How to Build Through Bull & Bear Markets With Konstantin Richter | Permissionless IV Fireside Chat | Bonus Episode

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How we doing, everybody? Good. Good. Permissionless so far. Good, good. Thank you, guys. So I wanted to bring my friend, uh, Constantine on for a fireside chat here. I, I think you're, you'll see a lot of like product conversations today and you'll see a lot of, you know, uh, Kane and Infinex, like really cool, obviously what they're building. Uh, this is maybe gonna be a slightly different conversation. Constantine and I, uh, I thought we could start here. Constantine went and I went on a very, very, very depressing walk around New York in 2023 where we were almost, uh, crying to each other and it was very dark days. And yeah, just the depths of the bear market. So, Konstantin, maybe we could start there. I mean, you've been building this massive business in crypto for 8 years now, I think, one of the biggest businesses in the entire industry. You have more Fortune 500 clients than probably any business, I think, in crypto. So maybe we could just talk about what it's been like to operate a business in crypto through the years and specifically the last couple of years.

Yeah, no. Yeah, happy to. And I feel like, I mean, you have a similar amount of time and, you know, one of the, the time in crypto and the one thing I always say is like crypto moves in a sort of— it used to move in a 4-year cycle where as a founder, one year you look like a genius, 2 years nobody cares about you, and then one year you look like an idiot, but nothing actually changes in what you do. You know, kind of that's always what I find really interesting is that the market dynamics will really shape the perception that people have about what you're building and what you're doing, because the volatility and the incentive mechanisms around tokenization that we need in order to build these networks also drive obviously this immediate desire for return, specifically from investors. And so in a bear market, you know, you start looking silly really quickly because in the bull market, you know, you go out and it's like, hey, the world is coming on-chain, everything's changing. And the expectation level is really, really high. And then obviously when the bear market collapsed, like when we spoke was just sort of basically after FTX blew up, you know, it's hard because the same people that kind of thought, hey, this guy really has it figured out, are like basically, oh, this is all dead now, right? Like, and so it's hard to stay, I'd say, solid through those periods. Yeah, for sure.

How do you think about this idea of chasing— like we're in such a narrative-driven industry. So for Blockworks, like 18 months ago, everybody and their mother's telling us we got to go launch a chain. Blockworks needs an L2. 9 months ago it was Blockworks needs a meme coin, Blockworks needs a token. Now Mike and I probably get a pitch a week from people saying Blockworks needs to become a Bitcoin treasury company. We need to, we need to take this thing public and become a Bitcoin treasury company. And obviously we haven't chased any of those narratives and we don't plan on it. But how do you think about— I mean, sometimes you do have to follow where the narrative and the meta is going. But you can't get too overweight there.

Yeah, I mean, it's a hard balance, right? Because we are definitely a narrative-driven business, right? Like, I think the sort of people forget that cryptographic decentralized networks and building commercial models around them is really a very deep tech novel thing. And so there isn't a playbook that you can easily apply around like SaaS multiples and all those type of things. And so what that means is that Again, investors and stakeholders, you know, hear something and, you know, they don't see the metrical alignment that they're used to in a normal SaaS company. They see a ton of volatility. And so they're chasing the next thing that they think will get them to that level all the time. And I mean, for us it's been a real challenge because we are obviously a really long-term focused infrastructure company. For example, we've been building wallets for, like, I've made that pivot when we in '21, when we decided to really go into institutional wallet architecture. And, you know, we've been solidly holding on to it for a long time. And there's been a lot of pressure to really look at, look at that and kind of find, hey, are there more exciting ways to use our engineering skill set? And L2 obviously was the same for us. You know, everybody wanted to have an L2. And I remember meeting Jesse from Base at the time and really liking what they were doing and trying to tell people, hey, we'd rather support a few efforts that are really going to be big than go for every individual little thing that we can extract value out of.

Can I get a show of hands from the audience? How many people know what Blockdaemon's— what Blockdaemon does in their business model? Hmm. All right, good. Not that many.

Well, yeah, I mean, listen, which is partly by intent.

Yeah, because you guys are such a B2B institutional business. Maybe for the audience, can you give a a quick, like, what is the business model today? Even for me, I mean, I've seen you guys, it was just an institutional staking business, then you've got wallets as a service. I don't even fully understand the whole scope of the business. What is the business model today?

Yeah, I think one thing I wanna highlight is the secret lies a little in the name, right? And so Daemon in computer science is an operating system that runs silently in the background, right? And so the idea behind Blockdaemon was always that we wanna be in the background, we wanna run infrastructure, Ideally, we don't want to be known. It's a lesson I've learned the hard way. A lot of the people I know, and well, like Dogo and Sam and all those people, that everyone who kind of stuck their head out basically ends up in an orange jumpsuit. And so I always felt it's much more important to really work on core infrastructure than being publicly known, also as a company. And so now what Blockdaemon really does is we connect institutions to Web3. And what that means is we started with full nodes for transactions. That's where Blockdaemon actually came from. That business now is migrating really into DeFi APIs and bridging liquidity. And so we recently launched, like, for example, an earn offering, right? Like where people can, you know, kind of do all things through an API, through our node architecture. Then we have institutional staking. I think the big difference here is we're the only, I think, US domiciled staking provider. And so we don't have a consumer offering here. We run this for, you know, every— I'd say every major entity runs— has a Blockdaemon staking node somewhere at this point. And, you know, we think there's a lot of evolution coming there. And then really the wallet part pulls it all together for us. One thing we learned in staking is that we think if you don't control the primary, which to us is where do the tokens physically reside, it's very hard to monetize the underlying transactions. And there's the yield, right? And so what we decided to do is really build wallet architecture that we can give to companies like JP Morgan, for example, to actually manage their digital assets and then have our APIs drive transactions and staking over time. And so now what we've learned is building the wallets for those type of brands, and those are our customers, you know, and, and is really difficult and time-intensive. The procurement process alone, the, I mean, for Bank of New York, for example, vendor onboarding alone takes over a year, right? Like just to sell them a Bitcoin node, you know, like kind of. And so it's, it's, it's been really, really a lot of work. But, you know, the exciting part is that now we see a lot of that shifting, right?

Katana isn't another new general purpose blockchain. It's purpose built for DeFi users to provide the best experience possible. It does this by sustainably generating deeper liquidity and higher yield than any other network. If your assets are sitting idle, then they're dead. Katana is built from the ground up with DeFi mechanics to bring your bags back to life. All you have to do is bridge over and Katana does the rest for you. Incubated by Polygon Labs and GSR, Katana launches with a notable ecosystem of primitives, assets, and partners like Morpho, Sushi, Vertex, Lombard, Chainlink, and Yearn. Be early to Katana. Join the pre-deposit campaign before mainnet opens at the end of this month. Deposit funds and open rewards filled with randomized amounts of KAT tokens. There's also a CryptoPunk and other exclusive NFTs hidden for the lucky ones. As always, investments in blockchain technology involve risk. Terms and conditions apply.

Let's go there. So you guys have— I think I'm right when I say probably more Fortune 500 customers than any crypto business in the world. Maybe something like— maybe there's one or two others who are up there with you guys. How do you balance all the revenue? I'm guessing— I don't know your guys' P&L, but I'm guessing all the revenue today is in these crypto-native businesses and crypto-native funds and stuff like that. The future, you could say, is in the JPMorgans, the Charles Schwabs, the PayPals of the world. Mm-hmm. Uh, so how do you balance, like, this is where the revenue is, this is what's been exciting and sexy so far. Mm-hmm. But this is where like potentially the future of the industry goes, but it might take, I mean, another year, it might take 3 years, it might take 5 years. How do you balance that idea?

Yeah, uh, it's a good question and I think that's the core challenge of, of us as entrepreneurs in this phase of the market. Um, we are, uh, really, really well positioned as an institutional provider in the US and obviously that was a terrible position to be in in '23 when we were crying at the Hudson. But the— now it's a much, much better position, right? Like the expectation level is really high. People are, oh wait, we have— you have all these institutional customers, they're all going to deploy more crypto products. And so that must be amazing. And then the reality is the— and, you know, we're working with the different lawmakers and the White House and people who structure the market structure bill is that a lot of the institutional volume has really been ETFs. And the rest is slowly building up. Right. And so for us, the challenge is really how do we build for, let's say, tomorrow, like in the next 90 to 180 days? And then what does the business need to look like by end of next year in order to really capitalize on what we think will be, you know, 10x volume across, you know, staking, wallet and transactions. And so as an entrepreneur, it's hard because You know, I feel like most of that value lies ahead of us with existing deals and contracts we have. But obviously that's not reflected in the revenue we make today. And so you go back to being a narrative-driven business. Now, you know, you need to really define your quarterly wins really, really well in order to continue to convince your stakeholders that you're at least on the path for, for that long thing. And for us, the path And you know, this, like, is tough because we've been at it for a minute. And so the expectation is always go public. How are you going to provide liquidity to investors? Right. Like, I mean, you have probably the same challenge. How is that going for you?

Good. We haven't raised as much money as you guys have.

Yeah.

So maybe not as much pressure. I don't have JPMorgan and Goldman Sachs on my board. Yeah.

Well, one day, you know. But yeah, I think that's a real big challenge. And I think Thinking about liquidity also is changing a lot. Obviously, similar to what you mentioned, everybody wanted you to have an L2.

I feel like with the liquidity of, of Blockdaemon equity.

Correct. Right. But what I find interesting, the Circle IPO obviously is the next big trend. So everybody is like, you got to go public right away. Right. Like, and so it's because obviously the Circle multipliers look amazing. Right.

Like that's happened. So Circle, Circle 10x since IPO. Yeah. Your, your investors start calling you saying, Konstantin, you got to IPO. Right now?

That base— I mean, listen, I mean, my investors are very smart people, but basically they see appetite for institutional products.

Yeah.

And they're like, that market is underserved, so go live right now. And then the challenge for us is exactly the point, you know, we've talked about, which is that most of the revenue and value we think will happen in 2026. Right. And so for us, for example, right now wouldn't be a great time because I feel like most of the commercial flow through the Blockdaemon stack will get activated in 2026. So I'm trying to, you know, buy time here without having to, you know, rush to market. But you're going to see— my prediction is that the Circle IPO will mean that you're going to see more crypto companies backing and reverse engineering and to whatever format they can in order to get public liquidity.

Do you have an idea of if you guys did IPO or go public? If you guys IPO'd, would you try to Sorry, if you guys went public, would you try to do it in the traditional IPO method or would you do the SPAC reverse merge, do a PIPE? Like, do you have thoughts on what fits your guys' brand better?

Yeah, we really want to reverse engineer into a Pizza Hut franchise. Yes. Yeah, no, I mean like you get insane offers around SPACs, which I love. Like, it's like, wow, really?

Everyone's telling you their shell company is better than—

That's right. It's, it's quite funny. I think from our perspective, I really believe at the core that crypto is about empowering everyone, making everyone count it. I think the, the, that crypto really serves a very, very important part to what I believe is a better society for everyone. And so at the core of crypto is also tokenization, and we might not like meme coins or tokenization, but it's really the The cryptography is one part. The other one is the sort of decentralized tokenization incentive mechanisms. And I feel as a crypto company, I really want to take a really good look at that and think about how can we make our stock participate in a tokenized world. Right. And so that would be my preference.

Right. You're saying you guys could theoretically IPO on-chain instead of IPOing publicly?

Yeah. I mean, I would prefer it. Now, here right now, that's basically not possible. Right? Like, and so the legal frameworks for this don't exist. But I think for, obviously, a crypto-native company, tokenizing our stock and having a market that actually, you know, kind of works on, you know, if you can buy your stock on Unichain, I'd love it. You know, like, I think that's much more aligned also with our potential investor base. I would hope that the people who would want to buy our stock are also people who really care about crypto. Right? And so I think that going to where the market is, is really important. The one thing I would say is that we think a lot about this as a company, and we're also working on other tokenization projects. And one of them is, for example, like thinking about staking, you know, I think staking is a really exciting opportunity, but I also think it's going to change a lot over time. And the complexity around staking with MEV and market inefficiencies within networks makes chasing yield really complex for individuals. And so we're thinking of, you know, we're working on coming up with a staking index token, for example, that provides liquidity, aggregates yield across the best staking protocols and avoids a lot of those pitfalls. And so we're sort of testing the waters around how to build tokenized economies and how to think about that. And my hope would be that I can do the same same with our stock over time, for sure.

Very cool. Yeah, that's great.

Katana isn't another new general-purpose blockchain. It's purpose-built for DeFi users to provide the best experience possible. It does this by sustainably generating deeper liquidity and higher yield than any other network. If your assets are sitting idle, then they're dead. Katana is built from the ground up with DeFi mechanics to bring your bags back to life. All you have to do is bridge over, and Katana does the rest for you. Incubated by Polygon Labs and GSR, Katana launches with a notable ecosystem of primitives, assets, and partners like Morpho, Sushi, Vertex, Lombard, Chainlink, and Yearn. Be early to Katana. Join the pre-deposit campaign before mainnet opens at the end of this month. Deposit funds and open rewards filled with randomized amounts of KAT tokens. There's also a CryptoPunk and other exclusive NFTs hidden for the lucky ones. As always, investments in blockchain technology involve risk. Terms and conditions apply.

So, I mean, you got, yeah, Goldman, JP Morgan, Comcast as investors and on your board and stuff like that. How do you think they would feel if you in the board meeting told them, all right guys, I'm IPOing, but I'm doing it on Uniswap, I'm doing it on Ethereum? What Unichain, whatever you want to do, not on, you know, the New York Stock Exchange.

I mean, I think if I learned one thing, and not to discredit my investors, is that if you put a large enough pot of money in front of people, things change really, really fast, right? And so I think if my investors would feel that the return that they would get would be a lot better, then I think it's a fairly easy conversation in this regulatory regulatory landscape, right, where we think we could probably get the right legal clearance and structure in order to avoid, you know, ending up in an orange jumpsuit.

Yeah. Yeah. You don't want the orange jumpsuit. No, no. Back to the institutional side of things. You guys have probably a better view into what the market will actually look like compared to, you know, most people in this room, I'd say. What do you actually think is coming from the institutional side in the next— let's call it— let's do short term, like 6 to 12 months.

Yeah. I mean, it's obviously a great question. I mean, Stable, you know, real-world assets on-chain are obviously a real thing. And so you'll see a lot of development there. I think you're gonna see a lot of obviously the stable token, stablecoins model is absolutely massive. And that's been kind of, you know, that follows this premise of like people see something that works, everybody is gonna rush into it. And so everyone's crypto strategy as a Fortune 500 is now gonna be, we gotta need it, we need a stablecoin. Bitcoin, right? Like, and so I think that's gonna happen really, really quickly for a lot of payment networks, lots of different folks. I think it's gonna be really, really interesting to see what pipes people intend to use for those. So I think that's a really interesting opportunity to think about between, you know, kind of the Optimism-based stacks, the zkSync type of stacks, like what channels are gonna be utilized to shield and think about transactions. Across these networks. And so I think there's going to be a lot of work around that. And then I think on the staking side as well, I think incorporating earn and yield into tokenomics for tradfi is going to be really interesting.

How do you think about the business model changing as you guys maybe become more of a crypto as a service type of business? Right. So maybe like Charles Schwab or JPMorgan opens up staking on their platform or even Blockworks, right? Like, I don't— I'm not sure we've shared this publicly, but like, we're thinking about could Blockworks like what, you know, historically our business models like media and events drives into a data and research platform. But could we drive into on-chain products, right? Could it be prediction markets or could it be letting our audience stake with us or something like that? And we've moved a lot of our stake over to you guys, right, to start to test that process. But then that means your business model becomes more of a— it's like a crypto— it's B2B2C, basically.

Correct. Well, I think the way— and the way we're kind of trying to account for it, if you come to blockdaemon.com, is the idea for us is to be an institutional portal, right? Which means is that any company that wants to service their consumers basically comes to the Blockdaemon portal and knows that they can find different APIs and full nodes for transaction scheduling, different APIs, widgets to activate earn functionalities for their customers, and wallet and key management solutions that they can use to hold and provide— hold their own assets or to actually pass out to individual users. And so it's really this sort of institutional toolbox that we're trying to become at scale. And so people can build their own stack. But the, the reason why we think it's good for us to have all these components, of of the stack is that we've learned with large institutions is that the third-party associated risk, if you're a crypto-native company, scares a lot of people away, right? Like, and so if they feel like, hey, I can work with this wallet platform and then I work with this node operator and I work with this liquidity provider and I work with this whatever data provider, the stack gets really complex and there's a lot of different stakeholders involved. And so having a sort of proof, SOC, ISO-compliant, audited platform where I can also have warrants and liabilities, excusing myself from taking responsibility for it, is really attractive to these institutions.

Yeah. Maybe we can end— I'm looking at your t-shirt.

Yeah.

Nice new Blockdaemon US merch that we've got here.

Yeah.

The industry has a— for as long as I've been in crypto, ebbs and flows between Asia and the US. Cycles, right? It's like it's all in on Asia and then, you know, China shuts down Bitcoin mining, then it goes to the US and then Gensler shuts down DeFi and then it goes back to China, to like Singapore and Korea. And then now it's back in the US. Do you think the US is the endgame? US is the largest capital market in the world. US is the endgame. Or do you think we're going to keep going back and forth?

I mean, I think it's never been better to build crypto anywhere in the world than in the US today. And obviously I'm very happy about that as a sort of US-based company and we got unbanked and we had all sorts of things happen to us in the last, during the last administration. And so, you know, we have these like Top Gunny Block Demon shirts to remind people that we're actually a US native company. You know, and we work with the White House and the different groups to kind of make America steak again. And like, you know, we kind of have these like different models that we're working on.

That's the tagline, make America steak again.

Well, I mean, we have different ones for different use cases, but I think what's really important is what we're trying to make sure is that networks that monetize US consumers basically roll revenue up into the US economy. And so one of the challenges we've had as a US-based business is, for example, we were the first infrastructure company that needed audited accounts, probably. We have fully audited accounts going back for 5 years. We have to show, you know, we have to stop our consumer staking product 2023. None of my staking competitors had to do that because they're not US domiciled. And so the cost of operating in the US is a lot higher than it was anywhere else in the world. And so I think it's really, really important for the US Market Structure Bill to ensure that we educate users here, to also make sure that value gets created here and not sucked up offshore. Right. And so hopefully with the new regulatory framework frameworks, we can help make that happen. And so to really make America also have this loop of, you know, network revenue, MEV, all that type of stuff gets also generated in the US. And so that's going to be interesting.

Yeah, Constantine, thank you for the time.

Thank you, man.

Good to see you. Thank you, everyone.