State of Crypto VC: $34B Raised, 50% Fewer Deals

I think we are at the tail end of the creation hype.

>> Bearish or bullish? Stable coin payment chains, are they going to be a thing?

>> The one question that a lot of people have been asking is, well, is this a short-term thing? Is this something

short-term thing? Is this something that's going to still be here 5 years from now?

>> Welcome to Stful, the Panta podcast. My

name is Mason Nestrom and I'll be your host as we explore a variety of topics chatting with fellow pantas, other investors in the space as well as founders. St. First episode we have two

founders. St. First episode we have two very special guests. Paul Vayataka,

managing partner at Penta Capital, who has been investing in the space for 11 years as one of arguably the first crypto venture investors. And we also have Franklin B, general partner at Penta Capital, who has a wealth of

experience working at JP Morgan, founding the initial blockchain team at JP Morgan, and has been at Penta for 7 years, investing in a variety of topics from DeFi to gaming among others. This

is going to be fun. Excited to chat. The

first thing we should talk about is the state of crypto venture. The venture

landscape has obviously changed immensely since you two have been in it for over a decade and almost a decade now. It'd be great to start with some

now. It'd be great to start with some data because I think that really tells a good story of how the landscape has evolved. When we look at the total

evolved. When we look at the total amount of fundraising that has gone into the space in terms of announced deals, we've actually reached an all-time high this year of $34 billion which surpasses

two of the previous records in 2021 2022 which obviously you know massive influx of capitals into the space. But I think one of the things that is a counterbalance to that is we've actually

seen the number of deals drop almost 50% compared to those respective years. And

so when we look at the data we see that there's been a ton of capital that has actually moved into later stage deals versus early stage deals. Curious to

hear is that something you've been seeing in the market and what is what does that mean for how crypto venture is evolving?

>> Yeah, I think the really good question is why has deal count actually gone down so much versus 21 and 22? And I the way I think about that whole path of the

past four or five years is that 2021 2022 were the metaverse years, right? It

was a period of time when it was a period of time when obviously we had zero interest rates. We had massive amount of liquidity and when you have those things come together with a narrative that's just almost purely

driven by speculation and where investors really don't have well understood heruristics for why something's going to work or not in the metaverse. Then you get this explosion

metaverse. Then you get this explosion of just deals that really should not have been funded. One of the things that we tend to think about a lot at Panta is sequencing, right? What are the things

sequencing, right? What are the things that need to happen first, second, and then third for a true breakthrough to actually happen? And so looking back

actually happen? And so looking back with hindsight, perfect 2020 vision, of course, we should have just posed ourselves a very simple question for the industry of why would the metaverse and

crypto's role in the metaverse come before stable coin regulation, right? If

we don't have that, how can we possibly bring everybody into this fully digital world and have NFTTS take this sort of role in culture and society that everyone was just betting head over heels into?

>> The other thing that also factors into it is in 21 and 2022, we had more of a altcoin rally and we haven't seen an altcoin rally yet. It's

really been dominated by Bitcoin and Salana and Ethereum. When you don't have an alcoin rally, you don't have the longer tail family offices, entrepreneurs, other individuals that's

throwing money out there that's doing a lot of the preede rounds that you saw in 21-22. The sources of capital right now

21-22. The sources of capital right now are crypto funds generally and they are more institutional and the diligence that they're doing, the ownership targets and all that kind of stuff. So

that really just means again less frequency, more concentration and especially when you start seeing more use cases around stable coins and payments, you start seeing traditional

VCs come in and fintech VCs come in.

They're also going to be doing less deals, more concentration, >> right? Sure. And the thing that we

>> right? Sure. And the thing that we always think about as venture investors is like what is the exit scenario of the things that we invest in? And obviously

if we look at the data, you can see that exit scenarios are just more prominent.

Companies are finally going public.

acquisitions are at a record all-time high and so that has led to this kind of revitalization of the later stage markets and maybe less deal count in terms of okay just go launch a token and that's it has to be the exopath we've

even started to see companies like unis swap decide how can we reunite these two distinct entities into one and so I think all those things are like callous to what you mentioned it's hard to

understate really just the impact of IPOs opening up in crypto right circle kicking that off the one thing that really happened because of that was it completed the It completed the story

finally for venture investors to be able to say what are the heristics that actually matter. How are public markets

actually matter. How are public markets going to react to crypto companies actually coming in and showing the true story of what's been growing in the stable coin space and for companies like

figure in the tokenization of real world assets. And when that story gets

assets. And when that story gets completed, venture investors experience this derisking of the whole space, right? Because they can finally draw up

right? Because they can finally draw up the formula, draw up the model of, okay, if I invest into this particular sector and with a great team at the seed or series A, I can see the path to an exit,

right? Obviously, a lot of things have

right? Obviously, a lot of things have to go right before that can happen, but up until literally circle's IPO, that was an open question, right? Circle had

multiple failed attempts to come into the public markets and we saw some of the behind the scenes work from that because it's been a 10 year long journey with Jeremy and to finally see that cross the finish line is just a game

changer.

>> Yeah, it's huge. It was wise too, right?

When I first joined Panta over 10 years ago, I surely would have thought an ETF would have happened within the first 10 years of my tenure here and it took over 10 years to finally get an ETF. So

again, like a lot of the foundation has been put into place to finally get to get it to a certain point now where we can actually have these huge exits that will fuel more IPOs and more

acquisitions. But yeah, to go back to

acquisitions. But yeah, to go back to your point, which I think is really relevant is really the type of exits that we're seeing right now. It is going through the public markets versus in

2122 it was TGE. it was launching your token and and when there's an opportunity to invest into a token deal, we haven't seen as many token deals as

we have seen venture deals, equity deals in the last 2 three years. And I think that's a huge reason why there's not as many because with the token deals, you have a different set of investors with a

different set of exit expectation and then different timeline. You get more sort of retail investors versus institutional investors and thus you're going to see a lot more deals there. But

I think going forward though, we'll see what happens. Hopefully consumer opens

what happens. Hopefully consumer opens up. Hopefully we do see more retail

up. Hopefully we do see more retail investors coming back. And we saw with Monad's ICO on Coinbase when you have more retail investors coming in, you have an opportunity to just see a lot more more frequency on stuff.

>> I think this brings up like another interesting point like there's this there's new access vehicles now. Like

the fact that Coinbase is doing a token sale on their platform that was like unheard of.

>> I didn't think that was going to happen anytime soon for sure. And basically

every single exchange like Kraken is was very prominent with the pump token sale that is an interesting trend to continue on the other more traditional capital market side. You have like DATs. I'd be

market side. You have like DATs. I'd be

curious to get like both your perspectives on obviously DATs have gone through a trough as many are trading at below MNAV. Like where do DATs go from

below MNAV. Like where do DATs go from here? Curious on what your kind of

here? Curious on what your kind of current take is on the evolution of that market structure. Yeah, I think the

market structure. Yeah, I think the launch of digital asset treasuries has been this combination of public markets starting to mature their understanding of what it means to have exposure to

digital assets. And it's unnatural for

digital assets. And it's unnatural for financial markets to actually hold any kind of asset in a static way. Like

people in investment banks just love to be optimization experts. And so

>> speaking from some PTSD there.

>> Oh yeah, definitely. You can see I'm just like scrunching up thinking about it. But they're always looking for how

it. But they're always looking for how do we squeeze out a little bit more alpha or margin or whatever it might be.

And so DATs I think are an expression of that, right? Which is in the 1970s you

that, right? Which is in the 1970s you could have bought a barrel of oil or you could have bought Exxon Mobile, right?

And you actually would have made a lot more money buying Exon Mobile because what you were buying was a machine, right? Right. And that machine was

right? Right. And that machine was designed and optimized to pull resources out of the ground and refine it and transform it and then make awesome partnerships and deals to really expand their scope and their efficiency. And

that's what DATs are doing now for digital assets, right? Instead of owning a Bitcoin ETF or an Ethereum ETF, you can own a machine and the market can judge, right? Who's built a better

judge, right? Who's built a better machine. So I think that's happening now

machine. So I think that's happening now where we're in this cooling off period where people as always overcrowd into a new idea in the market and we have way

too much supply of high quality and lowquality dats. I think the market is

lowquality dats. I think the market is starting to realize okay this is not an easy sort of flip. We need to actually look at things like is a management team actually executing are they crypto

enough to actually get that additional yield and accretion to the value of tokens per share that DATs should be judged on a long-term basis. The cooling

off period for DATs is great especially for us having been part of anchoring this trend and launching this trend from the very beginning. We've always taken this approach of quality over quantity.

And if the market starts to come to that same realization, then that's really going to validate the way that we've been entering the space for DATs. The

one question that a lot of people have been asking is, is this a short-term thing? Is this something that's going to

thing? Is this something that's going to still be here 5 years from now? Which I

think the answer is yes. There's clearly

ways that a more active managed vehicle can be successful. I actually think that like the idea of DATs transitioning to become like the foundation arms of token project makes a ton of sense because foundations are just these like

toothless organizations historically that don't do a lot and so if we can just have an actual capital markets vehicle in charge then I think that can be even more effective. I I think we are

at the tail end of the the creation hype at least for thats that will generate the most hype in the short term which are around Bitcoin Salana and ETH in the

US probably still a bit early around DAT creation hype outside the United States there's probably some more room to grow in areas that already are understanding

of crypto have some use cases are speculating I think Asia Pacific I would say Latin America, there's still opportunities for DATs to get larger and more prominent and again probably focus

on Bitcoin, ETH, and Salana at first because that's where the ETFs are.

That's where folks feel there's a little bit more regulatory clarity and regulations play a huge role in all of this outside the United States. They're

going to follow the US. It's going to take a year and a half for them to really get the same momentum that we have here in terms of regulations. And

then one of the things that we've been doing since we're pioneering the whole sort of DAT strategy and everything that's going on there is really helping our portfolio companies, the longer tale of portfolio companies at a certain

stage be able to launch their own DAT and a lot of them are um just going to focus on one because it's still longer tail. There's a lot of education that

tail. There's a lot of education that they have to provide for their cryptocurrency. might as well have

cryptocurrency. might as well have everybody look at one vehicle. And this

is a great time for them to really learn what's worked and what hasn't worked from some of the larger cap and larger DATs out there. I do foresee quite a bit of consolidation that's going to happen

with the DATs already out there. And I

really do think that the DATs that are most active in terms of like you mentioned like strong teams and really executing on accumulating more tokens or

finding other sorts of fundamental value revenue streams that can flow into the value of these companies I think will the ones that are most creative and the ones that are most active are the ones that generate a lot of credibility those

ones will stand out from the rest. The

other kind of topic that I wanted to get your guys' thoughts on is a more forward look at the market. Obviously, we're in the capital deployment and investment industry. It'd be interesting to hear

industry. It'd be interesting to hear what themes and trends y'all are excited about. I was able to pull some data and

about. I was able to pull some data and from block works and basically the top sectors that received investment over the past year were finance, consumer, which I thought was funny because everyone always talks about how we need

more consumer apps, but it sounds like we're actually getting a lot of funding.

Next ones by capital were infrastructure blockchains like L1's or L2s and then AI and that's by like capital amount.

Obviously there are some themes in those like broader themes that we'll continue to invest in. Where do you see the puck going as it were? There's a few that I'm particularly excited about. One is

tokenization. I think obviously it's been a massive headline and a topic for the industry already, but it's a multi-deade play and I think we're just getting started. I've personally been

getting started. I've personally been working on tokenization since 2015. Like

literally, it's taken 10 years for us to get from the ideas of what tokenization would be and what it would require to it actually happening in the market with real customers and real institutions

involved. I think it's at the end of the

involved. I think it's at the end of the day, it's installing a new platform for financial markets and capital markets to to come on chain. And even though tokenization is seen as this big sort of

theme to invest into, to me, it's really just step one of a much longer value chain to to go and build. I compare it to in the early internet days of people putting newspapers and magazines

directly onto the internet, right? And

saying, "Okay, great. We've done it, right? We've brought the world onto the

right? We've brought the world onto the internet." And that's basically what's

internet." And that's basically what's happening today with stable coins and just tokenization of other assets, right? is yes, we've copied and pasted

right? is yes, we've copied and pasted all these assets on chain and that's fantastic from an efficiency standpoint, from a global accessibility standpoint, but it's barely touched the real

potential that comes from having these assets available alongside Turing complete smart contracts, right? The

ability to program these things and issue them natively on chain and then do really interesting things around transforming risk and creating new types of financial products. Even though I call it this this thing that falls

within the tokenization umbrella, to me it's there's a ton of dominoes that still need to fall and a ton of great teams to still go and recruit and build in the industry. So that's one. And then

another is we've been spending a lot of time on the application of ZKTLS or web proofs, right? So this idea that as we

proofs, right? So this idea that as we get new capital and assets coming on chain, we also need to figure out how to get data, more and more data on chain and useful data. In the same way that one of the benefits of stable coins is

that they're non-custodial, one of the benefits of ZK ZKTLS is you get non-custodial data.

>> Exactly. So the idea is that you can have these verifiable data sources that solve the basically the trash in trash out problem that blockchains have whenever they bring offchain data on

chain. If the data is crap, no matter

chain. If the data is crap, no matter what you do and no matter how good the chain is, you're still going to get crap on the other end, right? Right. And

ZKTLS solves this crucial problem of how do you bridge the existing world with the onchain world through not just the assets that everyone holds in their wallets but also the data that everyone holds in their applications today.

Right? So bridging the activity that I have going on in my Robin Hood app, in my Chase app, in my Uber app. All those

things are just interesting fodder to go and create new consumerf facing applications with. And then also just

applications with. And then also just really cool interactions between that data and the onchain capital markets that are now starting to form.

>> I feel like we've been talking about zero knowledge proofs and like ZK applications for years now and like the I guess like first kind of use case was scaling and it very much seems like

ZKTLS is hopefully optimistically the actual version of ZK that is going to really commercialize zero knowledge more broadly. People probably forgot about

broadly. People probably forgot about this fact, but JP Morgan was one of the first partners with Zcash and the original Starkware team and that yeah from way way back. So, it's been a long

history for me with Zcash and just with ZK applications generally, but it comes from a very core insight, right, which is that we threw our heads against this problem over and we kept coming back to

zero knowledge proofs as the big unlock even though super early and we really had no way to leverage it at scale. I

think the insight was right and now you're finally seeing the right infrastructure, the right talent actually start to use it.

>> Tell you Paul, any sectors or categories or idea spaces you're excited about?

>> Franklin touched on one of them. I I'll

dive a little bit more into detail on tokenization. There's the tokenization

tokenization. There's the tokenization of just like real world assets going on chain and then the killer real world asset has been the stable coin and it's dovetailed really well with the genius act and providing regulatory clarity for

institutions to really get involved with stable coins. We've done a lot of work

stable coins. We've done a lot of work al together around investing and and getting access to local exchanges and brokerages. That was the first thesis

brokerages. That was the first thesis that Dan had me focus on when I joined in 2014 was really let's map the world out. Let's really figure out where

out. Let's really figure out where crypto makes sense. Let's make sure that we can invest into the infrastructure that onboards both retail and institutions into this space. And as

we've seen in Latin America, in Southeast Asia, in Africa, Bitcoin has been a great way to bank the unbank beyond that to really get more

mainstream folks into crypto. It's

really getting them into stable coins.

Then of course now having regulations and the liquidity around stable coins, we can really then use stablecoin for the payment rail that we really envision

crypto being which is really bringing money money over IP making it very easy for you to send payments across very cheaply and transparently.

>> For sure. And I think a lot of people discount the secondary and tertiary effects that are going to happen. Once

you get a critical amount of stable coins on chain, then that opens up new opportunities like onchain FX or it opens up new types of private credit and lending for payment financing or Paul

and I have met with companies that are building like more ethical versions of like payday loans. And so once you get these payment rails at an actual like first generation of what they're going to look like, it opens up so many more

new idea spaces for investment.

>> Exactly. And then two other areas that I'm really digging into and actually the next one me and you have done quite a bit on which is really around consumer and prediction markets. On the

prediction market side, we've been fans of Augur all the way since 2015 and our previous funds wish we were able to buy tokens at the time. But the fact that you're able to really bet with each

other and create markets and be able to have them be resolved in a more capital efficient way, a more democratized way, more transparent way, I think is huge. I

think right now we're starting to see it with cheap poly market novig and a bunch of other companies where this brings a path towards prediction markets to get huge from a regulatory perspective from

a sort of like economics and cost perspective and really just democratizing like the ability to have these markets on any sort of topic which

is like phenomenal and I really do think that this will bring a lot of information on a bunch of different things that we just never had before and that obviously can flow into news. It

can flow into trading.

>> One of the ones that I really like is corporate earnings. I think that's like

corporate earnings. I think that's like such a cool market and cuz a lot of stock trading obviously happens around earnings. To your point, prediction

earnings. To your point, prediction markets are this like massive category and there's going to be some interesting consumer UX that is designed or bundled or consolidated with other types of

markets. You can imagine like Robin Hood

markets. You can imagine like Robin Hood like having an earnings component in their actual markets because they already show you that in a financial way. So I think there's a ton of open

way. So I think there's a ton of open design space there. Totally agree.

>> I think the big insight from all of that is just that onchain capital markets are not just this direct mirror reflection of traditional markets because there's so many more interesting things that you can do when you have the ability to

transfer value globally and put together supply and demand in a marketplace from all around the world. And we Paul you mentioned the fact that we've been investing into exchanges for over 10 years. And I think one of the most kind

years. And I think one of the most kind of underrated things in our industry today is that exchanges which have been here as long as any other kind of business are still the story being told.

It's still a work in progress where you take a company like Bitso who serves Latin America and has helped a ton of people in that region get access to stable coins and Bitcoin and that's not

where they're going to stop. What

they've actually built is this investment platform and this ability to grow wealth for over 9 million people in Latin America. And that's the same thing

Latin America. And that's the same thing that Robin Hood does. But there's no true Robin Hood kind of equivalent in Latin America today. At least not one that has the kind of presence and market share that Robin Hood does in the US.

Bitso can grow into that kind of opportunity. And at the same time, it

opportunity. And at the same time, it can bring people on chain. Actually,

recently Bitso actually turned on purp.

So it's when you think about it, it's such a crazy different universe from the US market where there are some customers in Latin America who have Bitcoin in their portfolio as their

first investment ever. They don't even own traditional equity, certainly not US equities. And then one of the first

equities. And then one of the first instruments that they'll ever touch is a perpetual >> instrument. And so you think about that

>> instrument. And so you think about that and then you say, wait, will this person ever use traditional Wall Street tools ever again? because once they run into a

ever again? because once they run into a traditional brokerage, they'll say, "Why do these things work this way? It's so

inefficient. It makes no sense."

>> In the same way that Africa leaped over to leaped over directly to like mobile phones, like you're having this next generation of leap towards like just embedded financial products that >> Exactly.

>> they can just use from from day one.

>> And so sitting in that seat of being the gateway as the exchange is just such a powerful position to be in when you have that kind of leaprogging transformation.

More than half of Robin Hood's revenues are crypto.

>> Yeah. Yeah. Which is Yeah. Robin Hood is a crypto company.

>> Speaking of which, the next segment I want to go to is what I call bullish or bearish. And so I'm going to read a

bearish. And so I'm going to read a short phrase statement and I want to hear if you guys are bullish or bearish.

And if you have a specific reason why, then you can obviously say it. So on the Robin Hood note, okay, let's say you have to own an asset for the next three years. You can't sell it in that

years. You can't sell it in that three-year timeline only at the end.

Would you rather own Robin Hood Hood today or Coinbase and Cointock?

>> It's a good question. To me, the big question whenever you're trying to make something make a decision like that is what does the market not understand yet about each of those companies that hopefully they understand within that

threeyear time period, right? And to me, it feels what the market maybe doesn't understand about Robin Hood today is that to me it it's that they're really trying to eat the entire market

infrastructure stack. I think I don't

infrastructure stack. I think I don't know exactly how they would think about it, but the way that they've been playing this out with vertically integrating clearing house and exchange for prediction markets and even beyond

that for other futures and derivatives products, >> it feels like they're looking at financial markets as a true technology platform. And so everything that Robin

platform. And so everything that Robin Hood is built on today has platform risk because of the way Wall Street has been built up. So whether it's the New York

built up. So whether it's the New York Stock Exchange or the commodities exchanges or the custodians and the DTCC, all of those are just proof points

that Robin Hood still cannot control its destiny. And so I think this idea of

destiny. And so I think this idea of eventually becoming this vertically integrated monster that can do all of those things, right? Can actually

facilitate an IPO directly through the Robin Hood app as just one example and something they've been testing with direct IPO access. I think it just shows that the end state for Robin Hood is

actually so much bigger than just being a brokerage for its customers.

>> They now have 11 revenue lines that are over $100 million businesses and the most recent one is just offering basically like sports betting via prediction markets.

>> Exactly. So I think the market >> is more likely to figure that out in the next three years than for Coinbase because I think Coinbase also has an incredibly ambitious vision which is to

bring everybody on chain. That is to me a 10 20 year plus vision that I think the market probably is still not really going to be able to fully digest in the near to medium term. It's still

absolutely worth owning for that 20-year period, right? But you gave me three

period, right? But you gave me three years to make some money in that sense.

I would say Robin Hood would be my pick.

Got it. How about you picking Hood or Cointock?

>> Well, if he's picking Hood, I got to pick Cointock, right? Like I think Franklin's right in terms of with the existing user base that Robin Hood has.

I mean, there's so many different ways to really just verticalize prediction markets and other sort of things. I do

hope that my vision of where Coinbase is going to go can can resonate within the next 3 years. And I do think that they've done a lot around US retail. And

while there's a lot more to do there, and that kind of runs into Coinbase, there's a lot more on the institutional side that they can do and hasn't really come into the space yet. And so I do think that within the next three years

I'm hoping that institutions come in a very large way and them being able to provide the crypto as a service thesis which them and a lot of our other

portfolio companies are doing where they don't have to be the distribution. They

can work with guys that have distribution already the banks and the fintexs and they can just power the back end which again is very lucrative for them. I think there's a lot more room

them. I think there's a lot more room for them to grow there. And then beyond that, I do think that within the next three years, beyond the United States, especially with more regulatory clarity

in other jurisdictions, they're going to be very active on the acquisition game, and that'll give them an opportunity to really expand really fast into other jurisdictions, really increase their user base, and then hopefully at least

verticalize within crypto. So, I'm

picking coin.

>> Okay.

>> Yeah. I think one of the one of the like really interesting things I want to keep watching is is the divergence in how they're going to each tell the story of their chains.

>> How is Coinbase going to really convey the purpose and the philosophy of Bass to the public markets? And to me, when I when I try to interpret what they're doing with Bass, it's to expand the GDP

of crypto. It's enabled new developers,

of crypto. It's enabled new developers, new applications, and that's certainly something they've had a ton of success with. But it's very different from the

with. But it's very different from the philosophy that's driving Robin Hood chain. Being able to do tokenization and

chain. Being able to do tokenization and direct onchain issuance and be able to take some of that market power away from all the different traditional infrastructure players that I would say

Robin Hood is renting land from and has built their business on today. So

totally different philosophies driving those two chains. Architecturally, they

might start to look quite similar. I've

been impressed because I don't know if you remember to back in the day when Covas was trying to launch their developer infrastructure and I think realizing that a lot of players in the

space are going after that they decided to go below that with base and then provide the the infrastructure and then having the distribution already having the Coinbase login and access to

people's funds. I think that was it was

people's funds. I think that was it was a pretty innovative way to to tackle the developer market >> on a short-term time resin. I think

Robin Hood has shown a great ability to find new products, add them and monetize them quite effectively. And so I I think that if we look towards a world where even you know more of these financial

primitives come on chain, whether it's lending, whether it's new types, whether it's B2B or consumer lending, whether it's new types of yield from structured products, like I think Robin Hood's really has proven their ability to execute and just port those onto their

platform. I think Coinbase historically

platform. I think Coinbase historically hasn't done as great a job at that. I

think they've made some really good acquisitions of recent and so I think it's possible that could be a great catalyst for it. But if I had to pick today, I'm probably picking Hood.

>> Okay, next one. Bullish or bearish stable coin payment chains?

>> Yeah, I guess I'm intrigued and not bearish, which I could see some being bearish on. I do think that a chain that focuses on certain

verticals can be successful. Whether

they can be successful enough to be a dominant general chain, I'm not sure of.

But I do think that around payments, you can think about like certain customization and features that you might want around scalability, maybe

around privacy, permissioning, and then being able to build an ecosystem around a certain use case where the

participants can have a bit more control over how that chain sort of functions and be able to help govern that chain. I

think is uh pretty interesting and can be very valuable. Now, I think if you're talking about tempo or I think there there's pros and cons with that. The pro

is that Stripe has a lot of relationships and can accelerate the the ecosystem around this chain. The con is

that they're not a neutral party. So,

does this get really dominant as the payment chain? Maybe not, but it could

payment chain? Maybe not, but it could definitely get to a pretty lucrative size. So, I think that's the pros and

size. So, I think that's the pros and cons of a a chain that is started by a certain party within the space versus a party that's a little bit more neutral.

I do think they can be valuable.

I'm not quite sure if they're going to be like extremely valuable up to a certain point where they're going to be more valuable than Ethereum. Yeah, I

would call myself probably slightly bearish relative to the market today.

The reason for that is because I do see the value of what's happening on the research and development side, right?

This is a classic case of an application or use case driving an advancement in the technical side of things and the infrastructure side of things. And when

you have that kind of momentum towards hopefully some big technical breakthroughs and we've seen some of that great work come out of the Tempo team already with some of the new consensus mechanisms being designed. But

when you think about the end state of all this, the question I always come back to is who benefits the most from a payment chain. Is it the incumbent or

payment chain. Is it the incumbent or the company or entity that owns distribution and owns liquidity or is it the users and the customers? Because I

think in the long term, it always rotates back to the users and the customers, okay, and what's best for them. In the medium or near term, you

them. In the medium or near term, you definitely get this feeling from all the stable coin chains that have been launched recently that it is about compounding the incumbent advantage,

whether it's distribution or liquidity or just massive inventory of stable coins. And that's that's great for the

coins. And that's that's great for the person or the entity initiating that because they get to compound that advantage and they get to internalize a lot of the value that they're not

capturing today through their chain. But

5 10 years from now and you go talk to a merchant who's accepting stable coins from customers, are they going to be beholden to any particular chain or are they going to say just give me as many

options as possible or access to liquidity globally wherever it can be?

And if that's the case, I think it takes away a lot of the reason for having all of that flow centralized onto one chain.

I think at the end of the day, we all expect as a pretty reasonable framing of that future universe that payment activity is still happening wherever it needs to happen. It's going to continue

to happen at the distribution layer like whether that's Stripe or a new stable coin provider. And so I use that as a if

coin provider. And so I use that as a if you have distribution like you can verticalize your own flows into your own chain without that type of distribution though I think building out even a like

a application specific payments chain can be really challenging but like to the extent that payment chains stripe and tempo can own their own distribution and bootstrap their own chain I am bullish that can be like a really

valuable bootstrapping mechanism and that there's nuances around what Paul was talking about of whether you want customization whether you maybe want some type of permissioning or privacy whether you want specific liquidity, faster speed, like those things I think

make sense to have a payments chain. And

so I'm bullish like the specialization of a chain for that specific use case. I

do hope that if we do see like this always happens, right? There's a new same with DATs, right? there's a new concept circle Google other people are going to do it too and eventually

there's going to be some sort of consolidation and then if we have multiple winners or a bit of fragmentation that those that have distribution don't have to think about

liquidity and interoperability hopefully we'll have developers and folks really solve that problem where it's just hey like I just need to make a payment through and just send it through the best sort of possible path with the best

liquidity and that happens >> I do buy a lot of that, right? I do buy that distribution is a moat and distribution has a ton of advantages for anyone who truly holds it at scale. But

I also think that it tends to get overweighted by legacy technology thinking. Meaning, if you come from the

thinking. Meaning, if you come from the world of SAS, vendor lockin is your holy grail. It's how sticky are my customers,

grail. It's how sticky are my customers, how little churn can I get to, once I've got this nice base of customers, I'm going to monetize the hell out of them because they won't have any choice. It

doesn't hold as strongly. It still

holds.

>> It's tougher in It's tougher in crypto because everything's more open.

>> It's permissionless. It's open source.

The liquidity can be bridged from anywhere at any time and eventually it'll be frictionless. And if that's the state of the world, distribution just has less power.

>> I hear that and I think that's true to an extent. I think the counter

an extent. I think the counter to that is can you build a payments chain where you have like sufficient liquidity such that it's like in the same way that you might imagine like

bass is trying to grow like the GDP of crypto right like they benefit from their sequencer and so things are building on base like they benefit so it's a question of at some point does

the focus become the chain and the distribution is just a way to bootstrap that chain but that's a more of an open question. Okay, so we're we're like a

question. Okay, so we're we're like a mix of bearish and bullish, it sounds on payment chains. One other one that I

payment chains. One other one that I think it'd be fun to get your guys' thoughts on is privacy is a venture investable sector.

I'm fairly bearish on it. To me, privacy is a feature, not a product. And at the end of the day, privacy is going to be a necessary feature of pretty much every part of the onchain ecosystem. Is there

a value to being an infrastructure provider for privacy in some way? Maybe, right? But

at the end of the day, everyone's going to find a solution for it. And I don't see it as being a great place to invest because it feels like one of those spaces where any research breakthrough and often times you're judging these

teams by the technical credentials that they have, but any kind of breakthrough that you make on this is very likely to just get absorbed into the open-source ecosystem. And if that's the case, it

ecosystem. And if that's the case, it benefits everybody at the same time, which is fantastic. But it's really hard to say you can capture value from that.

>> I'll take the opposite side. I,

as you'd mentioned, privacy has been used for scaling. There hasn't been as much demand for privacy, at least from the retail side, on shielding their transactions. Retail folks just don't

transactions. Retail folks just don't really care. And thus, on the

really care. And thus, on the application layer, if you're touting that like there's privacy on what you're doing from a consumer perspective probably doesn't really bode well for

your success. I think where privacy

your success. I think where privacy comes in is really on the enterprise and institutional level especially where there are things that need to be regulated around what can be shown and

what can't be shown. Now I think with that the area that you can invest into is probably just on the technology and really on the infrastructure side of

things. But there is a caveat that like

things. But there is a caveat that like I don't I definitely think good privacy tech that folds into certain types of regulation or is modular enough to fold

into certain type of regulation I think is needed. Will the best privacy tech

is needed. Will the best privacy tech win? Not necessarily. I think it's

win? Not necessarily. I think it's really not just about the best technology, but really just being able to have something that is good enough for certain use cases and be able to

then go out there and get the partnerships. So, it's really just not

partnerships. So, it's really just not about the technology, but it's really about the commercialization piece of it and making it even standard. You do

mention that a lot of these things can be or are going to be open source, especially ones that focus on more crypto-reated use cases. So I think with that you really do have to then create a

protocol around it and really open it up and then beyond that you then have to extract more value. So you probably have to then build like tools and other things and applications and make it more

of a holistic investment.

>> I'm happy to split the tie. I'm also in Franklin's camp. I generally think that

Franklin's camp. I generally think that privacy is a feature and that it's the first thing that a consumer will sacrifice for a free product. I do agree with you Paul that that businesses want more types of like private transactions

when it comes to stable coins. I think

the question is just how does that get implemented? Where does that value

implemented? Where does that value acrew? Does it acrew at the application

acrew? Does it acrew at the application layer or does it crew at the enabling technology? It's possible that ZKTLS is

technology? It's possible that ZKTLS is like an interesting reference point of there is clearly value in the verifiability which is like privacy in another way but who ends up owning the value that's created is the person who

is like selling a product that has a value proposition not just like privacy for the sake of privacy. I'm just glad that the discussion is getting like more nuanced around privacy. We can talk about selective transparency. We can

talk about configurable privacy. And

those are the ways that enterprises would actually engage with privacy. It's

not this black or white issue that people tend to go towards right away in thinking about >> Monero or Zcash or just other forms of pirate money, right? Like it's pirate

gold is only so interesting for so long.

But when you talk about implementing privacy, there's complexity to it. Yes.

>> And wherever there's complexity, there is an opportunity actually to build something big if you can solve it for people at scale.

>> We we were early in in Zcash and more recently we invested into Zama which is using fully homoromorphic encryption. I

think that tech is amazing but again it's now going out there and making sure that it is solving the right problems for these enterprises and making them feel comfortable.

>> The last segment that wanted to do is segment that we're going to call the timeline. We're going to find something

timeline. We're going to find something on the crypto Twitter or X timeline and get your thoughts on of it. One of the things that has been going around, which I feel like comes around every year when we talk about token launches, is what

vesting schedules should be like. Should

they be four years? Should they be 100% all at once on day zero? How do you think about vesting schedules? What is

the optimal vesting schedule in your mind? I've been following some of the

mind? I've been following some of the discourse. This is probably like my

discourse. This is probably like my least favorite segment of all because I generally hate the timeline by default.

But I would say there's a flawed premise I think in a lot of the debate around this which is just because I invested in something I being a generic crypto VC just because I invested in something it

has to be worth something right and the truth is that the nature of venture and especially the nature of crypto venture is 98% of everything is worth nothing just because a token launched and the

price went down and you point to the token allocation strategy or you point to the vesting schedule as a cause of that. At the end of the day, that will

that. At the end of the day, that will never be the core driver of why a token has value or doesn't have value. And by

default, most of these things should go straight down. So, I think for anyone to

straight down. So, I think for anyone to argue that this is something we need to work on, they first need to make the argument of why is the thing that they're talking about in that 2%

category, right? And so far, the market

category, right? And so far, the market by default disagrees with that, right?

So, please explain that first. But yeah,

Paul, what do you think about the vesting debate? I agree with you. At the

vesting debate? I agree with you. At the

end of the day, just go out there and focus on building your product and getting product market fit and doing all that. But I get it though. The token

that. But I get it though. The token

price is a huge component of that, especially if you really are going to have that token be used within your product and used for capital formation.

If you're incentivizing folks to to do things, if it doesn't have value for your incentive, then it's going to be tough, right? And so while I do get the

tough, right? And so while I do get the point of it be great to just have price discovery and not some of these inflated market caps and whatnot, if I had to

choose it, it probably would be some sort of like status quo like something like a maybe it's not 4 years, but I think

probably between 2 and 4 years still makes a lot of sense because at the end of the day, we've seen what happened in 2017 and 2018 where there's no vesting

schedule and you saw prices of tokens like be extremely volatile and go down to zero. Like you need to be able to

to zero. Like you need to be able to give these founders some runway to be able to hit some milestones to be able to like sustain the token price. And so

I think between two and four years probably makes a lot of sense.

>> An economist looking at this would say like where's the market failure? And I

think the market failure is basically like two scenarios. It's one where a team basically just pumps and dumps and just totally rugpulls. that's a failure in the market that we should push out of

the ecosystem as much as possible and that's where vesting can help protect investors from that situation. The other

is where basically by no fault of their own um there's a scenario where the token does have to be live for the product to actually work. So there's not much choice for the team around that.

But at the same time, the liquidity and the market structure being what it is in crypto where the liquidity might be really thin at the very beginning because a lot of the bottlenecks around listings exist today with exchanges

working the way that they work. And so

that I think does play to the detriment of the market as a whole because you've got early investors, private investors who can unlock at a period of time when liquidity is super thin by no fault of

the team >> and they have market structure. Exactly.

And the team has no other choice. The

token has to be live. So I think one of the interesting solutions we can explore around that is create investing schedules that are built around milestones. Unlock when there is

milestones. Unlock when there is liquidity rather than unlock on this specific timeline.

>> For sure that can be healthier.

>> Less chunky unlocks like so many are like 25% after a year then the next year. And I think that is like a it's a

year. And I think that is like a it's a really tough structure to have that in a company that is like effectively a startup. I agree. There's like

startup. I agree. There's like

>> more linear lockups. I'm a fan of that.

I think there's more creative vesting schedules, but I do think you need that economic alignment in investing. I think

that Paul, to your point, look at how many ICO projects are still around. It's

Ethereum and Filecoin. Basically, that

negative incentive to just take the money and run whether it's on the founder or investor side is worth having investing.

>> What do you guys think about founder versus investor investing? Should there

be a difference?

>> I personally think they should be the same. I think it's wild to put founders

same. I think it's wild to put founders and investors on a different vesting schedule with the exception of >> some founders vest on like a like equity

vesting is different and that like equity vesting is sometimes on the 5 10 year time horizon but it's equity and so it's either liquid at some point or not but so when you transition that to a token I think it should be the same and

I think there just should be more traditional governance mechanisms where you can increase a founders's token supply increase their economics as you would like a traditional like founder top up in another round.

>> The best sort of long-term alignment is just one team, one dream. I think that's always been our philosophy is that we should be on the same page with our founders from start to finish. So if

they win, we win and vice versa. I think

the more predatory behavior in the market these days where investors try to challenge that and say we should get a special deal or we should get a structure where we get to get out of

this thing before this unlocks for founders before retail investors have a chance to get out. There's all sorts of mechanisms for investors to do that. But

at the end of the day, what they're saying is number one, we're not fully aligned with our founders. And number

two, we are more short-term focused. And

so over time, that kind of signal is always going to come out in the market, and founders will hear about it and start to make their decisions differently.

>> The last topic on the timeline that is also a a cyclical topic is the L1 trade.

And if the L1 trade truly dies, I would argue that it hasn't. that there still is continue to be L1's, L2s getting funded. How do you think about the

funded. How do you think about the future of the L1 trade and whether that continues to persist or materially declines?

>> I think it'll persist, but I think it just won't be as dramatic as it has been this cycle and in past cycles. In the

past, some of these L1s, they just started because of certain narratives, right? Some of them are like more like

right? Some of them are like more like meme coins. Some of them have really

meme coins. Some of them have really been able to grab gravitate or grab certain communities and certain geographies and have certain like stories like hey we're very strong in

the Japanese market or legacy token in China or something like that and and every single cycle folks are especially traders are looking for alpha right and

so they see that when the markets get healthy these communities get rejuvenated and these communities and

access to these L1s are easier too on certain platforms. They've already been on some of the leading platforms in some of these certain geographies that it's just easier to get access to both from a

trading side of things and also from a retail side of things. But I think going forward as we start seeing even more consolidation around L1s and more sort

of fundamental thinking, we won't see as much dramatic rise of these L1s in newer cycles. But there will be some retail

cycles. But there will be some retail out there that still have it in their account and see like some activity going on with the community and they'll still persist.

>> Yeah, my philosophy is that people play to their incentives and so do protocols.

One of the critiques of L1's these days, especially from liquid investors and folks that are thinking about the fundamentals and the revenue drivers of L1's. Sorry guys, you didn't talk about

L1's. Sorry guys, you didn't talk about this before. So why would anyone have

this before. So why would anyone have been thinking about it before? So I

think we're in a state now where that is a great topic to finally surface now.

And the fact that investors have kicked that off is natural, right? But I think for the protocols themselves and the ecosystems and communities behind them, it's a newer topic they're still

grappling with. It's something they

grappling with. It's something they haven't had to really handle before. But

the upside of that is all these L1s that liquid investors have declared to be just defunct or value traps or just will never actually justify their valuations.

That's a pretty extreme thing to say about number one technology that is extremely dynamic and still being developed. Number two, something that is

developed. Number two, something that is really in the first inning of being figured out. and then to the sort of

figured out. and then to the sort of cyclical nature of all this to go from it's never going to work to maybe it's going to work is actually a huge shift the same way that people used to say

Salana is dead but if you believe that Salana was even barely alive you would have made a lot of money this discussion around how will L1's capture value how will Ethereum be able to figure out

what's been happening with layer 2's pulling away activity and generating a scaling road map through that those are things that are totally dynamic None of what exists today is set in stone. And

we're starting to see that too now with things like base rollups starting to activate with the Fusaka upgrade. We're

starting to see the interop layer. Still

a lot of work to be done there. But

presents another vector for capturing that value. And at the end of the day,

that value. And at the end of the day, the sort of concept of as long as there's massive usage of this thing, we'll figure out how to capture value from it, I think still holds true when

you're talking about a tech stack that is constantly shifting and evolving because you have so much flexibility and optionality at the end of the day. And I

think as long as it comes down to the incentives like Ethereum, Salana, Hyperlquid, as long as you can build something, whether it's a general purpose chain or a specific chain of like massive value acrruel, like there's

going to be an incentive for some founder to say, I think I can do that better. I think I can improve on it. I

better. I think I can improve on it. I

think the era of general purpose chains is probably dead and we're moving to an era where if you really want to build a new chain, you have to start with some specific wedge, whether it's payments or something else to really bootstrap into

a more broader chain.

>> I definitely think that's true. Just the

thesis around new L1s or new app specific chains emerging, I think that's absolutely one I'm bullish on and I would bet on that all day. And I think the takeaway from that part too is we're

still not at the point where number one block space is a true commodity. There's

tons of ways to differentiate your block space today because of novel applications and developers having different requirements. But number two

different requirements. But number two is I think priority fees are really like the only thing you need to look at to know that okay at some point we'll all figure out how to capture value, right?

Because there's different incentives people work off of. There's different

levels of value that we all assign to specific transactions. So, somebody will

specific transactions. So, somebody will pay to go first. That's the general principle of all these gas fees that people are paying to actually use chains.

>> And so, my general thesis around this is it's priority fees all the way down, right? It's just a matter of where we

right? It's just a matter of where we stop and it's a matter of where the majority of the activity and the competition for block space is happening. If it's happening somewhere,

happening. If it's happening somewhere, that value will get captured there and will get dispersed appropriately through the value chain.

>> Awesome. We're I think at time now guys, but thank you for joining for the inaugural pod. Uh I'm sure we'll have

inaugural pod. Uh I'm sure we'll have you back on soon and we can uh chat about more things on the timeline, more things we're bullish and bearish about.

And uh thank you for thank you for coming on.