Inside Dragonfly’s $650M Raise | Weekly Roundup

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If you build a product that people want to use, has real users, has excitement, it does not matter when you launch the token. It matters when you launch the token. If you haven't built a product that people care about, if you're trying to launch a token, you know, long before you think you have like real product market fit and you have loyal set of of users, >> nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds or projects

discussed. Welcome back everyone to Empire. Rob, we've got a lot to talk about. you've I've been trying to get this out from you, but of course you and I have known you've been on the fundraising trail for a while. Give us the inside scoop. >> Yeah. No, it's a big week for us. So excited that we were able to finally announce our our fund for um announced $650 million. We were able to raise we were overs subscribed. That was the um that was our hard cap. And so for people who don't know, typically with venture funds, you go out with a target. Uh and then you have a hard cap because the the you know LPs don't want you to make the fund too big because they're worried about you know kind of the correlation

between returns and and fund size. So we went out with a you know $500 million target and hit the 650 hard cap same as we did in 2022. And we're really you know excited to be able to do that. Um, you know, I think it's, you know, I got a lot of feedback from people that were, you know, surprised that we had raised so much money, surprised that we were able to, um, do it at a time when the market has been pretty tough. And I think that kind of really highlights how different, you know, the the token market is, the retail side, uh, sentiment is relative to, you know, the things that are really working on, you know, stable coins and prediction markets and, um, a lot of the other things in our portfolio that are doing

incredibly incredibly well and just the institutional desire and interest at getting exposure to those things because that's the reason we are able to raise not because, you know, Bitcoin was at 120K at one point or because it was at 66K today but and we have a lot of exposure to tokens and we have a lot of exposure to projects that you know have been you know have gone up and downs in terms of valuation you know famously we're you know very big investors and Athena early and monetar early and lighter early and you know others but um broadly you know I think what we've done or the story we've been able to tell and what we've done a really good job is at is being able to do uh or be able to bridge the gap between the cryptonative side and call this, you know, fintech

revolution that we're seeing happening. And that's what the LPS are really excited about. And so, um, you know, we're honored to be able to to to raise that capital. We're honored to be able to, you know, partner alongside a lot of these really great, um, founders. And, um, you know, I'm excited to go shopping at a time when things and prices are are a little bit cheaper. >> Yeah, a lot to unpack there. I'd like to start with um first off how was the conversation with LPS this time around what percentage of the fund was existing LPS and what was new LPs?

>> Yeah. So um on the second question I I can't exactly say uh what that looks like but I can tell you we had uh very very high reup rates from the existings from the um from the last funds um higher than what is typical right and so uh what typically what you see for for funds on the reup sides is you get you know somewhere between 70 80 uh percent uh is is really good um you know our >> meaning like 30% of your existing LPS churn don't give you money again. Yeah. Or the, you know, downsize or something like that. That that's pretty typical u for VC something between like 20 and 30%. Um we had we had really really high re-up rates. Um I think in crypto those numbers have been even worse, right? And

so you know I've heard from other funds where they've had you know 50% of the LPS turn in maybe more and then people trying to pressure you know the the GPS to raise less capital because they want the fund sizes to come down. Um, and so I think it's been really tough for for a lot of people, but you know, luckily our LPs trusted us and and I think, you know, in large part because of the job we did in that 2022 vintage um and in terms of investing in a couple of category defining projects, I think famously um you know, Poly Market and uh early and um and Athena really early, you know, probably the the two most you know, I think uh two biggest ones in terms of like you know, MOIX and you know, the uh conversations that we've had, but there's a bunch of other really

great investments in there as well, like you know, Monad and uh Agora and Pickot and Lighter and a bunch of others. Um and so, you know, that was, you know, kind of this vote of confidence that people gave us and then that allowed us to, you know, go out to a bunch of other institutions and say, "Hey, look, look at the returns that we've had. Look at the job that we've been able to do. Look at the stuff we've put into, you know, especially for like last close." And and people may or may not know this, but the way venture funds work is you typically do a first close and then you have some period of time, typically something like a year to 18 months to go and do uh a final close and raise the rest of that capital. And so, you know, at some

period of time too there between our first close and our final close, um we had a couple things specifically uh rain and poly market that were in that fourth fund do really really well. And that I think allowed the the um the LPs to get really excited about what they the marks of the fund and what they were getting into as as well. And so um that that kind of momentum I think um you know really >> So was that >> was that when you say March of the fund was this like um you know you're you started deploying this fund after your first close or was it they were looking at the performance of the prior fund most recent fund or a combination or >> so so it's pretty typical. It's a combination of both right so people care a lot about what your prior funds did.

Um our first fund and our and our third fund have done incredibly well. Um the second fund the 21 21 vintage is a little more challenged based on a lot of 21 vintages but um I think that's that's typical. Um but we uh what also happens is in funds a lottery right is that you do the first close like I mentioned you have somewhere between 12 and 18 months to do the final close and um you know during that period of time you start deploying capital from that first close and sometimes what happens if if companies are doing really well is you have a couple things that might start you know also you know maybe they have another round raised or maybe they you know you can see how well the business is doing and that allows people to look at the fund and say oh well you know I

can I'm already getting in in a d-risk portfolio because you've put some amount of capital to work and a couple of the things are already looking like they're going to be huge winners and um and we had a little bit of that and uh and some of the stuff that we put to work um over you know during that period of time and so uh that really helped us accelerate into that final close as well and and be overs subscribed >> relative to the last fund um there's a couple of big fund raise Thrive for instance raised 10 billion if you look at the evolution of Thrive they each started with 5 million check from general from Catalyst GP. Uh, and then of course every subsequent fund doubled in size and so he's into fund 10. And I think that's um I'm interested to get

your thoughts on like what was the evolution of of Dragonfly. You're into fund four, five now. >> Fun four. Yeah, >> fun four. Fun four 650. What was the like walk us through the evolution of like Dragonfly in terms of AUM? >> Yeah. first um Josh Kushner uh coming in like uh mogging us I think um where we announced our fund at 650 and then he announces his $10 billion fund like 30 minutes later. That was that was fun. Uh but I I mean listen like Thrive's maybe you know the best fund out there right now but yeah we we um so our first fund was call it late 2017 early 2018 that was a hund00 million fund uh that fund has for performed incredibly well. Uh we then raised a second fund uh in 2020 uh which was a $250 million fund two. Uh we

raised a $650 million fund three. Uh we did final close of that in early 22. Um that fund was raised incredibly quickly because of the the time in the market at in 2122 when everybody was there was just so much insatable demand for exposure to the space. >> Pre Luna >> it was pre-ter Luna, right? So we you know we've been we've either had good for foresight or we've been lucky but we've um we've raised capital like right before some some bad events or you know right during some bad events which allowed us also to deploy into depressed markets. Um but then we did raise 650 again right and you know typically as you mentioned you see this in a lot of traditional or generalist funds each you

know subsequent fund is bigger than the last you know what we heard from the LPS was listen you've done a great job but we want there to be we don't want you to get bigger because you know we believe there's inverse correlation between size and returns and we believe that crypto is an important emerging technology and category But we we don't believe that it's a a place where you can put tons of money to work. And so we are worried about like these mega funds and you know I think it's specifically true when you look across you know some of the other funds right and Drezen and and Paradigm had these multi-billion dollar funds and Han and and Peter had a billion dollar funds and and you look at like what Paradigm

did right they they raised a fund last year uh and it was 850 million and so that's significantly down from two and a half billion in their 2021 vintage and that tells you some of the sentiment right because Paradigm is you know kind of you know one of the gold standards and they've they've they're you know real insiders in in Silicon Valley. And so, um, well, that's what we heard from the LPs. And so, uh, we we heard them. We said, "Okay, we'll we'll raise the same size of fund." You know, I'm hopeful that our space will continue to get bigger and then maybe someday in the future we'll we'll raise larger funds. But also, you know, as an asset manager, and I'm sure you're thinking about this as well. There is all of us have to make a decision if we're going to optimize

for the 2% or the 20%. Right? And we've always said that we're going to optimize for the 20% or the carried interest or the returns, right? You know, I think a famous example of this who've done an incredible job is Benchmark. >> Benchmark has kept it at 330 million and it's Yeah. latest funds up 10x. >> Yeah. >> Yeah. And then they and then they put the $und00 million of GP capital in like every fund is 400 million bucks, right? Or 450 million bucks. >> Yeah. >> Right. And and they do incredibly well and you hear a lot of conversation around like, oh, is benchmark dead because oh, they don't have they didn't raise 15 billion dollars like Andrezen did or all this money like Sequoia did.

And then you see the returns come out and they 10x the fund, right? And it's because they have this model for at this right pool of capital with the right amount of partners, we know we can have outsized returns. And so, you know, that's >> you can't you can't defy the laws of physics when it comes to this game. Like, you know, assume it's the calculus is very simple. More AUM return degradation. It's as simple as that. And I think in crypto, you've seen it. you're going to see it in like you've seen it in venture uh and in private equity certainly as well uh you know and so I think I'm curious on the 650 number a lot of what we talked in this podcast is like the investable universe in

crypto is bumping into fintech fintech venture funds are coming in uh but it has been the case that like I'm an investor in a lot of funds as well and I and I see very clearly almost to the tea across most managers there is relative to other cycles and vintages uh a very clear divide in the halves and the have nots and I think it's just a a function of crypto maturing as an asset class whereas before it was relatively you know easier game in the sense that you know a rising tide lifted all boats and there's a lot of correlation within the industry good and bad right reflexivity up reflexivity down now you're seeing a very big divide and you

know in many cases says over the last two years if you weren't invested in like a handful of names on the venture side and on the liquid side you you kind of really started to see which managers were good and which ones were not good and that was harder to tease out. So I'm curious like does that really resonate with an LP? Uh whereas like they're they're asking you the hard questions like did you invest in hyperlquid? Did you invest in prediction markets? Did you invest in Salana or high throughput blockchain? um or are they or are the LPS not as sophisticated and they're just getting off of zero? They just sort of came to you because they said, "Okay, you got a good track record. you're institutional and you're at a fund size that allows me to deploy because you know I saw that

firsthand at pair fund like when I when I joined Ben in the in the in the journey we were you know between 10 and $20 million fund and when you say that you're closer to 10 to 20 and I can tell you like a lot of people said hey love the strategy D5 feels like it's going to be a thing come back to me when you cross 50 million because we just cannot invest in your fund you're too small we can't encompass more than 10% of strategy and so there was just like structural limitations around it was to me it was a bit eye openener where like a lot of allocators especially institutional ones that are coming into the space don't make decisions on like you're going to give me the highest ROI you're just a lot of it was like do you have the proper

reporting compliance valuation policies like some stuff that look matters a lot I'm just kind of curious what are what are LPs really focusing on now when they make a decision whether allocate to your fund or someone else. >> So it definitely depends on the LPA and the makeup, right? So I I do think that um you know when you talk to an endowment versus a fund of funds versus a pension versus a sovereign wealth fund like they do all you know make decisions slightly differently because they have different risk appetites, right? But you know returns are probably the most important and not probably they are the most important thing but they're not the only thing right and so you can have the best returns but if you're investing in

categories that people see have high reputational risk they might not like that right if you're um you know doing things that people see are like maybe not the right risk adjusted returns you know they'll they'll think about that um I I also there's >> what would be example of someone that says, "Hey, you've given me a good high return, but it's like risk on the venture." I can understand like if you're a long short or just long only hedge fund, like the sharp ratio they would look at, but if you're a venture fund, does that do they look through that and how do they assess the riskiness of the strategy?

>> So, we had a um we had one LP who is a very large multif family office that basically operates like they're, you know, a huge asset manager, not a family office. And uh they their feedback to us they actually they passed and their feedback to us was and this was before the ICE round but they felt there was too much regulatory risk in poly market and that we had uh you know we were a little bit out on the risk curve taking that type of risk as VC investors right and so you do see people make decisions like that which is we'd like you to have maybe a a little worse returns but not invest in things that are like a regulatory gray area right And because at the end of the day, you know, everybody has a boss,

right? And if you're investing and you're an LP and you invest in a GP and the GP returns, you know, call it 30% less than another GP, but that GP didn't invest in FTX, like you're much better off, right? because you do not want your GPS to be invested in FTX because then if you invest in existing in FTX you have to go and you have to go uh explain why these GPS didn't understand you know or didn't do the due diligence or you know didn't understand the fraud that was happening and so we see a lot >> let's not forget that uh some of the major brand names not in crypto but just traditional finance >> invested in FDX and they continue to raise funds so is is that a do do you

think that an LP like how much if you were compare your fundraising journey this time around with your counterparts in Silicon Valley or in New York at traditional venture hedge fund land like I would assume the the level of scrutiny is is way higher for someone allocating to a crypto fund. Yeah, I think it is a lot higher and I think I've said this before in this podcast, but crypto venture is a subset of venture and venture is a subset of private equity, right? And so when these, you know, big institutional LPs decide how they're going to allocate capital, typically they say, okay, we want some portion of the book, usually somewhere between 10 and 25% in private equity,

right? That includes buyout, that includes growth, that includes venture, right? And then some portion of that will be in venture right and then and some portion of that venture will be maybe it'll be in specialists but not always right so it might be generalist and then I the one place where everyone has to have a specialist now is AI but outside of AI they don't have to have other specialists so then they have to decide that they believe in crypto and that they want a specialist. So when we're competing for, you know, investments and capital, we're competing for maybe a few points of a total LP's AUM across not all LPs who are happy to who want to put money into the space, right? And so on the point that I just made about like you know the risk profile, um pensions primarily are not

back yet in uh in crypto investing as LPS. There are some there and a few, but you know, um there are, you know, if you're a big private equity firm, most of your capital is coming from pension funds, right? For us, um you know, it's it's a it's a much much smaller amount because they're they haven't wanted to go that farther out on the risk because they're worried about some headline that says, "Hey, you invested in Teral Luna or FTX or a a manager that did that and these are are uh frauds and now you're taking money from the teachers, right?" And like it's just a bad headline for people. And so there there's um it's it's really about this like spectrum of risk, the spectrum of you also talked about like okay would do you have the right compliance standards? Are the GPS

um credentialed and pedigreed? Like that definitely matters. Are you connected? So there's a lot of things that go into an LP making a decision. >> Yeah, it's interesting because like A6 raised obviously 15 billion for across two strategies. I think growth and venture thrived at 10 billion but A16Z raised I think accounted for like over almost 20% of all venture dollars raised in the US went to one fund which is which is kind of crazy right because A6 is generalist like they they have I would argue most of the capital there's just like there's really they have good thought leadership like Mark and Ben need no introduction and then you have other very specialized folks like Alex Rapel and a few other guys that have like earned their stripes as being operators similar to Ben and Mark that you

um have a very good track record as operators. So, but but it's it's like you you got to argue like at 15 billion like I think there was a very impressive like a good chart around what's what's A6C DPI and fund performance and certainly like all their funds have done well but then they haven't really outperformed the broader market and you see this time and time again um uh you know private equity you know similar like like buyout funds are getting larger their returns are degrading they're not outperforming the broader market. Um, you know, private equity as an asset class is kind of in in a tough spot. There's like a plethora of private equity funds, a huge backlog of portfolio companies that are not getting

liquidity and the public markets are not there. Multiple compression, you know, if you're investing in SAS and other stuff like you're not selling that portfolio anytime soon or if you are, it's not at the multiple that you entered. Um, and financial engineering doesn't work as much. Uh, and the other thing is DPI right? >> Yeah. Um but interesting I just hired a guy who works at one of the largest shops uh based in Europe and he was telling me look sometimes like the people that are giving us money it's it's a massive fund like $20 billion fund or whatever the latest one and he said like sometimes an an LP would rather see a guaranteed 2x underperforming the S&P and the NASDAQ um than see a 3 4x.

I was like well why is that? Like I sort of intuitively understand why I was like why is that? And he's like well a couple things but the reality is like they just need to allocate to this asset class. Like to your point, they're like they have to by mandate say you have to allocate uh if you're a sovereign wealth fund, you have to allocate to private equity and within private equity, you have to allocate to a buyout fund. And and at that point, it's like as long as we don't lose our money and I don't lose my job, I will give you continue to give you money. And I find that just it's very different to how I operate personally, right? And it's something that I perhaps our listeners don't appreciate because you would think any rational person would give you would just select in a perfect world, hey,

these guys are the sharpest investors in crypto or the sharpest investors in the strategy. I'm going to give you money. But that's not not how it works. >> Yeah. Well, I think I think a couple things are true than the points that you made there, which one is again returns probably definitely matter more for that first check, but um typically what happens with institutions is once they get to know you and then they bring you on as a manager, it's much easier for them to re-up. So, uh it's not as if it's it's the same thing as venture capital, right? Like once I have money into a company, it's much easier for me to keep putting money into that company than to rewrite it for the first time, right? And we see this a lot with LPs.

And so, uh, you know, if an LP says, "Hey, I can put I can continue to allocate because I have to over some number of fund vintages, uh, and I can get guaranteed returns that meet our threshold and make people happy and I'm not going to get fired." So, I'm not going to get fired is a thing that people think about all the time, right? Especially if you're like a mid-level investor. Uh, they're they're much more happy to do that than they are to take a risk on a new emerging manager where maybe returns look look better. And that's and that's is the tough part about being an emerging manager and why um you know oftent times you it's hard to go from fund one to fund two and fund two to fund three. Once you kind of get past fund three it's typically you know

historically much much easier. But I I think um it's very clear that uh you have to kind of juggle these things and and we've been lucky enough to have both. And we also DPI was a big topic of conversation >> this year. >> Yeah. Yeah, and I didn't you um I didn't mention it earlier, but we were fortunate enough to have had some like real DPI in that third fund. We're at a time when I think a lot of people did not because we had a couple of big acquisitions, Hidden Road, Narbellos, and um a couple couple of our early investments in this in the cycle. Um had some tokens where um we were able to take a little bit off. Um, and so it that was I think also, you know, uh I think very uh it it helped these LPs make the case that they should continue

to allocate because it's not just oh we have these like good marks but also like we're getting money back. Yeah. >> Yeah. The DPI is a probably a much more of a topic in committee for any strategy at this point um just because there hasn't been much. Um yeah, one of the things that uh I think to double click there, all of what you said is true except the guarantee of returns. There's never guaranteed returns, right? But but they get to know you and and I think they have uh they'd rather pro like in the calculus of taking someone an a new manager that they haven't allocated to versus someone else that perhaps hasn't had as much DPI and but hasn't had an egg on their face. Like they'd rather especially in crypto, they'd rather just kind of allocate to someone that they've

known and say, "Okay, these guys are legitimate. We've invested with them. it's doesn't have as much career risk. >> Yeah. I mean, this is why, you know, Andre has had some great returns over time, right? But to your point, um, you know, even when they have subpar returns and they have these big funds, nobody will ever look at Andrezen on a sheet and say, "Hey, listen, like this person like, you know, they took a risk they shouldn't have or, you know, whatever." They're like, "Oh, well, this makes sense and we're excited to, you know, continue to back Andre because we think they can hire some of the smartest people and like hopefully the funds work over time, right? It's it's almost the reverse which is if you're if you're a pension fund working and deciding where to allocate I think your principal will tell you why didn't you it's like why

didn't you invest in the most rep like why aren't you invested in you know Viking why aren't you an investor in you know in a in uh you know Citadel or uh you know uh you know Bridgewater or and irrespective of the returns it's like why can't you get in to this very selective group of managers uh but Yeah. Yeah, >> that's true, too. I mean, it's the same thing where, you know, we try to get into the hottest deals, right? Like, you know, and these when funds are over subscribed and, you know, we were lucky enough to have that this time as well. You know, people are they want to fight for allocation. Same way that you do when you're you're trying to, you know, invest in a in a company.

>> All right. Well, to round out discuss a huge milestone. I think it's a good time to invest. Uh kudos to all you guys there. Um what uh biggest learnings uh maybe interesting things were that you learned during this time around? LPs that passed for a very specific reason, weird reason. Uh what were some of the things that really surprised you during this fundraising track? >> So most LPs won't tell you, right? In the same way that most VC funds won't tell you when they pass, right? Uh which is why we endeavor to try to do that. Um I gave the example earlier about about Poly Market. Um I I think the you know today all the LPs pretty much know crypto. I think one of the things that we heard time and again uh from people

who you know ultimately a lot of them ended up coming in anyways but the question is always like hey if it's all really correlated then why don't I just buy bitcoin right and you get a lot of a lot of questions around that uh that dispersion of protocols and companies this time around I actually think is helpful to answer that question because what I tell people is like you're investing in emerging technologies that are reshaping you know financial infrastructure, right? And uh you know, Bitcoin has gone down, but you know, Rand and Poly market are still going up. And that's become more true in the last 18 months, two years than it was ever before. But we used to get a lot of those questions. Now those questions, I think, are going away as stable coins or prediction markets and these other

things uh start working. Um and so that that's been easier to to uh to answer. I think the other question uh we get a lot is like okay well if it is all going to you know stable coins or you know kind of these you know more traditional like market type businesses uh should we just invest in or get our you know crypto exposure through a traditionalist fund a generalist fund and you know what I tell people all the time is you know I believe and of course this is the my perspective but when I start to show that this is true on the returns that you know we can pound-for-pound compete with those funds at, you know, call it the seed through B stages that we invest in. We have the capabilities on the

fintech side, we have the capabilities on the payment side, um, in a way that most other crypto funds do not. Um, but we also have that deep crypto expertise, that deep research uh, mindset. Um, and you know, this is still an area where if you don't know the details, if you can't get really deep into how cryptography works, then you can still miss things that are easy, even if it's sort of a payments company. And so I think you know the pitch for us is always you're investing in emerging technologies and you're getting the best of both worlds, right? And that resonates with a lot of people. It doesn't resonate with everybody.

>> Yeah. Um no, it's certainly true. I think um when you think about um like your competitive standpoint like um I wonder who do you think is your biggest competitor? you know, we we when it comes to deals we're trying to win, I would say time and again, uh the person that, you know, comes up the most is Paradigm. So, um I think we I have a ton of respect for what they've done over there. They're great fund. We share a couple capables.

I share a couple uh board seats with them. But, uh you know, I can think about, you know, the deals where we've wanted to do it and we put a term sheet out. Um I can think of you know maybe no more than a handful that we've lost in the last two years. And um I >> I remember that one you you shared they had an existing investor give them at a higher valuation >> and it was more like Salana native and and I guess you guys are not have not been as deep in that ecosystem as some other funds. >> Yeah. So there's been a couple this happens occasionally. So so like for instance like Rain, we actually tried to do the the round earlier for Rain than we did. So we done done a couple rounds for Rain. We tried to do um even one

earlier round. Uh and they just had a term sheet from a you know an insider that could just like hey like we can do this super quickly. We don't have to do um and so that's obviously like in hindsight I I really kick myself for like not trying to figure out a way to to do more there. Um but you know we got to know them really well and that allowed us to get you know there's really big allocations in the next couple of rounds. Um but so that happens when it's a net new company. I think it's you know it it typically tends to be so there's the insider dynamic. Um, I think Paradigm and then for a lot of the stuff I care about because I care about stable coins, I care about payments, care about markets, um, you know, I do seem to come up against like the likes

of Lightseed and Ribbit and uh, Norwest and some of these types of uh, investors now. Yeah. And and typically what I've been telling people on those types of deals and that has worked so far is that you want um, a crypto fund because there is like there's a crypto part of your business and you want the traditional fund. And so we've had good luck of like saying like you know with like the rain deal we're like okay well Sapphire writes the biggest check we write the next biggest check right and you get kind of best of both worlds there. And so um that's what we've been pitching a lot on on those types of deals. And uh and that seems to have been been resonating with people.

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The Blockworks Digital Asset Summit is back in New York March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think Black Rockck, Coinbase, Robin Hood, and more. Follow the link in today's show notes to buy tickets and make sure to use code Empire 200 for $200 off at checkout. >> Yeah. One last question. I mean, I wrote about this a couple weeks ago, but like I was thinking through like, hey, are tokens actually investable or are they uninvestable? Was this something that I mean, I think about that a lot like obviously we've been constrained by the design space of a token. uh we've called it a worthless governance token to quote

Dean Spartan but in some of it's true like you know in a perfect world I think you you would design a token like equity and allow to compound like equity and have proper centralized entities and I think you you if you look at what has been the best performing tokens of the last cycle it's hyperlquid hyperlquid is as close as it gets to an equity um um putting aside like the launch mechanics and how they kind of galvanized and you know got community mind share but in in many ways it looks and feels mechanistically like an equity. Um it's not perfect but it's as close as it gets. I'm curious like when you guys think about investing now there used to

be a cohort of like funds that said look I'm going to invest and then they'll flip couple months out and say when are you launching the token forget about everything else just launch a token the market's hot. Uh and I think you saw a lot of that in prior cycles. Now of course market's not not there. Um, Hi wrote an article this week, you know, your partner counterpart. It was like, hey, look, doesn't matter when you launch. It's kind of like just launch if you build something useful. And I think it's true. But I am curious when you guys think about like in the in the investments that you're making um does that compute um what are you telling founders in terms of hey look maybe you don't need a token or hey maybe wait till the regulatory environment clears up maybe you can

design the token in a better way. you know, Poly Market not profitable, hasn't launched the token, but it's like just kind of going out there and winning mind share and it's kind of a duop like a duopoly there a lot there. But I'm curious how you think about the investable like land like what is going to outperform in crypto? What is going to continue to do well? Is it companies launch token? Are tokens dead in many ways? And I think they're uninvestable. Uh, and you'd rather wait for the regulatory environment to kind of clear up to maybe design it in a way that is doesn't have this value leakage between labs and it's just like a a very convoluted securous way to get to something that doesn't look like a

security, doesn't look like equity. Um, I'm hopeful that we can resolve that in many ways because it the current structure is pretty damaging I think to investors particularly retail. >> Yeah, I I think so I I 100% agree with his that it doesn't matter when you launch a token. Like you mentioned Poly Market. If they launch a token in this market, the market's terrible. The token would do incredibly well. There's no doubt in my mind, right? It is, but that's because they built a business that people want to use, right? and has real users and use cases and has mind share and has a lot of excitement, right? Um, you know, for instance, like you know, Hyperl already has a token, but if Hyperlid launched a token right now, uh, and hadn't before, like, of course, that would do incredibly well

because the people are using the product, right? Uh, and so I do agree that if you build a product that people want to use, has real users, has excitement, it does not matter when you launch the token. It matters when you launch the token. if you haven't built a product that people care about, if you're trying to launch a token, you know, long before you think you have like real product market fit and you have loyal set of of users. And so what I tell companies all the time and protocols all the time is um do two things. One is tell me why token, right?

Don't say don't take token for granted. Don't say it's definitely going to happen. Tell me why. If there's a reason for it, if there's a design mechanism that makes sense, if you think this is better than acrewing traditional equity value and you can articulate that, then absolutely let's go for a token. I still think they're very investable in a lot of cases. I don't think it's true that uh tokens, you know, ipso facto are uh uninvestable. I just think it's true that a lot of the people who launch tokens, they launch them before they have a product and then they kind of do funky, you know, games on the market cap versus the FTV and then the things come down, right? Let's talk about like three portfolio company of ours. You and I both invested in these three companies.

Plasma, Monad and Mega. >> I'm not in Plasma. >> I thought you were. >> No, we're not plasma. >> Putting aside plasma. Yeah. Putting aside plasma, Mega, Monad, L2, and an L1. Um like we understand like why you need like a substrate to coordinate to settle and validate all that stuff but uh um it's interesting on the news section but like you have like optimism now base going off of the OP stack like it base doesn't have a token um you could argue like me like why does mega ethan need a token other than you know providing liquidity to early investors like you and I.

>> Yeah. So I I think it's a different story on the L1 L2 side than it is on the especially the L1 side than it is on like the application layer, right? So because a lot of these applications could never launch a token and they would just, you know, curve fees, right? And that's very fine. Uh for the L1's, right? Like you have to decentralize like that is the only way the L1's work over time, right? you have to be able to have a a strong subset of uh coordinated people that will uh go and validate transactions, right? Like and you otherwise that it gets really funky in terms of like how you think through the incentive model, right? And so for L1's I just think like you know it's not

possible in my mind for the L1's to go long periods of time without a token. And so even if they don't have you know >> to solve for credible neutrality because because like if you're operating at the stripe and tempo for instance and they have like the Libra model which they have a consortium of you know mostly enterprises that have said hey look we're going to validate in the network and you have to then trust those organizations uh and then they still capture the me like the fees right uh underlying that network >> like with tempo like I'm sure Tempo will launch a token you know no matter what they're saying but like you know if they if like for like Robin Hood for instance, right? Um you know they've there's kind of got this arbitum side chain but you're taking a Robin Hood counterparty risk, right? When you

transact on their chain, right? And you know it's obviously it's a you know it is a like an arbitrum fork or L I think. Yeah, I think it's like a fork. It's like a side chain. Uh but like you're taking their counterparty risk. They can do whatever they want, right? And so if you want to launch like an actual general purpose fully decentralized permissionless L1, like you have to launch a token, right? um L2. >> But you say you have to launch it earlier on just to invite people to build on top. >> Yeah. To invite people to build on top for incentives, but also for for um unless you as a there's also a regulatory reason why like you know call it like monad for instance who just just launched or tempo. Um, I guess Monet is a little bit different, but in like the

Monet case, there's regulatory reasons why you don't want to actually be validating all the transactions, right? If you're trying to um, you know, be a um, kind of a nonprofit and which this goes back to what we talked about a little bit with regulatory clarity and uh, and and with Gary Gendler. And so I I think that's a different story than like the application layer. The L2s are even a bit of a different story because like for instance with Bass, right? you know, base doesn't need a token and a lot of the L2s honestly do not need tokens because they can, you know, use some other native they could use ETH, right, as a gas token, right? And you know, or a stable coin in the case of like a plasma or something, right? Um or and they can and then they're getting security from ETH itself, right? And so

like they don't need this like decentralized, you know, validator base, right? Um so the L2s frankly don't need tokens, right? I think what's interesting in the base story, right, is that they've it's sort of there's a lot of reasons that they could be rolling off of OP, right? There's a centralized sequencer point and they want to become uh they want to be less I think there's like a concern that maybe it looks a little bit more like, you know, a regulated exchange today with the centralized sequencer than it would if they were to decentralize, right? Um, I think that's also true that they probably want to launch a base token and so having an their own L1 versus like an OP stack L2, um, it makes it much easier to do that and also solves the

regulatory problem, right? And so like I think there's probably a lot of a lot of that type of conversation happening there. Um, but the it's you know the L2s are in this this kind of weird this weird space and that's why frankly the L2 tokens have done terrible and they've done worse than the rest of the market. >> Yeah. No, I mean people should go listen to that conversation with Meg Eith. Look, I'm gonna mess her and I said when they were coming on, I said, "Listen, guys, I'm gonna have you on gloves off. Like, I'm gonna hard I'm gonna ask hard questions." Uh, and and I think it was a good discussion. Uh, at a time where Vitalica just tweeted about kind of the L2 reasons to exist. And you know, I think it comes like long overdue in my opinion

because I think like people would say it's a Ethereum alignment and you know, we're you know, we're utilizing Ethereum security and but the reality is the fees are flowing up and being captured on the L2 and you could argue that the security that is provided by Ethereum is grossly undervalued uh in the sense of value flowing down at ETH the L1. Um, but yeah, I'm I'm curious like I mean we could round out the discussion on on on on Coinbase moving off the OP stack. Uh, you're saying that is a signal that they will be launching a token at some point in the next Yeah, >> it's certainly I haven't looked at the poly market, but my guess is the poly market traded up quite a bit on them

launching a token on that news. >> Interesting. How would that how would that work? like they would just issue it to shareholders, you know, mechanistically. I guess you could argue a lot of the reasons why they wouldn't launch a token is because they could put in jeopardy, you know, the mother ship, which is, you know, the Coinbase stock. Uh, or it'll be like a spin out and they'll like every investor in Coinbase like coin will get some sort of, you know, allocation.

Uh, how how would that look like? The e easiest thing for them to do will be for to put a significant amount of it on the Coinbase balance sheet, right? And then you tell the investors that you are getting, you know, exposure to the base token through, you know, the Coinbase balance sheet holdings, right? Um I think you know how they're definitely not going to distribute it to public shareholders. Uh but yeah, I guess maybe I'll never say never, but I just can't imagine how that would would even work. Um but they you know I expect that they'll you know try to do something for users on the platform as well where they um you know incentivize people to move over they

also you know reward people for having used both base but probably Coinbase itself. I think they want to move into a uh they really want to move into this kind of like you know exchange for everything model right and I think they see the future as a lot of that exchange for everything will have to happen with 24/7 settlement will have to happen globally on chain same story that Robinet has they're just coming at it from different directions right uh and so I I I think that's likely what's what you're going to see and then this gives them more a lot more I think uh kind of control over the technical direction. Maybe they want to do a lot more run zk. Maybe they want to do a lot more around um you know uh some of these other topics we're talking about that

just wouldn't have been possible using the op. >> Yeah. Yeah. Uh we got 10 minutes to go but for everyone not just listening I mean we have the OP chart pulled up that's down 23 and a half% over the last 24 hours. I mean pretty pretty damn for them. I remember the the deal that they inked with Coinbase was not cheap. I think they gave you know four to five% of the entire token supply to Coinbase. Um uh it really puts into a question to your point. I mean I think L2s as a whole haven't really performed well at all. Um and the incentives are pretty clear there like you would rather like reduce dependencies and launch your own and capture most of the fees. I think the it's pretty clear where that's going. I I do wonder what the viable business model is for L2s at this point

in the absence of having like meaningful traction or if you're better off like just getting a lot of demand being an application launching your own L2 like Robin Hood did like Poly Market's probably going to do. uh like if if you have users, if you have that demand, you control that, you're in a privileged position like you know, Coinbase as well, right? So, >> it's just it's just another story, you know. >> Well, I was going to say I'm actually looking at the um the polyark about will base launch a token uh and it looks like it's basically hasn't moved yet. Um which actually surprises me. So, >> interesting. I saw I saw this hedge fund that is early Polyarket employee or Cali employee launching its own hedge fund to do like ARB across prediction markets. I think it's like 30 million.

>> It's pretty interesting. The the other thing is like I mean there's a lot of information asymmetries. Um I guess here that you know just careful when you use that word and careful how you actually do it. uh uh uh because I do think that this is going to be like we heard it from the CFTC commissioner chairman in in in that CNBC event we're at just you know even though it's not a security there's still insider there's still like uh there's still a framework by which they could prosecute uh insider trading in these markets even though you think that they're not securities right so it's just important to keep that top of mind when you're interacting with these markets >> 100% that >> um couple minutes ago. There's some

other news. I don't know if there's anything in particular you want to cover. I do want to get the content of the week before we wrap. >> What else is on the what else is on the news that caught your attention over the last couple days? >> You know, I thought the the Hyperlid uh policy center thing was pretty interesting. Um, you know, so just so our listeners understand, the Hyperlid announced yesterday they're going to seed a policy center in DC, uh, run by a guy Jake Tinsky, who, um, he used to be the GC at Variant, the fund. Before that, he was >> Compound before that, >> blockchain association, then Compound.

>> Yeah. >> And he's he's he spent a lot of his career uh, being kind of one of the most prominent, you know, lawyers uh, in the space. Um, and so this felt like this really good fit for this. Uh, and I thought it was pretty interesting, right? Because I think, you know, there's been a lot not a lot of DeFi protocols have a large presence in DC, but all of the CFI companies do, right? And you know, UniS swap has been the most prominent. They've had um they have like a chief policy officer, a guy, I think Sammon Bai, I think is how you say his name.

He's been very active. uh in DC, you know, a done a little bit. Uh and you know, >> when Rebecca was there, uh they were doing a bit more. >> They were doing a lot more. Yeah. When Rebecca was there, but they haven't they haven't recently, I don't think. >> Um but other than that, you know, people kind of depended on like Coinbase and then like Andreza and Paradigm, these big funds who have these these uh and and you know, that also the you know, lobbying firms, the blockchain associations, etc. to kind of, you know, do a lot of the work in DC. And I I think Hyperlquid for a lot of regulators has been a little bit of a boogeyman, right? Because it looks like, okay, well, they're growing really quickly.

They're taking all this market share, but, you know, this is a, you know, arguably centralized, but no KYC, you know, exchange. Maybe it's decentralized, maybe it's not. Like, it's very hard for the regulators to get their heads around what that means and the this spectrum of centralization versus decentralization. And um you know when you you know don't there's all this debate right now around you know what KYC and you know what that should look like uh at the protocol level and at these you know in in DeFi. Um, and so I I think Hyperlquid has probably not been getting my guess is they haven't had a very many friends even at, you know, call it people who traditionally, you know, been f they're being friends for all of DeFi

globally, but like if they had to throw somebody under the bus, I think Hyperlink would be the one that they would do that to. And so I thought this was actually a very savvy move by Jeff uh and team to uh you know try to make their presence known as well as you know by far and way the biggest DeFi protocol and um the one that you know seems to have the most likelihood of you know kind of going and and you know bridging this gap to you know a broad set of of traditional users. >> Look I think Jake up to par like we've had him on the pod a couple times with Rebecca. he is very knowledgeable on the regulatory side and it's good to have more voices advocating for DeFi.

>> Um just because it's I mean Rebecca certainly is one we had her on >> Jake being at the forefront here I think it's is important right uh because as we talked about that episode with Rebecca uh there are everyone's kind of advocating for their specific interests and so um you know certainly advocating for DeFi will serve us well as an industry so congrats to Jake we'll have to have him on the pod. Uh, all right. We got uh I'm recording an episode with Layer Zero. I was in New York. Um, was it last week with Announce Zero? Uh, I'm excited to chat with Brian and and Ros about it. Before we wrap, we're getting to the most interesting part of the segment. And if you're still here listening, Rob, hit us with your content

of the week. >> So, I, you know, we talked about the Olympics, uh, I think last week. you know, big big curling guy as he mentioned, but I will tell you the um the men's hockey has been lit. So, both Canada and US won their last games in OT. Uh so, you know, uh you're cheering for the US hockey team. So, that's been great. So, I continue to be a big Olympic stand right now. Uh, and then I would say the other thing is we're, you know, and I I told you, as everyone on this who listens to the podcast regularly knows, I'm a big movie guy, and you know, the Oscars, we're about a month away from them. And where it's, um, it's the week that they start releasing and doing showings of all the

live action shorts, which I actually love. I love short films. Uh, and there's one on Netflix called The Singers, which is not a clear front runner, but has potential to win the Oscar for uh for the live action shorts, uh, which I really liked. Um, and so go check that out. >> The short uh what is it that the short the singers? The singers. Okay. So, it's kind of a short musical comedy uh on that they released on Netflix uh which is, you know, kind of based in like 19th century Russia around like sort of a it's like a bar or like a pub and they're doing like sort of a a singing competition. It's funny and it's fun and you know it's uh I I just you know I love these kind of I I really love short films because you often see uh kind of

upand cominging filmmakers uh doing these shorts and it kind of often can catapult their career into something else and so yeah I love to I love to watch them every year. >> Very cool. All right. I know you're hosting Big Party. I'm I still haven't got the invite to that but you know TVD. Um >> it's it's on its way by uh by pigeon tomorrow. >> Mail mail. Okay. All right. I'll I'll make sure he gets here. Um I will do a uh so George from my team published uh this piece today on figure. Uh I think everyone should go check it out. I think it's it's one of those where if if you find yourself in a conversation with someone that continues to be skeptical of crypto and I on the daily, right, it's still happens. It's just a by

virtue of where we are as an industry. uh go show them that because I think it just really quickly disarms an argument. Um and what I think Mike Kagny who used to build you know built sofi very one of the most knowledgeable fintech builders just when I when I saw him come into the space years ago to build figure it was obviously a clear sign and a signal and what he's done to figure I mean it certainly helps that it's a$8 billion public company now but they become the number one non-bank heliloc home equity lines of credit super antiquated inefficient process and I think that George and my team like did a pretty good job of anal analyzing across kind of which elements of the stat like of the value chain and the assembly line of a heliloc uh they're cutting down costs

and so it's just good as a as a resource and you guys you know everyone in the industry could use to just point to hey here's a very concrete traditional business that was made more efficient certainly something that we pay attention to because of course it doesn't stop with helocks right what what figure has been able to do with helocks is just a glimpse into the future of how you're going to be you know optimizing other financial workflows that what I can tell you from my standoint point when I go and talk to people a lot of CFOs a lot of treasurers the key insight is like they've thought of this as like a fixed cost of doing business and now it's very much optional or variable and blockchain like uniquely enables that. Uh so I think this obviously what we're betting the farm on

with emergent but it's it's a good piece I think like uh we're going to be posting more insights there and what we're seeing kind of in the on the front lines. So go check it out if you have feedback let us know. I tell you what, the the inversion story uh you know I'm getting so many calls by people trying to do stuff similar stuff now. So I got another another call somebody yesterday. So you know you were you were >> where were they where where are they coming from? I'm just curious was these like non-crypto people? >> Uh yeah it's like people but like very reputable traditional business people right who you know have a little bit of exposure to to crypto who are starting to understand that this is real, right?

>> Yeah. I mean like we have more public companies now and like in conversations like what's your moat? what's your edge? I'm like, well, you know, there's 11,000 private equity funds. Like really three have done software like tech enablement really well. Uh, you know, we're not going to be the only ones, but we definitely I think we're very thoughtful in how we're thinking about it. But yeah, I'm like it's like competition is inherently going to come and every private equity fund because they find themselves in a tough spot creating value. I think they're going to turn to crypto naturally to try to drive value as they're doing with AI too. You know, it's just one of those things. It's a tool kit.

>> Yep. >> Anyways, all right. Okay. Well, Rob, congrats you, the Dragonfly team, uh, on the on the big fundrais. Now, you got to go and find the next cohort of founders to push the space forward. But, hats off to you guys. I mean, I know it's really hard to fund raise and, you know, it's a it's a big it's a big milestone. So, good work. >> Thanks. >> All right. Thanks everyone. See you next week.