Why 2023 Will be a Blood Bath for Crypto Startups | Roundup

Transcript

when you're a project that you're still very early stage but for whatever reason you launched the token and that token is down 90 95 percent you know market caps of 20 million or so and you have 10 of that like that's 2 million maybe that buys you another year but you still have to gonna have to cut meaningful amounts of head count and whatnot and so and practically speaking you're not even you don't even want to sell 100 of your treasury right um so it's it's a very difficult position that a lot of teams are in right now that I think you're just gonna have to close shop did you see you see Mike is in Montana where it's negative 40 degrees right now it's crazy like this is a real winter uh

we're talking about weather here folks but yeah it's I think a lot of people are really exhausted and they just the real question now becomes is 2023 going to be as bad of a year as 2022. uh naturally I think people you know when things have gone very bad I think you you just turn negative and it's hard to like see the light at the end of the tunnel but uh it's a it's an interesting question I think a lot of people are asking themselves right now and I'm seeing across a lot of the different groups I mean it's how will 2023 shake up and I know we're going to talk about it tomorrow in the Roundup of like predictions but yeah it's uh it's interesting I don't

have a good answer for that to be honest yeah well anyways man we missed you on the show here yeah gallivanting around the world so uh it's been good to have you back and uh we missed you we certainly missed you had a couple good episodes uh we have some amazing episodes lined up for for January that I'm super pumped about but in any in any case it's good to have you back how uh how do you feel about things have uh obviously you've taken like two weeks two weeks off from the markets hopefully close your screens a little bit um yeah just love to hear how you're how you're feeling right now yeah uh I guess I think uh it was good to take two weeks off just clear my mind a bit um and as I come back you know you still look at some pretty some pretty bad

headlines Bank of Japan kind of raising rates which is I think a pretty big pretty big shift in stance that they've probably been the only major Central Bank that has you know kept stubbornly like rates low but they've now flipped but yeah and obviously reacted to that and so that's big and then inflation numbers across the board just continue to persist higher in the you know the UK numbers came out today Mexico numbers came out today there were you know record kind of levels of inflation and the markets are kind of reacting pretty negatively to that uh the nasdaq's down like three percent today so yeah it's uh it's been interesting I mean obviously this is not a macro episode nor am I macro expert

but um yeah it's been in many ways does this continues to be uh the major headline and all other assets kind of trading in in tandem with the NASDAQ and the s p so yeah that's that's been there's a lot of other interesting developments in crypto but on the macro front yeah things are continued to be uh fairly uh fairly Bleak and doomish I guess yeah do you have any anecdotes from past cycles that help inform you as to like where in the cycle we're at right now well as it relates to macro no because most of my professional career I invested in a low interest environment and so I don't have a lot of things to hold on to

um certainly an investing yes like I think like prior Cycles um it's hard really hard to time this and I think uh there's a great episode of Stan Duncan Miller that came out this summer we've talked about in this show that I think is fairly encyclical when you see someone like that be very humble and say these are kind of unprecedented times and he's seen a lot mind you right one of the more seasoned investors out there um so I'm not here gonna tell people that I have more insight than someone like him um the question is like what does that mean for for cryptos and acid clouds I think a lot of the it does feel like a lot of the sentiment is very negative

like extremely negative and people are exhausted and that generally tends to coincide with you know everyone's looked at the kind of the cycle and the emotions like pain disillusionment despair anger you know I think we are like you know in that state where the overwhelming sentiment is very negative the positive thing is there's like two different crypto Twitter feeds uh one is Founders continuing to ship really interesting stuff and kind of unfazed they're well capitalized they just keep their heads down and see uh there's like a lot of shifts that are going on at the macro level that I think bode well for particular

verticals in crypto like social um and stablecoin adoption and you know a lot of the pruning of recursive leverage um and probably good you know regulation coming out the next year that clarifies a lot of things it could be positive for crypto um so what like impossible to predict where we are uh leaning on prior Cycles it does feel to me like we're you know bottoming um do we have another leg down maybe possibly like it's always possible but yeah to me it feels like we're um you know bottoming if you will I don't know if you agree with that or

what you think or or no not on the macro side what about just like in in crypto land um do you have and and specifically I'm curious if you I'm curious on how you think about that like do you try to time it with the macro and think about like crypto uh fitting in with the macro and you're trying to time the bottom there almost or or are you do you think about past anecdotes from uh from other cycles that you've experienced and not not in macro but in crypto yeah I think the the big distinction now is the opportunity cost that you have on your Capital you know before your holding cash was not very compelling you were paying you're getting paid zero

percent of your bank account uh bonds you know we're not really compelling either and so from that standpoint now you have a the opportunity or clip five percent on cash deposits and and that's a big distinction now that plays in my thinking which is am I getting paid enough to take more risk and enter the market and mind you you know idea risked a fair amount November of last year uh I was partially lucky but it was just by virtue of timing of events as I was transitioning and positioning my portfolio now that I you know came off of purify and just was transitioning into just thinking about deploying my own capital and

repositioning my portfolio um the the thing that I didn't want to be in a position not knowing that things were going to get pretty bad but just having the feeling that from a personal standpoint I wanted to have more liquidity because most of my assets are liquid and so it never hurts to have a pocket of liquidity and so it happened by partially by lock I think um and so now the question is at what point do I enter the market uh so that's different this cycle than pass like past Cycles I was just holding a bag and just was not really looking to do much other than just see it through um and now we're in a very similar State assets are down 80 from their highs

right 80 sometimes 90 across the board Bitcoin ease and then all the other alts um but the thing that is really that I'm really thinking about is am I getting paid enough to to enter and take risk back on in a meaningful size yeah you might like to cost however your way in I think that's always been a good strategy thinking that you're never going to be able to like time it perfectly you know when you see an asset that you like go down 80 you liked it at the high you'll you certainly should like it now if fundamentals haven't changed um but but it's it's very tempting to just like sit on cash and get paid five percent until you there's like a number

of things that I want to get clarity on on the macro side um but yeah it's it's very tempting to just earn that five percent yield and then like rotate just the yield piece into risk assets you know certainly like cost averaging my way into eth or some of the other things that I like investing in real estate stuff um but yeah on the valuation side of things what is fairly similar to like January of 2019 is you're seeing a lot of assets trade even below their like Ico prices or latest round valuations which is now you could argue a lot of

valuations latest round valuations were like propped up and like you know you shouldn't even look at that number as something real and maybe they will never recover to that level but it's an anchor it's psychologically a lot of investors look at that um and so um it's fairly interesting to see a lot of really quality projects that can are well capitalized some are even trading out like have cash reserves and like the book value of their assets is like higher or like one-to-one to like their market cap that's fairly distressed I think and compelling and we saw that in 2019 so those are the I look at that and I say okay well it feels to me like a lot of investors are in this state where they're bracing

for survival and like you know like indiscriminately chopping stuff to just go to cash quickly end the year buy some time you just think and have some breathing room and those are kind of the times where I think are the best investment opportunities where this people go to extremes both on the UPS up and down and I think we're in that state of extreme paranoia the pessimism you know and um so it's you know we get to relive an opportunity to deploy the same strategy in stuff that you like hopefully you've done the work you've done the homework yeah the question that I like to ask

myself is like if you're patient if you have more than one year of time Horizon you're kind of I think that's easier to see really good entry points like crypto is yet again like in Prior episodes I thought okay the market Capital crypto is going to go down to a trillion then Tara happened I said no let's revise that I revised that to like 800. and we're sitting at a little bit lower now I think what is it seven eight eight hundred and thirty two billion with some inflation right because that's like circulating Market Cub there's projects that have inflation so four or five percent so you know roughly speaking you're kind of at a billion or so can it go down to 750 can I go down to 600 most yeah obviously but like you know in five years time do you think

a crypto is not going to go away like things are very different today than what they were in 2019. you have multiple verticals like yeah okay you had cryptokitties back then but you have like tangible nft markets that while volumes come down you have really good brands entering the space you have former presidents issuing nfts that we'll talk about in this episode like you know what's different this time that it than it is last time is that crypto as a whole is entering a new stage where it's finally being used and increasingly so as we look forward over the next like 12 to 24 months you and I have invest in projects and other projects that I'm not an

investment I just have a feeling that we're going to see some really cool applications front-facing applications that give people a really good understanding of what digital ownership means whether they appreciate the back end they appreciate the tech it doesn't really matter but like usability drives a lot of value and I think that's secular of macro in many ways like okay are people going to Shell out like 100 000 to buy nfts that's a very small crowd um but that doesn't mean that nfts need it like not all nfts are going to be a hundred thousand like crypto punks if you will or board eight um it it feels to me like a lot of the tech infrastructure has been deployed over the last 10 12 years

and you're finally in a position to deliver credible workable scalable consumer-facing applications and I think that's going to be independent of macro anytime you have a fun product that delivers really tangible value people are going to use it and you know I think the same is true for the internet yeah are you doing anything with your portfolio right now or are you just kind of staying put uh uh well by by choice or just force like a lot of the projects that I invested into liquid so I can't really do much on like rotating that piece um so I'm like largely staying put and

we talked about this before we start recording but I think a lot of the mistakes that I made historically over the years has been like doing too much like over trading over you know and and so it's really tempting because sitting in many ways like just sitting tight is probably one of the hardest things to do because um you know as a type A like you always want to feel like you're doing stuff um and and I think sometimes that gets in the way right uh writing has helped to like make sure that I understand why I did an investment and yeah sure like I thinking probabilistically like if a

protocol has done 100x so what was the probability of that doing another 10x then you probably should manage risk take chips off the table and invest in other stuff that has higher probability of giving you a better return but uh yeah right now I'm not doing much I am seeing really interesting deals from like very seasoned Founders that are coming into crypto at like 15 million 20 million 10 million value 15 10. those deals would have gotten done at 50 million so like a 5x multiple uh you know earlier this year and I think that's that's fairly compelling but but to be honest the number of the in terms of deal flow it's

it's gone meaningfully down are the properties on the term sheets changing like the liquidity preferences and and things like that like how much are you seeing that change because a year ago it was entirely in the Founder's favor right people you know no board seats like basically no just like anything I need to do to get into this deal I would do as a VC right now the VCS have been on the wrong end of that for the last 12 months and so I think you're I'm slowly starting to see these Provisions get put back in place in these term sheets so I'm curious what you're saying yeah that's a great question board seats yes um liquidation preferences no I think that's still one-to-one

um prorata writes more so now uh the the biggest term that I think hasn't changed is liquidation preference like in traditional Tech land in in pretty bad situations of Liberty crunches when Capital markets dried out for a lot of tech companies like you would you would see liquidation preferences of like 2x two and a half X um and and those are still not coming back I think at least not in crypto um so but yeah I think like board seeds definitely also instructed by FDX and the lack of just there was like no board altogether I think people are now

pushing more so to have a board seat if you're the lead investor um but the structure Remains the Same it's just the valuation number just come down dramatically um and and that's really compelling as an investor um I guess as an anecdote the second piece that I that I'm I'm monitoring and looking at more closely now is this overall Tech valuations like secondary Market valuations and what people are selling uh you know there's a fair number of platforms that one can have access to if you're an Institutional Investor in the US like Equity Zen and a few others where you see secondary market like these are like either existing investors whether it be employees or Venture funds that are selling shares sometimes common sometimes preferred so naturally just as

a one-on-one prefer chairs have more rights um are higher up in the capital structure so should have a higher value than the common um and and if people are selling if you see preferreds being offered in the market that means an Institutional Investor I.E a venture fund is selling and I think that's a bigger signal than common unless it's a Founder selling um like founder shares but uh a lot of these valuations like the price that is being transacted at in these secondary marketplaces is like consistently forty fifty sixty percent down the last round I saw a deal earlier this week it was

they had they had I think their last public raise was 10 billion plus uh they maybe a month ago I saw a secondary uh shares come through at 3 billion it's like wow it's down 70 80 now uh this uh I think it was on Monday or Tuesday I saw them come through at like 1.5 or 1.8 I'm like that's now you're done 90 in the secondary so yeah yeah I mean I think I would assume though yeah my take on that is I think who's selling those shares right now are the non-crypto VCS like the the Tigers of the world I'm not saying actually Tiger but like the non-cryptonative institutions who maybe got in late in

the cycle didn't actually believe in crypto chased the narrative now they're looking at their book and saying like just get me out of this asset class I don't want anything to do with this I don't believe in it long term like you you had that tweet earlier this week or last week you're like continue holding crypto if you believe in XYZ and I think there are a lot of folks who don't believe in that so they're doing what you should do when you don't believe in something in your portfolio which is dumping it yeah and you were talking specifically about crypto Equity Investments crypto Equity Investments yeah yeah I was talking just generally about like just Tech like uh yeah so I mean yeah Tech deals are I mean because I like these are like you know free ports of the world just like

traditional Tech unicorns uh that are not public yet um there's a fair amount of secondary activity going on and at pretty indiscriminate prices um and so that that uh I'm looking at that fairly closely because I think it's one of the more instructive metrics to understand where we are in the cycle meaning like if someone is willing to let go of something out like that discount psychologically like you could putting aside the idea is it worth is this how's it worth this much billion or 10 billion because sometimes you don't have a lot of insight into the the current valuation burn rate a couple other things right

but just from a psychological level it is very hard I think for an Institutional Investor that to swallow that amount of a haircut um where a lot of times it's permanent Capital sometimes as you alluded to it could be a tiger fund like a hybrid fund that is marketing to Market and has redemptions but if you're Venture funding you're selling at that level I mean you must be really hurting because you have like five ten years of permanent capital and so anytime you see an actor do that you have to wonder like how bad is it for them is it bad for other people who's buying on the other side and you saw a lot of

secondary Market activities like a lot pick up in like the trough of the last cycle and crypto um like in January of 2019 we were seeing some what now made or broke funds to be honest like framework I bought a huge chunk of snx uh like just that the pure bottom this is January 2019. and you know it purify it's public now but you know we we did a fair amount of like just direct buying from teams and uh because that's really the only way you could like when an asset when an asset's not very liquid and now you have a combination of a lot of a lot

of liquidity having dried up in the market by virtue of all the blow-ups uh so a lot of these projects if you want to get access to you need to go and and buy from an existing investor directly from treasury of the team and or founders and if you and if you start seeing a lot of that that then it it to me is always the more interesting metric that I'm looking at now to understand where we're on the cycle to go back to the original question is that happening right now Santi are funds buying are they still do you still buy direct from protocols from their treasuries like I remember that was the thing a couple of years ago um where I think we pioneered that to be honest to parify I will I think you I

think you guys did nail that a pair you guys had a whole phone and then you saw like and then and then like Lido did did the direct thing to and Sushi try to do this I think that was or dragonfly well it did it with parents I forget who it was yeah it was it was dragonfly they tried to do that Lido I think it would got rejected I don't know if it went through but Paradigm did it Widow and there was a proposal from Lightspeed when Amy was there um to do it with sushi and got rejected but yeah well not so much in crypto um I think but a lot of teams that have that hold like 10 20 of the tokens under treasury maybe more

are exploring the possibility they're kind of in a tight spot because the prices come down so much on the liquid token that even if they wanted to raise something to extend their one way for like 18 months or another year that 10 of the treasury is not even worth that much uh uh so it's really tricky to in a very tricky position that they're at where they can't really self and Treasury because it's not even going to accomplish what they want now which is extend their Runway so yeah it's really tough actually a lot of teams here are are facing that um and they're kind of I don't see a easy way out of that kind of

uh because you might try to raise like when you're a project that you're still very early stage but for whatever reason you launched the token and that token is down 90 95 percent you know market caps of 20 million or so and you have 10 of that like that's 2 million maybe that buys you another year but you still have gonna have to cut meaningful amounts of headcount and whatnot and so and practically speaking you're not even you don't even want to sell 100 of your treasury right um so it's it's a very difficult position that a lot of teams are in right now that I think you're just gonna have to close shop yeah I think so too I mean I think I mean next year's just gonna be a

bloodbath for crypto startups like I think the first for folks to get impacted in the market to in like from all this you know starting with Luna into like three arrows into into FTX into Genesis was like firms who basically touched the markets in some way or another right and what's going to happen next year is I think you're going to have a lot of the 2021-2022 startups run out of money some of them are going to get acquired a few will be able to raise new rounds but at like an 80 down round uh and then this is gonna have all these other second second order impacts right Tech salaries are going to come down tech jobs are going to come are going to deflate uh VCS are going to start I mean the the gbt3 narrative is hitting at a actually

pretty interesting time right now because like naturally VCS start investing in other sectors if if you're a VC right now you're like ooh shiny new thing AI um yeah yeah so yeah to be fair though tough year yeah I think yeah was it sequoia or someone else it has a great memo on this you know these are times where if you're in a position of strength there's a lot of crypto startups that raise meaningful rounds that you could have argued were too too much Capital thrown at them this was true for last cycle two file coin hashgraph dfinity a number of other projects raised you know in hundreds of millions of dollars uh now you have similar well-capitalized startups that they're not going to run

out of cash they're probably like and they're in a very strong position to go out and acquire Talent and you know these PR include without bias or without a particular order but like Arbitron Aztec starkware um optimism um uniswab uniswab uh yeah so exactly so I think you know that is going to be certainly a lot of M A activity is going to happen next year uh Aqua hires uh for sure and I think uh you know people that are surviving this is through many cycle are going to emerge in a very strong position um you know to be fair I mean a lot of

times the other thing was how healthy is the the private VC market today I'll just make one officer or a couple observations one sometimes rounds don't get announced down rounds particularly so there's a selection bias where only the op rounds that were negotiated maybe six months ago are announced today for instance like I'm thinking of Aztec they raised like 100 million from a16z recently that may have gone negotiated months ago in a different Market environment because the market environment has changed so much since March when the FED started you know raising rates uh and an unprecedented rate like seven or eight hikes you went from zero percent fed funds rate to like four and

a quarter uh and you look like Katie Han for instance it raised a massive fund on Ventures she was publicly you know on Bloomberg just discussing how meaningfully she's just like not deploying right now and just being very opportunistic because she thinks like there's going to be more opportunities to buy at a lower price um and so you know you have a number of other funds that have raised Capital so the other observation is a lot of times the headline number that they say Hey you know fund x-rays 100 million 500 million a lot of times that Capital might not be committed and when they go out and try to call that capital from investors that may not come through and so the amount of dry powder might be

you know I'll probably haircut that by 50 maybe as like a true Deployable dry powder um but yeah so I think um you know we're still seeing a fair amount of deals get priced at you know flat or up rounds for teams that are continuing to do progress across a number of kind of verticals as you said I think the most important thing is what's last cycle it was like D5 and then nfts it like kicked off it was D5 that really kicked off last cycle uh putting macro aside because macro is not an issue for Pure crypto the question is like it people are really bearish on crypto right now sentiments flow

what's going to be that that one or two Catalyst that ignites the next Market from a secular perspective it renews interest in crypto like obviously the obvious answer for some might be it's going to be macro it's all dictated by macro but to some extent I think yeah micro might come back up but the investor might just turn to the next shiny thing which is probably AI so what's going to be that that Catalyst that gets people really excited about crypto and I've had very discussions with people about this and I think it's gaming I could definitely think it's gaming um maybe there's other stuff but I think gaming to me feels like like that killer kind of use case it gets people really excited about coming back to crypto

developments I think next week is going to be the the big the big episode right the the predictions episode the crossover episode with uh Mike and Mark yusco hitting it from maybe they'll they'll hit it for more of a macro perspective we'll take uh maybe the more Degen perspective here I'm I'm really excited about that conversation but there were some interesting developments this week so the first place I wanted to start is uh is actually with Visa you know we're in a bear Market when the most exciting news of the week came from Visa uh and uh what actually happened so Catherine Goo uh came on Twitter she shared she's an infrastructure and crypto specialist at Visa took to Twitter to share uh some some news about the company's exploration into actually account abstraction which is this widely discussed Topic in the youth Community

um specifically uh she she kind of shared news about Visa's ambition to become the as she put it or as they put it to become the liaison between the real world and crypto by implementing uh accountant abstraction to give externally owned accounts EOS uh which you can think of that's like a that's a metamask wallet for example more functionality and specifically I think if I understand it correctly um their team worked with Argent to deploy an auto pay feature on a private chain on starknet so this is a pretty interesting development to see someone as big as Visa I mean visas always push the boundaries and like the traditional I think of them and stripe as like pushing the

uh the kind of innovation card pretty uh strongly in the payment space it's really them and Visa in my mind and it's just cool to see them experiment I've I've a pro and a con here but I think in general it's cool to see them experimenting with things like Argent and Stark net and like uh account abstraction which is this idea that vitalik introduced a couple years ago so yeah I'd love to I'd love to get your take on this yeah super exciting and again super positive headlines get buried in Bear markets um Visa I mean first was has historically been fairly ahead of the curve in terms of stablecoin adoption and and you're right I mean this is a big deal not only huge validation for

for um start you know Cirque net um but also just maybe setting up a path towards like payments right because payments has been one of those areas where people have been really excited about payments as being like a killer use case uh but it hasn't really taken off right because you have Sable coins and you know like micro payments and just Auto purchases and like that whole area has been largely kind of um you know underdeveloped and hasn't really taken off and so this this to me feels like again largely enabled by the efficiency that you can get through an L2 environment like starknet and anyone that wants to refresh their memory and

start going to go and listen to the episode that we recorded um with a starting it guys uh I think is really interesting right um so you know not to mention you know the huge distribution base that you know Visa has um uh and so I think it's a super positive yeah so there's a back story here to this announcement which I think is a pretty interesting one they did an internal hackathon I think which is how this uh which is which is actually where this came out of so in my mind first off that's just a really good sign when a company is Big a public company as big as visa and someone who's been around as long as Visa does an internal hackathon or competition

um and can drive drive Innovation inside the firm all the way up to where the point to the to where they're actually doing like press releases around this and like and product launches so um that's like just Bottoms Up Innovation that I think is really impressive so the backstory from what I know about this is there was an internal hackathon in like February or March uh around like one big problem which was how can a an ether owner pay a bill with crypto at a future date while temporarily away from internet right so how could this how could someone who owns eth pay a bill at a future date while temporarily away from internet service so

that's a pretty interesting like that it's just interesting to see Visa taking on these like real real world challenges and there are a lot of people who have taken this on right there's actually eip1337 I think it was around subscriptions um there are there are some like smaller companies that have tried taking this on like streaming payments and subscription payments on eth and look this is still a private Network on start like it's still not fully out there in the world yet to play with but like I think it's very cool shout out to Catherine and their team um for for making this happen yeah I mean when you think about like there are certain friction points when one tries to subscribe um get access to paid behind the wall content in traditional like the stack

right now of uh you go to a website try to subscribe to go web you know Service uh there's a lot of card abandonment if you will and certainly there are companies on the margin that have made this much more efficient certainly something like Apple pay uh is super efficient now you know um and and apple is introducing more security measures but still again like um we know the challenges and limitations of working with apple can be really tough at times uh some like Visa has always you know thinking hey how can we make you know it's fairly interesting now where you know people always talk about the institutions are going to come to crypto and I think like in many ways they're going to come for the sole reason that this is like first and foremost like a pretty

grassrooted um retail First Market and you know there's I was looking at like for the predictions episode the amount of sable coins in circulation I thought was going to be like 1 trillion this year it certainly isn't it's like 150 billion uh which is still a lot a large number across many number of users worldwide Visa is a worldwide Network and so I think stable coins continue to be like this kind of Trojan Horse killer product that maybe many people want to use and could meaningfully like streamline a lot of the friction points when someone tries to make a transaction uh and the settlement of that and it's fairly interesting just the last observation I'll make is a lot of times a narrative in crypto is product X is going to blow up

a legacy player and is going to render that particular service useless and I think there was another there's one episode where I think it was broadened by a particular founder that said no crypto crypto just amplifies a particular service existing service and it's like net positive to the existing solution I think it's really refreshing to one kind of get around that take um and certainly Visa I think believes it right if they want to continue to be relevant for maybe younger Generations that can you know skew more towards using crypto products and and things like stable coins like they're thinking ahead and and how they capture and acquire and retain and maintain

relevance in over the next 10 years with younger Generations that are going to be more crypto Staffing so it starts the journey for that starts today not like in five or ten years you know I mean yeah totally and this is all right so there's two things in my mind let's like when something like this comes out you want to think about the second order implication of it right and there are two things that are interesting in my mind one is uh like this solves an actual real world problem so crypto like a genuine uh auto payments are a genuine pain point in consumer payments from actually a merchant cost perspective and what I mean by that is uh so recurring payments if you actually look at them like from an in the inside

out they they generate a new fee for each individual payment where arguably you're really just kind of making a single payment but there's a new fee that's that happens every time there's an individual payment and um I remember oh man I I gotta find this Wall Street Journal article there's a Wall Street Journal article about how Banks actually asked Apple uh in I think it was last year to treat recurring payments as a single charge back then and I don't know Visa like Visa solution to this using argent's wallet and account abstractions like pretty pretty interesting so like I think that's why it's interesting in my mind is it actually solves a real real world problem the other thing is does this unlock so like the background of of um

uh of these accounts is that like the way that ethereum works right now is so there there are two different types of accounts there's like EOS like metamask externally owned accounts um or like user accounts might be a better way to put it and then contract accounts which automatically run the code like the smart contracts what I think this Visa proposal does which again is similar to eip1337 is it essentially merges the two into a single account which turns the smart contract for executing commands into a software wallet which can now store crypto um and and that's what account abstraction is so if if I remember correctly you probably remember this better than I than I do but the idea of turning a smart contract

into a wallet itself is this was proposed a long time ago by by vitalik back in like 2015 it was formalized in the last bull market in 2017 um as I think the original proposal was EIP es or 96 I want to say I think it was 86 but this has been stagnant for a really long time so one thing that could happen here is like Visa's proposal could rejuvenate interest in this if like vitalik actually like marks it as a drafter however ethereum proposals work these days um and so what ends up happening there is like what if I don't know like think about the second order implications for nfts for example like the business model of nfts is uh one time drop and then

royalties maybe you could see nfts moving to a subscription-based business model for example so like I think there's all these second order things that will come from this it's like renewed interest in in uh in subscriptions on the blockchain I still remember yeah it's a great thought I think there's still a fair amount of friction in payments in traditional Tech land the like first SAS company for instance like renewals in the in the dropout rate because you can't like charge that credit card again for like retail sat like um is staggering there's like billions of dollars that are you know um lost because the flow is not very

streamlined and as you said if you think about it like if you signal intent to subscribe for a year you know and you could do that through a smart contract uh and maybe you can revoke uh permissions you know um based on certain terms and conditions but anytime that you can codify that then it's going to be much better than the current flow which still has a lot of Dropout and friction points and so um this is uh I mean there's like a fair amount of well capitalized startups some of which have been acquired both and some others that have tried to like optimize that payment flow um which is still not fully there there and you could largely saw that through

account abstraction and like a smart contract yeah it's there's like this interesting dichotomy though between being really excited about this and then on the other side like the the oligopoly of Visa is one of the main reasons I think like that that get people into crypto right like Merchant fees cross-border fees really inefficient rails like I think it's one of the motivations for people to build in crypto so it's just like I'm not like my brain is trying to be is wrapping its head around like man like really really excited about this but also like oh man like rent seeking Visa coming in and doing this like should I be excited about it you know what I'm saying yeah but in some way shape or form like the amount of fees that you know

a network like Visa can attain over the next 20 years I think they probably looked at themselves in the mirror honestly and said yeah that's not going to be the case so we need to add additional business lines and functionality to grow them over time because charging you think about like a Wells Fargo or sorry like a you're like uh some of these remittance payment operators they used to charge eight percent to move money across border like that's gonna like go away meaningfully like transferwise revolute some of these companies have made it have really attacked their business model and so then they turned to like crypto rails you know look at like bitso for instance that has taken a meaningful share of their men's flow business like you know

in many ways like whether you want to accept it or not but like any your Market is my opportunity kind of thinking like any like Peter Thiel says is better best which is anytime margin is artificially High that's gonna go away at some point it's gonna go to like near zero at some point so however you can melt that for 10 20 years or whatever but it eventually new technology comes in and evaporates that and so can you outlive that and I think Visa is probably really smart in coming out and trying to get ahead of the group yeah I think it's great uh I don't know no ponzis no tokens I think it was Paulina who who responded this and was like no

ponzis no token chilled no conspiracy theories just a real world problem with a viable solution and I like it also yeah I think it's I think it's time for a account abstraction to like come into the mainstream in crypto right because if you think about the way that we do things in crypto today it's actually pretty inefficient uh so like if you use a Dap on ethereum you have to make a new transaction for every single on-chain transaction which is I mean it's just a pain in the ass honestly when Gatsby's are super high but with account abstraction you can now bundle transact like multiple transactions into one and then execute the sequence of of operations in like one I think they call it an atomic transaction I'm pretty sure or like a multi-called transaction something like

that so like if you look at uniswap today it requires if you want to provide liquidity on liquidity on uniswab uh like thinking back to it you you approve each of the two tokens then you deposit them with multi-call you could basically just do this in one transaction which is like quicker easier more more secure as you remove the need for like this infinite approval um I don't know I think I think it's a natural Next Step yeah yeah definitely I think more thinking should go into and I'm sure other people if there are certain people that are smarter here we should bring them on because maybe a key theme next year will be now that you've deployed all this infrastructure particularly like you know l2s and maybe you know interoperability across chains and what have you like what are some of the more

real tangible use cases that can be embedded in traditional workflows these are one example but I'm sure there's many others and so maybe more thinking should should be applied to that as opposed to just forking unit swap into playing another chain you know and so um that was that was a theme that I had last year which is what are some of the use cases that have been tried haven't worked but as you deploy more infrastructure uh then then maybe you should reconsider that right and and so it's maybe time to think about that a bit more and it's really exciting to see a company like Visa actually sort of re you know doing that um which is is fairly exciting you're having a hackathon thinking about

account abstraction is is great but yeah I can see a world where you know you open like the Visa app it feels like a normal app with no seed phrase like just your biometric but really there's an account abstraction abstracted wallet on the back end you can make USBC payments to your merchants or apps instant settlement Merchants no Bank fees non-custodial boom Mass adoption is coming super exciting um but I think but I think like one question that you know the Visas of the world I'm sure are thinking about is like when like in today's world there are card fees but right now they're abstracted away from the consumer so like how do you get a consumer to switch away from that it has to be such a better experience um so but I don't know kudos to visa for

the research um I'm I'm looking forward to seeing a live deployment right yeah when normies asked me a question around like where's crypto going why does it need to exist these are common themes and questions that we get asked especially in the holiday season and it's always like I always like bring up my phone and say look look at all the apps that you have and maybe that doesn't change the next five years maybe you still love and use your Wells Fargo your bank America Chase you're you're whatever revolute but maybe the apps don't change but what the apps leverage in terms of the back end will probably most of your apps are your smartphone in the next five years ten years we'll be using crypto in one way shape or form

you may not even notice that but what you will notice is that consumer benefit that you talk about lower maybe you get approved for your mortgage in seconds and maybe the rate that you get um is very compelling um and maybe you know the the the the options that you have and what you can do with your Capital with whatever is just meaningfully the menu of options just expands dramatically and so I think that's the more exciting thing here that uh when crypto for the last 10 years has has put the user a lot of responsibility in the user to understand this technology especially at

the infrastructure level and that historically has never been the case of mainstream adoption like people don't like to think about how an airplane or a car or a bicycle or it's or much less the internet which is much more abstract um they start just kind of using it if uh if if they get a tremendous amount of benefit and uh you know back to the initial question I think I think we're closer to that than most people I think feel um because a lot of the judgment is really clouded with macro um but I'm fairly optimistic that a lot of the core work of the infrastructure level has been done and as you stitch together and deliver workable products

in the next like next year we'll start seeing that you already started seeing some like pretty cool games launch and some of these like applications and you know you're gonna it takes one or two really cool applications to really like ignite this movement and so um yeah I think uh assuming that crypto's gonna hit mainstream when people start like understanding how to set up their own private like their their manage their own keys and you know set up their own wallet is unrealistic um but I think there's a number of Builders from our vantage point that we're investing in that have that top of mind and and are gonna and they're gonna think from a user-centric standpoint first for the

first time ever really now that you have really good infrastructure to support uh the back end yep speaking of gaming um big announcement from Yuga this week Yuga Labs obviously Creator fordape Yacht Club um appointed the Activision Blizzard president Daniel Alegre as its new CEO um pretty big news I mean Activision BL in my mind like Activision Blizzard is the creator of World of Warcraft Call of Duty Diablo like a bunch of big Blockbuster games um Microsoft is currently attempting to acquire them for like I think 70 billion dollars TBD on if that goes through obviously or not so uh high-level thoughts on this one

yeah anytime you see that kind of executive move over to crypto it just further validates and also lowers the career risk for other Executives out there that might be thinking and exploring crypto in a very uh so huge Splash um I think that Trend will probably continue to persist like let's just face the facts right the reality is if you're an executive maybe you're a 401k or your the value of your options for if you're working at a tech startup has gone down dramatically but you still think about like career risk right and a lot of times crypto has been you know very hard to manage that risk for a lot of people because you

sort of feel like it's like going to like an activist Fund in in fintech like in traditional and Trad find once you go to like an activist fund you're not going back to a normal hedge fund or like you're just branded as like you know so I think that barrier has slowly gone down and continues to go down um and so yeah it's just again really exciting to see someone like that you know that he has millions of other options to do whatever the hell he wants and the fact that he's chose crypto I think is representative of a lot of Founders that I see now that we're coming to crypto and they have like they could just you know Sail Away into the Horizon for the rest of the life because money's you

know they've just made it and they could do whatever but you know Mark Andreessen set up as then which is smart people want to work on hard problems and want to work collectively and build in an open source environment versus a closed one and I think that is a key Hallmark of crypto from a human capital standpoint and the clustering of that is Bar None Like that's just a Hallmark of was Silicon Valley in the early days uh still is but like open source in a distributed context trying to solve really hard problems account abstractions zero knowledge proofs like it is just really fascinating stuff and there remains a lot of Unsolved challenges that I think smart people want to naturally take up the challenge

and so it's really exciting to see and I think we'll hopefully continue to see more of that Trend continue yeah I saw a lot of posts on Twitter that were like this is just a washed up web to exec who you know is coming into web 3 for a big paycheck and doesn't care about the mission and the tech and nfts will only be able to succeed as a counter-cultural movement and uh that seems like a very small-minded view I would say um it's like okay nft like what's most great movements start as a counter cultural movement and eventually grow past that so I think things like this like visa and then Daniel legre joining you guys their new CEO are like almost one and the same in my mind it's like

it's crypto growing up which has a is bad for the ethos of crypto probably but is good for the industry growing up and like getting bigger and like this technology infiltrating like Industries so it kind of depends at which Viewpoint you you come at it with um I think this is one of the is probably the biggest hire ever in the nft space I think this is a massive hire um I think it'll be really really really good for you guys obviously his life you mean it's not Kate Kim Kardashian Floyd Mayweather and some of these folks issuing mots actually those uh I was more thinking of trump issuing that that was the biggest news of the year uh yeah yeah yeah no he's got like look he's got obviously he's got when you hire someone

like this they don't just come with experience they come with access to Talent they come with deal flow they have come with a knowledge of like I love that they hired a CEO not a CEO like he comes with an a knowledge of like how to run a massive operation that has billions on their balance sheet um the bearish view is probably like he's not Scrappy enough for a startup environment I still I you know that's a fair counter argument like time will tell um I actually think the more interesting experience and in uh is actually not his two years at Activision it's his 16 years at Google where he was the company's president of global and strategic Partnerships and

they're president of shopping and payments as well as the president of Asia Pacific and Latin America like you don't you don't get those titles at Google unless you can execute um and he did that for 16 years and like yeah so yeah yeah if you're going to compete again and build the real metaverse and try to compete against someone like Facebook you need to bring in a lieutenant like him like he's General that you need to like muster the the collective effort and keep people in line um and I uh I don't think you break the ethos I think you just bring discipline of how to scale and build an operation that is it's a tall order to build a metaverse

people if Facebook can't hasn't successfully done it and people getting a lot of criticism to assume that a scrappy startup is going to be doing this without like credit like like Google brought in Eric Schmidt at a right time where the company needed someone like him and Larry and Sergey took the role that they are creatives but you need leadership like Eric who had a ton of experience before coming to Google and I think Eric was instrumental to Google's um you know continued success over the years and like really revamping and like bringing on different business lines and bringing structure to an organization that has grown on an alphabet and what it is now uh and their dominance in the search market like I think Eric played a

huge role into that yeah and I think maybe that's the kind of thing that we'll see here yeah I sent some texts out just asking about this guy being like is this guy the real deal the tax I got back were like I mean he he so here's here's some things I didn't know that I that I learned about him he joined Google to to basically create their presence in Latin America like what a crazy initiative uh and he he joined the year that they launched Gmail so like he's not someone who came in when like Google was this massive platform already I mean they're already big by 2004 but like 2004 that didn't even have Gmail um and I I haven't like fact checked these dates I think but I think it sounds like 2004 is when they launched Gmail and so he came in to like grow

that he did such a good job in Latin America that he then went to Asia and did the same same thing opening up their offices in China India and Southeast Asia and basically LED their like mobile expansion into into APAC which is pretty like boom that's crazy in and of itself then he led their uh engagement strategies across news media entertainment and Telco and created their monetization strategy across uh Maps so we did that then had success there and then went and did that again on the shopping side of the business so lead he basically LED their like global Shipping program and one thing that I got a text about what he did is like he was responsible for figuring out their

Logistics and last mile delivery from their shipping strategy uh from their from their shopping strategy like anyone who's worked in shipping knows that last mile delivery is one of the most complex things to figure out so like I don't know if when I first saw this I was like um splashy higher not excited when I when I dug deeper I'm like I think this was a brilliant hire by by them so yeah bullish Daniel Allegra yep Daniel if you're listening would love to have you on the show I've I pinged him didn't get a response though well nothing so far if someone that knows well well no one knows thank you very much Happy Holidays

exactly um any what else what else happened this week umtx stuff uh dcg and FTX probably the two things that we can Breeze through not to like I know people you haven't been around the last couple weeks Auntie I'm ridiculously tired of talking about FTX but we can yeah well the only thing about FTI signed the extradition papers he went to the emergency room God knows what happened in this prison which is ranked top five prisons in the world worst prisons in the world so I think he changed his course of mine and said no I'd rather be in a U.S jail so he's now I think he was boarded a plane yesterday that the U.S sent he's in custody by the FBI he's in the US now trial could be as

soon as next Thursday I believe um Caroline and Gary his other co-founder turned against him and are cooperating with the feds maybe others potentially I don't know what's happening with Sam Trabuco Ryan salami some of the other Kai Executives and FTX and whether they're cooperating with the feds but uh yeah that's quickly The Rundown and the second the bail was set at a quarter of a billion dollars for svf um which is an interesting figure when you consider that it coincides closely with the number of funds that were hacked during the whole FDX kind of bankrupt like before bankruptcy um so so yeah I think uh that's the latest on FTX the minute on FDX I would

recommend reading the southern district of New York's uh 38-page document on this pretty interesting um it comes to light that this wasn't something that began in the bear Market uh the way that they wrote it it makes it seem like this is something that's been happening since the beginning of the company's Inception which would be a wild thing oh yeah yeah but you mean the the whole Alameda FTX Alameda like getting funds from customer deposits and then using those and yeah yeah it makes it seem like there was more than 10 billion that was spent and lost it's like I would just recommend reading this piece um yeah let's talk about dcg so let me pull up Barry's Twitter so basically so like as a quick reminder so

you've got grayscale subsidiary of dcg they've been trying to pursue uh turning their close end fund which is gbtc into a Bitcoin spot ETF over the past like what feels like many years and they keep getting rejected by the SEC so Barry uh hasn't been too vocal on this in the last couple weeks obviously just because like grayscale and Genesis and dcg are all going to through some some tough times right now he tweeted out a Wall Street Journal article uh that had the caption if grayscales Bitcoin ETF dreams fail firm may try a tender offer so if you if you dig into this the options could include a tender offer for up to 20 percent uh of the outstanding shares of the 10

billion dollar trust which is an interesting number right 20 of 10 billion 2 billion I've I think that's the the size of the whole of for Genesis right so what they would do is that would be basically like a direct appeal to shareholders to sell their shares at a specific price um the way I think I see it as that dcg needs a needs a lot of cash to repurchase shares that are trading at well it's like a 45 discount to nav right now this would help reduce the discount which would in turn improve the health of dcg's Book value the margin yeah yeah some are speculating that dcg needs to sell some of their liquid BTC or eath Holdings um which has the potential well you know

I don't know that that's more speculation but I'm on there yeah on that point it was fairly interesting last Friday there was a a lot of the top Holdings of dcg took a big hit like uh near and all like Z cash and if like this may have been people in a market front running what they felt was going to be dcg like offloading a lot of these assets but uh I haven't confirmed that they were the seller but it does feel like very kind of also cryptically treated like it's happening without seeing what was happening on Friday but look do you think he has a history of like like doing trades in low liquid environments

like why would you do this on a Friday over the weekend it was ultimately like there was going to be an announcement coming this week around like the bankruptcy maybe forced bankruptcy it felt like the last straw for them to like recoup some Capital liquidity but uh yeah it's really interesting a lot of people in the market are also trading around the assets that dcg has maybe an anticipation of knowing that they're going to have to be a poor seller at some point so they're shorting them and so um yeah a lot of noise but I do think that uh it was interesting that a lot of the assets that dcg holds is are are have are taking it an abnormally higher beating than the rest of the market uh and this has been a fairly common Trend this year right when like people get

access to they they sign in NDA they get access to like the the book of a particular distressed player and then they short that right uh in this case dcg is very public around the assets that it has on the liquid side especially so um yeah it's uh I think a narrative to watch and a trend to watch is as you look at all the carcasses of this year and what they hold and what maybe a bankruptcy court is going to have to settle or sell uh these are assets that are going to probably underperform um and and we know the portfolios of a lot of the players like three arrows um and other funds in the space are going to have to liquidate yep you think Genesis makes like what what

happens with the whole dcg business like does does basically does dcg end next year with Genesis grayscale coindesk when you you mean ends like they cease to operate and exist they shut down no not not and like do they what happens to these assets like do they sell any of them off do they like what do they but I think there's going to be a restructuring maybe a consolidation of what the crown jewel of this business is which continues to be you know the 200 300 million of AR that they get on management fees on the grayscale products uh from an incentive standpoint I think it's unless he really has to get like like he's not going to want to give that up

and by he I mean Barry um so who knows uh I'm not very optimistic that this will be converted into an ETF uh until we get until the whole SPF and other regulatory stuff comes out and gets clarified and codified I don't think that uh we'll be seeing an ETF anytime soon and so for that reason I think that grayscale continues to earn that nice fee and recurring cash flow the on the Genesis side I don't think there's too many predictions which I'm terrible at but uh yeah I think someone will have to step in because I'm not using oh my God even though like in certain parts of their business

continue to operate like I think damage has been done and on the reputation standpoint it's it's hard from the fiduciary standpoint as I'm not trying to like work with them right now I think a huge void in the market has been probably going to be filled and then the next ECG will emerge liquidity is really dry right now will continue to be dry so yeah I don't know I don't know what you think I don't have much Insight here no I agree with that I don't have much insight yeah for you buying coin disk not the picture on the spot but uh no no I don't not at 300 million

dollars and folks this is where we close the Roundup no I'm kidding uh there's one one other piece of news here which uh binance is acquiring voyager's assets I think so FTX offered 1.2 2 billion right 1.2 and this bid comes in at like one I think was the bid yeah yeah so 1.01 or whatever which I think in bankruptcy how it works is it you have to pay the fair market value of the assets right at today's current prices plus some sort of fee it like it's not a normal bidding process right now I'm not as familiar but I think that that's right from what I read

yeah um no man we're I don't think we're we're not we're not buying coindesk I do think there will be consolidation in the in the crypto media space right now you have a lot of players you have like I mean you're on vacation with all the stuff with the block came out but like right now you have block works in the block and coindesk and decrypt and cointelegraph and defiant and nft now and like all these media companies and I would I would assume that that probably shrinks to one of the co-founders like had taken in a huge loan from SPF not not co-founder actually not co-founder but uh sorry it stepped in as uh CEO or whatever

yeah pretty crazy the amount of uh interconnectedness uh that's something that I did not expect um but yeah uh we'll talk about that more tomorrow on predictions and it's gonna be really excited I spent on you know a lot of time do you have a prediction about crypto media I think you're right there's going to be huge consolidation not huge but these businesses tend to shine and are kind of secular irrespective of market prices and sometimes interests grows a lot during bear market and there's a lot to cover like a lot I mean movies are going to be made out of this stuff and I think uh it bodes well for crypto media I think it's a great asset uh not to like you know pump your bags or anything but uh I think it's we're

going to see some consolidation maybe people entering the space want to have exposure to crypto crypto media feels like a good like like a good play to capture the growth in the space yeah without taking a particular view on on prices it's been interesting hiring actually right now because so if you look back a year ago it was really hard to hire for anyone in crypto but it's really hard for us to hire because you know you if you're an if you're an applicant like you look at like Media Company versus like ooh big exchange or or go work in a fund or something like that and it was really hard to hire and because you know like media is probably like more boring I would say on paper than working at like some like crazy crypto startup that just raised 20 million dollars and now I will say

hiring has been has been the best hiring market like the the number of amazing like 10 out of 10 people that are joining block work starting in January actually is like at a record high and it's because it's like people like you know it doesn't matter if markets are going up or down like you still need information businesses so it's a fascinating reporting to be done and investigative journalism and yeah coin like coindesk has I mean blockworks has had amazing journalism but like coindeskick this off with Ian Allison's story so big shout outs absolutely yeah yeah this is like a great movie as we always end episodes with like great book and movie recommendations around journalism one of my favorites is the Pelican Brief great novel but moving to about like yeah

there's another documentary that was on the plane which talks about like the erosion of Journalism across the world and it covers different markets Brazil Mexico the U.S uh and how so many like towns have like newspapers have shut down and so they don't have like coverage and that's huge right I think the role of media a lot of times we talk about there's this growing distrust of media of fake news but I do still think that it's worth revisiting like media plays a huge role in empowering civic participation and and keeping checks and balances in place of like have arming citizens with information the problem is a lot of citizens

don't trust the quality and the veracity of that information but I do think that like there is a huge opportunity and I think you're seeing it in crypto where independent journalism there's a place for that and and voices can be heard and it brings Delight like really remarkable stuff and it really I think media is going through this transition in the same way that it went from traditional print to online in the New York Times kind of getting ahead of that curve and really Reinventing their businesses and others not and failing but yeah it's this maybe could be just a whole episode of itself because you're Advantage like you're in a great vantage point to understand the transition that not just media for crypto but just media in general

uh because it's not going to go away but how do you regain Trust and how do you keep reporting the truth um because I think that's where most people will continue to get their information um and it's not going to be in social media I think it maybe it's a combination maybe it's some sort of different hybrid but um yeah it's uh it's super important and I think media and so many people are just not in a good spot in terms of where they're getting information completely agree awesome man good final round of the year what yeah before anybody any books or or movies I think this other that I have to say this

is the best time of year to watch Harry Potter and if you don't like here it's always a good time of the year to watch Harry Potter yeah I mean like but like Christmas is particularly aesthetic espec special to go back and watch Harry Potter I will say if you if you're tired of in if in a crazy world you get tired of the the six the the normal mood there was the 20th year reunion documentary that was made and launched earlier this year I actually watched it again on a flight it's great it's really really neat uh this 20th anniversary of Harry Potter and a really good Insight look into the different characters and how

and you just get their perspective so I'd encourage everyone to go and and see that I just started I so I just finished the um Teddy Roosevelt book about going down the Amazon for the first time and he's like an absolute maniac and I want to read he's uh this is nuts like he ran for president third time lost uh went down the Amazon River when he's like 50 with his son gatsu everyone got super sick like they were like native crazy Buck um uh I just started George Friedman's book called The Storm the storm before the calm um and that is I'm 12 pages in so I can't report back but that is uh what's that about basically it's like the

coming crisis of the 2020s uh it's like I think it's a little you need more fear well little doomsday I just I'm leaning into the it's no it's like it's a it's a geopolitical book about like how everything's changing I have a feeling it's going to be a bit doomsday a bit like if you've ever read uh the fourth turning like I I think it's like in that same category but uh it's come highly recommended from a couple couple macro nerds that I love so yeah okay fantastic is this a good time to wrap it up and save our energy for tomorrow's big episode this is a good time awesome well it's great to be back uh and hope everyone is doing well out

there if you're traveling for the holidays hope you get home safe uh and in time and we'll be back tomorrow with our yearly predictions which uh was going to be a really fun episode I'm looking forward to indeed all right my friend see you on the other side okay yep Take Care thank you everyone [Music]