How to Position for a New Crypto Bull Market | Ben Forman and Jason Kam

Transcript

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two very special guests uh two very close friends of mine uh they know need no introduction Ben you've been in the Pod this is what your fourth time now third or fourth time yeah so I think I think it's the fourth time yeah so so Ben runs Ben runs parfi um he whipped me into shape for a few years and you know he's still he's still there I I you know threw in the towel uh but we have Jason um he goes by Maple Leaf capital on Twitter you guys probably know him and he runs Folia so uh welcome guys uh it's great to have you on thanks for having us awesome um well both of you of course run liquid and private strategies um you've survived uh this bare Market uh I don't know if we're still on a bare

Market or we're transitioning out of it this last week has been uh fairly interesting so why don't we just start there in terms of um what you guys are kind of what your thoughts are around the recent rally and how are you kind of positioned around that the past week of of price action has been has been interesting and not to kind of overly focus on price I think like the three of us have always focused on fundamentals users you know real use cases for this technology but I I do you think sometimes you know price can kind of provide a signal for um you know what's going on in the trenches in the market and um this was I I think in some ways a you know this move um was unexpected kind of caught many off guard and um you know I I think in large part it's driven

by uh you know the the Bitcoin spot ETF applications that are in that the Market's kind of beginning to price in that there's a like high likelihood of approval and um you know this has been like as everyone knows like an eight-year Journey from the winkl Vos twins back in 2014 2015 and I believe there have been you know several dozen different firms that have tried to apply for spot Bitcoin ETFs have gotten denied and it feels like we're kind of at or near the Finish Line with a high probability of this getting across the line in the next in the next few months and I think it's you know its impact cannot be understated I think it's on the same you know uh it's it's you know more impactful than a having it it could be

you know one of the biggest kind of uh you know I think it took somewhat of a watershed moment and I think in finance you know format of investment matters a lot um and Bitcoin is still very difficult to access for raas family offices Etc so so rappers can can really unlock a lot of latent demand and I think you know the Market's starting to reflect that in in the price and you know Bitcoin kind of tends to lead Market cycles and every 1% that Bitcoin goes up that6 and5 billion dollars of you know value created some of that then rotates into into alts it rotates into Venture um and uh you know it's going to be exciting to kind of see uh where the price goes in the next in the next few months um and just kind of if this gets across the line and it's broader kind of

more intangible impact on the space in terms of endorsing you know kind of providing an implicit Endor of this asset class yeah Jason before I go to you I mean I'm curious because all of this is happening while Tech broadly is selling off I mean Google yesterday had its worst day since March 2020 I think it's down 10% it's down 2% like it Google literally shed 200 billion in market cap essentially all of ethereum's market cap in one day and so you see it uncorrelated briefly uh Jason how do you do do you compute that into how you're thinking about this kind of rally is it a dead cat bounced is this this more sustained how do you think about all of this General I actually don't actually don't know because I was I was looking at the chart

um I think I think Bitcoin had correlated with gold for the past a month or two so we might get a little bit of that and then the entire space they sort of have both correlation to bitcoin and the tech space but since NASDAQ kind of shut the bed it kind of underperformed Bitcoin there are a host of other reasons um I was sort of hoping that you know 10 years now five 5% I was sort of hoping that there's a broader risk off and people buying bonds and then that kind of lifts equity and of give the altcoin space a bit of a boost but I I don't have a really good read on what's going to look like in like NASDAQ or so next month to e Ben's Point by like I I think Bitcoin traits like a highly correlated thing it traits like um it traits like a Gold stock with a

catalyst is kind of how I viewed it the past you know month and a half where um and I think you have a bunch of capital that actually came into the space that is not like for Native you did you did see usdc market cap stabilizing and you saw sort of usdt market cap increasing all while during mid-september where it's kind of starting to look like this is going through um and to also Echo bpoint I don't know this is like a this is like a real pump where um I think folks are starting to realize I think James sepher talked about it in it's like podcast a while ago which is like 20% of hundred trillion dollar is retail and 80% is institutional and even if retail aped aggressively like the insti are just not there and if they're aping through Bitcoin ETF it's obviously a

huge deal so I sort of felt like there's a bit more to go you know even in gold and if there is a realation if like NASDAQ does bounce and gold sort of stabilizes and I I think the all space could really participate especially when Bitcoin goes through with the ETF yeah I mean you're you're more focused on on Asian markets um and I think it's fairly interesting what's going on in China um and I think you they've it's been hard right after the opening like you would have thought that it would have been a much bigger bounce I think a lot of people were expecting that and it hasn't been the case um what is the sentiment out there and do you have do you pay attention to like flows particularly in China or in Asia like Korea and Japan versus uh you know Western Europe or the

US and how that might be a Le leading or lagging indicator for kind of Interest yeah I think China's been easing for a while which macro wise and there's a piece of news that I think need to study which is uh there's like a pretty massive Capital injection just very recently I think it's like uh I don't it's like 1 trillion or something that's injected uh that's that's like a move of the balance sheet of local government to Central government and then there's like another 2.7 trillion that's like sort of they're pulling back they're pulling the budget from next year's budget to this year in spending uh I almost viewed it as um a btfp of some sort it's like a similar flavor but very different um in terms of just crypto capital I think a lot of funds have pulled back just like

they did in the US but there are some Market exceptions where in particular there there are like two or three parties that we see a lot that got fresh capital and they're depress like deploying aggressively and one of them for example was the ABCDE of dujun from Singapore I mean those guys sold their business of HB to Justin Sun they back like two three TR billion dollars that himself you know interesting information before they sold it they moved a bunch of retain capital from 4 piece balance sheet to themselves so it's like massive dollars of which they are aping themselves plus putting some to use in deploying ADV Venture um I think sentiment is generally good because whatever is left over kind of it's after they all got crushed by the

Chinese government like two three years ago and then there's a bunch of 2C apps coming out that they are kind of who strapped or getting funded by whoever's left over so it's it's like not as bad I think versus what the US was six months ago yeah well I W to Ben get your perspective uh and then Jason as well in terms of how you're positioned uh how you were positioned perhaps over the last you know N9 six months uh in terms of both of you are trafficking in liquid and illiquid stuff in early stage um and so how how are you kind of thinking about that and what you're seeing in both of the different markets yeah so I look I I think it's it's very much a a Have and Have Nots Market in the sense that there is a lot to be excited about like I think

tokenization is of real world assets has been a big theme identity on chain you know different ypes of infrastructure you know layer 2s me zero knowledge proofs wallet as a service all of that there's a lot getting built there and I mean I think we can all agree that you know the ux of using blockchains has improved over the past three four years since since we all met um it's kind of happened quietly but it's just easier to do stuff on Shain now uh so you know we've been just focused on you know really those areas uh I I think that that you know the the universe of liquid names when you kind of break it down the one and A4 trillion dollars of liquid Market uh liquid Market crypto about 900

billion of that is Bitcoin and eath which really really is kind of just a form of beta about a 100 billion of that's stable coins so it's not really investable so you're kind of looking at like a you know a quarter trillion dollar investable market and you kind of double click into those names and the vast majority of them I I think are kind of Quasi uninvestable um but that doesn't mean there aren't kind of Diamonds in the Rough and things that are emerging with really strong kind of product Market fit and and E unit economics you know we were looking at some of the core kind of defi names two years ago versus today um so you if you look at like you know Unis swap Makow a um synthetics you know uh dydx GMX Etc and just like look at basic

metrics like you know users uh tvl is an imperfect metric but depending on the metric but you know kind of total like kind of economic value flowing through these systems and look at that relative to valuation um you know if you like defi a couple years ago you know by definition I I think you should you know be be more interested in it today because fundamentals are better and price is lower um so I I think there are interesting ID syncratic things in liquid markets but you really have to to look hard to find them and really dig in it's it's it can be frustrating because you know we can look at 20 different liquid tokens and just not get there on any of them um well because they might not even outperform eth you know on a way up through a cycle yeah I mean I

think eth and I mean eth and Bitcoin uh have generally outperformed uh you the longer you zoom out on the chart uh the fewer things that have outperformed them uh so so yeah I I think and then when you adjust for liquidity and then the idiosyncratic risk of investing in like a new new project uh you know far fewer things kind of have have outperformed them you know liquidity adjusted risk adjusted so I I think it's a great market for asset selection but it just takes a lot of work and um uh you know but there's a lot to be excited about yeah I know I think we're going to probably talk about tokenization and other things like that

later because I I think that's that is could be like one of the next big themes that um bring us to to the bull market and by the way for those that don't know like Ben and Santiago were literally the the true people that were super instrumental in bring Foles to like existence and then like without these two like we wouldn't even exist so um well we wanted to hire you Jason but you're too good you probably should just run your own and uh look I mean I think the strategy just as a kind of a tangent we felt that probabilistically there should be more teams come coming out of Asia and you have to know the language and we weren't we were we had that thesis and you know dragonfly was we were close to them we just felt that there needed to

be more Capital like just statistically speaking there needs to be just population wise and developers like there's a ton of talent there and and you know you you've identified in short orders scroll step in I mean those two alone I mean I think as an investing firm you have to have one or two wins for us it was like a early on and then kyber and we were just really into defi but look we were super we benefited from a catalyst like you I think compound launching liquidity mining detonated this whole bull run of defi um you could have argued synthetics like had pioneered that model but no one was paying attention but even after compound launched you had really six months to to pile into the trade and so I think that that leads me to my question which is as

we talk about Bitcoin and eth being perhaps really strong as a catalyst like you have the ETF approval for for potentially both certainly for Bitcoin first what is the Catalyst for going out farther around the risk spectrum and saying I want to find a diamond in the rough Ben to your point versus just sitting on bitcoin and eth and just you know waiting for a catalyst to emerge and then deploying in size into whatever hot is it gaming is it social F which I know Jason spend a lot of time in but like you have you have time to historically you've had time to to pile onto these trades and I'm not sure you get rewarded on a risk adjusted basis by being super early even though it feels great you know like hey I was super early I was here I was the first

one I'm just kind of curious Jason you know I think abs are harder because like even though I Shi front Tech through a deck which I'm like I got to get this out because it's going to get a lot of traffic uh I mean ABS you just if you if you miss the mark you just kind of die and it doesn't matter if fixes at best back you so so I sort of apps are so um if they use pwn like Ponzi as a us like they just they just die even faster um so if like it's even more true like aen way you said being early is like being wrong this is particularly true um and just the other other thing as well like I think it's harder for Ben than it is for me like I think his SPM is 10 next to size of

ours it really leaves a market impact we can still kind of navigate I think my play has always been at like when there's an up Market my Beta like my cash is Bitcoin in you and I I do tend to think there's a catchup trade in um if especially if NASDAQ bounces and Bitcoin kef goes through n will go towards e ETF potentially going through and the deadline there is May 24th next year uh at some point it's going to do the same Black Rock trade again so I I'm and ratio everything is sitting at support I think we're going to have a catch up there um the next narrative I I just given where I sit I think I really wouldn't count on Asian team that came from web to building infrastructure that metalic is goingon to like um they just don't have the culture and background

and and knowledge and just kind of like the chobs to do it but they are very pragmatic in terms of taking what works and just wrapping things together um and I'm generally pretty hopeful of these guys figuring something out and the cost of building something is onethird of it because I'm looking at like three FR Tech fors just to give you an example we might not be the best at putting things together as the first iteration but the cost of building something next after with some improvements is like one the cost and we can do it three times as fast so like one of the sort of founder of these teams are telling me like dude like what frch is [ __ ] build uh we could whip it together in two weeks with like less than 100K in shinen and if it works we're gonna just keep doing it uh

uh I think I think the West would be a little surprised by kind of how quickly these teams will spin up and just take their idea and just put a token on it and just like run aggressively with it um social is a little different because it's social that Community still matters but for some of these applike products it's just going to really come to Market and I don't think get that many of them in liquid Investments uh to the extent that we do at decent FDB will AP in but to those that don't I think the only way to do is to sort of spec Investments which is why we run hard I mean you've had like the halflife of of these projects is is shorter especially when you don't have new capital coming in um and if you don't have new capital coming in then it's

it's really like a PVP right it's just sort of like a rotation in a zero sum game for a lot of these projects um and like a lot of the rotation goes back to bitcoin and E and so Ben as you think about scanning the universe of liquid tokens or maybe uh you know early stage investment how do you think about that relative opportunity cost and trade um and and just out of curiosity like how many like private deals have you done over the last like three months versus just sitting on on beta and you're saying look relative to NASDAQ like Bitcoin and eth have really been crushed and you could say and waren they you know it's just it's just good then to sit um on on

Majors right now yeah so first of all um I I would I would Echo what what Jason said in terms of it's been one I think one of the biggest surprises of 2023 has seen as has been ethereum meaningfully underperforming Bitcoin um you know year to date uh bitcoin's doubled ethereum up 50% so that that's you know kind of 2x the performance I think people think about both of them as beta but they're actually like very different types of assets when you really drill into it you know like digital gold and you know an internet native kind of computer they have different kind of fundamental drivers I think that's been surprising to me I maybe wouldn't have predicted that but so I think like the type of the way you define beta or like kind of like

liquid large caps like that can be there's a lot of nuance in terms of how your you're allocated there um but look I I think to answer your your question um back a couple years ago like these seed stage crypto deals that you know we were looking at uh we were all looking at were like 30 to 50 million fdvs4bu could fit some investors may make money I mean crypto is a rare asset class where you can invest in things that don't work and still make money and that doesn't work that way in Venture you actually have to find product Market

well it worked in Venture until rates went up right un economics started to matter well you got marks right I mean I guess you got marks or maybe you got acquired by a spa or you ipoed without any like without good unit economics but eventually like there was a day of and maybe you could sell before the Day of Reckoning came but you had to time the market right right so so yeah there is an element of that uh yeah that's probably fair I I think right now we've seen uh you know the valuations we're seeing are are more similar to 2019 2020 um when um you know like Santiago like when you and I did a lot of the the better deals at parfi in terms of just like the valuation and the entry points

and I think the app layer to Jason's point the Moes at the app layer I mean they're really I mean it's they're they're really weak they're very tough I think the Moes are much stronger the further you dig down in in the stack layer ones layer twos more core infrastructure things that things that are less less visible where there are stronger Network effects maybe you know customer acquisition costs are less less maybe less relevant um and we were looking like you know at some data like let's you know roughly kind of four to 5,000 defi projects have been launched over the past few years and we could probably count on like one hand the the number of projects that like we all have kind of confidence will exist in like you know the next few years maybe two

hands um so it's like the survival ratees very low so this is all to say that I think the expected value of seed stage investing if we can get into deals at 10 million 15 million ftvs that could make that that does make sense but I think you have to build a lot of granularity and diversity into your portfolio just with the understanding that you're going to be wrong on a lot of different things um and so and they're going to be power law distributions and kind of in terms of those those return profiles um and so that's been kind of the we we've been much more selective this year much you know I would say um more valuation sensitive and also more structurally sensitive in terms of you know governance information rights kind of

terms and structure of of the Investments I think in the PRI prior cycle people overlooked things like you know investing in tokens but disregarding kind of potential terminal Equity value or investing in equity but not getting access to tokens and I think it's important to have you know alignment with teams across you know the full kind of capital structure of where where value could acrew um and then just the last observation on on my side and I'm not sure if you guys are if you guys would agree with this or not but I I think a lot of the companies or a lot of the um sorry a lot of the the Dows that have issued a token that have some sort of fee model and are buying back a token and you could run a DCF on it a lot of those probably would be better served as just SAS companies

rather than than you know having a token and being a dow so we've been you know I think we've kind of been T chatting with different teams about does it make sense to kind of retire your token and issue token holder like equity on your cap table and just run a normal SAS business and not have the cognitive load of having a token that is volatile day-to-day and can be a distraction so we've been probably more focused a bit more focused on just like the equity side like back in great fintech and SAS companies building for the crypto End Market without the distraction of a token and I think there's probably more you know I think on the margin bit more opportunity there than maybe in um you you know in token land at at the

moment that's interesting I mean I I think when you when I hear you say that I think about Unis Swap and uh look I mean full disclosure we were investors of Pary in Unis swap like Universal so you have equity in Unis swap you also get a token that corresponds and Maps out to whatever the company gets in terms of the say 40% of the token Supply goes to equity holders and then you get your PR um and now it's sort of people are looking at that in the context of now the company itself issued host the front end and the front end if you're going through the front end it's a 15 basis point swap Fe and look they're going to generate 20 30 million bucks this year I mean yesterday alone they generate 500k in fees so that was pretty interesting uh metamask is another

example you know which is run by consensus which is to your point another a different example of a company that is you know a studio and has put out a bunch of different products um yeah sorry it's 500k last week for for UNIS swap but still it's significant um the question is should Unis swap have a token and then Equity to and people are kind of confused around that uh I don't I don't know what the answer to that is I mean I still think the tokens are great corination mechanisms the problem of course is running a dow is incredibly hard and I think people are really waking up to that idea that I mean God Ben like trying to get people to vote on maker was just pulling teeth especially when you have to get stuff

voted in like in 24 hours or the protocol is going to go dead like you know you have to Corral these votes and it was really tough so um where you could argue if you made investments in stuff like fire blocks or you know Anchorage or some of these core business picks and shovel businesses which are just purely Equity it's just you know people tend to love those businesses especially traditional Venture firms that came into the space late love that stuff um but again you don't get the liquidity you don't get all the other benefits of a token so I'm actually not really sure what the answer is Jason I don't know if you have a view uh in terms of how like if you have a preference of what to invest in and at what layer well I I think I think generally there are just not that many good good infro companies

or SAS companies in this out of world and I I would blame it on there are just no SAS business in China that's the space I looked at in the past um you either have really shitty like Fus s or you have large like corporate mostly facing government and this the customization basically eats away the margin there's no standarization uh I generally feel like most companies in a space is poor so selling SAS to them is just even worse than pulling teeth in China A lot of times uh so we we haven't we haven't really done that much there and now the thing is I think I agree with both of you which is for Real EST business like this that have a moe I mean there's no reason why they should kind of get a token because like running a public company is no joke and listing

a token is that and they're probably better off listing in NASDAQ at some point and then getting a gang Buster not so much these days but gang Buster valuation while they can um for the apps and for most of the ecosystem folks that I look at um we really think of tokens as pseudo equity and these are for businesses that have like you said a shorter shorter shelf life if they were to get listed in NASDAQ well first of all they might not even get listed they can use you know but even even even if they do like the Wall Street are going to be like it's not sustainable five times earnings thank you very much uh but in crypto land uh not only they get listed they get massive valuation because people kind of T to extrapolate how profitable these business can be and

give it like 50 times earnings uh at the first time when you see them um and the lockup schedule generally tends to be shorter uh than when these business run their course so it's like I think that ARB is fantastic um and I think it's particularly well suited for especially application businesses that tend to grab eyeballs for these theu and they are the same buyers of these tokens um I kind of feel like this is the ARB that we're going to see a lot of the next cycle yeah you know one one thing just thinking about one thing I've always struggled with is um uh is is like what is the right kind of PE multiple for uh you know like a defi Network and I mean there's been so much volatility in multiple like if you look at you know

maker Dow it's traded everywhere from like eight times earnings to like 200 times earnings trailing yeah trailing or run R like yeah like and it there's a big difference if you look at like trailing 12 months versus like last three months annualized versus run rate versus kind of like forward earnings um so there's like volatility and earnings there's volatility in the multiple and you know we like we can all agree that protocols are unique in terms of they're like you there's no capex there's no Opex so they tend to run it like or there's very low Opex so they tend to run at very high kind of they have very high return on invested Capital they have software like unit economics and they can grow incredibly quickly incredibly Capital

efficiently so like from that angle they should have you know they should trade at very high multiples because your your multiple you trade out should be a reflection of of of many of those factors now on the other hand they're very difficult to manage and governance is confusing and people get lazy and don't contribute and so that would war and then also some of the Moes for these are are lower so when you're running your DCF predicting like t+5 earnings for one of these networks is is totally it it there's a massive variance to that range and so you have a higher discount rate on those cash flows and therefore your multiples lower so you can kind of make Arguments for both sides es but and I I don't think anyone really knows the answer to this question and it also

comes down to like what is the application you're looking at because like frex you know I think has done you know what 2025 million of earnings over the past couple months um or or protocol fees and you know uh so it's like what is what is the right multiple for that type of application versus something like you know GMX versus something like you know a and the answers could be very different just like you know in the same way that if you look at you know public equities you know Tech trades are very different multiples and you know the energy sector which trades different multiple than cpg Etc so it's a still a big mystery I just don't think we have enough time or data points to really know the answer to where these things should trade I mean

it took it took a long time to formalize valuation methodologies in public markets like iida and free cash flow and like it took a while do you ever think that you're overintellectualizing like look I hear you you look at maker like because the cynical argument here is do these things do people trade on do these things trade on fundamentals or is this sort of an attention meme factor and people are gonna punt the latest novelty and I and I bring this up Ben because of course look there was a very strong argument that defi which has been in a bare Market long before even Bitcoin and E started to go down people moved on to gaming and nfts and if you look at the

defi charts on an eth kind of ratio it it's gotten crushed meanwhile you have a lot of Lindy you have enduring stronger modes for core D5 protocols maker a compound even synthetics like like there there's just a a very strong argument on a cash flow basis the question is how long are you willing to wait for that thesis to run through while the market is just ripping in your face other stuff and people I mean do you ever see a comeback and what's your time Horizon because it's really tough I mean it's it's it's it's tough to kind of see that yeah so um I I wish I had a better answer to this question except for I I just I I get I get a lot of things wrong

and I I definitely um look I I think that as you as you extend your holding period and your time Horizon I think Mark the natural gravity of an asset price tends to bend towards fundamentals over time um but the market can ignore fundamentals for uh short periods of time even long periods of time uh if there's if there's not a catalyst and also if you so I think storytelling is is really important um element of even public Equity markets right it's not like you know Google's fundamentals post earnings you know changed you know like the the actual swings in in in market cap like in real time like the market was kind of adjusting to like a new narrative and so I do think storytelling

and things like that will always matter in markets as will fundamentals I think right now in crypto because it's so early and because people don't need you know are still getting their arms around like what is the right fundament like what is the right metric or kpi for these different networks even understanding and agreeing upon earnings can be very challenging like if you ask three intelligent crypto investors what the you know how much um you know earnings um ethereum is doing or maker Dow is doing they may give you three different answers because there's no there are no Gap financials there's no generally accepted accounting principles that standardizes reporting uh and so like you know fundamentals can be very subjective as well um all the more interesting because I agree with you there's no like

accounting there's no like SEC Edgar SEC database you can go to but you can see in real time the earnings of these protocols it it's it's pristine data it's not tampered it's not like adjusted eida [ __ ] no it's like they're producing block by block you're able to see how much you know uh loans are outstanding what the activity is a user retention like at a wallet level like you can do very granular analysis um and you know but anyways Jason I want to go to you because you want to say no the two things I would say is first thing is I do think even in public markets the things where uh when there's no framework that devaluation tends to be all over the place and then secondly when the corporate governance is crap uh

the the valuation tends to be all over the place often at a discount I think that can kind of apply to crypto which is kind of like yeah it's going to treasuries but like is that really yours took on holder ha so so and those that do um assuming there's great certainty I would think it tends to get repriced faster like what we see with maker and a buyback um and the second thing is because the waiting journey is so long and most of them don't have this transfer journey of Val capture for very obvious reasons that g Ganson doesn't like it um we tend to really only sort of own or trade these things based on uh the trajectory of earnings growth uh and kpi as well as some sort of a catalyst of whether leaving ausc or whether ENT

like enablement of valy capture those tend to work quite well I think instead of uh sitting on it and waiting yeah one emerging narrative here is real world real world assets and I am curious Ben I know you want to say something but um maybe we can start talking about what might be the Catalyst for some of these things particularly defi as you think about you get a spot ETF approval the radiotor landscape clears up you get good you know and maybe have Market participants that are more more inclined you know we had uh the head of JP Morgan here talking about look they're really excited they're building you know Ben you and I were both a permission list it feels like corporates like the interest there hasn't subsided even though you've had

all these blowups like they're they're they're really interested I think they see the opportunity it may take a while but um it could be a huge Catalyst for for something like defi but you know yeah look I mean like tokenization is something that you know people have been talking about since since 2017 with the kind of security token offerings and companies like t0 polymath Harbor by and large like none of those worked um and um I think most of those were like hey let's take like an a liquid asset um like an apartment building in in Monaco let's tokenize it and like we'll make it liquid because people want to own fractional shares of an Department building and like people then realize like well hey just because you fractionalize something does it doesn't

actually make it liquid you need kind of demand for those fractional shares um and then I think you know by and large like the industry kind of moved on and stopped trying to tokenize assets for like five or six years because there was so much other stuff getting built in the space but this year has been I just you know I think a huge year for tokenization and what's surprising to me is it's really all come post F TX when a lot of when some institutional interest was waning in the space you know you saw Larry think basically come out and say the tokenization is is the next kind of big wave of capital markets Innovation if you ask you know like talk to JP Morgan if you talk to you know Invesco Wisdom Tree um Hamilton Lane KKR hey

what are you most excited about in in the blockchain space I think eight or nine n out of 10 times you're going to hear tokenization of real world assets kind of at the top of the list and you know you've seen so much activity this year you we count 150 to 200 different team building in this category today with probably like 500 to a thousand different Pilots going on kind of behind that that are launching in the coming the coming uh couple of years uh and the you know we kind of putting aside stable coin the uh R tokenized RW X stable coins have increased um to about3 A5 billion um to up from about 1.6 billion at the beginning of the year in a mix of

tokenized gold tokenized treasuries um tokenized LP stakes and funds um so it's you know we're seeing kind of tokenization of traditional assets and then the other like really fascinating category is like tokenization of kind of non-financial assets so you saw you know the California DMV tokenize 14 million automobile titles you know you're seeing kind of tokenization of um you know University diplomas identity credentials uh tokenization of things like concert tickets tokenization of you know litigation Finance claims uh you know Emerging Market receivables kind of these other assets that are valuable but don't have the same kind of established capital markets infrastructure that you know bonds

equities currencies and Comm Commodities have and um you know like similar so so these asset classes that kind of the longer tale that have been neglected I I I think are going to be um are gonna kind of be some of the first assets to come on chain in the same way that you know because this is not a great analogy but in the same way that kind of China China jumped right to mobile payments um it kind of skipped over kind of like Legacy payment infrastructure uh I think a lot of these assets are just going to skip over kind of like Legacy Financial Market infrastructure with banks and move right on chain um and so I mean there's a lot more to unpack here but I I really I I really see this as as being the only way that crypto will be relevant is if we can tokenize

real world assets and they're the main substrate that's flowing through applications Pro def5 protocols Etc and uh I wouldn't be surprised I would not be surprised if in like two to three years from now when people evaluate layer ones and applications the most important metric will be tvl of real world assets yeah um as opposed to you know when you look at tvl and defi Lama of salana it includes like staked Soul which is is more endogenous to the salon ecosystem it's not really it's a bit more cir cular so I just think this theme is incredibly important and I'm excited about it I think there's a lot

of momentum and um I don't think it's going to I don't it's definitely like feels like it's accelerating right now yeah the big aha moment for me is I I was thinking of like Unis swap allowed you to get price discovery on a whole tail end of assets through an amm model and certainly there were a lot of skeptic that said a centralized orderbook model is far superior but missed the point that you just opened up there's more cons you just created a new market and the ability for to be a market maker I think the stuff like Maple and some others I think conceptually makes sense like centrifuge but where I have struggled is the general unsophistication of the teams and under riding risk they're not professionals and I think you see time

and time again whereas I'm more excited to see a really solid team Ben you came from credit at KKR like where's the KKR credit team coming in and saying hey let's like actually apply and do underwriting and just put it on chain because if you're just like settling these these things in an atomic Manner and opening up a capital markets in a global manner or you know like a Arc sort of permission kind of environment if you will settling on a permissionless kind of L1 but that feels to me like a killer use case where you know even now like everyone's talking about private credit and I think companies are there's a whole tail end of companies that have struggled to get access to Capital and maybe you could do that in a more efficient manner if you turn to

defi um I just think that there hasn't been like a killer team that is very sharp in underwriting these things because there the there been failed experiments I think for for a lot of these kind of like more Tech focused teams but I think you need you require like your brain your your KKR credit brain kind of like on you know and that's what has been missing of some of these teams I think yeah I mean yeah blockchain technology is definitely not a not a Panacea for like bad judgment or underwriting um like if if you have a borrower that defaults um because like their business goes bad like the blockchain can't can't solve that so and they can't have so so I I think ultimately like you're you're actually starting to see a lot of like private

credit funds um you know just really think about the blockchain as like more efficient rails to send interest payments uh securitize uh disintermediate kind of like fund administrators and servicing agents and collateral agents so it's they're kind of doing what they normally do but sitting on top of you know a blockchain for for efficiency um and transparency too I mean I think presumably you could price these things more efficiently and you can measure risk in real time like the big aha moment for me and Jason I want to turn you next but the big aha moment for me was you remember like we're looking at Nexus and Nexus coverage was grossly under like it was like the most inefficiently thing priced on chain um

and utilization was a big part of that but the idea that the Nexus team was underwriting the risk of these D5 protocols just made absolutely no sense whereas you could have argued just let the market decide and Andre being Andre tokenized Nexus W like coverage right and put a rapper on it and the market was freely trading these things and and that gave you a much better understand that was like a CDS it would have told you exactly what the market whether you believe it efficient or not but it was a better mechanism to price risk of these various protocols and I and I and I still think of that as like why haven't we tapped into more of that like it just feels to me like you could price not

just digitally native stuff but like a receivable of company in whatever market like like totally the the the the the the key unlock here is there's more transparency it's 247 Market there's more Capital flowing in and out of these things the price should be a better reflection of risk and that opens up a whole variety of instruments if you do everything onchain this episode is brought to you by Chronicle protocol the best onchain source for cost efficient verifiable data for anyone who listens to Empire a lot you know that we talk a a lot about maker Dow well Chronicle protocol is this novel Oracle solution that has exclusively secured over 10 billion in assets for maker and its ecosystem since 2017 and for the first time ever super

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the link in the description of today's episode to get started like is there anything else that gets you really excited and you're like oh in the next 12 months this will hit a billion dollars and I'm super jazzed about this rwaa vertical like is there anything like that today you think is is pretty exciting no I don't mean to put you on a spot but yeah no no no it's a good question so I so yeah there's so I think like the longer tale of of asset classes is where a lot of people say look like us treasuries are the next logical thing to come on chain because it's a$ 33 trillion dollar market and you know we have 120 billion of stable coins today that pay zero% so if you can capture 10% 20% 30% of that market that's that's quite logical and I think

that will happen but uh I think the actual the longer tale is more interesting there was there's a team um it's actually fascinating there's a team that's so if you're a Creator on YouTube and you post a YouTube video like how to tie your shoes or you know how to fix your microwave um and maybe you have like a few million views and it's you get you'll get a check from YouTube every month for1 to $200 um or some amount right uh based on views and subscribes uh so you have these creators on YouTube that are getting paid every month and uh that's a meaningful kind of somewhat uncorrelated to the broader business cycle macroeconomy kind of uh cash flow stream um and so there's there's a company

that's effectively kind of going to creators and saying hey we'll buy kind of 49% or some percent of these future cash flows um which are kind of modelable and predictable and so you can kind of take a lump sum up front and then we kind of participate prata going forward and um that's that's the type of asset class and this is just one example I think like many of like things that don't exist on Wall Street don't exist in traditional Capital markets but um are the types of asset classes that could be very interesting on chain because you can kind of get transparency around payments um the this is basic Bally a securization so you can all the monthly cash flows can get kind of

distributed on chain um and uh I think like that it's almost like the YouTuber issued a token or it's like their the company's listed but you're not having listed you kind of just start buying those I see that okay yeah what about uh like minor Rewards or validator rewards I mean that to me is you just look at okay if eth's the staking ratees can to be partic you model out a participation rate and you say okay if you're a validator or you're a file coin Miner whatever you're you could securitize those and then sell them off right and the same with the bit Bitcoin miners do this effectively offchain but you could do this and it could be a huge Market on chain yeah you know I'm surprised that

that because like if I'm surprised that that market hasn't gotten bigger because if you look at I totally agree I mean if you look at ethereum it's a uh $220 billion asset 5 perc let's say 5 perc staking yield a year that's like you know 10 billion dollars of cash flows you may have um you know like kind of like effectively like an interest rate swap but for for staking yield kind of being able to pull it Forward um I think is like incredibly logical I know there are some teams that are kind of working on this but it doesn't feel like there's been much uh as much traction there um as a as you say that interest rate swaps what is going on in terms of I am still perplexed as to why defi

rates are lower than trafi rates is that just indicative of and Ben I know that you guys play a lot in the credit side of things uh Sable Quin ARB and whatnot but H how do you see that um and I'm surprised that the ARB exists uh is that just indicative of like no one wants to take smart contract risk and it's just too much friction you can't do it at scale at what point are we going to see rates in D5 be more indicative of just they should be higher than trafi so I I I think it's a function of it's the same reason why there's still 120 billion of stable coins in in uh that in in defi that are earning zero um uh it's it's that I think there's captive capital from a regulatory

Arbitrage standpoint that does not want to re-enter the Fiat world and so there's a glut of stable coin Supply um combined with less demand to bar borrow on chain given where we are in the market cycle and that is kind of creating an environment where defi rates are lower than than trafi rates I think in the past six months you've seen them catch up um if you look at kind of like usdc rates on an avian compound um and I think that's in part a function of the the kind of reverse rwa trade which is now on maker Dow the die savings rate's 5% um and you know you can you can kind of like uh put die into the DSR earn 5% and the reason why this works for maker Dow is they've set up entities that are

taking capital usdc capital putting it in treasuries five and a half earning like really Slim margin on it and so because D and usdc are fungible one to one um you fact like kind of if you look at like lending rates are kind of converging to that level in um on on defi uh so I I don't I think in general we should see relative parity going forward between Defi and trafi rates I don't I I think initially like go back to like 2020 the like plain vanilla lending rate on compound was like 15 to 20% when rates were zero and it's because people were like oh this is smart contract risk this is really scary that as the Lindy played out people got less scared and then like things

inverted and I think they're now like I don't think we're going to see I could be totally wrong in this but I don't think we're see major as as much volatility in terms of the difference between trafi and defi rates going going forward at this point I don't know if Jason or or you would disagree with that um but yeah in a in a steady state but I don't know when we get there um what should we talk about next SI I mean we talked about tokenization we've talked about defi um Jason um you've been a bit quiet but I'm I'm curious like what are you paying attention to what are the catalysts that you're seeing um I I remember so I'll give Jason incredible credit because as you know breakpoint is coming up in in

Amsterdam salana feels like it's you know had having a Renaissance moment I think they've as a phoenix kind of rising from the ashes this whole like putting behind the whole FTX uh Sam kind of relation you know attachment unfair I think it was and there's a lot of excitement I think there's a lot of resurgence there and you know the sole price kind of reflects that um but we were in break point in Lisbon I think it was two three years ago Jason you were starting folus and and you were sitting on a lot of cash you just raised the fund and this is when like every day you had a god candle right the market was ripping towards the end and and we were talking about how you would allocate this Capital which felt like it was late in the cycle but you just didn't know

when the music was going to stop um and you were incredibly disciplined because you held the line you said I don't want to invest like it just feels like I'm not being PA like there's just too much risk and I think it's incredibly hard to do that especially when everything is ripping like and now you're in a situation where perhaps a lot of people are sideline they just turned the pendulum as Howard Mark says swung to The Other Extreme where people don't want like they pivoted to AI they've sitting in a lot of cash they say hey I'm just going to chill in treasuries and I want to survive um how how are you thinking about allocating putting risk back on the table and and getting more exposure because I I think it is easy I think to

ride the wave up but it's also perhaps even more challenging like deciding when to really step up and and buy in size and maybe a lot of people are questioning now oh maybe I missed it because by the way Bitcoin and eth have rallied substantially since the beginning of the year so the question is nasdaq's turning weak the market might broader market May you know take a crap what is that going to do to crypto I think we've all learned the lesson for Better or For Worse that this is not an uncorrelated asset class so I'm curious It's a there there are many factors let me just start by saying like I think personality play a big part of I think some are just entirely more aggressive I'm more introverted and timid it's easier for me in a bare Market than it

it wouldn't appear that way just by looking at your Twitter profile but maybe that's your way of channeling your your extrovertedness yeah yeah the only part of degenerous here for me is on Twitter um I think uh well I think public and private are different I think uh Founders at seed stage dicta their own destiny is very different it doesn't almost matter what macro does so Q2 and Q3 had been our busiest quarter so far since our Inception in privates um we wrote Our largest check in Q3 ever um we let deals we didn't lead deals before the check size that we wrote in private had stepped up from previously at quart million half million up to like multi-million dollar checks now uh we are planning to raise more capital and

be even more aggressive on the private side because we think some of these exposures on 2cn you just can't get them in public domain you have to do it private and because we can now take the whole round and be able recognize our brand we should really press into it I need one more success to like really cement this reputation raise a big F and just corn in our Market that's the plan in Asia um and a lot of the focus are around things that can get massive d you and can benefit from a web through recursive way of grow mostly Ponzi and hopefully they will have a way to cement that growth path and when it comes to large duu it invariably is various type of social entertainment products so uh there's no surprise that I I like where FR Tech is going I think a social

trading app in similar flavor could be pretty big uh we're looking at a live streaming deal very aggressively we're looking at like casino gambling deals very aggressively and then on the gaming side there are multiple vectors of large da categories like mobile FPS uh like like sort of MOA uh like casual games that we're just spending a lot of time on iO and our team can speak to that but I think we're going to continue to be aggressive on the private side on the public side I think my biggest fear is the the two overhang had been binance versus doj and then credit event in the US those two things would sent us off in the worst case maybe 20 to 40 perish in the best case nothing happens um I think running a fun we are watching for Mark Market draw Downs uh but if those don't

happen or if they were to happen I think one needs to be ready to buy that dip because when the credit event in the US happens I think that's when Q turns on I think you need to hold no cash and just go all in in Risk assets um so right now we are sort of playing this period where you're riding this ETF Catalyst there's a bit more Catalyst left and eeve going to year end it seems like the year will be good so people might want to put put on risk into like end of your bonus across different funds so the flow could be beneficial um but I think for us like next year we are bracing ourselves for a bit of a shock at some point in first half and when the sort of gun has been shot by the FED about QE I think it's

just there will be zero dollar cash in Bones it's just purely Bitcoin e as cash um and then sort of the deployment into small care private liquids um has already begun I think we're probably 5 to 10% into small capat privates and that percentage is only going up um because some of these deals some of these liquid names uh have already approach sort of series A and C St valuation um yeah that's like over what I'm gonna pause there one question I wanted to get your your thoughts on Jason is uh just the gaming sector and you know you've had some some really good calls there as as have you both of you have um you know step in alium Etc um what I'm curious about is like you know you've seen a lot of web 2

incumbents you know building kind of games with blockchain elements you've seen some new kind of gaming Studios and people for the past couple of years have been saying hey we're like you're waiting for like the one game to kind of bring a bunch of users into the space I mean are do you think that will be like I I guess like do you see do you kind of see how do you see the evolution of kind of blockchain gaming finding product Market and do you think it's an incumbent or or an upstart um that kind of is is the first to Market I can take this unless sense you want to I I'll take it um I think I think gaming as Entertainment form is hard get something wrong the whole thing falls apart um I would also say we haven't seen success

yet because the production value itself hasn't even matched a bare minimum of entertainment quote unquote so like no one's going to play that crap like it's just not fun you can swipe Tik Tok um I think there are two types of games that could sort of take off in the next cycle um I don't think any of them will come from large Studios I think it is predominantly a VC bagged sort of look it can even come from a single man shop one to five people they figure it out right but it's like a sub20 million investment criteria and there are two ways this would happen this would be either um production value and way in both cases production Valley has to match a bare minimum of entertainment standards it has to be somewhat similar to web 2 but it cannot beat that much

over because these teams don't have resource a and it's easy to over spec with production value therefore ignoring the we three aspect but once it meets those criteria two ways this happen is number one this is a very proven category people know how to play these things massive Tam 50 million da okay great so the the the web 3 component comes in and do three things which is a lot of people in blocked off countries can play it through stable coins or you know through Pony way of acquisition you significantly reduce your cash cost of acquisition and then number three your your RP goes up significantly because there's Financial speculation um and those categories I think bu a studio who have done it before in web 2 can handle a DA and sort of putting the we through Spin and taking all the elements of pony and

speculation and sort of uh take rate I think that can succeed and those category namely fall into like competitive games uh such as gambling FPS mobile and so on and so forth for example the other category uh I think it's it's it also needs to be new teams but it's something that is just at a left field very new like the production value could be lower but they're just trying something so crazy and different um I have to I have to say gaser as example like that did um build by Sten um SL itself is a very small category globally but things like Clash of clamp people still played with a very long time span now their insight there is that look if we if you conquer somebody else's country um instead of before where you actually kind of get clout you

actually TI our tax stational rights on their people and what if in this game we all play with money like real money on blockchain uh we sort of felt like you know the Kings equivalent would get so much more dopamine out of it that they might be willing to spend a lot of ouru in that case I think we could make a lot of money from building this game and it doesn't have to be like so production value heavy and then that game itself would not even be like a traditional SLG P you have to design new mechanisms around it and it wouldn't take that much to build I think they they come under like s million based on Jerry's forecast yeah I think those two categories can really hit yeah I definitely agree with that like from my vantage point I I think as

a general comment in a bare Market people are very quick to dismiss fa starts or early starts um and it's hard for the market to kind of look at something maybe it's tokenization right you talk about risk Harbor and some others it's real this time the infrastructure is different the Market's different and people turn very skeptical with gaming I think people look at axi and look at step in and look at the token price and say it didn't work like this play to earn category does not work there is some Credence to that because to Jason's Point some of these games were just not fun to play and it was more work but I do think that um there's two very different kind of games one is your Call of Duty World of Warcraft takes years to produce very Capital intensive um which there are teams that are trying to build

in that category and layer on some crypto elements particularly nfts is really a really powerful rapper to a lot of this stuff and the in-game economy which I would argue a lot of teams have experimented with that but there's a lot of improvement that could be done there um and then there's a fast casual the fast casual is actually probably the one that takes out faster and it I've invested in a few teams that particularly from Scandinavia like Finland just like this is where Angry Birds came out and has a very vibrant gaming and some really good talent saying hey we need five seven million bucks at Jason's point and we can do a fast casual like um type of game you know like like and if you layer on the nft component to that it just adds

another element where a gamer if you assume to Jason's point you have feature parody If the experience is very much the same Web Two web 3 if you're a gamer you start earning nfts it's a small thing but I think it it does matter um and and you could acquire way more users and retain them because mind you if you look at like gaming as a category has been really like Candy Crush for instance like 90 plus% of their earning come from like 1% of the users which is crazy and the halflife of these games like look at Zinga like the vast majority of their games like just are huge success they print like 20 30 million bucks a month and then after six

months no one plays them so so the retention and the halflife of these games is really challenged um which I think you sort of assume that's going to be the case in web3 perhaps you may have stronger retention and even a marginal increase in retention is enough to really kind of like produce outside wins if you're investing in the right valuation that that's why I'm excited in the category because I fundamentally think that people particularly now are saying this is a broken category you're never going to have a sustainable in-game economy I'm like well how's it any different from gaming period like it's that's just the category if you're a gaming investor and you assume that that's like in my operating assumption it's always going to be like most of these games are going to have a very short lifespan halflife and struggle with the retention but nfts really serve and the speculation of that

is a super powerful substrate like incentive for gamers to stick around and you know I just think that that's what the market is overlooking right now because they they have totally dismissed the pl to earn category which by the way I think is possible to have play to earn if the game is fun the problem is you haven't had a very fun game but you will no I'm not saying you should go out invest in a billion dollar FTV kind of token like Absolut [ __ ] lutely not but I'm looking at stuff at five like a team that X Counter Strike ex Angry Birds raising at a $7 million fully diluted valuation needs three million bucks yeah I'll do that deal any any

[ __ ] the week you know I mean like um but but yeah some of these games are going to take time the other thing is like is the infrastructure ready um and you could argue are you better off investing in a web two game that can layer some of the elements because if you're if you're a game like louan for instance not everything needs to settle on chain right you can play the game in fact they actually what's interesting from alium and and you know this is just one example I think other games are adopting this is you know you have an L2 fine it's cheaper but you can play the game and not even think about anything crypto related which I think the the real good games will just allow any user

to on their mobile or on on PC play the game and then say hey you want to cash out your rewards you want to earn these rewards and you got to set up and automatically with the account abstraction like create a wallet allow you to you know you know get access to these things but that's the I think the the the team the smart teams I've seen say we're going to build a game it is going to have crypto to it but there is a version where you don't even have to think about crypto that's not the main hook it's gaming plus not crypto Plus game I don't know if that kind of sub whereas like axi was like not the you know [ __ ] on axi but it was like we're crypto like this is a crypto and then added on with some gaming component like with some crypto like with some gaming

components and I think the best teams are just very much like gaming experts yeah yeah I think that's I think that's really insightful I you know one one observation I I've had is um yeah like to to kind of be successful in this category you have to build a game that people want to play and then you also have to get the kind of token uh Integrations and and elements right and I've been kind of interested in like the more classic games to mitigate that first risk so things like you know chess Scrabble connect for um you know like back gaming Etc cuz like you're not taking any people love playing those games they're the most popular games in the world you can play them online there are huge communities around them um and then you can like kind of get all the

benefits of you know getting you know of of you know nfts driving kind of community cohesion and and other kind of forms of value with a token um so I you know I I think we could see you know I've chatted with some of these those kind of gaming teams um and they haven't done much with tokens but I think that's like the other the other interesting area well well benamy you're a pretty good at chess I think you won didn't you win this like crypto but I lost to um I I I won the consolation bracket which is like I don't want to you know that's like it's kind of s um yeah let's Envision a a friend Tech kind of version where you're playing chess and and you have these points right like what's a what's a

rating ratings yeah say that you have could potentially like a cameo type where if you get to certain point you could even play and get access to Magnus Magnus uh was it Carlson Carlson the number one player in the world like if you had a game that like you get him on board and you could through nfts like you could you could like to you can make it fun but you can also get access to playing games with like pros and you could settle in stable coins like to me feels like a pretty cool thing to do it would be yeah exactly I think the key is not altered the chest itself you know like if if i' I've seen teams adding nfts on top chest pieces and like it becomes your Pawn can do certain things if I I think it just breaks the game so like and then it's like how do you add

we through components I think there's a certain element of negative EV gambling as well as like various type of Cosmetics that need to come on top of it if the game itself cannot be altered um to the extent that you want to acquire users to already play game on a different platform it would like it will probably have to be some sort of what three homic because like otherwise the cash spend on these things will be ridiculous except they already have fun playing chess elsewhere you know um it's it's worth trying but I I I I um there there are things we sort of figure out along the way which is for different categories what is what what three components they should incorporate

in the in the case of chess for example it's like at Ponzi you know at gambling at C decorating yourself and then like making mobile first and then just drive aggressively and then definitely make sure you raise enough Capital to put up like a huge price Bull and then out compete the top ones and and like really issue your token Equity celebrities that's how I would run it well I mean if I think if you can build a good community and I think time and time again we've seen projects that through nfts have been able to certainly build good communities now your point around negative EV is really good one because I am skeptical of a lot of things where as soon as you introduce a price component to that like if you're buying like a music nft and then that collapses in value 90% does that make you hate the artist because youve lost all this money

like I don't I think Taylor Swift is perfectly fine without having any financialization to any of the stuff that she does she can you know and maybe swifties might hate her as soon as you introduce a price to that and that may be negative EV for someone like tlor Swift but that doesn't mean that all artists are going to experience that same thing you maybe perhaps can build an nft without I don't know like more of like a badge without any value I think when you try to build communities I'm really sensitive around as soon as you start putting a price to these things I'd be worried like if I if I were an artist I would think twice about like having value ascribed to a lot of these things because maybe the beauty in a lot of these things is not having a real-time price component and speculation to

it um Ben you brought a poly Market in our side chat I know full disclosure parfi we were investors in in poly Market but prediction markets as a category has been one of those like augur when we first met Ben we we augur was like augur V2 was all the rage and augur V1 kind of didn't work it was really clunky but also you didn't have stable coins and the minute you have stable coins to be able to settle these bets it was like a huge unlock now augur specifically I think just as a team just kind of was inferior but then in came along poly market and I bring this up because for two things one I get want to get both of your opinions on prediction markets elections are coming up there's a whole host of things I think they're getting some pretty interesting traction

and second like as as just information oracles particularly when the Wall Street Journal and other media just have really botched just there's no truth there anymore um and the second one is a more important theme which is what are some failed experiments that you know in the blockchain space which is littered that are worth revisiting because the infrastructure l2s stable coins is just different and that might warrant you to make an investment in some like poly Market yeah I so I you were talking earlier about like kind of letting markets price risk instead of a single human price risk in the event of Nexus and I I I think that markets and wisdom of the crowds is one of the kind of most powerful forces uh of Truth and um uh

you if you look at kind of markets we have today you know you can bet on the price of Amazon stock you can bet on the price of a bushel of corn you can bet on uh you know the uh the price of gold currencies Commodities stocks and bonds but you can't express Financial views around uh at size around many different markets in the world and so what's what's fascinating about uh a prediction Market is uh on Shane is that you know anyone can uh and just to Define what a prediction Market is is it's it's typically like a market that is called binary Market trades between zero and one where people uh you know a market

will become a uh you get paid out one one if an event happens and zero if it doesn't happen so you know uh will um you know Republican will a republican be elected in the 2024 presidential election that may trade between zero and one based on kind of the markets probabilistic view of that happening uh so what's what's kind of fascinating is uh these are really Oracles of Truth and um in in in a way that like we really haven't seen in traditional financial markets these can be used for bets on on politics bets on weather bets on kind of Corona virus case counts bets on um uh you know will we uh you know uh you know bets on just kind of orthogonal things that don't

have have Capital markets and they can be used for insurance as well so if you're a soybean farmer in Iowa you can make a bet on you know will there be less than x inches of rainfall uh you know in the harvest season in in Iowa and kind of create a market and you know you can bet that yes there will be less than that amount of rain and that kind of implicitly serves as as kind of a form of insurance and so so I think these prediction markets have been tried before um and they're centralized prediction markets but because of Regulation the actual amount you can bet on them is capped and also the um you're take generally taking counterparty risk right you're sending your money into an offshore entity uh uh the amount you can bet on a specific

Market is capped only certain markets are offered as well um so you can't create your own market and so decentralized prediction markets solve a lot of those problems s and we saw this even with augur which had a terrible ux there were actually several million dollars that were bet on uh in the 2020 midterm elections like will will Republicans Or democrats take a majority of the house and people were betting in size on this and it was the only place in the world you could really bet in size on an event like that I'm a big believer that uh you know prediction markets are I think they've been left for dead I think they're going to be huge and I think the Tam on them

is is underrated quite quite large because prediction markets can be D you know basically an alternative form of a derivative and the derivatives markets is measured in the um in the quadrillion dollars which is you know one with 15 zeros behind it so it's it's really like a you know I I think uh Target's like a very very big Tam um so how do you scale that because I think the challenge has been finding a c like the other finding matching both say everyone believes in one type of outcome but like scaling these things has been somewhat challenged what do you attribute that to is that just the friction of crypto is that regulation or is that just there's a whole tail end of things that you find it hard to find someone to take the counter

trade um yeah look I I think it's a combination I I think it's just the fact that um the the ux of these platform forms isn't great there maybe a few thousand users of of of poly Market in a given day um but it's still even notwithstanding that it's still like the most liquid kind of Market to bet on these things there's just nowhere else to express bets and find a global market of people willing to take the other side um I think you know there experiments around hey should we have some sort of like you know amm curve or should should these be structured as as a kind of central limit order book or should it be a hybrid so there's some kind of marginal tweaking around how to make these things liquid ultimately you need people to take the other side of the bet

so there is some constraint there but as people you know as the ux gets easier as people learn about products like this I mean just sports betting I think is is a huge Tam um I don't have the numbers at my finger tip but tips but we did a deep dive into this and the amount of money bet on on Sports uh globally every year is is is surprisingly large and it's done through you know centralized uh uncredited out but um and I'm not I I'm confidence in I think what paully well

poly Market has built is is quite interesting um uh and whether it's them or or someone else I think this category is going to be going to be quite quite meaningful well I I don't disagree with Ben the only thing I would say is um I thought about this uh traffic for these kind of um tick rate based like betting sites is like very high um when somebody put dollars into a casino the AR who is proven to be I don't know $150 to ,000 per person thereby driving the customer acction cost cash costs to be like quite high and for something like polymark to acquire users if they do it the traditional way they face a very typical problem where um like betting on the

outcome of events it's a very classic constrained maturity uh low frequency event like it's it's almost you need a coincidence of want there it's like I want to either I want to bet on something I search or it's like I I somehow land on a website but there's nothing I want to bet on um and when I say maturity is like usually there's like an end dat to these bets so it like it's constrained by creativity and it's constrained by like how many of these cool things are happening at once and it's like low frequency because maybe Mo for most people depend on these things once or twice a year whereby for something like gambling I mean people gamble like 247 and and there's no maturity they just like they they start they end they lose money um I I feel like for a use for for a

prediction market like this it's probably best suited uh under a gambling negative e gambling site it would make a lot of sense for example for rbit to have a prediction Market um so that the people who land on it and already know it uh would meaningfully increase their RPO through this sub sector uh and that the C span that they have would have a sort of a bigger bang for the buck because even if they don't lend for prediction they sort of bet somewhere else that the website still makes money aside from the uiux which I completely agree with I think that's like a big reason none of this [ __ ] has worked um and I think whoever takes the crown in the end might be like a once we solve all the U ex issues like a onchain casino that's like fair and then with a

prediction sort of sub sector component to it um personal opinion yeah I think um the insurance point that you make B is really fascinating because I think that might be a good angle to get get much more traction if you find a person that is thinking about risk at the point of sale say that you all of a sudden get paid in stable coins and you don't know this thing but you could bet on it not dep pegging you're not going to think about it two days after you get paid but if at the time that you get paid you have the option to buy some insurance which might cost you a a penny that might settle into prediction market right because you're betting on the outcome that but you have to think about risk at the

point of sale when you buy a car you need to buy car insurance that's by regulation uh flood insurance on the other hand not so much and people don't buy flood insurance until their house gets flooded uh so it's a much smaller market and and so in a similar matter I've always felt that like we've talked to Stan like or Robert like at a a compound like just roll it in when you're opening a CDP when you're opening when you're lending or borrowing you are taking some risk that's when people are thinking about it well then allow me to bet on the direction either yes or no whatever binary outcome is in a particular time frame that's when if you're a prediction Market it has felt to me like that's where you can get some traction on chain go to the more edgier D5 protocols go to them or edgy or whatever and just make it when you're

buying an nft like whatever just at that time you have to insert yourself in that flow when the consumer is thinking about risk because he just made a shiny purchase well ensure it and and and I think that's where you can get much more volume flowing into something like poly Market um yeah and you can just create these markets on an ongoing basis yeah totally I I think it's a great point I the the other thing I would just mention is like one of the big issues with insurance is counterparty risk if you bought an insurance policy from AIG you know if you bought CDs on on Leman from AIG well it's not a good insurance policy so the beauty of having this on chain is all of the capit is escro so it's actually it's insurance without counterparty risk to the insur

which if someone's like buying insurance and really think about the downside scenarios that that's actually like kind of quite quite important in terms of mitigating like say you have like a million dollars in binance well there's a market and poly Market that says will binance go and solvent at any point in time pick your point in time maybe you have a per but just a point in time well heck as a fiduciary you want to maybe hedge your bets now the question is what's the price of that and even maybe just the because we talk about here we ask the question oh is binance in some deep [ __ ] or not are they GNA settle for a billion dollars or not who you know whatever well as opposed to just talking about it well it be really interesting to point to a market and say hey the

market thinks that like binance there's a 75 80% probability binance is going to continue to live and do that you know that that alone is really insightful information and even at the at the at the wall you talk about privacy maybe that's a challenge thing but with better privacy you might say hey there's this very big entity that is betting the binance all of a sudden yesterday someone bet that it was going to go insolvent well what do they know and that alone is super insightful when you start like tick by tick understanding which Market participants are long or short or or like betting on on a particular outcome so that yeah I me I'm looking at Poly market right now I mean there are markets you know will there be in Israel

and Hamas ceasefire by uh November 30th um like these are really you know will who will be the speaker of the house I mean these are really like kind of impact like these these can actually be used topical Yeah final views like expert opinion is like totally overvalued here like economic forecast like that this just like there's in my mind there's no credibility to that like give me a market and tell me how much volume there is behind a particular outcome I'd take that over any macroeconomic forecaster CNBC Bloomberg like there's all [ __ ] people just talk out of their ass like okay you're betting a million dollars on on Hamas not like on this ceasefire okay well then that's that's different you know there's there's this like famous

story on wisdom of the crowds about this like statistician in the the uh 19th century that brought an ox to this uh to this kind of like Town Fair and he guessed like he asked everyone to guess the weight of the ox and I I think the oxx weighed like 1190 pounds and like the average of the 800 guesses was like 1100 and it was like one pound less like but even the experts like people that deal with oxes on a day-to-day basis like they were your Farmers ex like they were get they weren't accurate it was like the average of everyone's view that ended up being the most accurate and uh so there's just like a lot of value in in this as as information I think it's I think it's fascinating um and the the you know the other the other really interesting thing

about prediction markets is uh some of these market like markets have actually been disputed so if you have a market like what will be the weather in New York City today over will it be over over 60 degrees or under 60 degrees so like let's say say the market says will the weather in New York City be over 60 degrees well hm are you looking at like ACU weather weather channel are you looking at the weather in the Bronx or the weather South Street seport um at what time of day are you measuring the weather like there's so much Nuance into how these markets are worded that um uh and there's and that's actually a lot of the centralized prediction Market platforms uh have had major disputes over the wording of these Market of over these markets where both sides have

thought they've one which is another reason why in a decentralized context like an I think augur actually was really thoughtful around this is there was a whole dispute resolution mechanism and it was all arbitrated on chain which actually drove value hypothetically drw value to the rep token um and made the token actually incredibly useful if you're to be able to participate in the dispute resolution process if you're using this as like your kind of core Insurance platform is actually quite valuable and the token does have a reason to exist yeah of course uh if someone's cornering the market on rep tokens and has a unfair Sway in the votes it might be challenged but but you but but then you

you start you know layering uh I think it's where you could really see some Dow High participation and different mechanisms to prevent these Dow attacks which I think the surface area is large and people are not paying enough attention to it because it hasn't mattered but it will in a context like hly if it had a token or augur like you know or even the deciding the outcome of like uni as a to distribute this massive treasury maybe as a parting question and this is something that we've talked a lot about in various guests in Empire is this idea of lawn chain activism and we it was brought up in the context of look there are a lot of projects that look block one has more Bitcoin in their Holdings than micro strategy uh Gollum there's these uh

there are many teams that perhaps haven't got product Market fit but their treasury is vast and the question is what do you do with that and um how do you think about is this something that you guys are paying attention to like activism how involved are you in like voting um and in maybe you know dismantling some of these teams and distributing like there's a lot of value in the treasury and you're saying hey well just dismantle it and distribute the Holdings back to token holders like is that something you guys think is I mean activism in traditional markets is is a is is a thing yeah so I I think that uh there there are some really interesting deep value plays uh in in crypto and they kind of all tie back to um you know like

there the where a token will trade at a meaningful discount to book value I mean we talked about Nexus Mutual ear earlier they had at a point earlier in this uh you know the beginning of the year they had $400 million of eth and their token was trading at around A50 um million market cap so it was trading at a you know 60 65% kind of discount to nav um and you got exposure to eth price uh because the treasury was in eth uh so you kind of as you know as well as that kind of discount eclipsing um uh so regardless of your view on the kind of underlying Insurance protocol and how many pre prium they're going to sell and claims they're going to pay out I mean unless you think they underwrote

a tremendous amount of bad debt but even you could kind of quantify that uh the the actual like Book value was quite meaningful and I think you could you could build a thesis around that um now the the the one I think issue with these activism plays um you know whether it's like bosis or EOS or many of many of these teams sitting on big Dows is the governance rights of token holders are are limited in terms of what they can force the kind of the quotequote management team even though there aren't like official management teams on these network but force them to do and um as a result of that um you know I I think I think there are ways I think there are kind of opportunities there but you really have to understand kind of the incentive alignment is the team

motivated to distribute to distribute kind of this value back to to token holders um and I think I think that's that is kind of a critical a critical thing to to understand I'm with Ben there I think um big discount to some of the part stories in traditional Finance has been widowmakers that discount has never close mostly because there's no means to recourse and closing that discount and usually it happens when a there's a way to close it which is activism or B the management team actually changed their mind um for most token projects only means of tokens means nothing and unless you can beat them into a submission in China that means getting central government officials like grab them and just force

them to distribute barring that or sort of IRS KN in the door FBI I don't think there's that easy of a way to force those treasuries values out all this while I'm thinking gbtc and the premium that is meaningfully compressed uh which I think the Catalyst there is just the market is pricing in uh shorter time frame for the conversion of this closed in mutual fund into an ETF and might uh and so it should trade at spot like one to one a spot which you know well in that case there's both IM means right yeah so not and and intention because if it buries like we're not going to convert this this will always yeah there's intention and also because if it takes 10 years and the management fee alone will eat into it and the liquidity will warrant the discount but I think

the market is expecting that within a year like you're going to have a ETF conversion yeah and I I think the other component is like when we measure Book value like what is what are what units is it measured in for example if there's 400 million of of eth or or like if there's gbtc you get exposure to to to increases in spot prices whereas if you're underwriting a a project that has a bunch of Treasury and stable coins even if it's trading at a big discount you may underperform just owning tokens if you think the Market's going to go up um so so I think like for those reasons I many of the teams in the space are are have their entire treasuries in eth and in Bitcoin in in attractive portfolios that you can basically access at at a discount yeah well Jen this has been a

fascinating discussion um anything else that you want to wrap with parting thoughts just things that are on your mind I I I I wanted to I wanted to just uh just just tell tell a quick story about Jason so I so as many as many people know um or or maybe don't know I'm not like public on on Twitter and for the longest time people have been like well who's your alt profile trying to figure out who you are and uh there was a period of time there still it it still happens actually occasionally where people think I am I am Maple Leaf capital on on Twitter so you know when when Jason's tweeting about about gaming or about defi over the years you know people have DMD me you know on telegram or emailed me be like hey I love your views around XYZ project in in in Asia

and China how' you get so smart on that region and uh makes me feel really good because I think Jason's views on on uh on Twitter are are excellent but um I just find it funny that so many people think I'm I'm uh I'm Jason um so uh uh yeah that I I'll kind of like end with that with that story by way Ben always has stories to end podcast you're lucky Jason because he has told embarrassing stories about my Lego collection other stuff so in this case you got off the hook easy man because yeah he knows way too many stories about me that I'm embarrassing yeah well I I don't have I don't have a cool story and then I hope there are no Angry LPS yelling at you because sometimes my tweets are up scene so uh I don't know I I think I'm I I think I'm I don't have much of a remark

except I think e here is a good bet I think eventually people rotate from Bitcoin ETF to e ETF and I I guess there's a lot of flows negative impacting that ratio but like I think that's like the best RIS SC I've seen so far this year e um more than anything else E Yeah currently spot e um there there a risk around like oh my God like there's macro there's like you know FTX and celsia selling pressure but like I mean this spot here is I think it's really good you kind of get a clear shot of the E ETF and I don't think people are I think it's like too too far out that people are not just people are looking each other it's like who's going to bit first um but when it when it runs it's going to run really personal opinion yeah a eath ETF that pays out

some dividend uh would be and it's it's so easy to do I think it just lend it out to stakers that stake it and then just in return paying the sort of borrowing at a similar stake would you buy eth Bitcoin or just coinbase which might benefit from all of this activity all of the above C out answer I yeah I i' I'd agree with that um I I think um I guess just like my my my my closing thoughts are you know this environment um reminds me tremendously of late 2019 early 2020 it was like right before the Bitcoin having it was right before the end of a monetary cycle uh valuations and private markets were

low there was there were many interesting areas of product Market fit it ended up being a phenomenal uh vintage in in retrospect uh and like to me that just Rhymes so much with today's environment uh um almost eerily so and I I do feel like we are um you know in the early stages of of a bull market is what it feels like to me um I think it's going to be a more kind of like responsible bull market than the last one maybe it won't be but it feels like there are more adults in the room more real applications for crypto the ux has come come a really long way um and um uh and and I'm I'm kind of just

excited about a lot of things I'm I'm seeing uh I think the and and then look I I think there's still a lot of pain that's going to be taken in I think I think it is a half and have knots market and so I think the a lot of the companies that were funded in the last cycle in in like kind of the bull market are are um I think there's going to be a lot of pain to come there in in those in in kind of that Peak vintage I mean you've seen companies like Yuga polka dot cut make massive riffs I think you're going to see a lot of consolidation and I think that's a good thing because like if you look at like any given category like w like wallets or me or you know these these categories have far too many companies in them some of these categories have 50 to 100

companies building the exact same thing and so I think that consolid validation of kind of companies going out of you know kind of getting Aqua hired shutting down that's actually helpful for the whole Space because kind of it it uh equilibrates like or recalibrates supply and demand and it lowers things like customer acquisition costs it lowers wages it reallocates talent to a few winners and uh I'm excited to kind of see that play out I think you're starting to see it play out um right right now and um someone brought up like a really interesting point in in a board meeting um recently they said that look every startup is either selling um a vitamin

or painkiller if you think about it like every company's either selling a vitamin or painkiller and you really want to sell painkillers and I think far too many companies in crypto are selling vitamins they're selling things that like make a process like a little bit better a little bit you know um a little bit easier a little bit faster but you know if the companies that are selling like true painkillers like one of them is fire blocks right they're solving like a massive pain point for their customers and I think they can demand really high you know high arpus as a result of it and I so I you know we've been just pushing our portfolio companies to like really find like that pain point and then kind of sell painkillers as opposed to selling you know vitamins and I think that's you know I I I think that'll end up um you

know that that analogy that's not my own I'm I'm repackaging it someone else mentioned to me I think it really resonates with me in this market on that point um I had this sort of thought recently which is crypto historically has been a little bit like selling I want to go back to this analogy I keep saying it but like flood insurance the value prop when you go to someone and say use dii the immediate response in a develop Market in the US they say what are you talking about venon Robin Hood work fantastically well in my Chase app Works fantastically well you go to other places like Argentina Venezuela not so much but it's flood insurance it's it's when you you are dealing with Hyper inflation it's when you've been deplatformed um I think more the the Hope here is like you talk to artists and they tell you hey wait a minute now

I can sell digital art like full stop like I was not able to sell digital art before and crypto allowed digital property and then and then I don't have to go through SES because I can just go through openc or whatever or any other Marketplace and that's powerful for a certain subsid and I think maybe that's the transition that crypto is really going through which is you stop you stop selling it as as as as flood insurance I think it is a catalyst when when these you know when the world goes into chaos like you know crypto comes into into the attention again uh but I do hope that with more consumer applications it just becomes more of the selling point of crypto is less about rooted in fear and chaos and more in just vast opportunities and much more Ben you you

talk about consumer preference and and the amount of benefit that will that goes to the consumer and reduce fees and greater access to Capital markets like that is massive and I think the selling point of that touches everyone versus fear there needs to be some sort of specific event and it's limited right you always want to be operating I think from a position of Endless Possibilities like the internet did versus hey this is like uh you're selling you you this is the world's going to end go buy Bitcoin people like no man like chill like you know so I think that that's that might be the the the transition I I think you you need to see killer consumer applications um so Jason any any

anything else any pointing thoughts he's just nodding saying no I'm tired I want to go to sleep that's awesome Jens well thanks so much for coming on uh we'll uh we'll have to revisit this uh later down the road in a couple months but um you you heard it here first you know this starts to feel like the start of a bull market I I sort of agree with that so appreciate both of your perspective guys always a treat to have you on thank [Music] you