How Crypto Is Rebuilding Finance From First Principles

Transcript

The entire world has been put on a computer and on the internet. Everything is computer other than the financial system which is insane. Stable coins and blockchains are a digital transformation for finance and for Wall Street the same way that the cloud services was a digital transformation for most businesses. A significant portion of the western economy is focused on information technology or financial markets. I think blockchain is literal convergence of those two ideas. blockchains and crypto needs to get to where if you're using you know financial services or a network on the internet like you just happen to be using a blockchain because that is a good way to coordinate those products and services the success for crypto as an industry or a movement is that we stop saying crypto >> in looking at the crypto landscape today

where are you focusing your energy and attention >> yeah I think the obvious opportunity today [music] >> so here with guy wlette general partner at A16Z Crypto. Welcome on to the show. >> Thank you. Great to be here. >> And today we're just here to get to know you a little bit better. You recently have been elevated to the position of general partner, one of four GPS that we have on the A6Z crypto team. Before that, you were an investment partner, >> but you've been in the crypto world for a while now. Um, I actually was digging up some Guillette lore and learned that you were not even originally at A16Z on the crypto team. you were on a different

team >> uh an intern on the go to market team for the enterprise uh team >> and somehow from there you managed to make your way into all this crypto stuff that we do. >> Yes. >> Uh so give me a little bit of the background here. So, how did you land on the enterprise team? And how did you then make your way from the buttoned up uh world of enterprise software to the pretty wonky wild world of crypto, which is getting more professionalized and and suited up, as you say. But [laughter] >> yeah, so I I grew up in uh suburban Philadelphia. My sport or passion in high school was rowing, and that's part of how I ended up at at Stanford, where I I went to college there. I very quickly fell down kind of the computer science and then uh the the crypto

rabbit hole. I had programmed a little bit as a kid, but it was never kind of my my primary interest. I went to a very classic East Coast prep school and we did not have, you know, programming or computer science classes. When I was at at Stanford, I I became very interested in in crypto. And around that same time, I was looking for uh a summer internship my my sophomore year. Uh after my freshman year, I had worked in the economics department researching the impact of uh political power on nuclear energy cleanup costs. Like a super niche topic >> uh and it was very fun reading and then digitizing department of energy budgets that were physically on paper.

>> I didn't know about this backstory. And then I mean we can get to this later, but you've also led our investment in Daylight, which is a decentralized physical infrastructure project that focuses on decentralized energy. Uh so I I'm beginning to see some weaving of threads throughout your uh your career here. >> Yeah, I I think uh I've always kind of been fascinated by by networks. Uh be it the internet or the energy grid or the financial system. I I think that's kind of a a throughine of a lot of the intellectual interests I've I've had and uh certainly part of what inspired me to get interested in crypto. [snorts] My sophomore year of college, uh, they had the student athlete career fair and I ended up talking to, uh, I think it was Ben Gardner and Ronnie Harris who are both on, at the time it was called the

market development team, uh, and they were hiring interns and Ben and Ronnie both played football at at Stanford. So, I I chatted with them for a little while and and kind of made a connection. Ended up getting an introduction to some some other people on that team uh, through through a family friend as well. and I ended up on the enterprise go to market team as an intern which I did for for two summers and the year in between. I was >> this was in 2018. >> Yes. Yes. Yes. Yes. I was you know very interested in in crypto and I I would say kind of interested in the internet and networking and crypto as you know potentially the future of that. And so during my time as an intern on on that team initially I tried to do more crypto-reated things

and I was fortunate to get to spend some time with uh Jesse Walden who's now at at Variant but at the time was one of the investing partners on on the crypto team >> uh and then a little bit with with Eddie uh who I think joined at the beginning of of 2019 maybe the summer of 2019. And my big project the the second summer I was working on on the enterprise mark dev team was uh trying to build a stack diagram from the perspective of uh you know a chief information officer at you know a traditional company to understand the crypto landscape and at the time there were lots of people building at the infrastructure layer let's call it L1's bridges interoperability protocols on top of blockchains very few people were building uh like a business or an

incentivized decentralized network at the networking layer. And part of the inspiration was, well, if the point of of blockchains is to offer, you know, decentralized applications, something built on top of a piece of infrastructure can only be as decentralized as the infrastructure that underlies it. And if you think about the internet itself, uh, in pretty much every country globally, it's it's actually relatively centralized into a couple of tier one ISPs and usually, you know, heavily regulated by by the government. There are so many really interesting bottlenecks and choke points with the internet. You know, carrier hotels, just like a few really really major ones that connect up all the wires, the undersea cables. People think of the internet as just being this diffuse cloud that's everpresent, omnipresent everywhere,

>> but it's uh >> it's it's tethered to reality through a few locations. >> Totally. And usually we refer to the internet as a singular thing, which is also not as true today as it used to be. We we have you know some some fragmentation of you know the internet amongst uh different countries especially where you know some foreign governments want to more strongly control the information in in their in their society. >> Example being China and the great firewall but there are [laughter] >> that's at one end of the spectrum but there are other countries that also maintain levels of control over their internet. So I became very interested in can we build uh a networking or an internet protocol that had uh native

incentives the same way you know Ethereum was a decentralized protocol that had native incentives. Could we build something you know similar for IP and and BGP uh and that turned into trying to to build a research project around a decentralized internet service provider. And I was part of the original version of at the time it was called Crypto Startup School and it turned into Crypto Startup Accelerator, the program we've run a few times as a team. I was one of the participants as as part of that uh back in I think that was in in the very beginning of 2020, maybe the end of 2019. So guy, you've got a really interesting panoramic view, having gone at this from a number of different angles, all the way, you know, coming up as an entrepreneur through our startup accelerator program, being an intern on

one of the other teams, and then being an investment partner here and now leading deals uh in various crypto startups. >> That's a unique kind of worldview that you've managed to to capture for yourself. Yeah, I think uh I was very fortunate to have a lot of happy accidents with the people I got to I got to work with. Stacy Demo on the enterprise market development team as as an intern in college. I was a a TA for Dan Benet who teaches a lot of the cryptography and blockchain classes at at Stanford >> and as a research adviser here.

>> Yes, Dan Dan is the goat. Yeah, >> is the correct way of of saying that. And then you know I I I never started a company. it was much more of a research project when I was part of the the accelerator program we ran. And kind of coming out of that that program, one of the things I was interested in and focused on, I I worked then with Protocol Labs as uh a researcher on their on their team. The focus of Protocol Labs is building Filecoin, which many people may know as a decentralized file sharing protocol. Uh but one of the ideas was we have this excellent you know large scale engineering team when we you know finally uh perfect filecoin like what's the next project for for the company and so [snorts] the kind of ideas in that research group uh one of them was called

the underlay which was a partnership with uh MIT and I think Joel Gustiffson was was leading that there was a project called the decentralized energy project which uh Alan Ransel and Michael Hammersley led >> didn't Ali uh Wasn't he involved with Protocol Labs as well? >> Did you Did you overlap with him? >> Well, this is kind of the series of happy accidents, right? So, uh, Ali Yaya, who's one of the GPS on our team, went to college with Juan Bennett, who's the founder of Protocol Labs, and they actually started a company before Juan started Protocol Labs. So, Ali and Juan, you know, started a company together, had lived together, were very good friends. And so, I worked uh at Protocol Labs on on this kind of research team.

project was on uh trying to build you know this incentivized networking layer and I worked very closely with uh Evan Mazono who's the the head of research and I worked a little bit with with Juan although he was definitely more focused on on filecoin at the time and so when I kind of finished my time with protocol labs I was uh doing a a co-term basically a fifth year and I was like you know I'm very interested in in building some crypto project or or kind of working in that space but not totally sure how to materialize that I should just do the co-term and figure out whether this research project I've worked on, you know, first in the context of of this accelerator and also with Protocol Labs can become a startup.

And then at one point Eddie Lazarin, who's also one of the the GPS on our our team, uh called me and said, you know, we're interested in in hiring new investors from, you know, backgrounds that are not typical of uh venture capitalists. Like, are you interested in in interviewing for this? And I thought about it very briefly and then I was like, yes, absolutely. That would be fantastic. Like this is >> wait Stanford >> eventually a goal Stanford student who had interned at a 16Z and it's a non uh >> well yeah I I [clears throat] mean I think the context is useful because uh like the original idea of the general partners and the investors at Andreason Horowitz was that all of the general partners were uh very successful entrepreneurs or yeah uh you know very

experienced operators. Yeah, that was a that was a basic fundamental tenant of Andre and Horowits when it was first started. Everybody who was in an operator position had to have been a former founder. >> Yep. I was uh kind of the intern that that was interested in in like politely bothering people and and trying to learn more and you know the pattern of the investors across the different teams the investment partners who uh you know work with the general partners was usually someone in their let's call it late 20s early 30s who'd worked at a high growth startup usually in a product or or corporate development role. So it was kind of a different a different background. Uh anyway, I ended up, you know, interviewing with with everyone on the team and kind of found all of these

these touch points that in hindsight maybe seem very obvious but were were, you know, certainly not intentional. Uh that I had worked with Stacy as an intern, that I'd worked closely with Dan and and he uh if I recall correctly, Ali asked Dan for a reference on me and Dan's comment was like, "Guy is competent." [laughter] >> That's a high praise coming from Dan, >> you know, from from him. That's that's like the gold star. Yeah. And then I had worked closely with with Evan uh and worked with Juan a little bit at Protocol Labs who Ali, you know, knew very well. And so we ended up having all of these these kind of touch points and I was fortunate to join our team at at the end of 2020.

>> When Chris was announcing your promotion to general partner, uh he mentioned that the team just kept running into you. >> I think that's a very good way to put it. Yes. I [laughter] I I would put it as like I was fortunate to keep running into them. >> Yeah. So, uh, there's one part of your story that still remains a gap to me, which is you you mentioned an interest in crypto, but the origin of that isn't clear to me. And I know from working with you, uh, earlier on >> that you do have a sort of cipher [snorts] punk ethos and spirit, >> but it's never been clear to me where that came from and and why you gravitated toward crypto.

>> I would say certainly just, you know, in part by inclination. I think I I was a bit of a, let's say, kmoginly child. I was not a huge fan of authority and so you know the idea that uh there was a a kind of new way to evolve the internet and you know help replace some of the existing financial services that maybe didn't work as well for for everyone as as they could was was appealing to me. The idea kind of the original ethos of of Bitcoin as a hedge against government inflation kind of a check on on nation state power was definitely interesting to me uh intellectually. I also remember at one point uh I think it was my grandmother at the end of 2017 I was the you know the the tech person

in the family studying computer science. So usually the questions would be something like you know the Wi-Fi is broken. Can you fix it? Or like someone got a new tech gift for for the holiday. Can we help set it up? And and you know one of her questions really off-handed was like you know should I be buying Bitcoin? I keep seeing this on the news. [laughter] Yeah. >> And I understood a little bit about it. You know, I'd kind of talked to some of my my friends from school, but I didn't, you know, have a deep understanding. So, I I read the white paper. I kind of sat down, looked through it, and I ended up coming back to it every day for about a week and and just kind of rereading it and trying to understand it better. And and that was definitely the initial

inspiration there. And so I I kind of came to crypto through you know one the context of of Bitcoin and and being very interested in in that and two through the context of uh you know just being kind of fascinated by the internet and thinking of of blockchains as this you know generalization or this next era of how to build internet services that are not just open source but also have native incentives and can be themselves businesses as opposed to you know pure open open software standards. So that was kind of a lot of my uh initial interest. Uh some of that was you know purely technical and intellectual and and some of that was certainly kind of ideologically inspired by this idea that you can use cryptography for you know social change or to change how society

works and I think that you know the the best way to put that as being a cipher punk which I >> I definitely identified that way for a long time. I think there's maybe an interesting evolution of of that which we can maybe talk about in a few minutes too. >> Industrywide. >> I I think I think both. There's a quip I like uh about libertarians which is uh you know there's a good thing and a bad thing about libertarians and the good thing is they're right and the bad thing is that they they lose. And I think the history of crypto over the last few years is kind of that for cipher punks.

like cippher punks are correct and that the purely decentralized systems have been significantly more robust uh and I I would say you know like achieved many of the kind of social or ideological goals but in terms of what has gotten the most market adoption and what projects have been the most successful on on kind of a financial or mainstream basis I would say they're the projects that are a little bit more pragmatic and have been willing to uh you know compromise in some of the the ideological goals in order to you know achieve kind of a mainstream adoption.

And I think you see this in in a lot of technological revolutions like this is you know certainly true in in open source as well. A lot of the kind of current open source advocates have a have a different maybe thought process or inspiration than than the original open- source advocates. But I think you know you see open source being significantly more popular today. And I would argue open source is clearly one. >> Definitely Linux is running on like over 90 plus% of computers in existence. >> Yeah. Yeah. Yeah. And so I think crypto is going through this process too. An analogy we've talked about a couple of times is that, you know, it's not a mistake that often times we refer to blockchains as a technological revolution, right? If you compare them to literal, you know, political or social revolutions, I think you need uh

like a strong activation energy to convince people to to try to make a change and, you know, overthrow the the incumbent. But at some point, the revolution can't continue to revolt forever. uh there has to be kind of a a solution or a structure be it you know in the in the course of a political revolution like the US or or in France like you have to govern at some point. I think for a technological revolution you have to you know provide a a solution or a service that everyone can consume or or is you know more mass market than the initial uh kind of core inciting energy.

Uh and I think we're you know going through that process a little bit in in crypto where there are some products that are you know really very clearly targeted towards a cipher punk customer who's making you know a technology choice on the basis of ideology. There also a lot of projects that are you know targeting uh you know a consumer or a business that's making a choice on the basis of of efficiency or platform risk or composability. You know all of those projects are are valuable and viable and and should exist. But I think crypto started with you know building products and services for uh people that that were a little more ideological and and that you know certainly succeeded in the case of Bitcoin which I I think is valuable interubjectively like Bitcoin is valuable because other people also

think it's valuable but there are a lot of products and services in crypto today that are just valuable because they're you know more efficient than an existing solution or uh valuable because they you know reduce counterparty or platform risk and uh you know I think there's kind of a place for Both of these and and both are very important. >> This dichotomy, this schism between sort of the cipher punk ideological bent in crypto and the pragmatic uh more perhaps professional kind of interest in crypto has existed for a long time. Uh you know years ago we used to call it blockchain not bitcoin. That was like the the rallying cry of the banks that were interested in uh using this technology for their own ends and

purposes but not getting into the crazy world of tokens and uh coins and such. >> What would you say is the balance today between those two forces, those like yin and yang forces in crypto? And >> having been interested in this, you know, from reading the Bitcoin white paper to trying to build your own decentralized ISP to now you know as a GP at A6Z crypto how have you seen that also shift yeah within the industry how have you seen these two these two balancing forces these two weights on the scales what's like the percentage between them >> well it's it's interesting we call the fund A6Z crypto I think the like the way

you describe something is often very indicative of more than the literal description so crypto is a shortening of cryptography and uh also of cryptocurrency and also of crypto network. Crypto is literally a technology that has no opinion on how it's used in the form of cryptography. It is an asset class in the form of cryptocurrency trying to build you know digital money that's secured by cryptography as opposed to through trust for example from from a nation state or a company. And it also is a way of building internet services in crypto networks uh that are you know building new digitally native networks on on the internet that are you know maybe not explicitly financial or you know certainly not explicitly monetary in the way that that cryptocurrency would suggest. uh and I I think there's a time

period for everything in in life and I think there's a time period for different businesses or for different technologies demanded by the market and I think uh a lot of the things that are being built today uh were very hard to build you know 5 or 10 years ago because the infrastructure wasn't there I I mean the significant improvement in blockchain throughput reduction in latency reduction in cost and transaction fees I I think that's often overlooked or taken for granted where we went from, you know, something like Bitcoin or even Ethereum, which was very slow and very expensive to today, you know, Ethereum L2s, Salana, new chains like Zero, uh, incredibly fast, very, very high throughput, maybe more throughput than we know what to do with

today, very, very low fees, very low latency. And so I I think kind of that change in infrastructure uh allowed use cases that were more about efficiency than about uh uh kind of digital money or or an asset class. And you know I I think a big component of this is also just uh social adoption and regulation or or legislation from the government as well. Certainly if you looked back a few years ago stable coins would have been a much higher risk category both on the basis of technical risk on the basis of regulatory risk on the basis of of adoption. Uh, stable coins today with the passage of genius are maybe the safest and most obviously useful from an an efficiency standpoint category in in

crypto. >> Trillions of dollars of volume every quarter and growing. >> Yeah, a lot of this is just market maturity and timing. You know, something that uh we talk about on the team often is is that every idea is a good idea at some point [laughter] and that, you know, we kind of take for granted that every entrepreneur will be correct in the fullness of time. But a very important question is is why now? Why will an idea that maybe previously has not succeeded? Why will that succeed in this instance and why not you know 5 years in the future or 5 years in the past? The idea of stable coins, I would say, is uh really in many ways a fulfillment of the original idea of of of digital cash, going back to uh you know, hash or even PayPal. Kind of the

original point of Bitcoin was a a peer-to-peer electronic cash, not a uh you know, form of digital gold. That was that was kind of not the initial use case or or idea. Uh, and I think today, you know, stable coins in the form of something like USDC or or even something like Tether probably fulfill the idea of a peer-to-peer electronic cash in a way that is, you know, clearly more appealing for payments use cases than kind of these these other predecessors. Uh, so, you know, I I think the ideology or the culture evolves uh in in step with the technology and, you know, I certainly think this was true with the internet itself. If you go back and you look at kind of the public perception around things we take for granted today like social media or online dating, it

was not viewed in the in the 90s and the 2000s the way it is it is viewed today. >> Yeah. It's actually online dating has flipped where it's actually more common for you to have met your partner online than the reverse. But at the you [laughter] know when I was growing up there was like a whole social stigma around it. You know you might be embarrassed that you met somebody online and now it's the norm. >> Yes. And so I I think you know you have very similar dynamics in in all forms of technology and you know certainly in crypto there there's a fun website called the pessimists archive where you can go and look at initial sort of emotional or moral responses to technologies even going back to like when the bicycle was invented there was a moral panic because it would allow people to move from town to town and

that would you know fundamentally disrupt the social structure of of a of a community or of a country. Uh and now I think you know we'd look at a bicycle as you know being being incredibly benal and and so I I think kind of in the fullness of time these things that start out uh having some you know strong ideological or emotional reaction end up becoming something that we take for granted as just a you know a tool for for use in in society at large. >> I want to talk more about the timing question that you raised. So it is the case that in venture capital companies are staying private much longer uh decade plus timelines and so positions are locked up and illquid for a much longer period of time but in crypto it's

a little bit different because tokens can become more liquid earlier >> and so I'd like to understand how you think about timing the bets that you're placing and how that window of you know when gains might be realized affects how you're you're placing your investments. >> Yeah. >> What you deem investable or a potential fund returner. >> Your your question was on companies staying private much longer in in you know crypto or you know projects building decentralized networks. Often times you have a liquid token much sooner than if you were to build a centralized version of the product that centralized company would go public. I I think there are maybe two things here.

The timing question is both is it a good time for this specific idea or product or technology and like will the the team and project or company behind this idea have a publicly tradable asset associated with it sooner or later. I think these are these are different questions. We had many social networks, many search engines before Google, many social networks before before Facebook. uh I think when those companies went public or you know had a publicly tradable asset is kind of totally divorced from whether that was the right time to start a social network or the right time to start uh a search engine.

I think these things get combined in crypto because to build a decentralized network with incentives often times you you need to have a publicly tradable asset associated with your your project. And so when you want to launch your product in many cases, uh the correct product decision is to have a publicly tradable asset. [laughter] And so it's it's kind of bundling these decisions as to whether we should have a publicly tradable asset associated with our project and whether we should launch our product now or whether it's like a good time for for this product. And I think that is an opportunity and a challenge.

Certainly there are uh people that would want the market structure of uh when companies go public in the US to be pulled you know much much earlier. Uh and so I think we see some of the ideas in crypto really being around like how can we make a company's asset tradable sooner. I think that's you know a bit separate from if I'm building a layer 1 blockchain I have to have a native token to incentivize my validators. So when I launch my layer 1 blockchain, when I launch my product, I also have, you know, a publicly tradable asset. I think there are pros and cons to having a publicly tradable asset. Like it's maybe harder to manage a startup if every day you can kind of see the the marktomarket value of of that startup.

>> Yeah. You're less insulated from the market forces, the uh the bipolar sentiments of of the market. [snorts] >> Yeah. I I think a lot of these things manifest in crypto, but are not specifically a result of crypto. I I I don't think companies are staying private longer because of crypto. I think companies are staying private longer because of the legal requirements and disclosure requirements to go public and because of the availability of capital in private markets. And I think those two things are not, you know, directly related to crypto. I think people look at those as opportunities and see, you know, can we take advantage of that opportunity or that market structure and build, you know, a product within crypto to to address it. But lots of decentralized networks, you know, need to have or would benefit from having a publicly tradable asset. So I I

think in many cases as a crypto founder, your hand is is forced or encouraged. Uh whereas there's probably not a huge benefit to going public at like series B if you're a traditional high growth startup today. Part of what I'm asking too is how the idiosyncrasies of crypto and the timing related elements, the the potential for like earlier liquidity than other domains, how that might affect the type of project that you invest in.

>> Imagine tokens were illquid just as long as equity in a traditional startup. I might surmise that a person would invest in projects that perhaps are more ideologically bent because you have this longer time frame, this longer window with which to see the revolution unfold and you know a huge transformation of of the world. People um underestimate how uh how much change happens in 10 years whereas they overestimate how much happens in like one year. Yeah.

>> So I wonder how the varying time horizons might affect the actual ideas that you find investable themselves. >> Yeah. We have a a long time horizon for our investments and I think in many cases it takes a long time to build something really valuable. We think of investing in blockchain and crypto projects no differently than investing in other categories from kind of a venture capital perspective. We want to work with the the best teams and and people over over a very long time horizon. be that 5 10 20 years. One idiosyncrasy of crypto market structure is that if you launch a publicly tradable asset, sometimes there's a very high valuation for that, you know, publicly tradable asset. And there's,

you know, some some question as to whether that's good or bad. Like I I think the the good version of that would be, you know, founders and and teams that view that as an opportunity, right? like that this is a a fantastic fundraising quirk of the market structure where now I have a lot more capital available sometimes uh and and so I think really what is probably needed is uh better transparency and disclosures the you know same way in public markets if you are running a project you have to disclose like you know I'm the CEO of this public company if I would like to sell shares of my company I have to disclose this that would seem to be a valuable thing for crypto projects as as well so I I would almost say that investing in founders who are somewhat ideological is a

defense against the idea that uh if your startup is priced ahead of progress, you would sell a large portion of your startup and you know buy a boat or you know beachfront property or or something. It's more the idea that uh I think the most successful founders tend to be people who are either deeply passionate about building something on on a long time frame or are doing it because like it's their true calling. It's a very weird set of preferences as a founder to want to make a giant amount of money in like a long time frame. I I I think sort of the the like uh utility maximizing rational person that economics would like model does not have those preferences. [laughter] And so I I

think the people that tend to build fantastically successful things ironically are not very financially motivated but view uh building something very valuable as uh like the pathway to convince and encourage other people to you know participate in their journey of of building something big and meaningful. And that's also, I think, kind of a a unique person or psychology. Someone that wants to build an incredibly valuable product or business, uh, but themselves is not really interested in the spending power of the money. So yeah, that's that's certainly something we we think about, but I I I think you can kind of tell fairly straightforwardly whether someone is uh is interested in the thing for for itself and like loves the process of

building a company or is just super competitive and like wants to to to have the the highest return possible. And I think if you know your your only goal is to make a giant amount of money in like a pure EV maximizing rational way, uh then like maybe you're you're not the perfect fit to build a startup over the course of 10 10 or 20 years. If your goal is to, you know, use the fact that we live in a capitalist system and like a market driven economy to help build something fantastic and kind of attract talent and and you know, partners and and customers, then I think like that is a much better fit. You said that it's pretty straightforward to tell apart these people. But I I don't think it is.

I think that's like the nature of of venture capital is making these decisions and trying to to, you know, parse who is who and their motivations and >> uh whether they've got what it takes. How do you tell these founders apart? How do you identify who has the essential qualities >> that lead to success? >> Yeah, as as a general comment, I think people are usually actually very honest. It's like quite hard to portray preferences or opinions or something other than the ones you really believe. Every person as an individual filters, you know, someone else or their comments through uh you know, your own personal perspective. And I I I think like uh the tricky part is is being totally neutral

in regards to the comments or or the outcome. So, I think people tend to tell you the truth and you only kind of get misled or or or have the wrong impression if uh you allow yourself to kind of be biased in and like a reaction to what someone else says. So, I I actually do think it's pretty straightforward to figure out what people want. If you are like completely and totally open to accepting the answer at at face value, the simple and uninteresting answer to your question is uh you should do a lot of references. If I'm recalling correctly, there's an interesting study asking uh people to complete a personality test about their friends and asking total strangers to view the subject's house or apartment

and then fill out a personality quiz. Like your good friend will actually be worse at predicting the correct results of your personality quiz than a total stranger just looking at your apartment or your house and predicting the results of your personality quiz. Which to me says like there's actually a ton of information and very simple straightforward things. and you know your own personal biases or like imagination about who someone else is or who you want them to be tend to get in the way of making kind of a correct assessment much more so than there's like you know a lack of information available to to make the the judgment or choice.

>> What commonalities have you found among the founders that you esteem? >> Very magnetic people and that manifests in a lot of different ways. not always in the classic like I'm great working a room at a party sort of charisma but just the sort of people that tend to attract talent are the sort of people that others really want to work with. I I think that's almost a universally shared trait. Then I would say people that really like the process of building something and uh do it for its own sake. I think the reward for good work is more work. And if you are doing something for the goal or outcome at at the you know end of the work you're putting in uh you will probably do something else when you

have finished. And so I I I think it's also again it's not that hard to tell when someone has decided I will be unhappy until I achieve my goal. That's very different from it would be awesome if I achieved my goal but I'm just going to be really happy in the process of trying to achieve it. And I think people who really enjoy the process of building a fantastic project or startup or company tend to have a better outcome than someone who's really focused on achieving the the outcome. There's a good parallel I think in sports where you could look at like Andre Agassi's book or or biography where he was, you know, made some version of the comment that he hated playing tennis and worked so so hard. And then there's, you know, Jookovic's comment on like, "What

inspired you to play tennis?" And and he'll say some version of, "Well, I really just like hitting the tennis ball." [snorts] And uh I I think the founders that tend to succeed really just like hitting the tennis ball. Sort of the the prevailing culture will tell you that uh people tend to succeed if they're highly competitive and superfocused and like there's the quote from succession, you have to be a killer. Uh I I think a lot of very successful people just really like doing whatever they're doing. uh and are doing it for like a sake of of craftsmanship or the quality of doing the thing itself as opposed to for the competition or the the result. Uh, and I think that's probably generally true, but I think that is that that is

particularly true in startups where often times the thing that makes you succeed is totally unobvious and you would sort of only be deeply knowledgeable about it or or focused on it if it was personally very interesting and compelling uh to you. It's always very easy in hindsight to say, well, like, you know, I had this perfect plan and, you know, I worked very hard and I got very lucky. I think maybe people tend to be bad at describing why they succeeded as opposed to having a proper introspection about, you know, their their path.

>> So, we've talked a little bit about what it takes for a founder to succeed, but let's talk about what categories you're interested in in looking at the crypto landscape today. Where are you focusing your energy and attention? >> Yeah, I think the obvious opportunity today building on a blockchain is building better financial services. Uh I I think blockchains are a wonderful general purpose technology for building networks on the internet. I think in the short term the applications that have the strongest product market fit are are mostly financial. I would say a lot of what is working is a second order effect of interest in either stable coins or interest in per you know that that's a lot of our interest and and focus as well. uh I think building better payment

mechanisms uh using stable coins not just for people in the western world who have good access to financial services. I think blockchains are a new you know distribution rail and coordination mechanism for capital markets and and for investing. A lot of you know the opportunity o over the next couple of years is to build new markets like I I I would say a significant portion of the western economy is focused on let's call it like information technology or financial markets. I think blockchain is is the literal convergence of those two ideas. [laughter] you know, to to be more specific, uh we're very interested in payments and uh lending and credit in building new exchanges, in building uh you know,

layers on top of exchanges, things like prime brokerages or trading terminals or aggregators. We're interested in in prediction markets in per we're interested in in derivatives broadly, other structures like options, futures, forwards, I think are all very interesting. We're also interested in in kind of the intersection between crypto and AI. I think there's a compelling opportunities to build new wealth management products for uh people that have, you know, significant wealth but would not qualify for a private wealth account at at a big bank. There are, I think, probably a lot of interesting consumer products to be built in in crypto moving forward as well. I I mean, we had a whole wave of interest in in digital collectibles uh through NFTts, interest in building, you know, uh uh more equitable and and efficient creator

economies. I I think a lot of those are very good ideas and will work. The timing I I think was was a bit unfortunate and we you know kind of remain very interested in in those ideas generally. I'm personally quite interested in physical infrastructure markets and and networks. Uh often these are called deepen projects or decentralized physical infrastructure networks. Specifically there I think energy networks and markets and compute networks and compute markets are are quite compelling. Obviously, you know, the kind of tailwind there is the significant uh improvement in quality of AI models. Um, you know, the bottleneck for having abundant intelligence I I I think being, you know, very literally

energy and and chips. Some part of that is definitely a pure technology question like how do we build better forms of energy generation and storage? How do we build, you know, more efficient chips? But I think some of it is a a markets question as well. How do we efficiently allocate capital and and finance or underwrite these assets? And I think blockchains have have a big role to to play in that especially beyond the largest big tech companies. I think if you want to kind of participate in comput and energy markets is someone other than mag 7 kind of the best place to do that will will be on a blockchain and that's that's been an area of interest and focus for us.

>> Why are stable coins and pers or perpetual futures gaining so much traction right now? What is it about those products that people are so interested in? >> With stable coins, I think people are interested in dollars. Like the US dollar is a fantastic product. It has incredible product market fit. Uh especially amongst people that live in a country with high inflation or with strong capital controls uh or with a central bank that they don't like. [laughter] I think the commercial adoption of stable coins is often based largely around efficiency. Uh I I guess as a a broader comment or topic I think stable coins are the first version of modernizing the existing financial

system. You know we we have a digital or a modern financial system in the US but I find it very interesting that the person focused on blockchains at every big bank or at a lot of the fintech companies the title is head of digital assets. And again I think you know the words we use to describe something are often you know very indicative of of some underlying truth. Uh and the implication of that is that if you have a head of digital assets then the rest of the bank is focused on assets that are not digital right. Uh so the entire world has been put on on a computer and on the internet like everything is computer other than the financial system which is insane. [snorts] uh and and that's not literally correct like you know the the way you interact with for

example uh you know public equity is probably through Robin Hood or you know interactive brokers you know an app on your phone but I I I I really think there's a version of blockchains uh and and how you would describe them that is is kind of taking the same transformation literally a digital transformation that cloud services made on it and and bringing kind of that same digital transformation to to finance. I I think like stable coins and blockchains are a digital transformation for finance and for Wall Street the same way that that cloud services was a digital transformation for most businesses. And I I think it's very interesting if you talk to someone who for example works at a GI focused on on

blockchains when they say crypto they mean crypto as an asset class. They mean Bitcoin, Ethereum, Salana as uh crypto tokens. When they say blockchain they mean blockchain as a technology. And so the quip from 2018 of blockchain not Bitcoin uh is is like very literally true for them, right? But that's kind of like saying gold not the internet, right? Like it's a nonsequittor. Like you should offer gold to your, you know, wealth management clients if you're an asset manager cuz that's an interesting asset. But to not take the internet for granted because you're, you know, offering gold as an investable asset to your clients, it's like, you know, you you have a type error in computer science speak. uh and and I think like that that is finally happening. People

are finally getting it and you know a lot of the bottlenecks were there I think were just the performance of blockchains as infrastructure back in in the 2018 time frame and the lack of kind of regulatory clarity and lack of sort of social adoption or understanding around the technology. So it feels like we're kind of finally at a tipping point for institutional adoption of blockchain financial services and the first version of that I think has come through through payments and through cash in the form of stable coins. A stable coin is just a tokenized representation of a dollar. I think if we have clarity, I think that could unlock the idea that you would tokenize traditional assets, traditional securities, and that those would operate on on blockchains and that you would,

you know, have a real movement for capital markets on chain the same way you've seen a real movement for dollars on chain in the form of of stable coins. You were asking a bit about PERPS. Why do people like trading PERPS? Pers are, I think, an incredibly intuitive derivative product, especially for uh retail investors. They're also unique in that they provide high leverage, but they're a delta 1 instrument, meaning that if the underlying asset moves X%, the perpetual future will also move X% times the leverage you've taken out. And so I think you know that as a product structure like the perpetual future is is very interesting and I would argue significantly more intuitive or or

understandable for a large swath of of investors. I also think per have brought the ability to access uh investments especially in the last year globally that that are otherwise pretty hard to to trade. So I you know obviously retail investors want leverage and perpetual futures have provided that to to investors in both an intuitive and often in a more capital efficient sense but seeing real world assets trade on perpetual futures exchanges I think a lot of that interest is that it's you know may be hard to invest in the underlying asset or invest in the underlying asset with leverage and you know the first time this has really been available is through a perpetual future and uh just the same a, you know, a

decentralized version of an exchange is is interesting compared to a centralized exchange. I think kind of a decentralized uh derivative contract that has kind of this delta-1 exposure where you're, you know, trading directly against another counterparty as opposed to uh against a a brokerage is is particularly interesting. So, you know, we we can kind of come up with a bunch of reasons why people are adopting per and why they're interesting. But the uh the truth is like it it just is like it is true. You know, anytime there's that sort of level of incredible product market fit, I think it's as important understanding why and just understanding that it is. And I think it very clearly is for both stable coins and perps today.

>> You talked about how finance is finally undergoing this digital transformation. What is the advantage of digitizing an asset or tokenizing an asset? >> One, I would say efficiency in every sense like the internet was better than physical mail in every sense. Like Excel is better than a physical paper ledger. I I think maybe a way you could frame why digital assets are interesting to Wall Street is that a lot of Wall Street runs on Excel as opposed to on the internet. And what if all of a sudden you had an Excel sheet that everyone could access and everyone agreed on? And that sounds, you know, interesting and relatively straightforward to build. But this idea that everyone can access and

everyone can agree on is actually incredibly hard. Traditional financial firms have this broad set of integrations and it's hard for anyone to unilaterally upgrade. So I think I think blockchains provide a shelling point for much of the the financial industry to upgrade in lock step and they also answer a lot of uh questions that again seem sort of obvious but are are under the hood very complicated of like who owns this shared spreadsheet that we're running a lot of finance on. Who gets to make changes to how the spreadsheet works or you know gate access to particular parts of the spreadsheet? Who gets to write or read from the spreadsheet? What are the costs for that? you could try to come up with answers to those questions uh as an

individual institution, but it would be very hard to get everyone else to agree on them. And so I think blockchains provide a lot of good answers to that through decentralization. And even though I think much of Wall Street would not say they want decentralization, I think they want the effects that decentralization brings in censorship resistance in governance and the reduction of counterparty risk and the reduction of platform risk. These are all things that I think those customers understand very well. Uh but probably they would use entirely different words to describe the same ideas. And so kind of the hope is that at some point we don't have crypto and blockchains and digital assets. At some point like we just have financial services that happen

to run on a blockchain because that's a good way to to operate them. And I I think kind of the the fullness of time the success for a fund like us and the success for crypto as an industry or a movement is that we stop saying crypto that maybe [snorts] we say cryptography or token or you know these other words but when you go and try to buy you know food you don't say well now I'm going to use the internet you don't go online right like you have an Apple watch you have a phone in your pocket like you are currently online I think that is the place that that blockchains and and crypto needs to get to where if you're using, you know, financial services or a network on the internet, like you just happen to be using a blockchain because that is a good way to coordinate those

those products and services. And we're not there yet, but I I I think we will get there. >> How long does that transformation take to unfold? [laughter] >> I think it [clears throat] will probably take many years. I think in the in the next couple of years, we'll see a broad shift in kind of cash dollars to stable coins. I think we'll see a broad shift in capital markets moving on chain. My guess is that this will be, you know, a a 10 20 year transformation or or or perhaps longer. You know, if we use the internet as an analogy like I I I think we're still in the early stages of of the internet really being properly and and fully adopted. Maybe when we zoom out, this is like a hundred-year process of of adopting the internet and and blockchains are a core, you know,

component and and part of the internet, tackling financial services as a network and tackling, you know, lot lots of these network-based businesses and marketplaces. >> So, when you're not thinking about financial and tech, infrastructure, plumbing, [laughter] and upgrades, what are you thinking about? What do you do for fun? What do you do outside of your job? I think you said earlier that if you know you gave a stranger access to your home or apartment that they might be able to know you better than >> a friend knows you or you even know yourself.

>> Sure. >> Um what would what would people glean >> about Guy Wlette >> if they were to see your home? >> I think the thing that would probably surprise people the most and I suspect will surprise you. Uh, my apartment looks like I teach like sixth grade art and I'm very proud of my students because there are like these sort of halfhazard paintings all over the walls of your own. I picked up oil painting last year and that's kind of been one of the one one of the I guess hobbies or creative outlets uh that I've really enjoyed.

>> What do you do? Still lives or landscapes? >> It's all very abstract and intentionally not good. A lot of the things I do in life are like highly quantitative and uh objective. It takes a while but the process of being a good venture capital investor or you know working in a in a financial role is very quantitative and very objective and I love the fact that if you paint something [snorts] uh like it only really matters if you are happy with it and I think that's kind of the the process of art which is very much not how markets work right like the market has an opinion and uh it's fun to not care about other people's opinions in a specific context

So, you know, both the idea that uh it's a fun kind of playful outlet uh for for my inner child and the the fact that it's, you know, just supposed to be, you know, interesting and and pleasing individually as opposed to something that's like a, you know, a very rational market is compelling to me. >> All right, I'm going to give you one final question that we can leave off on, >> which is what is the smallest hill that you will die on? I think most men's pants are too tight. And you can tell this generationally. I find it hilarious that like there's a certain sort of middle-aged man that wears like skin tight Lululemon ABC pants. A couple of years ago, I think I figured out I'd

been buying shoes that were the wrong size and pants that were the wrong size literally my entire life. And I suspect there's like a large group of people that just, you know, do do not buy the right size or fit thing for themselves. I think that's probably a small hill to die on that like most uh most men's pants do not fit very well and like you should find pants that fit. How do you do that? Go to a tailor or just go up a size? I think probably starting in the early 2000s, there's this era of of skinny jeans and pants that fit like very low around your waist and work well for a particular sort of style affectation if you are like rail thin.

And most people do not have the body type or the like general aesthetic consistency for that to make sense, but these became incredibly popular. Like all t-shirts are way too long. uh they're like in many cases three four inches too long. Like they they should sort of uh end slightly below your belt line. Uh instead they're like way too long. And if you look at pictures of uh sort of men's clothing being modeled, often times the shirt will be like sort of tucked in or it will be at an angle where it's like pulled to the right level because the shirts are all way too long. So yeah, I think just like generally uh like this sort of very specific highfashion aesthetic uh which is like interesting and cool and like

definitely works for some portion of people have led to like maybe uh most men's clothing that's mass-produced and you buy off the rack like not fitting particularly well. >> All right. I didn't realize you had such strong opinions about saratoral choices. >> I really should not have said this publicly because now my pants are not going to fit. I'm [laughter] going to get roasted on Twitter. >> Yep. Yep. Totally >> cool. >> All right, guy. Well, thanks so much for your time. >> Thank you.