We Raised $2.2B. Here’s Why.

Transcript

the most successful founders in this next era are going to be the ones that are much more product focused, much more go to market focused and also more pragmatic rather than ideological. There's a strong sense that in order for crypto to succeed, it has to work with the system as opposed to trying to overthrow it. What we found in crypto is that finance is for a bunch of reasons kind of low hanging fruit. One kind of mental model that I have is we should try to get a billion people into sort of being almost daily users of blockchains through stocks and bonds and stable coins and payments and remittances and so forth. Once you have people onboarded, they've used the infrastructure, the wallets and so forth. It's natural at that point to offer adjacent services.

>> There's a big difference between the theoretical or the intellectual and the practical. And it's a wonderful time to be a pragmatist building on chain. All right. So, hey everybody. I'm here with all the GPS at A16Z Crypto. I think this is our first allG episode. We've got some familiar faces. founder and managing partner Chris Dixon, Ali Yaya, general partner who's been here since the start, as well as Eddie Lazarin, chief technology officer, recently promoted to general partner, and Guy Wlette, also elevated to the position of general partner. So, we've got all the

GPS here and we are announcing a new fund raise, crypto fund 5. That is the premise for today's talk and I'd love to get into it. Maybe we could start at why we are raising now. Chris, you want to take this one? >> Yeah. I mean, so as folks may know, we've had our crypto funds now since 2018 and I've been involved since I guess formerly since 2013 with the investment in Coinbase. We're at an interesting point now in the evolution of crypto where um on the one hand on the negative side market prices are down. Some of the sentiment is negative.

Some categories that are sort of non-financial um have not have not kind of panned out the way that we've hoped and some have hoped. But on the positive side, there's a lot of good things happening. So most notably, um we're seeing real kind of mainstream traction. So stable coins uh have um been growing. there's uh 300 billion in in issued stable coins, the volume of transactions, rivals, large payment networks like Visa. Importantly, that growth is uh not correlated with trading volume. If you look at the kind of growth curve, it looks much more like the growth of a computing network or internet network. So it it seems like a really healthy trend that was catalyzed uh in a large part by legislation passed

by Congress last year, the Genius Act, which provided a regulatory framework around stable coins, which um I think of regulation as doing two things. One, providing a a pathway for good actors, for builders, so they know, you know, what the rules are, which is very important, having that kind of clarity. But secondly, uh providing protections and guard rails for consumers. So they know that when you buy a genius certified stable coin that if you put a dollar in there is a dollar in the bank corresponding to that stable coin and that the the issuer is audited and has you know appropriate kind of safeguards around it which is extremely important for both protecting consumers but also building trust in the market. For those who recall, a few years ago when FCX

crashed, there was another big scandal called Teral Luna, which was a a stable coin that crashed. Um, so you know, we have evidence historically of the danger in unregulated markets. >> And the word stable coin there doing a lot of work. >> Yeah, the stable coin was in quotes in the past. Now it's a you know, government certified term. The bill was passed last year and we immediately saw an increase in entrepreneurial energy and you know new founders coming in with new ideas around it because if you're a founder you know do you want to risk entering an uncertain regulatory market and all of the kind of risks involved with that you don't you you know you go to do AI or you do something else so stable coins provides this this you know well understood well regulated kind of area with real use cases and you know what

are those use cases you might ask so for example you know uh firms like Stripe have leaned heavily into stable coins and it's taken their coverage from you dozens of countries to over 100 countries overnight by enabling stable coins. Stable coins are lower fee, you know, so you're moving bits around, right? You think about sending an email and just all the other things to do on the internet, but it doesn't cost that much money to move bits around. Payments in the US, for example, are two and a half% typically to to make a payment. Remittances can be significantly higher. Really, we don't have a global financial network today. We have a patchwork of lots of small networks uh broken down by country banks. Um it's a patchwork system glued together by humans and legacy processes. And before you had

WhatsApp, you had SMS and you had a patchwork of these SMS networks and you had to pay all these high fees and interoperability was sometimes a challenge. And you had these services like WhatsApp that came over the top and built a new kind of modern digital network on top. And that that's how kind of how you think about stable coins. It's a global network from day one built on top. So an obvious thing that's happening now is people are building lending markets on top of stable coins. Once you have money, you can have verbs, things you do with money. So lending is an obvious one. Yeah. The second area that we're we're seeing a lot of mainstream adoption is in is in financial markets. Um so people may have heard of per was originally a crypto kind of concept. It's become very popular as a way to get exposure to

various, you know, equities and other kinds of assets. What we're also seeing is a lot of interest from traditional financial institutions, Wall Street, almost on a daily or weekly basis, you'll see announcements where firms are talking about tokenizing stocks and bonds and basically taking these financial instruments which are, you know, huge markets and we're seeing a lot of interest and a lot of traction of of these financial firms moving these onto blockchains and modernizing that infrastructure. So that that's on the positive side and then the other positive thing I mentioned earlier genius is I think of stable coins as roughly 10% of the crypto world and now we have regulation there and I think we're close to getting regulation for the other 90%. There's a bill pending in Congress since the Senate called the

Clarity Act which would be a comprehensive framework for that 90% that you know may or may not pass this year. If it doesn't pass I think we'll see we'll see regulation come out of agencies like the SEC and CFTC which will do similar things. And I think the hope and our expectation is that that will do for the rest of the crypto market and all the other kinds of use cases that we've talked about that I wrote a book about that, you know, we've blogged about for years. For example, network tokens, which are tokens like Bitcoin and Ethereum and and DeFi tokens and so forth. Clarity would provide a regulatory framework for those and provide a clear path for builders. And you know I think one of the reasons that crypto kind of has a bad name in the world today in the broader world and

some people have soured on it is that there have been a lot of scams and bad actors involved and another benefit of regulation is it will mostly eliminate that. Our experience is new technologies like crypto go through cycles and you know we're clearly in sort of a down part of the cycle from a from a price point of view and a sentiment point of view but we think a lot of the fundamentals are strong and and position the market to come back uh you know strongly over the next few years and the way we look at venture capital is the combination of strong fundamentals and a lot of other investors having moved over to other areas in my experience has has been a good environment for investing in new funds. So, we're excited to have uh have dry powder now.

>> So, you're making the case that both the environment is ripe for it. We have uh regulatory certainty and clarity like we've never had before. On the one hand, you also have interest from major institutions and Wall Street. And then on the other hand, from a product perspective, the things are actually working. We're seeing traction for things like per onchain finance uh stable coins and other such products. And then to your other point, the distraction of other tech trends perhaps like AI, which you referenced earlier, like why would a founder not go work in AI? Why should they come work in crypto?

You know, that's something that probably a lot of entrepreneurs out there are thinking about where should I make my mark, where can I make a lasting impact. By the way, I don't think it's either or. I think there's a lot of overlap in crypto and AI and we've made investments there. And we're also very excited about AI and um generally and think it's a really important technology and the firm's you know heavily investing in it but we you know we think that there's opportunity here too and that some entrepreneurs you know who might today be thinking that crypto is not an option should take another look now that we're getting regulatory clarity. >> So Ali you were the first full-time hire on the crypto investing team back in 2017. Uh you've been here since the start of things since the launch of the first crypto fund in 2018. How have

things changed since then? And by the way, your background also is in AI. You worked at Google Brain. So maybe you can add some some color to this intersection and convergence of the two big tech trends right now. >> Yeah, happy to. So I think there have been many changes, but probably the biggest change has been cultural. I actually like to remind people that 2017 uh was still extremely early in the space. 2017 was when I joined the firm and shortly after in 2018 is we we raised crypto fund one and formally started the cryptovertical. People think that crypto started in 2009 with the launch of Bitcoin but the real start of crypto as a developer ecosystem and as a startup ecosystem was really 2015 uh

with the launch of Ethereum which because of the fact that it was programmable really opened the aperture of the kinds of things that you could really build in the space. But Ethereum given that it was a direct descendant of Bitcoin um shared a lot of the cultural values from the kind of the Bitcoin era. So the vibe back then back when I joined was that crypto was going to be a revolutionary movement primarily. It was this very cipher punk and anarctic uh movement and the vibe was that code as law was better than government law that crypto systems are better categorically than trad systems and that we would ultimately build some kind of parallel

financial system that would wholly replace the existing one. I mean shortly after I joined we had the ICO bubble uh in 2017 and then since then a lot has changed on the infrastructure side. We went from the 14 transactions per second of Ethereum to tens of thousands of transactions in modern blockchains today and the ability to send any amount of money from anywhere to anywhere in under a second for less than a penny. And then we've also seen great innovations uh like onchain marketplaces, things like lending protocols and very importantly stable coins. And finally, we've had the regulatory clarity that that Chris was talking about. So since then the vibe has shifted dramatically and standing here right now a decade later there's a

strong sense that in order for crypto to succeed it has to work with the system as opposed to trying to overthrow it and working against it. And it's also I think much more fundamentals based with a a more significant emphasis on solving real world problems as opposed to building infrastructure or solving technical problems in a vacuum. And we by the way we see this with the founders that that we meet uh every day. Our sense is that the most successful founders in this next era are going to be the ones that are much more product focused much more go to market focused and also more pragmatic rather than than ideological. So it was once a revolution but now it seems like there are compromises being made or maybe reality

has set in and people are realizing that you know you can't just completely do away with the old and in with the new. Uh there has to be some negotiation here. >> And one way to frame it is that it's not either or, it's it's and like both of these things can coexist. And you don't have to overthrow the entire pre-existing system in order for the new system to succeed. >> Yeah, Guy, I've heard you talk about this and you describe it as crypto entering its colored shirt era. Uh I'll note that there are two colored shirts on this call. Still some tease. I do see Eddie in a blazer, which is pretty unusual. Uh, I don't know that I've seen that before. So, kudos to you, Eddie.

Stepping it up, but guy, maybe you can tell us about this colored shirt era. What you mean by that? >> Yeah, I mean, I I really like Ali's revolution in LG2. And that's that's something we've talked a bit about. I feel like uh you can win the revolution and then you have to figure out how to govern. And I feel like crypto has has won the revolution and had a couple of years of trying to do the articles of confederation and realized maybe that that wasn't the perfect system and is kind of going through the process of maybe trying to to write the constitution and have something you know more more enduring. I will say personally I was definitely one of the cipher punks that Ali mentioned who was very ideologically motivated and inspired by the beginnings of crypto.

And I think both seeing that that does not lead to the sort of commercial success that we strive for and our founders strive for and also probably doesn't lead to the results that you want at like a societal or an ideological level. That has certainly been beaten out of me. And I I I think the the space as a whole has gone from, you know, we're writing smart contracts in mom's basement with our our hoodie and our [ __ ] flip-flops to we're now putting on a college shirt and a student tie and taking meetings with major banks who are seriously considering replacing their, you know, backends and core ledgers with blockchains. And I I treat that as an incredible improvement and a sign that, you know, what we've been working for for many years is is finally working, not a capitulation the way I

think some other people in the space maybe would view it as. >> Yeah. What would you say to people who who see this with a a tinge of wistfulness who kind of look upon this as that the movement has lost its its spirit, its ethos, its founding core principles? Well, I think you can let perfect be the enemy of good. Certainly, it's fun to strive against some, you know, great challenge and there's kind of a narrative component to that where the struggle is maybe more fun than winning. It's usually is a process that's more fulfilling than the ultimate end goal. And so I I I think maybe now we are looking for a new goal having you know really won the the process. I would also I think compare this to open source which started similarly as an ideological movement and I think some

people were upset that that maybe calcified in the form of GitHub owned by Microsoft and you know you would have said that maybe that didn't succeed on all of the original ethos. On the other hand, code is by default open today. And I think as you know, Chris has said many times, the composability of open source software is one of the reasons that software companies and and you know, the industry as a whole has been so successful. And so I think there's a big difference between the theoretical or the intellectual and the practical. And it's it's a wonderful time to be a pragmatist building onchain. >> Eddie, I'd love to get your view too as somebody who's been involved in this since the very earliest days, even before you joined this firm, what you think about the evolution of the industry. Yeah, I I don't know. I I get

and I respect the tone here a lot and I agree deeply, but I I I would I would reframe it a little bit as an extension of what's possible as opposed to a capitulation. Like in the last couple weeks, I had AI write like a command line tool so I could control my Zcash wallet and I literally just zipped Zcash straight into my Coinbase account, right? like in literally one shot on a CLI and uh that is simultaneously the most cypher punk thing I've ever seen in my life and also compatible with the trad system literally money like anonymous programmable money that was you know directly under my control and then it boom right like basically

connected to my bank account that's what I think the future looks a little bit more like obviously you need to round out the edges a little bit to make different parts of the system compatible with each other but I I really believe that the set of what is most helpful to people directly is the thing that is getting the most attention. I think a lot of the pressure on the space has been to deliver concrete value immediately for as many people and institutions as possible and that obviously requires rounding out the edges. So I see it more like that. I see it as a practical turn. things that we believed were possible have not become impossible.

Just the focus has shifted. What's personally getting you most excited today? The truth is I I mean so so many things I think everybody in tech is pretty euphoric. You know, I've been enjoying my weekend AI psychosis like everyone else is. Love the I love the feeling of it and letting the insanity wash over me. Like I I mean I just gave you that example like it's kind of uncanny to be able to sit down and say like okay here's like four different really high quality crypto APIs that require calling smart contracts and signing some transactions like stuff that would have given me pause in the past and now with a kind of a I babysit a terminal for a couple hours and kind of have a conversation and now I have like working code things that would have required me to like stop working and

like really like dedicate myself to like recreational coding. how it just happens in the background and it's kind of like a light managerial conversation. It's incredible, right? That has me excited. While we talk about like the transformation of themes, like what was a big theme over the last 5 years in crypto? Programmable money, right? Programmable money. Well, are we giving up on programmable money? Honestly, I I don't think so. Like now we have programs that you can write with just a couple words in a conversation with a bot. If you connect that with programmable money, now we have money that moves as quickly as you can talk to it. You know, that's insane. So, that has me incredibly excited. I see the

range as we make money more amunable to direct software control, right? Which is basically what crypto is doing. We make it more amunable to human control because AI gives us direct control over software. So, I mean, that's it in a nutshell. I'm incredibly excited. It's a great answer. Guy, you've been spending a lot of time in the onchain finance world. Maybe you could tell us what you're seeing. What is getting you most excited about all the new projects that are popping up? >> Yes. Uh, if you look at the incredible growth in the outstanding issuance of stable coins, I think this, as Chris was alluding to, requires that you have a whole new, you know, ecosystem for capital formation. You have stable coins

looking for new higher yield opportunities. You have cable coins looking for productive working capital and then I I think you also have a lot of more traditional players in the lending and credit space seeing the opportunities for efficiency that that blockchains give you. We also are at a very interesting point in time and how lending is happening generally after the great financial crisis. A lot of lending shifted and changed from primarily bank lending to non-bank lending where banks would lend to private credit funds. would have an equity buffer and and be the first loss capital and then those private credit funds would ultimately lend to to businesses and you know those businesses lend to to end consumers and private credit is you know both this

change in intermediation but also a change in duration where they are intentionally making long-term loans and that has had some interesting consequences the last year. I don't know if you've seen any of the double pledging questions or some of the redemption questions, but I I I think both because there are so many stable coins on chain looking for interesting credit opportunities and because of some of the shifts in the credit market outside of crypto, it's become a really convincing and interesting time to try to build new lending products on on chain. >> For people who don't know what's going on there, these double pledging incidents, maybe you can give some explanation.

>> Yes. Uh so if you want to lend against an asset as a lender there there's a whole process or you go through UCCC filings and they call it perfection where you can say I own this asset and I'm pledging this asset as collateral against a specific loan. It's obviously a challenge to make sure that a specific asset has not been pledged multiple times and there are a number of you know I would say good ways that that happens in the existing world and then I think more as a result of duration mismatch than you know these double pledging instances there have been some significant redemptions from or requested redemptions let's say from private credit funds and you know that that's a a different topic more broadly you know we're very focused on on chain and in the crypto products but I I think there are a number of secular trends

that are pushing people towards a real interest in in credit on chain and that has had a lot of positive knock-on effects just in terms of the quality of talent and founders that we see coming to crypto and the willingness of traditional players to adopt onchain solutions. So that that has given me a lot of hope and is is something I'm I'm very optimistic about. I think the other component of onchain finance that we've seen really start to work in the last year or two has been about building new forms of markets. Ali said many times and I think it's a great comment that crypto is really a a coordination technology and uh I think blockchains have proven to be incredibly good at building new markets. So Chris was alluding a little bit to how popular per se move from you know being primarily

focused on crypto tokens specifically to applying across all sorts of traditional assets like equities and commodities and FX. And I think it's, you know, very exciting for me personally that the products we as an industry have built over the last 5 years that I think are genuinely better products do not have an asset question anymore. They they can operate on top of high-quality traditional assets as opposed to being specifically applicable for network tokens. And then we've also started to see new markets uh that are not well served in the traditional financial world. I'm specifically thinking about compute in the forms of things like GPUs or data center buildout and then about things like electricity either in the form of of solar panels and batteries or even seeing you know oil price discovery

happen on on Hyperlid arguably a couple of weeks ago. You know starting to see new markets being built by default on chain. I I think it will take obviously time for traditional assets and markets to move onchain, but much in the way we kind of hit an inflection point with open source where if you were building a new project, you would just make it open source by default. I I think we're starting to hit an inflection point where if you're trying to build a new market or exchange, your default is to build it onchain. And I I think that's underestimated in how powerful it will be moving forward, not just for, you know, those specific products, but the ripple effect across blockchains generally. And just succinctly, you know, to give people a sense of what is the value of some of this onchain activity when it comes to traditional

finance for instance, you know, what value are people seeing that suddenly the light bulb has gone off and they're like, "Oh, we should use this technology. It can actually help us and make things better. In what ways does it provide value?" I would say the specific things that traditional financial players key in on would be latency, uh, capital mobility, the fact that these markets are in almost every case open 24/7 as opposed to having specific trading timelines. And then, you know, we in crypto have called it decentralization for many years, but if you rephrase what decentralization actually is, specifying in a very concrete way the trust assumptions you have when you send a transaction, that would just be counterparty risk. And I think, you know, to our point a few

minutes ago about double pledging and credit, I think people in traditional financial markets have an incredible sense for how important counterparty risk is. And you know, counterparty risk would be the financial terminology for platform risk that I think is salient and top of mind for any founder in tech when you think about how important that was in web 2 and certainly when most of the world will likely be rebuilt on top of AI models, how important platform risk will be there. So I I think this is not just a a financial question but a broad societal one that crypto has built I think the best answer to >> counterparty risk management doesn't have quite the same ring to it as decentralization as a rallying cry but >> but but that doesn't diminish its

significance. >> So we've been talking a lot about these financial uses and the value that you can get from crypto in the sphere of finance in particular. Chris, in your book read, write Own, you know, you laid out this vision of blockchains, a grand vision of how they could provide a foundation for a more open uh fair and accessible internet. What do you think about the way things have shaped up currently where much of what we're seeing tends to be highly financial or financialized? Yeah, I think um you know my experience with these kind of technology rollouts is they roll out in in different use cases over time. So for example in AI now you know AI is general

purpose but we're seeing sort of the killer app is encoding and you know I expect with AI that we'll see sort of many other things many other cool killer apps over the years. I think what we found in crypto is that finance is for a bunch of reasons is sort of I think kind of a low hanging fruit. One reason is, you know, in the US we have a we have a strong financial system, but around the world it can be much weaker, including just basic things like, you know, savings and and payments. And so, you know, in some ways the bar is much lower in finance, whereas you take social networking or other kinds of things. You have very sophisticated global systems already. You know, I think it it could take time. Um, you know, one one kind of mental model that I have is, you know,

we should try to get a billion people um into sort of being daily or, you know, almost daily users of blockchains through stocks and bonds and stable coins and payments and remittances and so forth. You know, once you have people onboarded, they've used the infrastructure, the wallets and so forth, it's natural at that point to offer adjacent um services. So, you know, that that's kind of how I think things are evolving and how I expect them to evolve. So I think this next kind of era, next few years, um we're open-minded and you know we invest in people and great entrepreneurs. So it'll be up to the entrepreneurs but I my expectation would be over the next few years most of the use cases will be our financial >> and in your post the long game for

crypto you've written that finance is not separate from the larger vision. It is the foundation. So that goes to your point about how maybe you need to get everybody on chain first. So, we touched on this a little bit, but obviously one of the most interesting trends right now is the convergence between AI and crypto. Ali, given your long uh tenure and experience in AI as an AI researcher and now investing at this intersection, what are you finding most interesting? What are the most productive areas where these two trends are overlapping?

>> Well, actually, let me give you a story first from the time that I was working at Google. I first worked at Google X and then moved over to Google Brand. When I was at X, I had already been following crypto for a very long time. And I actually pitched someone very high up at X to start exploring crypto ideas as a part of X. And this is X, the quote unquote moonshot factory, which is supposed to be maximally open to new ideas, maximally open to new potential technologies. And this was 2016 2017 at a point where it was already clear that there's a lot of excitement around crypto as a new technology. And I was basically laughed out of the room. And so that was kind of my first experience trying to get a company of the size of Google to touch crypto even with a

thousand foot pole. But then I moved over to Google Brain uh and I was working on robotics and um and AI um and uh at the point when I was moving over from Google Brain to join the firm, everyone on my team uh essentially tried to talk me out of doing this. U there was like this simmering revulsion towards the space. There was this sense that I was throwing my career away and that it was going to be kind of a disaster. And actually one person said one thing to me that really like I remember remember it vividly because the stakes felt really high. He said you were joining a group of people who want to do nothing but trading turds. And he was actually quoting uh Charlie Munger because Munger had said something along those lines and that was kind of the vibe. And I think that this is this kind

of resembles the the vibe and the relationship between AI and crypto at least back then. I think that these are communities that for a long time have not really talked to each other and and in many ways they are culturally diametrically opposed with AI being about centralizing top- down control of over say like compute uh data machine learning talent to build a kind of AI panopticon that can see everything. It can learn everything and then can reason about everything. Whereas crypto is much more about empowering individuals on the fringes. It's about breaking down power structures. It's about enabling radically free markets that are global from day one and putting control on the hands of individuals as opposed to large big tech corporations. And so these two

things have been like oil and water for a long time. But that is actually beginning to change because the two spaces are beginning to converge. It turns out that the financial system that we have built so far outside of crypto was not built for AI agents. And I strongly believe that in the near future, the majority of transactions that happen in the world are actually going to be done by AI agents as opposed to humans. That number may quickly become something like 99% or 99.9%. And it is very very hard to imagine that all of that happens on a swift or even credit cards because stable coins are virtually free. They are, as Eddie was saying, they're fully programmable.

They're internet native and they are the perfect way to convert AI agents from tools that humans use into economic actors that are first class members of the financial system. And one last point I'll make about about that specifically is I I was having this debate with someone on our team about Visa who was arguing that Visa is too entrenched and it's going to be very difficult to disintermediate and compete against because everybody already has credit cards and it's too hard to get everybody to switch to a different kind of payment mechanism. But agents just don't have that preference. They actually don't have any preferences at all. And Visa charges something like 16 bits on every single transaction that flows through their network. So there's a very strong incentive for agents and merchants alike

to completely cut out Visa whenever the transaction happens in a way that does not involve a human stepping into a store and providing something like a like a piece of plastic to make a payment. >> Yeah, I mean I I couldn't agree more what Ali is saying is like people are going to be a little bit surprised by how agents are going to be not very nice. Okay, like when I say not nice, I don't mean they're going to like do anything bad. I just mean like if you're going to say, "Hey, save me a bunch of money on my my monthly spending," they're just going to do it and they're not going to care what they have to destroy in terms of software to achieve that goal. That's a beautiful thing for consumers. People are going to save a lot of money. They're going to make

things that are much more efficient. And that sounds like a cute little consequence. It sounds like I'm saying that your credit card bill or your monthly uh stable coin balance has to be smaller, right? But it's it's actually much deeper than that because it it ripples across the stack. The agents are going to go and they're going to rewire everything for you. Like if they're really empowered to do so, they're going to try to save every penny and they're also going to want to pay per use because signing up for like a monthly subscription or paying annualized in advance is a big commitment. All these things kind of point at crypto systems.

>> Yeah. Yeah. The the other way in which these two worlds are intersecting is is that crypto can actually be the technology that helps fight against deep fakes and sort of the overabundance of media that's completely AI generated and difficult to tell from actual sort of human or real media. There's a company I think many people are familiar with called world that creates the ability to generate a proof of humanity so that on the internet you're able to know whether the people you're interacting with are actually humans or if they are agents. And that's just one example of the ways that cryptography can stem some of the problems that AI will intrinsically create by by virtue of making it virtually free to generate media that looks that looks human and looks very real.

>> Ali, you you mentioned this idea that like maybe most of the transactions like upwards of 90 99% could be being done by agents in the near future. project for us out you know five years like five t years I don't know how long is it one year some indeterminant amount in the future what the internet looks like after it's undergone this transformation one very futuristic vision of the way that these two worlds collide is is a world where you have agents that are fully empowered with crypto wallets such that they can pay for things they can get paid for things they could potentially even raise money they're also able to generate value by creating services, by writing software, by creating content, by

essentially becoming an employee for for another agent or for a human and doing all of this in a way that is almost entirely autonomous. And so, for example, one interesting project is working precisely on this problem of building a harness that gives an agent the ability to pay for its own compute of whatever resources it needs to continue to exist and then on the other side generate value as a way of continuing to exist as a self-sustaining entity. So, there is this somewhat sci-fi future available where many entities that are existing out in the world are are fully autonomous and they're entirely run by AI agents, it sounds insane. It sounds like it's it's not something that could happen anytime soon. But given the exponential curve on

which uh AI is currently on, it is not a stretch to believe that in 5 years, the models will be so smart and so capable that actually going out and creating value in a capitalist society is something that they can very well do. >> Are they going to be working for us or are we going to be working for them? Maybe a combination of the two. >> That's fair. Guy, so you you were out on the road for a while raising this fund, talking to LPs, hearing from people out in the field about, you know, what they're interested in. When you had your ear to the ground, what were you hearing from people? What are they most interested in? What resonated amid this fund raise? I think to the topic we were just discussing, everyone is very focused on AI these days. Uh, and the

question is how to think about software other than AI in in a world of AI. I think a really interesting point or discussion there is that almost everything in crypto is building a network effects business and you cannot vibe code USDC. You cannot have a weekend project and end up building something like a hyperlquid. And so I I do think there's an interesting, you know, set of ways you would evaluate how to build a a crypto project now or whether it's worth building a crypto project now. And I I feel like there's kind of a a bifurcation of crypto as a very overlooked place to build that you know if if you are a really talented founder would be uh the the right place to look and I I think certainly a number of the folks we talked with from the LP

base uh mention this. I also think we as venture capitalists talk a lot about getting to work with founders and I think that's absolutely one of the the most fun or valuable parts of our job as an industry. We don't talk very much about, you know, the the returns that we generate and how those go towards kind of the broader society at at large. And, you know, specifically thinking about crypto as a technology for markets, we should be the users of our own crypto products. And so, you know, I thought it was very heartening that a couple of folks had asked about, for example, funding capital calls and stable coins or starting to transition some of their own existing business on chain. Uh and you know I I suspect that with each successive fund the questions will change a little bit and will become more

sophisticated and and that certainly brought a smile to my face and brought me hope. >> That's very cool. Yeah. So you're actually seeing the uh the products gain traction among the LP base. You mentioned something which is kind of funny. It's a little paradoxical the fact that you know you can't vibe code a uh you know major financial application like a like a really highly regulated stable coin or uh per exchange DEX. And it's funny because as Chris was saying earlier some of these financial applications are in some sense lowerhanging fruit just because crypto is kind of financial by the nature of it. And yet, if you really want to create a lasting product, you need to have these deep integrations and comply to all of the existing regulations,

whatever. So, it's kind of funny that it's both easy uh to get up and started with financial stuff, but also it's extremely difficult and there's some moat around that for people who are able to do it effectively. >> Yeah. I I mean, I think if you wind the clock back five or six years, a lot of the questions or challenges in crypto were highly technical. like the position of highest status in crypto might have been the researcher. I think it's interesting to see that, you know, be be the case today for AI. I I think what we most need in crypto is really strong go to market and is not a more intelligent or clever protocol or mechanism design, but is instead kind of the shoe leather of going and talking with all of the different participants in a network and convincing them to see the value,

whether that's through incentive mechanisms or just the hard work of of doing good go to market and and BD. And I I I suspect that that only becomes more true in a world where much like Ali was talking about agents are taking more actions on our behalf and you know intelligence becomes more and more of a commodity and and of less specific to any human individual. I think you know the sorts of network effects businesses and coordination networks that crypto has specialized in building will be even more valuable on a relative basis and probably not something that you can build purely with intelligence but that requires kind of agency. I think it's interesting that, you know, we call them AI agents because they inherently require a human to tell them what to do as opposed to, you know, taking actions

on their their own behalf. I think the important point here is that the things we're building on chain today, I believe, will be long-term enduring, you know, networks that have broad societal impact. Whereas, if you're interested in building, you know, a short-term project or pure software, I think there's the obvious question of why does that not get eclipsed by one of the large model companies in a couple of years. >> All right. So Guy, with what you've been laying out about the value of some of these technologies, you've kind of been getting at the point that a lot of it has to do with coordination, something that Ali brought up earlier. Ali, you've also been interested in some other trends like privacy. You recently, you know, put out a thesis saying that privacy will be not just a moat in crypto, but perhaps the only moat. Tell

us about that because that sounds pretty important the way you've phrased it there. Yeah, the the first thing to say is that privacy is the most important feature that really has been an afterthought for most of the space up until very recently. The reason for that is likely that people were solving some of the other harder technical problems or the initial technical problems that needed to be solved in order for us to just have blockchains that scale and privacy is the next thing to go after. But the state of the world today is that most blockchains are almost entirely public and transparent, which means that every transaction, everything that happens on a blockchain is entirely visible to anyone who cares to look. And the reality is that there is no way that blockchains and crypto will become

mainstream if that is what the technology requires. It's inconceivable to imagine that uh you would have your salary be entirely visible to everyone. And if that's the case, then you wouldn't you wouldn't ever be paid in crypto because you wouldn't you wouldn't ever want that to be the case. Or it's also impossible to imagine that a company's balance sheet and transactions would also be entirely entirely public and transparent. So privacy is essential in order for crypto to really break out and become mainstream, especially as it makes inroads into institutional use cases. And I think that there's a second piece to this, which is that as interoperability between blockchains has become very seamless, it's starting to feel like blockspace and and blockchains

as businesses, as value capture mechanisms aren't really all that defensible because it's very easy to move and migrate whatever state you have on one blockchain over to another. And the reason for that is again because there's full transparency into every blockchain. You can see the data, you can easily copy it, you can move it from one block to another. Privacy begins to change that because as soon as the data for an application or for a set of users who are using a particular system is encrypted, it is much harder to then migrate all of that state from one blockchain to another which creates a much stronger network effect around the blockchains that have privacy simply because it's a the switching cost goes up significantly and it becomes harder

for people to migrate elsewhere. So it may be the case in a world where it's very easy to fork a blockchain. It's very easy to migrate from one blockchain to another where we have potentially a lot of fragmentation and lots of people starting infrastructure projects that compete in the realm of of block space that privacy ends up becoming the one thing that really preserves strong network effects. It's still very early to see whether this holds, but I suspect that because of the fact that it it dramatically increases switching costs that that'll be that will be the case. >> Yeah. And your point here is really interesting. You're saying that infrastructure is getting to a certain extent commoditized, at least block space is because there's so much of it and it can handle tons of

throughput. It wasn't so long ago that that was totally not the case. The pace of progress has actually been kind of bewildering. This stuff has been rapidly advancing and progressing over just a few short years to the point where now you're saying that it's almost beside the point that there's enough chain space. It's all of these other features where value shifts. >> Well, it may be that in the long term it doesn't get fully commoditized because of Javon's paradox and induced demand. As you were talking about before, if the number of transactions that happen in the world scales by 100x, a 1000x, a millionx because of AI agents, it could be that even though Box is as cheap as it is today, that you still need capacity for millions of transactions

per second. And there are still strong network effects around the blockchains that are the most secure. the ones where uh you have most of the users the ones that have privacy such that block space actually ends up not being commoditized and actually does trade at some premium and does offer opportunities for value capture for the underlying blockchains and tokens. >> How far are we off from a point when those problems are solved when suddenly we don't have to worry about our salary being exposed or whatever bills being transparent for anybody who wants to look. I I would say we're already there.

I mean there there are numerous different technologies for for approaching the problem of privacy which certain chains like Tempo, Arc, Canton are taking where the the way that privacy is provided is essentially by trusting a central party to keep transactions private and to only post commitments to the underlying chain. And so that is already that already works. It's easy to build. It has some trade-offs and in that now the underlying infrastructure is less credibly neutral and is less verifiable from the perspective of outsiders, but it like sits nicely at one point of the trade-off curve that I think many many uh institutions out there will will need and and it'll work for them. Then

there's also more in the middle of the spectrum the use of uh trusted hardware. So trusted enclaves. These are features on processors that allow you to execute transactions in a way that even the person who controls the physical machine can't really tamper with or access. And then I think finally at the end of the spectrum there's the cryptographic approaches. And zero knowledge cryptography which is the core technology that enables building a blockchain that is private entirely from a cryptographic standpoint has improved something like 10 to 100x in the past 10 years. And actually one of the major projects from our research team led by Justin Taylor who's one of one of the research partners on our team is called Jolt and is entirely focused on building

efficient zero knowledge cryptography to to allow for both very scalable systems but also private systems. >> Yeah. So you brought up uh the Jolt team internally led by Justin Thailer. Zero knowledge proofs have been around for decades. Why are they suddenly so interesting? Well, one way I look at this is that zero knowledge cryptography has allowed us to solve the scalability dilemma which historically has been the tension between decentralization, security and scalability. uh and the way that zero knowledge like ZK proofs help us break out of that tension is that now it is possible for one node, one computer in a network to do a lot of work and to have everyone else in the network be able to verify that work

without having to redo the work which was the state of the world in blockchains from before. Up until now, most blockchains still have this property that every node in the system has to redo the work that every node is doing, which is one of the major bottlenecks to allowing blockchains to scale. So with efficient zero knowledge cryptography, you can break out of that and then have every node do work that is additive to the network which in principle allows the blockchain to scale horizontally such that the upper limit of how many transactions per second it can process is unbounded. Instead of being capped at something like 14 transactions per second for Ethereum, you can go up literally to millions. You know, we started this conversation talking about crypto evolving from the cipher punk days to the present day, but

I'll say that sounds pretty cippher punk to me. Uh, you know, that opening up of access to anybody, the total democratization of participation, enabling cheap compute, and also the privacy guarantees that go along with it. All very cipher punk to me. >> Yeah, I totally agree. I mean, I think those things are going to happen. As Chris was saying, like the pace that things develop is unpredictable. Different sectors of technology find product market fit among different sectors at different paces. It's always hard to say. I don't think anybody's ever thought that crypto was not going to be a financial, right? That's ridiculous. It was from its first days.

I think the question is what happens first and because of what other technological developments, right? So we're looking very much at AI because it obviously alters how software is made. It alters much of the cost structure of software. It alters the interoperability between different types of software. And a lot of what we've been talking about like potentially the commodification of block space, the increase in capacity, different facets of privacy and the consequences on defensibility like these are all consequences of changes in the technology and how they will affect the development of the technology going forward. This is the fundamentally the hard thing. This is the thing that you need to keep your eye on the ball because it's changing all the time and this is the thing that we keep in our

minds when we invest out of like our new fund. I think the idea of the cipher punk is using cryptography to make social change and people individually saying that like I would like to have more privacy in my life or in my world. I find it fascinating that actually the the draw or the pull for privacy today is is certainly you know the use case Eddie described with something like Zcash of wanting individual privacy but at scale is more coming from institutions who are saying you know we need strong privacy we need zero knowledge proofs thinking about things like zero from layer zero or providium from zkync like literally working with banks and large hedge funds who are the folks that are most loud about wanting privacy and so I think there's like a a

wonderful full circle aspect to that that you know the interest in these areas maybe came out of an individual desire but they're solving a real problem for institutions of scale. Well, in that respect, it's very similar to earlier movements in computing like the open source movement which began as an ideological attempt at social change. And as you were talking about earlier, the fact that GitHub eventually got acquired by Microsoft shows that open source kind of made it. It made it differently than anybody might have imagined that it was going to, but it has become pervasive and ubiquitous.

Yeah. I I I mean this may be a more general comment outside of just crypto but I think technology is the greatest driver of social change like increase in living standards, increase in productivity, increase in time for leisure, increase in health. We specifically as the crypto team but A6Z as a whole could not be more optimistic and positive about technology as you know being a primary driver for human flourishing. Uh and so you know I think the specific way in which that manifests is very hard to predict decades in the future but that has always been true throughout human history and I am uh pretty confident in making that bet moving forward as well.

>> Indeed we are all techno optimists here. Um and yet there are problems that need solving. One Chris that you've talked about is about the centralization of control and power and consolidation in the AI industry. maybe you could speak to some of the challenges that the world faces there and what crypto might be able to do about it. >> For those who know the history of the internet, one of the exciting things about it in the beginning was that it was a decentralized network where you know anyone could put up a website, anyone could start a business, anyone could could, you know, create a new software product and distribute it. Over time, the internet has gotten far more consolidated. There's there's a relatively small number of large services now that control the vast majority of the money and the traffic

that flows to the internet. You know, all signs point to AI sort of furthering that consolidation. AI is very capital intensive. There's, you know, maybe four or five US companies that are leading labs right now. Probably very hard for new entrance to compete with that. You know, the internet data continues to show that further consolidation. You know, even going to websites, you know, Stack Overflow was an investment I made years ago. I was on the board for a long time. They ended up getting acquired, but a lot of that data that was Stack Overflow was used for training data and AI. And now Stack Overflow traffic has dropped dramatically. I think we're going to see that's sort of the canary in the coal mine. We're going to see that across many other categories of the internet. So, you know, I I think that's a negative trend. I think that we

want to kind of keep the original vision of the internet that we want to have have a level playing field where anyone can you know two people in a garage can start a internet service that competes on a level playing field with bigger companies that small businesses can flourish. You know consumers benefit from the fact that uh they can go direct to a business or another consumer and make a payment or do some other kind of um activity economic activity or or other activity. Um, and you know, I think the only kind of credible technology around right now that that can counterbalance that consolidation is crypto. I think we're starting to see that in financial services and you know, and I hope that over the next decade or two that we'll see that in in many other areas. And you're speaking not just

abstractly, but concretely and and personally as an individual, you know, having founded several companies that were based on websites that you could just throw up and being a blogger and being able to have a global audience. >> That's right. Yeah. Know, I've spent my whole career on the internet. I first as, you know, an internet entrepreneur and then as an investor. Um, and was attracted to it partly for this. I came from sort of the open source uh world and was attracted to that kind of ethos of decentralization on the internet. Um, I think a lot of people shared that enthusiasm that I had and I think still do and I think that at some point the pendulum will swing back and we're still, you know, relatively early in the development of the internet in the grand scheme of things and I think it's important to have tools that that allow

people to, you know, help help nudge it back that way. Um, so I hope to see that over the next the coming years. >> Technology and business, it's all a process of bundling and unbundling and we've seen a lot of bundling lately. >> Yeah. Guy, maybe you could speak a little bit to some of the ways that crypto could address some of the centralization and consolidation challenges faced by the AI industry. >> Sure. I I think Al was talking about this a little bit earlier. One of the most salient ones is just being able to individually uniquely identify a human being which is deceptively hard. uh and so you know building a proof of personhood so that we can all exist on the internet in a you know proper and and identifiable way I think is really

interesting. Probably the biggest bottleneck today for some of the AI companies is just the access to compute and data. I'm very fond of the the bitter lesson that the path to building a better model is just throwing more compute and and data at something. uh and the existing large model companies have a huge advantage in terms of the ability to raise money in terms of you know their ability to form capital and form data and I think crypto is the only technology that has shown itself to be a good mechanism for coordination for fundraising or or crowdfunding that could rival the strength and power of some of the large labs today and we've seen a number of AI projects started to do exactly this trying to crowdsource GPUs either for training or fine-tuning

a number of companies that are trying to allow people to uh submit their own data and then have an ownership in the eventual model that is trained. I think there are a lot of technical challenges with this today and probably the most successful attempts at building open-source or decentralized AI models have come from distillation of the large existing models. But I I remain pretty hopeful about the idea that crypto can help be a coordination layer for individual participants to train or fine-tune or inference their own models in the future. And you see it as a way to overcome this bottleneck for compute capacity as well. Is that right?

>> Yeah, I I think like capital markets for compute will be built on chain. Uh I think it's you know always a challenge to take an existing network that you know sits offline and put it on the internet or put it on chain. And I would be much more optimistic about the idea that we will have new more important more relevant markets that are you know built natively on chain. I I think the compute market is probably the most important market on earth. Certainly if the quality of AI models continues to improve at the current pace and the societal impacts of that are as broad as we think they could be then the GPU the the piece of thinking sand uh is probably the the most important asset in in human history and the the market for that today I think is just highly

immature and the ability to you know own access or or finance that as an individual participant as opposed to one of a very small number of companies I think is one of the most important forms of of freedom and you know one of the most important markets to ensure is is open into the future. >> Here here Eddie what does Fund 5 need to have funded for it to feel like it has worked out? What would you like to see come into existence as a result of this financial vehicle? >> I mean so so many things I think everybody in crypto that's been in crypto long enough has a stream of mainstream adoption. I think something that just has very concrete mainstream benefits that many many people can use.

I think the space has shifted around to thinking that this is something that's achieved indirectly right through institutions as infrastructure for other types of companies. That may be a way to do it you know so it may be one of those kinds of mixed victories. But I I think in any case what I really want to see is I want to see an intensification of the competitive dynamics in the market. I want to see new ways to allow software to enable people to own things to enable machines to own things. Right? Those are kind of the key themes I've always thought. So if we can get to that destination with uh mainstream acceptance that would be clear victory to me.

>> Good answer. Same question to all of you. Ali, I'll hit you first. What does Fund 5 need to have backed for you to feel like it has worked out? >> Well, 10 years from now, what I would really like to see is a billion or more people interacting with blockchains, either directly or indirectly every day. And in order for that to happen, we have to back collectively both us and other people need to back the protocols, the services, the tools um that enable that. And also to move the regulatory environment into a position where that's possible. And that's that's legal. So that's one. I think the other one is moving the majority of the world's finance on chain. And maybe the third one would be succeeding at transforming AI agents from tools that we use to

first class economic actors. >> That's a great set. Guy, you're bringing a fresher perspective to this as a new GP. What's your answer? What'll make this fund a success in your view? I think if crypto does nothing else, we will give every human being on earth a dollar denominated stable coinpowered neo bankanking account. And while we take for granted the ability to save our dollars and to invest them as people living in in the US and in the first world, there are still billions of people that don't have basic savings infrastructure and I think that itself will be a huge improvement and there will be very many successful companies built either as a first or second order effect of that. Then I I I also think if crypto can accelerate the timeline in

which we as a species produce more energy and more compute and build, you know, more efficient and open markets for energy and compute, that will be an incredibly positive knock-on effect. And so, you know, I I think we've already made a number of investments in compute markets and and energy markets, but I'm very hopeful that those will be uh, you know, not just interesting from a financial or product perspective, but have broad knock-on ripple effects that kind of accelerate technical progress as a whole. >> And then, so we got the fresh take, the new view. Let's get the the OG take from you, Chris. You've been here for every fund, even predating all the crypto funds with your Coinbase investment pack in 2013. What would make fund five a success for you? Not financially but

perhaps philosophically. >> I mean I think Andy kind of hit on it which is we want to see real mainstream use cases. You mentioned a billion users like that should be the target I think for any significant internet technology. I think most likely the next couple years as mentioned will be in financial use cases. So I think you know getting the regulatory clarity that I think we're getting soon and having you know really kind of world-class entrepreneurs um come into the space and build um financial services that really um get us on a nice path to that first billion users would be the kind of goal over the next two two and a half years.

>> And just to add on to that you know it's only been a couple of years since readrite own came out but a lot has happened since. If you were writing a last chapter for that book now, how would it end? >> I guess I was writing it in three or four years ago. Um, you know, chat GPT had come out and I I do talk a lot about AI in there. I talk about how it will lead to consolidation, capital intensive big companies. I think that was mostly right. Um, you know, what I try to do in the book is really distill the essence of the technology and I I think that is, you know, mostly a fixed thing that has to change. So, honestly, there isn't a whole lot I would would update today. I think my kind of core belief is that

every technology has kind of an essence and you boil it down and that that technologies arrive in kind of deceptive ways. So, you know, social networking started off people in San Francisco sharing what they have for lunch and you could have if you just looked at it superficially. You would have thought, okay, this is kind of a, you know, toy. It's not a deep technology. But if you if you really kind of looked through the trappings and looked at the essence of it, what it really was was a way for, you know, anyone to communicate with anybody else. And why wouldn't that be used for culture, business, politics, and so forth. I kind of think if you can boil down a technology to its essence, you can in some ways predict, you know, this long-term trajectory. So that's what I try and do right on. And I think

I basically stand by it today is through the, you know, boing down the essence. And so I think over time things will bend towards that towards you know the key features of the technology strengths the technology the problems that they can potentially address those things stay constant obviously the particular apps and people and interactions with other technologies that's changes and is virtually impossible to predict but that core the essence is you know I it took me a long time to develop that and I and I think it still holds today. >> Fantastic. All right, everybody, all the GPS, thank you so much for all your time. Chris, Eddie, Ali, Guy, this is great conversation.

>> Thank you, Robert. >> Thank you, Robert. Thank you.