all sorts of operational nightmares that come with a generalized mining

initiative you know I think the easiest one to mention is probably tax right so let's say you could get you state your assets and you get some some rewards of the inflation you know how are you considering that from a tax perspective all right is I can come most of the time right it's exactly like fun doesn't want or cannot have also some funds are not allowed to you know book any income exactly and and there's a you know there's I think the tax classification of crypto still can definitely improve especially in their us but you know do we tax how do we look at taxing you know inflation rewards and proof of stake systems especially if

they are non-transferable right do we we tax them almost like stock options that best over time right because so so there's a lot of questions and also operationally you know what one thing was thinking is that there is a slashing component mmm-hmm you know you you are taking that risk if you if you want to especially for a network that has very strict slashing requirements you know I think lp's when they look at investments that lose in price they they kind of understand that but I don't think they're ever used to seeing you know you actually losing the underlying asset you know and it's not because of a ruse other securities because of you know you you behaved wrongly or you didn't participate actively enough on a certain

network so there's also that issue too right so exactly this there's a lot there's a lot of education that has to be going around because it is a huge there's a lot of operational questions that funds have to ask and I think that's kind of the reason why you know this it might take a little bit longer for other funds to do it but I kind of see that as kind of our medium-term advantage here at Coyne fun because as we've been asking those questions for a while and we've we've you know done done a lot of research to service economies in this way mmm cool have you seen a difference in in flows you know since you started writing about generalized mining and since you you know adopted

that as part of your strategy well I think it's it's more I mean I think what we're seeing now is in general especially in a bear market where you know the actual prices on these underlying assets are you know relatively flat at least for the you know the 3d of the past few months you know as a fun like you have tools to generate returns in other ways right and also you know like I said to to the point about projects that are actually want aligned investors you know we we've definitely on that feedback and have been able to investment projects that because we kind of fit that profile of the investor that

they like and also I think and and I believe Jake wrote a blog post about this but for life year so life peer was the case study that we did and it's kind of uh it's a it's an early case study around generalize mining where we were actually able to access you know life pure tokens through their Merkel my process which was entirely you know done via sort of a technology route and it wasn't kind of just like a typical investor round where they sold tokens for money Viesturs what did you have to do to to qualify for that yeah so so basically specifically with the Merkel mine process it was a way for there was a way

to basically do distribution of LPT to people that actually wanted it right so it was almost like a reverse airdrop so you know the way it works is like if you had a theory mattress at a certain block height with a certain amount of eath so I think it was like if you had anything above 0.1 ether could actually submit a merkel proof which shows that you know you have that II that a certain block height at the Sur of your address and you could actually submit that to the live pure smart contract and that smart contract would mint you I think 2.4 l PT right and so what happened is the regular users were able to do that but eventually the life care

team opened it up so that you could actually Merkel my other life peer addresses so it would be like you know I see there are these number of addresses that have this amount of eath I can actually submit Merkel proofs on behalf of them and I can actually get a cut of the LPT that they receive mm-hmm right so and what did that do for the network well you know first of all it increased distribution to people that may not have a LPT before but also they were launching I believe there like that they're there in sort of the early stages back of actually launching the life peer economics so there was a way for people to you know actually get

get exposure to LPT and then also stake it on the LPT front end which is explore until life peer org so you know it actually brought a lot more exposure to LPT i believe their last community called they were saying you know a couple months ago they would have to explain life care to people but now just a general exposure in general understanding of what life here is has increased exponentially right so and i think that that's also kind of a case study where it was a way to get access to LPT tokens but not necessarily you know having to participate in like a sort of venture around and you can

actually you know gain gain exposure to that network interesting you know one one argument i often have with people is where is the line between giving incentives in a decentralized protocol to people and early adopters who support it and some kind of central planning you know where an all-knowing a planner doles out you know parts for people to play to to make sure that the economy works i mean took because i think this is my mmm if this were the case this would be a stark contrast to the promise of what many blockchain projects are making you know which is that they're creating a decentralized market driven economy so what's your view on this yeah

and no that's so that's a great point i think the way that I would describe that is you know they were different they're they're different life cycles to do centralized networks and I still think we're so in the early days and the truth is that you know these are companies that look like startups that are trying to create these centralized networks all right so you know that's there's a live care team you know they they have a you know a team of I forget how large the team is now but you know this is a team of people you know and I would say in general people you know it's relatively centralized today but basically the hope is that over time that it becomes

decentralized and there are more different types of participants in the network and also I really like the fact that you brought up this point of who knows what's actually best for the network right so you know I often look at I remember especially with the whole sec with 2x debate that was happening in the Bitcoin community you know there are a lot of it basically came down to people that were saying no no tattoo X you know who were you know actual Bitcoin core devs and people that didn't want sort of outside influence and then you had you know the exchanges like coinbase that I were actually saying no we should increase the block size to 2x and you know history showed that actually you know it may never shifted

to 2x but it kind of in hindsight was very important for a Bitcoin because it showed that Bitcoin was really kind of been immutable technology right where you know a lot of it wasn't going to budge based on the kind of extra X or external influence you know you know companies like neo the relatively bigger companies and in that case you know I don't know whether or not they'll coinbase was correct or wrong in that case but you know you could say that you know maybe they didn't understand you know the company in that case you know maybe didn't understand what was going to be the long-term yeah what was going to be the actual appropriate take

plan and this is really interesting because I think philosophically speaking a lot of like blockchain services or products some believe should be public goods right and if you actually consider some of the products that are being built on blockchain and the martians that they're taking some of them are actually creat are you know obviously less efficient than a lot of centralized products and so for example in maker dow there is around a 2.5 I believe percent fee that you have to pay to essentially take out a loan and you know that might be that might be cheaper for for some systems and that that might be more expensive for other products but you know I think I think

over time what's gonna have to happen is you know when there's more competition and when there's no more competing products it's gonna kind of have to come down to the community whether or not they want to operate at costs right and that that is actually a really really interesting point because I mean I don't think we're there yet I think we're still kind of in the early stages we're still bootstrapping these networks and we're trying to get people to come to the table but eventually this is a question that you know people around that are supporting that economy are gonna have to ask themselves and I think over it and it becomes really interesting because you know we're talking about products but you know even with tokens right like how is the functionality of a token gonna change over time I think like so so finance

coin B&B actually started off as a discount token but Finance you know realize they wanted to give more value back to their users and they actually incorporated this you know buy and burn mechanism we're essentially holding B&B you know gave you kind of rights to the underlying equity of - or at least a profits of is great and so that's interesting because that was actually a way in which the dimension of that crypto asset actually changed right and introduced new angle but the thing is it was done by a centralized company by finance and it's gonna be interesting to see how you know over time if these crypto asses to do change in behavior as

the network changes and grows and requires you know new types of dimensions you know how robust and how kind of agile will the community be in being able to determine the changes to that asset right and that's that's the question I think a lot of people is it's gonna be a bigger issue I think as these networks begins to kind of hit you know high growth and and you know bring in a lot more participants and a lot more obviously demand and usage yeah yeah exactly what you said before I actually disagree with the narrative of many of the blockchain projects being public goods I think that is that may be a story that they're telling but

in effect I think what's happening is that previously unpriced assets can now have a price and you can now price markets that previously you just couldn't because it there were no economics to do so mm-hm and you know for example look at air look at water I think everybody would pay like a little bit to be sure that they have clean water you wouldn't want to pay like peak pricing like an uber were all of a sudden it costs $100 for a cab right that usually cost like 15 but but if you said look we can now have like micro payments that ensure that these public goods will function I think many many

people would be happy to pay them especially if they're small enough and I think it's just a question of pricing these on price assets yeah no totally agree and you know I think you definitely hit the point well there yeah and and I agree it's like it's you know in the upper case right you know we've we've heard of like decentralize over you know or for a very long time but you know in that case how does that community actually come up and determine the type of pricing you know over time as that you know grows and scale and you know there are there's definitely governance component to it and I think you know we're still gonna there's gonna

be a lot of experimentation on that front but you know I think going forward especially as a fund you know we different networks are gonna grow at different rates and I think one of the great things about you know sort of generalized mining is that you know you get to kind of be really at like the front row seat of how these networks are going to change over time you know what are the type of dynamics and how replicable are those trends across different networks and I think it's it's it's just the beginning and so I do agree though III like how you describe that Ryan we're almost out of time I mean I just have a few more questions what are you learning at the moment Oh

I'm learning to be a little bit more patience hard to be all ever need that yeah but I think it's it's more rounds you know especially in this space so many things change and a lot of assumptions that you might have held because everything is so connected you know just the smallest change in something that happens can kind of affect your thinking of many different lines and so I think it's just being paid being able to stay patient with with how you approach things you know

and even if a lot of sort of things are changing that may affect that may have affected your original thinking it's kind of around okay you know how high conviction do I have still in this specific idea and how patient am I going to be with this idea as well right and so I think yeah I'm learning learning that the second thing is I'm learning how important the kind of lifecycle understanding kind of like where the lifecycle of these assets are mm-hmm right I think the point that you said about you know pricing on price assets is kind of the reason why you know trying to come up trying to justify a certain

price and this was actually relates for our conversation or evaluation a certain crypto assets can be so difficult at times right it's like because who can actually say that ether is worth you know 21 billion dollars in the new coin market cap right and you know over time its kind of around time around you know so there are the other thing I'm learning is the role of centralized companies that are gonna be playing in this in this space going forward you know where you know the companies like coinbase and coin lists and circle and you know as as the space which was now mainly the digital realm starts to enter you know the actual world you know what

type of interaction are gonna come and what we're kind of the friction points and the pressure points that are gonna come out of that and how do how does that change over time as these networks which are mostly in their early stages begin to really mature and grow right and so I think you know I'm sure you heard this week about the news of ether Delta you know I don't think a lot of people were necessarily surprised at you know kind of the SCC's position but it kind of sparked all sorts of very interesting questions around you know can you know actual developers that create these contracts be held liable right and I think that's I don't know it's it's interesting and I

I don't have necessarily good answer and maybe that's yeah that's let this last thing is that I don't have a lot of answers I can only ask I can know the best I can do is maybe ask to write questions or the types of questions that can eventually lead to some sort of insight but you know I it's kind of hard for me to you know very stick steadfast to one type of belief because the the the space is always changing and so just always being open as well absolutely more research is necessary Ryan what scares you about the future oh man [Music]

I'm scared of what's the role of you know one of the big arguments for pro crypto is the fact that people are you know coming to distrust institutions lot right and not only is there kind of distrust from people into the countries that they live in but also into you know the systems of belief that they had held for so long not only that there's distrust between countries as well right so I you know that there seems to be in the air at least a lot of you know tensions between alliances between different countries as well and also you know having grown up in Korea you know a large part of like the Korean sort of

political system is that allegiance to America for the longest time but economically speaking now a lot of that is coming into conflict with the type of trade that Korea can do with China right and so you know people like to say all crypto will succeed because you know the political nation states and their role of like money systems is gonna fail well that's not necessarily like we're sacrificing a lot of stability to get that and so you know I still do believe that's that's kind of the direction that we are heading in but I don't know there's gonna be a lot of pain felt by different people and I'm

also scared kind of broadly related that kind of like the technology evangelism of crypto I think people just assume that you know if crypto succeeds the world will you know fine world peace or something but I don't necessarily think that's the case you know the truth is a lot of the capital formation and the you know the people that got rich in crypto you know if they did surveys is like most of them are like you know young 20 year old and you know males like in their 20s know engineering types and so the other thing is like I'm scared that maybe you know the use the use of crypto which was intended to be more so around you know being able to create really

great systems especially for kind of developing economies that hadn't developed those yet I wonder if we're kind of just training down the wrong path and and how much capital can actually ruin a lot of this industry in the in census United yeah good point what what can be done you know about this that were actually not treading down the wrong path I don't know I don't have a good answer I think what happens is I think the second that you can kind of get like actual usage and adoption of these products I think that's when we're gonna

see you know at least people that are gonna value those types of products may or may not be more skewed towards places that don't already have alternative solutions right so one of the arguments for Bitcoin is like oh you know the you know for most people let's say in like the Western Hemisphere like in Europe in America you know bitcoin is kind of just like an investment on the side that people have whereas you know people maybe in developing countries or people or in countries that have very strict capital controls Bitcoin is actually a way for them to store their wealth you know and find kind of hedge against the national currency of their system and so I think it's one of those things where

you know Bitcoin adoption is is one conversation but just adoption of different types of crypto assets and how much efficiency they unlock you know can you actually get this adopted in places where this is you know kind of the only thing that they know and it's actually the most kind of efficient iteration of what they would have known all right and so that's that that would be my hope but I think to be fair we're still in the early days of all this stuff let's let's kind of eke out the the complexities of the technology and eke out complexities of the only actual user experience and hopefully we can get more adoption because that the end of the day crypto

products are local products right and yeah I would hope that that continues and we actually start to get more adoption kind of outside of I guess more and more advanced economies of the world yeah yeah absolutely I hope that to Ryan where can people find you you can follow me on Twitter that's you Ryan I I don't really tweet that much I mostly retweet and you know I occasionally write on the coin phone blog yeah I'm around relatively open but you know I think one thing lately I've

been slacking on is writing so I'll be making sure to do that over the next few months okay cool fantastic looking forward to it Brian this was great and I really appreciate your taking time awesome thank you I know thanks so much for joining us today more info on our guests and our sponsors it's in the show notes of this episode and on a podcast website the blockchain and ask.com to help people find this podcast it's important that you download subscribe and give it a top rating and review on iTunes or on the podcast platform of your choice I'm Manuel daggers and I thank you very much for listening [Music]