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Hello and welcome everyone. I'm Patrick O'Shaughnessy, and this is invest like the best
just this show is an open-ended
exploration of markets ideas stories and
strategies that will help you better
invest both your time and your money invest like the best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts show notes and other resources to keep learning at join Colossus.com Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management, all opinions expressed by Patrick and podcast guests are
Leave their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions clients of O'Shaughnessy Asset Management, May maintain positions in the Securities discussed in this podcast, I guess today is Chris Dixon a general partner at Andreessen Horowitz. Chris is a prolific investor and thinker having been an entrepreneur angel investor and now focused on investing in crypto and blockchain at Andreessen Horowitz.
It's our conversation focuses on Chris's overall thesis for investing in the cryptocurrency space the opportunities and limitations of blockchain applications. And why this is the most interesting area for investing in building over the next ten years. We cover it all base protocols defy and FTS social coins and the future of the internet. I hope you enjoy this wide-ranging and fascinating conversation with Chris Dixon. So Chris, I think the best place to begin probably would be for you to out.
Line what I'll call your overall thesis or sort of philosophy of investing in the cryptocurrency space. You've been doing it for a long time. I think it's a comprehensive approach. You're not just attacking one part of the ecosystem. So maybe just frame this whole thing up for us to begin and then we'll dive into the details.
If you kind of look back at the last instead of the Advent puking in the World War II era. There's basically every 10 to 15 years is a new kind of major Computing cycle. So you had early Computing had mainframes and mini-computers PCs and the 1980s or so internet.
Developed commercial loan. And in the 90s mobile phones late 2000s the sort of an obvious question if you're in technology or investing like I am is what's next. There's one possibility. It's sort of it's the end of this cycle try to sort of a mature industry. Now, if you look at other Industries electricity and cars and other things like there was a period of Rapid change and then at some point they can stabilized that's one hypothesis. I don't believe that but that's one view you could have another view is maybe the next wave of computing is artificial intelligence or
To reality I personally and we as a firm or very excited about all of those categories, I believe personally that the most exciting new Computing wave is blockchains and crypto and working in that area for a long time. I'd let our investment in coinbase back in 2013 and reached her wits and did some other crypto related investing and then I'd say four or five years ago decided to go full time into it said this is the thing. This is what I want to do we spun out a separate crypto fund. We're now on our second.
Tiptoe fund which I co-lead we have a whole team kind of built around that and do that full time. And I do that because I believe that a blockchain if you take something like a theorem the theorem is a computer. It's a computer that happens to be instantiated by running on top of a network. There are things called minors and will soon be called validators in the new version of ethereum who are the actual computers the physical computers that run the code, but the way that a blockchain works is those computers come together and create kind of a virtualized layer on top.
Has new properties that prior kinds of computers didn't have and let you do new things and new capabilities and basically unlock new things. I mean people I'm sure occurred about things like cryptocurrency, which is one of the applications of a blockchain and ftes which people may have heard of now are another one that it was a whole bunch of other really interesting thing smart contracts defy Dows talk about all these things. And these are things you couldn't do for a variety of reasons technical reasons. You couldn't do on a traditional Computing architecture. So I believe is your new computers and there's all
sorts of interesting opportunities for both investors and entrepreneurs to just like other Computing waves to invest it both the infrastructure in the application layer to create new products. Probably a lot of the things that are exciting when we look back 10 years from now will be things. I don't mention today or no one's mentioned frankly if you went back to by analogy at let's say this is 2008 in the iPhone just came out and I sat there and said what's going to be exciting about an iPhone. I probably would have analogize from the PC and I would have said, oh you're going to stocks and weather and word processing who knew.
Like ephemeral photo messaging and calling a taxi and stream of tick-tock Dance videos and all these things actually happen. We're much harder to predict because tens of thousands of really smart entrepreneurs are always gonna do a better job building the future then somebody like me pontificating. I'm sure there's a whole bunch of really exciting things you can do with these new computers. We've already seen a bunch of really exciting things. I think will be many more that's kind of our broad why we're so excited why we're doing it we think of it very much in this tradition of the internet PCS mobile phones as opposed to when you read some of the press.
S they kind of put it more in the context of Finance or something. There are Financial aspects to it. But I think I believe it its core. It's a Computing movement.
I love the mobile analogy because if you think about what was new about this new computer platform that enabled some of these things that ended up being winning like geolocation data is a great example just taxis like that enabled that it was a new feature that didn't exist in Prior Computing platforms. What is the same thing for blockchains? What is the new enabling feature or features like geolocation? That makes us excited.
Familiar blockchain lets you do is it lets you write code that can make strong commitments about how it will behave in the future to give you an example. Most obvious one is Bitcoin. So Bitcoin to the extent it has value that is enabled by the scarcity of Bitcoins. There will only ever be 21 million Bitcoins that property of saying there's only going to be 21 million is guaranteed by the blockchain does not guaranteed by the creators of Bitcoin. It's not guaranteed by the developers Bitcoin by Satoshi Nakamoto. It's guaranteed by the
Very Network architecture that never existed before before if Google said I'm going to have Google coin and Google coin will only have 21 million coins. They could just change that every server that runs at Facebook and Google and Amazon that's just controlled by some person ultimately and that person can change the rules. And by the way, it has all sorts of consequences including the fact that no one has ever created a digital currency prior to bitcoin that anyone really had large bleedin and that's part of why they didn't believe in it because they said well, you'll just change the rules. Why would I believe that this is really fundamentally.
There's bit go guarantees that if you own a Bitcoin and you have the private key, it's your Bitcoin it guarantees. There's only 21 million Bitcoins it'll ever exist it guarantees. You can't double spend a Bitcoin makes various guarantees that are essential to that system those coins having value, but that's only one of the things you can guarantee you can do other things so you can guarantee if you own a good and if T if I go and buy this digital good this piece of art this Top Shot basketball card. I truly own it. It doesn't matter if the company behind it changes their mind.
Mind it doesn't matter if whatever they can't go and change the take rate or charge you more rant or take it away from you or have a new season the where it goes away ask anyone who buys virtual goods and video games and they'll all tell you stories about how things changed and they faded out this thing or the game went away or whatever here. It's a very different thing where the user controls it and that's guaranteed by the block to another thing you can do with I call a computers that can be commitments blockchain is you can make commitments the developers. If you kind of go back in history of tech you can ask questions.
Why was the web so successful one of the reasons the web the early web 90s web the internet? Why was it so successful one reason? It's so successful. It was built on open protocols. It made implicitly commitments to developers if your Google and you wrote Sergey and Larry creating their search engine knew that the protocols they were building on wouldn't change the rules and say, you know what we're going to demote you or charge you more or so, they couldn't because we're open protocols because they were open protocols. There's a Level Playing Field upon which entrepreneurs can build there was a man.
Massive wave of innovation investment Etc. Right because people knew this was like a Level Playing Field. It's kind of analogous to you're more likely to invest in a country like the United States where you feel like there's a consistent rule of law. Then you are in a let's call it a developing country with a dictatorship or they might just privatize the assets. It's just a basic rule of Economics that people are more willing to invest and spend time on and money on platforms or countries or whatever your LG is where there's predictable rules. So the Webhead predictable rules fast-forward you talk to Zynga talk to all the different people who built
He's on top of Twitter. There's been a 15-year period where Fortnight for example, which is not available in the IOS app store today and having a big public battle over it because of the way that Apple charges for things and all of their kind of capricious rules and whimsically banning people and all sorts of other things that Apple does there's a long long history of platforms changing the rules changing the take rates changing the apis ETC with block change its like the web was it's a predictable consistent set of rules that simply can't change. We like to say
So instead of don't be evil. It's can't be evil. It cannot change the rules by the way related to that is you can't change the rules on users. So we're seeing for example a wave of social networks built on blockchains. Now where the rules around moderation you platforming all these other things are baked into the system. They're baked into the code and they have governance built in from day one. They have moderation built in and it's done in a democratic open way. You may think that's a good or bad feature. I would argue that almost anything is better than an opaque group of product managers in San
Just go making those rules. I think clearly we need moderation on social network doesn't example, I don't think that the current way to do it is a very good way to do it. I think most people probably agree with that of when they think about it. The fundamental thing that watching can do is you can make commitments commitments can be around the scarcity of a currency. They can be around the properties of an mft or a digital good that you own they can be commitments to developers that say we're going to have a Level Playing Field you can build on and they can be all sorts of other new things every day. We see interesting things. Like there's sort of this emerging area called dowels which are decentralized.
As autonomous organizations, which essentially are taking advantage of these features blockchains where you can make commitments and essentially building a set of smart contracts that kind of looks like a Delaware c-corporation traditional company, but one that exists solely and software and it makes commitments. If you're a member of that corporation quote-unquote that Dow that you have certain rights and certain responsibilities and the code guarantees that that's a very New Concept another brand new thing a blockchain can do is it can actually a piece of code and this is very hard to grok it first. Is it a piece of code can
Have money contain money and hold money. The code itself is not a bank is not a proxy is not a pointer to money. If you hold money at Chase the code doesn't hold the money to code holds a number and the money is held somewhere else. It's all data Bank code before blockchains cannot hold money. There's a protocol called compound is an example, which is a lending protocol built on a theory emits in this category of people called defy decentralized finance and that protocol I haven't checked the stats today. I think it's something like 10 billion dollars is held by the code the people that created compound could go
Tomorrow they could disappear the code will still run the code itself has money by the codon of the money. It also is doing this very interesting thing in the case of compound where it's basically a money market kind of protocol where you can either lend money to the protocol or borrow money from the protocol and it dynamically sets the supply and demand the interest rates and things like that. But the code itself does it that's a very interesting New Concept. That's what this area called DPI, which I'm sure we'll talk about today. And by the way to the mobile analogy one of the things when you look at the history of computing whenever a new Computing platform comes out there are new things.
They can do and there are also severe weaknesses to those new computer. So let's take early mobile phones May behoove. Your listeners had the first iPhone iPad and iPhone from the first aid came out. I'm one of these people that does that for three years. I carried around two phones because my Verizon flip phone actually was able to connect to the cellular network in my eyes and I dropped it. But I love my iPhone people forget this now, but it's kind of funny. I actually have my original iPhone was look like a postage stamp is Tiny it disconnected from cellular constantly. I don't know it had like four apps YouTube Maps like something else it was
Nothing like today. I mean it's nothing like today but it was like this magical Star Trek computer. You carried her in your pocket and it was beautiful and it looked amazing and it just new touch interface. And then of course what happened is you got this flywheel that started where Silicon Valley developers and entrepreneurs people all over the world, whatever sort of building cool apps for it that in turn meant they sold more iPhones which gave Apple more money to reinvest in the whole supply chain to reinvest the chips got better in the cameras got better and all these other things and so that of course those kind of shortcomings got taken care of.
Meanwhile, so going back to 2008 you had this computer that was a super computer. It was sitting in your pocket it had as you mentioned GPS. It had a camera built in had touch interface and it had all these new properties, but to really understand the iPhone 2008 you had to fast forward and had to imagine two things you had to imagine the weaknesses of the computer got mitigated. You got faster the content. They got better Etc. And then you had to imagine what's actually harder to imagine which is entrepreneurs will take these new features like GPS and come up with crazy new ideas that
Have a big impact on the world like uber and Lyft. For example, I would argue if you ranked and I was there. I remember this very clearly if you took a smart person in 2009 and ask them for 2010 and asked them to rank all the different things. You might do some day with GPS chip. Most people would not have had calling a car as the killer app. There were all sorts of other things people would have had the point just being it's hard to predict but entrepreneurs will eventually figure it out and the key, I think when you're investing is focusing on the things that are novel and do about it you look at it.
They're popular - today. They're either generally one of two things. They're either things that existed before the iPhone Facebook and Amazon, right? Those are still very popular applications on them on the iPhone or frankly the things that take advantage of the new capabilities. It didn't exist before Snapchat ephemeral messaging the phone Instagram. And Snapchat right is having a camera with you at all times and in a very personal consumption experience of the photos right on your phone Uber and Lyft Etc. Like all these things are just simply couldn't so I think the same thing will have a blockchain try you'll have things that kind of poured over from the old world, but then you'll have all these new wave of stuff.
That didn't exist before
so there's this unique set of new features that block chains offer. But even if you look at phones even in their Advanced State, there are still limitations to the platform. Like you're not training AI models you're doing that in a data center still so like every new platform also has limitations. What are the limitations today and maybe that might be permanent in the same way of
blockchains the obvious ones performance. So you go try to buy an mft today on a queer investors in Open Sea as an example, which is a big enough to Mark a place where you go try to create one.
You have these things called casting these and the gas fees are could be quite expensive like $10 or something to do a transaction and those gas fees essentially are paying for the overhead of running all these computers. So a blockchain inherently by Design takes a performance hit versus a non blockchain computer and why is that because the very architecture blockchain is the core concept is you don't trust a single computer because a single computer can turn evil. And so what you do is you create this game theoretic mechanism is called a consensus mechanism where all those individual
has any one of which could turn evil come together every 10 seconds depends on the system, but let's say 10 seconds and they vote on the state of the overall system and the system is designed using Game Theory in a way that the system as a whole is resilient to any significant portion of the individual computers turning evil. It's a little bit like Adam Smith and free markets or something like privatized leads to public virtue you get a whole bunch of computers acting together. Each one has a certain incentive system, even if some of them turned evil the net effect of the overall system is it stays?
Good and consistent that just requires overhead you're using a whole bunch of computers to act like one computer that takes a performance hit today. It takes a pretty heavy performance it and I think it will always take a performance it I don't think there's ever a world where you'd want to have everything on a blockchain you want to go and do a web to like action like you want to go read a piece of text or download a graphic or something. The current architecture is the right way to do it. I think there will be very and it's something we're exploring now and a lot of entrepreneurs we work with our exploring will be very interesting.
Hybrid architecture, you'll use the blockchain of code on a blockchain can hold money at the part of the application where you're holding the money you just block chain at the part of the application where you're just displaying images. You don't use a blockchain and there's interesting hybrid architecture that people are exploring. It's not going to like replace Google or Amazon web services or something like traditional infrastructure. I think it complements it separate question is what does the world look like at some point the future. There's also like what will the next decade of the most exciting and valuable start?
What will they be focusing on and I believe most of them will be blockchain oriented the same way that most were mobile oriented. By the way. It's very analogous to Mobile today. I'm speaking to on a desktop computer. There was a period in like 2012. I people thought like computers going to go away or something member Steve Jobs had that great quote where he said computers like trucks you're always going to have trucks you can have cars are going to trucks well phones our cars and you're always gonna have trucks. It was a great analogy, right? Because we think of desktop Computing now is kind of more of around like the workday and mobile sort of the evening or something.
It'll be some kind of split like that with blockchains and on blockchains. I think
I'd love to kind of go into important evolution of functions that are actually being built and performed on top of blockchain. So everyone was saying at this point familiar with Bitcoins some probably large percentage are familiar with aetherium and then beyond that I don't want to take anything for granted. There's I think a tendency to think about this as cryptocurrencies with the finance connotations of that. How do you think about what the stages of evolution have been starting with Bitcoin through to today?
He goes to the history of the space, right? Obviously it all started with Bitcoin to this was now 12-plus years ago, etherium, I think is launched 2015. It was announced 2014 up until then you had Bitcoin you had a few Forks of Bitcoin that were just kind of like variance on the same thing. So Dogecoin Litecoin etcetera and the basic application at that point was what Bitcoin is today right at censorship resistance store value. This is sort of a digital gold if you roll Bitcoin stayed very consistent in that way there were people I would sort of
One of them that wanted Bitcoin the core Bitcoin to evolve into for example have a more advanced programming language to enable things again FTS. I mean if you actually go back and look at it like a lot of how actually the origins of theorem, but I'm first time at the talaq who's 2013 he was based trying to build on at ease on it was called colored coins or on top of Bitcoin for a variety of reasons. This is I won't go into this whole thing, but there was sort of this Schism in the Bitcoin world that led to this forks and other things essentially it was around this question around the vision for what Bitcoin should be basically the people that
Become digital cold won that battle and the people that wanted it to be more programmable and had visions of things like nft defy went over to the etherium world philosophically Bitcoin is very very conservative for a very good reason which is it's all about trust and security reliability and therefore from a development point of view. They're conservative. They don't add that much. They don't change it that much has a limited programming language, but it's extremely limited and that's on purpose for security reasons. That's fine. But the rooms the opposite theorem is very completely Express.
Of language is very similar to Java Script most popular language in the world. You can write really broad range of applications. They're doing a complete overhaul of the system. So you may hear about the environmental impact of what's called proof-of-work mining which is what piramides today they're switching to proofs take. This is a dramatic change in the system and that will happen probably the next 12 months will answer all of the questions around the people that are concerned about environmental impact and also little improve the performance the systematic security a bunch of other things. This is completely radically different approach to software development more Silicon Valley like
Be much more rapid. And so that's the theorem and then what happened to theorem there started to be this say 2016 through 20 Al are of really interesting experiments run that led to this area called defy the most important early one with something called maker Dow and maker dozens of fastening system. If people here are interested, I would say that the first three white papers to read and crypto would be obvious have to read the Bitcoin paper. The etherium white paper is fascinating. I think the third one I would recommend maker maker is a system complex, but two parts
So one part of it is a lending platforms. You can go to this smart contract and you can basically borrow money and then the output of that borrowing are these things called dye which are crypto assets that are pegged to the u.s. Dollar and it's is very complicated system of people were very skeptical of beginning of like because it's like you have to borrow money and then it outputs these things called died and these dies are meant to be pegged to the dollar but it's not backed by any Fiat is no Bank involved. It's all just crypto stuff and everyone was a lot of
Including like Economist into this never work. It's not worked for four years very reliable that scale there's tens of billions of dollars passing through it at all times.
How does the lending work? So if I want to get a loan from A bank I either prove that I'm going to do something interesting with the money that there's some like repayment or underwriting or asset backing or what is the protocol
want. The short answer is today. All of the defy lending is over collateralized what that means is you go and you can just various assets that will accept you can say I have a bunch of aetherium and I don't want to sell that.
Miriam but I can take that aetherium. I can give it to the protocol as collateral and it will then give me die that I can go and spend and use so it's similar to our like a house you take your house you go to the bank. It's asset-backed and then you get dollars out and go spend them. There are now a lot of really interesting companies doing under collateralized loans or credit scores and things like that that hasn't happened yet scale. But that may be the next wave. So all of them today are essentially asset back with crypto assets. So
if I take died out, why would I want to do that? Like, why would I want die?
Stead of whatever I put in there
some of its trading essentially it's a way to get leverage trading. They will already have a theory I'm they'll get the dye and they'll buy more theorem or something else or whatever. So it's trading I know a lot of crypto people who just never want to sell their crypto and they use the die for spending money. You can convert that US dollars do all sorts of things. A lot of crypto things except I there's that aspect to of just like it's dollars
sounds like there's another side of maker as well. So there's the lending portion.
Well, there's a lending and then it outputs a stable point and this was a brand-new idea.
Would argue that Bitcoin has worked. Well as a store of value in the sense that there's more and more people in the world that believe in it as a store of value. It is adding performed. Well as a store of value in this is more and more data analysis that it's being used in countries with hyperinflation and unstable currencies. That's the good side of Bitcoin. I think Bitcoin has not lived up to some expectations in terms of payment mechanism. It's not used very widely for payments and that has to do with the fees and I think also the volatility both good and bad. The merchant doesn't want to take Bitcoin and have it drop on the
Outside a lot of people the whole Bitcoin believe it's going to go out and do want to spend it. One of the cool things that maker is it outputs a stable thing. It's like a dollar and there's billions of these now floating around the internet these days. I think it's just past three billion in issuance couple days ago. So the street billion of them and use them a lot of different countries now than specially in those countries of hyperinflation. These are like these digital dollars there untethered what's amazing about that is it's a little bit like sending a photo. I text you a photo. There's no web service. So see that photo it's a pure file dies like that dies. I can just send you a dollar.
So a computer can send a computer you can a machine payments. You can have individuals pay. It's like this brand new thing. It didn't exist before and so that's one of the interesting side effects of maker so and maker kind of inspired. It's going back to the history of crypto, right this inspired a whole other way of startups people are interested go to defy pulse. Just kind of the place you go to buy the best site for tracking the metrics many tens of billions of dollars value. Lots of activity whole ecosystem around it some very very active area of software development its Global. It's really cool its global.
We don't even ask people anymore where they're located physically when we talk to them for investment. It's kind of a outdated question at this point almost every team is distributed The Innovation is coming out of everywhere around the world. So anyways, that's defy
want to take it on a few aspects of defy. So as you think about the future of it, let's just take lending lending is one of these core functions of finance that is really important. It seems that we're still in the infrastructure phase all this and that I guess the ultimate promise would
New unlock of sorts of like Financial interactions between people between computers. How do you think about the potential and the future of what this may unlock recognizing? I'm sort of asking that o 8 iPhone question here and necessarily know but why is it remain interesting for the future and all this stuff on
chain? So it's just like one thing as an example like to me the promise of defy and lending is the same promise of the internet in a lot of other Industries where you essentially disintermediation think about the process now you want to open a restaurant down the street.
Urmi your restaurant or you go to Citibank you fill out a bunch of forms. They don't know who you are. They have no idea whether there's like demand for restaurant in that area and they don't know you and God knows how long that process takes. Meanwhile, I'm three blocks away from that restaurant. I want a new restaurant but there's no way to kind of measure that demand signal I go to Citibank. I'll end the my money but no savings account. I get what zero percent interest are close to zero or something right that restaurant may or may not get approved in some really frankly archaic old-fashioned process months later.
And then pay some huge interest rate and who knows how much of that Delta between the zero I'm getting and the whatever they're paying some of that's going to the prophet of the bank's. It's certainly not in an era where we have huge numbers of demand signals. There's all sorts of signals. You could imagine collecting that would tell you that my neighborhood would like a new Thai restaurant or something. None of that information is going into that system the ability to send bits instantly around the world to do all these kinds of modern things.
Almost none of that is being used in these you can go on job website. They literally are still be using Cobalt and I'm not exaggerating COBOL is a language from 50 years ago an incredibly archaic system. So it's about modernizing its about disintermediating. It's about reducing all of these layers these in the middle. It's about transparency who knows what the state of that system is guiding you can make a strong argument that a lot of what happened in 2008 with mortgage loans and things was around just this incredible complexity and opacity of the system everything in defy.
Anything on blockchains is open. It's all publicly available. It's actually a very hard unsolved problem is how to make it private the idea that people use blockchains by the way as an aside for money laundering and other things is basically absurd because it's literally the worst possible way to do it because everything is public and everything's exposed the flip side of that the good side of that in Defy is you can go it's all Oak you can go see the whole state of the system. You can go measure is their system is a system at risk is this in that everything is open? Right? So I think the promise
Modernizing using all the right demand signals respecting people's privacy other thing with blockchains. There's no identity. I bought you choose to have an identity. You choose any other identity when you go to something like coinbase and you kyc and things like this, but you can let people say here's my credit score here is this but I choose to reveal this to you users have the power and the choice of what to reveal. I think the promise is modernizing the system but I did mention security blockchains just they don't rely on different method of security, which is the current model of security for the whole world including SAS software.
The house is essentially put the gold in the middle of the village and then have big walls around the village and hope nobody breaks in how well does that work? Everything in the world has been hacked at this point. It's not a good system the way blockchains approach. It is the way it should be approached. Everything uses encryption for authentication. Why would you want the system? I think one of them is for the economics of the system, which is remove all these different layers of fees in the middle a second reason is I think it's a better security model. A third reason is a better model for transparency throughout the system and letting people kind of see what's going
Going on another reason is what we call kind of composability which is one of the cool things happening Defy is that each of these protocols I mentioned is an open system that other people can build on top of and the system's can't by Design block other people and building on top of them people called money Legos. Sometimes like compound is one Lego makers one Lego and as an example that the system called yearn which is kind of a meta system like kind of almost like an ETF and the traditional world that's built on top of these protocols and you can lend money to urine and it will automatically figure out which subpar
All the lentils example. So this is very interesting. So it's a sort of transparency better economics better developer experiences ability to have kind of this ecosystem effect. There's all sorts of reasons why I think this would be a much better system.
I would love to hear a bit maybe even taking an example, you know swap is one that is completely fascinating to me for a couple reasons. Love you describe why it's interesting what it does, but also the lesson that gives us in the leverage inherent in crypto and from like a return standpoint building something of value x lines of
A code written by a small team or one person sometimes that can have these enormous impacts and outcomes that also seems to be this March of technology that smaller and smaller groups can have bigger and bigger impact. So tell us the story of you to swap why that in this sort of D5 world is so interesting and is a project worth considering.
Yeah. So you just walk actually came from a metallic the main creators of the etherium had a blog post where he speculated about a better way to do an exchange without an order book sort of like the New York Stock Exchange.
Change but instead of using an order book where different parties come together and give bids and ask things like this. What if you did what he called an automated Market maker essentially. It's a smart contract that imagine a price as sort of a demand curve for trading between two assets. So the dollar versus Apple stock or something basically as somebody buys it the system automatically increases the price of little bit and if they sell it a decreases and always sets the price such that it's sort of optimal according to various inputs and things this young guy hate and Adams.
This is the founder of you swap had read that post and move italic and built it on the side as a solidity contract between sort of etherium program did that about three or four years ago and it started getting popular built out the team little bit we invested is now up to maybe 10 people. He's still really small one important thing to say is that fast forward you can go type unit swap stats into Google you'll see it's now that system is over tens of billions in volume. It's approaching coinbase Finance levels of
Him one really fascinating thing about you know swap is there's no servers. There's no AWS is funny. I was just talking to experience Tech exactly other day and there's no servers. There's never been down. There's no sir. What you mean is mr. It runs on the ethereum blockchain. It's a piece of software on the through and blockchain. That's it the team again going back make Avenger style disappear off the face of the Earth, you know, swap will keep running in perpetuity doesn't matter. It's this thing out there in The Ether that's running on top of the theorem blockchain all over the world. Anyone can write software for anyone can interact.
With it thousands of websites that have two front ends to it. There's wallets associated with that. It's like this piece of the internet. That's one of the cool things about these when I was talking about earlier about defy think of these protocols is like new capability of the internet itself is the kind of the best way to think of it as opposed to a company or application built on top of it. So we're really extending the core infrastructure an analogy. I would use think about the real world like in a city you have sort of public and private infrastructure and sit easy take New York City, right? You have the streets or public.
Sidewalks are public the parks are public but maybe like a restaurant is private and offices private home is private and the to reinforce each other the fact that you have a public sidewalk create Street traffic which then helps the entrepreneur and if that was a private sidewalk that had a toll on it that entrepreneur wouldn't want to build their because maybe someone would charge a lot of money and the park makes people want to go to the city and that brings more money in the helps businesses and the too kind of this ritual reinforcing to the public and the private as opposed to an airport restaurant. I think we all know they aren't as good as the New York.
Restaurants or something or a theme park or something where it's all private and you have it's all private is all controlled by one a lot of the internet now is like the theme park right? It's Facebook. It's Twitter. It's controlled by one person. This is why I would argue there's all these spam and Russian Bots and all these other kinds of issues people have because it's just like one company and they have to fix it. All themselves. They don't get these benefits ecosystem you go back and you look at when we had spam and email email was a public open protocol anyone could build anti-spam Solutions. And what happened when there was a Spam problem 20 years ago.
Is there's a huge wave of startups and they fixed it postini and bright mail and 15. He's been acquired by Google you had this all these people building on this public infrastructure. So what we have going on in my crypto now is you have this kind of return to the public infrastructure. So, you know swap is a piece of it's like a park. It's a city street anyone has it the people that created don't control them or they just released the V3 the way it works is like a new version the new version just like another Park and you can choose to go to the park with V2 and V1. They're still out there and they're Run Forever. They can't even move and they want it. It's just crazy new kind of way thinking about
It so you just hops interesting a number of level. It's a great personal story just about like a Founder story. That's really interesting entrepreneurship story. It's interesting because it's as big new piece of public infrastructure. It's emblematic of this new architecture. I want to mention one of the other cool thing, which is they create a token about seven months ago. And in the way that works at the token if you have some of the tokens the collective token holders control the system so they have what's called a governance system and whatever they decide on like they want to changes or improvements or whatever.
People who all the tokens boat on that we hold some tokens and we vote on it. For example, we actually delegate a lot of our tokens to you can delegate your votes. We delegate the we have a whole program. We delegate the different like student groups.
It's like proxies and snacks or something.
Yeah, and we try to do in a way that like kind of is more inclusive and anyways, so when they did their token and the token has value which is set by the market it's created when they did their token drop seven months ago. They decided to issue 14% of the tokens to the people that had use the protocol over the last two years.
Here's what's cool a blockchain. Jasmine's I've seen before is everything is public. So they just literally run a query on the blockchain. You see any address. It's used. It gets a certain number of I think it was 400 units dropped opens. Anyone who's ever used it if you fast forward today 400 units also opens is $11,000 in value. And that was to forgot how many there were but it was a huge number of users. In fact, there are all these great stories. There was a class computer science class in India that had used units swap seven months ago and even at the time which is actually a lower dollar value it paid for the students tuition.
It's got an airdrop to college. So Ed sort of analogous to imagine if you had like Uber or Twitter and the system instead of being owned by Jack Dorsey and the other public shareholders or whatever. It was owned by the users and they did this retroactive airdrop years after they were launched all the people that have created the system and those people got those tokens. That was just such a cool new thing. I feel like that's been dramatically under appreciated reported. It's a radical new way to create software and to have people own software. I think an important Financial Innovation I would argue.
You that we finally discovered what actually a friend of mine calls the native asset class for information networks. I guess what tokens are I think if you look at a lot of the issues people have now with social networks with the platforming and the control they have and the economic disparities and all sorts of other societal Strife we have now around technology. I would argue a lot of it comes from a mismatch between the nature of these networks and the nature of this Legacy corporate structures that govern these networks and we have these corporate structures of a really built if you got to go back there.
Book called the company. It's like the history of the limited liability Corporation. It really developed in the 1830s ish and on with the rise of railroads before that, you basically had Partnerships. And so you have full liability you'd only do business with your family members because if anyone if you accidentally had someone die or something you would all go to jail. And so you wouldn't want to give money to some stranger because your liability went beyond the money right? I went with anything bad they did right and in fact, you needed like an act of parliament to go and have limited liability is very controversial, but then you had these massive.
Of capex projects like railroads. It just simply required greater Capital aggregation. There was more and more pressure to have limited liability courts. And that was that I think you could argue living liability courts are one of the great technology inventions of the 19th century. Yeah, but look, I think it's round. It's my believes. It's mostly run. Its course. It's not really working very well for a whole bunch of reasons including the fact that you've got you get you end up with very very concentrated wealth on these networks you end up with a most importantly I think a misalignment between the network participants and the Network owners.
It complements the network people building around it. There's all sorts of weird incentives that pop up that lead to strife and other kinds of things and what's so beautiful about tokens is you can design these very granular systems where people get rewarded tokens for using the system for building software on the system. You can align the incentives of all these different parties to all want to make the network grow and to all work together in Tandem and that's what we're seeing these experiments on so I think you know swap is very interesting also from that perspective. It just has an experiment in a new way to govern
Where
if you think about the incentives of love the community ownership concept what better way to align incentives than that? If you think about developer or entrepreneurial incentives in this system to say a few words about that, so maybe we could take Hayden a unit swap or something. He's building something out in the open people build startups because of the prospect of great upside if they succeed there is no Corporation. There's no equity here talk about the various ways in which crypto Networks.
Like change reward can or should reward developers to incentivize
Innovation good back to bitcoin where Satoshi I mean, we don't know still she is but think it's something like 5% or some significant portion of Bitcoins are owned by Satoshi or at least the original person of great system. All this event saying you can have Community ownership you have network alignment users can own part of the system. It's completely consistent with capitalism and with the creators and developers owning parts, and that's the way it works a little Kayden has tokens. Yes, you just walked opens all of the entrepreneurs that we work with have tokens in the
They create but it's just a different model. It's kind of analogous to something like real estate. Like if you go read about just the way they used to build cities and things a lot of times what happens is that the developer would go and try to create essentially a network try to create it restaurants get houses get businesses and the way they make money they owned a chunk of the land and as that Network grew more people came on came there the value of the land will go up sort of similar to that. They just own a chunk of the network of the tokens. So it's very much a community owned and operated networks, but that's
Fully compatible with rewarding the people that took early risk and the investors like us these things like compound and you swap for example, like let's say companies example, they worked on it for two or three years before they launched it. I mean that had to build a big team and so they need financing. They need venture capital and there needs to be a way to incentivize the investors in the founders
the word that friend used to describe this project yesterday was profane which I think is such an interesting word this project bit clout it received a lot of attention.
And the profane is kind of interesting descriptor of what it's doing. Could you describe that one? Because I think it's so tangible that it might help the audience understand something unique going on here that just feels like both natural but also really out there.
Yeah. Well, so I think big clouds in this broader category of straddling multiple categories, but it's in this broader category of what I would call social tokens. So social tokens, there's other ones and we're investors in a bunch of them, but Cloud rally.
The idea is to have a token associated with either a person or Community associated with a person. So the way I think of it as the internet now is consists of big networks like Twitter and Facebook, but really like millions of smaller networks, twitch streamers and YouTube influencers and like there's all of these new sub networks and they essentially United by people with a set of interests who are excited by that maybe the influencer or Creator or whatever but also presumably have a set of common beliefs and goals and things like this.
And so maybe talk about rally which I think highlights this in a clear way the way it works in rally is like a twitch streamer for example can have their own token so they can have the power twitch streamer, you know, Chris Dixon coin or something like this and then that token can be used for multiple things. You can be used as like a little in network currency if people want to donate to each other for example, or the Creator wants to sell things. They can sell physical merchandise that can create n FTS and sell those it can also be used for Access. So if you go to Rally like a bunch
Of these tokens are used for like behind the scenes Discord behind the scene shows and you have to have a certain number of the coins to get access to those. The other entry thing is it can be used for another purpose which is for investment. You have people that that may want to buy the coins not necessary because they themselves are fans. So because they believe this is let's say an up-and-coming band. It's a little bit I think analogous in this way too. If you talk about entities like NBA Top Shot is very popular and ft collecting game in Steam with baseball cards and traditional collecting, right?
have multiple motivations you have some people that are buying the card because they love it and they want to hold it and you know other people who are more investment oriented, but the different interests play well together because what happens is if you have an up-and-coming band at first, maybe somebody who's more of like a investor type will go and invest in the band and try to kind of hope that the token goes up which then Jack's more money into the system which then helps like flows a fund the musician and the musician can then sort of relying on a record label can then have money to go create music and
Their job and then that in turn makes them more successful, right? So you get this kind of nice flywheel effect. I think the social token Ponte is very early right now, but I think I believe if you ask me like what's the next thing that could really get big and crypto? I think it's that would be high on my list the way the end of T's were high my list before and now have gotten big. It's kind of analogous. By the way. A lot of this comes from video games. I think video games particularly like the most advanced ones like Fortnight and Roblox. I think they're on The Cutting Edge of design.
Patterns that will be adopted much more broadly on the internet and much more broadly in the media world what they realized a long time ago is that if you go back and 20 years ago, right? What was the business model video games you buy a CD? So you play Madden or whatever later on you could download it and pay for it. But the modern games now like the games are free. You can play for a knife through League of Legends tree Roblox free for days completely free and not only that some people for a while we're saying, oh, it's free be a paper multiplayer for tonight multiplayers free to and you can play the whole thing.
Be the best in the world. You can play all day completely free, right? What do you pay for you pay for skins emotes, like basically virtual Goods. That's the modern model of these video games and they have in them. They have two things. They have their own currency. So like Portman has bee box and then they have digital Goods. You can buy with that currency. I think that model will be replicated throughout the internet and this will be the model that you use as a podcaster as a influencer as a streamer, whatever it might be a musician. They'll have their own little
NC and they'll have their own set of their digital goods and of teas and some will be physical and some will be virtual and that model there's nothing magical about video games that makes that business model work people are very engaged with Fortnight. If you talk to people to play they love it, but people are very engaged with music too. They're very engaged with books to I think the problem with each other forms of media so far is they've had this pre internet business model which is they said okay before the internet, how do you do it? You just charged for the thing now, I think what they're going to start to realize it's actually a better model to give away the base layer content.
The music the book or whatever in charge for complimentary things on top of it that such as video games have done this for years, right? It's productivity software Dropbox figma every SAS company. Now almost has a freemium model software figured set a wallet. The internet is the ultimate viral distribution machine. If you lock up your stuff, you don't get to take advantage of that the right business model in the internet is to find some balance between abundance and scarce you want something that's abundant that goes viral the internet likes to share it likes to remix and tendo there.
The kind of the most traditional video game company they fought streaming for a long time. They had all sorts of restrictions on Twitch streaming and sub they finally realized we got to let this happen the marketing benefits outweigh the risk of copyright violation and they sell more games and ever. It doesn't hurt. In fact, it's better you get billions of people doing it. Right? So like those insights. This is what's really going on. I think with entities and social tokens as you've mentioned social tokens are the DI box and FTS are the skins these things that have become have been working incredibly well.
By the way, let's just video games hundred forty billion dollar industry music is something like 20. If you look at it video is a great chart. Matthew ball has a very smart media bloggers among other things where he shows that every time there's a new wave of Technology. The video game industry has grown dramatically. They embrace it whereas like music. I think it's only just now caught up to the pre-internet levels of Market size. It's insane. The music is such a credibly popular is probably the most popular medium in terms of enthusiasm and engagement and
the fact that they aren't the biggest Revenue generating former media is just hiding it's just completely due to the fact that there's just been no change whatsoever over the course of the unit and their business model the business model essentially is lock everything down and rely on copyright which you know is their right to do I just think it's not the right way to do it. If you look at like these recent like and @t drops the one Blau adjusted even if you assume it's a bubble and everything else like it's give it a haircut by 99% It's still the greatest business model change ever in the history of Music. Anyways, I think it's social tokens is more broadly in this.
Kind of social tokens nfc's and it's essentially the insights from the Video Game World in the software world now propagating out to the rest of the
world. There's one feature of what you just said that I'd love you to explain a little more detail. I love this. I've been thinking about this a while this like free to play video game nft, maybe social coins and other examples as very analogous and that the reason that it's so interesting going back to your analogy of the disintermediation of the restaurant and the bank and the person that wants to
Restaurant now they can connect so that's like a binary connection, but then there's also a matter of degree. So there's a demand curve for a Creator and the model like video games used to be charged every 160 like you charge the person that plays it for a hundred thousand hours 60 and you charge the person that plays for 30 minutes 60. Can you talk about demand curve consumer surplus value creation value consumption value exchange and why that curve now might be more efficient
for those interests. I wrote a blog post recently actually has some graphs kind of trying to demonstrate this called kind of tease and it
thousand true fans on our website in that blog post. I refer back to this famous blog post by Kevin Kelly who is a co-founder of wires brilliant guy who had written this blog posts and a 15 years ago or something called thousand true fans and his Insight was that the internet should allow creators to find what he called a thousand true fans a thousand people who just absolutely love everything you do presumably you have this on your podcast, right? You have casual listeners. You have people listen to only when the certain people on the episode you have medium people and you probably have I assume you have
Our power users who love everything and email you all the time. And do you had a t-shirt or whatever anything else? They'll just buy it they'll drive and they'll see it. If you give a talk, they'll go that was Kevin's idea is that with the internet? You can find those thousand people and you don't have to go through the record labels and do Mass marketing and all these other things you can just go find those people and that sort of didn't happen until recently I think and I think it was because I believe we took kind of a detour through basil baby's new metal men popped up who were these big social networks who then know we're going to have that business model of advertising and
algorithmic feeds and all sorts of other things which took you back to the pre thousand true fans thing now, I think we have a real Resurgence of Kevin's ideas with outside of crypto. Let's take some stack as an example. So sub stack is a email newsletter platform what you're seeing is more and more writers and journalists and things are leaving traditional companies and they're going on sub stack and subset that you can just go and subscribe to people and pay like, let's say ten dollars a month the interesting the subset. Could you have a bunch of people who are making real money many hundreds of thousands sometimes millions of dollars who are writers.
To according to a lot of popular mythology today. She the internet has bad for them and they shouldn't be making this more. They can't make as much money. In fact they do and what's interesting the sub SEC you have like city-state Glenn Greenwald, right? So he's got I don't know if it's the same million Twitter followers, and I don't know how many subsets followers he has but two orders of magnitude smaller. Let's say it's 5,000 10,000 20,000. I don't know what it is, but it's not Millions, right? And so yeah, he's making that much money what that shows is how powerful it is when you can kind of cream skim and get the people that really love you.
And give them a business model that they like and I think part of it by the way is feeling a patronage. They can directly give it to you. They're not giving it to Twitter. They're giving it to Glen right? They love Gwen and they want to give him money. The early signs are it's remarkable sub-sect is a good example of when you give people the right tools this power of this kind of thousand true fans kind of concept. I think that's what we're seeing with an FTC today. I think that if you look at some of these The Blob thing a bunch of other herb Esters in something called Foundation, which is kind of a crypto art platform.
More and more you see is really cool cases where people are able to finally like I is one guy s part through I've actually bought a bit a bunch on his stuff and I bought one recently. Finally. He's a video game artist who I'd played these video games. I never knew who the person behind the scenes was make so for me the first kind of Revelation with wow, that's cool. I can actually learn who does all this stuff because right now it's just Taillow like you don't get to see who makes all the pieces of it, right? The second thing is like I'm interacting directly with them like the first time I bid on something on his he DM me on Twitter and follow
Follow me and we started talking and talk a bunch now and we're going to Friendly and for me, it's fun. Because like I do Venture Capital know that I don't get to talk to video game artist normally and it's like it's like a cool thing and I'm a fan obviously the financial aspect to him. But maybe it's kind of Mission to for him. I don't know and he can set he has some things that are more expensive there couple Elites and pricing Theory. I mean, he has other things that are cheaper and maybe people like me who are super fans who bought the most expensive ones that people buy these your point about the demand curve. What school is there people just want to look at it and don't want to pay that's fine. They can.
Download the graphic and do whatever they want with it. There's people who are willing to pay a little bit and then people like me maybe who are willing to pay more and by the way, like Foundation takes the small like 10% be he gets 90% So he gets dramatically more than you would in any other method if he'd gone through a publisher or something like this. So it's just really kind of transforms the economics for creators one way to look at it is. Oh my God what the Press is saying is like this is a bubble. I don't know or sort of in a more like it's a bubble or sort of more cynical way. I see it is just right sizing the other forms of media to the
way video games are ten years ago people might have been shocked at the numbers and video game think everyone's gotten used to it. Now Fortnight makes three billion a year and whatever two-and-a-half billion in profit or whatever. The number is. I don't know the numbers. They people are buying virtual goods and just seems normal. Now I think of it is that model is now propagating out and it's right sizing as other forms of media to what they should be. They should be enjoying the same kind of success this video games. Do there's nothing magical about fact that one experience people are running around like shooting stuff and the other experience so,
A lot of time with our district level of enthusiasm is just as high the demand is just High the supply is just a scarce like why you just didn't have the right model before I think look it'll go through waves. All of crypto has his ups and downs because you have these feedback loops that push both ways. And so I'm sure they'll be like an NFC winter or something at some point. I think the broad long secular trend is that we now have because a couple things at this model from video games is propagating out and we now are finally realizing it's thousand true fans Vision. I think it's going to
To be a 20-year golden period Renaissance for Creative people. It should be one of the thing on the end of T platforms. These are getting two pretty big scale like Open Seas at this all public data, by the way. It said over a billion dollar run Ray. This is a website. By the way, that doesn't take Fiat money. It's only theorem same with Foundation billion dollar running foundations public to it's only a couple months old. It's how many hundreds of millions of dollars run right? It doesn't take that many people to make those numbers this by the way is a very true video games do if you talk to people that make video games typical numbers like point five percent of the
User base pays for 80% of the virtual Goods or something. It's going to be the same thing here. By the way, it's going to be this very small percentage of people who are super enthusiastic that's enough to make a giant industry. I mean, it's open season a billion-dollar run right? We only 800 times this it's the video game industry. It's not that far away and given that we're three months into like the modern and of tear and if you actually look at the numbers Top Shot is where investors it's NBA top shots and nft game basketball trading card game. It's done 450.
Million in total sales whose primary and secondary and it's on the order. I think they've had 1.3 million total accounts created but of that maybe 200,000 or so or sort of active when you get rid of all these middlemen and you have like a real business model that's selling something and not like advertising and everything else. You don't need that many people to have just like dramatically transform the economics of these industries. You can reach a billion people now, you can create a piece of art you can write it some poetry you create some music almost
Simply 8 billion per year, whatever how many 5 billion smartphones to say, but will approach a billion at some point can instantly get it and if a thousand of those people really love it, you've got a business model for your creative activity. It's an amazing thing and I think what you're going to see right is I think we're already seeing it. I use go to Foundation days. I mentioned the because I'm just a personal fan of it every day and you see like the quality of the art dramatically improving because you have all these people who just you're a designer your graphic computer artist a digital artist. What is
Your day job your day job is like doing fonts for like some some of you don't know or care about sugar drink or something. Yeah, right. And so now all this is what's really cool, right? You're going to have this flywheel effect where those people are going to be like wait a second. I don't have to do font creation for sugar drinks or something or maybe they do that part-time or something, but I can actually spend more time doing the things. I
loved one of the things that I found interesting when I ask people like what are the most interesting projects polka dot and saldano came up a lot which I think of as etherium competitors basically Dylan field.
From FEMA has this great line, which is that like a theorem has a sort of anti Network effect as it gets more popular the performance of it gets worse or gas fees go up or whatever. How do you think about something like polka dot or saldano? Like are these interesting projects to you? Is this a segment back to the core stuff? Are you tracking that as
well? Some people call them each Killers. I don't think there was a pillar so I would call them other program block chains and they include polka-dots Alana Cosmos near Avalanche definity. There's a whole bunch and we're
there's in somewhere not investor some you know, but they're bunch of them are really good. I would argue remember the beginning we're talking about how blockchains you take a big performance it right. Now. It's really expensive to do mini theorem transactions. Look a theorems going to do all sorts of things to improve the system. I think the man is going to outstrip supply even with all the important things that they're going to do and including sharding and proof of stake and all these things and they do and roadmap. There's all these sort of layer two things on up there. I think all of that will happen. He will all improve the supply side and I think still demand will outstrip it by the way, this is
You of Internet bandwidth. It's true CPU power is true of GPU power every good Computing resource in the world in the history has had demand outstrips Supply that's going to happen with programmable blockchains. So one narrative you here is that these things are competing. I don't think their computer. I think the only way that we're going to have a world with billions of people interacting with blockchain applications every day, which I believe will be the world in ten years is you're going to have a fabric layer of series of these block chains, which will all interoperate each one will focus on different quote unquote.
Workloads as an example where investors and Dapper Labs make Top Shot. They have their own blotching optimized for entities and gaming called flow. Imagine a world where you're playing a game. It has virtual goods and those virtual goods are interacting with flow. But then some of your virtual Goods get really valuable you say, you know what I want to put these in the Bank quote unquote. So you move them over to a theory. I'm using a trustless bridge which is a way for and ftes and cryptocurrencies to move across blockchains, and maybe I pay a little bit higher fee on aetherium because a theory makes different set of trade-offs its trading off.
For higher security ethereum is built like Bitcoin to be kind of resistant like even most countries. It couldn't attack these systems and take them down. Like they're really really resilient like gaining blockchain. Like flow might be designed not to withstand a nation-state attack but to withstand hacker attack and sort of more routine attacks. I think you'll have the same way on my computer. I have a CPU and a GPU and the GPU handles polygon, by the way, every data centers like this. You have many different systems which handle different workloads. This is a common pattern in Computing. I think all the things you mentioned. Those are all high quality.
Jex which are bets on this future of blockchain enabled applications. And I think you're going to need many of these blockchains. There's 10 really credible program will block chains out there and they all make kind of different design trade-offs. There's like 15 things you want from a programmable blockchain. Do you want performance you want security you want something if we call composability which is like each application interact with their applications. You want a good developer experience. Like what's the programming language was the programming model? They all make different trade-offs.
And some of those trade-offs are right for certain applications in summer right for others if you
think back over the last year which has been a particularly exciting time in this space What individual moment has been the most exciting for you?
Personally? It has been a Good Year. By the way, the main reasons Been a Good Year is so many things have launched. So there was this long incubation period we invest in a bunch of stuff and 17 18 2016 18 and like a lot of it just has a hard systems to build. I mean like I think the nft thing in particular really kind of
Going up in the last few months. I think it's just incredibly important because for me it's the first thing Defy is great and it's really important but it's still like a million people. If you look at the stats, it's about a million people use these things right if we can get something like a nifty's that go to like a hundred million people that will have all sorts of secondary benefits including one. It will feed back into the infrastructure layer. It creates all sorts of incentives to then build out the layer 1 blockchain layer, which in turn will enable a whole new set of
Issues like social networks and other kinds of things to it's going to bring really importantly I hope bring a whole new set of entrepreneurs space. We have a shortage of entrepreneurs at the Neon Trees are listening. I've never been in space where there's so few. There's so much opportunity. There's plenty of money plenty of opportunity plenty of great ideas. We need more entrepreneurs. We need more developers. We need more people. It's a really small shockingly small community when you actually look at the number of people like building stuff and I'm already starting to see it. I get emails and texts now from people that purchase have never had an
Interest in the space who are like wait now I finally have mentioned space and I want to go do something and like I kind of get it and you have all these people like I have relatives and things you've never had any interesting stuff in there. Like how do I use Madam asked what are the gas fees we can get this to really go to mainstream like that and get those people in the fold. These Tech things aren't straight lines or slowly then suddenly. Yeah. So like we got a kind of ladder up in this beautiful thing that is just so simple and elegant. It's a digital good controversial and people are debating in always other things, but I think
People get it right away. Just today. I was trying to explain the d-57 it's harder to explain and blockchains and defy. There's a lot to explain and it's sort of abstract. The people finally have something that's really tangible. And now you're on either scan looking at the history of it and you're like, okay now I get it to me that's been as kind of special thing and I hope it continues
last question for you is maybe the most interesting and wild topic what you mentioned a little bit earlier which is doubts decentralized autonomous organizations. What the hell does that mean? What might
It make possible.
So there's a really cool thing to happen to the day which is you know, swap had a V3 launch video that paid for This brilliant digital artist who handles people pleaser. She created this really cool unicorn digital art thing for their launch and then she sold it as an empty later on where the proceeds went to charity. The cool thing is it was bought. I think it was $100,000 in remember the amount for a lot of money by a dow what is it down. So basically a bunch of people on the internet got together and said, hey we should get together and pool our money.
Money together and buy that if T and they did it just using a dowel is a set of smart contract on ethereum. So there's no company there but the smart contracts enforce the deal. So the smart contract say you put money in and then together we're going to use that money and we're going to go buy this and if T you can add on to it by the way things like anyone who puts money and get to token out and so they can own a piece of the Dow sort of like a company you can add any logic you want it just code but that was just an example like you think about what happened with stuff on games.
Stop and read it that was a group of people getting together and just sort of ad hoc deciding to go and buy the stock. What if there were set of set of code that let them come up with rules and said, hey if you join this group and this buying group is this piece of code and you can join this and you get a token or something to show that you joined and then you can vote using that token on what the group does if we're all going to do it together. So this is way to kind of enforce this Collective action together, which is what a company is. This is just a modern way to do it using code is very early, but like that example where that those people got together and it's very likely that
Is that you wouldn't have nearly as much money go to charity and the people kind of come together and do that. If you didn't have that down. I think that someday Adele might just maybe they'll buy a basketball team. It's like the Green Bay Packers I think is now did the ones that are owned by the people in the city or some
people they sold the bricks. Yeah,
whatever. I think that the GameStop thing might just be as merry in the coal mine dowser the way to kind of really scale that Collective action out so that people can do all sorts of interesting things. You could argue a lot of problems in the world our Collective action problems things around, you know, I don't know energy consumption.
And I don't know tragedy the comments things with public infrastructure. This is a whole bunch of things where like if you had new ways to coordinate groups of people coordinate money coordinate efforts and activities. Anyways, that's what dads are so Downs are sort of ad hoc software based organizations on the internet using blockchains
is an over simplification to think of a dow as like a natural successor to the LLC that it's really a capital formation vehicle.
No, that's exactly I think of it's how you do it in a modern internet software World capital and labor.
Effort I mean all these things so I think it's a great way that future dope to organize open source projects. Like hey, let's come together. Hey, we want to have a mobile phone that's built by the community and by the community and not owned by Apple. How are we going to finance that how we going to build that how we're going to come together coordinate that are we going to govern that you can do that people around the world. You don't know each other and don't need to know each other because the trust is coordinated through software.
What enclosing has is a single thing that has you most excited about the future.
ER of this space
what I was talking about before I think this idea that the idea that this is a new way to finance creative activity. But um, I Define that very broadly. I mean that's there's a traditional creative things of writing and art finding a visual art and music but there's also writing code open source code. I mean open source code has a real issue right now with Amazon and AWS and all these other services eating up all of the profits and things people creating videos people doing
These questions around like it's a i comes along and takes over many jobs that are currently done by office workers are people going to lie around and do nothing. And is it going to be the sort of dystopian was that movie WALL-E the big enlarge or whatever that compensation. Is it going to be like that or is it going to be this creative Renaissance where you have millions of people creating movies and podcasts and I think a lot of that comes down to whether there's an economic model for clatter. I think that's one of the most important thing. I mean look it's there's plenty of important.
Things in the world and I say the only one but I think in terms of the future of the internet to very important when I think another what's the structure of the internet, is it going to be for companies? Is it going to be like TV was where there's like four big channels and they control everything and we spend the next 50 years with Congressional hearings about trying to rein them in and regulate them and or is it going to go back to kind of its roots? This is going to send the power out to the edges. I think it's not overstating it to say that the internet is the most important invention of the 21st century their 20th 21st century and the questions that were discussing today are about
How is that system governed and how does the money flow in the power flow through that system? So I think when you phrase it that way that's probably no more important question than like how power and money works on the internet. What are the capital structures? What's the market structure? What's the economic models? They'll start off small and silly. I wrote this blog post that I guess a decade ago called the next big thing starts out looking like a toy. I was sort of making the observation that so many Technologies to history kind of start off looking kind of silly. It's like a game or
TR or whatever but then it gets better and better and grows the early telephone barely worked and went less than a mile and you know, but these things get better and you have to project that how they grow. I think that's what this is really about. It's about power and money on the internet. Who has that. How is it governed? How is it controlled? How does the money flow? What's the economic model? Those are really important questions. This is why I crypto and blockchains matter.
You were one of the first people to introduce me to this whole world one of the people I've relied upon to learn about it from afar, and I've so enjoyed the conversation.
Today, thanks so much for your time Chris. Thank you ppreciate it. This episode was brought to you by Catalyst in this four-part miniseries. I sit down with Catalyst co-founder and CEO damir hot to learn about the origins of catalyst the problems. It solves for professional investors and what the future of catalysts looks like in this week's episode demure and I discuss how cannabis builds its models the fixed versus variable parts of its models and how it seamlessly works with the current workflows in Excel. How does the fixed part of this work? So somebody's got to do
the work the first 80% of the exercise is being done by you and your team. What does that look like? Is it humans? Is it software and quantitative systems and some combination how and why should a by side analysts feel confident that the 80% is being done? Incredibly.
Well great question. Yeah. I mean we started out human because that's all we had and actually where it started was way before there was a catalyst there was my co founder James building a Model A Day from filings on a new company. He wanted to learn because he was watching his positions on one screen.
The acrobat on the one screen and Excel on the third one and then off he went so we started out manually and we realized extremely early on that. No one was ever going to use this or adopted in any way unless the data was unimpeachably good like it was extremely accurate. And so what we did was all we could do with human resources, which is we did everything twice and then made sure that it dipped out perfectly and basically where it's evolved to now is the business is around a hundred fifty people about half of those or just over half of those are
Are on our research team, they build an update everything primarily manually, but then what we've also evolved into now is we have built we would confidently say the majority of what one might be able to automate this work. We've built as a check against the humans rather than vice versa and I think a big part of where our data accuracy came from is the fact that when you model you actually have to think about the business and things have to work in the Ford periods. It's amazing how often that helps you identify historical errors.
The important thing is like how this actually feels to the customer. So people do this in Excel almost entirely. Like I'm not familiar with many people building company models that don't get an Excel. It is the one tool to rule them all. How do you make sure that what you do doesn't interrupt the normal workflow of the user the analyst or the p.m. In this case. What have you learned about meeting customers where they are as you build the product
it was not even a deliberate Choice. It was just sort of an initial requirement. I came in as the
B2B tax offer a person. And first thing I said to James was I said, oh, you know what, this is great. We're going to put it on a web portal and we're going to make it really Dynamic and slick and he said no it has to be back compatible to excel O7 and I have to be able to hit F2 and Trace everything back. So I wasn't going to have a co-founder if that wasn't part of the solution our design principle inside Catalyst for the product is to get out of the way and what that means is people are looking to refine a piece of their process and
Looking to do investment research a completely new way and I think embracing the fact that we serve an extremely sophisticated clientele folks know how to pick stocks that go up or pick stocks to go down if that's what they're trying to do. They have great businesses. They've got great skill sets. They've got a ton of experience. There's a bunch of other inputs at the end of the day. We're solving for modeling and then solving for fundamental data and actuals as reported which is important, but there's a whole bunch of other research that is happening that we're not going to
Effect and we just need to be able to slot into somebody's process and I think the opportunity cost of switching and a learning how to model a different way hypothetically is just too high of a bar. So I mean we have to go and say that way that you do this part of your work. Here's like an insanely easier and actually higher quality more efficient way to do.
So just say a little bit more about the literal way this works in Excel we talked about, you know, you meeting the customer where they are. But what does that mean in a literal sense? Like if I've got it if I've got
I do right now have a company model open on my screen. Like where does Catalyst start integrating with Excel? And how do you think about that
in the most literal sense? What we've now enabled clients to do is you pull a catalyst model you can add Charts at tabs re Drive things change values reformat it do virtually anything and excels in pretty capable tool next earning season. You've now got a button in your Excel toolbar where you click update and actually the update will roll in the update.
It actuals from next earning season, but will preserve all of your changes will leave your re drive as it is and we'll give you actually like a full top to bottom model down comp of where you were where the actual landed. So that's sort of like right where the rubber hits the road we started with Excel models and then eventually kind of tooling around it. And now we're inside Excel helping you again where you do all of your work and so that Excel add-in and the updater process that's been transformational for our clients have sent us.
Love letters basically saying that if you save somebody 5 or 10 hours in between earning Seasons, that's one thing if you save them five hours on the third Thursday of earnings when they really need them. That's a ton of value.
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