The Next Bull Market Is Hiding in Plain Sight

Transcript

Bankless Nation, we got Blockchain Capital on the podcast today. We got Spencer and Alex, two GPS over at Blockchain Capital. Spencer, Alex, welcome to the show. Fired up. Thanks for having us, David. >> Spencer, you and I have interacted in crypto as long as I can remember. Have we ever had you on the podcast before? >> I think a couple years ago. >> Yeah, I think it's been a while though. But yes, as long as more than a few years. I was going to say in a way I feel like we've like grown up together in the industry, you know, like especially from me following along with the show. >> Yeah. I I my my first memory of interaction with you was talking about MKR value capture back in like 2019 2018 or something cuz like Bcap was considering buying MKR and I think that's that was our first our first like

interaction before. >> Wow, that's actually very funny. Alex was actually very involved behind the scenes on that discussion too. like I remember that one well and was going back and forth with um Alex Evans who was that placeholder at the time now over at Bane and you know I think he I I saw him about a year ago and he still loves that MKR >> and I get it. I I I still love MKR. And I I tweeted this out not terribly long ago, but just even the most modern projects. So, Hyperlid, Lighter, uh, Venice are all doing the buy and burn model. And MKR was the first one to pioneer that. And there's been so much like nashing of teeth about the inefficiency of the buy and burn model, but it's like it's undefeated, dude.

Like, here we are in 2026 and the best projects are still doing the buy and burn model. 100% works. And it's funny because back in back in the day I was um I was overly critical of it of like at the end of the tunnel like you can do a buyback a buy and burn, right? Um at the end of the day people need to think about like cash flows. And so like the the only thing I struggled with was like at the end of the day there needs to be like when there's one share left you need to have some cash flow to direct to it, right? Otherwise like you're buying back and and you can never really build a model around what what the realistic value is. All of that was overthinking it. Buy and burn works well. Um, I understand the like push back from people of like why

it could be capital inefficient to do so. Um, but I think it's it's the most logical model today because token holders like unless we get Clarity Act passed like the the rights of token holders are not very clear, >> right? So like in theory it would be better if I was a token holder, you're a startup, I want you to continue reinvesting those cash flows >> into identifying more growth opportunities. But today like two things have happened. one not very many protocols have demonstrated an ability to find an adjacent opportunity to expand into and then actually been effective in doing it. So a lot of token holders are saying wait a minute when you and take when you take the cash flows and go and pursue that path it doesn't lead to anything at least not anything good for >> for me as a token holder. Yeah.

>> Yes. Exactly. And so they'd say listen I'd prefer that you just you you stake a flag in the sand and you say that this is what we're going to do forever. We're going to we're going to buy back and burn. that at least provides some level of certainty, right? If markets hate uncertainty, that's like that's a a you know token network providing some degree of certainty for it. I don't mean to like launch straight into some of the topics, but you happen to open it up with something that's like super interesting to me. I I also think this is super interesting. I wonder to so to what degree does the need to buy back the token on day one which again inefficient not what startups do poor use of capital to do buybacks on day one but part of that has to be downstream of

the fact that tokens in crypto have been so dog that quality tokens need to like show put their money where their mouth is and show the market that they're serious and the best way to do that is buy and burn maybe in a different equilibrium when a higher percentage of our tokens are quality. Can we start to like trust as the investing community that just because they're not buying back their token today doesn't mean that the the cash flows that they're making aren't actually going to the enterprise value. So maybe it's a little bit of just like we need to kind of grow up and we need clarity to allow us to do these sorts of things and then maybe the investor base can have more confidence and trust in these crypto assets. But it's been a bit

bit of a lemon market and so the people that are serious about their token have to buy back and burn their token just to show that they're better than the rest. >> Feel feels like definitely like a sign of the times and we'll look back on it as a rather like inefficient use of of capital in a protocol treasury. I mean, if you think about it, we've got like what around 75 billion of, you know, aggregate deposit base in in DeFi today. And like the focus should be entirely on how do we make this trillions of dollars over the next couple of years, >> right? Or the next 10 years, whatever the time horizon is. >> Um, but you know, to to to the points you guys have made, I mean, this has been the only way to like make a credible commitment that you are high

quality, that you are aligned with token holders. you do it now because it makes sense and because token holders really want to see that, you know, but in 5 years from now, I'd be surprised if if if that's still the dominant operating model. >> I think it's a it's a great point, Alex. I mean, because like we invest in both tokens and equity, right? Often times side by side, if we have a series A stage company whose business is taking off, right, product is flying off the shelf and they said, "Hey, Spencer, we want to send you a dividend." And say, "What are you talking about? We need to grow into this opportunity." Like there's no way that any venture investor would be sitting there saying like yes a dividend would be a great thing for you to do or a buyback whatever it is like I mean

fundamentally like approximately the same thing right and so I think that Alex is right that we'll look back on this as like this brief moment in time where really what those teams are trying to do is acknowledge that there's a lot of ambiguity of whether or not some of the um folks around the network are aligned with token holders and what they're trying to do is put that flag in the in the sand and say like we are we're aligned this is what we're going to I think that's the optimistic case like we want that to be in five years we want that to be the case where our teams can use their capital more efficiently and if you know things going according to plan that's better and maybe that's because we have a growing proliferation of like native crypto assets that people can trust and like we're kind of out of

this lemon market. I would say that's like the the the happy case. Um not not always the happy cases happens in the crypto industry. Little bit of pain is healthy you know. Sure. Uh, one conversation I want to have with you guys is a there has been a growing conversation in the VC sector of crypto about how there's no such thing as a VC, a crypto VC anymore and all the mega funds have expanded their mandate to include AI, robotics, other frontier industries simply because uh, you know, the bare case is like VC and crypto is dead or just that crypto is growing up and like a lot of a lot of the the meta has shifted and so there's no there's There's no crypto VCs anymore. That's

like kind of the critique of the cryptovc industry. That's not what you guys are doing. You guys are staring this uh perceived malas in the crypto industry and the cryptovc industry and you're not blinking and you're doubling down on crypto. And so I want to learn a little bit about like what you guys are excited about because everywhere I look I see two things. I see like institutions licking their chops about blockchains and crypto and what can crypto can do for their businesses and then I also see sad crypto OGs and like why do I see so much of both and how do we square these things and I want to get into like how that kind of leads your guys' investment thesis at at Blockchain Capital but uh maybe Alex I'll just start with you like how do you how do

you square the two things of just like pessimistic cryptogs and then institutions that are just like licking their chops I mean there there's a lot of things going on here right? Like I I think for us what we try and do is is zoom out and and not pay attention to the ups and downs in in uh you know bare and uh and bull market cycles. And I think it's very easy when you're in a bare market, a token bare market especially, to get very pessimistic about the the opportunity space and especially when there's other sectors that are doing really well. That's what's different about this bare market. I mean, there's actually a lot of things that are different about this bare market and some of them are really bullish. Like we've never had a bare market with this many positive catalysts, right? We're getting

regulatory clarity. We got the Genius Act. You know, fingers crossed on on clarity, but it's a matter of time, right? We're going to get it. If it's not right now, it's going to be, you know, in the next couple of years. And so, the rules of the road are are being laid. Institutions have have clearly seen the writing on the wall and have, you know, gotten into the space in in a serious way over the last couple of years. And we have use cases now that have sort of broken out of the the crypto zeitgeist into the mainstream. Got things like prediction markets where people don't even, you know, know or care that it's on crypto, right? But it is in Poly Market's case and and a bunch of other ones. Um and we have stable coins where what people get there is they get dollars, they get payments,

they get crossber payments that are cheap, they get remittances that are cheap. These these types of applications and so these are the kind of early examples where like they've been growing through a bare market and that that's really really notable to us. So like that that's something actually in past bare markets we we didn't typically see. We didn't see like concentrated like secular growth in in a couple of different verticals. But now we have this dynamic of like AI has sucked the air out of the room. It's been moving much faster like it had its its sort of like really big moment in 2023 and then maybe you know another one about like seven eight months ago when people started using coding agents like the open claw revolution and that kind of stuff. So I think there's there's just been so much attention drain that is

being kind of coupled with the bare market dynamic where people are getting a bit distracted from you know the broader um I I think you know dynamic that's playing out in crypto and when you know for us like we we were started in in 2012 like we we've weathered a lot of these crypto ups and downs at this point I think we've gotten pretty good at zooming out and like staying focused on the on the long-term picture and from from that perspective what we see is like We've crossed the threshold in crypto where like this is inevitable that that there's a network effect that has taken hold. It's growing, but people don't appreciate how early it still is.

And like if you I I think probably the you know the best analogy for it is the internet. And like the internet like if you think about the timeline here and at what point the S-curve inflected like we're not there yet in crypto like the internet became publicly usable in 1989, right? Takes takes a long time for network effects to take hold. And so the first like 10 11 years of that are like you're you're trying things out. You got a couple applications. A few of them are really working. By the time you know you're in 1999 2000, you have a couple hundred million users of of of the internet, but it's still clunky. It's bandwidth constrained. You know, then you have 2000 through 2005 and you have the broadband shift. And so, you know, I would argue that's kind of what we basically just went through and maybe

we're at like the tail end of that. Like block space has just become cheap and abundant. Blockchains have like in the last few years become very scalable. I mean obviously we had Salana in 2020 but that was like the first of its kind right that like gained traction and was and showed the path forward. L2s didn't get fast until you know 2024. Today like that's the status quo. Even Ethereum is like scaling progressively now. And so like that that that's the state of play. Blockchains are cheap. You can build mass market applications on them. Um and and then you know really for the internet it wasn't immediately when broadband uh shifted right that that um that that scurve inflected. It was because the mobile explosion in 2006 through 2010. So like this is a good

like 15 16 years since the internet first became publicly usable. So to me there's this question of when does the clock start and like it's convenient to say it starts when Bitcoin was created. I think you could make an argument that it starts when Ethereum launched in 2015 and we're like, you know, 10 11 years into that like internet of finance or internet of assets um gaining steam. And you know, when you look at it from that perspective, we've made a tremendous amount of progress. There's 700 million, you know, some odd uh crypto holders out there. That's like your, you know, most immediate top of funnel. Um then you have maybe about 10% of those are like onchain active users that have like basically for the last couple of years like chewed glass to be able to use

crypto applications. And you know a big big dynamic here that like people don't talk about enough is the fact that like good crypto applications like usable crypto applications that you know a retail person didn't need to be like a part-time cryptographer to take advantage of have been around for like 2 three years. like the consumer stack in crypto is 3 years old. It takes a while for people to like learn the new lay of the land and then start using those tools and being able to like build the type of of applications that um really are going to bring the next you know cohort of of users in where crypto is totally abstracted away. And so that's things like you know obviously cheap execution but like embedded wallets um you know policies around recovery and

you know social recovery this this kind of thing spending limits these types of things a familiar authentication like these are important primitives that really didn't mature or like become widely used in crypto until the last few years like today these this is how you build a consumer crypto application but like three four years ago this was a new concept like not Ethereum didn't even have, you know, account abstraction at at at the protocol level at that point. And so you were kind of doing like extra protocol ways to get it done. And so like my perspective is we're in like 2003, 2004. We we've just had that like shift to to broadband um and and we're maybe like pre the mobile boom and so

like we're in the flat part of the S-curve. At some point it's going to inflect upwards. You're seeing signs of that starting to happen maybe on on the edge um of of things. So like in in you know new application areas like prediction markets where like you simply didn't have these types of products before or in stable coins where payments networks just didn't reach into where stable coins are are now showing a lot of transactional activity and so that edge around the use cases eventually that's going to come into the center and when it starts permeating the center that's when we inlect upwards and so I think this is right that moment when like it's best to double down on crypto actually like all like we've the the hardest parts of of crypto's path into

the world I think we've we've already you know crossed that that that chasm and now we're just waiting like it's a bunch of kindling waiting for you know waiting for that fire to really start roaring and when it does it's going to look obvious in hindsight but we're just in that period of uncertainty where attention has shifted away and asset prices are down but this is a distraction it's an absolute trap and like we're headed for that inflection point >> I am coming around and starting to accept this idea that my prior my earlier uh perception of crypto was too ambitious too soon. Like uh I was talking to Mike Dudas on the podcast recently and I I was talking about like when I got into crypto. I was 26 27 years old like borderline a child and I

thought we were going to change the world like tomorrow and 2021 was everyone everyone was realizing that and maybe I was just a little bit too uh accelerated in my timelines. And so, Alex, it's nice to hear kind of like the pretty traditional just like our our rails needed maturing, the tech needed maturing, and actually the sign of the times is that they're quite mature now and that that bullish inflection point is ahead of us. But I don't completely think that that counts for my question about why uh institutions are bullish but the OGs are jaded because there's there's something else about the path that crypto was on that it seemingly according to the people who came before

2024 or 2025 don't feel like it crypto is on that path anymore. like it's like a way of life style question that that our our way of life is no longer exists. And so I I accept your answer that like things take a little a little bit longer than my expectations, but I don't know if that accounts for everything. Spencer, I want to want to know if you have anything to add to this conversation. >> There's, you know, it's that that psychological dynamic, you see it in all sorts of places, right? Like when a startup has its IPO moment, all of the early employees will talk about like how magical it was in the early days and how like you know it became a large corporate entity because that's what it had to do. It had to grow up and like I feel that I've been along for that

entire path as well, right? Like I love the the crypto punk version of it, right? Like the the rebel pirates um that are creating something better, a better alternative. It's not being fused with the traditional financial system. It is distinct. It is parallel. It is already better in some ways. You know, this is I'm I'm thinking from a perspective of years ago. It was already better in some ways and it's going to continue to get better. Like I love that about it, right? And there is something that's a little bit hard to see like to see it kind of grow up and see it starting to get fused with the traditional financial system, but we have to acknowledge that like that's what success looks like, right? And and that dynamic, it could be the same thing for like when you you know you we've all

had that friend that finds that really niche band that eventually blows up and they love it until they blow up and then they talk about how I actually only love their original albums even though those are never the albums that got them big, right? And they almost regret the fact that they've become wildly successful. So I think that there's there's a lot of that. I think that some of that would some of that sentiment would dissipate if some of the success that the industry has seen on a fundamentals basis was reflected in prices, but it's not today or at least not relative to where prices were a couple years ago, right? And the path dependency here matters. If we had gone from David when when we started working in this industry, we started following all this stuff. If that line

was like a nice steady linear path to where we are today, sentiment would be completely different. But there is some path dependency there because we were once higher than we are today. It doesn't feel as exciting to a lot of market participants. >> The the only thing I'd maybe add here is like and and and David, I I think what you're what you're getting at here is like it's not cipher punk anymore. Like that is not the the meta and crypto. The conferences are full of suits. Like the conversation is about permissioned rails, you know, compliance and these types of things. And like that is not what the conversation was like 10 years ago when you when we were first like getting involved in this industry. Um and like like you you know I was excited about that. I was excited about freedom

tech and like self- sovereignty and and like the cipher punk version of what what finance could be. Um and I think to Spencer's point like success in this case means accommodating so many different use cases. a huge amount of the pie, especially in finance, is just like this is a very regulated category. And like there's no way around that. You just can't succeed without accommodating these types of users. But what I'd say is that like some of the elements that made this interesting to like the cipher punk audience, you know, the fact that like Ethereum and Bitcoin are decentralized networks. They're neutral. They're not controlled by a company or a government, right? like these are also attractive properties to institutions that value, you know, like a substrate with better

trust assumptions and better trust requirements that allow them to do business more broadly. And so I don't know that they're necessarily mutually exclusive. Obviously, the the the areas of of the space that are getting a lot of traction right at this moment, you know, are taking a more kind of like buttoned up regulated form. Um, but a lot of them are be are doing that on top of a permissionless uh substrate. And so I think that cipher punk dream is alive. It's just not allowed. And I don't think they're they're mutually exclusive either, right? Like Bitcoin's not going anywhere. E isn't going anywhere. Like they're going to be around. Those are going to be important assets to me. I think so. Important assets that'll be an escape valve in some ways, right? I mean, if you think about Bitcoin, are

you know, governments going to stop debasing their fiat money? No. Right. So, I think that it's at least an interesting asset. Whether or not people should own it is up to them. I I don't know. I'm not going to make that decision. But like it's at least an interesting asset in that world. ETH as well. These are interesting unique assets. So, I don't think that like the cipher punk view totally dissipates. It's just that there's um we're upgrading the financial system and it's actually happening. Like we've talked about this for years. It's really materializing and I think people should be excited about that. It's this like >> it's not the sexiest thing to talk about honestly when you're talking about upgrading the financial system because like most of our financial products that we use are invisible to us dayto-day.

But if you can create more efficiency, more utility from them, it genuinely benefits everybody in the world. And so like that's what motivates me. It's super exciting. Small improvements in efficiency have these huge reverberating effects across the economy. Like everything that happens in the world like flows through some sort of a financial system. If you can make that piping better, it makes everybody better off and you should feel motivated and excited about that. >> Yeah, that's definitely the optimistic perspective that I think has been missing from the crypto industry for for a while where like in crypto 2021 to 2022, we were so incredibly optimistic about doing exactly that like how do we spread the wealth? How do we get everyone on board? There was a another inflection point, one last inflection

point perspective that I want to bring into the conversation. the same at the same time that the institutions came in in a very big way and Alex you haven't mentioned this yet but a line that you said to me that I think um stood out when we were uh prepping for this was that for the first time ever institutions are leaning in while prices are down. So like they're leaning in under their own merit rather than kind of being compelled by narrative to lean in when prices are up. And so that's that's validating that's great that signal. Uh and at the same time at the same time that that is happening for almost all of crypto's history it's been in this infrastructure investment cycle like infra investment spawning infra

investment spawning infra investment and like now in 2025 2026 it seems that like alongside the vibe shift alongside institutions stepping in it seems that we have permanently departed from that infrastructure investment for just for the sake of infrastructure investment and that that use dominate the entire crypto industry. And now now we don't do that anymore. We don't do like the next L1 and we don't do like the the 13th L2. How would you account for what happened here? Like what what does this represent for like where we are in the maturity of the industry?

>> Clearly, if you go back to 2019 and you you're you know, let's say you're using Uniswap, you're paying $5 $10 to to make an exchange. Um, you know, obviously there was an infrastructure upgrade that was needed and that was the number one problem in the industry. It was like people want to use these applications, but there's so little uh block space that that that it's just way too expensive and so people people can't can't do it. And like what we needed was way more block space. So like as markets do, especially when you have, you know, a dynamic where you basically put a public price on like a series A, you know, maybe series B startup, um markets, the pendulum swung too far. We overinvested in infrastructure. We got

that, you know, that that block space expansion that we were looking for. We got the scalability we were looking for. And now the pendulum has has kind of swung back and we're probably a little bit too negative on on the infrastructure at the moment because a lot of the blocks are empty. And that's because we overinvested in them. So we built so much block space that like we got ahead of where the demand was at at this moment in time. We have an abundance of block space. But like that is the prerequisite I think for um for for application developers to come in take advantage of that cheap block space and build some of those applications that you know 5 6 years ago were just too expensive to to deploy on a blockchain.

>> And and David to put some numbers to this cuz you're exactly right like it's been a huge shift like the the data really bears this out in 2021 over 70% of the fees that users were paying were going to infrastructure. That was because we had elevated transaction costs. we had limited block space. The industry went on this big effort to say like, hey, listen, we can do better than that, right? Transaction fees shouldn't be a couple hundred. Let's improve block space. Let's improve the infrastructure. And I think it was 2025 was the first time that application layer fees surpassed infrastructure fees. So what happened here is that as um as we as we reduce transaction costs, value moved up the stack to the

applications themselves. So users are paying less for the infrastructure, more for the financial services that are built on top of them. And if you think about a maturing healthy ecosystem, that's exactly what you want to see, right? People shouldn't be the infrastructure itself shouldn't be extracting enormous amounts of rent. This is the whole thing that we set out with crypto to avoid, right? We said, listen, the banking system is sitting here and extracting a massive amount of rent. We can do better than that. So like what we're seeing is actually success even if there's moments of pain associated with that kind of transition and that structural shift. Does that mean we've kind of just like migrated?

We're done with the fat protocol thesis. Not to say that the fat protocol thesis was wrong. It was just apt up until maybe 2022, 2023. And Solana really came came and changed the game and was like, "Oh, sweet constrained block space you have over there theory. What if I made it abundant?" And then all of a sudden the the abundant block space meta took over and all of a sudden that was the end of the fat protocol thesis. You know, like ETH is money was the ultimate expression of that. And then now we're just moving higher up the stack. So now we're at the fat app thesis which is just, you know, applications are businesses. Applications capture value.

is that's just kind of like the natural trend that we would expect to see over and over and over again had we reran the crypto simulation. You would just expect to see value capture slowly move up the stack. I mean my my take here is like this is sort of an inevitable consequence of of blockchains. Like the protocols were never going to capture huge amount of value like Spencer said like this is about disintermediating finance and making the system fundamentally more efficient. That implies you know a small rake. Um what I think though is maybe like the the the nuance um or at least like the way I think about this longer term like it's thin protocols but massive markets. So like if if you have a small take but you expand the size of you know global

finance by an order of magnitude you could still be fat by today's standards in the context of that larger system you're thin and that's good for everybody involved. I think this goes back to what I was saying about maybe I was just a little bit impatient and uh overly ambitious in 2021 2022. It feels now crypto is just like a pretty small industry at least from the OG perspective but we're doing a lot of the things that we've set out to do and like to your point like institutions coming on chain finance real finance is coming on chain and in the grand scheme of things that is what it is actually going to take in order to actually become like the global market like literally put the world on chain and maybe just in the fullness of time we we we'll get there

uh we just need real finance to happen on chain and like may maybe ETH is money in the the big sense of the word. Not not like the moderate sense of the word, but like the the grandiose version of ETH is money. But first, we have to get all finance on chain and that's how we that's how we do that. >> That's certainly my perspective. And I mean empirically like Ethan ETH is money. Like ETH is used on many, you know, non-Ethereum L1 networks. Like it is it's a popular currency in the crypto economy. I I think there's no way you can argue it's not, you know, despite despite people um you know, maybe wanting that to be true or like telling a narrative that like no one's going to use it as money or collateral, like it continues to be used for for for these

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labs? Like do these two industries rhyme together? So like to some extent I mean there there are similarities in in how they're financed. Um I I think a lot of the similarities end up breaking down but like I mean it's when you're staring it at in the face like there there are some things that are you know too obvious not to notice, right? Like in crypto we had you know L1's launching on a white paper and founding teams at multi-billion dollar valuations. Like that's like the alt labs right now, right? like you you know with with a research thesis and elite talent maybe coming out of open AI and anthropic like you can do something similar here. um you know we were raising money on like having really good maybe test net benchmarks or TPS so like model benchmarks are the equivalent there

right like exchange listings were like hyperscaler distribution so uh you know and and then obviously like validators market maker support this kind of thing like you could make an analogy to like cloud chip infrastructure partners um and maybe maybe token price is like private financing valuation and so the you know that's obviously one of the big differences that the tokens were were public you had a a price on it like s sort of a you know real time sentiment gauge in in AI that that's obfiscated it's hidden by by private markets and so like an unwind of that like alt lab thesis you know probably looks you know much more like you know down round structured financings aqua hires like talent migrating to to other

opportunities maybe consolidation like some of the hyperscalers might like pick up some of the alt labs at like much cheaper than than where they were financed um that you know strategic control basically and and talent acquisition. Um versus in crypto you know that that that decline was like your token's down 90% in in a month because the narrative just fell out totally and like it became clear that demand wasn't there for that. And so like I I think in in in that sense like that there the these parallels hold quite a bit but like in in other ways like you know crypto is just I I think it's been it's been more difficult for crypto to put the pieces together like to to really make it make it usable

around the world. It's not as as simple as just deploying through existing channels with a product as obvious as intelligence. It's like this is a network effect that gets built by stitching together the hundreds of financial systems around the world and then eventually absorbing them and that that's just a longer transition. It it involves regulation I think in a much more direct way. You know obviously like AI has regulatory implications but um but the financial system has sort of established rules that um that you know crypto had to find their place in and then maybe to some extent like rewrite them for for the crypto markets which is happening now. Um, and so that's where I think it kind of breaks down. But like, yeah, the the the parallels are are very interesting, especially on the financing

side. >> If we are trying to extend this, and I don't want to extend metaphors too much because they can only take us so far, but just like, you know, if the fat protocol thesis, which is like to me, open AI and anthropic are the protocols. Does if the trend follows crypto and it does kind of feel like crypto is just 5 years ahead of like the AI industry, especially when it also comes like regulation. And like I think AI is going to have to fight the regulatory fight that crypto has kind of already or is working its way through. But if the trend does go from fat protocol to fat app, does doesn't that imply that there's going to be like a layer above the LLMs around applications that also provide all the value and are kind of like the the consumer front end? Maybe

I'm maybe I'm taking this too far, but Spencer, I don't know if you have any thoughts here. >> I think that's right. Like I think that that that parallel works as well. Um and the reality is like I mean this is what you know uh Alex Karp and Palanteer out talking about right is like somebody needs to actually take this into the enterprise and make them successful in it right and so like it's one thing to have the model and have the intelligence that doesn't produce the outcomes that people are looking for and so we see this even with some of our portfolio companies where like you know that whole model of forward deployed engineers is becoming very real like you have to produce outcomes not just the raw intelligence so it's moving away from just analysis and intelligence and more into like workflows and actual outputs.

So again there's like there's definitely a lot of rhyming there especially amongst investor sentiment is the one where like I see the strongest parallels right where for the past year it has been like I don't know if I want to invest in any AI applications I should probably just put another every marginal dollar should just go to one of the frontier labs that's it and then all of a sudden we had this big reckoning of like oh no uh software modes are no longer a thing what are we going to do and that was kind of funny right because for all of us we're sitting there going like wait a You guys had software modes. We've never had software remotes. Like we've been navigating a world without any software modes the entire time, right? Like our entire industry is built on open source software that anyone can

fork. So like this entire notion like all the questions of like where is value going to acrew in the stack? How do you um build into defensibility without software? Like it's funny to watch like an entirely new industry um an entire new group of investors wrestle with the same questions that we've been tackling for, you know, 10 years now. I do I do think the point is really good because like you know alt L1's um you know from my perspective are you know they're asking that question of like which part of the application layer do we have to play in and like to an extent open AI anthropic any other frontier lab that that joins them is is going to have to ask the same question at a certain point because it's it's clear I think today that like you know like you're like weights are are um you know are largely

going to be a commodity uh but the harness is is certainly not. And so what do you specialize in? Um you know obviously like there are some use cases where you can't hallucinate you can't get something wrong like manufacturing for semis is a good example of this where like the the AI tools that probably speed up manufacturing a lot are like not the frontier models today right it's the frontier models plus fine-tuned models plus data sets that like the the the companies that are supporting this buildout um have have accumulated and there's very clearly a moat I think at the application layer there if you can improve outcomes significantly versus a frontier model.

So, are they going to chase that opportunity? You know, probably not. Like, my guess is depending on how difficult it is to move into that part of the application space, they may not. Um, but for certain other applications, they will. Like I could, you know, something like accounting, right? Like they're probably going to figure out how to do that would be my guess. But like something more complex where like it's it's a lot harder to specialize where there's a feedback loop. The more problems you solve for customers, the more you know about how to solve that problem. like those areas are probably going to create a lot of value at the application layer um where that's not going to generalize to the model. So bit of a mixed bag and like maybe you see a similar kind of thinking going on in in in uh L1's right now where you're

realizing look the protocol fees just aren't going to sustain the business long term or at least there's no story if you're at like 5 billion FTB now like you you you might already be at the market cap implied by like huge future adoption so you need to figure out something else some other way to create value. I do appreciate after being like an investor in crypto for a decade how sharp teeth are cut in the crypto industry from being an investor. And maybe this is just what all investment is like. Like you start seeing patterns everywhere, but this one feels particularly salient. And I feel much better prepared to invest in like the the AI industry simply just because like I've I've seen some shenanigans that you would have never seen in the equities markets in the in the crypto world.

You've seen the shenanigans, so you know how to be careful of the, you know, three layer SPVS. You've seen the wild sentiment shifts. You've seen the fast money grifters that storm into any industry that's hot. That's not something that's unique to crypto. That's any industry that's hot. >> Yeah, >> that's the human condition. >> 100%. And that's the nice thing about the market environment that we're in is those people are all distracted. They're all gone. And it's so nice. Like honestly, I can sit there and I can analyze these businesses on a fundamental basis without all the hype attached to them and without all the noise. It's beautiful. Yeah. Yeah. Let's get back into into the crypto world. Uh tokenization of real world assets, tokenization of equities seems to be like we're on the frontier of that meta.

And it seems to also be a kind of a logical next step after we have just a massive explosion of tokenization of dollars like the first real world asset, the first the first uh the yeah, first real world asset. What lessons now that we've have the tokenization of dollars more or less in the rearview mirror? plenty of dollars still left to tokenize, but like we're doing it. What lessons from the growth of the stable coin sector can we apply to just the growth of tokenization of equities? Stable coins have gotten the flywheel already spinning. Okay, so that's going to let you know before I even jump into the flywheel, let's step back like a little bit here. Um, this whole the emergence of RWA something we've been following from the very beginning. Okay, so we're I know I have a hard time tooting our own horn

sometimes, but we're the only venture investor in all three of the major stable coin issuers, Tether, Circle, and Paxos. And all of those investments were made almost a decade ago, right? So, you know, the classic like 10 years to make an overnight success. Everyone's very excited about stable coins today. We were excited about them 10 years ago. It took a while for them to realize their full potential. Even today, we have not realized their full potential. Okay. So, you know, today we're at something like 300 billion. I have zero doubt in my mind that we're going to the trillions by 2030. Like zero doubt. To me, that is like it's an almost outlandish prediction and yet I can put like a 90% plus certainty on that. That's my confidence level anyways. Um >> what about what about two trillions?

We're at 300 billion. What about two trillion by 2030? Do you think we'll get there? >> I do. Yeah. >> Like I I really do. Um I think the flywheel is spinning incredibly fast now. Um we we have to realize that like as more dollars move on chain, it creates more liquidity for all the applications on chain. That creates an incentive for developers to build more applications to service this larger market which creates more use case and more utility which pull pulls more dollars on chain. And now historically that flywheel so this has been in place for now a few years. That's what's been driving the adoption is that same flywheel. Today that flywheel each turn of it is larger than the last because it's driven increasingly by

institutional adoption. Right? Historically that's been that flywheel was entirely retail driven. So today as it spins it's not just pulling in dollars, it's also pulling in tokenized equities, money market funds, treasuries. Basically all traditional assets are getting pulled on chain. And why? Because we have better financial infrastructure, right? Like having financial infrastructure that is global, always on and programmable is simply better. If we think about like all of fintech, all of financial innovation, like fundamentally, what are you trying to do? You're trying to improve capital efficiency.

Now, like what are the hallmarks? What are the signs that we'd be looking for that we've actually built more efficient financial infrastructure? Well, one of the things I'd be looking for is to see that the money that's in there is is working harder for you. One way to measure that is velocity, right? If we look at the velocity of stable coins, it's something like 120x, meaning that the average stable coin dollar turns over 120 times per year in the onchain economy. That's actually extraordinary, right? Like I'd have to pull up all the latest benchmarks comparing it to like what your favorite um payment network or um you know what M1 or anything else.

>> I have so I have so many favorite payment networks. So it it's it's much much more efficient, right? And so this is what's pulling in a massive amount of capital on chain and we actually ran the numbers cuz we were curious of like what is actually the impact of stable coins moving on chain because there's this big misconception. I hear this all the time from other investors, from casual market participants. They say stable coins are cool. They're a payments product. Like no, no, they're actually not a payments product, right? Because when you when you have the mental model them as a payments product, they're used for payments. They're not a payments product. There's a difference there. Cuz when you think of them as as just a payments product, um the the mental model that you're

thinking of is a dollar moves on chain, it transits from A to B and it hops off chain. But that's not what's actually happening, right? What we see is that dollars that move on chain tend to stay on chain. Like there's a very high attach rate. they tend to be very sticky and they find their way into the applications that exist on chain. And so we actually went through and we mapped like what happens if you have a billion dollars of net new issuance of stable coins and like the vast majority of that is actually not set aside for payments. Like a little over half of it is immediately deployed as working capital into the onchain economy. that might be in lending protocols, exchanges, um other things that exist on chain purpose protocols and and it generates it

doesn't just sit there idly, right? Like this isn't working capital that just goes and sits there in a or sits there in unis swap. It produces an enormous amount of economic activity. So a billion dollars of stable coins in a year produces about $122 billion of economic activity. So what happens is these dollars are not just coming on chain and transiting and hopping off. They're coming on chain. They're being deployed as working capital. they're producing an enormous amount of economic activity and all of the uh applications, protocols, and networks downstream from that are capturing revenue from it. And so when we ran these numbers, what it came out to was roughly a billion dollars of net new stable coin issuance produces about $19 million of downstream protocol revenue.

So David, connecting where we started, how is that like on a yearly basis or in total? How do you think about that? >> Over the course of over the course of a year. So it's just like we went through this mental model of like let's just track a billion dollars as it courses through the onchain economy over the course of a year and that's what we landed is produces about $19 million of pro downstream protocol revenue. So, just going back and I I want to let you finish, but just to talk about some of the numbers. You think there's going to be $2 trillion of stable coins in four years. Yeah. >> And one and you're saying the math, you ran the numbers, you got the receipts.

$1 billion of stable coin issuance creates $19 million of revenue a year, reoccurring revenue a year. And so with $2 trillion more dollars, multiply that by 2,000. So 19 million of yearly revenue by 2000 and then that is the level of revenue that's going to be coming in the applications if these numbers hold. Exactly. That's exactly the point it's going to connect the dots on is like exactly that. That's why we're so optimist. That's why I'm I'm looking around the corner. I'm like I cannot believe that people are talking about bare market or they're feeling like maybe the industry isn't succeeding. I'm like literally it's the it's the fattest pitch of the game and a lot of people are taking their eye off the ball right now. Right. So even if we you know David let's assume that like

fundamentally we should want all of this infrastructure all these applications to continue getting more efficient the way they have historically let's say that going forward instead of 1 billion of net new stable coins producing $19 million of downstream protocol revenue let's say it's only 10 big numbers these numbers are extraordinary and that's just the portion that's captured onchain right these are just the onchain protocols and applications this doesn't include what's being captured by, you know, Tether, Circle, Coinbase, Kraken, TRM, like all the great companies >> because you can't measure that because that's closed. You measure the data that you can measure, which is the onchain.

So like the $19 million is onchain protocol revenue, which is like from the cryptonative, the OG people who are like sad and bummed lately, like that's their stuff. That's the cy the crypto punk stuff. >> Yeah. And it might not be all of the things, right? like not every crypto token is going to benefit from this but we are seeing a lot of the you know a lot of the same blue chips that you and I have been following since the early days right like a and unis swap right they are participating in this downstream protocol revenue >> yeah uh that was my next question is like what what what types of applications are receiving some of these revenues are you able to kind of like categorize which are the the most exposed types of applications to this 19 million per$1 billion of issuance of

revenue a year >> yeah I mean certainly like the um the the lending protocols, the exchange protocols, those are a huge portion of it. Um >> derivatives venues, >> so like a unis swaps, morphos, vaults, kind of like the the DeFi stuff that we see having activity these days is probably probably the answer. >> Exactly. Yeah. And so and I mean, you know, we we touched on earlier of there's been this structural shift of the fees that users are paying are um shifting away from the infrastructure and towards the application. So like we should acknowledge that this will continue to change over the next four years. Maybe infrastructure fights back, right? Like maybe the network effects like materialize stronger. They develop

more pricing power and they're actually able to squeeze the applications a bit more >> possibly. >> Is a an application or is it infrastructure? >> Um we have this debate internally. I I'd say it's somewhere uh it's both, but um it's >> both. Alex, I'd like to hear your your answer to this. >> Yeah, I think the the answer is both, right? like they they operate applications on their protocol. They also built the protocol and launch new versions of it and invest in R&D. So, um it it's kind of both, but like the the the the cool thing about a is obviously their back end is open unlike, you know, a traditional fintech or like a financial institution where you might expose APIs to developers, but in you know, you're never sharing state. You're never just opening up your your liquidity for for folks to use. And so I

think the really clever thing that A has has done now is like they're they're very much anticipating the growth drivers for the next 10 years which is you know stable coins are step one and that's been a huge driver of the business right like I think something like half the deposit base maybe even more are stable coins um and that's the thing that people want to to borrow against their their collateral um they're anticipating that growth driver is going to start to be other tokenized securities so you know tokenized commodities tokenized stocks um tokenized private credit, you know, obviously the the treasuries have been have been driving that and so moves like Horizon, moves like A V4 set A up to continue to evolve in that world. Um and

and like you know for us like as as an issuer of a tokenized fund like we could create an AV for spoke and we could add liquidity and then all of a sudden people who own the BCAP token could go in and they could borrow USDC against that. you know, that that's a capability that is now possible as like the V4 era, you know, sort of begins. And it's still early days for V4. So like that activity hasn't really shown up in a big way yet, but you don't have to squint to see what's possible now with with something like A. And you're seeing the same kind of dynamic with Uniswap. You're seeing the same dynamic with Hyperlquid that's now platforming other trading venues.

And so the answer is both crypto protocols simultaneously are platforms. And then, you know, often times they build that application layer out first. I think in a successful world they are they're an awesome application maybe the most important unclear we'll see in the future right but they're one of many applications that share this this um you know this this more likeworked financial product that really has organized itself around the token as the kind of unit of value which is is a very different thing here like traditionally in finance you are building a bespoke relationship with an institution you're being given sort of a limit did menu of things that they deem, you know, are appropriate for you.

Um, in in the internet of assets that's reorganized where markets are reorganized around the token, you have a balance sheet, you have assets on that balance sheet, those assets have capabilities. You can go look across the network. Where is this asset useful as collateral? Where could I pledge it? Like that's the shift that's happening here. It's a subtle shift, but it's super powerful. And like I mean maybe you know the the one of the ways I've kind of thought about this is like an analogy to shipping containers where you know before shipping containers like pre-1950 crates, barrels, sacks would be individually unloaded, counted, inspected, you know, repacked like wherever cargo moved between a truck, a

port, a ship, a railroad. And like this effectively made it super costly. It meant that ships had to, you know, be be docked for a while. like ships spent more time uh parked dealing with cargo than they did at sea moving it around the world. And so global supply chains were constrained by by the cost of of you know the the equivalent of like a transaction cost in shipping. And as a result we just did bit less business with other countries. We did like companies couldn't establish global supply chains like that that just simply wasn't economical at the time for the vast majority of goods. And then you introduce the container and you standardize it kind of in the 60s through the the you know the early 80s and like that doesn't change the the goods that move. But what it does is it

says okay here's the way that you can you know here's the way you can build ports and machinery that can handle these things here now you can build larger ships because you can ship way more things more cheaply. I think it was like a 97% reduction in like loading time um that that the standardized container produced. And so the container reorganized global supply chains. That's what the token is going to do. And it's very early innings now, but like the token basically is that interface to it. It's the interface in the same way that the the standardized shipping container was was the interface for shipping. Like this is the interface for economic rights. And so it does like all tok you know all tokens are different and and it it depends what types of economic rights

and the strength of those rights that you build into the token. That's why we see this big spectrum of like quality of assets in in the tokenized space. But the point is that with tokens you can have things like a you can have things like unis swap that pop up that build like aworked solution to that problem rather than a new financial institution that's a you know centrally managed company that um you know operates within one specific jurisdiction like now you have a global marketplace you have a network of opportunities where tokens can you know petition for the best deal and so I think that's what it ends up looking like it's really like you know the the the type of financial engineering that is accessible only to the most sophisticated and well- capitalized institutions around the world. That becomes just like the state

of play for anyone even down to like a thousand bucks in a savings account, right? Like you're going to have the ability to use sophisticated um financial products and you're going to be able to be part of of the global market. Like there isn't going to be this this the you know like barrier to entry and that's going to be transformative. That's why I think these markets are are, you know, they're going to allow like the global financial market coordinated on blockchains through protocols that um that that are reorganized around the token. That's how we get 10x bigger. That's how we make sure that there's nobody with merit that actually has an an opportunity that someone out there would be willing to underwrite. Like this is the substrate through which you connect opportunities

with capital in the future. This is the whole thing I think like generally of why RWA isn't getting exciting is like and and by the way also the reason why the private permission chains I don't think are going to work right like there could be some level of permissioning around these but I think they must be public because like the entire value prop is that Alex was just outlining is like hey let's take these assets out of these silos where like it's really hard for me to get a competitive bid when I exist within one of these silos right like yes in theory I could borrow against my equity portfolio at Charles Schwab. It requires me to get on the phone with somebody. There's extreme limits around it. I have to get permission. It it's it's a process that is fraught with friction and I can't get

a competitive offer for it. Right? When all of a sudden I can hold that same portfolio on chain, I now have an open marketplace of people that will want to bid for the right to service my assets. This is inherently very proconsumer. It's pro a competitive marketplace and that's just good for everybody, right? But in order to do that, you must pull them out of these private silos and you must put them on public infrastructure where other people can kind of compete to service those assets. >> I opened up this conversation asking about like what lessons did we learn from uh stable coins so we can apply to to public to tokenized equities. And I think Spencer, you kind of just like rightly said like whoa whoa whoa hold on there's so much left to talk about in the stable coin world that's very

bullish. And I think the the really the TLDDR of that is that we there's so much left to bootstrap in stable coins, but once you do the bootstrapping for the rest of finance is primed is is primed. Uh and you know that that also feeds back into like satisfy the crypto OGs with $19 million of revenue per $1 billion of issuance. I'm going to remember that that metric for every single podcast moving forward. It's such a good one. But then it also uh produces the liquid marketplaces to bring institutions on that they wouldn't they wouldn't have come if somebody wasn't there. But now that the stable coins are there and the liquidity is there and people are going to bid for rates, bid for for lending opportunities, all of a

sudden there's like room for institutions to come on chain. But let me get back to the original question because we're moving from stable coins into tokenized equities. So like Spencer, what's your like your road map of sorts or expectations for how tokenized equities come on chain and then grow in liquidity? Because we have tokenized equities. We've had them for a while. There's they're marginally starting to grow in liquidity, but like they're still not there yet. So like what what's your roadmap for how tokenized equities goes from like A to B by the end of the decade?

>> Okay. So so two things. The first one is just access and this is kind of the first wave of adoption for stable coins as well, right? It turned out there was intense demand for dollars globally. There was a lot of friction in actually accessing dollars. It's not that they were um in in most cases they weren't explicitly prohibited. There was just a lot of friction in actually getting your hands on them, right? All of a sudden once they became internet native with global distribution um stable coins proliferated around the world, especially US dollarbacked stable coins specifically. I think the same is true of the US stock market. Um there is a lot of demand for it internationally.

Yes, people can set up accounts to access the US stock market from most countries. It is not the easiest process. Truthfully, in today's day and age, um people want to click a button and get access to it. And I think that that's what tokenized equities are going to do, it's not going to be super interesting for American investors, right? The same way that stable coins are not super interesting for a lot of US participants that are generally reasonably well served by financial products in in in the states. The second wave though and the one that gets me much more exciting is when you can leverage the programmability and composability of these, right? So it's not just that suddenly people can access them easier than they could before, but it's actually that they're better,

right? And this gets into the point that we were just talking about of like once all of a sudden I can have my equity portfolio on chain and I have service providers competing to provide me the best offer to borrow against it or to um generate securities lending revenue um whatever it might be. That's exciting, right? And so I think that that's that's the world that we're going to. But there is some tension in here, right? Because to get the programmability and composability benefits, we we should unpack the different models that are kind of emerging here, right? We have like the Xtocks model that's produced by Backed, which was acquired by Kraken. And the upside of this model is you get full composability in DeFi. You can use these things across all of DeFi. That's

fantastic. That's actually what >> KYC free fully permissionless like offshore. >> Exactly. >> Probably not clarity approved, but also indifferent to clarity approval. >> I think that's right. I think that's right. And and that's the part that actually gets me most excited. But there is a serious downside to them, which is you do not own an actual share. >> Right. Like I own a debt instrument that is tied to a vehicle that owns the actual share. Now, for retail participants, that's close enough, but that's not what's going to get you to trillions of dollars of tokenized equities because the largest institutions that are holding these, like once you're holding, you know, a billion, 10 billion, 100 billion of them, no, no, no, I want to actually own the share, right? Like not a debt

instrument into an SPV in the Cayman Islands, right? So, I think that like there's a little bit of a tension there. I think it can be reasonably resolved. I don't think going to full ownership is going to mean that you must sacrifice all programmability and composability, but it does mean that it's less likely to be in a a pure fully permissionless environment because I don't think the SEC is about to say, "Yeah, we don't really care if you trade shares of Apple with Lazarus Group." Like that doesn't seem very likely, >> right? Or I or we don't really care if Lazarus Group hacks your Apple shares. Uh they just get their share of Apple.

Congrats Lazarus Group. Like sweet hack. Yeah, I think that kind of like begs the or like kind of illustrates the sign of the times where for as long as I've been in crypto, the crypto industry and tradi have been on two parallel tracks, not intertwining whatsoever. And like especially in 2021, like you know, crypto punks, NFTts, DeFi, you know, ETH is money, all this cryptonative stuff. And we had this parallel financial system and we were building it in spite of Tradfi. We didn't care about Tradfi. they were kind of going to come on begging on their knees to become relevant to us and that was great. Uh and like now in 2026 it's like oh like your guys' blockchains are really cool.

We're learning how to use them, but we kind of need some KYC on the tokens and we kind of need some like, you know, interentralized intermediaries for you guys to do all this cool stuff. And that's not tenable to me as like somebody who believes in like public permissionless access. And so I don't know I don't necessarily know how to square these things because the financial system has been built in a particular way that is not aligned with the way that public permissionless blockchains are. But there is just so much um momentum to trying to make tokenized equities work. But I don't know who gives like does the SEC give or does the values of our public protocols

give? Like who who bends the knee to who and how do how do these things get resolved? I don't know that they have anyone has to give though, right? And like it is the first time. It's a very unique moment. I've actually been relatively bearish on the notion of tokenized equities for some years. Um but we do have, you know, an SEC that is pounding the table and saying like tokenized equities can and should and will happen, right? And I don't think um that the two things are mutually exclusive because like David, believe me, in my heart, like I love the whole parallel financial system. Let's go build this in isolation. let's go prove to the world it's better and let's let people opt into that system, right? And we don't need to fuse them. I don't want to adopt the bad standards over here.

But I still think that that can continue to exist and it will exist. The proposition that's on the table today is like, hey, would you guys like to have tens of trillions of equities that also exist in like little almost like sidec cars to the main public permissionless chain, right? They're not going to be totally private. They're not going to be totally walled gardens. Not going to be totally permissioned. But hey guys, listen. If you want this, which is going to be riding right alongside >> Yeah. >> that like pure cipher punk version >> car. >> Yeah. Exactly. Like >> Mhm.

>> I think that's a pretty good outcome for everybody, right? I think that that will actually accelerate >> the pure public permissionless cipher punk version as well because now the capital is sitting right alongside it. It actually gives us an even better opportunity to prove why we can continue to build better systems. Right now the capital can easily move into that if it wants to go and say hey I'm actually done holding my Apple or Nvidia right now it can go choose to hold ETH and set and it can use that in a purely permissionless context. Markets don't move one asset at a time. One day it's Bitcoin the next Nvidia then gold and then the S&P but most traders are still managing their portfolio across different platforms different accounts and different pools of capital. Bit just changed that. Their new stocks 2.0 0

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>> Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best cryptocycle investor I know. His name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years. And this year, we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday.

They're 30 minutes, they're short, they're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast, YouTube, Apple, Spotify, or find a link in the show notes. There's a new episode waiting for you. Now, >> this is uh something that you guys have some real world experience in actually. uh fund three, blockchain capital fund 3, you guys actually tokenized into tokens on Ethereum. Tell that story about why you guys decided to actually tokenize the fund, the real real real tokenization of a real fund, real real world asset on chain but so early in 2017. So like why did you do that? What lessons have you learned along the way?

>> Yeah, I think this was maybe like March 2017 and we're sitting there. It turned out to be very early days of kind of the ICO mania that manifested in 2017. Um it it's not always obvious at that point that you're early in that type of mania, but it was certainly picking up steam. And we're sitting there saying, "Hey, listen. We are a venture capital firm that is dedicated to the blockchain industry." And all of a sudden, we're looking at this new phenomenon that looks like it could disrupt the business of venture capital using blockchain technology. We said, "Hold on. if anybody is going to go and disrupt this business and this industry using blockchains, it better be us.

>> Um, and so he said, "Listen, let's go um walk the walk and not just talk the talk, right?" Like sometimes you have to go roll up your sleeves and go and actually build products in the space. Um, that's both awesome and a great learning experience and incredibly painful because when you're trying to do it in 2017, the infrastructure doesn't exist, >> right? Right. >> There isn't um you know we we >> you're doing a command line interface to issue a a tokenized security on Ethereum. Yeah. >> Well, and then you can issue it compliantly per SEC exemptions, but then you need to all of a sudden then people are trading these assets and that could put you out of line with where you're supposed to be and none of the like none of the other infrastructure exists to enable you to stay in compliance of the

SEC's requirements, right? Right. And so that actually that's what led us to leading I think multiple rounds, three rounds in security ties was specifically because they came along and said, "Hey guys, we know that you have this problem. We can solve the problem for you." Said, "Listen, okay, if they can solve this problem for us, they're going to solve it for a lot of people, right?" But um it it's been fun. I mean, the entire purpose of it was really twofold. One, it was to expand access. So it was, hey, listen, could we improve access to a venture capital fund? We were very successful in this regard. I used to know all the stats off the top of my head, but I think we had participants from like 80 different countries, including, by the way, a researcher up in Antarctica. Um, I couldn't believe that when we saw that like on the actual

subscription form, like, "No way, they're actually in Antarctica." We reached out to them like doing research. >> Their address. >> Yeah, something like Santa Claus Lane or something, I forget. Um, uh, and then, um, so that was the first thing was access. And then the second one was, can we improve liquidity, right? Because I mean typically for a venture fund you're locked up for 10 to 15 years, right? >> Um that's one where again the challenge ends up being like we can't just put the token on unis swap and let anybody buy and sell it because it is a security right explicitly. Um, and so I'm optimistic that now is finally the first time where as that fund has gone from an initial $10 million, we kept it small knowing that this is an experiment. Like

there was a lot of demand for this as you can imagine in 2017 of like could you guys could you guys make it 25, 50, 100 million said listen I think it's better given this is like very early stage. >> Let's keep it to 10 million. >> Let's see if we can make it successful. Today that fund is somewhere around roughly a billion dollars in assets. So it has been wildly successful for those participants. But what I'm most excited about is the opportunity to like help it fulfill its full vision, right? Because ultimately we can now have the trading infrastructure built around this to make it liquid. Alex was talking about maybe we could enable um token holders to borrow against it. That would be huge.

Um and so I think all of that is now on the horizon and it's an opportunity for us to continue to use that fund because it's a permanent capital vehicle. There's no end of life to that to that fun. >> Oh, so the token never closes. The token is the token. >> Yep. If someone wants to exit it, they go and sell the token. So that is their choice. That is they don't actually redeem from the fund. They sell it to somebody else, right? And so, you know, for us that gives us a unique opportunity to I mean we can invest in a company and actually hold it forever, right? Like we never have an end of life of the fund. We are never forced to sell something. So like that's pretty unique that we can go to a founder and say like listen we can hold this until like

you're done with the business and you say like listen guys it's over wrap it up we don't have to do that um on year 10 which by the way again like that's you know circle Pato's tether all of them are like having their day in the sun finally now in year 10 when you know those investments were originally made quite a long time ago. So what are you doing with the token on like the crypton native side of things inside the crypto applications to provide because the name of the game is capital efficiency here like why are people going to come on chain because of capital efficiency. So what ways is or will be the BCAP token gain capital efficiency using onchain mechanisms. You know, I I would say like, you know, we're an RAIA. Like we I think are subject to to some of the

stricter rules of, you know, participants in the crypto ecosystem. And so, obviously, we're beholden to that. That does that does limit the speed that we can move at here. It doesn't limit our thinking on it. And so, we're, you know, we're getting ahead of what we think is going to be possible in in the near term. And part of that has been the application space hasn't necessarily had the right infrastructure for like a tokenized fund to you know with with our set of rules and requirements um to to be able to you know create a line of credit against it or like you know an AMM or something like that. But you know for us this is always a lens when we invest in a company we're talking about the founder from the perspective of obviously as a venture capitalist but then also from the perspective of you know the the

creator of the first tokenized fund. And so we're we're thinking you know how can your your your product whether that's you know something like a you know h how is that going to be usable with our product because we represent kind of like the hard end of the spectrum. If you work on the easy end of the spectrum with like cryptonnative collateral like ETH and then stable coins and things like that, that's one problem. But if you're extensible also to like our end of the spectrum, that's when we start to get really excited. And when we're having conversations with with Stani about, you know, what does the V4 spoke look like here? And um for the first time, you know, as of like the last couple of months with with with V4, that conversation has been, oh, you know, that'll take like a day to set up

basically. And so for us, it's a lot of thinking on the legal and the compliance front. Um, but these are the types of ideas that we're kicking around right now and we're we're getting really really excited about and I think, you know, give us give us a year or two and and you'll we'll probably have a more exciting story to tell here about utility on chain. But it's certainly it's something that has recently become possible and that I think especially as we get regulatory clarity becomes easier for us to do. Yeah, I I suppose the whole idea around BCAP is like it's a canary for what other people can do with their tokens and you guys are just doing it first because you guys are on the frontier is what your guys' job is. But like if you guys can do it with a BCAP

token, any other con institution can do it with any other token and compliantly which is like what the big the you know the big game is here. >> Exactly. Yeah. Sometimes you just have to like show that you can do it right. And so instead of just deploying capital like again let's walk the walk and not just talk the talk. demonstrate people, show them that it's safe, the water's warm, you can go and do this, too. >> Spencer, Alex, this has been great. It's been It's nice to do a bullish episode. This episode has probably been one of the more bullish ones that I've recorded in a while. So, thank you for coming on and uh just making me bullish.

>> I don't know how anybody could be anything other than bullish. Like, honestly, with the stuff we're looking at, like I think the sentiment is almost confusing to me. >> Um I'm excited. I'm fired up. Let's go. >> Yeah. Thanks for having us, David. This was great. >> Of course. Of course. Bankless station. You guys know the deal. Crypto is risky, but it's not risky enough. The institutions are here, so we're going even more westward. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.