Inside Dragonfly’s $650M Raise | Weekly Roundup

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Welcome back, everyone, to Empire. Rob, we've got a lot to talk about. You've— I've been trying to get this out from you, but of course, you and I have known you've been on the fundraising trail for a while. Give us the inside scoop.

Yeah, no, it's a big week for us. So excited that we were able to finally announce our fund for, um, announced $650 million we were able to raise. We were oversubscribed. That was the, um, that was our hard cap. And so for people who don't know, typically with venture funds, you go out with a target, uh, and then you have a hard cap because the, the, you know, LPs don't want you to make the fund too big because they're worried about, you know, kind of the correlation between returns and, and fund size. So we went out with a, you know, $500 million target and hit the $650 hard cap, same as we did in 2022. And we're really, you know, excited to be able to do that. Um, you know, I think it's, you know, I got a lot of feedback from people that were, you know, surprised that we had raised so much money, surprised that we were able to, um, do it at a time when the market has been pretty tough. And I think that kind of really highlights how different you know, the, the token market is, the retail side, uh, sentiment is relative to, you know, the things that are really working on, you know, stablecoins and prediction markets and a lot of the other things in our portfolio that are doing incredibly, incredibly well. And just the institutional desire and interest at getting exposure to those things, because that's the reason we are able to raise, not because, you know, Bitcoin was at $120K at one point or because it was at $66K today, But, and we have a lot of exposure to tokens and we have a lot of exposure to projects that, you know, have been, you know, have gone up and downs in terms of valuation. You know, famously we're, you know, very big investors in Athena early and Monad early and Lighter early and, you know, others. But broadly, you know, I think what we've done, or the story we've been able to tell, what we've done a really good job is at, is being able to do, or be able to bridge the gap between the crypto-native side and call it this, you know, fintech revolution that we're seeing happening. and that's what the LPs are really excited about. And so, um, you know, we're honored to be able to, to, to raise that capital. We're honored to be able to, you know, uh, partner alongside a lot of these really great, um, founders. And, um, you know, I'm excited to go shopping at a time when things and prices are, are, are a little bit cheaper.

Yeah, a lot to unpack there. I'd like to start with, um, first off, how was the conversation with LPs this time around? What percentage of the fund was existing LPs and what was new LPs?

Yeah, so, um, on the second question, I can't exactly say, uh, what that looks like, but I can tell you we had, uh, very, very high re-up rates from the existing, from the, um, from the last funds, um, higher than what is typical, right? And so, uh, what typically what you see for, for funds on the re-up sides is you get, you know, somewhere between 70-80 percent, uh, is, is really good. Um, you know, our—

meaning like 30% of your existing LPs churn, don't give you money again?

Yeah, or the, you know, downsize or something like that. That's pretty typical, um, for VC, somewhere between like 20 and 30%. Um, we had, we had really, really high re-up rates. Um, I think in crypto those numbers have been even worse, right? And so, you know, I've heard from other funds where they've had, you know, 50% of the LPs churning, maybe more, and then People are trying to pressure, you know, the GPs to raise less capital because they want the fund sizes to come down. Um, and so I think it's been really tough for, for a lot of people, but, you know, luckily our LPs trusted us and I think, you know, in large part because of the job we did in that 2022 vintage. Um, and in terms of investing in a couple of category-defining projects, I think famously, um, you know, Polymarket and, uh, early and, um, and Athena really early. you know, probably the two most, you know, I think, uh, the two biggest ones in terms of like, you know, MOICs and, you know, the, uh, conversations that we've had, but there's a bunch of other really great investments in there as well. Like, you know, Monad and, uh, Agora and Bitcat and, um, Lighter and a bunch of others. Um, and so, uh, you know, that was, you know, kind of this vote of confidence that people gave us. And then that allowed us to, you know, go out to a bunch of other institutions and say, hey, look, look at the returns that we've had, look at the job that we've been able to do, look at the stuff we've put into, you know, especially for like last close. And people may or may not know this, but the way venture funds work is you typically do a first close and then you have some period of time, typically something like a year to 18 months, to go and do a final close and raise the rest of that capital. And so, you know, at some period of time too there between our first close and our final close, um, we had a couple things specifically, uh, Rain and Polymarket that were in that fourth fund do really, really well. And that I think allowed the, the, um, the LPs to get really excited about what they— the marks of the fund and what they were getting into as well. And so, um, that, that kind of momentum, I think, um, you know, really—

so was that— was that when you say marks of the fund, was this like, um, you know, you're— you started deploying this fund after your first close, or was it they were looking at the performance of the prior fund, most recent fund, or a combination, or—

so, so it's pretty typical, it's a combination of both, right? So people care a lot about what your prior funds did. Um, our first fund and our, and our third fund have done incredibly well. Um, the second fund, the 2021 vintage, is a little more challenged based on a lot of '21 vintages. But, um, I think that's, that's typical. Um, but we, uh, what also happens is in funds a lot, right, is that you do the first close, like I mentioned, you have somewhere between 12 and 18 months to do the final close. And, um, you know, during that period of time you start deploying capital from that first close. And sometimes what happens if companies are doing really well is you have a couple things that might start, you know, also, you know, maybe they have another round raised or maybe they, you know, you can see how well the business is doing and that allows people to look at the fund and say, oh, well, you know, I can, I'm already getting in in a de-risked portfolio because you've put some amount of capital to work and a couple of the things are already looking like they're going to be huge winners and Um, and we had a little bit of that and, uh, and some of the stuff that we put to work, um, over, you know, during that period of time. And so, uh, that really helped us accelerate into that final close as well and, and be oversubscribed relative to the last fund.

Um, there's a couple of big fundraise. Thrive, for instance, raised $10 billion. If you look at the evolution of Thrive, they each started with $5 million check from general catalyst GP. Uh, and then of course every subsequent fund doubled in size. And so he's into Fund 10, and I think that's, um, I'm interested to get your thoughts on like what was the evolution of Dragonfly. You're into Fund 4, 5 now?

Fund 4, yeah.

Fund 4, Fund 4, $650. What was the like, walk us through the evolution of like Dragonfly in terms of AUM.

Yeah, first, um, Josh Kushner, uh, coming in like, uh, mogging us, I think, uh, where we announce our fund at $650 and then he announces his $10 billion fund like 30 minutes later. That was That was fun. Uh, but I, I mean, listen, like Thrive's maybe, you know, the best fund out there right now, but yeah, we, we, um, so our first fund was call it late 2017, early 2018. That was a $100 million fund. Uh, that fund has performed incredibly well. Uh, we then raised a second fund, uh, in 2020, uh, which was a $250 million fund 2. Uh, we raised a $650 million fund 3. Uh, we did final close of that in early '22. Um, that fund was raised incredibly quickly because of the, the time in the market at— in '21, '22, when everybody was— there was just so much insatiable demand for exposure to the space.

And then we raised Luna.

It was pre-Terra Luna, right? So we, you know, we've been— we've either had good foresight or we've been lucky, but we've, um, we've raised capital like right before some, some bad events, or you know, right during some bad events, which allowed us also to deploy into depressed markets. Um, but then we did raise $650 million again, right? And, you know, typically, as you mentioned, you see this in a lot of traditional or generalist funds, each, you know, subsequent fund is bigger than the last. You know, what we heard from the LPs was, listen, you've done a great job, but we want there to be— we don't want you to get bigger because, you know, we believe there's inverse correlation between size in returns, and we believe that crypto is an important emerging technology and category, but we, we don't believe that it's a, a place where you can put tons of money to work. And so we are worried about like these mega funds. And, you know, I think it's specifically true when you look across, you know, some of the other funds, right? Andreessen and, and Paradigm had these multi-billion dollar funds, and Han and Patera had billion dollar funds. And, and you look at like what Paradigm did, right? They, they raised a fund last year Uh, and it was $850 million. And so that's significantly down from $2.5 billion in their 2021 vintage. And that tells you some of the sentiment, right? Because Paradigm's, you know, kind of, you know, one of the gold standards and they've, they've, they're no real insiders in Silicon Valley. And so, um, well, that's what we heard from the LPs. And so, uh, we, we heard them, we said, okay, well, we'll raise the same size of fund. You know, I'm hopeful that our space will continue to get bigger and then maybe someday in the future we'll, we'll raise, um, larger funds, but. Also, you know, as an asset manager, and I'm sure you're thinking about this as well, there is— all of us have to make a decision if we're going to optimize for the 2% or the 20%, right? And we've always said that we're going to optimize for the 20% or the carried interest or the returns, right? You know, I think a famous example of this, we've done an incredible job, is Benchmark.

Benchmark just kept it at $330 million and its latest fund's up 10x.

Yeah. And then they put the $100 million of GP capital in, like every fund is $400 million bucks, right? Or $450 million bucks.

Yeah, right.

And, and they do incredibly well. And you hear a lot of conversation around like, oh, is Benchmark dead? Because, oh, they don't have— they didn't raise $15 billion like Andreessen did, or all this money like Sequoia did. And then you see the returns come out and they 10x the fund, right? And it's because they have this model for, at this right pool of capital with the right amount of partners, we know we can have outsized returns. And so, you know, that's—

you can't, you can't defy the laws of physics when it comes to this game. Like, you know, as soon— it's the calculus is very simple. More AUM, return degradation. It's as simple as that. And I think in crypto, you've seen it, you're going to see it in like you've seen it in venture and in private equity, certainly as well. You know, and so I think I'm curious on the 650 number. A lot of what we talked in this podcast is like the investable universe in crypto is bumping into fintech. Fintech venture funds are coming in. But it has been the case that, like, I'm an investor in a lot of funds as well, and I see very clearly, almost to the T across most managers, there is, relative to other cycles and vintages, a very clear divide in the haves and the have-nots. And I think it's just a function of crypto maturing as an asset class, whereas before it was relatively easier game. In the sense that, you know, a rising tide lifted all boats and there's a lot of correlation within the industry, good and bad, right? Reflexivity up, reflexivity down. Now you're seeing a very big divide and, you know, in many cases over the last 2 years, if you weren't invested in like a handful of names on the venture side and on the liquid side, you, you kind of really started to see which managers were good and which ones were not good. And that was harder to tease out. So I'm curious, like, does that really resonate with an LP? Uh, whereas like they're, they're asking the hard questions, like, did you invest in Hyperliquid? Did you invest in prediction markets? Did you invest in Solana or high throughput blockchain? Um, or are they, or are the LPs not as sophisticated and they're just getting off of zero? They just sort of came to you because they said, okay, you got a good track record, you're institutional. And you're at a fund size that allows me to deploy, because, you know, I saw that firsthand at ParaFund. Like when I, when I joined Ben in the journey, we were, you know, between $10 and $20 million fund. And when you say that you're closer to $10 to $20, and I could tell you like a lot of people said, hey, love the strategy. DeFi feels like it's going to be a thing. Come back to me and you cross $50 million because we just cannot invest in your fund. You're too small. We can't encompass more than 10% of your strategy. And so there was just like structural limitations around— it was, to me, it was a bit of eye-opener where like a lot of allocators, especially institutional ones that are coming into the space, don't make decisions on like, you're going to give me the highest ROI. You're just— a lot of it was like, do you have the proper reporting compliance valuation policies? Like some stuff that like matters a lot. I'm just kind of curious, what are What are LPs really focusing on now when they make a decision whether to allocate to your fund or someone else?

So it definitely depends on the LP and the makeup, right? So I do think that, um, you know, when you talk to an endowment versus a fund of funds versus a pension versus a sovereign wealth fund, like they do all, you know, make decisions slightly differently because they have different risk appetites, right? But, you know, returns are probably the most important— and not probably, they are the most important thing, but they're not the only thing, right? And so you can have the best returns, but if you're investing in categories that people see have high reputational risk, they might not like that, right? If you're, um, you know, doing things that people see are like maybe not the right risk-adjusted returns, you know, they'll, they'll think about that. Um, I, I also— there's—

what would be example of someone that says, hey, you've given me a good high return, but it's like risk on the venture side. I can understand like if you're a long-short or just long-only hedge fund, like the Sharpe ratio they would look at. But if you're a venture fund, does that, do they look through that and how do they assess the riskiness of the strategy?

So we had a, we had one LP who is a very large multifamily office that basically operates like they're, you know, a huge asset manager, not a family office. And, uh, they— their feedback to us, they actually— they passed, and their feedback to us was— and this was before the ICE round— but they felt there was too much regulatory risk in Polymarket, and that we had, uh, you know, we were a little bit out on the risk curve taking that type of risk as VC investors, right? And so you do see people make decisions like that, which is, we'd like you to have maybe a little worse returns but not invest in things that are, uh, no, like a regulatory gray area. Right? And because at the end of the day, you know, everybody has a boss, right? And if you're investing, uh, and you're an LP and you invest in a GP and the GP returns, you know, call it 30% less than another GP, but that GP didn't invest in FTX, like, you're much better off, right? Because you do not want your GPs to be invested in FTX, because then if you're invested in FTX, you have to go and you have to go, uh, explain why these GPs didn't understand, you know, or didn't do the due diligence, or, you know, didn't understand the fraud that was happening. And so we see a lot—

let's not forget that, uh, some of the major brand names, not in crypto but just traditional finance, invested in FTX, and they continue to raise funds. So is that a— do you think that an LP— like, how much— if you were to compare your fundraising journey this time around with your counterparts and Silicon Valley or in New York in traditional venture hedge fund land, like, I would assume the, the level of scrutiny is, is way higher for someone allocating a crypto fund.

Yeah, I think it is a lot higher, and I think I've said this before in this podcast, but crypto venture is a subset of venture, and venture is a subset of private equity, right? And so when these, you know, big institutional LPs decide how they're gonna allocate capital, typically they say, okay, well, we want some portion of the book, usually somewhere between 10 and 25% in private equity, right? That includes buyout, that includes growth, that includes venture, right? And then some portion of that will be in venture, right? And then in some portion of that venture will be, maybe it'll be in specialists, but not always, right? So it might be generalists. And then I, I, the one place where everyone has to have a specialist now is AI. But outside of AI, they don't have to have other specialists. So then they have to decide that they believe in crypto and that they want a specialist. So when we're competing for, you know, investments in capital, we're competing for maybe a few points of a total LP's AUM across not all LPs who are happy to— who want to put money into the space, right? And so on the point that I just made about, like, you know, the risk profile, pensions primarily are not back yet in, uh, in crypto investing as LPs. There are some there and a few, but, you know, um, there are, you know, if you're a big private equity firm, most of your capital is coming from pension funds, right? For us, um, you know, it's, it's a, it's a much, much smaller amount because they're, they haven't wanted to go that far out on the risk curve because they're worried about some headline that says, hey, you invested in Terra Luna or FTX or a manager that did that and these are, are, uh, frauds, and now you're taking money from the teachers, right? And like, it's just a bad headline for people. And so there, there's, um, it's, it's really about this like spectrum of risk, the spectrum of— you also talked about like, okay, would you have the right compliance standards? Are the GPs credentialed and pedigreed? Like, that definitely matters. Are you connected? So there's a lot of things that go into an LP making a decision.

Yeah, it's interesting because like A16z raised obviously $15 billion for across two strategies, I think growth and venture thrived at $10 billion. But a16z raised, I think accounted for like over almost 20% of all venture dollars raised in the US went to one fund, which is, which is kind of crazy, right? Because a16z is generalist. Like they have, I would argue most of the capital there is just like, there's really, they have a good thought leadership, like Mark and Ben need no introduction. And then you have other very specialized folks like Alex Rampell and a few other guys that have like, earned their stripes as being operators similar to Ben and Mark that, you know, have a very good track record as operators. So, but, but it's, it's like you, you gotta argue like at $15 billion, like I think there was a very impressive, like a good chart around what's, what's a16z DPI and fund performance. And certainly like all their funds have done well, but then they haven't really outperformed the broader market. And you see this time and time again. You know, private equity, you know, similar, like buyout funds are getting larger, their returns are degrading, they're not outperforming the broader market. You know, private equity as an asset class is kind of in a tough spot. There's like a plethora of private equity funds, a huge backlog of portfolio companies that are not getting liquidity and the public markets are not there. Multiple compression. If you're investing in SaaS and other stuff, like You're not selling that portfolio anytime soon, or if you are, it's not at the multiple that you entered. And financial engineering doesn't work as much. And the other thing is DPI, right?

Yeah.

But interesting that I just hired a guy who works at one of the largest shops based in Europe, and he was telling me, look, sometimes like the people that are giving us money, it's a massive fund, right? $20 billion fund or whatever, the latest one. And he said like sometimes an LP would rather see a guaranteed 2x underperforming the S&P and the NASDAQ than see a 3, 4x. I was like, well, why is that? Like I sort of intuitively understand why. I was like, why is that? And he's like, well, a couple of things, but the reality is like they just need to allocate to this asset class. Like to your point, they're like, they have to by mandate. Say you have to allocate, uh, if you're a sovereign wealth fund, you have to allocate to private equity, and within private equity, you have to allocate to a buyout fund. And, and at that point, it's like, as long as you don't lose our money and I don't lose my job, I will give you— continue to give you money. And I find that just— it's very different to how I operate personally, right? And it's something that I— perhaps our listeners don't appreciate, because you would think any rational person would give You would just select in a perfect world, hey, these guys are the sharpest investors in crypto or the sharpest investors in the strategy. I'm going to give you money. But that's not, not how it works.

Yeah. Well, and I think, I think a couple things are true than the points that you made there, which one is, uh, again, returns probably definitely matter more for that first check. But, um, typically what happens with institutions is once they get to know you and then they bring you on as a manager, it's much easier for them to re-up. So, uh, it's not as if— it's, it's the same thing as venture capital, right? Like, once I have money into a company, it's much easier for me to keep putting money into that company than to re-underwrite it for the first time, right? And we see this a lot with LPs. And so, uh, you know, if an LP says, hey, I can put— I can continue to allocate because I have to over some number of fund vintages, uh, and I can get guaranteed returns that meet our threshold and make people happy, and I'm not going to get fired— so I'm not going to get fired is a thing that people think about all the time. Right, especially if you're like a mid-level investor, uh, uh, they're, they're much more happy to do that than they are to take a risk on a new emerging manager where maybe returns look better. And that's, and that's the tough part about being an emerging manager and why, um, you know, oftentimes you— it's hard to go from Fund 1 to Fund 2 and Fund 2 to Fund 3. Once you kind of get past Fund 3, it's typically, you know, historically much, much easier. But I, I think, um, it's very clear that, uh, you have to kind of juggle these things. And, and we've been lucky enough to have both. And we also— DPI was a big topic of conversation Yeah, and I did— you, um, I didn't mention it earlier, but we were fortunate enough to have had some like real DPI in that third fund. We're at a time when I think a lot of people did not because we had a couple of big acquisitions, Hidden Road and Arbelos, and a couple, couple of our early investments in this, in the cycle, um, had some tokens where we were able to take a little bit off. Um, and so it— that was, I think, also, you know, uh, I think very it, it helped these LPs make the case that they should continue to allocate because it's not just, oh, we have these like good marks, but also like, no, no, we're getting money back.

Yeah, yeah. The DPI is, uh, probably a much more of a topic in committee for any strategy at this point, um, just because there hasn't been much. Um, yeah, one of the things that, uh, I think to double-click there, all of what you said is true except the guaranteed returns. There's never guaranteed returns, right? But, but they get to know you and, and I think they have, uh, They'd rather pro— like in the calculus of taking someone, a new manager that they haven't allocated to versus someone else that perhaps hasn't had as much DPI and but hasn't had an egg on their face. Like they'd rather, especially in crypto, they'd rather just kind of allocate someone that they've known and say, okay, these guys are legitimate, we've invested with them. It doesn't have as much career risk.

Yeah. I mean, this is why, you know, Andreessen has had some great returns over time. Right? But to your point, um, you know, even when they have subpar returns and they have these big funds, nobody will ever look at Andreessen on a sheet and say, hey, listen, like, this person, like, you know, they took a risk they shouldn't have, or, you know, whatever. They're like, oh, well, this makes sense, and we're excited to, you know, continue to back Andreessen because we think they can hire some of the smartest people, and like, hopefully the funds work over time, right?

Yeah, it's almost the reverse, which is if you're, if you're a pension fund working and deciding where to allocate I think your principal will tell you, why didn't you— it's like, why didn't you invest in the most rep— like, why aren't you invested in, you know, Viking? Why aren't you an investor in, you know, in a, in a, you know, Citadel, or, uh, you know, uh, you know, Bridgewater? And irrespective of the returns, it's like, why can't you get into this very selective group of managers? Uh, but, uh, yeah, that's true too.

I mean, it's the same thing where, you know, we try to get into the hottest deals, right? Like, you know, and these— when funds are oversubscribed, and, you know, we were lucky enough to have that this time as well, you know, people are— they want to fight for allocation, same way that you do when you're, you're trying to, you know, invest in a, in a company.

All right, well, to round out this huge milestone, I think it's a good time to invest. Uh, kudos to all you guys there. Um, what, uh, biggest learnings? Uh, maybe interesting things that you learned during this time around? LPs that passed for a very specific reason, weird reason? Uh, what were some of the things that really surprised you during this fundraising track?

So most LPs won't tell you, right? In the same way that most VC funds won't tell you when they pass, right? Uh, which is why we endeavor to try to do that. Um, I gave the example earlier about, about Polymarket. Um, I, I think the, you know, today all the LPs pretty much know crypto. I think one of the things that we heard time and again from people who, you know, ultimately a lot of them ended up coming in anyways, but the question is always like, hey, if it's all really correlated, then why don't I just buy Bitcoin, right? And you get a lot of questions around that. That dispersion of protocols and companies this time around, I actually think is helpful to answer that question. Because what I tell people is like, you're investing in emerging technologies that are reshaping, you know, financial infrastructure, right? And, uh, you know, Bitcoin has gone down, but, you know, Rain and Polymarket are still going up. And that's become more true in the last 18 months, 2 years, than it was ever before. But we used to get a lot of those questions. Now those questions I think are going away as stablecoins and prediction markets and these other things, uh, start working. Um, and so that, that's been easier to, to to answer. I think the other question, uh, we get a lot is like, okay, well, if it is all going to, you know, stablecoins or, you know, kind of these, you know, more traditional like market type businesses, uh, should we just invest in or get our, you know, crypto exposure through a traditionalist fund, a generalist fund? And you know, what I tell people all the time is, you know, I believe, and of course this is my perspective, but when I think we start to show that this is true on the returns, that, you know, we can pound for pound compete with those funds at, you know, call it the seed through B stages that we invest in. We have the capabilities on the fintech side, we have the capabilities on the payment side, um, in a way that most other crypto funds do not. Um, but we also have that deep crypto expertise, that deep research, uh, mindset. Um, and, you know, this is still an area where if you don't know the details If you can't get really deep into how cryptography works, then you can still miss things that are easy, even if it's sort of a payments company. And so I think, you know, the pitch for us is always you're investing in emerging technologies and you're getting the best of both worlds, right? And that resonates with a lot of people. It doesn't resonate with everybody.

Yeah. Um, no, it's certainly true. I think, um, when you think about, um, like your competitive standpoint, like, um, I wonder who do you think is your biggest competitor?

You know, we, we, when it comes to deals we're trying to win, I would say time and again, uh, the person that, you know, comes up the most is Paradigm. So, um, I think we, I have a ton of respect for what they've done over there. They're a great fund. We share a couple cap tables, I share a couple board seats with them. But, you know, I can think about, you know, the deals where we've wanted to do it and we put a term sheet out. I can think of, you know, maybe no more than a handful that we've lost in the last 2 years.

And I remember that one you shared. They had an existing investor give them a higher valuation and it was more like Solana native. And I guess you guys are not, have not been as deep in that ecosystem as some other funds.

Yeah, so there's been a couple, this happens occasionally. So, so like for instance, like Rain, we actually tried to do the, the round earlier for Rain than we did. So we've done a couple of rounds for Rain. We tried to do, um, even one earlier round, uh, and they just had a term sheet from a, you know, an insider that could just like, hey, like we can do this super quickly. Um, and so that's obviously like in hindsight, I really kick myself for like not trying to figure out a way to do more there. Um, but you know, we got to know them really well and that allowed us to get, you know, there's really big allocations in the next couple of rounds. Um, but so that happens when it's a net new company. I think it's, you know, it typically tends to be— so there's the insider dynamic, um, I think paradigm. And then for a lot of the stuff I care about, because I care about stablecoins, I care about payments, I care about markets, um, you know, I do seem to come up against like the likes of Lightspeed and Ribbit and, uh, Norwest and some of these types of, uh, investors now. Yeah. And, and typically what I've been telling people on those types of deals, and that has worked so far, is that you want, um, a crypto fund because there is like, there's a crypto part of your business, and you want the traditional fund. And so we've had good luck of like saying like, you know, with like the Rain deal, we're like, okay, well Sapphire writes the biggest check, we write the next biggest check, right? And you get kind of best of both worlds there. And so, um, that's what we've been pitching a lot on those types of deals, and, uh, and that seems to have been, been resonating with people.

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Yeah. One last question. I mean, I wrote about this a couple of weeks ago, but like I was thinking through like, hey, are tokens actually investible or are they uninvestible? Was this something that, I mean, I think about that a lot. Like obviously we've been constrained by the design space of a token. We've called it a worthless governance token, to quote Deaton Spartan. But in some of it's true. Like, you know, in a perfect world, I think you would design a token like equity and allow it to compound like equity and have proper centralized entities. And I think you, if you look at what has been the best performing tokens of the last cycle, it's hyper liquid. Hyper liquid is as close as it gets to an equity. Putting aside like the launch mechanics and how they kind of galvanized and, you know, got community mindshare, but in many ways it looks and feels mechanistically like an equity. It's not perfect, but it's as close as it gets. I'm curious, like when you guys think about investing now, there used to be a cohort of like funds that said, look, I'm going to invest. And then they'll flip a couple months out and say, when are you launching the token? Forget about everything else, just launch a token, the market's hot. Uh, and I think you saw a lot of that in prior cycles. Now, of course, market's not, not there. Um, Hasse wrote an article this week, you know, your partner counterpart, it was like, hey, look, it doesn't matter when you launch, it's kind of like just launch if you build something useful. And I think it's true, but I am curious when you guys think about like in the investments that you're making, um, Does that compute? Um, what are you telling founders in terms of, hey, look, maybe you don't need a token, or hey, maybe wait till the regulatory environment clears up. Maybe you can design the token in a better way. You know, Polymarket, not profitable, hasn't launched a token, but it's like just kind of going out there and winning mindshare. And it's kind of a duopoly there. A lot there, but I'm curious how you think about the investible, like, like what is going to outperform in crypto? What is going to continue to do well? Is it companies that launch token are tokens dead in many ways, and I think they're uninvestable, uh, and you'd rather wait for the regulatory environment to kind of clear up to maybe design it in a way that is— doesn't have this value leakage between labs and found— it's just like a, a very convoluted circuitous way to get to something that doesn't look like a security, doesn't look like equity. Um, I'm hopeful that we can resolve that. In many ways, because it, the current structure is pretty damaging, I think, to investors, particularly retail.

Yeah, I think so. I, I 100% agree with Hasib that it doesn't matter when you launch a token. Like you mentioned Polymarket, if they launched a token in this market, the market's terrible, the token would do incredibly well. There's no doubt in my mind, right? It is, but that's because they built a business that people want to use, right? And has real users and use cases and has mindshare and has a lot of excitement, right? Um, you know, for instance, like, you know, Hyperliquid already has a token, but if Hyperliquid launched a token right now, uh, and hadn't before, like, of course that would do incredibly well because the people are using the product, right? Uh, and so I do agree that if you build a product that people want to use, has real users, has excitement, it does not matter when you launch the token. It matters when you launch the token if you haven't built a product that people care about, if you're trying to launch a token, you know, long before you think you have like real product market fit and you have loyal set of users. And so what I tell companies all the time and protocols all the time is, um, do two things. One is tell me why token, right? Don't say— don't take token for granted. Don't say it's definitely going to happen. Tell me why. If there's a reason for it, if there's a design mechanism that makes sense, if you think this is better than accruing traditional equity value and you can articulate that, then absolutely, let's go for a token. I still think they're very investible in a lot of cases. I don't think it's true that, uh, tokens, you know, ipso facto, are, uh, uninvestible. I just think it's true that a lot of the people who launch tokens, they launch them before they have a product, and then they kind of do funky, you know, games on the market cap versus the FDV, and then the things come down, right?

Let's talk about like 3 portfolio companies of ours. You and I both invest in these three companies, Plasma, Monad, and MegaETH.

I'm not in Plasma.

I thought you were.

No, we're not Plasma.

Putting aside Plasma. Yeah. Putting aside Plasma, MegaETH, Monad, L2 and an L1. Like we understand like why you need like a substrate to coordinate, to settle and validate all that stuff. But it's interesting on the news section, but like you have like Optimism now based going off of the OP stack. Like, Base doesn't have a token. Um, you could argue like Meggy, like, why does Meggy ETH need a token other than, you know, providing liquidity to early investors like you and I?

Yeah. So I think it's a different story on the L1, L2 side than it is on the, especially the L1 side than it is on like the application layer. Right. So, because a lot of these applications could never launch a token and they would just, you know, accrue fees. Right. and that's very fine. Uh, for the L1s, right? Like you have to decentralize, like that is the only way the L1s work over time, right? You have to be able to have a, a strong subset of, uh, coordinated people that will, uh, go and validate transactions, right? Like, and you, uh, otherwise the, it gets really funky in terms of like how you think through the incentive model, right? And so for L1s, I just think like, you know, it's not possible in my mind for the L1s to go long periods of time without a token. And so even if they don't have, you know, call it a—

to solve for credible neutrality, because, because like if you're operating at Stripe in tempo, for instance, and like they have like the Libra model, which they have a consortium of, you know, mostly enterprises that have said, hey, look, we're going to validate in the network and you have to then trust those organizations. And then they still capture the ME, like the fees, right?

Uh, underlying that network, like with Tempo, like I'm sure Tempo will launch a token, you know, no matter what they're saying. But like, you know, if they— if like for like Robinhood, for instance, right? Um, you know, they've, they've kind of got this Arbitrum sidechain, but you're taking a Robinhood counterparty risk, right, when you transact on their chain, right? And you know, it's obviously, it's a, you know, it is a like an Arbitrum fork or else I think, yeah, I think it's like a fork, it's like a sidechain, uh, but like you're taking their counterparty risk. They can do whatever they want, right? And so if you want to launch like an actual general purpose, fully decentralized, permissionless L1, like you have to launch a token, right?

Um, L2, you say you have to launch it earlier on just to invite people to build on top?

Yeah, to invite people to build on top for incentives, but also for, for, um, unless you as a— there's also a regulatory reason why like you know, call it like Monad, for instance, who just, just launched, or Tempo. Um, I guess Monad is a little bit different, but in like the Monad case, there's regulatory reasons why you don't want to actually be validating all the transactions, right? If you're trying to, um, you know, be a kind of a nonprofit, and which this goes back to what we've talked about a little bit with regulatory clarity and, uh, and with Gary Gensler. And so I, I think that's a different story than like the application layer. The L2s are even a bit of a different story because like, for instance, with Base, right, you know, Base doesn't need a token. And a lot of the L2s honestly do not need tokens because they can, you know, use some other native— they could use ETH, right, as a gas token, right? And, you know, or a stablecoin in the case of like a Plasma or something, right? Um, or, uh, and they can— and then they're getting security from ETH itself, right? And so like they don't need this like decentralized, you know, validator base. Right? Um, so the L2s frankly don't need tokens, right? I think what's interesting in the Base story, right, is that they've— it's sort of— there's a lot of reasons that they could be rolling off of OP, right? There's a centralized sequencer point, and they want to become, uh, they want to be less— I think there's like a concern that maybe it looks a little bit more like, you know, a regulated exchange today with the centralized sequencer than it would if they were to decentralize, right? I think that's also true that they probably want to launch a base token, and so having their own L1 versus like an OP Stack L2, it makes it much easier to do that and also solves the regulatory problem, right? And so like, I think there's probably a lot of, a lot of that type of conversation happening there. But the— it's, you know, the L2s are in this, this kind of weird, this weird space, and that's why frankly the L2 tokens have done terrible and they've done worse than the rest of the market, right?

Yeah. No, I mean, people should go listen to that conversation with MegaETH. Look, I'm an investor and I said when they were coming on, uh, I said, listen guys, I'm gonna have you on gloves off. Like, I'm gonna ask hard questions. Uh, and, and I think it was a good discussion, uh, at a time where Vitalik had just tweeted about kind of, uh, the L2 reasons to exist and I think it comes like long overdue in my opinion, because I think like people would say it's an Ethereum alignment and we're utilizing Ethereum security. But the reality is the fees are flowing up and being captured on the L2. And you could argue that the security that is provided by Ethereum is grossly undervalued in the sense of value flowing down at ETH, the L1. But yeah, I'm curious. Round out the discussion on, on, on, on Coinbase moving off the OP stack.

Uh, you're saying that is a signal that they will be launching a token at some point in the next, you know, it's certainly, I haven't looked at the Poly market, but my guess is the Poly market traded up quite a bit on them launching a token on that news.

Interesting. How would that, how would that work? Like they would just issue it to shareholders. You know, mechanistically, I guess you could argue a lot of the reasons why they wouldn't launch a token is because they could put in jeopardy, you know, the mothership, which is, you know, the Coinbase stock, or it'll be like a spinout and they'll like every investor in Coinbase, like coin will get some sort of, you know, allocation. How would that look like?

The easiest thing for them to do will be for— to put a significant amount of it on the Coinbase balance sheet, right? And then you tell the investors that you are getting, you know, exposure to the base token through, you know, the Coinbase balance sheet holdings, right? Um, I think, you know, how— they're definitely not going to distribute it to public shareholders, uh, but I guess maybe I'll never say never, but I just can't imagine how that would, would even work. Um, but they, you know, I expect that they'll, you know, try to do something for users on the platform as well where they, um, you know, incentivize people to move over. They also, you know, reward people for having to use both BASE, but probably Coinbase itself. I think they want to move into a, uh, they really want to move into this kind of like, you know, exchange for everything model, right? And I think they see the future as a lot of that exchange for everything will have to happen with 24/7 settlement, will have to happen globally on-chain. Same story that Robinhood has, they're just coming at it from different directions, right? Uh, and so I, I think that's likely what's good, what you're going to see. And then this gives them more, a lot more, I think, uh, kind of control over the technical direction. Maybe they want to do a lot more run zk, maybe they want to do a lot more around, um, you know, uh, some of these other topics we're talking about that just wouldn't have been possible using the OP stack.

Yeah, yeah. Uh, we got 10 minutes to go, but for everyone not just listening, I mean, we have the OP chart pulled up. It's down 23.5% over the last 24 hours. I mean, pretty, pretty damn for them. I remember the, the deal that they inked with Coinbase was not cheap. I think they gave, you know, 4 to 5% of the entire token supply to Coinbase. It really puts into question, to your point, I mean, I think L2s as a whole haven't really performed well at all. And the incentives are pretty clear there. Like, you would rather like reduce dependencies and launch your own and capture most of the fees. I think it's pretty clear where that's going. I do wonder what the viable business model is for L2s at this point in the absence of having like meaningful attraction, or if you're better off like just getting a lot of demand, being an application, launching your own L2 like Robinhood did. Like Polymarket's probably going to do. Like if you have users, if you have that demand, you control that, you're in a privileged position like Coinbase as well, right? So it's just another store, you know?

I was going to say, I'm actually looking at the Polymarket about will BASE launch a token. And it looks like it basically hasn't moved yet, which actually surprises me.

So interesting. I saw this hedge fund that is early Polymarket employee or Kalshi employee launching its own hedge fund to do like ARB across prediction markets. I think it's like $30 million. That's pretty interesting. Uh, the other thing is like, I mean, there's a lot of information asymmetries, um, I guess here that, you know, just careful when you use that word and careful how you actually do it, uh, uh, uh, because I do think that this is going to be like— we heard it from the CFTC commissioner chairman in, in that CNBC event we're at— just, you know, even though it's not a security, there are still insider, there's still like, uh, there's still a framework by which they could prosecute, uh, insider trading in these markets, even though you think that they're not securities, right? So it's just important to keep that top of mind when you're interacting with these markets.

100%.

Um, a couple of minutes to go. There's some other news. I don't know if there's anything in particular you want to cover. I do want to get the content of the week. Before we wrap. What else is on the— what else is on the news that caught your attention over the last couple days?

You know, I thought the, the Hyperliquid, uh, policy center thing was pretty interesting. Um, you know, so just so our listeners understand, Hyperliquid announced yesterday they're gonna seed a policy center in DC, uh, run by a guy Jake Travinsky, who, um, he used to be the GC at Variant, the fund. Before that, he was Compound.

Before that, Blockchain Association, then Compound.

Yeah, yeah. And he's, he's, he spent a lot of his career, uh, being kind of one of the most prominent, you know, lawyers, uh, in the space. Um, and so this felt like this really good fit for this. Uh, and I thought it was pretty interesting, right? Because I think, you know, there's been a lot, not a lot of DeFi protocols have a large presence in DC. But all of the CeFi companies do, right? And, you know, Uniswap has been the most prominent. They've had, um, they have a, like, a chief policy officer, a guy, um, I think Samman Banai, I think is how you say his name. He's been very active, uh, in DC. You know, Aave has done a little bit, uh, and, you know, Rebecca was there, uh, they were doing a bit, but they were doing a lot more. Yeah, when Rebecca was there, they haven't, they haven't recently, I don't think. Um, but other than that, you know, people kind of depended on like Coinbase and then like Andreessen Horowitz and Paradigm, these big funds who have these, these, uh, and, and, you know, that also the, you know, lobbying firms, the blockchain associations, etc., to kind of, you know, do a lot of the work in DC. And I think hyper-liquid for a lot of regulators has been a little bit of a boogeyman, right? Because it looks like, okay, well, they're growing really quickly, they're taking all this market share, but, you know, this is a, you know, arguably centralized but no KYC, you know, exchange. Maybe it's decentralized, maybe it's not. Like, it's very hard for the regulators to get their heads around what that means and the, this spectrum of centralization for decentralization. And, um, you know, when you, you know, don't— there's all this debate right now around, you know, KYC and, you know, what that should look like, uh, at the protocol level and at these, you know, in, in DeFi. Um, and so I think Hyperliquid has probably not been getting— my guess is they haven't had very many friends, even at, you know, call it people who traditionally, you know, been friend— they're being friends for all of DeFi globally. But like, if they had to throw somebody under the bus, I think Hyperliquid would be the one that they would do that to. And so I thought this was actually a very savvy move by Jeff, uh, and team to, uh, you know, try to make their presence known as well as, you know, by far and away the biggest DeFi protocol and the one that seems to have the most likelihood of, you know, kind of going and, you know, bridging this gap to, you know, a broad set of traditional users.

Look, I think Jake, up to par, like we've had him on the pod a couple times with Rebecca. He is very knowledgeable on the regulatory side and it's good to have more voices advocating for DeFi. Just because, I mean, Rebecca certainly is one, we had her on. Jake being at the forefront here, I think is important, right? Because as we talked about that episode, with Rebecca. Uh, there are— everyone's kind of advocating for their specific interests. And so, um, you know, certainly advocating for DeFi will serve us well as an industry. So congrats to Jake. We'll have to have him on the pod. Uh, all right, we got, uh, I'm recording an episode with LayerZero. I was in New York, um, was it last week where they announced Zero? Uh, I'm excited to chat with Brian and Roz about it. Before we wrap, we're getting to the most interesting part of the segment. And if you're still here listening, Rob, hit us with your content of the week.

So, you know, we talked about the Olympics, I think last week, you know, big, big curling guy, as you mentioned. But I will tell you, the, the men's hockey has been lit. So both Canada and U.S. won their last games in OT. So, you know, cheering for the US hockey team. So that's been great. So I continue to be a big Olympics stan right now. And then I would say the other thing is we're, you know, I told you, as everyone on this who listens to the podcast regularly knows, I'm a big movie guy. And, you know, the Oscars, we're about a month away from them. And where it's, it's the week that they start releasing and doing showings of all the live action shorts, which I actually love. I love short films. And there's one on Netflix called The Singers, which is not a clear front-runner but has potential to win the Oscar for, for the live-action shorts, which I really liked. And so go, go check that out.

The short— what is it?

The Singers.

The Singers. The Singers.

Yeah.

Okay.

So it's kind of a short musical comedy on that that they released on Netflix, which is, you know, kind of based in like 19th century Russia around like sort of a— it's like a bar, like a pub, and they're doing like sort of a singing competition. It's funny and it's fun, and you know, it's, uh, I just, you know, I love these kind of— I really love short films because you often see, uh, kind of up-and-coming filmmakers, uh, doing these shorts, and it kind of often can catapult their career into something else. And so yeah, I love to— I love to watch them every year.

Very cool. All right, I know you're hosting a big party. I still haven't got the invite to that, but yeah, on TBD.

Um, it's on its way by, uh, by pigeon to my mail.

Okay. All right. I'll, uh, I'll make sure he gets here. Um, I will do a, uh, so George from my team published, uh, this piece today on Figure. Uh, I think everyone should go check it out. I think it's, it's one of those where if, if you find yourself in a conversation with someone that continues to be skeptical of crypto, And I, on the daily, right, it still happens. It's just a, by virtue of where we are as an industry, uh, go show them that because I think it just really quickly disarms an argument. Um, and what I think Mike Cagney, who used to build, you know, built SoFi, very, one of the most knowledgeable fintech builders, just when I, when I saw him come into the space years ago to build Figure, it was obviously a clear sign and a signal and what he's done to Figure. I mean, it certainly helps that it's an $8 billion public company now. but they become the number one non-bank HELOC, home equity lines of credit, super antiquated, inefficient process. And I think the George and my team, they did a pretty good job of now analyzing across kind of which elements of the step, like of the value chain and the assembly line of a HELOC. Uh, they're cutting down costs. And so it's just a good as a, as a resource and you guys, you know, everyone in the industry could use to just point to, hey, here's a pretty concrete traditional business that was made more efficient. Certainly something that we pay attention to because of course it doesn't stop with HELOX, right? What, what, what Figure's been able to do with HELOX is just a glimpse into the future of how you're going to be, you know, optimizing other financial workflows that— what I can tell you from my standpoint, when I go and talk to people, a lot of CFOs, a lot of treasurers, the key insight is like they've thought of this as like a fixed cost of doing business and now it's very much optional or variable and blockchain like uniquely enables that. So I think it's obviously what we're betting the farm on with Immersion, but it's a good piece. I think like we're going to be posting more insights there and what we're seeing kind of in the front line. So go check it out. If you have feedback, let us know.

I'll tell you what, the Immersion story, you know, I'm getting so many calls by people trying to do stuff, similar stuff now. So I got another call with somebody yesterday. So yeah, you were, you were early.

Where were they? Where, where are they coming from? I'm just curious. Was this like non-crypto people?

Uh, yeah, it's like people, but like very reputable traditional business people, right? Who, you know, have a little bit of exposure to crypto, who are starting to understand that this is real.

Right. Yeah. I mean, like we have more public companies now and like in conversations, like what's your moat? What's your edge? I'm like, well, you know, there's 11,000 private equity funds. Like really 3 have done software. Like tech enablement really well. Uh, you know, we're not going to be the only ones, but we definitely— I think we're very thoughtful in how we're thinking about it. But yeah, I'm like, it's like competition is inherently going to come, and every private equity fund, because they find themselves in a tough spot creating value, I think they're going to turn to crypto naturally to try to drive value, as they're doing with AI too. You know, it's just one of those things, right? It's a toolkit. Anyways, all right, Daniel, Rob, congrats to you, the Dragonfly team. on the, on the big fundraise. Now you gotta go and find the next cohort of founders to push the space forward. But hats off to you guys. I mean, I know it's really hard to fundraise and, you know, it's a, it's a big, it's a big milestone. So good work.

Thanks.

All right. Thanks everyone. See you next week.