Market Sell Off, State of Crypto VC & Why Your Coin Isn't Pumping | Weekly Roundup

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I think there's a lot of disbelief right now when I go talk to the VC investors. I'm seeing that a lot of them are now they think they're AI investors or they think they're vint. >> This episode is brought to you by Zashi wallet. You'll hear more about them later in today's episode. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the

views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. >> Hello. Hello. Another week. We've survived. still know Jason. I mean, who knows if we'll let him back. >> He's he's been begging to for us to let him back, but you know, who knows if he'll uh if we'll let him, you know, people should comment uh below the show on YouTube and and on on Twitter and let us know if they want us to let Jason back, you know, if we can be benevolent.

So, >> I mean, we should keep saying this, but we should have like a a poly market around that, just a sentiment poll >> to say, do you want Jason back or not? >> Yeah. Will Jason come back? And then, you know, before the end of November, before the end of December, you know, who knows? >> Yeah. Uh, what's going on? What's going on in your side of the world, >> you know? So, I'm I'm in uh I'm in Miami at a fintech conference where I was speaking about whether or not stable coins are good or bad for banks, of which uh the the obvious answer is bad for banks in my mind. But, you know, it does seems that not everybody agrees with that. But it is becoming increasingly clear to me that stable

coins are part of every single strategic conversation at every single company. You know, whether it's fintech, whether it's banking, whether it's technology, they're all thinking about what stable coins are going to do for their business. And so, you know, I come to these conferences and it just like it's a whole group of new people. So, um, so that's great. Uh, and then, you know, getting ready for uh for end of the year. You know, I will tell you when I when I travel, I'm not always as good about staying up what's going on or staying on top of everything that's going on, but um I did read your piece this week and uh around just like what's going on in terms of how do the market and obviously the market's been bleeding even on the back of what seems like

everything I just talked about, which is that people care about stable coins. They care about crypto more than they ever have. Uh and then you put out this great piece around, you know, thinking about valuations and like why is that happening relative to of the you know the the market conditions relative to the sentiment. Um love to like just hear a little bit more about what you're thinking and maybe if you haven't you know people haven't read your your piece you should just start talking through um a little bit of what what you wrote. >> Yeah, I I wrote that um over the weekend. I hadn't really posted in a while, but I was reading an LP letter and they were doing kind of a valuation um analysis on Salana and Ethereum and they were treating like staking rewards

as part of value capture and it's like how do you define value capture? Is that revenue? Is that earnings? And a bit uh I felt it was misleading. Um and so I put it upon myself just kind of write out okay, how do we value these things? Um and so so anyways posted uh on Monday. I think it got a lot of responses. Surprisingly not many publicly from fund managers. >> Um however some of them yeah some of them did uh DM me and they said hey great piece and I said do you agree with it? Like do you fundamentally agree? So the the TLDDR on it is I think I think we're in a state of the world where you know in investing the most important thing is you come up with a thesis that

I think a lot of people are now sold on this idea that crypto has a lot of potential from stable coins just uh tokenization Larry Fin of the world JP Morgans of the world like that that's no longer uh that that's pretty consensus and so the question is like it we got all the headlines we we wanted but you know price action's not there and you near-term price action, long-term price action, I think again there's a bit of a disconnect, but so the question is was it priced in? And I very much think it was priced in. Um, and and so like excluding Bitcoin, we're like a $ 1.5 trillion industry.

A lot of that is, you know, Ethereum, Ripple, Salana, you know, DeFi, Deepen. Um, and so is it actually it's it's like the classic, have we earned that valuation as a space? and looking at you know some of the infrastructure plays Ethereum and Salana just those two not the single just of that we can talk about hyperl like black works has a great dashboard talks about like the revenue of these protocols so I'll just like hammer out a couple of points one I look at fees and me as kind of the revenue bucket I don't think staking rewards are part of the revenue of a network that is very much like stockbased compensation

uh that is an expense and it's diluted. So I do see a lot of fund managers a lot of people like treat staking rewards as part of like this value capture metric which I think is very misleading. Um and look the reality >> to be fair in like traditional markets to your point about SBC like everyone reports adjusted IBIDA uh uh you know and they adjust it for SBC. It does seem like it's still a debate even in like traditional technology. >> Yeah. Yeah. Yeah, I mean EVITA is a metric that was created by private equity to kind of justify looking at businesses on an unlevered basis just kind of business fundamental.

Warren Buffets of the world would argue that that is not a very you know look at cash flow and look at you know topline and IBITA as kind of this um metric artificial metric but I hear you I do I don't think stigma reward should be included in in that. So if we look at revenue of these networks, Ethereum will crank out roughly the same as Salana, anywhere between 1 and two billion. And that's what historically over like over the last 12 months, these two networks have cranked out. Ethereum is sitting at a close to $400 billion valuation. Salana at a $75 billion valuation.

make the case as to why these networks are worth valued at you know 60 70 400 times revenue like I just haven't seen and heard since I published or even in private conversations a very compelling argument as to why these things should be valued at that like on a price to sales price to revenue basis just to give some perspective like the fastest growing contracted Recurring revenue companies in the public markets are trading at 20 25 time maybe 30 times revenue and mind you that revenue is actually contracted

multi-year uh and so there's low churn. You can really underwrite the durability of that stream of of revenue. Whereas in crypto, we all know what happens like stress test that revenue. Um it doesn't hold up in a in a bare market like Hyperlquid too. You know it um you know if you look at Block Works dashboard Hyperlid's cranking out what like two over the last 90 days the total revenue of Hyperlid is 262. So again you know a billion billion plus of revenue if you want to run rate that and be super aggressive, right? But the reality is like you know the analization the run rating could be you know you just know it's not going to be there in

the bare market and so if you really think that these even in the most kind of aggressive case um that you think may maybe it goes to a billion and a half or so uh but I I just can't for the sake of it I can't justify the valuations of pretty much any network across the board. Let me ask you a question because like the the counterpoint here like you read you know Chris Dixon's book and you read some of the more I know um I guess like I would say techno optimists who like like to think about crypto and the counterpoint would be okay well like price to sales isn't the right way to look at a network right the network is

really about something like Mo's law or metap's law right you you think about the the as you add a new node a new user a new you know uh liquidity pool as you add a new um uh decks etc right the value of the network goes up exponentially right and the network itself is valued based on the users based on the usage based on the liquidity and revenue is not necessarily the right way to think about it in the same way that we wouldn't you know whatever value you would assign to you know different pockets of the internet you wouldn't you're only really value the revenue side of that on the application layer not on you know HTTPS

right so I I don't know how do you think about that >> well again don't disagree with the potential network effects of these systems but again it show it should be showing up in revenue like the the value capture should be connected to the network effect and okay let's compare that against network effects of like Facebook, you know, Facebook uh even in its early days had a more sensible price of sales multiple. I mean, right now it's trading at like 18 uh actually lower than that like you know 10 times I believe price to sales ratio. Uh at the end of 2024 Meta's price to sale ratio was roughly

10 times. In the earlier days it was it was higher than that. Um, and you know they they had this idea of like the incremental friend that joins Facebook is very beneficial. Um, and then that allows you to once you get to certain scale you can turn on monetization meaning ads and they've done that phenomenally well and then they pivot in other streams and they bought Instagram and uh I was at I was at JP Morgan when that IPO happened and the entire market didn't really fully appreciate the degree of the network effect but they've been able to monetize that. Now the question is okay is are you going to have the type of network effects that you see in social media networks like you know Tik Tok,

Facebook and others? I actually fundamentally disagree with that. Um you know these networks have been around for a while. Ethereum has been around for quite a bit of time over 10 years. Um we are these are open public decentralized networks. Um the value copy of something like Ethereum is fundamentally broken in the L1 and L2 construct. I talk about that in the blog post. Uh even if you see um exponential increase in activity at the L2s, it will never trickle down to the L1. The way Ethereum is designed today, it's collecting stat like state tax uh where it should be collecting federal tax revenue because it's renting out the security and everything. And so

I I can't make a case for Ethereum uh even though you believe in this network effects um and and and you know the brand and the first mover advantage. I liken Ethereum to Cisco all-time high and never really recovered after that. Someone like Salana or Hyperliquid does it have network effects like certainly like you can go look at the Acho like Electric Capital developer report and look more developers are joining there's more activity there's there's more applications being built and I don't disagree with any of that like I I do think that there are you know decent network effects to a lot of these networks I don't think that they're as strong as someone like Facebook or LinkedIn it's just fundamentally isn't

because it's in for the simple reason that interoperability just makes it super easy to just hop around networks. >> Yeah. I mean, do you think so? The market obviously getting absolutely crushed, right? So, Bitcoin is what 88K today uh 87K I think as of right now. It's 2,800 on ETH. Like Soul is down to 131 bucks. I mean, in the last month, you know, we've got, you know, how far Bitcoin's down 25ish percent, 24ish%, right? I mean, ETH is down further.

Sol's down further, 30 to 30 to 35%. Um, a lot of the alts are down like 70%. At this point, right? I it didn't collectively just like click on everybody's mind that like, hey, these things are overvalued. So, I get your point, but then also like why is the market bleeding as much it Like what do you think is is driving that? >> Hard to tell what nar like look I I also write about in the blog post it's like when things are priced to perfection then it takes like very little for that asset to go down and I think crypto responds really favorably. So what has crypto historically been good at? We've built a perpet like a very good capital formation vehicle where people outside

the US can express um you know lever NASDAQ bets and and you have this new dynamic in capital markets where it's momentum momentum trading and so memecoins uh crypto is just good to attract that. Um why it's come down recently um there's a variety of factors. I mean I also like your perspective. I think again when and we we've seen this historically in other cycles. Crypto is kind of the farther the farthest on the risk spectrum and so because it is just speculative activity you are constantly relying on people to come and choke up to the casino and that casino churn you know you kind of depend on the

stimulus checks and liquidity in the market and M2 that's why we're so correlated to flows. Um on the institutional side, I actually would like your perspective. I do think, you know, we've seen some DATs recently sell. Um uh there's a lot of noise in the near term. All I'm saying is I do think that AI, like if you believe crypto historically has been that momentum trade. A lot of the retail is now, you know, potentially expressing that view in AI, like that's sort of the main character. Um, and I think a lot of that flow just kind of is going to punting AI in the in the in the in the market. So like the archetype of a user on Robin Hood that historically has gone

out and, you know, invested in crypto stuff. I think a large part of that is now, you know, going to invest in AI and express that because it's, you know, it's a hotter theme. It's a hotter narrative. Um I the reason why I did this blog post is I like to constantly reunderite my thesis people were sometime people were critical in the comments of saying hey wait a minute like you've been very vocal about Salana you put in a position you kind of rotated your ETH to Salana said I bought most of my soul um at a time where you started seeing way more activity like bought most of my soul sub 100 on that level I think it was a good uh investment on that basis. Looking at

it today, I would and this is by the way true for every network. I would want to see more activity that is diversified away from the hot ball money in the narrative driven flows and I would have would like to see more revenue coming in from deep in applications, more revenue from other nonpure speculative activities, right? because I am worried you know you're in a bare market the revenue of these networks really dries up is by the way and maybe I'm mid-curving this totally which is these things don't like it's like dude stop talking about fundamentals these things just fundamentally don't trade the last thing I'll say on this is like Bitcoin is in a league of its own but again

Zcash is like gold is a perfect meme Bitcoin is a perfect meme it doesn't pretend to be a tech stock Ethereum, Salana, Hyperlquid, they pretend to be a world supercomputer. They pretend to be kind of internet capital market. So I think I think that segment of the market is going to be looked at on a fun more like compared against that. Whereas Zcash there's 21 million Zcash. >> It's like you can see why the like I'm you can't make a rational argument around memes and social constructs, but you can make a fundamental case as to why you should be paying 200 times revenue. I'm sorry, but you're not.

>> Yeah. Yeah, I mean I I think listen I I really liked your piece. I my perspective has been the L1's and like the base layers like they're just never going to trade on like a price of sales multiple. I think the they're going to trade on some sort of multiple of like a definition of economic activity which is not going to be revenue. It's going to be more about like if you think about all the economic activity that exists on top of a chain like the multiple of that is what they will trade on much in the same way that you know a um like an asset manager trades on a often will trade on aum multiple right versus like an actual revenue multiple I at the application layer I totally agree with you and there's like it's very clear that you know hyperlquid and you know

poly market and all of these guys are going to start to trade more around like fundamental value uh on the application side. It's I think the market dynamics now or I do it's it's surprising to me. I mean, I'm actually interested in what all of the uh all of the fund managers said to you when they reached out because I do think there's this a lot of people like you who want to be who want to find reason of this and what's happening and it's not actually clear to me that there is a lot of reason other than the fact that we are in a market that is almost entirely driven by flows that are momentum driven and quantitative and they're not actually like in any way fundamental whatsoever.

And so just the when we don't have you when we have markets like we do now, right, which is I mean the equity market's down another 1% today. They've been down the entire week. Uh Jensen came out and Nvidia beat earnings. And if if Nvidia hadn't beat earnings, I think the markets would be getting absolutely crushed right now. the the the if you look at the Fed watch tool, the CME is uh in the market's pricing in maybe only a third like a 35% chance of a rate cut in December. Now liquidity is drying up. Inflation is sticky. There's just uh we've we I mean we're seeing what's happening on the higherend side.

It's been kind of a mixed bag in terms of the labor market and we had a year where a lot of people are in the money and we're coming up on Thanksgiving next week, right? and people want to lock in some of those profits, some of that carry and they want to disappear for December, right? I think at at the same time the I do think one of the interesting or one of the the exacerbating facts of crypto. So we had all these DATs which we have talked about adnauseium on this podcast that raised a bunch of money and you mentioned it but um the interest in the DATs just like completely dried up and now the DATs are selling right and so we've seen a you know since we had that kind of deleveraging event what it was 3

weeks ago or so there's been basically constant sell pressure and I think Tara from Multicoin put out a tweet like oh it looks like you know for selling and somebody else responded to it that was basically like I've never seen like orderly for selling for weeks at a time. It usually happens much quicker. It jams the market. People are trying to meet margin calls. And I agree with that point is that what it doesn't look like right now to me is that we're having, you know, call it for selling. What it looks like to me is we're just having people go risk off broadly and crypto is still just a risk asset. and the and the DATs are selling because they're buying back shares because they're trying to defend their share price and they don't have any uh liquidity because people

don't see any reason to buy the 15th uh ETH, you know, DAT and they also want to go risk off and I think we're probably in for a pullback broadly on the equity markets and all risk assets because there's just too much happening that's you know very unclear. There's just too much uncertainty from macroeconomic perspective. So I I don't know. I I think 26 will continue will be a good year. I think we're in for a little bit of hurt over the next few months from macro uncertainty perspective. I don't think it's a fundamental value point though. I think it's a it's a like crypto is still today and honestly like markets are getting more you know um more driven by fund by non-fundamental quantitative momentum flows. This

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>> Yeah, look, I I don't disagree with the momentum piece, by the way. I also don't think that me writing this blog post like I'm not trying to rationalize near-term behavior. I am simply thinking as a as a long-term investor to reunderite my book. I'm less active now. I'm building inversion. I don't have much time. I want to make sure that as I position my portfolio, it's through a multi-year period. And I don't think like I'm being paid enough to to put on this level of risk in in crypto. And so that doesn't mean that there aren't pockets within crypto that could be value, could be good investments. Like I think there's some some deepen projects that are interesting. There are some DeFi projects that are interesting on a fundamental basis and you know you could have made the argument that maker now

Sky has been historically fundamentally undervalued and you know the market just kind of never responded to that. Um but look I think like to your question around the type of responses that I've gotten from people a lot of the fund managers said look don't disagree. They say some of them were a bit more nuanced. They said look I think there's some value to be had. I think there's some interesting plays to be had at the app layer. Um uh but seeing there's a lot of responses from the Ethereum crowd, the Maxi crowd that was like, "Dude, Ethereum is going to a trillion." And I'm like, "Okay, tell me why." Like enlighten me. I I would like to know. And they just sort of make this handwavy like what you hear the Tom Lees of the world, the Pomps of

the world, the Joe Luben of the world. It's like I'm not disagreeing with any of that. I'm like you can deliver great utility, but it's a value capture there. This is a great chart. This sort of we've seen it all. You know, the Wall Street cheat sheet psychology of the market cycle. I fundamentally think we are in the complacency phase. Uh to your point like does feel like people are taking risk off the table across the board. Crypto gets chopped faster than than most other >> sector. You don't think we're you don't think we're further down the curve than complexity. We're not in anxiety right now.

>> No, not not at all. Not at all. Not at all. Okay, Rob, you've been around here for a while. I've seen pain. We are to a lot of people are still in the green. You've had phenomenal last couple years if you were long risk assets. Uh Bitcoin um at the time I wrote the piece earlier this week had just evaporated all of its gains. But if you've held Bitcoin for over a year, like you know, you're you're in the green. like you know we started Bitcoin in in this cycle at what is it 25K give or take.

>> Yeah, I think we're I think we're back down to about where we were on election night. It looks like we're about to hit there, >> right? Uh but if you were pre-election Yeah. I mean, it was in the 50s and 60s uh pre-election. >> Yeah, but the bottom of Bitcoin was like 25K like FTX, Luna, all of that. So, I mean, even if you jumped in along the ride, you're you're very much in in the green. And so, I think I think no, we're definitely not an anxiety. I think uh I think we're very much still in complacency. Why, at least in crypto, I think a lot of the response I have seen on the timeline have been they'll point at a news article saying

JP Morgan just deployed on base. We have so and so talking about tokenization. and Larry Frink and Jamie Diamond and you know the institutions are here and that handwavy stuff just doesn't work. I don't I think people just need to update their priors. I may be totally wrong and maybe the market just to your point maybe I'll continue to trade on the narrative perpetually and like you know we continue on this and I'll be terribly wrong and that's okay. Like I don't I just want to protect my capital and my principle and I I do think there if we're in a macro slump. There will come a time where we will be in a recession over the next three years. Like what I don't know what the poly market is on

that but historically I kind of do ascribe to the fact that there will come a time like market like the mean reversion needs to happen at some point. Like I we came into this year and I was reading a JP Morgan report like we've historically after you know three or four years when you've had consecutive years of of of performance of like bull market behavior you got to revert to the mean like you will have a draw down um equity valuations at a near-time high across the board. So, as I position my portfolio for the next 3, five, 10 years, like I just have no interest in paying up for stuff right now. And if that means missing out on the gains, that's okay. I'm I'm not I

don't have LPs. You know, you, my friend, on the other hand, >> I'm in a different boat. >> I'm playing a different You're in a different boat. But >> yeah, >> but you're on venture, so you don't have to respond to the whims of the market necessarily. >> Yeah. I I will tell you the interesting thing about the venture market is that two two things. One is to your point, we have the luxury of having this like long-term outlook. And so I try to see, you know, what do I think is going to happen over the next, you know, three, four, five, seven, 10 years, right? And I I don't need to be worried about whether or not, you know, Bitcoin is 120K or 80K because regardless of that, if I have a conviction that, you know, some sort of theme like stable coins are

going to take over the market over the next decade, that's still a place where I need to be putting my money. What what I what I will say is interesting is that there's this kind of um this really I guess thing that happens in the venture market that doesn't make a lot of sense which is that when the markets are really good and like prices are high they're people are more likely to want to put money to work because they feel good right and so they put money to work as the market is getting euphoric as prices are getting really high and it makes the entry a lot worse.

and so they don't get the same gain. Right? On the other side, when the market comes down, we see the venture market slow down. When that is the time you should be putting money to work because you have people building, they're focused, you get better entry uh points, and the, you know, 10-year time horizon hasn't changed. And so, we try to be really thoughtful and counteryclical around that where we put a lot more money to work when markets are down and a lot less money to work when everyone's getting euphoric. But the the general VC market doesn't work that way. And so far it's worked for us, but it's um again VC is kind of a momentum game and that's not just a crypto specific one. And that's been a very odd thing for me to see. On top of that, the one of the things that's

happened in crypto venture is I do think you think we're in complacency. I see it in crypto venture. I think there's a lot of disbelief right now. And the reason I say that is because I see a lot of crypto investors who why they're not saying it publicly. I mean, you might remember a couple years ago, um, Paradigm kind of changed their website and it said, "Hey, now we're like AI investors as well, right?" And like everyone just like really really responded really poorly to that and they came back out and said, "Sorry, hey, listen, we just we want to understand that, you know, we we want to make sure that we're putting money to work in this part of the market that um is is also growing."

>> Uh, but we're we're crypto first investors, right? And and to their credit, I think that's continued to be true. Yeah. But the when I talk so when I go talk to the VC investors no they're not saying these things publicly but I'm seeing that a lot of them are now they think they're AI investors or they think they're fintech investors they think they're SAS investors right because I think the VCs are looking around and saying I don't know what I can back in crypto anymore and a lot of them have lost a lot of their um just conviction around the future of this space. Let's double click on that like disbelief if this were to follow price a lot a lot of uh there are bitcoin you know hit all-time high and then has retracted a little bit um some

networks like salana are down more uh some wallets just have never recovered from their all-time highs in the prior cycle do you think that this I I would have said complacency and I I still believe we're in the complacency because because it hits sort of the all-time high disbelief you're So, so what? So, I actually think we are here on the VC side is we're probably on capitulation. So, I think the VCs, >> they're probably 6 months ahead of the public markets, right? Call it six to 12 months ahead of the public markets, right? And so, you and I can both be right that the public markets, the token markets are in this complacency standpoint or maybe in the anxiety standpoint up there, >> but the VCs have been in the capitulation.

>> Yeah, actually >> in down here like depression, depression or disbelief. >> I I think so the bottom of the of the kind of the the over to your left on capitulation next. >> Oh, I see. Got it. I see. I see. >> Yeah. And so the reason I think we're there is because now a lot of VCs have said, "Oh, I'm actually an AI VC or I'm a you know, I talked to a number of people who are like, oh, I'm I'm standing up an AI fund, right? I'm standing up uh a fintech fund. I'm, you know, doing this thing." >> And it's funny. Yeah, I was I was I'm at this fintech conference and I was talking to a well-known investor, one of the biggest funds. Uh you you you can probably think about who it is, but one of the really big traditional names that

also invests in our space >> and they were talking about how there's a lot of innovation happening in fintech around crypto now, but it's coming out of, you know, Silicon Valley traditional fintech founders and the crypto VCs are all like doing fintech, but they don't have that same deal flow. And so they're getting like adversely selected right against right now uh relative to now you're seeing a lot more of light speeded you're seeing a lot more of you know call it you know we saw benchmark come out and do a deal recently right >> and you know we we've we've done a >> sorry go ahead >> you well on this point um a lot of times where traditional VCs enter the space has coincided with market topsa

entered and did the layer zero round you're now seeing um a lot of other like benchmarks of the world do certain plays around key themes like stable coins poly market uh is that latestage market behavior or is that just more of a broader phenomenon of VCs are smart and now they appreciate that this time is different and they're seeing from their own venture portfolio and their interactions with real businesses that there is a credible demand like Stripe entering the space detonated this interest in VCs.

Um, how do you do you think that there's I guess a disconnect between cryptonative VCs and traditional VCs where traditional VCs are actually way more excited to deploy in certain sectors and are more focused in their strategy whereas cryptonative VCs are just have been burned because they're just if you weren't uh you get benchmark against Bitcoin you likely likely didn't outperform that and so it really has forced the question when you go and try to raise the next fund are you actually good at this game.

>> Yeah. So, I think there's two questions embedded in there. I I actually think this time around the traditional VC is coming back. They've been a lot smarter about it, right? So, you know, somebody I was talking to somebody earlier this week who referenced the um the OpenC moment of 2021 where, you know, OpenC raises at a $1 13 billion valuation. a bunch of traditional VCs are in there and you know you look around and you're like we still don't know what NFTs are used for and yet the NFT marketplace is worth $13 billion right and that that was very clearly like you had to really have a lot of belief in a future market that didn't exist yet to to do

that deal at $13 billion. It's very normal for a seed investor or preed investor to have a lot of belief about some market that doesn't exist yet. For a preIPO investor to put money into something at a $13 billion valuation and when the market does not exist today, like that's crazy, right? >> This time around, we've seen the people come back and it's been really really targeted to okay, well, we're seeing in our fintech portfolio that stable coins are disrupting. We're seeing in our, you know, our fintech portfolio that tokenization is disrupting. We're seeing in our AI portfolio that people are thinking about using stable coin payments, right? Where they're very focused on, you know, maybe um social trading, right? You know, the poly markets and the prediction markets of

the world. The, you know, benchmark did FOMO, which is really like a social trading application. And those things have a lot of corlaries to stuff that you see outside of crypto. So, it does feel a lot more sustainable to me. But what it does, I guess maybe underly is this question that I think a lot of the crypto VCs are asking themselves, which is what is the future of my business if there's these few things that work and these few things that work have like are very close to fintech or traditional tech and all of the other stuff that's longer tail that has required me to be a specialist to to do well in. If that doesn't work, then then then what is my right to exist? This episode is brought to you by Zashi Wallet, your gateway to

buying, storing, and spending encrypted Bitcoin. Zcash is decentralized digital cash encrypted to preserve agency and safety with a fixed supply of 21 million and a proofof work consensus. Zcash is encrypted Bitcoin. With Zashi wallet, you can swap Bitcoin or any other cryptocurrency into Zcash and stay shielded by default. Thanks to Zashi Wallet for making today's episode possible. Shout out to today's sponsor, Katana. Katana is a DeFi first chain built for deep liquidity and high yield.

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>> On that point, I want to double click on that part of the blog post. Also, I write about the overinvestment. Like what has historically worked in crypto may not work going forward. Like we've had over close to 100 billion spent on infrastructure. And it makes sense. You have if you were early in Ethereum Salana, your infrastructure bet if you had done a deal that was infrastructure related at a less than $und00 million valuation, you would have done phenomenally well. Um, so Salana's invest or multicoins investment Salana literally may be the best VC investment of all time.

>> Yeah. Um, and Exactly. And so and so it's it's worth probably saying, okay, as we think about what's going to carry us over the next decade, likely it's not going to be that your infrastructure investment. um it's going to be something more like value should be acrewing to applications because if value acrrues to applications then you you actually can make a case as to you know the network effects of some of these networks and you know uh but um you know something like poly market total narrative violation because it's deployed on polygon and so uh but it's it's easier to make that case but there's been an overinvestment in infrastructure underinvestment in deployment um I think you guys

understand that. Well, um but um yeah, I I I wonder are fund sizes in crypto, especially on the liquid side, just going to be tracking a Bitcoin type of return? Like you're thinking about, you know, you have a four, say $500 million fundish. How do you think about deploying that over the next 10 years or, you know, five, six years?

>> I I think the liquid funds are in a lot of trouble with these markets, right? Because they're they're not getting paid to hold Bitcoin and ETH and the quant funds do a really good job. Like there's still enough ARB in our space and enough inefficiency in our space that the quant funds are are actually, I think, really good risk return. The like the long shorts though, I mean, I don't know if there's anybody beating Bitcoin at this point. Um, you look at the VCs, right, to your point, yeah, a lot of the most of the VC funds don't uh don't beat Bitcoin either. I I do wonder, and I mean, we're we're continuing to see this, right? So, a lot of funds are outraising, and a lot of funds have been outraising recently, and nobody is raising the same size of

fund that they did in in in 2021. I think there there's there's one that I know of that is going to raise the same size of fund as 2021. Um but everybody else is is is really struggling to get anywhere near that right and that is because of to your point like what do you put money into now if you are a5 or $600 million fund I mean we we've from our perspective like you know that's that's how big our funds are and you know we've >> taken the long-term viewpoint that we need to be doing things like fintech we need to be doing big conviction bets across the application layer you know we put a lot of money into Poly Market as we've talked about, put a lot of money

into a business called Rain Cards, which is, you know, almost everybody else uh in those rounds have been fintech investors, not not crypto investors. Um, but it's if you're a Devi native fund, you're a crypto native fund that isn't able to get into those types of deals or doesn't, you know, isn't looking at those types of deals, there's just not a lot of things you can do. >> Yeah. Yeah. Absolutely. We'll see. Interesting times. Look, I mean, I think it's it's always bare markets that sharpen the mind. Um, and I think it's just it will serve us well to just be just re-underwriting your thesis, thinking about where value is going to acrue. Um, and u, but again, none of this is a dig on the potential of this space. It's just

you got to overlay the potential with the reality of things. And uh I think we don't need as I think about like the way I will like to invest succinctly my thesis is finding opportunities where the there's a disconnect in valuation because there's so much techno optimism and certain pockets of the market are left for dead and so I think the market whether it be talking about AI or crypto tends to kind of want to overlook the fundamental story because there's just so much potential and it's easy to trapped into that narrative where there's actually like real businesses that are kind of more deeply unsexy where you can find really good value and and they don't go away, right? And

especially you go talk to actually people that are integrating this technology, whether it be AI or crypto, there's actually certain core businesses that you may need. And I think you've sort of seen that in some of the acquisitions that people have made in the space understanding, hey, maybe we should be buying a bank, maybe we should be buying a certain business has this license or so because technology comes and improves like lowers cost or whatever, but you still need certain core businesses to power that implementation, that deployment. So, it's going to be interesting. You know, I I I will say uh uh how the rest of the year unfolds um and and into next year. It's anyone's guess if we're going to be in a bull or be bare market. I'm not here to tell you that. I'm just simply painting a more long-term picture.

>> All right. Should we uh should we move on? >> Yeah. I uh I mean I know we're there's some couple of news items. Maybe we can talk about that. Uh before we go there, anything you want to cover on your side? >> No, maybe we should cover you know there's been some talk here at this fintech conference I'm at around the A announcement around their new application. you know, that kind of I think is a good correlary to what we were just chatting about where, you know, the crypto fintech intersection is continuing to be a big conversation. Um, I think we should talk about the Monad sale that's happening on Coinbase right now.

>> Um, but happy to go either direction. Whatever whatever you think is best. >> Uh, why don't we go into a uh and then Mon. >> Yeah. So, so did you see the A announcement? >> Yeah. >> Yeah. Yeah, I mean essentially for for anybody that's listening that didn't see it, A essentially announced that they're going to go and uh launch their own application. That own application will be, you know, sort of a a neo bank where you can, you know, there's they're pitching as kind of like a savings app where you can put money in, you can bring your money out anytime. you get, you know, anywhere from call it um, you know, 4% up to 9% with uh with like subsidized um some sort of subsidized

like rewards that are happening there. >> They also announced that you have up to a million dollars of insurance and it's essentially what they're seeing as a kind of a new age neo bank or new age savings bank, right? I'm interested in your perspective. I know I have my own view around like what that means for you know the future of these types of apps on crypto rails versus these types of apps in traditional fintech. I think a's biggest competitor Morpho has taken a bit of a different perspective and that fact that they're trying to be like infrastructure for people already with distribution to do similar types of things.

>> So I don't know what did you think of of the announcement? >> Uh it's pretty cool. I mean, I I think it's uh becoming a neo bank. Um uh and and a lot of the features are pretty compelling, right? You're kind of seeing in real time. You're you you know capturing interest and the insurance piece is something that is pretty cool. The biggest question in my mind is again customer acquisition costs. Is it going to be enough? Like I I can wrap my thesis around, hey, look, there's a lot of crypton natives that want to b like can benefit from this. Um I think it'll be interesting to revisit it like in a year or some time looking at like how many customers were actually signing up for a like outside that have never touched crypto. they just kind of

discovered it and said, "Oh gosh, like this is a this is a great product." Like cuz the options are, you know, you can do Revolute. Um you can do you know even like Robin Hood uh Coinbase potentially. Uh so you're you're what's interesting a moving from to your point infrastructure like money market onchain to consumerf facing application neo bank. Um I think it would be a good case study as to most Neo banks really kind of struggle in customer acquisition costs like all the like N21 morpho uh not morpho but N21 some of the other neo banks you go customer acquisition it kind of blows up after a while even new bank um new bank has been successful I mean they have

like 110 120 million users in Brazil they've dominated Colombia Mexico not so much uh and again CAC and new bank is like in their more mature markets like 12 bucks bucks, 10 bucks, and the payback is actually quite high, less than a year. Um, but um, yeah, it will be very interesting to see how they actually go to market here beyond the crypto native crowd. Um, yeah, what do you what do you think about this? Like, do you take Morpho? Do you like a do you think they can pull it off?

>> Yeah, so it's a tough conversation because obviously 9% back on your you know, I think that you just pulled up it's a 600% on USDC. I think up to 9% on other crypto. I think maybe it's 9% with um some rewards. I signed up for the weight list, so we'll see. Um Stonnie, you know, get me off the weight list, please. I I'll let you. Um but I uh like obviously it's like, you know, it's funny because my I was just um moving some money around this week and uh I opened up like a new account on Fidelity, right? And I open up a new account in Fidelity because I had money in JP Morgan and JP Morgan was giving me like 40 bips on that. And so I moved into Fidelity and what does Fidelity give me? They're giving me like 3.8%.

And I'm like, "Oh, this is so much better than the 40 bits I was getting on JP Morgan, right?" And but obviously six and a half% or 9% is even much better. Uh the question is is like relative to like what counterparty risk? Well, up to a million dollars worth of insurance that gets rid of for the vast majority of, you know, individual users that gets rid of their concern now at this point, right? Because like, you know, FD, it's more than FDIC insurance. They might be worried about, okay, well, you know, crypto and blockchain and what that means for me, the ability to lose my money, but if I can go and get 9% and have a million dollars worth of insurance, that's a no-brainer. Now, it's not easy to your point around acquiring customers. It's much easier if you already have a captive customer

base, but I I don't know why they wouldn't be able to distribute this with the right team and the right amount of capital put behind it because it is just so much better than you know things that the offerings exist elsewhere. The question is is can those types of juice returns sustain >> and I think probably the answer is no, right? And so you okay you get people in and you get okay was it get six and a half percent plus you know some rewards up to 9% and then you know the rates move around and you know they come back down over time. Is that a place where now I've got a sticky customer that and then is a going to go and do other products because they've they've always Yeah. I mean that's the question because

they haven't to date right they've had a long time to operate to open it to uh >> well they have like they have like lens and a few other products here and there but maybe they roll out like tokenization of stocks and other products that you get you know do natively through the app right historically that that's been the game of fintex right which is neo bankanks is get the customer in it's a very sticky user base that doesn't like what you just did over the weekend of like creating a new bank account thinking critically about what are you making in your bank account? Like the reality is like very few people go through that exercise.

>> No. >> Um Rob, you're just a finance geek and that's okay. >> The average person I learned this this week, the average person switches their bank account uh their checking account >> uh every 14 years. >> Yeah, that's exactly if if at all. And so it's interesting because in this world of composability and interoperability like you could just very easily move not so much like consumer behavior but people don't want to think about their bank accounts. They want to think about their finances. They think about money constantly but not the underlying like nuances of like am I optimizing my money like how many money was sitting around in checking accounts at JP Morgan like deposit accounts that wasn't earning 4% 5% should have been sweeped to a money market account. like

a staggering amount. Well, and I think I think this just underlies again like everybody understands people are coalesing around this idea that like all of this is fintech and so like crypto being like this like amorphous like different thing and then fintech being over here like they're clearly coming together and a lot of the conversation again here at this conference has been around this are stable coins and crypto just like banking as a service right new age banking as a service and it seems very clear to me that there's a real understanding that a lot of the crypto stuff that you know exists and the way people were really um ideological about how crypto was supposed to be that's going to go away because even to the you know the the mainstream DeFi founders

the unis swaps and the ais of the world are thinking about that next step and how they can go mass market and going mass market is going to be very different than what exists today. >> This episode of Empire is brought to you by Vanex onchain economy ETF node. If you feel like you are constantly missing alpha, never have time to scroll through crypto Twitter, Node is for you. Node is actively managed by an experienced team with years in both Tradfi and crypto. That team at Node looks to capture the most powerful trends across all of crypto while actively managing volatility as markets evolve. Super important in today's environment. Check out Node's track record so far at van.com/mpire/node.

That's van.com/mpire/node. You can also little easier just click the link in the show notes. Thanks to Van and Vanex onchain economy ETF node for making today's episode of Empire possible. The unis swap trading API solves the problem of adding crypto to your products without the hassle of needing deep crypto expertise, ongoing maintenance or liquidity aggregation. The trading API provides access to the unis swap protocol which has processed $3.3 trillion in all-time volume, handled over $465 million swaps from more than 25 million addresses, all with zero security breaches. Developed by Uniswap Labs, the US-based team behind one of the most

used DeFi apps access some of the deepest liquidity in crypto, combining both onchain and off-chain sources for optimal pricing. The same liquidity that powers billions in swaps now available via a singular API. Thanks to Uniswap for making today's episode possible. As always, investments in blockchain technology involve risk terms and conditions apply. >> Yeah, we'll see. Interesting experiment nonetheless. Monad. >> Yeah. What do you think of the Monad sale? So, there's been a lot of conversation about it. They obviously had, you know, I guess they what they had 45 million come in in like the first minute and then it kind of, you know, slowed down since then.

>> Yeah. I I think it's it's about 150 million now. >> So, they're 82% away to their their target. So, I my guess is they'll likely get to the target of 187 million bucks. But, >> uh, >> and for context, two and a half billion valuation, 100k maximum ticket size, Coinbase customers, right? Yep. >> Yeah. >> And no and no continental Europe. >> No continental Europe. That's right. Um Yeah. Look, I I think it's just the state of the market. Um you know, I was looking at last night some of the other projects that have raised earlier this year. You had Plasma, Mega ETH, um Flying Tulips, Andre's thing, which is

funkier structure, but the kind of the plane raises was uh I believe I might be missing one more. Uh, but looking at I have it right here. World Liberty, Mega ETH, and Plasma. World Liberty kind of I would bucket as like very kind of oneoff like kind of outlier. 550 million. Mega E raised 450 million. It was very much overs subscribed. Wasn't there like over a billion in commits and only 450 was failed? And then Plasma raised 500 million. Um, so is that tied to I'm curious like I I would think the primary reason is just limited user like not everyone has an account on Coinbase. Um they're limiting to 100K so it just

takes more people to fill that. um like what if if what does that check out in terms of like if they want to raise like if they fill 100% of the capacity what percentage of the Coinbase customer base in the US needs to have put in a order >> so Coinbase has what 12 million MAUs right and so >> 100 registeredish I don't know how many >> yeah it's like 100 it's like 100ish registered but it's it's it's like 12 million MAUs right um and that's like 30% of the market share in the US if you believe Crypto.com's numbers, which I still don't know where they come from.

Um, and or I think it's like 38% today or something like that. Uh, yeah. So, I mean, obviously it's a big percentage and I I think that some of this is a timing point to your your point, right, which is that like this got done at a time when the market just was like completely dying. I also think it gets back to what we talked about before when I actually got a I got a lot of bad feedback on my takes on the Echo M&A deal. People like really did not like my takes on that. Um, but I I just don't think like launchpads are good businesses for um exchanges that are going after mass market and like you know it's very it has to be very niche and I think when

you try to go and sell $187 million worth of a token to a user base of which the vast majority of Coinbase users probably have no idea what Monad is yet. And and you know we're investors of Monad Kun's done an incredible job. I think they're they're they're going to break this like monopoly of of like oh well the L1's you know are already kind of you know the good L1's already exist and we don't need to need to have you know more high performant low latency L1s. I think that's completely wrong. I think there's the amount of innovation happening at the base layer has not done is not done yet. But with all of that said you have to be in crypto to have heard of monad before. You have not heard of Monad if you are, you know, the vast majority of those Coinbase users,

right? And so like they come in and and they're like, "Okay, what is this?" And at two and a half billion dollars, it's going to be very very hard for them to sell to most of those users, right? >> And so if you like to >> put a finer point on that, it's uh $187 million that is trying to be raised on a 12 million active user base. You could have looked at that and said, "Hey, kind of just takes 15 bucks per user to fill this round." Uh, not everyone's going to want to participate. But if we're a raging bull market, it would have been filled within seconds. And there was someone from Coin

List, excoin list, that said, "This is a huge mistake on Coinbase's part. They should have been more proactive around marketing this and making sure that like a coin list we never which is by the way historically has done a lot of these races for Filecoin I believe and definitity and a few others. They they they said look we never we always kind of made sure like an investment bank that this would have been filled like they and maybe this is Coinbase first go around. They're going to learn a lot from it and then go back to it. But >> yeah, I mean >> yeah it's it's always better to be oversubscribed on a smaller round. Like you that's like fundraising 101, right? You want to be overs on a smaller round.

But I think like Kevin and other folks in the Monad team, Kone could have said, "Hey gosh, like other projects have raised four or 500 million. We're only going to raise, you know, a quarter of that. We should probably get this done, right?" >> No. And and I think that's reasonable. And I think the the problem here is just, you know, misunderstanding who your users are and who their buyers are, right? And I don't put that at at Monad's feed. I put that at Coinbase's feed, right? because like you know I mean their their user base like who uses Coinbase on a regular basis that is cryptonative enough to be really bullish on Monet.

>> Yeah. >> Like there how many >> how many of those 12 million users? >> I think there's a lot of insight from the sale. >> Uh I would want to like get more data points of like future sales and how successful they are. Two points come to mind. We've always heard that criticism that like retail has in the US has not had access to these um ICOs. Now you do and it's fairly priced you know it's like not crazily there's no demand uh does that mean that fundamentally the user base just in in the US two things I don't want to make a conclusion one because no one in the US has had access official access through a platform like Coinbase they just don't think that it's possible so that you need to retrain that brain

>> um or is the user base in the US just inherently different which leads me to my second question which is what does that imply for base cuz a lot of the narrative for Bass has our user base of 100 plus million users is going to want to come on chain. Monet's pretty cryptonative. So does that there's been on the timeline a lot of David Phelps and a couple others like talk about base and being critical about it. Everyone throws criticism when prices are down. But yeah, I'm curious if is it too early to tell or do you glean more insights into the user base in Coinbase user base representative like the US investor, retail investor?

>> The retail investor in the US, you know, relative to Asia and then crypto has been a very Asian-driven retail market for a long time. The retail investor in the US just spends less time being as DGen as possible. like they're not getting as deep into like what is going on into these different uh these different markets and the DJ ones are not really using Coinbase, right? Like Coinbase is much more like your dad's application, right? Uh and that's continued to be true, right? The you know, if you >> mean your dad's not a DJ romp >> like like the people I know using Coinbase on a regular basis, they're using them for on-ramp offramp which means you know and I do this too, right?

I on ramp through Coinbase and then I, you know, I move it elsewhere on chain, right? And so, you know, maybe I'm I'm one of those users, but like how many people do you think just have like, you know, they're like, "Oh, I want to have a little bit of Bitcoin. I saw the QR code going around my TV during the Super Bowl. I scanned it and I bought a Bitcoin, right? And now it's sat on Coinbase the entire time." That's probably the majority of Coinbase's users today, right? Yeah. And so I listen I I think for for bass I think David Phelps's uh comment I I sympathize with this idea that like you know it's seems base seems a little bit rudderless and that like they've spent so much time on like creator coins that truly very

very few people care about and there just is no argument that that many people care about these types of things, right? and not enough time on the things that you know people care about which is like the future of capital markets. It does seem that they're moving back in that other direction. The pendulum is swinging. Um but they've pushed narratives that I think you know have been a bit of a disservice. That said, you know, a lot of the the reaction to David Phelps's uh tweet was also like, well, if you weren't successful on base, you probably would have been successful elsewhere. And I think there's like >> that's probably a good argument that that's true. So, >> and look, just kind of wrapping this discussion before going to news and content of the week, it really just comes down to are you building a good

product that people will fundamentally want to use? Are you solving a problem that people want? And don't be like, I actually tweeted something to the effect of like first time founders focus on product, second time founders focus on distribution. I think it's a bit unfair. It's like if you don't have distribution and you can't get distribution, well, you go back to the product because if it's really that good of a product, it should at some point be picked up. And maybe this is the argument that flows into a right. It's a good product, right? Maybe the distribution is a bit broken because a lot of the distribution, a lot of the user base in crypto today has been very DGEN oriented and has been like this hot ball of money that goes claims airdrop, dumps, goes

onto the next farm. And you're seeing that across the board like time and time again. Um, and so that I think the distribution in crypto is broken if your entire user base is just conditioned to like this like airdrop and farming behavior. Uh, but we're growing up as an industry and that's a good thing. Like stuff like poly market super exciting will continue to prevail in my mind and we were both you and I are biased but it's solving like a whether you love the use case or not but it's something that like actually permeates in in the real world of like information and media and sports betting and elections and it's in the conversation. So, um, we don't need more empty blocks. So, >> yep, >> we will see >> of the week.

>> Well, uh, news stories just like rounding that out. I know you got to probably tie up, but um, just Kraken raised 800 million, I believe. Some try investors. >> I I think the new Kraken raise was the 200 million they just took from Citadel for 1%. So, that was they'd already announced the previous Yeah, but so they raised 200 million from Citadel. >> I mean, great for them. Oh, they've been on a >> they have just been a different business since Arjent took over. Dave does an incredible job and he's still there as co-CEO, but Argin's really increased the product velocity there. Um, >> you know, they've continued to grow the market share. Congratulations to them. I think there's a lot more to come from them.

>> Yeah, agreed. All right, sir. The most anticipated moment of the weekly roundup. What's what's the content of the week? >> Uh, I mean, I think you got to go first this week. I went first last week, so >> Fair enough. Fair enough. Um, books. I have not read it, but I got two great recommendations. One of them from this guy left hugging face that was pinned on his profile that I got to go check out. It's called The Fabric of Reality. He said, "Look, this book changed my life. Best book ever. I need to go and read that." Uh, I think it's written by a physicist. So, we'll see. I'll read it and report back. The other one is a candidate that I was interviewing here in New York um said uh coffee uh at the end of the world.

>> I don't know if you've read either of those, but on my list I do most of my reading in the spare moments I have on the weekend. So I'll try to read one of those too this week and I'll report back next week. >> Okay. Uh for me, I'm going back to I I gave like a more serious recommendation last week. I'm going back to back to my fiction. Um, uh, there's I was watching this show called The Beast in Me, which is like starring Claire Danes. Uh she's a an author who had like a a book that was really successful and I think she was supposed to have one the Pulitzer and then she has kind of this her son dies and she's trying to figure out um or she's having a hard time writing her

next book and you know a new neighbor moves in next door and she starts uh potentially wanting to write a book about that neighbor and that neighbor may or may not be a murderer. So, um, kind of a fun book, a fun, uh, show. It's a miniseries on Netflix. Uh, definitely can kill Kill the Weekend. So, that's that's my content this week. >> That's good. Stop staring at your screen, ladies and gentlemen. Go touch grass or go see a a crime thriller or Rob's recommendation. This has been great. Thanks so much for joining us and uh we'll tune in next week.

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