Stablecoins Are Eating Finance (What Wall Street Missed)

A lot of venture capital is actually completely brain dead. And so we try really hard as a firm to be countercyclical. And so when everybody else is scared is when I should be putting money to work. It's when I should be finding the best founder. The market's doing really well. Prices get a lot higher, people get a lot more bullish, and the markets tend to overpay for things, and people, you know, don't tend to be as disciplined and where they're putting money to work and how they're putting money to work and you know, what the entry point should be.

Welcome to the Venture Capital podcast. Today we're joined by someone who's been shaping how crypto venture actually works behind the scenes for Rob Haddock is a general partner at Dragonfly, one of the most globally respected firms in crypto investing. Rob's been at the center of the space through multiple cycles, backing everything from early stage technical founders to teams building the next generation of financial infrastructure. He's one of the rare voices who understands both the engineering side and the venture side, which in crypto is a superpower. We're going to break down how crypto in EC has evolved, what stakeholders makes this category different from traditional adventure and where the real opportunities are as we're, as we're going. So welcome to the show.

Hey, thanks for having me. Really excited about this.

Before we begin, do you want to explain more of your background, do a deeper dive?

Yeah, happy to. So, you know, maybe I'll talk about Dragonfly a little bit as well. We've been around since 2018, where about 45 people, we are globally investing in all things crypto and blockchain focused on, you know, everywhere from Asia to Europe, Africa, Latin America, the U.S. in fact, we have portfolio companies on every single continent except for Antarctica. So far, everything that we invest in does have some crypto or blockchain aspect to it, but that includes everything from, like, software companies like Taxbit that, you know, help people do crypto taxes, to, you know, call it core protocols. And now Today, we're about 5 billion under management investing currently out of our fourth fund, about a $600 million fund. So that's Dragonfly more broadly on me. So I'm actually, of the three partners that I co invest with, I'm probably the least technical of them. Now, that's interesting thing in crypto because I think being technical and also understanding business and finance and Wall street is actually quite important because a lot of what has done really well in crypto has been this Intersection of, you know, financial infrastructure and technical innovation. But I've spent my entire career on Wall street. So started my career at Goldman, moved to a, you know, kind of a private equity firm, then did some at a merchant bank, some growth equity and then advisory work as well, almost entirely in the fintech space. So I've spent the entire career really focused on the intersection of tech and finance. And for me, as I started to see Defi take off in 2020, as I started to see stablecoins take off come soon after that, it was really a natural evolution for me to move into crypto full time. I ended up launching crypto for a large traditional hedge fund called Golden Tree Asset Management, which was about 50 billion of AUM. Previously been covering Fintech and then moved directly into, into that crypto space doing both really public and private markets and just kind of setting up everything around trading to venture to growth equity and then moved even deeper here to Dragonfly. Does I really believe, and I actually have become more convinced about this over time, that you can't have one foot in and one foot out of crypto venture. You either have to be all the way in the industry or you have to be or you're probably not going to do it well and you should be out of it. And so that was why I ended up making the move from, you know, traditional large hedge fund to Dragonfly. And now I've been here for three years or so.

Well, that's a great story. Congrats. And tax. But also a local, a local company here in Utah.

That's right, yeah.

What attracted you to tax bit?

So we did tax bit pretty early on at a time when it was just like a very obvious you're missing piece. Right. So I don't know, Peter, John, if you guys have ever owned crypto or traded crypto, doing your taxes end of year still today with, you know, relatively good infrastructure is a mess. Right. If you do it entirely on Coinbase or, you know, Robin Hood or you know, some sort of, you know, brokerage like that, now you get a, again you get a tax form and you can, you know, give that to your accountant or you know, plug that into your, into your taxes. But back then when tax bit was, you know, raising their seed round and when they were founded, it was really, really tough to figure out, you know, what your cost basis was, you know, what your losses and your gains were, how you would even keep track of any sort of transactions, how to make sure that, you know, it wasn't just a, call it a Payment or whether there was, you know, call it an in kind transaction that, you know, wasn't necessarily meant to be taxable. And so they were one of the first who understood the need and really kind of went and attacked the space. And at a time when Defi really was taking off, there was, and maybe backing up even a little bit more early and call it the crypto ecosystem, really all you could do or what most people were doing were just exchanging Bitcoin or Ethereum or other types of tokens, peer to peer participating in ICOs. But once Ethereum and smart contracts really started to take off and once you now had the ability to do programmable money movement, we have this thing called decentralized finance that really started to take off. And so now all of a sudden you could do saving, you could do trading, you could do investing, you could do payments, you could do any sort of movement of value on chain programmably. And to be able to figure out how to tax that, you needed a really good software that was crypto native and blockchain native. And, and so they were one of the first ones and the best ones at the time. And you know, we were excited to back them. We're no longer investors, but we were, we were there early and we're, you know, ended up being a great investment for us.

Where did the two of you see the opportunities in crypto investing right now? Not as an investing in crypto, but as a VC fund investing either in platforms or.

Yeah. So you know, really interestingly and I, John and Peter, I don't know how long you've been, you know, following the crypto venture scene, but there's been, there was a long period of time where, and I think there was an article written by one of the guys at Placeholder and you know, previously at Union Square Ventures that talked about the, the FAT protocol thesis. And it was essentially saying, okay, well you know, when we had the Internet, the protocol layer actually accrued basically no value and the application layer accrued all of the value. And what you started to see was that in crypto investing the things that got really outsized returns were actually the protocols themselves. So it was Ethereum, it was Solana, you know, ripple, etc. Right. And in fact maybe the best venture investment of all time was the seed round of Solana.

Right.

And so there was an expectation that these protocols would, we wear all the value accrued and that the applications would not be able to have the same type of returns. That's been really kind of turned on its head recently as people have started to say, okay, well these protocols don't actually make revenue in the same way. Now you can think about something like Moore's Law and we should maybe value them on, you know, call it a, you know, n of the amount of nodes that exist there and they should grow exponentially with how that when, when that new network infrastructure grows and has, you know, kind of new users. But that has, I think, started to be come out of favor with a lot of people. And we've started to see, you know, a lot of those, you know, those protocols trade down and not perform as well. And then there's been a resurgence of people looking for, you know, applications and things that like actually make revenue. Shocking. I know, right. And so we've seen, you know, one of our best investments in our third fund is a business called polymarket. And you know, polymarket is a company where, you know, you can participate in any type of market and you can, you know, through these event contracts and these option contracts and, you know, it's essentially an exchange and everything underneath the hood is crypto. But you as a user may not know. Right. And so we started to see a lot more, you know, push into having and creating protocols and applications like that. And so that's where we're really focused. We're really focused on things that are changing the dynamics of financial market infrastructure using crypto. So via whether that's stable coins and payments, whether that's things like tokenization, whether that's things like net new novel markets that can be made more easily accessible globally through things like tokenization, which essentially what polymark is doing is they're tokenizing markets. Right. And so that's where we're really focused. We continue to be really focused on anything to do with DeFi. I think DeFi is going to continue to be a, a major use case. We've actually seen a lot of DEFI start permeated into fintech, which is, you know, kind of some of my history and I think maybe probably like cryptographically, you know, verifiable, like private transactions as well, I think is going to be really important. But those are probably the main areas where we're seeing a lot of investment today. Some of the other things people are really excited about, you know, that whatever AI crypto crossover and some of the social stuff I find to be a lot less interesting and a lot more, call it speculative.

Why do you think, why do you think now is that the age of crypto applications? Like, why not before? Right, because it sounds like what you're saying, which I agree with, is everyone thought that the value accrued to the protocols. And so even the companies that had applications, they were like really selling the underlying protocol. Right? They do these initial coin offerings and everything else. But yeah, I think you're right. And there is this shift. I'm just curious what your perspective is, having been in the space for a long time. Like, why now? Right? Why the shift now? Why is it possible for companies like polymarket to actually achieve success whereas before they weren't able to?

I do think a big part of it is the infrastructure was just not ready. Right. And so, you know, one of the things that was true was, you know, in 2021, the last time we had, you know, sort of a crypto craze, almost all trading was still done on Ethereum Mainnet. And I don't know if you guys were, you know, participating in crypto at all personally or, you know, through your work. But, you know, you would like a new token would launch or a, you would try to do like a, you know, a payment at a time when the network was congested and you might pay as much as like $300 in fees just to be able to send a transaction. Right. Clearly, you cannot build an application that is profitable with that type of fee structure. Right. And so you needed scalability in the networks themselves, something that has really been solved since that period of time. I don't think we're done solving scalability. I mean, there's a new blockchain network that was launched today called Monad, which has a new take on how to scale. And we think that will continue to be innovation there. But that said, we didn't have that in 2021. So I think that's really been a big piece of it. The other piece of it is, you know, if you guys have ever used MetaMask or you've ever used, you know, Phantom or, you know, these, these wallets, right? You know, having to be able to use a hash and, you know, put in that hash into, you know, another contract when you want to send or receive a token and then, you know, remember your 32 word key phrase to maybe potentially lose like, you know, that key phrase and not being able to get back into your wallet like that, that kind of, you know, infrastructure really doesn't work for mass usage. Right. And so we've had the, you know, invention of and the scaling of, you know, things like Privy and Turnkey, which are these embedded wallet companies that have allowed for much easier usage of and like you know, call it email login for those wallets. And so that's been a big part of it as well. You have much better interoperability across, you know, different chains and liquidity pools themselves. You better ability to actually get data flows from onchain to off chain. And so you can build products that have both offchain and on chain use cases. And so companies like Chainlink have been kind of at the forefront there. And so it's really been an infrastructure build at a time when the market had kind of out due to, I think, some of the speculative nature and reflexivity of the tokens themselves. And we're going to have been focused on building, you know, what was making the most money. Right. That's how incentives work. Right. But hadn't necessarily been building the core infrastructure needed to make sustainable businesses on top. And that's happened since then.

Interesting. Are you seeing anything around tokenization as a way to comply with different compliance? Like I looked at a company recently that I thought was interesting where they were basically like tokenizing data to remain PCI compliant as a fintech? I don't know. Are you seeing anything like that or is that kind of still a little bit out there?

There is some interesting work being done right now on things like using ZK to have data privacy but continue to be able to prove that something exists. Right. I think this is in a world of what we're seeing in gdpr. Obviously there's a long list of use cases potentially for me not to want to reveal to you all of my data, but to be able to prove that something has happened or be able to prove that I own something and then have us transact. On top of that, there's a lot of people trying to build around that. I think there is a real use case for that type of private transaction flow and that type of cryptographically verified transaction without revealing the data tokenization more broadly in terms of like call it, you know, using, you know, tokenization. And I don't know how the specific company works that you, that you message, but I don't know if that necessarily is where I see, you know, a use case for data. What we, what I do believe is true is that we will continue to get a lot more assets tokenized and on chain. We will continue and because of that we will have to solve the problems of, you know, complete, verifiable, open source, transparent blockchains, which you obviously do not like. You know, let's say we're in a world where, you know, we're Doing all a bunch of equities trading on chain. Right. You can't just stream it for all the world to see at any given time to a counterparty's address where I then know at every given time that, you know, call it. Balyasney is buying this equity at any given time. Right. And so how we solve for, you know, call it coordinating these coordination layers, which are these networks, but doing so in a way that allows us to still verify but not necessarily expose who the counterparty is, I think is actually going to be really important. And at a time when I think tokenization is going to take over a lot of, you know, asset trading that exists today.

Yeah, like you need auditability, but maybe not full transparency.

Yeah, yeah, that's right. That's so I mean, I was sitting down with the DTCC maybe was two or three weeks ago and you know, they're actively working on potentially a, you know, call it a tokenized like clearing ledger for actually private securities. And with the idea that, okay, well like they believe anyways and people will argue that, but they believe that the DTCC works well for public equities. But, you know, today there is no way to centrally clear private securities. And because of that, that's the reason that they believe that you haven't seen a real kind of uptake in private securities trading. You know, they've had things like Forge and other types of fintechs come out and try to solve this problem, but it's segmented liquidity and it's the adverse selection. And there hasn't been no real growth in that market the way other people, I think have expected. And because of that, you know, their belief is like, okay, well you actually need centralized clearing and you need a centralized, you know, counterparty that, you know, has truth and can tell you exactly who owns what and how and why and what the price is. And they believe that the only way to do that is actually on tokenized Rails because of the fact that you don't already have existing, call it infrastructure that exists like the exchanges. And so they. And you don't have, you know, call it the same regulation on the brokerage side or like the NFCM side. And so they need to have auditability for everybody within the network and they want to do it on tokenized Rails. And so we're starting to see a lot more, I think either acceptance of or at least proof of concepts around ideas like that.

Yeah, yeah. Makes a lot of sense. What other applications do you think are really interesting, like categories these days?

Yeah. So talked about the prediction markets I talked about defi. You know I think one of the things when I look through my fintech lens that's really interesting, right is the, you know the, the protocol called aave. And I don't know if you guys know aave but it's the largest lending market on chain or money market on chain. So the largest market where you can you know, put in a stablecoin or you know, a lot of other crypto, cryptocurrencies and you can lend them out or you can borrow against them and you know it's variable rate and so you know it's you know basically supply demand curve and they, they announced their own application, I believe it was last week in which you can go and you know, save in stablecoins through their front end on their protocol you can get between 6% and 9%. I think 6% is what they're calling quote unquote like real yield because that's what they see the demand for stablecoins today on chain, 9% is you know, juiced returns which like with like you know, token alve, token rewards and you know, things like that. And not only can you do that through you know, an embedded wallet in their application that looks like a normal fintech experience, they're also providing insurance up to a million dollars. Right. And so all of a sudden you have, you know, greater than FDIC insurance, you have a UX UI that looks very similar to, you know, name your fintech and you have actually better rates than you would get if you just had a money market fund underneath. Clearly there's, call it, there's variable interest here so the interest will move around more. There's also clearly more risk involved in terms of smart contract risk and counterparty default. Now on AAVE everything is over collateralized and so hopefully if it continues to work as it has, you don't have call it real bad debt or losses. And we're starting to see so AAVE is going to go direct to consumer which I think is very tough without having you know, their own distribution already. But we're starting to see that type of product also permeate in traditional fintechs as well. Right. So Coinbase launch list, you know, with Morpho underneath we're seeing people like Nubank and Revolut talk about launching similar products like this, you know, entirely on chain through non custodial wallets and you're starting to see these like call it stablecoin infrastructure and defi native, you know, back ends for fintechs. Permeate a lot more. And that's a place where I see them really explosive growth within our portfolio and a lot of excitement, not just from the crypto native VCs but also, you know, the traditional crossover VCs as well.

So one of the things I thought was interesting in money 2020 this year was like all the talk was around stablecoins and I'm wondering if you could maybe break down, you know, why that was exciting, particularly keeping in mind our audience, which may not be as crypto fluent as maybe a lot of the people you work with on a regular basis. But I think it's an important point in the evolution of crypto to really understand why stablecoin is really interesting and why now and why everybody is talking about it and excited about it, the things it unlocks.

Yeah. So I'll, I'll take a, like a really high level perspective here. I, I think, you know, at this point it feels like everybody has some view on or understanding of stable coins, but I, I'll kind of go way back. And so, you know, at the end of the day, what is a stablecoin, right? It's a, essentially a tokenized version of a money market fund or a US dollar that is backed by a money market fund or US Treasury. They're not actually new. The first stablecoin was created in 2014 by Bitfinex, which was essentially the team that ended up founding Tether. And so Tether's been around for a long time. You know, Circle's been around also for a similar amount of time. They didn't launch USDC their stablecoin which is the second largest until 2018 alongside Coinbase and a few others. But this is a not a new technology. And for the vast majority of time that, you know, since then stablecoins have primarily just been used as the backbone of the on chain trading economy and decentralized finance economy. And the reason for that is, you know, call it originally when you were potentially thinking about doing defi, you would have to denominate it in eth or in Bitcoin or some other token. But these were really volatile currencies of which you might make 10% bitcoin denominated, but because bitcoin went down 10%, you made no money. And so as people wanted to grow of participate in this on chain economy, they wanted a US dollar pegged version of some tokenized asset. And so what you saw then over that next period of the growth of defi is that the US dollar stable coins ended up being the backbone of that. It really wasn't until call it 24 months ago that we started to see stablecoins really grow for traditional use cases. So we've been talking about this for a long period of time. There was companies that raised a lot of money on this thesis for years. But if you look around the actual companies that were doing real transactions outside of crypto, it was almost a minimus, call it in 22 and in early 23. And then what we saw is this acceptance of companies that there is actually an interesting thing here that we can utilize this technology for and we want to start building with it. And that led to explosive growth of companies like Bridge which was acquired by Stripe and companies like bvnk which has been, is not getting acquired by, originally been rumored to be acquired by Coinbase or MasterCard or these companies are really facilitating what I would say cross border payments. We've also seen explosive growth in use cases like Treasury Management. And we saw with the tokenization of other types of, you know, call it non dollar assets like the Biddle Fund, which is BlackRock's money market fund, we started to see explosive growth in parts also like peer to peer transactions because of US dollar demand in, in emerging markets. And you know, so because of that explosive growth you say okay, why was that like what was exciting about people to do that? Right? I think it's pretty important to differentiate between the retail user and the business user. For the retail user really where we've seen that pickup has been for places where there's US dollar demand but you could not otherwise access US dollars. So the global south, you would, you're in Argentina and you're participating in your local economy. Your currency is devaluing or inflating by 30 or 40% year over year. The most valuable currency you can get your hands on is the US dollar. But there is no way for you to get your hands on that US dollar in your current, you know, fintechs, your current banking infrastructure all of a sudden through a non custodial wallet that is borderless and is unable to be stopped in the way that you know, traditional bank transfer would be. You get access to a US dollar and you can get out of your inflating currency and you can theoretically do remittance with a family member in, you know, call it, you know, maybe America who wants to send you that money with almost no friction whatsoever and very, very low cost. And so that was the first use case that we saw really grow really quickly. Then it became okay, well what is the business Use case So we've seen B2B SMB transactions grow incredibly quickly. They're now, they've grown about 400% year on year. They had grown over a thousand percent the year before from a relatively small denominator. But now we're talking like a few hundred billion dollars of annualized B2B SMB transactions. And what is really exciting for those people, two things. One, it's the programmability of money. It's the ability to do, call it like streaming payments on a recurring basis from a programmable nature that doesn't require them to do necessarily go through the traditional banking system and be not be served by maybe a really expensive correspondent bank. And so that programmability has been really important for people. The other thing has been how do I move money globally in a market that doesn't really serve me particularly well. And so I like to give this example because we've seen a lot of people really focused on this. But so you may or may not know this but 80% of the water in your Coca Cola comes from Western Africa. Okay? The Coca Cola does not want to park money for their suppliers in Western Africa. Why? Because the banking system, they don't like the counterparty risk of the banking system. They don't like the potential, the yield that they can get on those US dollars or those local currencies there. They don't want to take as much FX risk. And so in a world where they can call it, and by the way, when they send through Swift and JP Morgan here in the US still occasionally that wire gets lost, still occasionally it takes seven to 14 days or 17 days. Right. Because of the core respondent banking system, the way Swift works and the way the operations of these banks work. Okay, so now what if I can do that transaction in real time with absolutely no capital inefficiency? What if I can do swap from a, you know, call it a yield bearing money market fund or treasury into a US dollar equivalent at the time I need to do that transaction. And I can get paid up to the second for my annualized yield on that product instead of having to call it settle end of day or settle through, you know, at any other given time. And also what if I can do it 24, 7 and I don't necessarily have to, you know, wait for, you know, banking hours. Right. And that's what happens through stable coins on blockchain rails. And why we started to see a lot of interest from global corporates and from SMBs that are not, you know, particularly well served by you know, call it traditional banking, correspondent banking, start to adopt stablecoins. And by the way we had seen this type of, you know, kind of growth in alternative payment methods already. Right. You know, Wise and et cetera. And these are just better done better on stablecoin Rails because Wise is still a really capital inefficient business even though it's much better than you know, call it traditional banking for a lot of these use cases. And so that's been a big part of the reason we've seen stablecoins grow today. I think, you know, they are really the infrastructure for you know, a broader tokenized asset economy. And so we can go into like what's more exciting in the future. I think this is exciting but we're going to continue to see more growth in other parts of the market as well.

So I have a question about remittances and transfers because I feel like that has been one of the biggest promises for the longest time and yet I'm not aware of anybody that's at the same level as like a wise. Right. For doing these cross border transfers. And I'm curious why that is because it's not for lack of companies starting and raising money to try and tackle it. And clearly like there is, I mean it isn't, it is a marketplace network, you know, problem. But even so like I would have, I would have imagined that by now we would have a more consumer friendly version of this available. And I'm curious what your thoughts are on that. And maybe, maybe I'm just not, I just don't know about like this other app that's wildly popular that already exists.

Yes. So you're not wrong that Wise continues to dominate the market or remitly or some of those others. Right. But two things. So one, there's a company called Artemis that does actual geographic stablecoin flow tracking. So they look at all of the stablecoin flows and they try to one, they go to the end customers or the company that's maybe accepting and doing the FX or remittance and then putting into Fiat Rails and they try to get proprietary data from them. Or two, they just try to based on like wallet kind of movements over time and behavior over time they try to estimate what these things are, are what's happening. And their estimation is that as much as 10% of remittance flows from US to Mexico and US to India right now are on stable coins. And that's been growing quite quickly. Now you might say 10% is like know not that big and that's true. But it is growing quite quickly. I think the other things to, to look at are, you know, call it Western Union. Right. So Western Union still, you know, one of the biggest cross border remittance companies in the world. Even though it's not digitally native. What have they. They've been trying to digitize that business for a long period of time. They announced a, you know, a stablecoin and a remittance digitized remittance business using Solana on, on chain. Like I think it was three weeks ago, it was right around Money 2020 that they announced that. And so we're seeing people start to build with existing distribution, build around that. Now if you talk to Wise or you talk to Air Wallix or you talk to a lot of these guys who are doing cross border, you know, payments, whether it's, you know, consumer business today, a lot of them will tell you that like listen, like you know, the big problem is that not that you know, sending the money. Yes. Like if it's just, you know, here to there, it might be better on stablecoin Rails but the difference is that we have capital and we have bank relationships and a bank network at all of these different places in the world that has allowed us to be able to offer low cost swaps into your local currency or put it into your bank account so it's usable. And I think that's a very fair comment. So the question becomes how do we make stablecoins more usable so that you don't have to have the bank network? Right. And that's where we've really started to see the unlock is now there's a company that, which we're an investor in called Raincard, which is actually using the traditional Visa payment, Rails but entirely on chain infrastructure to link their card, a Visa credit card to your stablecoin wallet. And then when you swipe at the merchant so you don't have to have a new positive, it pulls, it gives you credit based on the stable coins that are in your wallet. It securitizes that credit and immediately can be traded on chain and then they settle with Visa directly in stablecoins. And if the merchant is willing to take stable coins, the merchant can get stable coins directly as well. So what they've done is because they are also the issuer is they've gotten rid of the issuer bank and if the merchant wants to take stablecoins well they've now gotten rid of the merchant acquirer as well. And so that usability has shown explosive growth this year. And so companies like Dollar App in Colombia, which is like a B2B call it, you know, kind of fintech has grown explosively because of this use case. Companies like, and now we know companies like Revolut and Nubank and a bunch of this others starting to offer cards like this as well. And so I think that usability and not having to reenter the banking system is actually the barely big unlock. And actually the reason we've, we've seen card Transactions grow like 1300% with a stablecoin back card transaction grow 1300% over the last year. And that's really the big, the big reason why.

And so just to understand that. So, so like a rain card, an entity that's using rain card is the, the back end. They would have, I would send stable coins to the person in Mexico, it would sit in their wallet and then they would have a, a card that they could use and go buy stuff. So it's kind of like a bank account, although it's not, it's really like a credit card tied to a crypto wallet. Is that, is that the right way to think about that?

That's 100% right. Yeah. And, and for both business use cases and for, for retail use cases. Right. And so, you know, you probably saw Stripe announced with Bridge, a virtual account for businesses globally. Right. And it's the same thing. It's okay. Well now all of a sudden, if you're a business that uses Stripe and you want to take stable coins, we will give you virtual bank account access, but you can also just keep it in stablecoins and we'll give you a card that allows you to use those stable coins. And now all of a sudden the network fee of, you know, quote unquote, you know, whatever network it's on, Solana or if they try to use Tempo later, you know, is de minimis. But now you don't also, you also don't have the, you know, call it friction and FX fees and you know, capital efficiency of then having re enter the banking system. Because now you're basically, you know, as Jeremy Lair likes to talk about at Circle, it's, it's Internet native money or digital money. But you know, how helpful is Internet made of money if then you also have to, you know, go analog every time that you want to use it. Right. You know, you want to always be on the Internet. Right. And that's how, where we started to see the growth.

Yeah, no, that's, that's really interesting. Yeah. Because I mean, so I have some property in Mexico. And like, paying people in Mexico is like a huge, huge pain and I think a large part of it. And, and this doesn't really get solved anytime real soon because a lot of them still operate with cash. And so you need, you need a mechanism to be able to pull, you know, cash out because so many merchants won't accept credit cards. But that's quickly changing too. Right. So a little bit of a. Yeah.

And there's a lot of fin. I mean, this is a fintech point, not just a crypto point, but there's a lot of fintechs trying to bring these, call it, you know, call it blue market or gray market, you know, cash economies and bring them and digitize them and kind of bring them back into the fold. We've got a portfolio company trying to do this with stable coins called Czar and the Middle east, but we're going to see a lot more of that.

Yeah. So I'm curious. Bitcoin's down quite a bit. A lot of the currencies are down quite a bit the last week. What's going on and what's kind of your prognosis on.

Yeah, it's been a, it's been a tough, tough month since I saw you guys in Vegas. It's, you know, I think, I think in Vegas, bitcoin was still 110k. Yeah, it's, it's like 85k today at 80k, you know, over, you know, last week. I think there are two things that are true. So one is crypto is broadly still a macro asset in many cases, especially bitcoin. But, you know, calling it more broadly, the whole market trades primarily today on momentum through like quantitative trading firms. Right. And so like, most of that, you know, call it, most of the flow is quantitative today. And so we've seen a real change and the general, you know, market perspective on the macroeconomic landscape over this period of time. I think the, when you got you and I met in Vegas, the market was pricing at 100% chance of a rate cut in December. Now it's down to a 33% chance of a rate cut. The labor market has continued to soft. The inflation has continued to look stickier. There's general sentiment, generally poor consumer sentiment. And what we've seen is outside of, call it Nvidia, continuing to save the market every quarter and AI growth, we've continued to see a really, really, I think, concerned parts of the economy and people and investors concerned that most of the real economy is going to not do particularly well. And so the uncertainty around tariffs too, if tariffs get overturned by the Supreme Court, which I think the poly market today is like 75 or 80% chance that happens, continues to throw the market into a wrench. And so that's I think probably the most important part of this. The other thing that happened that was probably too crypto native to talk about for your audience, but we had this call it market crash from maybe it was right after Vegas where there was a lot of leverage in the system and a lot of that leverage called it got washed out and caused, you know, what was a really big one day or two day flash crash. We haven't really recovered from that. And so we've had about a trillion dollars taken out of the market. And when that much loss happens and you know, kind of a really quick succession, markets need time to give people confidence again. And you know, so I really think those are the two, the two main driving factors because you know, for a lot of the real world use cases we're talking about, I've never been more bullish. We've never seen more adoption from at the board level at Fortune 500s. We've never seen more people across trading firms and Wall street talk more about tokenization. We've never seen global fintechs grow the way they have using non custodial wallets. And so I couldn't be more bullish. It kind of feels like we're getting everything we wanted as an industry. That doesn't mean that the price action of tokens, especially for ones that don't have, you know, call it revenue generation and cash flow generation, needs to reflect, you know, the use case.

Yeah, yeah. So not that that we ever give investment advice on this, but do you feel like it's a buying opportunity or is it a hold and wait?

Well, so also never give investment advice, but as someone who's, you know, majority of their net worth is tied up in a crypto fund and who continues to believe very strongly in where this business is going. You know, this looks like a good entry point for me and you know, listen, what I do as a venture capitalist, and I'm sure a lot of your prior guests have talked about this, but a lot of venture capital is actually really pro cyclical, which is completely brain dead because there's no reason it should be, it should be the complete opposite, right when the market's doing really well, prices get a lot higher, people get a lot more bullish and the markets tend to overpay for things and people, you know, don't tend to be as disciplined and where they're putting money to work and how they're putting money to work and you know, what the entry point should be. And so we try really hard as a firm to be countercyclical. And so when everybody else is scared is when I should be putting money to work. It's when I should be finding the best founders, and it's when I should be getting the right entry points that can then make me money that I can, you know, for at times when everybody else is actually investing into those companies and, you know, the markets are opening up and the I and the IPO window is opening. So. So we're. We're open for business more than we ever have have been and, you know, excited about where this market's going.

Yeah, it's. So it's such an interesting point that you make because I feel like so much of venture thrives off of fomo and so it does when you have these bubbles, right? It's just like FOMO to the max. And so many venture investors are like, I can't miss out because all my peers are, you know, just throwing money like crazy. And. But you're right. Like, I think back to 2021, I think the funds that did the best were like, aggressively liquidating their portfolios. Right? And the, the funds that are all struggling right now were, you know, buying up, you know, all those secondaries, plus primaries, plus playing at, you know, extremely high valuations. It was funny. I was talking to a friend. Go ahead.

No, go ahead, go ahead.

I was just gonna say I was talking to a friend of mine and he was like, he's like, you know, when I was walking around Miami in 21 and watching like 18 year olds rolling around in Lamborghinis, that was probably the time I should have been like, aggressively liquidating.

Yeah, famously. You know, I think Peter Thiel was the most bullish he's ever been on bitcoin of November of 2021 publicly. And if you now actually go look back, he was selling the entire time. He was that in November of 2021 was the Bitcoin top for that cycle. And he was selling, but he was talking publicly about how bullish he was. And you're completely right that the best investors, they know when there's too much euphoria in the market. And I'll tell you a story about 21, because this is one of my favorite stories to tell. And you brought it up, but I was on a, you know, I was at Bitcoin Miami 2021 as well, it sounds like you're, you were referring to. And I was on a party that another fund put on that was on like a huge like you know, three story yacht off the, you know, off the Miami coast. And they're, you know, they stopped the, you know, they stopped everybody and stopped the music. You know, at one point at like 8pm, like everybody could come on at 6pm, 8pm stopped the music and they said, we have a special guest that's going to come talk to you. And the mayor of, of Miami who's you know, made, you know, crypto a big part of his platform came and talked and then he said, oh, and I have one other surprise for you. And he's like, I'm really excited to have Papa John come speak to you. And Papa John comes up to speak to everybody and I don't, I don't know why he's there. And he goes, you know, I'm so excited about the future of crypto. We're going to be taking crypto at Papa John's and like this is like, you know, a huge use case for us. And also by the way, free Papa John's for everybody on this yacht. And then a bunch of women in bikinis start trying to distribute pizza on this yacht. And I've never been more ashamed to be part of the industry than that time. And also that should have been the sell signal. And so that anytime if I see anything like that ever again, that's when, that's when we're shutting down and we're not.

We're doing no more investing, so no more investments. Let's find buyers for all of our good stuff.

Yeah, that's right.

Yeah, that's great.

Before we wrap up, are there any portfolio companies you'd want to highlight? I know you've spotlighted a bunch on your website like Agora, Cato, Monad, Magath.

Yeah. So I talked a little bit about some of the ones we're really excited about as well with Rain, which is doing quite well in Poly Market. I think one of the ones that we're also really excited about on the stablecoin side is one called Velocity, which was founded by the ex head of crypto and one of the youngest SVP's ever at Worldpay. You know, he is doing. And Eric and his team, Mina and James and others are really trying to solve this kind of treasury management problem that we talked about earlier. We're actually seeing to that point. I talked about with like I used Coca Cola as an example. I could Tell you of at least 22 Fortune 500s that have active RFIs out for how do I use stablecoins within my business. And we're really seeing that take the same shape as AI right now. So a lot of the AI companies are using this kind of forward deployed model where they're going in and saying this is how you use AI and we'll help implement it for you. We're starting to see the same thing happen in stablecoins and so Velocity is one we're really excited about on that side. Agora, as you mentioned it was doing white labeled stable coins and I gave a shout out to Monad, one of our portfolio companies which launched their main net today which is really trying to solve, figure out ways to do call it faster throughput transactions on chain by parallel, parallelizing the execution and the state essentially. So they're. And the way they think about, you know, how a transaction should essentially get ordered and so very, very technical point but you know, really excited about a lot of the people in the portfolio and there's you know, 10 more that I'm sure will be mad at me that I didn't talk about them but are doing really well in the last couple of minutes.

I'm just curious, what is your take on, I mean so what is it now? I think the latest Data says like 50% of every deal is, is an AI deal that gets funded in venture right now. Where's the intersection between crypto and AI? I know you mentioned like you're not super bullish on, on some of that stuff but like clearly there will be opportunities that exist there and I'm just curious how, how you get, how you think about that.

So, so it's tough. There's, there's been a, a decent amount of money thrown at the space. One thing that we've observed is they most AI people do not. There's still not a lot of love loss between AI and crypto. And you know what's, what's really clear is that the marginal Talent today in 2020, the marginal talent in 2021 was working in crypto. Every smart Stanford kid that you talk to like he probably wanted to work in crypto. Now today it's AI, no doubt about it. Right. And what we have found is call it the AI. Crypto founders are usually, it's a, it's somewhat adverse selection than just AI founders. Right. So it's you know, typically higher quality. If they're building that now, they might fall into a crypto use case. That makes sense for Them and so things like agentic payments are ones where we're seeing a lot of really smart people talk about the usage of crypto and blockchain rails for you know, agent to agent transactions specifically lastly agent to human. That's something that I think we're seeing a lot of innovation around. A lot of people are excited about and that's you know, call it a, you know, somebody building a, you know, call it more traditional business which would they see a reason for a stablecoin or a, a non custodial wallet and certain types of permissioning that comes in smart contracts to exist. I think that's exciting. It's probably not as exciting as been things like doing inference on chain. Right. Because you know what most inference is somewhat latency sensitive and there's no real need for it to exist on a relatively slow blockchain. Right. And so even for the latency and sensitive workloads, you know, there's not necessarily a need for it to exist on chain. Now I do think there's a interesting conversation around. Okay, in a world of, you know, not understanding where data comes from around data, data audibility, to your point earlier around and verifiability of that data, that being on chain is something that is actually I think quite interesting and we're seeing conversations there. I think the other thing that is pretty interesting in the world of deepfakes being able to kind of call it cryptographically mark or secure, that this is a real version of something I think is actually quite important. You don't necessarily need cryptocurrency for that, but you do probably need blockchains for that. And so I think that is particularly interesting. So that's probably places where we're interested. There's some coordination level stuff that's interesting that maybe the decentralized compute side, but the reality is most of these like decentralized compute protocols, they have real, they have software issues that are like software coordination issues, not you know, core protocol issues. And so that's not something that these guys are solving on their own. And so frankly like we haven't seen, those are the few use cases that I think, you know, we can argue and then we can see potentially interesting use cases for but for the, you know, broader set of foundational models and you know, the software that's being built on top of them, most of it doesn't make a ton of sense to be existing on crypto or blockchain rails.

Awesome. Well, we really appreciate have you joining us today. It's been a really fascinating conversation. Where can people find you? Follow you, learn more about Dragonfly and the stuff you're working on.

Yeah, so LinkedIn and Twitter, best places, Twitter. It's Ylastname, Haddock, H A D I C k. And on LinkedIn, just my name, Rob Haddock. Find me there and happy to chat with anybody but crypto vc Dragonfly.

Love it.

All right, well, thanks for your time.