Market Sell Off, State of Crypto VC & Why Your Coin Isn't Pumping | Weekly Roundup

I think there's a lot of disbelief right now. When I go talk to the VC investors, I'm seeing that a lot of them are now, they think they're AI investors or they think they're fintech investors. They think they're SaaS investors, right? Because I think the VCs are looking around and saying, I don't know what I can back in crypto anymore. And a lot of them have lost a lot of their just conviction around the future of this space.

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Hello. Hello.

Another week we've survived.

Still no Jason. I mean, who knows if we'll let him back. He's been begging for us to let him back, but you know, who knows if he'll, uh, if we'll let him. I mean, you know, people should comment, uh, below the show on YouTube and, and on, on Twitter and let us know if they want us to let Jason back. You know, if we can be benevolent.

So, I mean, we should keep saying this, but we should have like a, a PolyMarket around that, just a sentiment poll to say, do you want Jason back or not?

Yeah. Will Jason come back? And then, you know, before the end of November, before the end of December, you know, who knows?

Yeah. Uh, what's going on? What's going on on your side of the world?

You know, so I'm, I'm in, uh, I'm in Miami at a fintech conference where I was speaking about whether or not stablecoins are good or bad for banks. Of which, uh, the, the obvious answer is bad for banks in my mind. But, you know, it does— it seems that not everybody agrees with that. But it is becoming increasingly clear to me that stablecoins are part of every single strategic conversation at every single company, you know, whether it's fintech, whether it's banking, whether it's technology. They're all thinking about what stablecoins are going to do for their business. And so, you know, I come to these conferences and it's just like, it's a whole group of new people. So Um, so that's great. Uh, and then, you know, getting ready for, uh, for the year, you know. Yeah, I will tell you, when I, when I travel, I'm not always as good about staying up what's going on or staying on top of everything that's going on. But, um, I did read your piece this week and, uh, around just like what's going on in terms of how does the market— and obviously the market's been bleeding even on the back of what seems like everything I just talked about, which is that people care about stablecoins, they care about crypto more than they ever have. Uh, and then you put out this great piece around, you know, thinking about valuations and like why is that happening relative to, uh, the, you know, the, the market conditions relative to the sentiment. Um, love to like just hear a little bit more about what you're thinking and maybe if you haven't, you know, if people haven't read your, your piece, you should just start talking through, um, a little bit of what, what you wrote.

Yeah, I wrote that over the weekend. I hadn't really posted in a while, but I was reading an LP letter and they were doing kind of evaluation analysis on Solana and Ethereum and they were treating like staking rewards as part of value capture. And it's like, well, how do you define value capture? Is that revenue? Is that earnings? And a bit, I felt it was misleading. And so I put it upon myself just kind of write out, okay, how do we value these things? And so anyways, posted on Monday, I think it got a lot of responses, surprisingly not many publicly from fund managers. Can't believe it. Some of them did DM me and they said, hey, great piece. And I said, do you agree with it? Like, do you fundamentally agree? And so the TL;DR on it is, I think we're in a state of the world where, you know, in investing the most important thing is you come up with a thesis that I think a lot of people are now sold on this idea that crypto has a lot of potential from stablecoins, just tokenization, Larry Finks of the world, JP Morgans of the world. Like that, that's no longer, that's pretty consensus. And so the question is like, we got all the headlines we wanted, but you know, price action's not there. And, you know, near-term price action, long-term price action, I think again, there's a bit of a disconnect. But so the question is, was it priced in? And I very much think it was priced in. And so like excluding Bitcoin, we're like a $1.5 trillion industry. A lot of that is, you know, Ethereum, Ripple, Solana, you know, DeFi deep in. And so is it actually, it's like the classic, have we earned that valuation as a space? And looking at some of the infrastructure plays, Ethereum and Solana, just those two, not the single just of that, we can talk about Hyperliquid. Like Blockworks has a great dashboard, talks about the revenue of these protocols. So I'll just hammer out a couple of points. One, I look at fees and MEV as kind of the revenue bucket. I don't think staking rewards are part of the revenue of a network. That is very much like stock-based compensation. Uh, that is a, an expense and it's dilutive. So I do see a lot of fund managers, a lot of people like treat staking rewards as part of like this value capture metric, which I think is very misleading.

Um, and like the reality is, I mean, to be fair, in like traditional markets, to your point about SBC, like everyone that reports adjusted EBITDA, uh, uh, you know, and they adjusted for SBC, it does seem like it's still a debate even in like traditional technology.

Yeah. Yeah. I mean, EBITDA is a metric that was created by private equity to kind of justify looking at businesses on an unlevered basis, just kind of business fundamental. Warren Buffetts of the world would argue that that is not a very, you know, look at cash flow and look at, you know, top line and EBITDA is kind of this metric, artificial metric. But I hear you. I do. I don't think stake rewards should be included in, in that. So if we look at revenue of these networks, Ethereum will crank out roughly the same as Solana, anywhere between $1 and $2 billion. And that's what historically over the last, like over the last 12 months, these two networks have cranked out. Ethereum is sitting at a close to $400 billion valuation. Solana at a $75 billion valuation. Make the case as to why these networks are worth valued at, you know, 60, 70, 200, 400 times revenue. Like I just haven't seen and heard since I published, or even in private conversations, a very compelling argument as to why these things should be valued at that. Like on a price-to-sales price-to-revenue basis. Just to give some perspective, like, the fastest growing contracted recurring revenue companies in the public markets are trading at 20, 25 times, maybe 30 times revenue. And mind you, that revenue is actually contracted, multi-year, uh, and so there's low churn. You can really underwrite the durability of that stream of, of revenue, whereas in crypto we all know what happens, like stress test that revenue, um, it doesn't hold up in a, in a bear market. Like Hyperliquid too, you know, it, um, you know, if you look at Blockworks dashboard, Hyperliquid's cranking out what, like 2 over the last 90 days? The total revenue of Hyperliquid is $262 million. So again, you know, a billion, billion plus of revenue if you want to run rate that and be super aggressive, right? But the reality is like the annualization, the run rating could be, you know, you just know it's not going to be there in the bear market. And so if you really think that these net, even in the most kind of aggressive case, do you think maybe, maybe it goes to a billion and a half or so? But I just can't, for the sake of it, I can't justify the valuations of pretty much any network across the board.

Let me ask you a question, because like the, the counterpoint here, like you read, you know, Chris Dixon's book and you read some of the more, I know, um, I guess like I was a techno optimist who like, like to think about crypto, and the counterpoint would be, okay, well, like price to sales isn't the right way to look at a network, right? The network is really about something like Moore's Law or Metcalfe's Law, right? You, you think about the— as you add a new node, a new user, a new, you know, uh, liquidity pool, as you add a new, um, uh, DEX, etc., right, the value of the network goes up exponentially, right? And the network itself is valued based on the users, based on the usage, based on the liquidity. And revenue is not necessarily the right way to think about it, in the same way that we wouldn't— you know, whatever value you would assign to you know, different pockets of the internet, you wouldn't, uh, uh, you're only really value the revenue side of that beyond the application layer, not on, you know, HTTPS, right? So I, I don't know, how, how do you think about that?

Well, again, don't disagree with the potential network effects of these systems, but again, it show— it should be showing up in revenue. Like the, the value capture should be connected to the network effect. And okay, let's compare that against network effects of like Facebook. You know, Facebook, uh, even in its early days had a more sensible price of sales multiple. I mean, right now it's trading at like 18, uh, actually lower than that, like, you know, uh, 10 times, I believe, price to sales ratio. Uh, at the end of 2024, Meta's price to sales ratio was roughly 10 times. In the earlier days, it was, it was higher than that. And you know, they had this idea of like the incremental friend that joins Facebook is very beneficial. And then that allows you to, once you get to certain scale, you can turn on monetization, meaning ads. And they've done that phenomenally well. And then they pivoted in other streams and they bought Instagram. And I was at JPMorgan when that IPO happened and the entire market didn't really fully appreciate the degree of the network effect, but they've been able to monetize that. Now the question is, okay, is, are you going to have the type of network effects that you see in social media networks like TikTok, Facebook, and others? I actually fundamentally disagree with that. These networks have been around for a while. Ethereum has been around for quite a bit of time, over 10 years. We are, these are open public decentralized networks. The value copy of something like Ethereum is fundamentally broken in the L1 and L2 construct. I talk about that in the blog post. Even if you see exponential increase in activity at the L2s, it will never trickle down to the L1 the way Ethereum is designed today. It's collecting stat, like state rep tax where it should be collecting federal tax revenue because it's renting out the security and everything. And so, I can make a case for Ethereum even though you believe in this network effects and the brand and the first mover advantage. I liken Ethereum to Cisco, all-time high and never really recovered after that. Something like Solana or Hyperliquid, does it have network effects? Like certainly like you can go look at the Avital, like Electro Capital developer report and look, more developers are joining, there's more activity. There's, there's more applications being built. And I don't disagree with any of that. Like I, I do think that there are, you know, decent network effects to a lot of these networks. I don't think that they're as strong as something like Facebook or LinkedIn. It just fundamentally isn't. 'Cause it's in for the simple reason that interoperability just makes it super easy to just hop around networks. Yeah.

I mean, do you think, So the market obviously getting absolutely crushed, right? So Bitcoin is what, $88K today? It hit, uh, $87K I think as of right now. It's $2,800 on ETH. Like SOL is down to $131. I mean, in the last month, you know, we've got, you know, how far Bitcoin's down? 25-ish percent, 24-ish percent, right? I mean, ETH is down further, SOL is down further, 30 to 35%. A lot of the alts are down like 70% at this point, right? I— it didn't collectively just like click on everybody's mind that like, hey, these things are overvalued. So I get your point, but then also like, why is the market bleeding as much as this? Like, what do you think is driving that?

Hard to tell what narrative— like, look, I also write about in the blog post, it's like when things are priced to perfection then it takes like very little for that asset to go down. And I think crypto responds really favorably. So what has crypto historically been good at? We've built a perpetual, like a very good capital formation vehicle where people outside the US can express, you know, lever NASDAQ bets. And you have this new dynamic in capital markets where it's momentum, momentum trading. And so meme coins, crypto is just good to attract that. Um, why it's come down recently, uh, there's a variety of factors. I mean, I also like your perspective. I think again, when— and we, we've seen this historically in other cycles— crypto is kind of, uh, the farther, the farthest on the risk spectrum. And so because it is just speculative activity, you are constantly relying on people to come and show up to the casino. And that casino churn, you know, you kind of depend on the stimulus checks and liquidity in the market and M2. That's why we're so correlated to flows. On the institutional side, I actually would like your perspective. I do think, you know, we've seen some DADS recently sell. There's a lot of noise in the near term. All I'm saying is I do think that AI, like, if you believe crypto historically has been that momentum trade, a lot of the retail is now potentially expressing that view in AI. That's sort of the main character. And I think a lot of that flow just kind of is going to punting AI in the market. So the archetype of the user on Robinhood that historically has gone out and invested in crypto stuff, I think a large part of that is now going to invest in AI and express that because it's a hotter theme, it's a hotter narrative. I, the reason why I did this blog post is I like to constantly re-underwrite my thesis. People were sometimes, people were critical in the comments of saying, hey, wait a minute, like you've been very vocal about Solana. You put in a position, you kind of rotated your ETH to Solana. Said I bought most of my SOL at a time where you started seeing way more activity, like bought most of my SOL sub $100. On that level, I think it was a good investment on that basis. Looking at it today, I would, and this is by the way, true for every network. I would want to see more activity that is diversified away from the hot ball of money and the narrative-driven flows. And I would've liked to see more revenue coming in from deep in applications, more revenue from other non-pure speculative activities, right? Because I am worried, you know, we are in a bear market, the revenue of these networks really dries up. Is, by the way, and maybe I'm mid-curving this totally, which is these things don't like, it's like, dude, stop talking about fundamentals. These things just fundamentally don't trade. The last thing I'll say on this is like Bitcoin is in a league of its own. But again, Zcash, it's like gold is a perfect meme. Bitcoin's a perfect meme. It doesn't pretend to be a tech stock. Ethereum, Solana, Hyperliquid, they pretend to be a world supercomputer. They pretend to be kind of internet capital markets. So I think, I think that segment of the market is going to be looked at on a fund more of like comp compared against that. Whereas Zcash, there's 21 million Zcash. It's like, yeah, you can see why the, like, I'm, you can't make a rational argument around memes and social constructs, but you can make a fundamental case as to why you should be paying 200 times revenue. I'm sorry, but you're not.

Yeah, I mean, I think— listen, I, I really liked your piece. I— my perspective has been the L1s and like the base layers, like, they're just never going to trade on like a price-to-sales multiple. I think they, they're going to trade on some sort of multiple of like a definition of economic activity, which is not going to be revenue. It's going to be more about like, if you think about all of the economic activity that exists on top of a chain like that multiple of that is what they will trade on, much in the same way that, you know, a, um, like an asset manager trades on a— often will trade on AUM multiple, right, versus like an actual revenue multiple. I, at the application layer, I totally agree with you. And there's like— it's very clear that, you know, Hyperliquid and, you know, Polymarket and all of these guys are going to start to trade more around like fundamental value. Uh, on the application side, it's— I think the market dynamics now, or I do, it's surprising to me. I'm actually interested in what all of the, uh, all of the fund managers said to you when they reached out, because I do think there's this— a lot of people like you who want to be— who want to find a reason in all of this and what's happening. And it's not actually clear to me that there is a lot of reason other than the fact that we are in a market that is almost entirely driven by by, like, flows that are momentum-driven and quantitative, and they're not actually, like, in any way fundamental whatsoever. And so just the— when we don't have— when we have markets like we do now, right, which is— I mean, the equity market's down another 1% today. They've been down the entire week. Uh, Jensen Yanowitz came out and Nvidia beat earnings, and if Nvidia hadn't beat earnings, I think the markets would be getting absolutely crushed right now. The, the, the— if you look at the FedWatch tool, the CME is, uh, and the market's pricing in maybe only a third, like a 35% chance of a rate cut in December. Now liquidity is drying up, inflation is sticky. There's just, uh, we've— I mean, we're seeing what's happening on the hiring side. It's been kind of a mixed bag in terms of the labor market. And we had a year where a lot of people are in the money, and we're coming up on Thanksgiving next week. Right? And people want to lock in some of those profits, some of that carry, and they want to disappear for December, right? I think at the same time, the— I do think one of the interesting, or one of the actual, the exacerbating facts of crypto— so we had all these dApps which we talked about ad nauseam on this podcast that raised a bunch of money, and you mentioned it, but, um, the interest in the dApps just like completely dried up. And now the dApps are selling, right? And so we've seen a, you know, since we had that kind of deleveraging event, what it was, 3 weeks ago or so, there's been basically constant sell pressure. And I think Tushar from Multicoin put out a tweet like, oh, it looks like, you know, forced selling. And somebody else responded to it that was basically like, I've never seen like orderly forced selling for weeks at a time. It usually happens much quicker. It jams the market. People are trying to meet margin calls. And I agree with that point, is that what it doesn't look like right now to me is that we're having, you know, call it forced selling. What it looks like to me is we're just having people go risk-off broadly, and crypto is still just a risk asset. And the, and the DApps are selling because they're buying back shares because they're trying to defend their share price, and they don't have any liquidity because people don't see any reason to buy the 15th, uh, ETH you know, that, and they also want to go risk-off. And I think we're probably in for a pullback broadly on the equity markets and all risk assets because there's just too much happening that's, you know, very unclear. There's just too much uncertainty, uh, from a macroeconomic perspective. So I, I don't know. I, I think '26 will continue to— will be a good year. I think we're in for a little bit of hurt over the next few months from a macro uncertainty perspective. I don't think it's a fundamental value point though. I think it's a, it's a, like crypto is still today. And honestly, like markets are getting more, you know, um, more driven by funda— by non-fundamental quantitative momentum flows.

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Yeah, look, I, I don't disagree with the momentum piece, by the way. I also don't think that me writing this blog post, like, I'm not trying to rationalize near-term behavior. I am simply thinking as a, as a long-term investor. To re-underwrite my book. I'm less active now. I'm building Inversion. I don't have much time. I want to make sure that as I position my portfolio, it's through a multi-year period. And I don't think like I'm being paid enough to put on this level of risk in crypto. And so that doesn't mean that there aren't pockets within crypto that could be value, could be good investments. Like I think there's some deep-end projects that are interesting. There are some DeFi projects that are interesting on a fundamental basis. You know, you could have made the argument that Maker, now Sky, has been historically fundamentally undervalued. And you know, the market just kind of never responded to that. But look, I think like to your question around the type of responses that I've gotten from people, a lot of the fund managers said, look, don't disagree. They say, some of them were a bit more nuanced. They said, look, I think there's some value to be had. I think there's some interesting plays to be had at the app layer. But seeing there's a lot of responses from the Ethereum crowd, the maxi crowd that was like, dude, Ethereum is going to a trillion. And I'm like, okay, tell me why. Like enlighten me. I would like to know. And they just sort of make this hand wavy, like what you hear, the Tom Lees of the world, the Pomp's of the world, the Joe Lubins of the world. It's like, I'm not disagreeing with any of that. I'm like, you can deliver great utility, but it's a value capture there. This is a great chart. This sort of, we've seen it all. Yeah. The Wall Street cheat sheet psychology of the market cycle. I fundamentally think we are in the complacency phase. To your point, like it does feel like people are taking risk off the table across the board. Crypto gets chopped faster than most other sectors.

You don't think we're further down the curve than complacency? We're not in anxiety right now?

No, not at all. Not at all. Not at all. Oh man. Okay, Rob, you've been around here for a while. I've seen pain. We are— a lot of people are still in the green. You've had phenomenal last couple years if you were long risk assets. Uh, Bitcoin, um, at the time I wrote the piece earlier this week, had just evaporated all of its gains. But if you've held Bitcoin for over a year, like, you know, you're, you're in the green, like, you know, we started Bitcoin in, in this cycle at, what is it, $25K, give or take?

Yeah, I think we're, I think we're back down to about where we were on election night. It looks like we're about to hit there, right? Uh, but if you were pre-election, yeah, I mean, elec— it was in the $50s and $60s, uh, pre-election.

Yeah, but the bottom of Bitcoin was like $25K, like FTX, Luna, all of that. So I mean, Even if you jumped in along the ride, you're very much in the green. And so I think, I think no, we're definitely not in anxiety. I think we're very much still in complacency. Why, at least in crypto, I think a lot of the response I have seen on the timeline have been, they'll point at a news article saying JP Morgan just deployed on Base. We have So-and-so talking about tokenization, Larry Fink and Jamie Dimon, and you know, the institutions are here and that hand-wavy stuff just doesn't work. I think people just need to update their priors. I may be totally wrong. Maybe the market just, to your point, maybe L1s continue to trade on the narrative perpetually. And like, you know, we continue on this and I'll be terribly wrong and that's okay. Like I don't, I just want to protect my capital and my principle. And I, I do think there, if we're in a macro slump, there will come a time where we will be in a recession over the next 3 years. Like, what, I don't know what the Polly market is on that, but historically I kind of do ascribe to the fact that there will come a time, like market, like the mean reversion needs to happen at some point. Like I, we came into this year and I was reading a JP Morgan report, like we've historically after, you know, 3 or 4 years when you've had consecutive years of performance of like bull market behavior, you've gotta revert to the mean. Like you will have a drawdown. Equity valuations are at a near-time high across the board. So as I position my portfolio for the next 3, 5, 10 years, like I just have no interest in paying up for stuff right now. And if that means missing out on the gains, That's okay. I'm, I'm not— I don't have LPs, you know. You, my friend, on the other hand, I'm in a different— you're in a different boat. But yeah, but you're on venture, so you don't have to respond to the whims of the market necessarily.

Yeah, I will tell you the interesting thing about the venture market is that two things. One is, to your point, we have the luxury of having this like long-term outlook. And so I try to see, you know, what do I think is going to happen over the next, you know, 3, 4, 5, 7, 10 years, right? And I, I don't need to be worried about whether or not, you know, Bitcoin is $120K or $80K, because regardless of that, if I have a conviction that, you know, some sort of theme like stablecoins are going to take over the market over the next decade, that's still a place where I need to be putting my money. What, what I, what I will say is interesting is that there's this kind of, um, this really, I guess, thing that happens in the venture market that doesn't make a lot of sense, which is that when the markets are really good and like prices are high, there, people are more likely to want to put money to work because they feel good, right? And so they put money to work as the market is getting euphoric, as prices are getting really high, and it makes the entry a lot worse, and so they don't get the same gain, right? On the other side, when the market comes down, we see the venture market slow down when that is the time you should be putting money to work, because you have people building, they're focused, you get better entry, uh, points, and the, you know, 10-year time horizon hasn't changed. And so we try to be really thoughtful and countercyclical around that, where we put a lot more money to work when markets are down and a lot less money to work when everyone's getting euphoric. But The, the general VC market doesn't work that way, and so far it's worked for us. But it's, um, again, VC is kind of a momentum game, and that's not just a crypto-specific one. And that's been a very odd thing for me to see. On top of that, the one of the things that's happened in Crypto Venture is I do think— you think we're in complacency, I see it in Crypto Venture, I think there's a lot of disbelief right now. And the reason I say that is because I see a lot of crypto investors who, while they're not saying it publicly— I mean, you might remember a couple years ago, um, Paradigm kind of changed their website and it said, hey, now we're like AI investors as well, right? And like everyone just like really, really responded really poorly to that. Then they came back out and said, sorry, hey, listen, we just, we want to understand that, you know, we want to make sure that we're putting money to work in this part of the market that, um, is, is also growing. Uh, but we're crypto-first investors, right? And to their credit, I think that's continued to be true. Yeah. But the— when I talk— so when I go talk to the VC investors, no, they're not saying these things publicly, but I'm seeing that a lot of them are now— they think they're AI investors, or they think they're fintech investors, they think they're SaaS investors, right? Because I think the VCs are looking around and saying, I don't know what I can back in crypto anymore. And a lot of them have lost a lot of their just conviction around the future of this space.

Let's double-click on that, like disbelief. If this were to follow price, a lot of the— there are Bitcoin, you know, hit all-time high and then has retracted a little bit. Some networks like Solana are down more. Some wallets just have never recovered from their all-time highs in prior cycle. Do you think that this— I would've said complacency and I still believe we're in the complacency because it hits sort of the all-time high disbelief. You're saying—

so, so what, so I actually think we are here on the VC side is we're probably on capitulation. So I think the VCs, they're probably 6 months ahead of the public markets, right? Let's call it 6 to 12 months ahead of the public markets. Right. And so you and I can both be right. That the public markets, the token markets are in this complacency standpoint, or maybe in the anxiety standpoint up there, but the VCs have been in the capitulation. Yeah. I actually think—

and down here, like, uh, depression, depression or disbelief. I, I think so.

The bottom of the, uh, of the kind of the, the overall to your left on capitulation. Oh, next.

Oh, I see. Got it. I see. I see. Yeah.

And so the reason I think we're there is because now a lot of VCs have said, oh, I'm actually an AI VC, or I may, you know, I talked to a number of people who are like, oh, I'm, I'm standing up an AI fund, right? I'm standing up, uh, a fintech fund. I'm, you know, doing this thing. And it's funny, I was, I was, I'm at this fintech conference and I was talking to a well-known investor, one of the biggest funds, uh, you, you can probably think about who it is, but one of the really big traditional names that also invest in our space. And they were talking about how there's a lot of innovation happening in fintech around crypto now but it's coming out of, you know, Silicon Valley traditional fintech founders. And the crypto VCs are all like doing fintech, but they don't have that same deal flow. And so they're getting like adversely selected, right, against right now, uh, relative to— now you're seeing a lot more of Lightspeed, you're seeing a lot more of, you know, call it, you know, we saw Benchmark come out and do a deal recently, right? And, you know, we, we've, we've done a—

sorry, go ahead. You, you, well, on this point, a lot of times where traditional VCs enter the space has coincided with market tops. Sequoia entered and did the Layer 0 round. You're now seeing a lot of other like Benchmarks of the world do certain plays around key themes like stablecoins, Polymarket. Is that late-stage market behavior or is that just more of a broader phenomenon of VCs are smart and now they appreciate that this time is different and they're seeing from their own venture portfolio and their interactions with real businesses that there is a credible demand. Like Stripe entering the space detonated this interest in VCs. How do you, do you think that there's, I guess, a disconnect between crypto-native VCs and traditional VCs where traditional VCs are actually way more excited to deploy in certain sectors and are more focused in their strategy. Whereas crypto native VCs are just, have been burned because they're just, if you weren't, you get benchmarked against Bitcoin, you likely, likely didn't outperform that. And so it really has forced the question when you're going to try to raise the next fund, are you actually good at this game?

Yeah. So I think there's two questions embedded in there. I actually think this time around the traditional VCs coming back, they've been a lot smarter about it, right? So, you know, somebody— I was talking to somebody earlier this week who referenced the, um, the OpenSea moment of 2021 where, you know, OpenSea raises at a $13 billion valuation, a bunch of traditional VCs are in there, and, you know, you look around and you're like, we still don't know what NFTs are used for, and yet the NFT marketplace is worth $13 billion, right? And that, that was very clearly like, you had to really have a lot of belief in a future market that didn't exist yet to, to do that deal at $13 billion. It's very normal for a seed investor or pre-seed investor to have a lot of belief about some market that doesn't exist yet. For a pre-IPO investor to put money into something at a $13 billion valuation and when the market does not exist today, like, that's crazy, right? This time around, we've seen the people come back, and it's been really, really targeted to— okay, well, we're seeing in our fintech portfolio that stablecoins are disrupting. We're seeing in our, you know, our fintech portfolio that tokenization is disrupting. We're seeing in our AI portfolio that people are thinking about using stablecoin payments, right? Where they're very focused on, you know, maybe, um, social trading, right? You know, the Polymarkets and the prediction markets of the world. The, you know, Benchmark did FOMO, which is really like a social trading application. And those things have a lot of corollaries to stuff that you see outside of crypto. So it does feel a lot more sustainable to me. But what it does, I guess, maybe underlie is this question that I think a lot of the crypto VCs are asking themselves, which is, what is the future of my business if there's these few things that work and these few things that work have like, are very close to fintech or traditional tech and all of the other stuff that's longer tail that has required me to be a specialist to, to do well. And if that doesn't work, then, then, then what is my right to exist?

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On that point, I want to double-click on that part of the blog post. Also, I write about the overinvestment, like what has historically worked in crypto may not work going forward. Like we've had over close to $100 billion spent on infrastructure and it makes sense. You have, if you were early in Ethereum, Solana, your infrastructure bet, if you had done a deal that was infrastructure related at a less than $100 million valuation, you would've done phenomenally well.

Phenomenally well. So Solana's investment, or Multicoin's investment in Solana literally may be the best VC investment of all time.

Yeah. And exactly. And so, and so it's, it's worth probably saying, okay, as we think about what's going to carry us over the next decade, likely it's not going to be that, your infrastructure investment. It's going to be something more like value should be accruing to applications because if value accrues to applications, then you, you actually can make a case as to, you know, the network effects of some of these networks and, you know, but, you know, something like Polymarket, total narrative violation because it's deployed on Polygon. And so, uh, but it's, it's easier to make that case. But there's been an overinvestment in infrastructure, underinvestment in deployment. Um, I think you guys understand that well. Um, but, um, yeah, I, I, I wonder, are fund sizes in crypto, especially on the liquid side, just going to be tracking a Bitcoin type of return? Like you're thinking about, you know, you have a $400, say $500 million fund-ish. How do you think about deploying that over the next 10 years or, you know, 5, 6 years?

I think the liquid funds are in a lot of trouble with these markets, right? Because they're not getting paid to hold Bitcoin in ETH. And the quant funds do a really good job. Like, there's still enough arb in our space and enough inefficiency in our space that the quant funds are, are actually, I think, really good risk-return. The, like, the long shorts though, I mean, I don't know if there's anybody beating Bitcoin at this point. Um, you look at the VCs, right, to your point, yeah, a lot of the— most of the VC funds don't, uh, don't beat Bitcoin either. I, I do wonder, and I mean, we're continuing to see this, right? So a lot of funds are out raising, a lot of funds have been out raising recently, and nobody is raising the same size of fund that they did in 2021. I think there's one that I know of that is going to raise the same size of fund as 2021, um, but everybody else is really struggling to get anywhere near that, right? And that is because of to your point, like, what do you put money into now if you are a $500 or $600 million fund? I mean, we've, from our perspective, like, you know, that's, that's how big our funds are. And, you know, we've taken the long-term viewpoint that we need to be doing things like fintech, we need to be doing big conviction bets across the application layer. You know, we've put a lot of money into Polymarket, as we've talked about, put a lot of money into a business called Raincards, which is, you know, almost everybody else, uh, in those rounds have been fin tech investors, not, not crypto investors. Um, but it's— if you're a DeFi native fund, you're a crypto native fund that isn't able to get into those types of deals, or doesn't, you know, isn't looking at those types of deals, there's just not a lot of things you can do.

Yeah, yeah, absolutely. We'll see. Interesting times. Look, I mean, I think it's, it's always bear markets that sharpen the mind. Um, and I think it's just— it will serve us well to just be just re-underwriting your thesis, thinking about where value is going to accrue. Um, and, uh, but again, none of this is a, a dig on the potential of this space. It's just you got to overlay the potential with the reality of things. And, uh, I think we don't need— as I think about like the way I will like to invest, succinctly, my thesis is finding opportunities where the— there's a disconnect in valuation because there's so much techno optimism and certain pockets of the market are left for dead. And so I think the market, whether it be talking about AI or crypto, tends to kind of want to overlook the fundamental story because there's just so much potential and it's easy to get trapped into that narrative where there's actually like real businesses that are kind of more deeply unsexy where you can find really good value and they don't go away. Right. And especially you go talk to actually people that are integrating this technology, whether it be AI, or crypto, there's actually certain core businesses that you may need. And I think you've sort of seen that in some of the acquisitions that people have made in the space, understanding, hey, maybe we should be buying a bank, maybe we should be buying a certain business that has this license or so. 'Cause technology comes in, improves, like lowers cost or whatever, but you still need certain core businesses to power that implementation, that deployment. So it's going to be interesting. You know, I, I, I will say how the rest of the year unfolds and into next year. It's anyone's guess if we're going to be in a bull or bear market. I'm not here to tell you that. I'm just simply painting a more long-term picture. All right.

Should we, should we move on? Yeah.

I mean, I know we're— there's some couple of news items. Maybe we can talk about that before we go there. Anything you want to cover on your side?

No, maybe we should cover, you know, there's been some talk here at this fintech conference I'm at around the Aave announcement around their new application. You know, that kind of, I think, is a good corollary to what we were just chatting about, where, you know, the crypto fintech intersection is continuing to be a big conversation. Um, I think we should also talk about the Monad sale that's happening on Coinbase right now. Um, but happy to go either direction, whatever, whatever you think's best.

Uh, why don't we go into Aave? Uh, and then Monat, that's it.

Yeah. So, so did you see the Aave announcement? Yeah. Yeah. I mean, essentially for, for anybody that's listening that didn't see it, Aave essentially announced that they're going to go and, uh, launch their own application. That own application will be, you know, sort of a, a neo bank where you can, you know, there's, they're pitching as kind of like a savings app where you can put money in. You can bring your money out anytime. You get, you know, anywhere from, call it, um, you know, 4% up to 9% with, uh, with like subsidized, um, uh, some sort of subsidized like rewards that are happening there. They also announced that you have up to a million dollars of insurance, and it's essentially what they're seeing as a kind of a new age neobank or new-age savings bank, right? I'm interested in your perspective. I know I have my own view around, like, what that means for, you know, the future of these types of apps on crypto rails versus these types of apps in traditional fintech. I think Aave's biggest competitor Morpho has taken a bit of a different perspective, and that fact that they're trying to be, like, infrastructure for people already with distribution to do similar types of things. So I don't know, what did you think of, of the announcement? It's pretty cool.

I mean, I think it's becoming a neobank and a lot of the features are pretty compelling, right? You're kind of seeing in real time, you're capturing interest and the insurance piece is something that is pretty cool. The biggest question in my mind is again, customer acquisition costs. Is it going to be enough? Like I can wrap my thesis around, hey, look, there's a lot of crypto natives that want to benefit, like can benefit from this. I think it would be interesting to revisit in like in a year or some time, looking at like how many customers were actually signing up for Aave, like outside that have never touched crypto. They just kind of discovered it and said, oh gosh, like this is a, this is a great product. Like, because the options are, you know, you can do Revolut, you can do, you know, even like Robinhood, Coinbase potentially. So you're, what's interesting, Aave moving from, to your point, infrastructure, like money market on chain to consumer-facing application, neobank. I think it would be a good case study as to most neobanks really kind of struggle in customer acquisition costs, like all the, like N21, Morpho, not Morpho, but N21, some of the other neobanks. You look at customer acquisition, it kind of blows up after a while. Even Nubank. Nubank has been successful. I mean, they have like 110, 120 million users in Brazil. They've dominated. Colombia, Mexico, not so much. And again, CAC in Nubank is like in their more mature markets, like $12, $10. And the payback is actually quite high, less than a year. But yeah, it will be very interesting to see how they actually go to market here beyond the crypto native crowd. Yeah. What do you, what do you think about this? Like, do you take a view of Morpho? Do you like Aave? Do you think they can pull it off?

Yeah, so it's a tough conversation because obviously 9% back on Near, you know, I think that you just pulled up, it's a 6.5% on USDC, I think up to 9% on other crypto. I think maybe it's 9% with, um, some rewards. I signed up for the waitlist, so we'll see. Um, Stani, you know, get me off the waitlist please, I'll let you. Um, but I, uh, like, obviously it's like, you know, it's funny because my— I was just, um, moving some money around this week and, uh, opened up like a new account on Fidelity, right? And I opened up a new account in Fidelity because I had money in JP Morgan, and JP Morgan was giving me like 40 bps on that. And so I moved into Fidelity, and what does Fidelity give me? They're giving me like 3.8%. And I'm like, oh, this is so much better than the 40 bps I was getting on JP Morgan, right? Um, but obviously 6.5% or 9% is even much better. Uh, the question is, is like relative to like what counterparty risk? Well, up to a million dollars worth of insurance, That gets rid of, for the vast majority of, you know, individual users, that gets rid of their concern now at this point, right? Because like, you know, FDIC, it's more than FDIC insurance. They might be worried about, okay, well, you know, crypto and blockchain and what that means for me, the ability to lose my money. But if I can go and get 9% and have a million dollars worth of insurance, that's a no-brainer. Now, it's not easy to your point around acquiring customers. It's much easier if you already have a captive customer base. But I, I don't know why they wouldn't be able to distribute this with the right team and the right amount of capital put behind it. Mm-hmm. Because it is just so much better than, you know, things that they offer and things elsewhere. The question is, is can those types of juice returns sustain? And I think probably the answer is no, right? And so, you know, okay, you get people in and you get, okay, well you get 6.5% plus plus, you know, some rewards up to 9%, and then, you know, the rates move around and they come back down over time. Is that a place where now I've got a sticky customer? That— and then is Aave going to go and do other products? Because they've, they've always— yeah, I mean, that's the question, because they haven't to date, right? They've had a long time to operate, to open it, to—

well, they, they have like, they have like Lens and a few other products here and there, but Maybe they roll out like tokenization of stocks and other products that you get, you know, do natively through the app, right? Historically, that's been the game of fintechs, right? Which is neobanks is get the customer in. It's a very sticky user base that doesn't like what you just did over the weekend of like creating a new bank account, thinking critically about what are you making in your bank account? Like the reality is like very few people go through that exercise. Yeah. Rob, you're just a finance geek and that's okay. But the average person—

I learned this this week— the average person switches their bank account, uh, their checking account, uh, every 14 years. Yeah, that's exactly—

if, if at all. And so it's interesting because in this world of composability and interoperability, like, you could just very easily move. Not so much like consumer behavior, but people don't want to think about their bank accounts. They want to think about their finances. They think about money constantly, but not the underlying, like, nuances of, like, am I optimizing my money? Like, how much money was sitting around in checking accounts at JP Morgan, like deposit accounts that wasn't earning 4%, 5%? Should have been sweeped to a money market account. Like, a staggering amount.

Well, and I think, I think this just underlies, again, like, everybody understands— people are coalescing around this idea that, like, all of this is fintech. And so, like, crypto being, like, this, like, amorphous, like, different thing, and then fintech being over here, like, they're clearly coming together. And a lot of the conversation again here at this conference has been around, is our stablecoins and crypto just like banking as a service, right? New age banking as a service. And it seems very clear to me that there's a real understanding that a lot of the crypto stuff that, you know, exists and the way people were really, um, ideological about how crypto was supposed to be, that's going to go away. Because even to the, you know, the, the mainstream DeFi founders, Uniswaps and the Aave of the world are thinking about that next step and how they can go mass market. And going mass market is going to be very different than what exists today.

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Yeah, we'll see. Interesting experiment nonetheless. Monad.

Yeah, what do you think of the Monad sale? So there's been a lot of conversation about it. They obviously had, you know, I guess they're— what, they had $45 million come in in like the first minute, and then it kind of, you know, slowed down since then. Yeah, I, I think it's, it's about $150 million now, so they're 82% away to their, their target. So I, my guess is they'll likely get to the target of $187 million, but, uh, and for context, $2.5 billion valuation, $100K maximum ticket size, Coinbase customers, right?

Yep. Yeah.

And no, and no continental Europe. No continental Europe.

That's right. Um, yeah, look, I, I think it's just a state of the market. Um, you know, I was looking at last night. Some of the other projects that have raised earlier this year. You had Plasma, MegaETH, Flying Tulips, Andre's thing, which is funkier structure, but the kind of the plain raises was, I believe I might be missing one more, but looking at, I have it right here, World Liberty, MegaETH, and Plasma. World Liberty, kind of I would bucket as like very kind of one-off, like kind of outlier, $550 million. MegaETH raised $450 million. It was very much oversubscribed. Wasn't there like over a billion in commits and only $450 was filled? And then Plasma raised $500 million. So is that tied to— I'm curious. Like, I would think the primary reason is just limited user, like not everyone has an account on Coinbase. They're limiting to $100K. So it just takes more people to fill that. Like what if, if, what does that check out in terms of like, if they want to raise, like if they fill 100% of the capacity, what percentage of the Coinbase customer base in the US needs to have put in a order?

So Coinbase has what, 12 million MAUs, right? And so 100 registered-ish. I don't know how many. Yeah, it's like 100, it's like 100-ish registered, but it's, it's, it's like 12 million MAUs, right? Um, and that's like, 30% of the market share in the US, if you believe Crypto.com's numbers, which I still don't know where they come from. Um, and I think it's like 38% today or something like that. Uh, yeah, so I mean, obviously it's a big percentage, and I, I think that some of this is a timing point, to your, your point, right? Which is that like this got done at a time when the market just was like completely dying. I also think it gets back to what we talked about before when I actually got a, I got a lot of bad feedback on my takes on the Echo M&A deal. People like really did not like my takes on that. Um, but I, I just don't think like launchpads are good businesses for, um, exchanges that are going after mass market. And like, you know, it's very, it has to be very niche. And I think when you try to go and sell $187 million worth of a token to a user base of which the vast majority of Coinbase users probably have no idea what Monad is yet. And, and, you know, we're investors in Monad. Kiyoni's done an incredible job. I think they're, they're, they're going to break this like monopoly of, of like, oh, well, the L1s, you know, are already kind of, you know, the good L1s already exist and we don't need to need to have, you know, more high-performance, low-latency L1s. I think that's completely wrong. I think there's the amount of innovation happening at the base layer has not done— is not done yet. But with all of that said, you have to be in crypto to have heard of Monad before. You have not heard of Monad if you are You know, the vast majority of those Coinbase users, right? And so like they come in and, and they're like, okay, what is this? And at $2.5 billion, it's going to be very, very hard for them to sell to most of those users, right? Mm-hmm. And so that's what I'm just—

if you like to put a finer point on that, it's, uh, $187 million that is trying to be raised on a 12 million active user base. You could have looked at that and said, hey, kind of just takes $15 per user to fill this round. Look, not everyone's going to want to participate, but if we were a raging bull market, it would've been filled within seconds. And there was someone from CoinList, ex-CoinList, that said this is a huge mistake on Coinbase's part. They should have been more proactive around marketing this and making sure that like at CoinList, we never, which is, by the way, historically has done a lot of these raises for Filecoin, I believe, and DFINITY and a few others. They, they, they said, look, we never— we always kind of made sure, like an investment bank, that this would have been filled. Like, they— and maybe this is Coinbase's first go-around, they're going to learn a lot from it and then go back to it.

But yeah, I mean, yeah, it's, it's always better to be oversubscribed on a smaller round. Like, you— that's like fundraising 101, right? You want to be oversubscribed on a smaller round.

But again, I think like Kevin and other folks in the Monad team, Keoni, could have said, hey, gosh, like other projects have raised $400 or $500 million. We're only going to raise, you know, a quarter of that. We should probably get this done, right?

No, and, and I think that's reasonable. I, and I think the, the problem here is just, you know, misunderstanding who your users are and who their buyers are, right? And I don't put that at, at Munaz's feet. I put that at Coinbase's feet, right? Because they, you know, I mean, their, their user base, like who uses Coinbase on a regular basis that is crypto native enough to be really bullish on Monat? Yeah. Like there are two options. How many of those, how many of those 12 million users?

I think there's a lot of insight from the sale. I would want to like get more data points, so like future sales and how successful they are. Two points come to mind. We've always heard that criticism that like retail has in the US has not had access to these ICOs. Now you do. And it's fairly priced, you know, it's not crazy. There's no demand. Does that mean that fundamentally the user base just in, in the US— two things, I don't want to make a conclusion. One, because no one in the US has had access, official access through a platform like Coinbase, they just don't think that it's possible so that you need to retrain that brain. Or is the user base in the US just inherently different? Which leads me to my second question, which is what does that imply for Base? 'Cause a lot of the narrative for Base says our user base of 100+ million users is going to want to come on-chain. Monat's pretty crypto-native. So does that— there's been on the timeline a lot of David Phelps and a couple others like talk about Base and being critical about it and everyone throws criticism when prices are down. But yeah, I'm curious if, is it too early to tell or do you glean more insights into the user base? Coinbase user base representative, like the US investor, retail investor?

The retail investor in the US, you know, relative to Asia— and then crypto has been a very Asian-driven retail market for a long time— the retail investor in the US just spends less time being as degen as possible. Like, they're not getting as deep into like what is going on into these different, uh, these different markets. And the degen ones are not really using Coinbase, right? Like, Coinbase is much more like your dad's application, right? Um, and that's continued to be true, right? The, you know, if you mean your dad's not a degen, Rob, I, I, I've seen a lot of degen, like the people I know using Coinbase on a regular basis, they're using them for on-ramp off-ramp, which means, you know, and I do this too, right? I on-ramp through Coinbase and then I, you know, I move it elsewhere on-chain, right? And so, you know, maybe I'm, I'm one of those users, but like how many people do you think just have like, you they're like, oh, I want to have a little bit of Bitcoin. I saw the QR code going around my TV during the Super Bowl, I scanned it and I bought a Bitcoin, right? And now it's sat on Coinbase the entire time. That's probably the majority of Coinbase's users today, right? Yeah. And so I— listen, I think for, for base, I think David Phelps's, uh, comment— I, I sympathize with this idea that like, you know, It seems— Base seems a little bit rudderless, and that like they've spent so much time on like creator coins that truly very, very few people care about, and there just is no argument that that many people care about these types of things, right? And not enough time on the things that, you know, people care about, which is like the future of capital markets. It does seem that they're moving back in that other direction, the pendulum is swinging, um, but they've pushed narratives that I think, you know, have been a bit of a disservice. That said, you know, a lot of the, the reaction to David Phelps's, uh, tweet was also like, well, if you weren't successful on Base, you probably wouldn't have been successful elsewhere. And I think there's like, that's probably a good argument, uh, that that's true.

So, and look, just kind of wrapping this discussion before going to news and content of the week, it really just comes down to, are you building a good product that people will fundamentally want to use? Are you solving a problem that people want. And don't be like, I actually tweeted something to the effect of like, first-time founders focus on product, second-time founders focus on distribution. I think it's a bit unfair. It's like, if you don't have distribution and you can't get distribution, well, you go back to the product because if it's really that good of a product, it should at some point be picked up. And maybe this is your argument, it flows into Aave, right? It's a good product. Yeah. Maybe the distribution's a bit broken 'cause a lot of the distribution, a lot of the user base in crypto today has been very degen-oriented and has been like this hot ball of money that goes, claims airdrop, dumps, goes onto the next farm. And you're seeing that across the board like time and time again. And so the, I think the distribution in crypto is broken if your entire user base is just conditioned to like this like airdrop and farming behavior. Uh, but we're growing up as an industry and that's a good thing. Like stuff like Polymarket, super exciting, will continue to prevail in my mind. And we were both, you and I are biased, but it's solving like a, whether you love the use case or not, but it's something that like actually permeates in, in the real world of like information and media and sports betting and elections. And it's in the conversation. So, um, we don't need more empty blocks. Uh, so yeah, we will see. Well, uh, news stories, just like rounding that out. I know you gotta probably tie up, but, um, just Kraken raised $800 million, I believe, some try to find investors.

I think the new Kraken raise was the $200 million they just took from Citadel for 1%. So that was— they'd already announced the previous. Yeah, but so they raised $200 million from Citadel. I mean, great for them. They've been on a— they have just been a different business since Arjun took over. Dave has done an incredible job and he's still there as co-CEO. But Arjun's really increased the product velocity there. Um, you know, they've continued to grow their market share. Congratulations to them. I think there's a lot more to come from them.

Yeah. Agreed. All right, sir. The most anticipated moment of the weekly roundup.

What's, what's the content of the week? Uh, I mean, I think you gotta go first this week. I went first last week, so.

Fair enough. Fair enough. Um, books. I have not read it, but I got two great recommendations. One of them from this guy left Hugging Face that was pinned on his profile that I gotta go check out. It's called The Fabric of Reality. He said, look, this book changed my life. Best book ever. I need to go and read that. I think it's written by a physicist. So we'll see. I'll read it and report back. The other one is a candidate that I was interviewing here in New York said Coffee at the End of the World. I don't know if you've read either of those, but No, on my list. I do most of my reading in the spare moments I have on the weekend, so I'll try to read one of those too this week, and I'll report back next week.

Okay. Uh, for me, I'm going back to— I gave like a more serious recommendation last week. I'm going back to, back to my fiction. Um, uh, there's— I was watching this show called The Beast in Me, which is like starring Claire Danes. Uh, she's, uh, an author who had like a book that was really successful, and I think she was supposed to have won the Pulitzer. And then she has kind of this— her son dies, and she's trying to figure out, um, or she's having a hard time writing her next book. And, you know, a new neighbor moves in next door, and she starts, uh, potentially wanting to write a book about that neighbor. And that neighbor may or may not be a murderer. So, um, kind of a fun book— a fun, uh, show. It's a miniseries on Netflix, uh, definitely can kill the weekend. So that's, that's my content this week.

That's good. Stop staring at your screen, ladies and gentlemen. Go touch grass or go see a crime thriller, or Rob's recommendation. This has been great. Thanks so much for joining us, and, uh, we'll tune in next week.