Why VC is Dumb Money, OpenSea Token, and The NFT Comeback | Nick Tomaino

Transcript

when I hear people argue about like a cheaper faster L1 or something like that my [ __ ] meter goes up quite a bit what I think is really important in crypto is kind of new social Innovations I think the technical Innovation is is vastly overrated for an L1 to just come along and be like cheaper and faster than ethereum I don't think that matters much at all this episode is brought to you by carbon carbon is a new Dex on ethereum that makes concentrated liquidity super easy with carbon LPS can now automate your liquidity strategy with custom on-chain limit and range orders all from a beautiful UI check out carbon today for unprecedented control over your

liquidity thank you all right everyone welcome back to another episode of Empire we have a Nick tomino founder of one confirmation joining us uh Nick welcome to uh Empire my friend thanks for having me good to see you guys yeah good to see you man um a lot to cover here I I want to start with uh you've had some hot takes against kind of uh the crypto VC crowd I will say I'm just gonna read a couple of these and then maybe that can spark an interesting little conversation or debate here um July 1st so about a month ago you tweeted Adventure capitals the fakest industry on the planet and what other industry can you objectively be bad at your job but create narratives that make you appear great to the outside world for years uh earlier this year maybe it

was last year I remember you tweeted venture capital is the dumb money in crypto there's a bunch of these kind of tweets that follow the same line of reasoning tell us what's Behind These tweets um I mean I would say the main thing is that as a venture capital investor the you know the job is to make good Investments right it's to generate returns for LPS and that's not what um the focus is for for most Venture capitalists especially to the outside world right so like performance is never discussed the SEC actually makes that hard um and is part of the reason for this but I think you know the culture in

Silicon Valley venture capital is to you know be perceived as smart or good at your job and you can do that uh really well without actually being good at your job so that's kind of the main reason I tweeted that it's like it just feels after being in it and I you know I came into this world as a complete Outsider right so I didn't know what Venture Capital was um you know coming out of college I then like got on Twitter early and Dove really deep and kind of became an Insider right joined coinbase then started one of the first crypto Venture funds um so I kind of you know had an outsider

perspective then became an Insider and now being in it for you know five plus years it just feels uh very fake to me um there's um you know a lot of these big brands that um you know create kind of you know an elitist narrative that they're the smartest guys in the room without actually being that and that's how most of uh you know most of not just crypto but Silicon Valley venture capital is how do um if I were to survey like 20 30 people um how would they describe and what's like your Edge and how would they describe one confirmation um I mean we are crypto native investors

that invest in products that we understand deeply from a user perspective so how I got into crypto um you know I was buying Bitcoin back in 2012 and um to do that back then in the U.S you know I was in Portland Maine uh taking out cash out of an ATM and then going to a local Walgreens and moneygramming it to Mount gox right that was like the early ux for crypto and then I saw Brian Armstrong launch coinbase on Hacker News um and it just solved a very simple problem for me which was you know buy Bank buy Bitcoin with a bank account rather than having to you know do all

this stuff in the physical world and um I became one of the first 100 or so users of coinbase that way and that's that's how we invest we just use products um you know we were that was how we we got involved in openc very early as well I was one of the first users in openc because I was you know buying and selling crypto kitties and to do that initially you had to go to the crypto kitties website they charged five percent what's the true benefit of an nft right it's true ownership and you should be able to trade this anywhere and so I found openc and it again very simple Pro problem at the time that served a very Niche audience which was a lot of people to trade cryptokitties for two percent rather than five percent so

that's that's how we invest we're very practical um we're not trying to uh create narratives or um sound really smart or things like that which I hear a lot you know the vast majority of um crypto investors especially do this I hear a lot of you know explaining why x uh L1 is uh better technically or something like that and um I think a lot of that is [ __ ] to be honest um it's you know for crypto to matter it's it's about products that are useful so we're only investing in products that are useful to us and it just so happens that products that are useful to us kind

of early tend to be products that are useful for the masses um you know in the long term this is interesting because over the last like you guys have been around him for what six seven years no mm-hmm I mean we started I guess almost six uh we started in uh 2017. yeah and there's a comment like recent debate now which is are we investing too much infrastructure and where are the consumers like block space is empty right now you could argue there's a deficit of infrastructure like a surplus of infrastructure not enough like really good consumer applications So when you say that you're investing in things that you use maybe give us a few examples because obviously you could argue that sure openc is probably one of the things that has gotten the most amount of consumer

um attraction but still it's super early um so I am curious over over the course of six years like Where Have You like have you always had this strategy because candidly like mainstream is not here and hasn't been so how do you think about investing in that versus you know other things that I mean maybe you're not using mainstream is here um it's not here in a big way but I mean you know nfts brought mainstream into crypto in a way that no other product has right so I think we still have a ways to go for mainstream but um yeah I mean we're we're just looking for products

that uh that get us excited right um and again I I think most investors especially when you have a lot of money um and you raise massive funds you're just investing in narratives so how do you explain um FTX getting you know 200 million or whatever from Sequoia right it's you have a massive fund and you have to invest in a narrative without understanding uh how the thing actually works or being an actual user of the product so um you know we're just very laser focused on products that we understand um you know it it doesn't have to be from a user perspective it could also be

from a developer's perspective it's a very practical approach to like is this product interesting and we don't give a [ __ ] about whether the narrative is interesting or not and I think most investors are too focused on on narrative Nick are there any of them I heard I heard you say this maybe a year or two ago on a panel I think this was you who said it you said the stronger the narrative is the further it is from the truth um and it kind of ties into this conversation that we're having today what are some narratives that you see in crypto whether it's around l1s or l2s or app chains or real real like I guess anything like what are some narratives that you see today that you're just kind of like your [ __ ] flag goes up um

I mean I'm trying to think of one right now I mean certainly one that has been maybe the biggest narrative over the past five years has been uh next gen L ones right um that has been a very strong that that's been the narrative that has arguably caught uh kind of retail more than anything and to me that's a very strong narrative uh that's for the most part to date been [ __ ] like and again when I hear people argue about like a cheaper faster uh L1 or something like that my [ __ ] meter

goes up quite a bit um because to me what I think is really important in crypto is kind of new uh social Innovations I think the technical Innovation is is vastly overrated and so for an L1 to just come along and be like cheaper and faster than ethereum um I don't think that matters much at all um for an L1 to come along and have like a new social Innovation like a new governance uh you know a radical approach to on-chain governance or um a sovereign chain uh you know approach where you're not going to have one chain that every app settles on but

you're going to have a bunch of app chains that all uh are interconnected like those are the types of uh things that I think are actually underrated because they're a little hard right in saying that um you know the stronger the narrative the further from the truth the the other another way to look at that is the truth is nuanced right so most people don't appreciate nuance and so if you want to just get a lot of people to believe something um you lack nuance and you you know you state something that that is far from the truth and you know the truth being nuanced I think as an investor like that's where you can actually do really

well is if you appreciate truth um you invest in these nuanced uh kind of you know projects and so I again an example of that would be like something like Solana is this very um clear narrative right cheaper faster ethereum that makes sense to people that excites people I think that's that that's something that doesn't really matter um in the long term I think it's a clear narrative that is not um that important whereas something like Cosmos which it doesn't have this clear narrative

um that you can you can relate to something that already exists that makes a lot of sense it's uh you know Sovereign chains most people don't appreciate that or care about that but I think that's the type of thing that's really uh that's that's a nuanced truth that um you you know is better off for investors long term so that's kind of how how I think how do you um how do you marry that with this idea that sometimes the best product doesn't win in the sense like VHS betamax for instance um sometimes you know the best tech does not win for a variety of reasons so I mean it's quite early in crypto still but um you know do you think about that when you're investing I mean obviously

around this idea of nuanced fruits like Cosmos for instance we had Zaki and those guys I mean Super interesting like tendermint super battle tested but they don't have a marketing team they don't have the beating muscle that other protocols have they don't have as many resources do you ever think about that you know or in this kind of idea of investing kind of in a counter narrative Nuance I mean we're very focused on authenticity um so again my bet when when I invest is that the authentic wins over time and things like marketing and BD don't matter that much um and I think people that come from outside of crypto um they don't really get that or believe

that and again that's my long-term bet we've been betting on it since the beginning and we still are I'm not saying that's definitely going to play out in crypto but I think it has for the most part to date right so we're um it's we're investing in authentic kind of first of its kind projects that we think are meaningfully uh Innovative from a social perspective that are pushing the space forward um and again as an investor that takes that approach in crypto it can be very frustrating at times right because in the short term um you see teams that have great marketing great BD really shining and

um and thriving and especially in a bull market uh it takes a lot of juice out of these authentic projects but look I mean FTX had great marketing um and great BD right and they were really shining in the short term um but we know what happened so I think betting on our authenticity um if you can have a long-term perspective um and I think that's also something that a lot of people in crypto don't have right it's like it's it's hard it's easy to say have a long-term perspective but um it's harder to actually do and so um yeah by betting on kind of authentic first was kind of projects that

um you know we understand from a from a user perspective that's um I think a really good way to invest in crypto and and we've kind of shown that over the past uh six or so years a lot of the issue in cryptos how do you structure a fund um you know obviously you have like tokens and you can get liquidity much faster um while you're still investing like in a very venture-like manner how are your funds structured um and how do you think about kind of life cycle of an investment for example openc Venture fund so um my friend Ola from uh polychain he he started really the the first crypto fund

um and he left coinbase to start polychain in like I think mid 2016. and um he structured initially as a hedge fund um and the hedge fund structure you guys probably know this but for those that don't um it's um you know you get you get carry on an annual basis um and that's the that's the core difference between a hedge fund and it and a venture fund whereas a venture fund the GP that you know the manager of the fund doesn't get carry until uh the LPS are in the profit so I kind of always thought that this hedge fund

structure which you know Olaf kind of started and obviously polishing has done incredibly well um and kind of led the first wave of of crypto funds I would say um and because polychain did it incredibly well um and everyone saw this crypto fun hedge fund that was killing it a lot of especially that kind of 2016-2017 wave of funds took this hedge fund approach right which is again as the as a fund manager if you have a 100 million dollar fund that's up a hundred percent in year one um you're getting carry on that and your LPS are not and so there's this fundamental misalignment and incentives

between the GP and the lp with that structure so we took a very simple approach and I think we were we were one of the first if not the first to do it it's like we're going to invest in both companies and in cryptocurrencies but we're going to do it in a venture fund structure right so we're going to be aligned with our LPS um by only making carry uh when our LPS are in the profit so that's that's the structure um and you know we now have three Venture funds and a nft fund and that's the structure for for all our funds is uh you know traditional Venture fund 10-year life of the fund um you get a management fee and you get carry you only earn your carry when the LPS uh are in the profit so that that's

the way we've done it and I think that's the best structure for uh crypto fund unless and I haven't really seen this but unless you're you're truly able to generate kind of Alpha trading or something like that on a annual basis and that's kind of how these hedge funds justify uh that type of uh carry structure especially in the traditional World um but I haven't seen many that do it right most of the crypto headphones are just you know going long crypto and not really training or trading or able to generate Alpha uh short term Nick I have one more question on Venture stuff and then maybe we can move on to more like maybe crypto native conversation here um about some of the Theses that you

guys have laid out your partner Richard um wrote a blog post on a couple different things in Venture going on right now and one of them was about uh the only way to be successful in Venture is to either have a very small what he calls like a sniper fund or be a large almost like Index Fund where you're basically just indexing the space and I think it was his words not mine where he said there there is no in between there is no it's a no man's land in between the small sniper funds and the index funds why is that the case and also Santi I'm curious if you as Nick kind of lays that out I'm curious if you would agree or disagree with that but yeah Nick here's to hear your thesis there uh I'm not sure if I I necessarily agree

with that clearly as a small fund if you can you know maintain a relatively small Fun Size and be disciplined about how you're investing um I think that's the best way to generate great returns for your LPS right um because you know it's just simple math if you have a 25 million dollar fund and you make one good investment um that can return the fund five times over if you have a billion dollar fund there's just not um you know you don't have that opportunity to um generate great returns so it's simple math

um in terms of like in the middle so I guess it wanted to depends how you define Fun Size um and you know what's small what's in the middle but I mean I think there's probably um I would say you know we've taken the approach of like not raised more than 200 million in um in fund size um I think if you go over that um then you just have to be an index fund and again that's investing in narratives um where you're not really understanding things and you're maybe uh Missing the great early stage stuff um but then getting in later where um you know it's already clear

um so you know that's why a sequoia can invest 200 million in FTX and still be fine um like they're they're still gonna have probably decent returns for their LPS because they have such a big fund they can kind of weather that um but you know what we've found what we really like is investing in products before there's a clear narrative right like when we invested in openc nfts weren't a category and it's not like openc was um you know so unknown in Silicon Valley they went through Y combinator and they were talking about digital goods and why digital goods were going to be important and you know no one in Silicon Valley once wanted to give them money I mean

they were they were not a hot company coming out of Y combinator um and you know then openc explodes and then you know nft has become a thing and everyone wants to invest in that narrative when the narrative is clear uh the the the best investments are gone and so that's why you know for for our fund and even now like we're investing in things that there's not a clear narrative around right um we want to be investing in uh and that's when the best uh you know Investments can be made and that's why as a sniper fund you can kind of do that as a um you know as a bigger fund even maybe a medium-sized fund it's like you know you have to write bigger checks

um you have to invest in things on there's clear product Market fit um the return profile is lower for that so so what are some of those things that um you think are kind of have no narrative or early that you're excited about now yeah and and um sometimes it's not no narrative at all actually oftentimes it's not right because like even nfts in 2018 um there were there was a small community of people that uh was really obsessed with nfts even back then it was just there was no uh narrative for for

normies or even um kind of you know techies that weren't super in crypto right it's like so um you know we want to be investing in things that there's not a clear narrative but there is uh a smaller the underlying so you had like crypto kitties explode and congested ethereum and people were writing them off like this is never going to work but like yeah you could have looked at that and said my God there's like you're triggering a consumer Behavior here and you could see the long-term path of it being huge and so right you invest in openc and and oftentimes there's also um there's examples of like things that have been tried before that haven't worked and so people point to those a lot and that was true with nfts as well as like you know there was

um you know colored coins and um you know a bunch of stuff in nfts that was happening on bitcoin even before ethereum and people you know point to that and say oh that didn't work why would it work this time so one example of that um that I feel really uh strongly about is prediction markets um so prediction markets you guys know what prediction markets are most I think we're both investors in poly Market okay nice um yeah so prediction markets is one where you know they've been around for a while um it's they're they're not uh you know completely novel but um

you know there's there's a small community of people that like them and I I think um they have about as good a shot as any as being like the next uh crypto product that really uh captures mainstream attention so that you know that's one example and I guess there you would have looked at auger which was kind of the first really to try this out and it kind of didn't really go anywhere but um but then you kind of Meet the founder of poly market and you get excited about you know the category at a time where most people are writing off the category because you had auger that kind of didn't go anywhere and just like yeah we invested we invested in auger

um and we were very you know close to that project when it launched um we also invested in Veil um out of our first fund which was a uh another um company that you know tried prediction markets and uh it didn't work so um yeah I think I think it's going to work at some point and Nick in that category that you're really excited about how do you think about prediction markets in context of um uh like dissolution of public trust in institutions because in my mind those kind of go hand in hand right as as we Truth for society used to come from governments and institutions in the New York Times and folks like that as truth goes down it's nearly

impossible to find the truth and it feels like to me if you had a global super liquid prediction Market at scale that's the best way in the world to reveal like true information but I'm curious if that's like how much that aligns with your thesis on prediction yeah I mean that's a big part of it um I think markets are fundamentally a better source of Truth than um you know media and narratives right again it comes down to again what even what you asked me at the beginning about you know Silicon Valley and why I feel like it's mostly [ __ ] and it's because it's you know the culture is more about narrative than actually uh performance and and markets and I would love the culture and inventor to shift

more to one where uh its markets and performance that matters over narratives but um I don't know if that that will happen but you know prediction markets I think has the ability to do that to to culture in general where um you know it's not just about the narrative um it's about people uh with skin in the game that are uh you know are speculating on outcomes and I think that has the ability to bring a lot more truth to the world um the other kind of this is kind of something that Shane from polymarket um told me that I I very much believe in now

um that I think is a little underrated is um why did nfts work um so well why have they worked and um why will they continue to work I think a big part of it is the fact that they're a great business model for creators right um being a new business model as everyone in the world is being becoming a Creator if they want nfts are kind of a new business model and I think we're still kind of early in that journey of people appreciating that but I think the same can be true about prediction markets um particularly when like a polymarket

or someone else launches create your own markets and any uh influencer uh you know on social media can essentially create their own market and um generate fees on that so I I'm pretty bullish um I mean you see even in the past month like prediction markets uh you know connect colliding with culture um and you know the the sub uh the submarine Market on polymarket like went viral completely out of out of crypto I don't think many people in crypto even knew about it or cared about it but this was and we're seeing um you know influencers start talk about these markets um and I think

you know prediction markets as a business model for creators could be quite interesting so that's kind of an area um that that I'm excited about in production Mark in particular and I think again it's uh you know I like poly Market um but I think there's probably going to be uh many others in this space and and right now um I think you have to tip your your cap to Shane and polymarket because you know they've grinded it out um in a space that you know there's been interest but most haven't uh grinded it out and I also think that's uh often what you see um when you get a big winner in a

category so um yeah yeah that's that's one of you know many categories that uh we're excited about right now that we think could could really be the next uh we always think about this lens of like what could be the next product that really pushes crypto into the mainstream well what else are some of them are you excited about well I was gonna say I heard you talk about Dal tooling and Dows in general I'm curious to get your thoughts on the thesis there and what you're saying yeah I mean one thing that I think a lot about is like can we get to products Beyond the primary thing being speculation and investment in money and I think a lot of

people kind of dismiss crypto because everything that's worked really today has been about that and I think that's just going to continue um because you know we all know that the traditional Financial world uh was very restrictive um and didn't allow does doesn't allow a lot of different types of people to participate and I think just being new financial markets and new money um for more people in the world is obviously very important so again even something like prediction markets which is a new category I think is mostly about you know speculation investment but um we also spend a lot of time thinking about like what are going to be the

products Beyond just speculating speculation and investment and if I were to bet it's going to be about human organization um and obviously we we all know that's what a dow is right it's kind of a new form of human organization that uh allows people uh from different parts of the world to contribute resources to this organization and be incentivized for it and so you know Bitcoin obviously was the first Dao and Dows are not something um new in the space in any way shape or form but um I do think we still haven't seen products that make

it easy for people to participate in daos and that's kind of the thinking with Dow tooling it's like can we make it dead simple for people to you know contribute resources to an organization and um you know receive something in return and um you know and grow and and that's kind of the idea with Dow Jones so we've made you know a couple investments in the space I don't think it's necessarily within crypto you guys you guys are familiar with Dow tooling and probably have invested in some companies so it's not um I don't think it's a very uh you know contrarian view or anything like that but I do

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carbon check out the link and get started today now let's get back to Empire hey everyone we'll get back to Empire in just a minute but before we do that I want to let you know that we have permissionless coming up permissionless is Big conference that block works and Bank lists put on together it is the biggest the best D5 conference in crypto this year it is in Austin Texas September 11th through 13th if you've been in crypto for a while you know that bear Market conferences are the best kind of conferences we have a phenomenal lineup of speakers a lot of the guests that you hear on Empire are both going to be speaking there you will have the opportunity to meet them there and a lot of the topics that we cover on Empire ZK attack roll ups account abstraction Mev

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Nick what's your working thesis on um on nfts and I guess I might bucket that as like maybe three different buckets there's like open C and like the marketplaces and there's like Marketplace a lot of marketplace competition right now then there's another bucket which is um I think you purchased uh four one five six was this less last year for like three million or three and a half million bucks um yeah yeah you bought punk4156 for 3.3 million um so we'd love to just get your like working thesis around pfps and then there's this like more esoteric uh bucket of nfts which is like unlocking creators like music nfts like royalty like that that kind of bucket

that it feels like we saw at the very end of the of the of the nft bubble but that we'll really see in the next cycle what's your kind of would I don't know where you want to take that question or where you want to start there but would love to just hear your working thesis around nfts yeah I mean I think nfts um in five years have a good shot at being actually larger as a category than cryptocurrencies um and the reason I think that is because you know more people in the world care about culture than they do about just Finance or money and um you know cryptocurrencies and defy um very much about money and finance and

I just think nfts kind of or the the intersection of money and culture in a really unique way that just you know brings more people to investing so I think you know in crypto in general it it fits very nicely with the the trend that I think is true which is just everyone in the world is becoming an investor and um you know it's that's a very empowering Trend as well because you know I think people in crypto maybe take it for granted but like 10 years ago it's like most people in the U.S they think oh to be an investor you need to be

you know have a certain degree or work on Wall Street or something like that and so I think nfts as a investment category um is going to continue to grow and obviously it's down quite a bit from the last bubble um but you know the our conviction there is as strong as ever kind of long term we see we see bubbles come and go in crypto so I guess the we could go into all the different categories there there are in nfts which I you know Pro you guys know as well um most of what's worked today is is crypto art right

um is and that's kind of we have a we have an nft fund and that's really what we've focused on to date um you know when we launched the nft fund we initially told LPS you know we were going to invest say 50 of the fund in kind of high-end crypto art and 50 of the fund in new projects right because like anything in crypto you know we feel that there's always new stuff that comes along that ends up maybe being bigger than the last thing so it's important to be kind of on the Forefront of investing in new projects and I will say that since we launched the nft fund last year um we haven't even come close to 50 percent in in new projects the

um the pace and the quality of the new projects in nfts has been lower than expected I would say um so we've been mostly focused on kind of the high-end crypto art um which I think is just a great store of value um just like it is traditional artist for traditional Rich you know if you believe that crypto uh you know wealth is going to increase then you have to believe that high in crypto art is going to be a good store of value as well so that's kind of what we've been focused on and we're obviously um looking at new projects as well but um you know we haven't been investing a ton in kind of these

new nft projects um lately and if I and you know I've had a call in LP yesterday who kind of asked me where we're at on the nft fund and you know I said look last year we thought it might be 50 50 50 and now I would say it'll be more like 70 30 or something like that and um just because you know as a fund manager you you know you go in with you have to have a strategy going in but I think you also have to adapt to you know the market and that's kind of how we've adapted uh to this market and that's again subject to change but I will say obviously the pfp craze captured

mainstream attention most we've largely stayed away from that um other than punks which again is is the authentic pfp which um you know we have we have high conviction on and we're it's consistent with our strategy across companies cryptocurrencies right it's like what the authentic is is where most of the value uh you know is captured long term and so you know there's there's been other things in in nfts that I think are authentic kind of first of its kind like nouns right which is kind of the intersection of nfts and Dows and was the first of its kind to do that so um but we at the end of the day we you know we think nfts as a as a new

business model for creators isn't going anywhere you know we're really excited about music nfts as an example um and we think you know in in five years there's going to be multi-billion dollar asset classes for basically every category of creativity um on the internet and uh you we want to be investing both in like the marketplaces and the products that are facilitating that and also the um the assets themselves yeah did you buy that Ponca that uh eight Punk with the fund or personally yeah when you we had a 6529 right after he purchased the wringer um the the goose and he we asked me how do you think about because he said like

some of the art that we buy we just it's forever like we want to keep it and we don't intend to sell it but he also has a fund and we asked him the question like how do you think about one valuing these things and two like disposing of them after you know 10 years or so and he didn't have he was like it's honestly a struggle so I'm I'm curious how you think about and how different your strategy is for the nft fund versus some of your other like traditional venture funds and and thinking about kind of the life cycle of an investment so this same question was asked uh by a lot of people when we started our crypto fund and how we think about valuing

um you know cryptocurrencies themselves right um and at the end of the day right we all know cryptocurrencies and nfts value is based on belief and there's not uh cash flows there's not uh traditional ways of of valuing them but we've always taken um kind of a relative value approach right so and this is how you know people this is how people convinced traditional uh institutional investors to invest in Bitcoin even right is like look the total market cap of Bitcoin

right now is uh 570 billion and What's the total market cap of gold I haven't looked in a while but um you know last I I recall is around seven or eight trillion um and if you believe in the digital gold narrative then you must believe that Bitcoin is going to take uh uh you know a big market share of that so that's kind of how we think about nfts too if you look at like crypto punks um and I think a good calm for crypto Punk could be something like Dogecoin so Dogecoin total market cap of Dogecoin right now is

um something like 11 billion and I think the total market cap of punks if you do floor price is um less than a billion um so do you think punks could cut into that or even be more culturally relevant than Dogecoin in five years as the space grows that's kind of how I think about it um so you know we we think of every like nft creator that we invest in so you could do crypto punks you could do uh people

and you could look at the total market cap of of people right now relative to some [ __ ] coin um right and there's a lot of [ __ ] coins that have a higher market cap than people right now and I think you know something like cardano or something you could use as a comp for people and if you believe that people could be more culturally relevant in five years and you believe the space is going to grow then um then people right now would be a good investment buying politics is [ __ ] or something like that so that that's that's kind of how we think about it talk to me about other categories we obviously you know we talked about art but I think something people don't

appreciate is that nfts can be really anything it could be an insurance contract it could be you know a a real world asset expressed on chain just anything that is again you know bespoke and not standard could be converted can be an nft represented on chain and then have all these kind of composability benefits and whatnot how are you looking at that are you are there any areas and sectors that you're excited about um I mean there's a lot of chat now and real world assets which in a way are nfts so if you express them in a way so yeah I'm just kind of curious um I don't love real world assets um I think real world assets will happen at some point but you know real world assets requires

trust in a third party and you know the the the things that have worked in crypto uh minimize trust and actually don't require much trust if any in a third party so um you know we invested in Harbor for example out of out of one one uh Josh's company yeah yeah yep um Josh and David sacks and um again that's not to say it can't work now there may be reasons that it actually will work now so um but it's a space that I think is interesting um I'm just more excited about crypto native on-chain assets that don't require so

well real world assets actually is a strong narrative I think too right that could be a good example of something that um maybe has a strong narrative that people buy into is because like everyone on Wall Street and we heard this in 2017 is like it sees everything happening in icos um and it's like oh we have real assets we should bring these on chain and so it's like a very obvious narrative um and one of the reasons I think it hasn't worked is because just the Demand right like crypto natives um demand um Innovation and bringing like a piece of real estate on chain is not really Innovation

um and again I think it will work at some point because when everyone's on chain there's a need for um you know diversification in a portfolio and and crypto people to own real want to own real estate and stuff like that but just in terms of what what I think works early I'd be much more excited about like music nfts than real world assets for example is like music is a obviously a huge category for creativity and it's not it doesn't have the visual component so I think it's still hard for people to wrap their heads around why music nfts might be valuable um but that's a category I mean we we

see and we're very much I don't know if you guys have read any uh Renee Gerard um Renee Gerard is would strongly recommend all your listeners uh check out um read the scapegoat I think that's his his most uh easily digestible uh book uh as an intro but um we we see this in crypto memetic Theory and it's the idea that desire is not based on ourselves but it's based on others and so in crypto you see that with nfts right it's like when there's only a few people that want nfts uh you know a beeple no one wants it but once everyone wants it more you know everyone wants it and so I

think as an nft investor it that that's a a useful framework because if you can invest in things before everyone wants them and you have a thesis for why everyone might want them in the long term then that can be a great investment I think something like music could be that right because we all appreciate music people don't really um you know get excited about music nfts yet there is a small community that does but um you know once we have a Justin Bieber that um you know mints a music nft on um you know sound or catalog before they're Justin Bieber and then blows up and that becomes you know a headline just like people was that's a thing that

could get kind of the memetic desire going so those are some of the things that I think about on this point of Music nfts which I think they lend themselves well so to speak fractionalization right you could presumably have a song and you issue these nfts and they represent some sort of royalty stream that you're sharing with your audience or whatnot what do you think about fractionalization are there use cases where it may end itself well and are there others that don't um particularly art versus something like music or something else okay one of the things obviously there's a lot of excitement about fractionalization and maybe there still is

um one of the things we've seen with fractionalization of nfts is um it kind of um transfers ownership from strong hands to weekends and so much of nfts is about belief and strong hands and people not wanting to sell and that's true in traditional art is kind of belief begets belief and when you have some meme um that then gets fractionalized um and anyone can own it and then you know things change in the market and you have a bunch of people dump it that's kind of what I think we've seen with a bunch of this fractionalization prod projects so

I like the idea of fractionalization right in theory obviously it's like you want inclusivity you want anyone to be able to own a punk um and I think we just haven't found the right balance yet um like a lot of the things I'm thinking there was like a doge meme you guys remember that one that um yeah well there's two one of them pleaser now yeah did before that there was a guy that bought and fractionalize it yeah and I don't know I think that was like the biggest you guys may may know others but that was the biggest I remember of like the participation in a fractionalized nft

and I don't think it's gone very well and I think maybe we just haven't seen the right iteration of it because again I think in theory you want like anyone to be able to own a punk and maybe punks or something that has a lot of strong hands already and then you you kind of allow us a small but growing number of people to participate in a small way and you roll it out a certain way um you just need to figure out the right balance of like giving people the opportunity to own it while also making sure that they're not weak handed and are just going to dump when things uh go wrong that's been the the issue I

think fractionalization to date on this point I want to touch a little bit on how you the state of the nft market I mean obviously a lot of the floor prices have gone down quite a bit and you know are basically you know have a higher beta to Ethan Bitcoin um feels to me like a lot of the market for a while has just been pure speculators um that and so I I'm curious how you how is is that a bad thing I mean people say hey look nfts are just another way to financialize our and people to speculate on this stuff and then go on Leverage and does that bother you do you think that's an issue um or is that just a normal Market where there's a bunch of speculators and you

sort of accept that yeah it doesn't bother me but um it does when I see that activity it does um give me a pause to to participate okay so when we um we invested in super error um we were like led the seed round in super error and we're still very involved in super air and I'm on the board and what got me so excited about super air was that you had a bunch of collectors that were not signaling that they were collectors or trying to show their bags or anything like that and it wasn't about short-term financial gain they deeply believed in the art and they I think were also

motivated by financially but they added a long-term perspective rather than a short-term perspective and that's what really we look for in in nfts right so I think there's certainly a um there's a market of people that want to trade and speculate um and you know get short-term uh you know gains on on punks or something like that there's you know there's punks OTC guy that I think has done quite well you know just buying and selling uh punks right so there's there's nothing wrong with that um there's a market for it but um but yeah I think what we look for is like when there's

um a strong community of quiet confident holders right I think that makes like the best nft community and it can be frustrating right because like super rare for example was really uh one of the first to to push nfts in crypto art forward and they um they you know they've had great success but then pfps came along and kind of drowned out a success and more people in the world have heard about board Apes than than super air right um and that's when again when I get back I think I said earlier that like authenticity I think is the right bet uh long term even though uh in the short term it can be quite

frustrating when you have people that are better at marketing or better at Business Development or convincing celebrities to come on board or something like that so um yeah I forget the initial question I think I went on a tangent but that's kind of that was a good that was a good that was a good rant I like that Nick um I have a one more question about nfts here Nick you guys did the uh seed round of open C I think you put in like two million bucks in the seed round um and I'm sure you guys did did pretty well on that it sounds like what is the future of open C and maybe a more targeted question here is uh openc has been has had a tough go of it I'd say the last 18 months folks like blur have come come around and eaten

away at their market share and I think one big question for openc is if you look at crypto businesses uh specifically crypto marketplaces the ones with the tokens that can align incentives between the users and the investors oftentimes do better like the unit swaps of the world I end up doing doing pretty well because they have a lot of incentives does it make sense for openc to have a token um so I guess two questions one what are my general thoughts on openc which is um I'm quite bullish on open seat um you know open c I think is the best product uh at bringing uh crypto natives or or new

people non-cryptonatives um to um crypto really I mean um outside of centralized you know exchanges and things like that so you know the the volumes in the short term um I'm not as concerned about it's not surprising that there's crypto native products that are very appealing to Traders um and that have token incentives that uh come along and you know I think openc has made some very good moves um and again I'm obviously biased and I understand why there's negative sentiment on openc on crypto Twitter and things like that because they don't have a token and um I think you know some people I see this I've seen this at coinbase since I

was there right is that you when you're the the biggest you have a Target on your back and um yeah you know the there's while there's the most people that are have happy with the product you also have a small segment of people that are that are the loudest uh against it right so I think long story short open C is well positioned uh as nfts come back right like and nfts need to come back um or else open C obviously has no business but um I I strongly believe nfts will come back and I strongly believe led by again some of the moves that openc has made in terms of um Seaport and open c pro and bringing

uh nadav on a CTO I think through an acquisition I think they've made a lot of good moves that are kind of under the radar that will pay off um if and when there's another nft bull market so not that concerned about you know competitors that are taking kind of market share in the short term I don't think any of the products that I've seen are really geared towards a mainstream user do you think they they should have a token do you think they should eventually IPO like what is the kind of exit as a VC investing in them what is the exit plan there one of the things I like I really like about Devin is when D5 summer was was going on right in um was it summer of 2020 you know he had

compound and uniswap and all these tokens going crazy I was setting up weekly meetings with Devin and Alex trying to convince them to launch a token because I do believe that for a Marketplace giving users ownership is incredibly powerful we all understand that um and you know Devin and Alex were listening but they were always pushing back um and they did they didn't feel it was the right time and even before um things really took off with openc a lot of people probably don't remember this uh wearable was a competitor and wearable launched the Rari token and they got a bunch of initial volume too so it looked like we were like [ __ ] this shitty uh you know nft Marketplace that

doesn't have the product that we do just launch a token and they're gonna you know eat our lunch and they were just focused on a product and and building a product that was useful and they didn't feel like it was the right time for a token so I I trust and believe in Devin uh it would be my answer like I do think there's benefits to a token and I see why people are pushing them to do a token there's also a number of of risks and trade-offs that come with that and so I personally would like to see an open C token at some point um but I also you you can't question uh Devin's judgment I think he has very

good judgment and and makes good moves and so I'm not uh you know trying to push him to launch a token or something like that I think um you know hopefully then the time is right they will give uh ownership to users in some way shape or form because that is I think uh you know how you need to how you need to grow a Marketplace so yeah your coinbase from one 2013 through 2016. what do you what do you think Wall Street most misunderstands about coinbase right now um I'm not sure I necessarily think they misunderstand anything I I

don't know I'm not that focused on Wall Street sentiment of coinbase I mean my I haven't sold a share um that I that I got from you know working there um I'm still bullish on coinbase I think if anything Wall Street just doesn't think crypto is is real um or or kind of maybe Lim you know lumps all crypto with FTX um and I think like the SEC and isn't doing any favors um so I would say look coinbase has been a great company for over a decade Done Right by consumers and

um I think again the truth is nuanced right and I think the The Narrative maybe in Wall Street might still be crypto is you know interesting and experimental but there's not much real there and um is never going to be super meaningful in the world um I think if you believe that um then coinbase isn't interesting if you believe that crypto is interesting I think you know for public market investors uh coinbase is the best public market exposure um what do you think of bass the coinbase L2 I'm not super excited about it but at the same time I think it's probably a good move for coinbase

um it's not something I'm paying attention a lot too to be honest but um I think it's good for coinbase to be doing Innovative stuff um I mean when I was at coinbase I was the guy that was launching like I launched the coinbase tip button in 2013 which was this is when we thought that um Bitcoin micropayments was going to be a big thing for uh for creators and um you know that didn't go anywhere um but I think you know it was good that we were pushing on new stuff and I think it's still good that uh coinbase is pushing on new stuff so I like I like the

the idea and the direction do I think it's going to be super meaningful for the business or for crypto um probably not could you dive a little bit more into that I mean some say Hey listen coinbase has all the users and if they can allow for users to kind of enter this world via base then all the better um would you push back on that or I'm just kind of curious to understand a little bit more why you're not as excited I mean look at threads do you guys if you guys use threads since it came out a couple weeks ago no I'm generally skeptical when the argument is oh this company that's useful for this has all the distribution

and they're going to be able to Port it over to you know this new thing right um that's just my general bias so again I I can't say I'd love to hear from someone who has like to be fair like Instagram stories did Kill Snapchat but yeah yeah um yeah I mean that was a more um that was a feature um within a product right so I think there is a difference there um and again that I'm using that as an example to say that's my bias I'm always very skeptical of you know a com an existing company um that tries to uh get in a new

business just leveraging their existing distribution um so that's kind of why I've dismissed it again I'd love to hear from someone that has a strong old case for it because I haven't looked at it super close now I guess transitioning a bit you know especially during bear markets we all crypto natives get asked the question like look uh point to me as something that is mainstream like what what is this all useful for and I think it's the hardest question to ask to answer being in the industry because you okay certainly you can point nfts and yeah like there is traction but it's not mainstream and it's still very difficult for most people get onboarded get started with crypto and you can point to regulations you can point to bad UI ux whatever it is

what's your timeline I mean obviously you believe that at some point a lot of these things are going to be mainstream but what's what's like your working timeline and what are the catalysts to get to that state of the world like in five ten years maybe more well again I think mainstream it depends on your definition and it depends on your vantage point because like you know when I was at coinbase in 2013 if you told me that then where we'd be now uh I I wouldn't have believed that that and you know that would that would where we are now would have surpassed my wildest dreams in terms of cultural relevance of crypto right like

it's still not um you know widely used by billions of people but the cultural relevance of crypto I think you could argue is is uh is mainstream so um I think certainly we need more um and I think what gets us there um there's really two things I think what what most people would say would be ux um and I'm sympathetic to that kind of argument but I don't really buy it um I think um the ux is okay um and if there's interesting enough

consumer behaviors um then it's good like so I don't I don't think I don't think ux is necessarily the answer though you know things like smart contract wallets um you know we are investing in that category and I do think it's worth um you know building in that space uh and I mean we have since uh 2019 when we invested in ethereum ethereum was like one of the first smart contract wallets that basically was on mainnet and when D5 summer took off um it ended up being a couple hundred dollars to create a wallet so mainnet got two uh costly for Smart Control wallets and I am excited about what I'm

seeing now um for smart contract Wallets on l2s um like polygon and arbitrum and optimism um because I think that is something that is going to help I don't think that's gonna I I think that is you know kind of a nice to have that maybe give a slight bump but what we really need is new consumer behaviors that are compelling and that's what I'm that's what things like prediction markets what things like uh you know Dows to centralized social networks these are new consumer behaviors that I think are going to be more impactful than the um the ux the the example I give to people is like look at uh look at Dapper Labs um and look at NBA top

shots right um there's a lot of early excitement about NBA top shots oh it has this great centralized ux that makes it easy for people to get on um and that worked okay you know in a bull market in a moment in time but I mean if you look at the the the flow nft volume versus ethereum nft volume I think in the past month um flow has done like 1 100th of ethereum in terms of nft volume so I don't know that that's an example I used recently to someone that was talking about uh you know ux because I think it can be somewhat helpful but I think what we really need is like compelling

um behaviors that give people true ownership and allow people to participate um in you know organizations or or things like that in new ways so that's and and timeline I I'm the reason I you know I mean Venture is um I'm not good at predicting uh you know timing on a short-term basis right the benefit of uh you know building or having like a venture fund is um you know you're measured over a 10-year time horizon or so so sure I haven't heard you mention stable coins which to me feel like a trojan horse a

killer use case for the vast majority of the world that wants to hold and own dollars and then enter defy and then have exposure to a lot of financial products credit but putting credit for aside because you could talk about how credit's inefficient in D5 but like just Financial products that are not possible or available in their jurisdiction um curious to get your thoughts on on that we all know the um the importance of stable coins uh in crypto today and there's clearly product Market fit for stable coins as a trading vehicle um onto centralized exchanges for people or centralized skin just for people that want to trade in and out of a volatile

coin um and you know and make money in trading so that's um that's really the main use case for for stable coins today in my view and I think what what we need is uh stable coins and what we really haven't seen yet is stable coins as a medium of exchange and frankly I'm surprised um that take nfts nfts is a category of of e-commerce and 90. 99 of nft volume is still uh you know eth or you know Solana or whatever rather than a stable coin and

that's that's been surprising to me so um I think it's just a question of timing um I do think um like we have a portfolio company called Bridge bridge.xyz um the founders are project manager and uh engineer from coinbase that are that are fantastic and their thesis which I I think is a good one is um you know one of the the main a main reason that we haven't seen stable coins take off yet as a medium exchange is the developer tools the um like the stable coins have been very focused on um just like issuance

um and not actually making a good developer experience um so they're now um you know power their apis for you know fintech companies that are outside of crypto that maybe want to use stable coins on the back end um and they're finding actually pretty good success right now for uh with like a a use case would be a Dao that needs to pay taxes um but doesn't want to touch uh fiat currency or a bank and so Bridge facilitates a dow to convert stable coins to USD USD to pay taxes as an example so you know I think apis that

make it easy for people to uh convert Fiat to stables and developers to you know offer these types of products to end users I think could be uh meaningful so yeah that's I got a plug in there for for one of our companies but that's a good you got you got to get the plug in there Nick you got to get something there's been a couple plugs out there but yeah it's good I want to um I know we're coming up on time here so I want to uh make sure that we just cover the presidential election in uh next year's presidential election you've been spending time with a couple of the candidates um you I think you hosted a dinner for DeSantis you might have spent time with RFK I'm pretty sure it was I don't know

if there are others would love to just gauge like what is your sense of how important crypto is to these candidates um good question yeah I mean I'm I've never been interested in politics really or or getting involved in politics but I think crypto is at a point where um politics matters to some degree and I'm a single issue voter um I think I I view crypto as uh the you know the most important thing for human freedom for the next uh 30 years and so that's kind of my motivation for uh you know spending time with with anyone running for president

um I think is crypto important to both RFK and DeSantis um yes I think on the list of importance how important um I would say it's probably not top five um but I think both both of them in particular um are are pro freedom and they see what the current Administration uh is doing to crypto um in terms of pushing Innovation and Entrepreneurship offshore um and potentially um you know being restrictive to freedom and that's kind of the lens

by which they look at it so I think like they're they're both different like to me uh Bobby Kennedy he instinctively recognizes that Bitcoin is important and important for freedom and is he getting in the weeds with me on uh ethereum or defy or things like that uh no but um he um he understands the importance of crypto and instinctively uh you know sees that um it is pro-freedom and so he's in favor of it and he's got some pretty uh interesting ideas that I'm sure you guys have seen around

um you know the the federal government buying Bitcoin to back the dollar uh also potentially uh eliminating cap gains tax for for Bitcoin um and so yeah I think he there's probably a few things one he sees it as uh you know beneficial to human Freedom two he's he he understands that there are some um you know many single issue voters that um in a strong community that you know for a Grassroots campaign like him tapping into that could potentially be beneficial so um yeah yeah that's that's kind of my view on him and then DeSantis um I think he's

a little more in the weeds um and I think he's a very smart guy that is not great at perception um but is good at understanding issues and getting [ __ ] done um and so you know like he came out very early and said uh cbdc's uh are um a no-go in the State of Florida which um was is a nuanced view most people I think when they saw that didn't even know what cbdc's were but he took that stance which I think uh is is a nuanced and correct view and he was also um like I think I don't think he's the only one but he was going to do more uh

last year particularly in nfts but then FTX you know happened and that just I think put a pause uh you know for him and a lot of people like him so yeah I think they both again it's probably number I don't know six or seven or eight on on their list of kind of important issues um but the fact that again we're in 2023 and I'm talking to potential presidents about this stuff um if you asked me that if that was a possibility uh you know 10 years ago in 2013 I would have thought you were crazy so

um yeah I think it's it's pretty awesome um that has come this far so yeah nick man this was awesome chat I appreciate you uh you coming on we should do this again soon definitely yeah enjoyed chatting with you guys and uh always happy to do it again and good luck uh building your bunker appreciate it okay foreign [Music] foreign