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Investing Trends for 2026: DeFi, Tokenization, Capital Formation, Speculation & AI | Ben Lakoff & Arnav from Bankless Ventures
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- [00:00]
Arnav Pagadiala
I think the first and foremost thing that's been huge this year is you have this ultimate decline of not only career risk but this acceptance from wall street obviously we have people like larry fink writing the tokenization writing about tokenization in the economist we have blackrock's highest grossing etf product being bitcoin we have hyperliquid that actually just surpassed the nasdaq in net income so this is the first time i would say that crypto is no longer a contrarian thesis it's no longer a contrarian thing i would say it's a very consensus insight.
- [00:33]
Bankless Ventures Announcer
Welcome to bankless where we explore investing on the frontier of crypto this is david.
- [00:37]
David Hoffman
Hoffman and i'm here with not only my co host ryan sean adams but we are also joined by two members of bankless ventures fellow gp ben lakoff and investment partner arnav pagadiala ben arnav.
- [00:49]
Ben Lakoff
Welcome to bankless thanks for having us.
- [00:51]
Arnav Pagadiala
Stoked to be here guys broad question.
- [00:54]
David Hoffman
Is there stuff to invest in in crypto in twenty twenty six what do.
- [00:59]
Ben Lakoff
You guys think this would be a short podcast if there wasn't so yes is the short answer and we're very excited about a lot of things yeah.
- [01:07]
David Hoffman
We got over an hour probably of content to talk about arnav you are the youngest of the group when you look at crypto investing in venture in the venture category in twenty twenty six what excites you what gets you going.
- [01:19]
Arnav Pagadiala
Yeah i mean i think unlike prior cycles there is stuff in every single sector that's kind of broken out i think defi is looking monstrous with the adoption of rwas this year stablecoin payments if you're into crypto fintech is just monstrous prediction markets have just kind of hit escape velocity i think it's the realm of opportunity is a hundred x more than i think it's ever been so it's super exciting some big statements.
- [01:44]
David Hoffman
We'Re definitely going to dive into why arnav and the rest of the bankless team think that that is true and the sectors that we are investing in now previously in bankless we have been very careful to not cross contaminate between media and ventures these are two different organizations where only ryan and myself cross the barrier but also at bankless media we never let good content go to waste and at bankless ventures we've been working pretty hard developing our investment focus themes for twenty twenty six the categories the trends that we want to focus our investments at bankless ventures for the next year in this episode that is what you are going to hear we want to share what bankless ventures is looking to invest in in twenty twenty six and why we've come to these conclusions a fundamental part of the entire bankless journey is learning to be investors in crypto every bankless podcast episode has been in pursuit of learning how to effectively allocate capital in this industry answering the question how do i effectively invest is one of the main motivations behind creating the bankless podcast all the way back in twenty twenty when the industry was far more naive and unsophisticated now ryan myself and ben here we've all been in crypto since twenty seventeen twenty sixteen we've seen different investing metas come and go and while each cycle has its own characters the thematic common denominators of every cycle are about the same defi tokenization capital formation and speculation these themes are persistent across cycles but generating outsized returns in each of these themes requires some level of precision rather than broad capital allocation it's not enough to just invest in defi you must match the theme with the current market fitness of the era investing in defi in twenty twenty five is just not the same as investing in defi in twenty nineteen obviously so in this episode we are going to go through each category i just mentioned and share how bankless ventures is allocating capital inside of these broad themes in pursuit of outsized returns for our lp's you can now borrow usdc against your ethereum and bitcoin on.
- [03:48]
Bankless Ventures Announcer
Coinbase crypto backed loans on coinbase make assessing liquidity seamless for crypto hodlers powered by morpho coinbase crypto backed loans gives you direct access to on chain financing allowing you to take out loans at competitive rates using your crypto as collateral over one billion dollars in loans has been opened through coinbase to date on the coinbase app eligible users can borrow up to one million usd using bitcoin or ethereum as collateral users can convert their uscc into fiat to make down payments refinance debt or cover urgent expenses and more the benefits are numerous interest rates are variable typically between four and eight percent and respond to market conditions loans are approved in seconds without credit checks repayment schedules are variable meaning there are no fixed deadlines the kicker coinbase will not treat borrow transactions as taxable events manage loans directly in the coinbase app with ease it's currently available to us customers except new york and additional collateral types and increased loan limits are coming soon want to learn more click the link in the show notes or visit coinbase dot com borrow introducing frax usd the genius aligned digital dollar from frax it's a secure stable and fully backed by institutional grade real world assets custody by blackrock superstate and fidelity it's always redeemable one to one transparently audited and built for payments defi and banking the best of all worlds at the core is fraxnet an on chain fintech platform built to align with emerging us regulatory frameworks where you can mint redeem and use frax usd with just a few clicks deposit usdc send a bank wire or tokenized treasuries and receive programmable digital dollars straight to your wallet fraxnet users benefits from the underlying return of us treasuries and earn just by using the system whether you're bridging minting or holding your frax usd works for you frax isn't just a protocol it's a digital nation powered by the frax token and governed by its global communities join that community and help shape frax nation's future by going to frax dot com r frax designed for the future of compliant digital finance token launches are making a comeback but things have changed since the twenty seventeen ico era now we have eight years of research on how to fairly distribute tokens to the market all that progress culminates in the uniswap continuous clearing auction no sniping no timing games no whale advantages just fair transparent on chain price discovery here's how it works a project sets aside an allotment of tokens the continuous clearing auction sells them continuously block by block over a customizable window typically typically a few days supply is fixed across the auction and as demand comes in the clearing price adjusts if new bids arrive the price moves up if they don't it holds steady since bids are filled gradually over the entire window early participants often end up with a lower average price while still giving everyone time to place orders when the auction ends the proceeds can seed a uniswap v four pool giving you day one liquidity without exchange fees or market maker contracts but while the uniswap continuous clearing auction is perfect for launching new tokens it's also an extremely flexible protocol and can be leveraged for price discovery bootstrapping and auctioning of existing low liquidity assets as well if you're launching a token and want an on chain transparent sale that gets tokens into the hands of real believers the uniswap continuous clearing auction is the way to do it check it out at cca.
- [06:56]
David Hoffman
Dot uniswap dot org i think one.
- [06:59]
Ryan Sean Adams
Thing that's like important to mention before we get in is some of the particular ways that capital formation forms inside of crypto and what that means a lot of bankless listeners will notice that crypto happens in these waves right like people have called these like four year cycles before there's a usually some sort of proof of concept stage followed by you know people see early traction and they get exuberant about something happening in crypto and then narrative runs far ahead of the fundamentals and price goes out of control and then things bubble and they pop and then we get kind of the bear market we go back to despair folks like a sixteen z have pointed this out that this really follows builder waves too right so capital forms and builders have ideas and they pursue these narratives in these approximately like four year waves and one thing that i actually appreciate about crypto this is a benefit to anyone who's investing in the space is during the bear phase during that despair part the bad projects are culled and the good projects survive so it allows you to like re underwrite your ideas and your theses for the space gives you kind of a clean slate so you can just be like okay what happened last cycle what's still real about this industry i have a sober mind now and we can consider what's going to be important moving forward and you can rebuild and then you can reload and builders do this as well and so do investors it's kind of like you know you know the idea of a forest right if a forest gets too dense if it doesn't have a fire every once in a while then kind of the new growth can't actually flourish and grow and so every once in a while a healthy forest needs a fire to clear out all the underbrush and you create renewal so we can have something new.
- [09:01]
David Hoffman
Or you gotta roll the seven on.
- [09:02]
Ryan Sean Adams
The craps table yeah you totally do or to get like another metaphor basically is just kind of this is survival of the fittest this is like an evolutionary process and you have some maybe dominant organisms on the earth and every once in a while an asteroid comes destroys them all and we get a chance to see what can what can persist through these cycles and what can grow anew and we get all of these new life forms for me and i think for a lot of venture investors a lot of this starts i guess you could say bitcoin but then after bitcoin so bitcoin is kind of the original store of value use case we uncovered the original use case for blockchains but then ethereum and the idea of programmable finance that's kind of birthed all of the other investment categories and particularly the investment themes that we're going to talk about today and since ethereum since the birth of the smart contract platform and programmable finance there's been roughly like four waves and i'll give the dates and i'll measure this by the crest some of you guys will have been here been present during those years and some have gotten in future ways but the first was twenty seventeen that's when we crested in wave one wave two was roughly twenty twenty one and again this is the peak of the cycle wave three is where we've been now twenty twenty four and into twenty twenty five and then wave four again we don't know when the next wave will crest it doesn't have to happen in four year cycles as it has previous but let's say it does that would be twenty twenty nine maybe there are reasons this wave crest a little bit earlier or differently or something but our job really as investors in the space and i think everyone listening who's deploying capital to crypto and by the way for retail investors there's even more opportunity to do this because icos are back it seems like your job is really to forecast the world of say twenty twenty eight twenty twenty nine and invest in the founders and the categories that will create that world so that's the idea right now as we enter twenty twenty six we have an opportunity of course to re underwrite re underwrite our themes and figure out what we're still bullish on and figure out what the new unlocks are for the next wave of growth so those four themes defi tokenization capital formation speculation markets those have been present across all of the waves up until now like it's crypto programmable money does all of those same things but there are new manifestations and new subsegments to take a look at and that's what we're doing today maybe we could go through each of those four themes and david the first is defi you mentioned it this has been really the theme that the bankless thesis was based around and when you and i first got connected and started really investing in crypto and getting excited about it that was twenty twenty twenty nineteen so that was in kind of wave one in the in between of wave one and wave two but take us back to ethereum in twenty seventeen and tell the story of defi yeah the.
- [12:19]
David Hoffman
Building blocks of defi really got started of course i mean if you want to go all the way down to into the basement with the erc twenty token and you could see a bunch of attempts to create structures and infrastructure on top of that ether delta being one being one early indication of what might be worthwhile of investment further down the line zero x also came around that era and it was really all about just tokens and trading tokens the erc twenty primitive was perhaps the most important primitive in all of crypto and the infrastructure that surrounded that was all about trading those tokens and so and.
- [12:56]
Ryan Sean Adams
It barely worked oh my god it.
- [12:57]
David Hoffman
Sucked but it did work ether delta did work it did work and it really was all all of these prototypes are just premonitions of things to come now if you were around in twenty seventeen and if you're paying really close attention and you stuck around through twenty eighteen you might have been able to while ico you know one through ninety nine were collapsing in a burning fire around you if you were still paying attention you would have noticed this one one startup still chugging along called makerdao and that was before defi was even a thing and so one of the themes that we see across waves is that there's at least one or two examples of the next wave that is still still starting up as the wave that came before is burning down and makerdao was really the first era of real defi which we are calling the second wave the twenty twenty one wave where as ryan called it the absolute peak of wave two really really crested in twenty twenty nine we're calling this slow defi collateral based applications like makerdao aave compound that really fueled the store of value nature of ether and other tokens and then also things like uniswap the first decentralized exchange that as an investment produce outsized returns for any and.
- [14:17]
Ryan Sean Adams
All of those was that was uniswap twenty eighteen or twenty nineteen the top.
- [14:22]
David Hoffman
Of the valuation of the uni token was twenty twenty one okay the investments into uniswap came in twenty nineteen and twenty twenty and so right that was right at the beginning of wave number one we also had some failures some catastrophic failures terra luna is in this category as well some weird platypus between a stablecoin and defi and economic experiments and so this is kind of some of the history that wave two one and two brought us to and starts to get us into wave three which is again like ryan said we are starting to close the door on wave three looking into the rear view mirror and measuring successes and failures so a.
- [15:03]
Ben Lakoff
Through line you can see with a lot of these it reminds me of the chris dixon of the next big thing starts off looking like a toy and then there also was a packy mccormick article that i loved that would say it's just practice and you see like all of these little glimmers of of good ideas that are taken and then they're expanded upon maybe they blow up in incredible fashion but there's pieces that sustain into these next waves as.
- [15:32]
Ryan Sean Adams
We move on yeah that's right and the bad ideas do collapse and they burn off and the good ideas kind of persist i think wave three has been interesting if wave two is sort of the birth of modern defi wave three has almost been like a refinement of the concept that we've seen in this kind of twenty twenty four twenty twenty five cycle so we saw early phases of restaking that's now pivoting into something a little bit different like eigenlayer is going into the verifiable compute realm and then we saw an extrapolation on the aave makerdao idea of collateralized lending and borrowing with some more modularization like morpho has been a big success this wave and so has pendle for example and we actually did see a stablecoin that is not a completely centralized stablecoin like a tether and usdc that has actually started i think this will persist across cycles that's athena right with the idea of the kind of the basis trade yield type of stablecoin and perp dexs have been a major theme so previously most of the perps in crypto were traded on centralized exchanges this has been the first wave that we've seen decentralized exchange perp dexs have the volume and the liquidity and the traction that they do there have been a few other things but those are the things i would highlight as successes in this in this third wave and broadly speaking.
- [16:57]
David Hoffman
I will say that a lot of the third wave stuff is a lot of what was previously centralized services from big prop trading firms or lending and borrowing desks uncollateralized lending and borrowing desks start to move on chain in more sophisticated ways that's right you can you.
- [17:14]
Ryan Sean Adams
Can measure that too right like by a percentage in terms of what percentage of spot and perps volume is off ch like off chain versus on chain and like what is it now david like i've seen estimates of like twenty percent something like this yeah something like.
- [17:26]
David Hoffman
Twenty two to twenty six percent is moving moving on chain i think i think these are lessons that the industry learned post ftx okay the contagion of all the borrowing lending desks and that brings us to modern times wave four and so there's a line here we're going from looking in the rear view mirror to looking out of the front windshield of our car as we drive forward into twenty twenty six and so now we are going to make predictive ideas as to where we think is the appropriate place to allocate capital inside of the defi category across the next defi wave and now i want to turn it to arnav arnav you spoke briefly at the very beginning of the pod but returning back to you when you look at defi in twenty twenty six where do you think is the smart way to allocate capital yeah absolutely.
- [18:12]
Arnav Pagadiala
I think i'll start by sharing before i go into the things i'm super bullish on for wave four and beyond a few of the constraints and the recent unlocks i think are very interesting so you can reason about what's coming next i think one of the most interesting pieces of this cycle is kind of this shift towards becoming more institutional today i would still say things are not where they need to be so we don't have enough customizable infra institutions yet we don't have credible risk ratings of protocols we still don't have enough liquidity on most long tail assets so an institution can swap its size and we still have a lot of smart contract risk right and i think that's very well exemplified by the recent balancer hack a protocol that has been around for you know five years and had a zero day so we still have these things and i think a few other things i call out are on ramps are still not where they need to be you have like a ninety percent attrition rate when somebody's just trying to swap you know go one hundred dollars from their bank account to one hundred dollars on chain and i think the last thing i'd mention is that we still don't have enough exogenous assets on chain yet to justify the switching costs for institutions by exogenous arnav do.
- [19:17]
Ryan Sean Adams
You mean like real world assets like just like because we we have we have stablecoins we have dollars i guess we have some degree of treasuries but apart from that that we don't have anything outside of our on chain crypto.
- [19:28]
Arnav Pagadiala
Native assets we do but it just proliferated this year okay and we'll go into that more in the tokenization section but yeah that being said i would say twenty twenty five was definitely a breakout year mostly driven by a lot more regulatory clarity and institutional adoption i think the first and foremost thing that's been huge this year is you have this ultimate decline of not only career risk but this acceptance from wall street obviously we have people like larry fink writing the tokenization writing about tokenization and the economist we have blackrock's highest grossing etf product being bitcoin we have hyper liquid that actually just surpassed the nasdaq in net income so this is the first time i would say that crypto is no longer a contrarian thesis it's no longer a contrarian thing i would say it's a very consensus insight and stablecoins only make that one hundred x more true when you see everybody adopting stablecoin payment rails or even launching their own stablecoin and beyond all that i would say stablecoins tokenized treasuries are just straight up and to the right it's it's honestly unbelievable how parabolic that growth has been and very last thing is that from a regulatory front we have a lot of unlocks this year the cftc providing a more advanced perspective framework we have the genius act clarity act probably next year all of these things will lend itself to defi just proliferating like one hundred x more than it currently has but getting into the four things that i think are incredibly interesting over this next cycle i think the first would be on chain lending you might think it's already done with aave and morpho but i would say we barely started pretty much all of lending today is predicated on some fashion of over collateralized variable rate loans but in the future i absolutely believe that we're going to get into fixed rate unsecured under collateralized loans and lending against long tail assets and when you think about how lending works in tradfi it is primarily unsecured or under collateralized loans and they are usually fixed rate and fixed term on a much wider variety of assets i think crypto will only follow the same path and we're like in our first innings of all of these things i would say unsecured under collateralized you have people like three jane wildcat credit on worldcoin for fixed rate lending morpho v two is going to be huge this year this will be the first material swing i think we've had at fixed rate because we have a very lindy protocol breaking into it and lastly i think exotic lending is going to take off a lot more you know things like lending against rwas so i think that'll be awesome so i'd say it's the first area i'm super bullish on as far as thesis go the second area would probably be equity perps so far obviously perps have been massive this year with hyperliquid and all these other new perp dex is launching what's very interesting about us equity perps is that the tam is roughly fifteen to twenty x greater than not all of crypto than all of crypto trading today and i think that is massive.
- [22:11]
Ryan Sean Adams
I think arnav people don't realize that crypto basically invented the perp right i mean some people may not be aware of that but can you talk about.
- [22:19]
Arnav Pagadiala
That for a minute yeah absolutely so perps are this really elegant mechanism where previously all we had is options right where you express trade with leverage but it's dated right there is an expiry perpetual futures essentially offer a more elegant conduit for leverage with no expiry so you can take out ten twenty even one hundred x leverage on eth and you cannot get like there is no expiry however obviously you can get liquidated instead so it's a different form factor.
- [22:51]
Ryan Sean Adams
To manage risk it feels like traders in tradfi should love this equity traders should love this i mean do you think that it's one of the mechanisms that they're looking over at crypto and being like oh my god we're jealous of you guys you have these per or do you think they're getting all of what they need in terms of leverage and margin from options i think.
- [23:11]
Arnav Pagadiala
There'S a few things to unpack there definitely options are a great instrument and there's a monstrous amount of volume in the options market i guess for reference there hyperliquid has done about four trillion dollars in volume to date cumulative the options market does that in one day in the us alone right so you know these these guys are they're monsters right but they've definitely taken notice to perps i think the biggest thing that people really took notice to is that hyper liquid flip the nasdaq's revenue that's kind of a really big turning point but beyond that it's the fact that retail may find this product more interesting.
- [23:44]
David Hoffman
Retail loves perps in contrast to options.
- [23:48]
Arnav Pagadiala
Yeah i mean it needs to be tested in the broader market because a great example is robinhood does one billion dollars in pure retail options revenue a year it is our highest grossing product one thing that i'm very interested to see is is robinhood or some other exchange going to convert these options traders to perp traders and that is one of the thesis i'm very interested in in twenty twenty six okay by the.
- [24:14]
Ryan Sean Adams
Way these two things the first category of like an expansion of on chain lending to like fixed rate and credit and long tail and equity perps are you saying when you're listing these these category ideas in the theme of defi like are these investable to you like is this coming from net new startups or to what extent are just the existing incumbents of the world going to capture all of this like does aave expand into fixed rate does robinhood expand into equity perps or is this investable as a net new category for some new low valuation startups to like become.
- [24:50]
Arnav Pagadiala
Unicorns yeah it's a great question i would say these two ideas are both investable we're so early and the market size is so insanely large that there definitely is multiple upcoming players who i think will grab a lot of market share what's the third yeah so the third one is definitely going to be defi neobanks it's something i'm very excited about kind of from two areas i think one neobanks and emerging markets are gonna be absolutely huge and a big reason for that is these people in emerging markets they want access to us dollars they want access to tokenized treasuries they want access to a number of these things and not only that defi or stablecoin native neobanks there is a regarb there in the sense that if you want to implement certain products you don't need licenses for them inherently right an example of this is coinbase integrating the morpholen product right they're able to offer five point six three percent apy to their users that's pretty crazy and defi neobanks can do that and i think that presents a step function unlock over what exists today what's an example.
- [25:57]
Ryan Sean Adams
Of a defi neobank is that like like etherfi always comes to mind for me where there's sort of you know smart contracts on chain protocol but then they have this extension where you can get like a visa card that works like in a lot of countries in the world and that's kind of connected to your smart contract account is that what a defi neobank is that type.
- [26:17]
Arnav Pagadiala
Of idea exactly that's exactly what it is i think etherfi has nailed it though they're definitely more so focused on primary markets these are people in like the us mostly who are probably using etherfi which is awesome but yes but i think the true step function unlock is going to be mostly in folks in emerging with folks in emerging markets because they desperately need these products emerging.
- [26:38]
David Hoffman
Market neo banks because we've kind of seen the neobank trend already arrive in inside of the crypto industry and in well financed financially served countries like the united states like you said so what you're saying is this trend continues down into the developing country part of the part of the globe is that right.
- [26:55]
Arnav Pagadiala
Absolutely and i actually think that's where the biggest outcomes are going to be you look at nubank that's like a hundred billion dollar company and they're serving mostly users in the latam region neobanks also the tam there is massive right so that's also why i think you're going to have not just one but multiple emerging bank emerging markets neobank unicorns because you can cater to specific audience types you can cater to emerging market gig workers right you could target emerging market freelance workers like there's so many of these niches that sound like that's not really a venture scale outcome if you invest there but definitely there is.
- [27:36]
David Hoffman
When you look through history like we spent some time doing from twenty seventeen up to today twenty seventeen starting with the primitive of the erc twenty token which turned into the ico mania then we layered on swap and collateralize and lend products and services on top of that in twenty twenty one and i think now we are looking at the neobank era which has some inherent amount of centralization to it so maybe some listeners are throwing a flag about like why is this in the defi category but if you take all the puzzle pieces that we've created as an industry this is you know ethereum becoming the bank account the banking ledger uscc tether the stablecoins being the private money building block and now we are high enough up in the stack where we feel comfortable building fintechy layers on top of the ethereum ledger to send outwards into the developing markets into the into the rest of the world so as we get further and further down these waves of defi which is what we're talking about we're in the defi category right now we start to look higher and higher up the stack and now we're at a pretty abstract layer of the stack we're talking about the neobank layer so many layers below us already and those were the waves that you know twenty seventeen to twenty twenty one to twenty twenty four and five and now it's bankless venture's opinion that we are thinking about the neo banking layer as the investment focus for defi in twenty twenty nine that's not all of it though we also want to talk about specialized exchanges arnov specialized exchanges what do we mean by this yeah absolutely and.
- [29:06]
Arnav Pagadiala
I actually want to say one last thing on the neobank point is i believe that defi neobanks are going to grow the defi mullet by like one hundred x today alone with again the coinbase morpho integration in literally just a handful of months that drove the morpho based tvl from seven hundred million to about three point three billion that's crazy and that is only that is only with borrowing usdc against your bitcoin they just announced the lend product where you can actually earn a higher apy from your coinbase account like in september like i fully expect this to probably eclipse over ten billion by the end of the year and that is just one cefi integration now imagine everybody every neobank in emerging markets does this i think it might be probably one of the biggest sources of capital inflows in twenty twenty six and beyond it's pretty incredible.
- [29:57]
Ryan Sean Adams
David because these are early bankless theses it's like the whole money lego thesis where we sort of build the base of all of these primitives and we kind of stack up the idea of the defi mullet as well which is just fintech in the front and defi in the back the party it's growing longer and longer it's growing longer and longer and now we have gravitated to the app layer it's all coming together.
- [30:18]
David Hoffman
The fintech layer the fintech layer that's.
- [30:20]
Ben Lakoff
Right and the user experience is incredible i don't know if you've actually tried this use your bitcoin as collateral for a loan on coinbase no ben i.
- [30:28]
Ryan Sean Adams
Like doing everything the hard way man i'm old school i don't like ryan.
- [30:32]
David Hoffman
And i operate at the second wave.
- [30:36]
Ben Lakoff
I have friends that have no idea i mean they they know that they can borrow and they've you've seen these other startups blockfi or whatever that could lend you at eight percent and coinbase is able to do it five six seven percent it's variable based on morpho but it all happens underneath the hood and it's it's powered by morpho which is a prominent defi protocol in the background so i think pretty awesome one.
- [30:59]
David Hoffman
Of the big signs of maturity for this sector specifically is there's not a single blockchain reference inside of the aave app aave app got released at devconnect not terribly long ago you cannot find anything related to a blockchain obviously there are tokens there like usdc but that's just not for the average user that's just that's just whatever it's not a blockchain there and so this kind of indicates the market readiness and technological readiness to actually deliver some of these promises through the fintech layer that crypto the promise that crypto made forever ago all right arnav let's polish off the defi section with specialized exchanges what do we.
- [31:35]
Arnav Pagadiala
Mean by this so i think there's kind of two areas here with spot and perps when i'm referring to spot i think one up and coming area that has is relatively underexplored today is we're going to have specialized spot exchanges exchanges meant for rwas exchanges meant for longer tail assets exchanges meant for fx markets and even beyond that exchanges that are more tailored for institutions so things like on chain kyc exchanges right i think like an early rendition of this even though it's in lending is aave horizon where borrowers actually have to kyc to borrow but the lending side is completely permissionless and on the perps front there's already a lot of perp dex launching we're kind of in this perp dex war at the moment if you will austrium does a good job here differentiating because they're just offering perps predominantly on traditional assets but the thing i think is more interesting not only with hip three which hip three is essentially this permissionless infrastructure where you can build on top of hyperliquid's existing infrastructure so you don't gotta go spin up your own chain to launch a new perp dex you're just handling the front end and what this gives way to is a lot more experimentation with more kinds of perps this could be perps on funding rates this could be perps on emerging markets this could be perps using athena's s u s d e as collateral it's kind of like an infinite design space so i'm very excited for that on the perps front as well.
- [32:55]
Ryan Sean Adams
Perp anything perp everything yeah perpification there is space as well in defi arnav you think for the fifth thing which is actually options on chain so perps aren't going to perpify everything we still have a need for options talk about.
- [33:14]
Arnav Pagadiala
This absolutely i think going back to the statistic i referenced earlier the us option market options market alone does about three to four trillion dollars in notional a day it's also from a retail perspective it makes up a pretty healthy amount of robinhood's revenue and i think there's no reason why on chain options that deliver twenty four seven experience can't do something big so if you think about why hyper liquid was so successful ultimately it may even though perps existed before they they did two things really really well and i think one is they aggregated liquidity properly and they have a phenomenal ui ux i think it's very probable that options maybe this year or next year could have their hyper liquid moment so that's the last i would say defi trend i'm excited about.
- [34:02]
Ryan Sean Adams
Arnav to what extent are we in thinking that across these categories we'll have i mean it returns to kind of the question like net new investments and net new startups versus a lot of what you said the defi mullet stuff et cetera that makes me very bullish on existing protocols that are out there something like a morpho or a pendle or even an aave and that seems like that could be investable surface area but i know we're a vc companies that we focus on the net new things to what extent do you think there's new players in all of this game versus it just goes to the last waves success stories it's actually it's.
- [34:40]
Arnav Pagadiala
A very deep question because when you think about it something that surprised me a lot of this last cycle was i thought a lot of liquidity would have left aave intuitively aave just kept growing and growing and growing and they haven't inherently innovated on the core product it just shows you that aave three like people really care about that lendiness that brand that trust so is it hard for another lending market to come in and offer some better feature set and aggregate a bunch of liquidity absolutely that's very difficult whereas in perps it's a lot easier so i think it depends kind of on who your end user is what their preferences are but i guess to answer your question more directly i think there's kind of two phases here one is i think you could argue that certain defi tokens that exist today whether it's pendle ena aave morpho there's an argument to be made they could just get infinitely bigger i think that world exists on the other front you could have people innovating at more of the cutting edge of each of these areas right a good example is aave is not going to innovate very high in the risk curve for rwa lending there is opportunity for somebody else to do that so i would say there's a lot of edge cases.
- [35:46]
Ryan Sean Adams
Let'S talk about the second theme which is tokenization so the first theme was defi the second is tokenization a brief history of tokenization again it follows the wave one wave two wave three thing in wave one we had proof of concept tokenization for stablecoins do you guys remember the days when tether was this was even pre ethereum twenty sixteen or so it was on bitcoin the original tether implementation was on bitcoin's omnilayer do.
- [36:13]
David Hoffman
You guys remember weird bitcoin side chain thing yes wasn't even a real blockchain.
- [36:19]
Ryan Sean Adams
All right so that was the original kind of tether this was the wave one wave two we actually saw stablecoins being used in defi for the first time so previously they were kind of tether was a mechanism for bitfinex and other exchanges like popularized by binance and centralized exchanges wave two twenty twenty one we actually saw stablecoin being used in defi to a large extent and then state wave three we got all sorts of activity happening in tokenization and stablecoin so stablecoins got the genius bill of course we have dollars that is going to a trillion and then we had this this wave of generalized issuers you had like securitize and centrifuge and superstate and blackrock's biddle fund a lot of progress in this third wave as basically tokenization became legal i don't know before it was in this gray zone and now it's like even before it became.
- [37:12]
David Hoffman
Legal we had generalized issuers positioning themselves.
- [37:15]
Ryan Sean Adams
Yes we did yes we did and not only is it legal now it is being pushed and promoted by the biggest issuers on the planet yeah like what's a bit big bigger issuer than the secretary of treasury of the us government okay secretary bessant is an issuer of stablecoins now all right how big is that that's gotten big and then second to him is probably blackrock and larry fink and he we just saw this week david he he wrote a entire love letter to tokenization and the economist and publisher exactly what it was.
- [37:45]
David Hoffman
It was a love letter he loves.
- [37:46]
Ryan Sean Adams
This stuff okay so that's where we are ending wave three but the question is what is left that's investable arnav we still have some problems with tokenization you mentioned that we still don't quite have all of the assets in crypto that we want to have what are you seeing when you look at what's investable in tokenization and where we go.
- [38:07]
Arnav Pagadiala
From here totally i think before going into a few of the categories i'm super excited about i think two things kind of stand out as far as problems we have today one is lack of very clear investor rights so i think this was made very clear during the tokenized stock saga people were like hey you know what do i actually get when i have this tokenized tesla stock is it real tesla stock is it mirrored is it like in an spv and there's a lot of questions right like what happens do you get voting rights do you get access to a dividend is it in a bankruptcy remote structure and in the case of like pre ipo tokenization that's even like more significant and i think a lack of clear regulation which i think again the clarity act will help this as well issuers have to jump through a lot of hoops and this really hurts the end consumer who's just purchasing these things and doesn't know the actual risks behind them i would say the second key problem with rwas today is lack of redemption ability and this kind of lies into this broader problem of the fact that rwas the ones that like aren't as native on chain like athena is an rwa that's very native on chain or is a tokenized asset that's very native on chain whereas something like paxos gold you're still reliant on the t plus two t plus three tradfi settlement rails right so a great example of this is during the ten ten drawdown paxos gold which was fully backed the entire time the spot price went from four thousand dollars and it almost depegged to three thousand six hundred no.
- [39:35]
Ryan Sean Adams
Way i didn't even know that yeah.
- [39:38]
Arnav Pagadiala
Crazy right and paxos is like a hallmark issuer they're not a random issuer and this is not inherently paxos fault let me clarify and the perbs price actually went all the way down to three thousand dollars when ten ten happened basically all the market makers they pulled liquidity from binance and basically people just started getting liquidated then they started selling spot and it just created this downward spiral and of course during this whole time like the gold was always backed one to one yet the price was a split at four thousand three thousand six hundred wow and that the actual.
- [40:11]
Ben Lakoff
Price of gold never really changed from that four thousand but on chain prices of that had fluctuated by twenty five.
- [40:19]
Arnav Pagadiala
Plus percent exactly and to sum this out the reason why this happened is because we're relying on tradfi rails so what would have happened normally let's say if it was t bills because that's an easier example if the price depegged you have arbitrageurs who will purchase the spot asset on chain and then they'll redeem it and they will earn a spread on that but the problem with gold is you can't just redeem gold very easily right those are sitting in vaults in london in the case of paxos so even though this price was really just going down and down and down no arbitrageurs could come in and basically restore the peg so that's a longer way of saying that with real world assets there are a new set of risks we are still dependent on a lot of these archaic settlement rails and we have to figure out ways.
- [41:08]
David Hoffman
Around this basically i love the notion well i don't love it but i love the notion that the archaic broken antiquated nature of tradfi is a risk to defi like all of our tokenized assets on chain like one of the risks that you know the liquidity managers around aave one of the risks they have is that there's two days of settlement before anything moves and changes hands before we can get liquidity on chain if there's a significant market dislocation but i would suppose that those risks are only temporary because the idea here is that this is a problem that a startup can solve is kind of like what we are pointing to temporary but.
- [41:47]
Ben Lakoff
Not completely solvable by tokenization like tokenization enables it but if you're still dealing with a physical asset that you need to drive down and inspect it's like i mean you guys know tokenizing a house or real estate eventually it will happen but if you own that house that's represented as an nft and the house burns down like maybe there's a period of time that somebody doesn't know the house is burned down but the nft still has value or whatever so the tokenization is one enabler but it doesn't solve all the issues so where.
- [42:20]
Ryan Sean Adams
Does this leave us in terms of wave four investable opportunities for tokenization i.
- [42:26]
Arnav Pagadiala
Think there's two really distinct ones that stand out in tokenization the first one is tokenizing latent markets and i think this one is relatively obvious to us in crypto obviously on one side of the spectrum here you have things that are very easy to tokenize that are very low left things like treasuries on the farther side of the spectrum you have things like tokenized hedge funds right and in the middle there's a lot of really cool things that can be tokenized things like pokemon cards to tokenize solar to tokenize receivables my thesis is that the tokenized assets or the rwas that will gain a lot of traction are the ones that a bring a material amount of exogenous yield on chain that just have good yield and then b there's like genuine consumer interest in that area so a very good example of that in action today is usd ai they're tokenizing data centers for ai and they're tokenizing those cash flows and they are distributing that on chain in the form of a synthetic dollar and their growth has been like pretty monstrous recently so i think we'll continue to see this trend of tokenizing latent markets one way or the other and the.
- [43:32]
Ben Lakoff
Composability of defi again with all of these things a lot of these tokenization is one thing but you know people have had access to private credit and other assets like that but now with defi you can use it as collateral you can loop it you can borrow against it all of these sorts of things that the composability of defi enables.
- [43:50]
Ryan Sean Adams
Absolutely i could see why larry's excited about all this you said there were two arnoff what's the second yeah the.
- [43:57]
Arnav Pagadiala
Second one is verticalized tokenization platforms this one's a little bit a little bit of a interesting one as far as i haven't heard anybody talk about this or frame it this way but verticalized tokenization platforms are essentially platforms that effectively handle the entire value chain from the end consumer which is actually the borrower to the end investor which is the lender and the whole purpose of these platforms is to drive the marginal cost of lending to zero basically eliminate all of the costs imposed by tradfi so a good example of this is figure for home equity line of credit but the thing with them is they're not actually doing a lot of this on chain they have their own blockchain and it's a whole thing but i do believe things like figure will come onto ethereum will come on to solana like actual open composable ecosystems and the reason why this is really significant is there's kind of two key reasons why i think verticalized tokenization platforms will be huge in the coming years the first is that they serve as this unified ledger for data and value and that drastically reduces costs of reconciliation and time and effort and as far as the costs that are imposed in tradfi for a similar business it's absolutely insane from a margins perspective and then the second piece is that it allows for on chain capital formation so if you want to fund let's just say auto loans right and you're securitizing these auto loans rather than going to a debt facility off chain that's maybe offering you five point five percent you can instead go to defi where somebody might just borrow against their bitcoin at a four point five percent usdc rate and source capital from there and the last thing i'd mention on this front is again i think you'll have a lot of these products that are offered in neobanks or exchanges in the future so i'm very very bullish on this subcategory verticalized tokenization platforms.
- [45:50]
David Hoffman
I do want to dive a little bit more into this because this one's pretty exciting to me maybe just to give listeners a little bit more of a grasp for what we're even talking about verticalized stands in contrast to generalized and generalized this is the securitizer the centrifuges superstates the blackrocks the people who maybe not blackrock the people who are like come to us and we will tokenize your asset on your behalf do you have an asset for us to tokenize we'll tokenize it for you and they're kind of like a white glove service provider to do your tokenization needs in contrast to that verticalize is a company that tokenizes one specific line of assets one specific asset category and there's data and like just baggage and compliance and you know crms as it relates.
- [46:37]
Ryan Sean Adams
To that one machines probably yeah just.
- [46:40]
David Hoffman
Like all all of the baggage it takes to just just tokenize this one vertical but now this one vertical is owned by this verticalized tokenization platform and so we could go and point that towards a specific more narrow asset class and that one asset class could be in theory owned by a company that we would like to invest in as something that owns an entire vertical maybe maybe that's a little bit a different way to articulate and illustrate exactly what we're going after what kind of assets what kind of assets classes arnov do you think would be most interesting for a verticalized tokenization platform to go after.
- [47:16]
Arnav Pagadiala
Yeah it's a great question i think there's a few areas where vtps could really have an impact and it really is extensible to almost anything i believe there's a few areas where it's better versus not it could be auto loans it could be solar loans it could be bnpl receivables all of these areas could receive a crazy crazy cost benefit by moving basically everything on chain not only from the operational side but also from the cap formation side mantle has.
- [47:46]
Bankless Ventures Announcer
Launched a global hackathon until the end of twenty twenty five the focus is on building the future of real world assets from now until december thirty first mantle is inviting developers founders and innovators.
- [47:57]
David Hoffman
Around the world to design and launch new real world asset and defi products.
- [48:01]
Bankless Ventures Announcer
On mantle the reason to build here is simple mantle is not just another blockchain it is an ecosystem built for builders who want real distribution and real users projects on mantle have access to tap directly into bybit one of the largest exchanges globally giving teams exposure to.
- [48:15]
David Hoffman
More than seventy million verified users and.
- [48:17]
Bankless Ventures Announcer
Potential listings through bybit launchpad and launch pool the mantle ecosystem is backed by by a four billion dollars treasury that supports growth with grants liquidity and venture investment and all of it runs on a modular ethereum layer two stack that delivers high performance low fees and full evm compatibility the hackathon features one hundred fifty thousand dollars in prizes plus grants incubation and direct access to top vc's across six tracks including real world assets defi ai zk infrastructure and gaming if you're ready to build where real world finance meets on chain innovation join the mantle global hackathon at mantlenetwork io hackathon or click the link in the show.
- [48:53]
David Hoffman
Notes for more information crypto is risky.
- [48:55]
Bankless Ventures Announcer
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- [49:39]
Ryan Sean Adams
For more information well since you mentioned cap formation i think that's the third theme that we want to investigate and once again every single wave cap formation has been important for crypto it's something that we consistently find net new ways to do in the beginning wave one there was the ethereum ico which was one of the original cap formation moments and you guys remember that that increased until a twenty sixteen twenty seventeen ico bubble we had massive icos like augur in the early simple days and basic attention token people remember bat in the brave browser and then it culminated with eos which was a ico in june twenty sixth twenty seventeen lasted for roughly a year and ballpark of four billion dollars raised which was absolutely monumental particularly at the time so we discovered that we can raise money in internet capital markets natively and we did a lot of that on projects that weren't worthwhile in a lot of cases and some that were wave two we had a different form of capital formation saw that mainly in the form of nfts because icos were basically like regulate regulatory gray zone or dark zone couldn't touch those anymore and so capital formation took the form of hey we're doing an ico we're doing an nft platform right digital items you guys remember bored apes you guys remember sandbox you remember the digital real estate in decentraland that was a new form of this we also saw early depend type of experiments which is like raise capital to actually fund real world infrastructure physical infrastructure and then we started to see some investor ico accredited investor more regulatory friendly mechanisms like coinlist wave three so twenty twenty five this extended and we got some new innovation there's a pretty cool prototype called i call it a prototype it's like early phase application called metadao we did an episode bankless episode with them and this is the idea of like can we incorporate greater investor protection inside of a crypto native capital raise we've also seen on the retail front echo sonar acquired by coinbase and so there's an ico platform we've really seen a resurgence of icos recently too we've got some crypto native icos like the aztec ico that's that's ongoing with zk passport it feels like we're still in the early phases of this and once again it's become less gray market and there seems to be a path to compliant icos that actually work but there still seem to be some big problems so in the capital formation trend what are we looking at going into this fourth wave i'll.
- [52:32]
Arnav Pagadiala
Start with a few of the things that i think are existing issues i think the first is we still have this lack of investor protections problem which is what metadow is trying to solve but we end up with this market full of lemons type of issue i think this was really portrayed by whether it's like recent token launch pads like believe or heavendex and this is also kind of leads into this adverse selection problem which is like only poorer projects raise from the token launch pads when the good ones raise from the vc's that's right right so we almost want to figure out okay how do we close that gap the other issue related is how do projects attribute value to their token without explicitly breaking securities laws and the more that we can get closer to this than just buybacks the better right a few unlocks though i think are going to be massive we are receiving regulatory clarity from a number of fronts i think one big thing is that the howey test is super outdated and it just shouldn't be retrofitted for digital assets i think that will be changed sooner than later the other thing which has been massive this past year is i think there's been this new social consensus around how important transparency is transparency around market makers transparency around token launches around treasury i think there's been a number of strides in this direction one of them being the blockworks token transparency framework and a number of other related things here like coin glass and so forth and the very last thing which is a huge unlock is there's been great experiments this cycle so far metada futarchy is obviously the notable one i think doppler is building some phenomenal mechanisms for onchain price discovery i think you have things like ercs tokens by street foundation that provide a framework to attribute value to tokens so i'm excited about all of these things those.
- [54:17]
Ryan Sean Adams
Things are excited and but yet they're not yet scaled up to the level that we'd like to see them for internet capital markets to be like a primary or the primary capital formation tool that that the world uses so what kind of things are we looking at investing in in going into twenty twenty.
- [54:34]
Arnav Pagadiala
Six i think it's a handful of areas the most obvious to me is going to be compliant icos or icos broadly i think we will have a new gen of icos that are unlike what we've had in the past where these are real companies trying to do real things and we'll have the actual cap formation mechanisms to do it right the second thing which i think is going to be really interesting which is somewhat related to that and this is a little bit contrarian i don't think it's crazy that small or and mid market enterprises might actually start issuing stock on chain natively and raising usdc and actually deploying that in the lending markets or just broadly on chain wow yeah it's it's a little bit wild but like why not right because there is a long tail of businesses out there that need financing that can't receive it and there's a way that this can be done on chain in a curated manner mind you but yeah and you.
- [55:27]
Ryan Sean Adams
Happen you think that happens with kind of smaller businesses like first before some of the large enterprises i think it's.
- [55:33]
Arnav Pagadiala
Tbd how it happens i think it's likely large enterprises do it first and i actually know of a few that are going to do it but i don't think it's crazy again that i don't know maybe a car wash business that has been around for five years why can't they raise capital on chain in the right format i think that's what internet capital markets is supposed to.
- [55:52]
Ryan Sean Adams
Be how close are we to a world where elon musk's next company is rather than kind of going through the you know i guess traditional investment bank process of capital formation in the us it's actually natively raises on chain is that a wave four thing or is that like a five six we have to wait a decade for that it's.
- [56:14]
Arnav Pagadiala
A little bit farther out but i would say there's a world in which a decacorn unicorn a decacorn crypto company decides instead of ipoing they're going to go do what they're doing on chain.
- [56:27]
Ben Lakoff
Instead we we've been practicing for this i mean crypto does capital formation very well and these initial phase one icos were effectively an ipo on chain without the arduous ipo process so as we add more clarity around regulations and disclosures but not quite to the phase that's necessary for traditional ipo and then removing the barriers to actually owning these things then it becomes a lot more feasible to actually issue stock on chain and.
- [57:01]
David Hoffman
It especially becomes pretty obvious that this is going to be a thing when we piece some of the other other puzzle pieces that we've already discussed together mainly the neo banking thing say every person in a in a developing country gets on chain with ethereum with stable coins with a neo bank and then all of a sudden the internet capital markets is just one single button press away from some users neobank to some capital formation activity because some company is raising a small medium amount of funds but most much more people on the internet have access to stablecoins in twenty twenty eight than they had in twenty twenty four and all of a sudden the possible investor base is just so much larger simply because some of the other puzzle pieces that we've talked about so far in this episode have grown to be much more mature so that's what one of the themes of perhaps what next wave four and five look like is really a lot of the network effects of crypto really start to pay dividends in on itself as crypto hopefully takes over the world the last.
- [58:03]
Arnav Pagadiala
Thing i wanted to mention about theme three and cap formation is that especially for crypto native projects at least in the near term probably the most exciting thing to me is is the entire capital stack is now on chain you don't have to actually go to the centralized exchanges give a huge percent of your token supply and pay these exorbitant fees for that distribution there is a lot more distribution on chain today and we have the entire capital stack to support you and this effectively takes away power from these centralized exchange listing committees and moves it back on chain which is really exciting i think hyperlooked was the first really big thing there and a lot of these metadao projects are also headed in that direction but i think we will see this more and more in the future a lot of these really hallmark projects will not list on centralized exchanges rather they will just do what they need to do on chain because they can and we're going to have the infrastructure and the discovery mechanisms and the dex microstructure to go and do that and the last thing i'd mention on that front is we're seeing early renditions of this i think pump was somewhat of a good example in that if you look at the pre market perps open interest it was actually significantly higher on hyper liquid than it was on binance so that effectively made hyper liquid the venue of price discovery and we've seen this also for the mega eth launch and for the monad pre pre ipo launch right so i think it's just an early indication that the entire stack could absolutely move on chain and you don't need to go to these centralized venues and the very last thing i'll say in this point is that it's very true that centralized exchanges have been the biggest winner in crypto to date they make the most revenue they have the best economics so the more that we can move this on chain and internalize those economics the better it is for everybody all.
- [59:49]
David Hoffman
Right let's get into the last theme the theme that has always persisted in crypto that everyone is a participant in whether they like it or not speculation and speculation markets now we've already talked about icos all the way back in the beginning of twenty seventeen but interestingly it's not just icos which was the activity of people speculation but augur the world's first prediction market came online in twenty seventeen nft marketplaces like opensea and play to earn ecosystems like axie and then also later another prediction market like polymarket these are all turned into venues of speculation and speculation is increasingly in in newer and younger generations as they become financially savvy and financially literate the most recent iteration of this probably the points meta starting with blur meme coins on pump fun but now i think we are getting into the professional and polished and at least decently useful version of speculation which is in the form factor of prediction markets in poly market and kalshi so this is kind of the background of speculation it's inherent to crypto everyone's kind of speculating more or less sometimes it's actually somewhat useful arnav before we get into some of the problems that we still have and what the current market environment is like what do you want to say about just the nature of speculation markets as it relates to investing as a vc yeah.
- [61:09]
Arnav Pagadiala
So the reason why i think speculation markets are going to grow like one hundred x in the coming years is in one sentence is financial nihilism i think we've seen this really strong lack of opportunity in the job market lack of wage growth insane asset prices inflation especially young folks feel very financially boxed out and speculation becomes that conduit that it feels like the only path to upward mobility financially and this thesis has like very clearly fleshed out in traditional markets so a good example of this is over the last three years sports betting is up twenty five percent year over year in the us alone and over one hundred fifty billion dollars is wagered last year and growth in parlays which is leveraged sports betting is even higher than that and what's crazy is this is by and large dominated by the sub twenty five year old crowd so that's like one interesting trend the other interesting trend is like how this is proliferating so at the same time you would think that things like lottery sales in person casino gambling like these things are growing as well these things are actually decreasing and the last thing i want to mention on this is it's this thesis of something called intellectual speculation which is a way to actually reason about what might be popular in crypto next and it's essentially this thesis of risk taking or justify or this risk taking behavior you do it only where you feel like you have an edge and crypto is phenomenal manufacturing these games where people feel like they have an edge they feel like they have an edge in icos nfts perps prediction markets meme coins and whatever's next people do not feel like they have an edge when they buy a lottery ticket and that's why the type of gambling where people feel like they have an edge is growing exponentially driven by financial nihilism whereas the trad forms of gambling are actually dying and crypto actually shines because of this thesis yeah i do.
- [63:02]
Ryan Sean Adams
Think you're right arnav that much of this is driven by kind of financial nihilism not to say that speculation doesn't have a good side though and a healthier side speculation is kind of knowledge discovery isn't it and it's price discovery and it's hard in the early phases almost to separate kind of investing early stage and speculation like what indeed are the differences but it is true that crypto has increased the tendency to create speculation markets over just about everything and we've seen one of the manifestations of that is like there's prediction markets for just about everything what is the problem right now that we have to solve with speculation markets and what things are we looking to invest in in this theme going to wave four one way.
- [63:51]
Arnav Pagadiala
To tie back to what i said previously is not all of these things are zero sum i think the first iteration of icos and nfts and even meme coins to a great extent are very zero sum i think prediction markets are phenomenal i think the decentralized truth machine thesis is very real i don't think perps are zero sum and i think the next iteration of icos also will not be zero sum and actually very value creative that's hopeful yeah so i'm very very excited about those things not everything is nihilistic at all right and that being said going into things that i am really excited about so we already have call sheen poly market which have really popularized the prediction market space i'm not super bullish on people trying to like compete directly with those incumbents now but there are a lot of alternative markets which are very interesting that are kind of one degree away from prediction markets so precision markets consensus markets opinion markets a good example of like an opinion market is you're able to bet with leverage on who would win you know one gorilla versus a hundred men i think that's like a very very cool thing to speculate on right so that's definitely one area very bullish on you you gave out a.
- [65:03]
David Hoffman
Handful of of these things with markets appended to them opinion consensus precision markets these are all subjective opinion wisdom of the crowd type of constructions different market mechanisms that all leverage some nature of wisdom of the i think with polymark and kalshi there is a binary outcome with a real world event but these things are even more subjective and starting to become a little bit more maybe even nebulous and sci fi than the prediction markets what else is worth saying about some of the like the these neo prediction markets opinion markets i would.
- [65:37]
Arnav Pagadiala
Say if you're looking to invest in this category one thing that you actually have to really ask yourself is can these things attract liquidity or not it's very difficult to do that because even though polymarket is monstrous and has had like a billion plus eyeballs on it and has raised you know two billion dollars from basically the new york stock exchange the oi is still quite low it's like around two hundred fifty million and on most markets you can't really trade them because the spreads are so wide so you as an emerging market doing new stuff have to make sure that whatever i'm building can actually attract liquidity so that way traders can trade.
- [66:14]
David Hoffman
It the reason why i think this category is so exciting and you start to see it in poly market and prediction markets generally is financial markets are starting to like distort time which i think is really really cool we're looking forwards into the future when prediction markets predict donald trump's presidency just a few hours ahead of mainstream media that illustrates something with the nature of time like we are moving fast forward and we are able to look forward in time even more and when i see more interesting experimental frontier constructions of these same kind of things like opinion and consensus markets trying to categorize and order people's opinions or people's thoughts about the future i start to get really excited because it's one of the most sci fi constructions of a marketplace that i think is possible where one outcome of this is is the future whether that's just hours or days or weeks not even that long but just becomes more int more tangible to society through markets and data and content through these market mechanisms the future seems like it arrives a little bit sooner or is a little bit more predictable or very nebulous truths that we would have never been able to discover before all become much more closer to societies grasp which is why i'm particularly excited about this category absolutely.
- [67:38]
Ryan Sean Adams
Arnab do you have any predictions right so every cycle we've seen a breakout of some sort of speculation market right icos wave one nfts wave two wave three it's been meme coins what's the next meme coin what's the wave four thing that's really going to break out.
- [67:57]
Arnav Pagadiala
Here if i were to break it down into one new thing that i think will break out i think it's going to be some rendition of an opinion market i think there's a lot of virality built in to betting on crazy topics that are very timely and they can draw a lot of attention i think one team is definitely going to nail this and it will be a pretty large outcome interesting i have.
- [68:19]
Ryan Sean Adams
So many questions still about opinion markets and similar to david how do they resolve who decides if it's an opinion the oracle problem of can these things be manipulated or influenced influenced so i'm sure whatever team comes up with you know the the unicorn idea here is going to have to contend with all of those things it is a super.
- [68:38]
Arnav Pagadiala
Interesting and complex design space and to sum it up in one question or into one sentence is that traders need to have confidence about the resolution for sure and that is the hardest problem with anything that does not have an intrinsic spot market pretty much okay those.
- [68:55]
Ryan Sean Adams
Are the four themes i think we've we've covered them one thing that's been noticeably absent here though and i want you to weigh in on this maybe in a second is we haven't talked about ai once and yet everybody the whole world is talking about ai i guess if i were to maybe frame this out in terms of how i think about it so far in crypto across all of these different waves we've had one primary user one primary player i guess and that has been the human being or groups of human beings and you get institutions these have been the crypto natives even on bankless we talk this is a podcast for crypto natives we're talking to the humans out there now we have ai agents who have increasingly human like capabilities let's say and those capabilities are increasing at a fast rate it almost feels like a new player has entered the chat or is about to enter the chat we've seen simple renditions of ai agents of course in the form of bots and we've had bots with us since like the very early days of the internet but ai agents with some sort of human level reasoning that feels like something new and it feels like the programmable money platform that we have created is incredibly native to an ai agent right we said how does an ai agent get a bank account well they can't go to a bank and say please you know can i deposit money here it's going to be quite clearly on crypto rails how do ai agents as a new player entering the chat you know shake up all of these ideas across the themes that we've talked about and like what's investable in i don't know if i'll call it crypto ai because it's more like the ai agent the presence of ai agents in crypto.
- [70:41]
Arnav Pagadiala
What'S investable there yeah it's a great question i think i'll break down like the areas of crypto ai that exists first and then i'll share what i think is investable so you have the decentralized compute inference training data aggregation that's been there for a little while these are things like your bittensor subnets and you know as a proliferation proliferation of that you have things like verifiable compute zkml and all that we also recently had the ai agent meta things like aixbt and virtuals and basically these just broadly these automated twitter agents right not so bullish on these areas as investment opportunities though i do think there could be growth the two areas where i really see asymmetric outcomes as far as an investment opportunity i think the first one even though it's a little bit abstract as to how but x four hundred two is going to be massive so for those who don't know x four hundred two is essentially a virtual payment standard allowing agents to transact using stablecoins right and i think you could argue that x four hundred two could become the substrate to pay for all web resources agent to agent or developer to x resource the second area which i'm very bullish on related to ai are ai agent asset managers the reality is humans weren't designed to manage risk on these twenty four seven markets and ai agents can do that at scale they can manage liquidity risks they can manage smart contract risks de pegging risks and i think just generally speaking we will have a proliferation of ai agents that know how to manage risk and can act in defi broadly very cool.
- [72:19]
Ryan Sean Adams
Exciting times ahead so ai agents having a big effect on the space is something we're all anticipating looking forward to i guess as we zoom out to maybe ben i want to ask you a question because getting the themes right is important and predicting how the world will look in twenty twenty seven twenty twenty eight is maybe half the battle but the other half of the battle is investing in the teams that can execute the vision so there's the idea and then there's execution and for that you need founders who can ship who can build who can deliver who have the durability and you talk about that across all of these various themes when you look at the founders that are going to succeed here what specifically do you look at like what are the.
- [73:07]
Ben Lakoff
Characteristics yeah i mean i think we arno did a great job of like going in deep on a lot of these themes but as you have seen they're themes that have been persistent across the different cycles and that's why i think it was helpful to go through the history of each one but for us especially at bankless ventures i mean the big thing is staying agile like these are areas that we think are very interesting and exciting but ultimately we are just laser focused on backing the strongest founders at the earlier stage they might end up pivoting so it's really over indexing on the founder itself and not getting so enamored by the idea that we forget to really get to know that founder and like what makes them tick with crypto especially as we're talking through this it i mean it highlights the kind of short termism or short term nature of a lot of these different cycles or waves but for us just really focusing on not where we can win over the next three to six months where people are everybody everybody is talking about it but like where we can back these durable founders over the next three to six years so that's that's another like through line with all of these even though we're talking about these themes is really staying laser focused on the founders themselves all.
- [74:22]
David Hoffman
Right guys this has been great ben arnoff it's your guys's first time on bankless thank you guys for coming on i think this is a pretty cool opportunity to give some of the listeners how we think as a vc and even though these are the same four themes that our listeners are already very familiar with especially the ones that came all the way back in twenty seventeen when some of these themes first emerged into twenty twenty one to where we are now in twenty twenty five ending twenty twenty five i think this will be pretty illustrative of what we think these themes will continue to look like as we work higher up the stack and i think the market opportunities gets larger maybe more dispersed and proliferated i think the more quantity of potential startups is going to be higher especially as just the sphere of influence of crypto gets larger and larger but this is how we think as investors investing in the same trends that we always have known so i appreciate you guys coming on and sharing some of the insights that we've been working on over on the bankless ventures side of things thanks.
- [75:17]
Arnav Pagadiala
For having us on david ryan this was awesome been listening to the pod for going on five years now long before david had a beard so it's been pretty full circle to be on here thanks guys this was great if.
- [75:29]
David Hoffman
Any of these categories interest you you've got something to say about it you are building in one of these categories or you are interested in investing alongside bankless ventures there are links in the show notes to do any and all of those things nonetheless this has not been financial advice these are our crypto theses for twenty twenty six and beyond not yours crypto is risky you can lose what you put in but we are headed west this is frontier it's not for everyone but we are glad you are with us on the bankless journey thanks a lot.