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

Transcript

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds or projects discussed. How we doing everybody? Good. Good. Permission list so far. Good. Good. Thank you guys. Um, so I wanted to bring my friend uh Constantine on for a fireside chat here. I I think you're you'll see a lot of like product conversations today and you'll see a lot of you know uh Kane and Infinex like really cool obviously what they're

building. Uh this is maybe going to be a slightly different conversation. Constantine and I I thought we could start here. Constine went and I went on a very very very depressing walk around New York in 2023 where we were almost uh crying to each other and it was very dark days and um yeah just the depths of the bare market. So Constantine maybe we could start there. I mean you've been building uh this massive business in block in uh in crypto for eight years now. I think one of the biggest businesses in the entire industry. You have more Fortune 500 clients than probably any business I think in in crypto. So maybe we could just talk about what it's been like to operate a business in crypto through through the years and specifically the last couple of years. Yeah. No. Uh yeah, happy to.

And uh I feel like I mean you have a similar amount of time and you know one of the the time in crypto and uh the one thing I always say is like crypto moves in a sort of it used to move in a four-year cycle where as a founder uh one year uh you look like a genius two years nobody cares about you and then one year you look like an idiot but nothing actually changes in what you do you know kind of that's always what I find uh really interesting is that the market dynamics will really shape the perception that people have about uh what you're building and what you're doing because the volatility and the the the incentive mechanisms around tokenization that we need in order to build these networks uh also drive

obviously this immediate desire for return specifically from investors. And so uh in a bare market um you know it you start looking silly really quickly because in the bull market you know you go out and it's like hey the world is coming on chain everything's changing and the expectation level is really really high and then uh obviously when the bare market collapsed like when we spoke was just sort of basically after FDX blew up um you know it's hard because the the same people that kind of thought hey this guy really has it figured out are like basically oh this is all dead now right? Like and so it's it's hard to stay um I'd say uh solid through those periods. Yeah, for sure.

How how do you think about this idea of chasing like uh we're in such a narrative driven industry. So for Block Works like 18 months ago, everybody in their mother's p telling us we got to go launch a chain. Blockworks needs an L2. Nine months ago it was blockworks needs a memecoin. Blockworks needs a token. Now Mike and I probably get a pitch a week by from people saying Blockworks needs to become a Bitcoin treasury company. we need to we need to take this thing public and become a Bitcoin treasury company and obviously we haven't chased any of those narratives and and we don't plan on it but how do you think about I mean sometimes you do have to follow where the narratives in the meta is going but you can't get too overweight there yeah I mean it's a hard balance right because we are definitely

a narrative driven business right like I think the the the sort of people forget that cryptographic decentralized networks and building commercial models around them is really a very deep tech novel thing and so there isn't a playbook that you can easily apply around like SAS multiples and and and and all those type of things. And so what that means is that again investors and stakeholders um you know hear something and you know they don't see the metrical alignment that they're used to in a normal SAS company. They see a ton of volatility and so they're chasing the next thing that they think will get them to that level all the time. And I mean for us it's been a real challenge because um we're obviously a really long-term focused infrastructure

company. for example, we've been building wallets for like I I've made that pivot when we in 21 when we decided to really go into institutional wallet architecture and um you know, we've been solidly holding on to it for a long time and um there's been a lot of pressure to really look at look at that and kind of find hey are there more exciting uh uh ways to use our engineering skill set? An L2 obviously was same for us. You know, everybody wanted to have an L2. Um, and I remember meeting Jesse from Bass at the time and um, really liking what they were doing and trying to tell people, hey, we'd rather support a few efforts that are really going to be big than uh, go for every individual little thing that we can extract value out of.

Can I get a show of hands from the audience? How many people know what block Damon's what block Damon does in their business model? All right, good. Not not that many. Yeah. I mean, listen, uh, which is partly by intent. Yeah, because you guys are such a B2B institutional business. Can maybe for the audience, can you give a uh a quick like what what is the business model today? Even for me, I mean, I've seen you guys, it was just an institutional staking business, then you've got wallets as a service. I don't even fully understand the whole scope of the business. What is the business model today? Yeah, I think um one thing I want to highlight is the secret lies a little in the name, right? And so Damon in computer science is an operating system that runs silently in the background, right? And so the idea behind block

demon was always that we want to be in the background. We want to run infrastructure. Ideally, we don't want to be known. It's a lesson I've learned the hard way. A lot of the people I know and well like Doggo and and Sam and all those people that everyone who kind of stuck their head out basically ends up in an orange jumpsuit. Um and and uh so I always felt it's much more important to uh really work on core infrastructure than being publicly known um also as a company. And so um now what Blockdemon really does is we connect institutions to web 3. What that means is we started with full nodes for transactions. That's where block demon actually came from. Um that business now is migrating really into DeFi APIs and and bridging liquidity. Um and so uh we recently

launched like for example an earn offering, right? Like where people can you know kind of do all things through an API uh through our node architecture. Uh then we have institutional staking. I think the big difference here is we're the only I think US domiciled staking provider. Um and uh so we we don't have a consumer offering here. We run this for uh you know every I'd say every major entity runs has a block demon staking node somewhere at this point. Um and uh you know we think there's a lot of evolution coming there and then really the wallet part pulls it all together for us. One thing we learned in staking is that we think if you don't control the primary u which to us is where do the tokens physically reside it's very hard to monetize the

underlying transactions and there's the yield right and so what we decided to do is really build wallet architecture that we can give to companies like JP Morgan for example um to actually uh manage their digital assets and then have our APIs drive transactions and staking over time and so now what we've learned is building the wallets for those type of brands and those are our customers you know and and um is really difficult and time inensive um the procurement process alone um the the I mean for Bank of New York for example vendor on boarding alone takes over a year right like just to sell them a bitcoin note you know like kind of so it's it's it's been

really really a lot of work but you know the exciting part is that now we see a lot of that shifting right katana Hana isn't another new generalpurpose blockchain. Its purpose built for DeFi users to provide the best experience possible. It does this by sustainably generating deeper liquidity and higher yield than any other network. If your assets are sitting idle, then they're dead. Katana is built from the ground up with DeFi mechanics to bring your bags back to life. All you have to do is bridge over and Katana does the rest for you. Incubated by Polygon Labs and GSR, Katana launches with a notable ecosystem of primitives, assets, and partners like Morpho, Sushi, Vertex,

Lombard, Chainlink, and Year. Be early to Katana. Join the pre-eposit campaign before mainet opens at the end of this month. Deposit funds and open rewards filled with randomized amounts of KAT tokens. There's also a Cryptounk and other exclusive NFTts hidden for the lucky ones. As always, investments in blockchain technology involve risk, terms, and conditions apply. Uh, let's go there. So, you guys have I I think I'm right when I say probably more Fortune 500 customers than any crypto business in the world. Maybe maybe some like maybe there's one or two others who are up there with you guys.

How do you balance uh all the revenue? I'm guessing I don't know your guys a P&L, but I'm guessing all the revenue today is in these cryptonnative businesses and cryptonative funds and stuff like that. the future you could say is in the JP Morgans, the Charles Schwabs, the the PayPal of the world. Uh so how do you balance like this is where the revenue is, this is what's been exciting and sexy so far, but this is where like potentially the future of the industry goes, but it might take I mean another year, it might take three years, might take five years. How do you balance that idea? Yeah, it's a good question and I think that's the core challenge of of us as entrepreneurs in this phase of the market. Um we're uh really really well positioned as an institutional provider in the US and obviously that was a

terrible position to be in in 23 when we were acquiring at the Hudson. Um but the the now it's a much much better position, right? Like the expectation level is really high. Uh people are like, "Oh, wait, we have you have all these institutional customers. They're all going to deploy more crypto products." Um and so that must be amazing. And then the reality is the and you know, we're working with the different lawmakers and the White House and and and people who structure the market structure bill is that a lot of the institutional volume is really been ETFs and the rest is slowly building up, right? And so for us um the challenge is really how do we build for let's say tomorrow like in the next 90 to 180 days and then what does the business need to

look like by end of next year in order to really capitalize on what we think will be you know 10x volume across you know staking wallet uh and transactions and so as an entrepreneur it's hard because you know I feel like most of that value lies ahead of us uh with existing deals and contracts we have But obviously that's not reflected in the revenue we make today. And so you go back to being a narrative driven business. Um now you know you need to um really define your quarterly wins really really well in order to continue to convince your stakeholders that you're at least on the path for for that long thing. And for us the path and you know this like is is is tough because we've been at it for a minute. And so the

expectation is always go public. Um how are you going to provide liquidity to investors right? Like I mean you have probably the same challenge. How's that going for you? Good. We haven't raised as much money as you guys have. Yeah. So maybe not as much pressure. Um I don't have JP Morgan and Goldman Sachs on my board. So yeah. Well, one day, you know, uh but yeah, I think that's a real big challenge and I think um uh thinking about liquidity also is changing a lot. Obviously, similar to what you mentioned, everybody wanted you to have an L L2. I feel like with liquidity of of block Damon equity, correct? Right.

Um, but what I find interesting, the circle IPO obviously is the next big trend. So everybody's like, you got to go public right away, right? Like and so it's because obviously the circle multipliers look amazing, right? Like that's happened. So circle circle 10xes since IPO. Yeah. Your your investors start calling you saying Constantine, you got to IPO right now. Basic I mean listen, I mean my investors are very smart people, but basically they see appetite for institutional products and they're like that market is un under underserved so go live right now. And then the challenge for us is exactly the point um you know we we've talked about which is that most of the revenue and value we think will happen in 2026 right and so for us for example right now wouldn't be a great time because I feel like most of the commercial flow through

the block demonst you know buy time here um without having to um you know rush to market but you're going to see my prediction is that the circle IPO will mean that you're going to see more crypto companies backing um and reverse engineering and to whatever format they can in order to get public liquidity. Do you have an idea of uh if you guys did IPO or go if you guys IPOed would you try sorry if you guys went public would you try to do it in the traditional IPO method or would you do the spec reverse merge do a pipe like do you have thoughts on what what is fits your guys' brand better? Yeah, we really

want to reverse engineer into a pizza pizza hut franchise. Yes. Yeah. No, I mean like you get off you get insane offers around spaxs which I love like it's like wow really. Um telling you their shell company's better than That's right. It's it's it's it's quite funny. Um I think from our perspective um I really believe at the core that crypto is about empowering everyone, making everyone counted. I think the the that crypto really serves a very very important part to what I believe is a better society for everyone and so at the core of crypto is also tokenization and we might not like memecoins or tokeniz but it's really the the the cryptography is one part the other one

is the sort of decentralized tokenization incentive mechanisms and I feel as a crypto company um I really want to take a really good look at that and think about how can we u make our stock participate in a tokenized world Right. And so that that would be my preference. Right now, you're saying you you guys could theoretically IPO onchain instead of IPOing publicly? Yeah. I mean, I would prefer it. Um, now here right now that's basically not possible, right? Like, and so the legal frameworks for this don't exist, but I think for obviously a cryptonative company tokenizing our stock and having a market that actually uh, you know, kind of works on on uh, you know, you can buy your your stock on Uni Chain. Um, I'd

love it, you know, like I think that's much more aligned also with um our potential investor base. I would hope that the people who would want to buy our stock are also people who really care about crypto, right? And so I think that um going to where the market is is um really important. The one thing I would say is that we think a lot about this as a company and we're also working on other tokenization projects and one of them is for example like thinking about staking you know um I think staking is a really exciting opportunity but I also think it's going to change a lot over time and the complexity around staking with me and market inefficiencies within networks makes chasing yield really complex for individuals and so uh we're thinking of

um you We're working on coming up with a staking index token, for example, that provides liquidity, aggregates yield across the best staking protocols, and avoids a lot of those pitfalls. And so, we're we're sort of testing the waters around how to build tokenized economies and and how to think about that. And and my hope would be that I can do the same with our stock over time, for sure. Very cool. That's great. Katana isn't another new general purpose blockchain. Its purpose built for DeFi users to provide the best experience possible. It does this by sustainably generating deeper liquidity and higher yield than any other network. If your assets are sitting idle, then they're dead. Katana is built from the ground up

with DeFi mechanics to bring your bags back to life. All you have to do is bridge over and Katana does the rest for you. Incubated by Polygon Labs and GSR, Katana launches with a notable ecosystem of primitives, assets, and partners like Morpho Sushi Vertex Lombard Chainlink, and Year. Be early to Katana. Join the pre-eposit campaign before mainet opens at the end of this month. Deposit funds and open rewards filled with randomized amounts of KAT tokens. There's also a Cryptounk and other exclusive NFTts hidden for the lucky ones. As always, investments in blockchain technology involve risk, terms, and conditions apply.

So, I mean, you got Yeah. Goldman, JP Morgan, Comcast as investors and on your board and stuff like that. How do you think they would feel if you in the board meeting told them, "All right, guys, I'm I'ming, but I'm doing it on UniS swap, doing it on Ethereum, whatever, uni, whatever you want to do, not on uh, you know, the New York Stock Exchange." I mean I think if I learned one thing and not to discredit uh uh my investors is that if you put uh a large enough pot of money in front of people things change really really fast right and so I think if my investors would feel that the return that they would get would be a lot better then I think it's a fairly easy conversation in this regulatory landscape right where we think we could

probably get the right legal clearance and structure in order to avoid you know ending up in an orange jumpsuit. Yeah. Yeah. You don't want the orange jumpsuit. No. Um, back to the institutional side of things. You guys have probably a better view into what the the market will actually look like. Uh, compared to, you know, most people in this room, I'd say. What do you actually think is coming from the institutional side in the next, let's call, let's do short term, like six to 12 months. Yeah. I mean, it's a obviously a great question. I mean, stable re, you know, real world um assets on chain are obviously a real thing and so you you'll see a lot of development there. I think you're going to see a lot of obviously the stable token, stable coins um model is is absolutely massive and that's been kind

of you know that follows this premise of like people see something that works everybody is going to rush into it and so everyone's uh crypto strategy as a fortune 500 is now going to be we got to need a we need a stable coin right like and so I think that's going to happen uh really really quickly uh for a lot of payment networks lots of different folks um I think it's going to be really really interesting to see um what pipes people intend to use for those. So I think that's a really interesting opportunity to think about between you know kind of the optimism based stacks the zk zinc type of stacks like what channels are going to be utilized to shield and think about transactions um across these networks and so I think there's going to be a lot of uh work

around that um and then I think on the staking side as well I think incorporating earn and yield um into um tokconomics for trafies is going to be really interesting. How do you think about the business model changing as you guys maybe become more of a crypto as a service type of business? Right? So maybe like Charles Schwab or JP Morgan opens up staking on their platform or even Blockworks, right? Like I don't not sure we've shared this publicly but like we're thinking about could block works like what you know historically our business model is like media and events drives into a data and research platform but could we drive into onchain products right could it be prediction markets or could it be um letting our audience stake with us or something like that?

And we we've moved a lot of our stake over to you guys, right, to start to test that that process. But then that means your business model becomes more of a it's like a cryptos. It's B2B TOC basically. Correct. Uh well, I think the way and and the way we're kind of trying to account for it if you come to black uh blockdemon.com is the idea for us is to be an institutional portal, right? which means is that any company that wants to service their consumers basically comes to the block demon portal and knows that they can find um uh different APIs and full nodes for transaction scheduling, different APIs, widgets to activate earn functionalities for their customers and wallet and key management solutions that they can uh use to hold and provide hold their own

assets or to actually pass out to individual users. And so it's really this sort of institutional toolbox that we're trying to become at scale and um so people can build their own stack. the the reason why we think it's good for us to have all these components of the stack is that we've learned with large institutions is that the third party associated risk if you're a cryptonative company scares a lot of people away right like and so if they feel like hey I can work with this wallet platform and then I work with this node operator and I work with this uh liquidity provider and I work with this uh whatever um data provider um the stack gets really complex and there's a lot of different stakeholders involved and so having a sort of foolproof proof sock ISO

compliant audited platform where I can also have warrants and liabilities excusing myself from taking responsibility for it is really attractive to these institutions. Yeah, maybe we can end uh I'm looking at your t-shirt. Yeah, nice new Oh, block Damon US merch that we've got here. Yeah. Um the the industry has a um for for as long as I've been in crypto es and flows between Asia and the US, right? It's like it's all in on Asia and then you know China shuts down Bitcoin mining then it goes to the US and then Gensler shuts down DeFi and then it goes back to chi uh to like Singapore and Korea and then now it's back in the US. Do you think the US is the endgame? US is largest capital market in the world. US is the endgame or do you think we're going to keep

going back and forth? I mean I think it's never been better to build crypto uh anywhere in the world than in the US today. And obviously I'm I'm very happy about that as a sort of US-based company and we got unbanked and we had all sorts of things happen to us in the last during the last administration. And so uh you know we have these like top gunny block demon um shirts to remind people that we're actually a US native company. Um you know and we we work with the White House and the different groups to kind of make America stake again and like you know we kind of have these like different uh models that we're working on. That's the tagline make America stake again. Well, I mean, we have different ones for different use cases, but I think what's really important is what we're trying to make sure is that

um that networks that monetize US consumers um basically roll revenue up into the US economy. And so, one of the challenges we've had as a US-based business is for example, we were the first infrastructure company that needed uh audited accounts probably uh we have uh fully audited uh accounts for going back for five years. um we have to uh show, you know, we have to stop our consumer staking product in 2023. Uh none of my staking competitors had to do that because they're not US domiciled. And so the cost of operating in the US is a lot higher than it was anywhere else in the world. And so I think it's really really important for the US market structure bill to ensure that we educate users here to also make sure

that value gets created here and not sucked up offshore, right? And so hopefully with a new uh regulatory frameworks we can help make that happen. And so to really make America also have this loop of you know uh network revenue me all that type of stuff gets also generated in the US and so that's going to be interesting. Yeah. Constine thank you for the time. Thank you man. Good to see you. Thank you everyone. [Music]