Why Retail Can't Win | Regan & Mike, Lattice Fund

Transcript

you can make a lot of money participating in token sales right I like there's always that mean people share of like coinless returns from Ico to pres and it's like hey Gary Gensler like thanks for protecting me from like the 500x that I missed on Salon you think about turning $1,000 do into half a million dollars like you could have in the saana Ico that's like lifechanging and you think about why people participate in risk-on markets they're here to make money generally right it's like the meme like maybe some people are here for the tech but like these are financial markets you here to turn a dollar into more dollars hey everyone Santi and I have been talking about salana a lot recently and we're excited to have a salana sponsor of Empire marinade marinade is a staking protocol on salana and the only Stak pool that

delivers autore rebalancing me rewards and automatic downside protection with their new protected staking rewards optimize your soulle stake with marinade by hitting the link in the show notes big thanks to marinade we'll talk more about them later in the show this episode is brought to you by Avalanche Avalanche is a leading network of blockchains giving some of the world's largest financial institutions new use cases and business models while leveraging completely customizable infrastructure check them out it's core. apppp slcover you can explore avalanche's subnet ecosystem at core.

appd Discover I was playing around earlier today really cool this episode is brought to you by mantle mantle is an L2 backed by over a $4 billion Treasury obviously one of the largest in the industry they recently launched their airdrop program called the reward station to distribute both pre-sale token allocations or listed tokens to MNT holders who stake their MNT mantle has nailed their Rewards program recently would highly encourage folks to check out the mantle Rewards program at mantle. XYZ rewards station all right everyone back with another app Santi couldn't join us so we got rean and Mike from ltis fund two

co-founders of ltis fund welcome to the show guys thank you thanks for having us yeah uh Lattis fund why didn't I know Lattis fund until recently it's a good question uh considering marketing was a key priority this year probably probably uh makes sense that you wouldn't have known us we're relatively new so uh in terms of crypto funds out there um still emerging in that regard but definitely I think making a for ourselves I think a lot of the Investments we did from our first fund which we raised in summer of 21 we were generally writing $250 to $500,000 checks and so you know those are kind of like most of the companies that have

like graduated a series a b token launch and we always joke you know we're kind of like in like the oh it's Andre like and others and like you're yeah we're Ang too I'm like you know I wrote an angel check and they're like and some other people like ah like yeah I gave you $10,000 you can't you you can't even give me credit for it so um well guys I want to have you on to talk Market structure so uh you both spent time at coin list before Lattis um you two of the smartest people I think when it comes to like what are the underlying structural issues that have made this cycle feel weird I think everyone can kind of agree this cycle

just feels a little off and I wanted to to talk about the the kind of like structural issues whether it's low flow high fdv or token distributions in sales or whatever it may be I want to talk about some of those structural issues on the Pod but maybe before we do that Reagan I could throw it to you to kick us off like what is your high level like almost Market meta like you had this tweet thread of why is everyone so miserable why is this cycle cooked like what what's going on with the cycle so far so I think the taking a step back I think the biggest difference in this cycle versus prior ones is it's very like macro top down driven versus like some novel Crypton native Innovation coming out and that kind of being like the driver of market movement so you had

the Bitcoin ETF in what like early or this year you now have the E ETF one you kind of have these like macro inflows without really having like something that new now I think we we have meme coins and that's kind of been like The Meta of the day I I think if you look at the data like meme coins are not really what's driving the market volume wise at least and so it's just like it's a weird cycle I think because of that it's just very different from how things were like for example I think you went to like a conference in 2020 well I guess we didn't have a conferences then it was Co but like you talk to someone in 2020 you're like oh what are you excited about it's like oh it's defi right there's like all these new yield Farms

there's like all of this like Innovation there were like even new token launch mechanisms Like Ur there's like something to be excited about and Mike and I were at consensus like two or three weeks ago and and I the vibe I left describing that was like abstract optimism it's like yes my bags are worth more than they were six months ago so I am happy but like there's not really like there hasn't really been like a super new thing to get excited about so I think that's just different than prior cycles and I think the other big um difference is that the things that have pumped kind of besides Soul have like not really been VC coins and VCS tend to be the loudest people on crypto Twitter right like how many

people are going into like January where like overweight Bitcoin and mean coins maybe like Joe mccan but like very few Venture capitalists and so I think that's partially why the kind of like crypto thought Mafia has been a little bit uh grumpy how much of this comes from like application versus infrastructure do you think or is it due to other things um and maybe the context there is like I remember in defi summer you could actually play like there were yams and there's Sushi and there's uni and like and then a year later you had like and so th those were things you could do like you could go play you could put your money in and you could click the crappy little uis but it was like a a fun game we were all playing and it really did feel like a game and then a

year later you had nfts right where like again it was a game you were all buying these things and taking photos of them and putting them online like how much of this is related to that versus something like a deeper yeah we we talked about this a lot um and this is I think at the retail and institutional level so if you're going out to institutional and you're like well you know it's a pension fund or an endowment and they're asking you know what's new in crypto it's hard to communicate to them something like I layer and why that's important why do you care about it similarly for retail if they're brand new to crypto and trying to introduce something like I can layer insured security not something that's probably going to capture

imagination at least they maybe they've like studied game theory in some capacity or computer science um whereas at the application Level those are always the things that pull in retail in some capacity and that's even going back to 2017 2018 with some of the icos with like more more application oriented even if it was infrastructure like something like file coin was like oh like file storage on the web like anyone could intuitively grasp that whereas now at the infrastructure level those aren't things things that probably retail or institutional can immediately you know grasp onto and say okay this is why I want to start investing or buying these things let's talk retail for a sec So Reagan re oh my God I'm Gonna Keep Bing

your name in this podcast I was I've been called Reagan since I was a kid like I I I actually fun little story for folks the way that the way that we got connected is uh I mentioned a tweet thread that rean had put out and I completely botched your name about four different times in the podcast and you said thanks for you dm' me said something along the lines thanks for the mention but uh royally botching my name uh so I'm I'm I'm glad to uh be called out on it so you had a one of your threads you've had some really good threads your Twitter's blowing up recently which is cool to see um uh you talked about how retail cannot make any money anymore and I think we maybe let's go there as it's a good kind of start to kind of get into this Rabbit Hole of the

bigger structural issues so why can't retail make money anymore so I guess I was G to say because I I said that and then like all these people were like dude you're an idiot like I made a I made a bunch of money on Meme coins so I want to be clear I'm just talking about the like traditional VC coin side of the market clearly you can 100x things in meme coins which I think wise is at least why some of the attention has moved there so Mike and I worked together for four years before we started Lis at coin list and so you know we were around all of these token launches from filecoin to nearer to salana and I think we've like seen the data firsthand and also just talked to users who participated in these sales

you can make a lot of money participating in token sales right I like there's always that mean people share of like coinless returns from Ico to present and it's like hey Gary Gensler like thanks for protecting me from like the 500x that I missed on Salon but like you think about turning $1,000 into half a million dollars like you could have in the salana Ico that's like life-changing and you think about why people participate in risk-on markets they're here to make money generally right it's like the meme like maybe some people are here for the tech but like these are financial markets you are here to turn a dollar into more dollars and so crypto was really well set up for that right um but that meta has kind of shifted in a few ways um one

is these things tend to go out at higher ftvs than they did previously um and the market has grown so like maybe that's Justified to some extent but I think that is an important distinction and the second is like generally these projects are not selling tokens to the public pre-launch at launch at all really instead you kind of have this like gamified uh points airdrop like game and so with Ian layer like using that as an example because it kind of was like the most hped up um airdrop style token launch you basically could maybe like double your notion value of eth into points but that's like over a long time right and turning $1,000 of eth into

2,000 is a very very different thing than turning a, dollar of eth into 500,000 right you could double your money on Robin Hood right just like go buy Nvidia and I think like crypto where it had an edge with amongst retail Traders it's kind of lost that a little bit right because we've kind of like kneecapped the upside for retail participants now the place where that's not true Is MeMe coins right go how how have we kneecapped the say more about how have we kneecapped the upside by going public later essentially by going public later at higher valuations and not giving retail any way to buy in besides these airdrops where you basically are kind of just like waiting

on the igen team to decide what you get right it's like the upside is kind of fundamentally capped just because of the way these points are calculated right like what's the max you really could make on Anan maybe if igen is 100 billion people are 10x in eth they put in but that's like a wildly bullish outcome right that's in history yeah yeah retail participants are probably getting 50% to like 250% yield on the eth they locked for six months it's just a very different game than participating in icos and so I think there's valid reasons we've moved toward this right the regulatory regime has gotten harsher

but um we we clearly have like just significantly capped the upside that retail can make in these markets besides mcoins and so I think that's partially why like The Meta has kind of shifted to that segment of the market H yeah there's the good Kobe piece that I'm sure a lot of people read which is like just Compares kind of the it Compares four assets ethereum versus salana vers optimism op and uh and starkware right looking at the different multiples that you would have made if you could have invested uh comparing the seed round verse investing when it went public something like ethereum when it went public um like the Ico returns were only one and a half X those available on the market when when it went public salana

was 10 times higher and Seed op was 30 times higher Stark was 138 Times Higher and if you bought in the public markets for starkware I haven't looked at the chart recently but you're either flat or down so Mike what do you think about um I mean like the so I think begin to saying like Okay we go public like putting quotes around like public crypto public later and later at higher and higher valuations but that's no different than how the traditional Capital markets work right C Ser you know series a series B series C D E whatever then you IPO and it's not like there's this uh like retail then buys it at the IPO and they're excited and like goes up and Retail holders of

stocks are certainly a different different breed than retail holders of certain tokens and I think that's going to be one of the most interesting things to see how that um plays out over time with some of the more recent token launches because in these bare markets the people that stick around are the people that made money or they tend to be so for instance if you were in let's say you participated in the salon Ico or you were able to buy Salon subd dollar for multiple months in the prior cycle you know even if you held all the way down to you know $88 $9 you're still up meaningfully you've probably made some life-changing money and you saw it you saw it in your you know wallet and those are the people through the summer when

like everyone was like Sal's dead they're like well I'm still up almost 10x like I'm gonna stick around keep building I'm keep contributing and like there's just not like no one else is probably going to have that experience for a token that's launched in the cycle where they're like listen I've made a lot of money or I've seen a lot of money on the screen I'm going to be here for a while while and if you look at in the past cycle going back to 2017 it's like you have things like chain link like people could participate in the Ico it went all the way down it was totally dead in 2019 but um I think that's where you get the loyalists in your community that stick around and I I don't think I don't I don't I I don't see that type of behavior from a retail Community

around most of the projects that are emerging at this point of time it's like everyone's mad about not getting enough free money right like it's it's just like you know I feel like every like all these crypto people hate government handouts and like oh yeah you just become like relying on the state and then you look at the exact same Dynamics happening in the crypto market right like ien leager could have given everyone double the I tokens and people still would have been mad right it's just like an obviously bad Paradigm to launch these things yeah what what did you mean when you said we've moved from an uncapped upside Market to a capped one the FTV these projects are launching is higher and so like you're getting a notional value of tokens that's tied to a higher fdv right you're saying captain

that it's just too high like Ian going live at 100 billion is just too high for number to keep going up yes and you're also just ryant on what the team gives you right which is never going to be like 10x the eth you put in it's just not how these things work right it's like you get some yield on your eth in 's case let's just say it was 100% but you're never going to get 500x on an airdrop the same way that you are with um with a sa Ico it's just not how these markets work well you're never really getting a 500x on an air like that wasn't an aird Drop Like An Ico was icos are different than an aird drop in my mind Ico is like a 100% but I'm saying we've replaced icos with air drops ah I

see yeah and they're not even really aird drops because you are giving something right you are risking your eth for six months let's say how do you solve this though if the like this does feel like I'll try to play Devil's Advocate like as the industry gets bigger and people make more money and there's more success stories like more dollars come into the indust LPS want to put more Capital into the industry more Venture funds are started Venture fund like you could say this is the fault of the extreme amount of venture dollars that are sashing around the industry we are are definitely contributors to this problem it's your we're we're not going we're not going to deny that but well I

actually wouldn't say it's your I wouldn't say it's the funds like this it's the there are a few Mega fund yeah I mean I think it is interesting because um we had this beautiful system which was anyone globally could participate in meaningful upside for this from this new technology and what we did said no let's let's actually not do that let's go to another system which we already have which is you know we have these Gatekeepers and those are the people that can capture the upside for LPS um but look you know we're just going to keep using Nan layer example they had that round with andreon a few months ago where they raised $100 million do question is like why couldn't they have done that as a token

sale they could have gotten everyone in at that same valuation they would have no trouble raising $100 million from retail but they chose to go with one investor now I'm not going to blame them there's a lot of regulatory risk here and that's what we've all been talking about for for you know as long as I've been in this industry as the regulatory risk but you know if there was a fix it feels like maybe that would be the fix that for these growth stage opportunities getting retail involved and giving them a meaningful participation opportunity where would be you know one you know one way to address how does retail get get access to the same types of opportunities that some of the large funds do why did igen ler just do

that talk to yeah I mean look if you just have to deal with Andre versus 100,000 token holders with like Reddit accounts that can like complain about your you know the road map and all that right like it is logistically easier but maybe that's also kind of part of why we did have this beautiful system that Mike talked about is there were just like a limited amount of venture dollars and this is kind of the point Kobe makes right it's like you look at how much salana near avac these teams ra raised pre launch maybe $30 million Max why does mod like why does a new L1 need $250 million You're Building like open source software it's like a protocol like it makes no absolutely no sense to me and

that comes at the expense of retail holders right because like there's a limited amount of alpha in this market and every time you raise the kind of floor on the FTV at launch like you're taking away some of that Alpha from retail participants and so it's not like this is a silver bull it but I think generally these teams launching earlier launching at lower valuations that reflect that progress and raising less money pre-launch not setting a super high floor on like launch fdv these things tend to give the community more upside in what you're doing yeah how do you guys handle that though at Lattis because like if I'm I'm trying to I've never been in the in the

VC's seat here like allocating this Capital like you guys are but if I'm in your guys' shoes I'm like okay let's look at monad so like monad comes around and they raise it like two or what do they do they did the K round at 600 and then they did the Venture raise at two or three billion um and you're like yeah that's a lot of money but also it's probably gonna 10x because it's gonna go the it's gonna go public I don't know the word for that token's gonna tge is gonna happen at 20 or 30 or maybe IG layers happened at 100 so now that pulls monad up to like 50 or maybe it's even more than that so then that's like a 20x and then your investors are like hey Mike you you had the opportunity to do this 20x in like 18 months and you

didn't take it like why didn't you do that and you're like oh hi FTV and they're like I don't give a damn like 20x in 18 months so how do you how do you handle this in your shoes yeah I mean there there's another thing to account for which is these tokens come out at it's 50 50 billion let's say but by the time investors like us actually see those tokens or can realize some of the value you know it's several years years from now so the question is like if you're coming out and you're coming out at 50 billion like who's the next buyer and that's something we haven't really talked about like historically it has been retail is the next buyer for some of these new tokens there aren't mutual funds that are going in buying monad necessarily they won't be for several years so you either have maybe

some liquid funds or some Venture funds that put into liquids but there isn't a really large institutional buyer base for Mid to longer tail all tokens that are coming out at a billion to 20 billion so the question is like if that's a down only chart like several years from now when Regan and I you know go into claim our tokens how much are those actually going to be worth so it's good for good for Marks and going out and raising raising funds but like actually delivering returns to investors not always not always there so just something you know something that we're always accounting for and I I think we we haven't really talked about lot as much but I think to answer your question a different way

like one of our thesis when we started the fund is that there was just a gap of capital for day one Founders right most really good managers in like the 21 cycle sized up to multi hundred million doll funds where their minimum check size was like $3 million and our view is that you know two Founders in a room with an idea who wanted to raise whatever half million to like $2 million in launch that was actually like the least crowded part of the market and there is a lot of money for like these prge rounds these series A's are like really competitive and you see this with like I layer and Babylon in these large rounds but like we've chosen intentionally not to play at that part

of the market we want to work with Founders on day one um our last fund was $65 million and I think like the strategy reflects that right like how many managers can you name off the top of your head who have less than $100 million funds probably not that many well what happens though when you are successful with fun two and then you go out to raise and you're like nice I take two and 20 why wouldn't I just go raise more money I mean that that's you know it's a p question and that's like often what has happened in Venture but it hasn't always been the case like there's a guy name I think his name is Steve Anderson he runs a fun called Baseline and he was like a day one investor in Snapchat and all these

ridiculous successful companies he keeps like funds $50 million he's 10x almost all of them yeah and he just has a strategy and he sticks to it he hasn't scaled the team like he can or or Bill Bill Gurley right is like a different example like bench Benchmark just sticks at 350 or 300 or whatever it is like and everyone who's been there is like probably ridiculously Rich right because like you can clearly do well if you have a strategy and stick to it so I don't know we you know our teams for people like we like working the found Founders we like keeping things small it works for us what are the biggest things that Founders who are thinking about who are launching tokens

what are they thinking about right now like when they come to you guys you're like they're like hey you guys worked at coin list like we're launching this token in the next 12 months like like help me what what what goes on in those conversations it is interesting because I maybe it's only because of Regan's recent tweets but everyone all founders seem to be looking for an alternative solution uh meaning like they want something different they they don't just want to do an airdrop they don't want to do High High fdv um low float token but it doesn't seem like anyone really has a good answer or solution for this right now in terms of um what Founders have the most questions about it still seems to be legal which

is pretty tragic like if if the if the problem that's top of mind for most Founders is like how do I do this and stay out of jail like we've we failed collectively as a as a country um and but that's still what they come to talk to us about the most is like how do I do this how do I set up the right offshore entity do I have to move to a new country in order to um you know be safe um but beyond that like right now like it still continues even though it's maybe not preferred the tactic around using air drops how to do it is still here and I think until we get some more regulatory Clarity that's going to be the case even if the desire is there to do something different so let's get into some of

these structural issues a little more like one one of the things you guys I've seen you guys write about is like so we're talking about massive raises for l1s and l2s that leads to these multi-billion dollar valuations pre-launch that does what two things right that you're saying a lot of cells side pressure creates a floor on the launch FTV yes yeah solution in your guys's mind to that is anything or this is going to keep happening and if you're an investor be a little smarter when picking tokens well look I think embedded in every single Venture investment ever made in this industry is a belief that the industry just grows from here yeah so I think like we kind of are all just

hoping that like you know more participants come in more liquid funds get raise the industry just keeps growing and and like everyone is kind of happy and that'd be awesome like I would be happy with that um but I think right now a lot of the problems are really just a structural imbalance of flows right you had a lot of money go in in the 21 cycle and that money need needs to be paid back at some point um and so I think like there's been a lot of talk about all these like new tokens launching the cycle I actually think the flows there you can't really see because investors are generally still locked but you look at the like the tokens that

launched over a year ago and what's happening with them right now and clearly like regardless of what these teams do arbitrum is a good example like they are executing everything is going right from like a like a strategic perspective but you have like a billion dollars of tokens hitting the market every month and like you look at the coinbase's last quarterly reports retail trading volume is still 70% below what it was at the peak of 21 right it is just a fundamental mismatch of inflows and outflows and like regardless of what you do as a project like that matters more than anything else all right let me throw a thesis at you that uh and I want to see if you both you guys agree or

disagree with it um so I went to the coinbase state of crypto Summit last week and Kathy Wood and uh Samara who's the CIO of their uh of black rocks index business both share this number 80% and 80% was interesting because it's the percentage of flows and buyers that are self-directed investors AKA retail for their ETFs so I think on crypto Twitter you see ETFs are Bitcoin ETF is here institutions are here what they were arguing is look what people don't understand is that 80% of the buyers for this ETF uh they're actually self-directed retail people in their own brokerages so then that makes you think about okay in this cycle I saw the

coinbase earnings and Retail is still much lower than it was in the last cycle therefore the the therefore the takeaways that retail is not back yet and they will come and that's good for everyone's bags there's another idea which is hey the more ETFs we have if you can just go buy Bitcoin and eth and then maybe salana and then maybe avac in your Fidelity account those are the thing people don't people don't just jump into crypto and say I want to buy that like 70th asset on coin market cap they buy Bitcoin and eath on coinbase and then they say ah I made a little money let me get a little more risk on with it so maybe that actually makes it so that retail doesn't come for a lot of the insert tokens 10 through 100 on coin market cap agree

disagree I generally agree that anything that increases accessibility for the head assets is going to increase the number of both people and the amount of capital that's flowing into it when I look at some of my friends that are not into crypto at all have never used metamask or or Phantom they're pretty comfortable like oh now that it's in here I feel like this is safe I can buy it I've always thought about it now I'm just comfortable because it's in my fidelity account so I would expect if they add salana more assets into um into brokerages like you see a lot of capital inflow the question would be like what

what is that how does that change things for Venture investors because we're not necessarily investing in those we're investing in these long retale assets right how many of them like which are you know a lot of these teams are still trying to find products Market fit like are they going are they going to create ETFs for a token that's you know on the second page of coin gecko maybe doesn't even have good product Market fit yet but has like a really strong Community they've got a good road map because that's like frankly that's still where a lot of Returns come from even if you look at this cycle which has been kind of interesting like a lot of the AI tokens have been the ones have done well and most of them definitely don't have much of a product right but they've been some of the best performers overall so

like people still want access to those and that's still where a lot of the returns are generated for say Venture and like what we describe as like traditional retail versus maybe this new version of retail which is the the Casual sort of crypto participant and I like maybe I mean we we kind of started the conversation with like why is this cycle different and weird maybe this is kind of like an early preview of What flows are going to look like in the future right where like 21 it was like oh you bought some eth to like punt on nfts you bought some ether salana and we're doing defi stuff and then you kind of just like hopped around crypto and bought some alts but maybe now flows are different where like as

you said it's just like oh I just have this ETF and the price of that asset May go up and that kind of creates like an underlying wealth effect that flows down the the beauty that is the co gecko top 100 but it's just different than like how these flows have moved before yeah it's interesting I remember at the very beginning of this like kind of run like the start of this cycle my co-founder was saying to me he said look I I think eth is gonna struggle I was like no eth eth is gonna rip don't don't you understand and he said no look there's there's too many options now in the last cycle if you wanted to get exposed to eth you just bought eth and now it's like do you buy the L2 if it's an L2 do you buy arbitrum do you buy

optimism so if you take let's take $10,000 that a retail person might have to buy eth in the last cycle you just bought eth and now it's like okay maybe you take like 3500 you put it into eth you P you take like I don't know 25 200 you put it into op 2500 into op thousand into ZK now whatever thousand into Stark like now there's um this like dispersion of tokens that you can uh it's just like a broad array of tokens that you can allocate to so hey everyone Santi and I have been talking about salana a lot recently and we're excited to have a salana sponsor of Empire marinade is a staking protocol in salana I remember when they launched I think it was back at a salana

hackathon and they were funded with this 80k grant it's super cool to see how far they've come they're the only Stak pool today that delivers Auto rebalancing me rewards and automatic downside protection with their new protected staking rewards you can stake natively or liquid Stak with marinade and get the same high performance delegation strategy that thousands are using already to stake your soul to over a hundred of the best Salon of validators marinade has been live for over 2 years and they have audits completed by four of the top security firms in crypto the delegation strategy is a first of its kind so if you're staking your salana if you want to start staking your salana if you want to get some yield from your soul start staking today with marinade go hit the link in the show notes big

thanks to marinade for everything that they've done in Salon staking land go check them out go stake your salana with marinade today this episode is brought to you by Avalanche Avalanche is a leading network of blockchains giving some of the world's largest financial institutions the design space to explore new use cases and business models while leveraging completely customizable infrastructure everything that Avalanche has been building the last few years has culminated in this moment where today you have instant institutions and developers able to essentially have Limitless possibilities with the chain they've enabled developers to build cross-chain swaps or create gaming environments where one subnet can unlock features in another or can use usdc as a native gas token Onyx for example by JP

Morgan or city or dtcc digital assets or uh the Australia New Zealand banking group they are all building on Avalanche Evergreen subnets really cool stuff big thanks to Avalanche for sponsoring this episode of Empire go explore Avalanche subnet ecosystem system at core. slcover that's core C.A slcover thanks again Avalanche this episode is brought to you by mantle mantle is an L2 backed by one of the industry's largest treasuries at the time of recording it's valued at 4.4 billion dollars the mantle ecosystem engages in a lot of early stage exciting projects such as Athena and enan Lair and they give out actually the rewards to the mantle Community there are two

aird drops I want to tell you about the first one it was with a Athena they offered 2.5 billion Athena shards to Holders of their native token MNT so the reward station program distributes these pre-sale token allocations to MNT holders who stake the tokens the second one they have going on is with myo myo that gives out over 90,000 miso tokens worth about $50,000 today that starts on April 25th runs through May 2nd if you want to check that out you got to stake your MNT and you can check out the reward station at mantle. XYZ reward station big thanks to mantle for sponsoring Empire low float High fdv big problem not as big of a problem as people say

what are what are your guys's thoughts around this I think coming back to what I mentioned earlier in terms of who sticks with these projects during bare markets it's people that made money in a high fpv lowf float environment there's just there's just no one other than the VCS and then the VCS move on to the next project they want to invest in or they're selling out on the other side so the team can definitely contribute uh continue to ship and um deliver product but like if you don't have that base of people that are going to stick with you like eth had in in 2019 2020 or salana had in this this most recent bare

Market um I think the longevity of those projects is going to be challenged and the only people that are going to be you know continue to work there are like the core team that are you know happy to get paid and receiving tokens as part of its investing schedule but there there just isn't that rapid base um that will stick through it I think the other thing we we hadn't talked about is like you think about who's the natural buyer for any of these tokens post launch right and we've established there's not a ton of like institutional allocators buying these liquid assets it's generally retail the other issue with aird drops is that like it just sucks a ton of buy demand out of the market right like what

is the vend diagram of people who want Ian exposure but like didn't participate in like the aird droper points campaign it's probably not that high right if you wanted igen exposure you probably already had eth so you were probably farming the IG points campaign I'll use myself as an example like I got some I I got some IG points um hopefully I didn't just like uh destroy my airdrop application here um what am I gonna do' been coincidentally removed from the list yeah what am I gonna do go buy more liquid at like a 15 billion dollar FTV like of course not yeah so like it's like just

so bizarre that like we would just like shoot the main retail buyer and just like actually we're just going to give it this to you for free um and not only give it to you for free then we're going to make it so that if you want to buy more it's going to be at a really expensive price um and so like I think it just creates a bad structural Market but I I also think that like the low float High FTV thing is kind of a red hering and that like I actually don't think the floats are that different than they were last cycle um you look at like the l1s that have done well saana aax near none of them really launched it more than like a 20% float um and I think Kobe made a lot of good

points in his last piece that like yes these ftvs are higher than they were before but like you look at like The Benchmark assets like eth those are also way higher it's like maybe these things are launching at an appropriate FTV I really think the issue is just like this mismatch of inflows and outflows and people are kind of looking for like something to blame and so we've kind of like centered on this and meme coins as like the two uh two villains of this site so far what did you um I mean you guys worked together for three four years at coin coin list right so you've spent more time on token distributions and token sales than anyone like I know we talked about it briefly I want to go

maybe a little deeper into that like what are the learnings and takeaways from the from those years at coin list and just working with different Founders on on these on these airdrops like why are I think it's fair to say you guys would agree that most of the ways the way that most people are doing airdrops today is not done well so and you guys have briefly touched on that now but like maybe take me deeper into your guys' thoughts around airdrops yeah there's a a guy that we used to work with uh at coin list that now runs a company called coin watch that helps helps teenss navigate um the market maker selection process and his his line from four years ago was always the token is the product and if

you think of of um you know traditional web 2 companies that are doing product development they're trying to find product Market fits like find a group of customers that just love your product find them and then expand from there like that's how you do it so if you if you if you bring that over to web 3 and you view the token as the product part of is like finding that base of people that just love you and love your token and probably the way to do that is to help them make money so looking back historically at basically all projects the people that were able to make a core group of users money early on they have that rapid fan base that then goes out and kind of

tells the story to everyone else and I think um you know just looking at the token sales on coin list the ones that like salana is such a good example because salana kind of wasn't the darling that everyone thinks of it now in 2019 2020 when Raj Andie were going out to fundrais like they weren't they were struggling like people did not want to invest they were kind of like the mid-tier L1 like everyone was like oh I want ICP I want polka dot like I want something else this High performant fast layer one which seems really logical now everyone was like experimenting with different designs around governance or maybe multi- change thing and so it was cheap they made people a lot of

money they found loyalists Engineers wanted to build there like that's how how things uh how things evolve so you know just on on the project that we launched I I think the teams that just were to help early contributors make money was probably the most important factor in their long-term success on air drops then like would you just not do an airdrop because that also has the risk of upsetting the community in a different way right where they're pissed because they've been using your they've been farming the air drop they don't get an aird drop so yeah I think I think aird drops are are good as a marketing tactic and for user acquis position get people Point them in the right direction for getting them to actually use the product uh but probably

not how it's being used now which is the primary token distribution strategy or the only one uh so I think things can still be used it should be just part of a broader toolkit that that's available and I think um Kobe's talked about it I think Santiago talked about it one of your podcasts previously was this idea of using points even potentially as a way to give people access two token sales in the future so maybe you get an air drop but you also you know if you hit some threshold of points you get you know $ th allocation the token sale so it's a good way to like get people involved but also sort of modify the the behavior after after the points campaign is done rean do you have thoughts on

this yeah I think really you want to give your early users and like Community uncapped upside and I think token sales are kind of like the most logical way to do that I think there is a lot of like talk about like the Hostile us regulatory regime and some of that is right but I think if you go back like we talked about salana a bunch this was really 2020 like none of the coinless sales in the last four years have had any us participants whatever entity is selling tokens always outside the US a lot of compliance around like not having us people participate and so I think like it's easy to just say like okay yeah like whatever our lawyers are telling us not to do this we're not going to but I

think there actually are a lot of ways to do this in jurisdictions that are more friendly Europe has a lot of new rules with M around like facilitating kind of compliant ways to do this and I think it's just easy to kind of like be like okay well like everyone's just doing this airdrop thing so we're going to do it um and not really try to innovate on it but I think it's a big mistake because as Mike said like in a lot of cases your token is the product and if that chart like only goes down it's very hard to have a sustainable you know project yeah and it's I think it's also important to point out that over the past five or six years the inflection

points as an industry were generally around when a new token distribution mechanism came out so you had icos then you had D5 with yield farming um even things like deep in with you know you plug boxy to your home and all a sudden you're receiving tokens that's been where retail has kind of got excited this new way to participate in in a project earn tokens be a part of it and it's good marketing so when Unis swap came out with this everyone's like like I get this airdrop everyone's talking about it now it's like once it's been been done for several years I think you you lose that marketing strategy and need to come up with something new that

everyone's going to talk about yeah like whenever we get a deck and it's like the go to market slide and it's like points campaign you're like like sure like that's table STS right but like how are you going to differentiate from the 10 you know you're the 10,000th point campaign how do you all the others what what's next what do you think is like the interesting thing node sales like are interesting to some extent node sales node sales interesting so I don't if you've like tracked what impossible Finance has been doing they've kind of been like the of this but they've had a few projects raised like 3040 million where you're essentially like buying pre- buing nodes basically like buying the right to run

didn't G Gala did this in the last cycle and it was like some colossal scam I'm pretty sure well to be clear I'm not I'm like like everything in crypto there's a way to be definitely not endorsing that but um I think this idea of like reselling like validator in the network and helping to decentralize it along the way is interesting maybe there's some regulatory unlocks there where people are actually doing work for the network um that's kind of been I think like the main like new approach we've seen Mike I don't know if you've seen anything else you think is is super novel there there hasn't been much The Thirst is there but

um you know I go back to this idea of use using participation in the points campaigns as an access point for sales because not only will you know people want to participate in the sales but it will incentivize them to to act accordingly during the points campaigns to get access to them so no one has tried that yet but uh I definitely would like to to see someone do it yeah what do you think about um so in traditional Venture there like the seed funds there's like series a funds there's like or series a series B whatever ever you want to call it series C who write like bigger checks and then there's actually like growth stage like series D and Series E like pre IPO funds and that doesn't really exist in crypto

actually you could say so the folks who led our round last year 10t one RT folks dant danant tapier and crew they are probably one of the only like growth stage funds but they don't really do tokens as much um what do you think about I mean I just saw Paradigm raised 850 million and before I read the announcement I was like oh great we have a series D growth stage like token buyer here um but they're but they're but as they said it in their press release it's like they're only focusing on early stage so will we ever see those like the series D and Series E funds that are deploying the billion dollars or500 million dollars into late stage or no

because you have this like earlier uh token generation event I mean I think if you think about what the best growth stage strategy would have been like over the last four or five years it probably would have just been to like buy a bunch of tokens summer of 23 right if you would like $250 million and you were trying to like 5x that kind of like a do a decent growth multiple you can like get those multiples in liquid markets so I think I think these funds need to exist I think they should my view is that like if we view tge it's like these companies are going public at series A or

B sure you can be a gross AG investor but like you should probably just buy tokens or do these kind of OTC rounds for liquid assets I don't know that I really believe there's a huge gap where protocol teams need $75 million series D's like I I don't think that's the biggest Gap in the market there's also just answering the questions who is the next buyer so in a a pre-ipo environment you know Goldman Sachs is going out they're putting a Syndicate together they're shopping around to all their High net worth clients like they know that's going to happen here it's like oh well as a grow stage series defund you're like well the next thing is an

airdrop yeah we're gonna we're gonna give it all away so it's it's just an interesting like okay well like what who who then who buys it or you have to to wait for a bare market and then people will buy it what do you think uh this is kind of related to the questions I was ask just on the on the idea of okay Lattis is wildly successful you guys raised fund one then you raised the $65 million fund two did you guys see um who was it I think Arthur from Defiance after poly chain raised he said uh there's this tweet he tweeted out he said U big VC fundraises are likely value extractive for the space right now unless they earmark a significant percentage of that raise for liquid tokens else uh else you should assume

every big VC fund will eventually extract three to four times the capital they raised from the market eventually for their quotes infra infra investment I don't know if you guys had seen that or if you had time to think about that but what what do you think about that take I mean I think that statement in it of itself is also true about Venture Capital firms in traditional markets right like the seed investors in stripe will eventually extract billions of dollars from like the NASDAQ when stripe lists like directionally crypto is not unique in that regard I think really the Gap is just as you said there's not a lot of

like preo or allocators to liquid tokens in this market and so you just have a big structural Gap where like a lot of money goes into Venture not a lot of money goes into liquid markets and so we have this very big like capital inflow out outflow structural mismatch is that directly a fault of like venture capitalist like no it's kind of like a market inefficiency and honestly like people like Arthur probably do very well taking advantage of it um so I think it's really like the burden is on smart allocators to put more money into liquid markets which they should um but I also do see his point in that I think like

there's a lot of venture money that's gone into the space in the last five years and if you don't have Capital to kind of you know like take in those outflows you just have a bad Market environment and that makes it hard for a lot of Market participants yeah this this could be where with more liquid tokens be getting converted in ETFs you could start to see that change because as people have access to uh let's say a sole ETF the expectations are like those those are the people that actually end up buying it and I think you're seeing that now with with Bitcoin where a pension fund or an endowment that maybe previously would have put all

of their allocation to crypto and Venture is now saying okay why don't we just buy Bitcoin in the CF and if there's a dozen other assets they can do that with then they'll buy those and maybe the allocation of capital between Venture and you know liquid markets will will change do do you guys think we're going to see the U an influx of uh hedge funds in crypto because just B based on what you were just saying there Mike like it feels like we're EXT we're very overweight Venture because it was uh I think it started probably from the blockchain not Bitcoin era because it was very easy to invest in like if you were if you're an LP giving money to someone investing in tokens maybe didn't

make sense but like investing in like bitgo or cir was like yeah yeah that's like I can that's kosher you know and then it turned into okay Venture firms now start to do some tokens and then Venture firms start to hold some liquid tokens um but at some point you got to imagine we just like there really aren't that many just pure play hedge funds in the industry so you got to imagine that starts to happen what do you what do you think I don't know if you guys have takes on that I think it's been look any industry where you have just like structural 80% draw Downs it's really hard to run a liquid book in that environment right at some point in the bull market hopefully you like clip carry you set a high water

mark and inevitably at least if the markets continue to operate as they have you will be down 80% at some point and your LPS will probably want to pull Capital so I think it's just been like a very hard environment to run a hedge fund but clearly there is Alpha to be extracted here and I think like you are starting to see more financial instit tions move in and um you know operate liquid books in the space I also just think over time like I talked to more LPS for example now that own Bitcoin or eth than they did three years ago right I think like hopefully as as the space matures allocators kind of see like hey it doesn't make sense to have all of my crypto coverage just from

Venture funds right I might as well also own Bitcoin and eth and not pay fees on that and capture a lot of like just category beta so I think more people doing that will also just like help kind of fix this structural mismatch yeah um let's get into some of the opportunities right now so I know you guys are excited about deepin uh I'm curious to get your guys' take on investing in apps instead of infrastructure like maybe just take me into I feel like this was kind of a depressing podcast talking about all the issues and the structural problems so maybe uh lighten my mood a little bit and tell me tell me what you guys are excited about right now yeah I I I can speak to deepin first which which as a category has has has certainly evolved quite a bit over the

past past couple of years so we um back in in uh 2022 published a a thesis on deepin or as we called it at the time tipin for token incentivized physical infrastructure networks and this was before really any of the other stuff launched it was just helium at that point but our expectation was a lot more teams would come from some industry whether it's energy other wireless wireless um Wireless spectrums uh sensors Etc and start to build out deep in networks and that's that's definitely manifested so we've invested in probably about a half dozen different companies everything from cdns energy uh another project called andrina in the uh in the

wireless space and most of them haven't actually Gone live with tokens yet so we do um you know we do see a big opportunity because it's one of the sectors that not only retail can quickly grock and understand and get excited about but if you go out and talk to NP pretty much all of them get excited about those projects first so our expectation is just from a an access point for people that want to get into crypto and are curious about it whether that's you know a a family office or you know just someone punting on coinbase defense's a really good category for them for them to to to start with um so

it's one that that we've invested in pretty heavily it has evolved quite a bit where I think now almost anything that doesn't clearly fit into the L1 trade or defi is now seemingly being categorized as a dpin um and I understand that just is like you know even in 2019 everyone's like oh now I'm D5 or you know later on I was like um now everything's nfts because it's a good way to good way to capital and I think a lot of garbage will be kind of flushed out just like in those categories but anywhere where we have a team that has a lot of really good subject matter expertise in a space and they can combine that with the token incentives I think is is quite powerful and you know we should see some good

stuff uh in the year ahead any anyone you're most excited about in deepin like yeah any so so actually another well before you get into that dein's been interesting so I've looked at some of these deals and it's a lot of um non- Crypton native Founders and we have a oh man I'm gonna botch his name geod net geonet Geet Mike yeah Mike from geonet from coming on the Pod and um yeah I've looked at a lot of these and they're it's a different class of Founders coming into crypto which is why I love it it's like a really interesting unique group of people and I've invested in a few of these they are not focused on community building in the slightest

like they think less about community building and tokens I think like and token number go up they think about token as like a in the flywheel incentive mechanism but they think less about like community building and number go up token than I think any group of Founders in crypto do you what do you I don't like how do you advise these deepin Founders when they think like that the deepin space has been interesting because for the first year of it before Masari and and Sammy came out with a name for it it really was just all industry people that maybe were they were really into helium they were already into crypto and they're like okay this is kind of cool and I can see where it can be applied to my

industry um in the past six months as the category has grown what we're what we're starting to see is just more crypto native people that are like oh this is a really good way to make money fast I can just do some random thing and get people to buy some box I'll tell them that it's going to do something thing and next thing you know I'm launching a token that was definitely not the case probably a year and a half ago a really good example of that is a portfolio company demo you had this really interesting cross-section of people that one guy that had worked in the automotive industry one guy that had worked for consensus and another person that had worked uh both in automotive and uh for chain analysis so just a a

composition of a team where you had some people that just understood the industry could talk the talk go out there and do the business development and understand what those people needed but also um the internal folks that could design token systems new new where to build and um you know that's that's the type of founding team that at least in the projects we want to invest in is like where they have a good good mixture between the two but what I will say is we'd rather see them have good industry expertise because we think you can always find the crypto people that can bring the crypto ideas to it and frankly like if you offer people token incentives to do something like it's it's it's pretty clear like they will do it whatever it is you know put an

antenna on the roof of their home like they're going to go out and figure out a way to do it Brian what do you like in the deep end space um so I I I'll answer your question but like you know we you kind of segue this like talking about this being a depressing episode I uh we're actually really excited and I think hopefully like our our excitement comes across here look we've been working on like Network launches fulltime for like seven years at this point and so us inserting ourselves kind of are like starting to talk about like current issues with token launches the low flow at high FTB thing it's not like oh [ __ ] the world is like falling it's like hey this is wrong and everyone knows it's

wrong right but like let's talk about it and let's like find a solution right and so that's really like where I think brain power should go versus just like oh my tokens are down blah blah blah blah blah right that that's like much less interesting so um yeah hopefully for anyone who's you know felt down listening to this episode my enthusiasm comes across um I mean yeah de deep in generally very exciting you know our thesis from day one has been around products we think could expand the market or the infrastructure that enables that and I think deepin is one of the first categories where we're starting to see that really hit scale I think you you mentioned investing in apps versus

infrastructure one thing we've been excited about this cycle is seeing applications with proprietary distribution kind of start to own more of their own stack and we think capture more value as a result so to portfolio companies from our first fund where we were day one investors or layer three in Galaxy both have built sort of two of like the top 10 most Wily used apps in the evm both around kind of like product Discovery um is G layer 3 compet I I know layer 3 and Brandon and Co very well and saw the Rays but is Galaxy competitor yeah so Galaxy kind of started with this like Quest platform really product like focused on Emerging

Markets they've had almost 20 million wallets like complete the quests really hit scale and they've kind of segwayed that into projects wanting to use their Network basically for air drops just because they had such a large base of users they then rolled out some like identity verification tools like Galaxy passport where they now have over a million wallets that have like basically done kyc and then like issued a zero knowledge proof on chain to prove that all on BNB so this is a million people who' have actually paid to like mint a passport and projects are now using that to um basically like distribute tokens to like a verified group of users so what we're seeing with both them and layer 3 is they're starting to like kind

of like commoditize the infrastructure they use and roll more more of their own stack and we think we'll capture more value as a result I think blur was kind of like one of the first people to do this this cycle right where like they needed a high throughput chain for the purose product they could have gone to like arban op and gotone a grant to roll there but they're like hey like we we own this category right we're not going to give you all the sequencer fees and protocol fees let's just run our roll our own L2 and they've done that really well um and so we think what's exciting is like we think the ceiling on where applications trade this cycle will rate as they basically start to like vertically integrate and kind of own

more of their own infrastructure so that's a trend we're excited about how do you think about base and um like T have you guys looked into telegram like ton yeah sure like just these l1s that or L2 whatever you want to call them blockchains that have I don't I don't even know what we're calling based these days um uh these networks that have baked in distribution via something else like telegram obviously has Telegram and then base obviously as coinbase users like how much does that impact um like how how how you think those will do relative to the folks who don't have Distribution on this topic of distribution yeah I mean I

think distribution as a as an advantage will become more and more important which is why we've invested in projects like layer 3 and Galaxy that it is the first touch point for many people when they get into crypto and they say okay I bought some bought some tokens I bought some e Soul what do I do next so in both of those it's like this is a this is the first thing that you can do to discover what else is available within crypto at the Discovery Point now you have I me behemoths like Telegram and Bas that probably at this point like people are underselling just how important that is and I think because cryp has historically been just a much more engineering Centric culture people

discounted the efficacy of things like marketing just as a strategy so if You' have access to all the people it almost doesn't matter what your Tech is like they're all there that's the only thing that matters like they don't care about maybe the ZK technology that you have or the fat stuff that's like it's you're already there um and that's probably just like it's it is probably still discounted just how important having distribution big into whatever is you're offering um will be moving forward like if you're launching a new L2 like how can you compete with base where that is the primary access that will be the primary access point and they can potentially even adopt whatever Tech that you're you know that you're planning one question we get asked a lot

from rlps is like hey like all of this money's gone into infrastructure right like what's what's come out of that and I think that's a question a lot of people ask right it's like oh there's so many infrastructure funds where's all that money going and I think the answer is like we're actually starting to see this now we like coinbase telegram I mean both of those have some amount of technical Innovation and what they've launched but like it's become way easier to roll your own chain right there's all of these rollups as a servit there's like a lot of data tools you now have the op stack you you have arbitrum Nitro it's becoming easier and easier for to basically take a proprietary audience and you can kind of just like pick and shoes whatever Tech you want and so I think we're now starting to see

a lot of innovation move away from like the pure technical side and more towards just like how do I build a unique audience and I think we're starting to see more Venture dollars flow into applications as a result which is awesome right because I think you look at what catalized a lot of interest in the last cycle and it was things like axi and step in and helium where it was just like some very novel combination of like Financial incentives and some kind of cool new thing you could do and that just like blew up and catalyzed a lot of interest in the space so I'm optimistic that like old Venture money flowing into social and new deep in applications and all this stuff something cool that like really levels up the industry user wise

is going to come out of that yeah how do you uh how do you guys think about expressing these Investments like are you are you only see like early stage Venture and if you are only early stage Venture do you do things that don't have tokens too it's only early stage Venture with a potential token like how do you express when you see an opportunity how do you how do you express it our general core strategy is preed and Seed about 20% of our fund is liquid tokens we've bought in secondary markets some of that is supporting projects we've invested in on the private side some of it is just other projects we like um but generally the core strategy is like backing Founders from day one

and you know we've written a lot of smaller seed checks for example where like we'll double down in a proper seed round or double down in a series a generally our view is like crypto native value capture is where the most opportunity lies and so generally like our focus is products that we think will have a token nice cool guys good pod uh anything else that we're like clearly missing from the the lest brain dump here Mike let's hear like a super optimistic Vision vision for the future to uh get get everyone excited no pressure Mike no pressure so I will say in in the call it the the first half of this

year it was a little bit discouraging in that it didn't feel like a lot of new Innovative stuff was happening people were differ rining and repeating but in the past three months like I've been really Blown Away by some of the founders coming into the space at this maybe it's just the inflection point that market is getting better better and building really interesting stuff so um maybe like three or four months ago a little pessimistic on like what was happening we were just getting a lot of rinse and repeat you know let's take a for version of this defi app or nft Marketplace and I do think that's starting to change pretty dramatically and our you know our deal flow um our deal flow pipeline has increased pretty

significantly um not only in like new sectors and new use cases but also uh just the quality of entrepreneur coming in uh has has has gone up in the past uh you know past past six months or so nice cool guys well this is a pleasure um hopefully see you guys at permission list later this year in October you guys coming is it Austin or no it's Salt Lake this year oh cool all right well yeah we uh Mike how's your pickle ball game I saw you're hosting a tournament there yeah exactly so I don't know how you guys' pickle game is but hopefully see you guys there I would have preferred skiing but uh we we miss skiing by like a month or two

it's in October so they'll be good like biking and hiking and the soft things for you Mike yeah sounds good to me thank you uh thanks for having us on [Music]