B (1:33)

They hated my hat.

C (1:34)

Yeah, yeah, they didn't like your hat. They thought that you were just covering up for being bald and that you were showing shame, which I.

D (1:42)

What?

B (1:42)

That's.

D (1:43)

No one. No one knew.

A (1:44)

Bald.

D (1:44)

Yeah, yeah, no one knows.

B (1:46)

Big reveal this week. Haseeb's bald. Turns out. What do you know? You know, it's kind of like I take the Scooby Doo thing off and it's like, oh, my God, he was bald. Right.

C (1:55)

The only criticism I got, and it might be because I'm a hat rookie, is that it was falling off throughout the.

B (2:00)

It was moving around a lot.

C (2:02)

It was moving around. Yeah. That was sus.

B (2:06)

It did seem alive, but I would say I think the Hats saved crypto. It looks like now things are back on the upswing, but it's been a busy week. Actually. There's been a lot of news this week that is more kind of micro news rather than this macro news. So we want to talk about one of the big stories of yesteryear that we talked a lot about previously on the show, which is Farcaster. So Farcaster is a decentralized social media platform. They raised a ton of money over the years, over 150 million, led by Paradigm and A16Z, and they've been building for about four and a half years. Founded by Dan Romero, who's early at Coinbase, and they announced this week that they were basically not pivoting, but like kind of pivoting away from focusing on purely the social media. So in their words, look, they shipped the social media product, but the social media product is not growing. They've been kind of stuck at around 25 to 30,000 daily actives, and they haven't been able to really get a growth flywheel beyond this kind of crypto insider contingency that seemed to be the primary users of Farcaster. So they decided like, hey, we're going to focus more on the wallet product, because the wallet product seems to have product market fit. It seems to be growing. And they described it as a come for the tools, save for the network kind of strategy. Now, many people took this to say, hey, this means Web3Social is dead. This means that it's almost impossible to make anything work in crypto that's not financial in nature. And of course, Farcaster, although they had these early green shoots with things like Degen and some of the meme coin drops that were happening. And remember frames, there was a lot of excitement around frames, which was mostly then used for buying and selling crypto tokens. But many people use this as a kind of broader sign of the times that maybe the social stuff is not really working. So Dune, you can see the daily active users have kind of been stuck around 25 to 30,000. I took a look also at Bluesky, which not quite fully on chain in the way that Farcaster is, but Bluesky also has a kind of decentralized ish, you know, they use activity pub, they use some like crypto, like primitives. Although it doesn't have a token, it doesn't want to have a token. As far as I know. Bluesky is also been edging down. They were at about 2 million daily active users at the beginning of the year. They're now down to about A million. So it does seem like it's really difficult for these crypto products to break through in non financial use cases. So guys, what do you think? Is this the death knell for crypto social or is this just, hey, maybe these guys couldn't quite crack it, but they're going to try another angle. How do you guys see what happened with Farcaster?

C (4:32)

Well, I don't think this is the death now. I think we don't have a winner yet, right? I don't think there's a death knell until somebody actually builds something so compelling that nobody can compete with it. I think we just haven't seen yet the thing that's.

B (4:47)

You don't think that's like the existing social networks, is that not the thing no one can compete with?

C (4:52)

I mean existing social networks are huge, right? But there have always been new approaches and things that have disrupted that have come around. Yes, they've gotten bought and merged in, but like, you know the stories of the Instagrams, you know, the stories of the Snapchats, you know, everyone said back in the day, oh, social's fit, you solved Facebook, solved it. But that's never really been the case. And so I don't know. I don't think that social plus crypto is over by any stretch of the imagination. I just think that nobody has really figured it out yet. I think there's still going to be at bats and I think there will be someone who inevitably cracks it. It's just hard, right? This is not an easy problem. But the combination of token incentives to bootstrap growth, plus the fact that everybody in crypto is so hyper online 24,7. Anyway, this will get solved by somebody we haven't seen yet.

B (5:40)

Tarun, I feel like you were probably the biggest forecaster user as well as like maybe forecaster bowl. What's, what's your read on this strategic capitulation from. From Dan?

A (5:50)

I think as someone who went from like trying to use it to try to really understand the product and over time just starting to kind of like find it annoying because it was like even more of an echo chamber than people consider other social networks, in my opinion.

A (6:12)

I think this is the end of web3. I think web3 as per a16z's definition is dead.

B (6:19)

Define web3. What do you mean it's the end of web3?

A (6:21)

What is web3 like this idea of like ownership economy, NFTs, own your social posts, whatever bullshit like that, that type of stuff. I think this is definitely the end of that because I Think we already have the crypto social network that is actually a social network that people are ignoring, which is Poly Market. And depending on your definition of crypto, Kalshi, in the sense that these platforms have insane usage in terms of monthly active viewers, not traders. That's the key. Their numbers are going up. Polymarket's third after Coinbase in some recent ranking of fintech apps, fintech kind of web pages. And I sort of view the interesting thing about polymarketing, Kalshi, is you don't need that much trading volume as an incentive for people to participate in the game. But then it becomes a sort of like social news network that people read and like consume content as if it's like a media outlet. And that's like to me, that's like an evolution of social networks to this like new form of media that's like constructed by people trading, not constructed by people making posts or videos or whatever, right? And I think fundamentally the prediction markets are the thing that is the, the new modality of social network in my opinion, where like people read it, use it to read. Like I open polymarket every day to like understand something about the world the way I would read Twitter. And I. And I'm not trading right, but I'm still getting this like social network style value out of it. And so I just think like all the people who tried to copy pasta existing social networks just kind of had no chance in reality, right? The network effects are too strong to vampire attack or drag or whatever. And in Farcaster's case, I even felt like the UX was like extremely like Twitter clone. Like Farcaster and Bluesky made basically zero attempts at like novel UX relative to Twitter. Like yeah, I find there's some like tiny things, there's like some programmability, whatever, open graph. But no one monetized the open graph. No one gave a shit about the open graph except airdrop people, to be honest, right? They were the only ones who found a realistic monetizable use case. And no one gave a shit about owning their own posts, right? That's fundamentally been true in all of these things is like there's a little cabal that's like, oh yes, obviously we want to own our own posts, but then even those people just leave, right? Like the biggest.

B (8:46)

So you, you give no credit to things like frames or what was the Solana thing? Blinks, right, blinks. Or for blue sky, they had the ability to modify your own algorithm to basically say, oh, I want more of this, less of this. You don't think those.

A (9:01)

I think I just kind of watched. Yeah, I think I kind of just watched those things either get bastardized and the only thing they were used for is figuring out who to airdrop to or add a swapping function. So it's like, okay, if it's really just defi. With more steps, why do the more steps? Like, you know, it's like, kind of. It seems kind of dumb to do the more steps. I think it's interesting that it took them this long to figure it out, but I also do think it's kind of weird to pivot to just wallet only because, like, there's 5 million competitors. They're all like, you're getting new competitors who are like, every fintech app in the world.

B (9:37)

My understanding was that they're not, like, dropping the existing product, they're just, like, focusing on the wallet. But the wallet integrates with.

A (9:45)

But I think that that will be the end of the social networks. I feel like if you're not constantly evolving them a little bit, like, your users get bored and leave. Like, I think it's.

D (9:55)

I, like, I think there's a bunch of, like, social wallets that they're. I mean, FOMO just raised and, like, you know, there's. I would say, like, moonshot and bags, and some of those are also quite social. I mean, social trading's been a thing forever, I think. Yeah, maybe it's a tougher pivot coming from Farcaster, but, like, you raise 120.

A (10:11)

Million, you raise 10 times or more, whatever, 200. You raised much more than 10 times the capital of everyone combined.

D (10:17)

Yeah, and I don't think that was raised solely on, like, the product and product traction. I think that was, in large part also raised on Dan and his ability to ship product and, like, everything. I'm like, look, a lot of people are clowning on them on Twitter, but I'm like, I think. I think executed this pretty well. Like, I think everything. Of all the other past examples in crypto, people trying to do this, they always took the wrong turn. It's like, oh, we just build the protocol and everyone else builds a client. And then of course, that doesn't work because you get shitty clients. And then it's just a bad incentive alignment. So, okay, great, they built their own client. And then people are like, oh, they should have launched a token. And it's like, no, no, no, you don't launch a token pre pmf. That's how you distort everything. The whole thing doesn't work. And so they had actually really good product discipline and iterated quickly. And I don't know, it's also a tough decision to decide to wind down something that's kind of working but not really working. And I think not enough founders, especially in crypto, are willing to make that call. A lot of people wanted to keep nursing something that's not really working because it's not a zero. So I don't know, I mean, props to them for making a tough decision. I do also wonder if this is going to impact the base app strategy because I know there was some beef around the base app using Farcaster but not being our Farcaster client or it was some sort of weird non canon issue. And so now it's like. And obviously the base app is also being oriented around social and owning posts and trading posts. And now it's funny to see the thing that you're kind of drafting behind choose to take a totally different turn and you're like, oh shit, do I keep going straight or do I also turn? So we'll see.

A (11:48)

Well, I mean they're definitely competing with Base app effectively now, right? To some extent.

D (11:52)

But I think it's funny that Beza was very much leaning into the social angle and our forecaster is like, actually, fuck that, we're just going to be a wallet.

C (11:57)

I mean, good for them, good for them. I actually support this 100% as a founder and investor. And to your point about people clowning on them, all the people clowning on them are anons and people who have not built something before for the most part, like I haven't seen any like genuine, well thought out critique of this besides like, oh no, like product go away, you must suck. Like, I think this is great. I think this is what a team should do. If they inevitably are not seeing the metrics and the success that they have in their current strategy, they should iterate. Right? And so I'm excited to see it. The more experimentation we have to try to reach popular, widely adopted things, the better.

B (12:42)

Robert, are you an investor in Forecaster?

C (12:44)

Nope.

A (12:45)

Okay, so I would say I agree with this. Although I do sort of think when base started trying to encroach, I feel like that was the time to pivot, if that makes sense. They were part of the ecosystem and then they kind of got. You made this. I made this kind of. And like to me that was like, okay, that's like this is like the end for this thing because like someone else is just like with better distribution is trying to basically vampire attack you. Which is the beef. Tom. Talking about. So maybe they made this decision back then. But I thought that was like, to me that was a clear sign of like warning death near. I, I think as a user I like opened it and like recently and like I just only had all sorts of nonsense token spam of hey, click my post and I'll airdrop you 5, 500 whatever bullshit NSFW token. And my DMs were just filled with all this spam and it was like this reminds me of like Discord in 2021 except it has like 1/100 the users. Like the, the spam versus real usage thing was also very out of whack and I think that's what just made me stop using it. I couldn't open it without just like 5 million spam things.

B (13:56)

And like that, that sounds like exactly the thing that happened to what was the one that got acquired by Tron Steemit Sounds like exactly what happens to Steemit is that like, okay, maybe you can start with this early cohort of true believers and these, you know, intelligentsia that come onto this thing for enlightened reasons. But then eventually when it actually is the, like, you can own your post and there's real money running through this thing, you just get this like agglomeration of kind of quick money scammer type people. The thing that I think about a lot with Farcaster, because I honestly have very mixed feelings about Farcaster because probably out of everybody, I think probably out of the four of us, I'm probably the most bearish on Web3Social. And I've been bearish for a very, very long time. If you look at our portfolio, we've never done anything in Web3Social. And I think part of the reason why is that I just Fantasy top doesn't count. I mean that's a game that's very different.

A (14:50)

Yeah, but it had some social. I don't know, it's like on the board social aspect.

B (14:54)

Yeah, yeah. I'm not on social aspects to other things. Right. But like my thesis has always been that the beating heart of crypto is about finance and money. Right. That's where Bitcoin started. That's where Ethereum emerged from. And like the further you get away from that, the more that you're kind of smelling your own farts and like not actually giving something, giving people something that they asked for. I've never heard anyone ask for decentralized social media. I've heard people talk about how they think it might be good.

A (15:19)

Wait, what do you mean you've heard a 16Z ask for it.

B (15:23)

Yeah, exactly, exactly. That's what I was going to say is that I think, in a way, like, Farcaster played a very important role for the industry, and I think in particular for the narratives that particular VCs, particularly A16Z was telling about the industry. I think that Farcaster was kind of almost like a Mott and Bailey for the industry, which is that they were saying that, look, this Web three is super, super, super important because it allows us to democratize the world and make a fairer financial ecosystem and blah, blah, blah. And, well, what do you mean? It's like, oh, look at Forecaster. Don't you hate Facebook? Don't you hate Twitter? Don't you hate mostly Twitter? I guess, because it's kind of a Twitter thing. And Forecaster was like, the thing you could point at is that, look, at least these people are doing this and we gave them a bunch of money and they're trying their best. And in exchange for doing that, we can now go invest in the actual stuff that makes money, which is maybe less palatable, which is like, okay, let's go invest in perp Dexs. And maybe it's not a great example because ASXD hasn't done perp dexs, but you get the idea is that the stuff that actually makes money doesn't sound like utopian kind of pie in the sky stuff like, oh, we're going to decentralize the world and decentralize all the social media companies. That sounds really good. Nobody has ever shown they want that.

A (16:36)

I think that there's a, there's a, like, millennial wealth effect reason web3 existed, which is like, all these people got rich off defi and eth and bitcoin over, like a 2017-2020 period. And then, like, like in every industry, right when, like, someone gets rich, like, okay, what is my next thing? It needs to be more grand and whatever. And like, you, you see this, like, repeatedly, right? Like, and I kind of think that that's the thing that led to the delusion of a lot of Web three. And I say this as someone who, like, tried to want to believe it, you know, Like, I, I, I, I feel like I, I gave it a good, like, true college try. I, like, really wanted to, to, to believe it. But then, yeah, using this stuff, it's just like, it inevitably just became a spam thing. And I'm like, if I'm gonna get spam and not get paid for it, like, I'm out. Bye.

B (17:25)

Yeah, I Think it's like the reality. And this is something I say a lot about. A lot of things within crypto is that people.

B (17:35)

One of the things that you learn as an entrepreneur or you learn as an investor investing into entrepreneurs, is that you cannot just listen to people and what they tell you they want. You have to have them show you what they want because people will tell you all sorts of horseshit that they don't actually mean. Right? So one of the, One of, I think the piece of horseshit that people will tell you is that I hate social media, is that, you know, it's so terrible for me, I'd love to use something else. You know, I want to get off a TikTok, I want to get off of Instagram, blah, blah, blah. And you say, oh, great. Well, here's a thing you can do, you know, you can turn this thing off. You can like block yourself from your phone. You can like, do all sorts of stuff to like, get away. You can, you know, and people don't, they're like, oh, that's great, but I, you know, I don't want to miss, you know, I have my friends on here. What am I going to do? And you know, all the stuff that people say about privacy, I think is also of the same vein. It's like, oh, yeah, I don't trust all these social media companies. I don't trust, you know, blah, blah, blah. And then you can see from their behavior that actually they value this extremely small amount, even a slight amount of inconvenience. And they're like, you know what? Yeah, whatever, you know, whatever. They're going to read my stuff. What am I going to do? So I think this, in order to break through this barrier, you need a much better product. A much better product. And it's very hard to have a much better product than Twitter. It's very hard to have a much better product than Instagram. It's not just like, okay, great, it's decentralized, therefore it's much better. And that's a lesson that I think as an industry, we keep relearning, we learn it for different things.

A (19:00)

Stated, verse, revealed. Preferences are a bitch. That's just a fact.

B (19:05)

Exactly. Now look, I won't say never because I don't know what I don't know. But again, I do think that the core superpower of crypto has always been around money and finance. And if you're doing a social network or some other thing and you don't have some monetary jush on top of it, it's probably not going to be sufficiently different than a Twitter or an Instagram that you're going to have a shot in hell of being able to supersede them. So if that's not the lesson, then I don't know what is.

C (19:38)

I mean, Instagram and Twitter and all these things have two decades each of effort that have gone into them with thousands of engineers and product designers and like, two decades building up a network effect. Right. And a user base. And like, these are gargantuan products at this point. That, yes, to your point, they will be extremely hard to dislodge unless somebody thinks about this from a completely different angle and just nails it. And that different angle is money.

A (20:08)

And I think prediction markets are weirdly a totally different angle to make a social network. That's like, that's my hot take is.

B (20:15)

Like, I feel like this take. It is a bit of a stretch to call prediction records social network, but.

A (20:19)

I just feel like. I feel like people talk about.

C (20:21)

I agree with.

B (20:22)

Terrific.

C (20:22)

No, I agree to it.

A (20:24)

Talk about prediction. The way they talk about posts.

D (20:27)

It's like, it's like, I mean, I agree they're social.

B (20:28)

I agree they're social. And. But like, the social network sort of extends. You know, most of the people who are at this point consuming Polymarket are actually on Twitter. Right. Like, the Polymarket Twitter account is like, crazy. Has got crazy, crazy reach every single day. So it's like a broader phenomenon than just like, okay, it lives inside of the Polymarket comment section.

D (20:49)

Yeah.

C (20:49)

I think the future. And just to go back to last week's chopping block conversation about prediction markets and the long tail and the social networks, I think the future is you go to the high school basketball game and the prediction market app. It's like all the people in the stands with you are like chatting and betting on the game and it just happens automatically.

A (21:06)

100%. 100%. I think, like, stuff like that is going to be more of a social network than any of these kind of crypto social things that try to be a social network.

B (21:16)

So if you're building that, Tom, used to be. You used to be a PM at Instagram before you came into crypto. So you came from the inside of the beast. Do you think there will ever be a successful social app within crypto? Not like social trading, like social social.

D (21:33)

I mean, I think I more or less agree that the interesting thing in crypto is the financial component. And I think it's also extremely difficult to displace any incumbent beating them with the Exact same product with small tweaks, which I think is what every other approach has had. And it's true even in traditional social media. I don't know. I think there's probably something ultimately, I think whatever form factor is going to look totally different than anything we can imagine today and it's going to get ridiculed at the start. But I could see something financialized like a prediction market taking off.

D (22:08)

Not quite crypto y but we had a portfolio company launch this week, $0.02, which is a very different flavor. It's kind of like the opposite of a good idea is also a good idea. And so they do. It's an anonymous social network, but your sort of handle is your verified net worth. So they can take in your crypto wallet or you can link up your brokerage and so it'll say this person's worth $100,000 and that's it. And then you can just comment and post and pull and so you get really interesting fun content that feels very transgressive. You're not supposed to talk about your net worth and you're not supposed to have how much your rank in the feed ranked by net worth or your poll ranked by net worth. But it produces really interesting content that you're just not really getting anywhere else.

A (22:47)

This is sponsored by a wrench company.

D (22:50)

Yeah, right. It's anonymous geolocation. Local privacy preserving. I mean, yeah, don't, don't, don't, don't publish your research but. Or your address rather. But yeah, anyway, just different than when you normally expect to your point, I.

A (23:03)

Feel like there's some very weird niche social networks that I still use despite the fact that I don't think the user counts have grown years like arena and stuff like that where it's like.

A (23:13)

All these crypto ones seem like that they're not like venture businesses, they're more like cottage industries social networks for like, like some niche group. Right. The only one that seems to transcend society is prediction markets where like everyone loves to talk about them. Regardless of where you are in society now, I feel like. And that to me that's like what you need to have a social network, that amount of buzz around you.

B (23:36)

Yeah, it's, it's interesting because I do think there was a moment where basically if you created not, not even like a social network, but almost like a forum, like an old school, like, you know, bulletin board type forum, but you just had super rich crypto people on it, you could get adventure funded. Just because there was a sense that anything that was close enough to the heart of crypto wealth was somehow worth enormous amounts of money. And I think, yeah, the industry and I think investors have also grown up a little bit and realized that, like, hey, it's actually really hard to create sustainable businesses.

A (24:05)

Yeah, I haven't heard the. I don't Hear the word web3 from anyone except people who work in AI who are like, how's that web3 stuff going?

B (24:12)

Well, I guess it's time to retire the term. Can we. Yeah, can we put it to rest? Okay, hey, we didn't make the term.

C (24:18)

I think that was an A16Z original.

A (24:21)

That was. That was actually technically Polka Dot Foundation. It was Gavin Wilcock.

B (24:25)

It was Gavinwood. And then Asaks and Z co opted it to make it into a broader phenomenon. And look, to be clear, we owe a big credit to the Web3 meme because I think.

B (24:37)

The set of people to whom the Web3 concept appeals is so much larger than the set of people to whom crypto appeals. And the whole read, write own philosophy is beautiful. It's a pain to the idea that, hey, the small guy, little tech. It's really just. It's easy for everybody to get on board with that story. It's a lot harder to get on board with the story of like, hey, let's go fund some perp dexes and trade a bunch of crazy shit. But here we are, 20, 25. Okay, so switching gears, let's talk about me. So there was a big debate that I did last week with Santiago. Santiago is founder of a protocol called Inversion. He's a big investor in the space, one of the most actual angel investors in crypto. And we talked last time about an article I put out called In Defense of Exponentials, where I basically defended layer 1s as a category. And Santi was very like, hey, yeah, look, this is really nice to say. It's very highfalutin language, but come on, let's look at these PE ratios. Ethereum is trading at PE ratio of 380. It's absolutely absurd that people think that these valuations are justified. Solana is trading at almost 50. Why is anyone paying this? That's the reason why prices are going down, is that people are waking up to the fact that all these chains are overvalued. And so I argued with him and I said, no, this is bullshit. This is not the right way to look at this. And we end up doing a debate on Thread Guy's show. That debate ended up getting a huge amount of play and really kicked off A larger firestorm about how should layer 1s be valued. You have people on one side, on Santi's side basically saying that hey, we're past the stage of just looking at these things like early stage startups and closing our eyes and just kind of swallowing these horrendous metrics and the lack of year over year growth. And then you have my side, which is, hey, these technologies take a long time to develop. And if you compare this to the Internet, you compare it to E commerce. These are trends that took a long time to develop and markets are forward looking, they're not present looking.

B (26:42)

If you look at the profits of these companies, whether it's Amazon or Uber or Google or whatever, none of these companies have profits even 10 years in. And Ethereum is 10 years old. So that was my side of the argument. Curious. I don't know if you guys saw any of this hubbub coming around, but it seems to have triggered a broader set of conversations. What's your guys take on the L1 valuation debate? Do you guys think L1s are overvalued, undervalued? And where do you fall on the side or where are you sympathetic?

C (27:09)

Well, I'll preface by saying I did not watch your debate. I don't even watch our content.

B (27:14)

But you don't watch our content?

C (27:17)

No, I see the clips that. The chopping block social media intern posts.

A (27:21)

Yeah.

C (27:22)

And they're incredible. And I see like, you know, the new content that gets made and I see like the hat memes and all of that. But I've actually never watched or listened to an episode of the Chopping.

B (27:31)

Why? Can I ask why? Why don't you listen to our podcast?

C (27:35)

I don't want to relive the psychic trauma from each episode. Let it be.

B (27:41)

Do you listen to other podcasts that you do? I'm very interested by this. This is actually really interesting.

C (27:45)

Actually. No, this is a weird fun fact. I've actually never listened to a podcast that I've done before.

B (27:50)

If you listen to your own podcast, what does that make you feel? What does that make you feel when you listen to your own podcast?

C (27:54)

I don't do it because I'm not a judgy person, but I judge myself. So if I'm listening to a podcast, I'll listen back and I'll be like, ooh, I don't like that answer. Or that take. I just don't do it. I just.

B (28:05)

Okay, isn't that good?

D (28:06)

Isn't that self improvement?

B (28:07)

It's like a mental health thing. I I agree. I. So I listen to all of our podcasts and I'm always, like, taking notes about, oh, I should have. I should have cut this off sooner. I should have done this, should have jumped in there. But I. But I get. If it's like, oh, man, I hate how I did on this podcast, that those are painful. If I. If I really up on a podcast, I'm like, you know what? I'm gonna take the L. Not gonna listen to that one. Just move on.

A (28:28)

I hate listening to my own voice, so I'm not gonna listen to this.

C (28:33)

Luckily, our listeners don't hate listening to your voice.

B (28:35)

Y.

A (28:37)

Like, I hear it. I'm like, I don't listen.

B (28:39)

Okay, okay.

C (28:40)

Well, back to the question. Yeah, okay, so L1 debate. I don't think that they're too overvalued, but I think they are slightly overvalued. And the reason why I think that they're slightly overvalued, that is underappreciated, is that there's always the possibility of making new ones. And I think that whether it's next year, two years from now, five years from now, 20 years from now, I think you're still going to have smart teams. Whether they're like three guys in a garage or whether they're stripe saying, we're going to launch a new L1 because we want to do things differently. We want to have our own token, we want to have our own thing. And so I think they're overvalued from the basis of competition. If you looked at the ecosystem, you said, if there was never a new L1 that was launching today, are they fairly valued? I would say, actually, probably, frankly, because.

B (29:29)

I do think the pie is right sized, but the distribution is misallocated.

C (29:33)

I think the pie is right sized. I think when you think about the value of the transactions that we're processing and what that security should cost to validate those transactions, it doesn't feel out of whack to me. What feels out of whack is the fact that the competition's never going to end for that pie. And.

C (29:53)

I think the current market is going to continue to be diluted by new tokens, new issuance, almost in perpetuity. When does that game stop? When do people say, oh, we solved L1s, there's nothing new that we should build? Come on. There's always going to be new entrants. And so, you know, I think the total pie is probably correct. Right. I don't think it matters that it's like oh, I'll value it based on 300 price to earnings, like whatever. No, it's like what's the value of the security for like computation of economic value flying around. That seems fine to me. Right. I just think that the current crop should potentially be worth less relative to the future.

B (30:37)

That's like ethereum. Do you think that's like the deeper down.

D (30:40)

Yeah, I do.

C (30:41)

I think it's ethereum. I think it's. I think it's everything. If it was up to me, I'd probably knock 50% off the market cap.

B (30:47)

Of, you know, all the L1 50 off of everything. That means you think half the value will be captured by some new guy.

A (30:52)

Yeah, Robert's Black Friday. This is like Robert's Black Friday sale.

C (30:57)

Guys, I'm not a trader, okay? I could be way off here. But like. Yeah, when you add up the value.

B (31:01)

That all are you long L1s then.

C (31:04)

Generally a little tiny bit, but not really.

B (31:07)

Okay, so yeah, yeah. All right. So yeah, your money's already.

C (31:10)

I mean, by the fact that I'm in like an LP and other funds that are long all the L1s. Yes, I'm long all the L ones.

B (31:15)

Yeah, fine. I mean, they're obviously run by idiots if they're long these overvalued L1s.

C (31:19)

Right. And again, I think differentiation between Bitcoin and computation platform L ones.

A (31:24)

So let me just.

B (31:25)

Sure, sure, sure. Yeah. We're talking about smart contract platforms.

C (31:28)

Smart contract.

B (31:28)

Tarun, what's your take?

A (31:30)

I. I actually think over time I am slowly agreeing a lot more with Anatoly from Solana on this issuance aspect of like L1. Issuance probably could be way lower. But the, the, there's a bound that is not like purely the operational infrastructure bound. There's a bound. That's how much activity do you have on your chain that like needs to be secured in some way. Right. And valuing that. And I think the main problem I have in the long run with L1 valuations is do you really believe activity will uniformly spread across all of them or will it concentrate to a small number? Because if it concentrates to a small number, then it's like there'll be a rich, getting richer philosophy where liquidity is only going to stay on some small number of chains and then there's a feedback loop. The reflexivity of these tokens, I feel comes from their being used and valued in the long run. Not like, obviously short run can be kind of crazy, but there is like a monetary pyramid that comes from people Wanting to store valuable shit that is not necessarily the chain, asset itself on the chain, right? Like storing tons of stable coins, storing tons of RWAs during whatever, right. And I just don't sort of see a plan for a lot of L1s for that. Now, I'm not saying it can't happen, but it does feel like there's like a coast theorem type of thing where it's like. Like there's a cost for each new L1. And it's like cost is worse when they're the nth L1. Their cost to catch up is like worse than the N minus first. And like that thing is increasing and it feels like it's increasing multiplicatively. So, like the carrying capacity of L1 should be pretty small. That's sort of my sort of back of the envelope type of. Like if I tried to give you some economic rationale of like, I think about the inflation, issuance costs they perpetually have to pay, I think about the activity and liquidity costs and then I think about revenue they might generate, right? And if I look at that, I probably get some number of. You can kind of back into a number like coast theorem style of how many L1s there are. And I don't think it's that many relative to the total transaction volume. That's sort of my. I'm not saying it's one, right? I'm not saying it's three, but I'm not definitely not saying it's like it scales with the number of users or transactions. I think it's extremely. It's like constant. Like it might be like 10.

B (34:01)

Tom, what's your take?

D (34:02)

I think, I mean, I think the LN valuation stuff gets so heavily scrutinized because, one, you have these dyno chains from like 2016 that are still trading at like billions of dollars. And I think that perplexes people, which I totally get. And I think to Tarun's point, it does get. Get substantially more difficult to enter this market over time. I think in the past few years we've seen a number of L1s basically get rejected by the market, which I can't even imagine. It's like new teams with good capital, interesting tech, and then the market's like, no, no, no, we want random crap chain from 2016, 2017 instead. And that's perplexing. And then two is sort of this L1 premium meme. And it's like you can have the same product and it's like, oh, if it's an a token for an app or a DAPP gets valued at such and such a level, but if it's a chain, it gets transmuted and it has some other property and now we're going to give it some 10x multiple. And you kind of see that a little bit in the market. And I think there's a meme for a reason. I think that kind of Santi's point, I think it's also kind of talking past each other a little bit is valuing L1 tokens like equities, which I think is not the kind of point.

A (35:09)

Right.

D (35:09)

The point is, hey, within the space, how are these valued relative to other forms of investment? And I think there's sort of this, it's not like an equity, it's not a commodity. It's maybe a third different kind of thing. In which case, yeah, I kind of don't really agree with that perspective. The market is very forward looking, maybe all is equal. I think there is probably misallocation of capital, overallocation of capital to L1s versus applications, but I think that's been correcting over the past few years. So I don't know. I'm also just inclined to believe the market price unless you have some extremely outsized information or view or you know that there's something substantially different that the market isn't really pricing in. And this is kind of the price of the market.

B (35:50)

So actually in terms of framework, I mostly agree with Santi. I think there was once upon a time when the right way to look at layer one tokens is that they were these kind of hybrid, well, is it a commodity, is it a currency or is it an equity? And it had really hybrid characteristics of all three. Because if you look at Ethereum, a lot of demand for Ethereum in the early days came from the ICO boom of being the reserve currency of ICOs and then after that becoming the reserve currencies of NFTs. And of course for Sol being the reserve currency of meme coins, a lot of that has really fallen away. It's become an increasingly smaller part of the demand for these assets. And as that happens, I think likely the steady state is actually that the commodity usage and the monetary usage just get dominated by the third, which is just the equity of the chain. And so I actually think he's right that in the limit it's probably not going to be that we're going to be pricing a bunch of things in ether. And it's probably not the case that most of the demand for ether comes from commodity usage of just using it to pay gas. I think it is probably correct that the value of Ether comes from the demand for the chain and the demand for the chain coming from some kind of burning or just fees going to validators. I just think that it's not zero, but it's 85, 90% of the sum of parts valuation is going to be the cash flow equity component. I just think that it's going to take a long time to get to steady state. And in that long time, this stuff is just going to grow a lot. It's going to grow really, really, really fucking big when you have less than 1% of M2 that's on chain growing to Scott Besson is saying that he thinks 15% of the money supply is going to be stable coins by the end of the decade. That's really, really big. And right now it's basically crypto assets and some stablecoins that are on Ethereum. If that continues to grow in more and more financial, valuable financial assets are on Ethereum.

B (37:46)

The answer for the Internet was always you cut the fees and you make it up on scale. Right? Same thing with all these AI companies. All these tokens are getting cheaper and cheaper and cheaper every single year at an insane rate. And yet revenues are increasing. And so I think that has to be the answer if you believe in this exponential kind of saturation story that this thing just starts to eat more and more finance. That's genuinely what I believe. And in that universe, yeah, more and more of the value is going to get captured by these chains. Now, is it Ethereum? Who knows? I'm not, not confident that it's going to be Ethereum, but I think obviously Ethereum has. It's Ethereum's game to lose right now in terms of being the front runner. Tarun, you were laughing in the middle of my answer. Do you want to tell me what you were laughing at?

A (38:28)

I guess I'm just laughing because I'm just thinking a lot about how L1 valuations really just depend on the whims of traders in Korea and Turkey.

A (38:40)

More than a lot of other things. Turkey. You should look at TR y pairs for some of these assets. They sometimes will be trading way higher.

B (38:48)

Than all the US but lately it's been mostly US markets that have been driving.

A (38:52)

No, no, but my point is all those traders seem to not be around buying these things comparatively, which is why I think the prices.

B (39:00)

But look, I mean, Ether is holding. I mean, relative to alts.

A (39:03)

Right.

B (39:03)

Alts have gotten destroyed. Ether's at 3300. Right. I mean, it's like it's up over the last six months by a pretty large margin. So obviously it's down quite a bit from 4900, but it's not crazy off from where Bitcoin retraced as well in percentage terms.

B (39:22)

Okay, so beyond this L1 valuation, like, hey, our L1's overvalued, there was another injection of doomerness into the Zeitgeist, which was this viral post by this guy, Ken Chan, who actually, I think actually we at Dragonfly know pretty well, because we actually backed his company, which was avo. And so Ken, he wrote this piece called I Wasted eight Years of My Life in Crypto. And this piece went super viral beyond just crypto. Twitter, it went sort of viral more broadly within the tech industry. And basically what he argues is that, look, I got into crypto because of these libertarian, kind of Randian cypherpunk beliefs. I thought that crypto was going to create a new decentralized financial system, but instead, what did we get but just gambling and speculation loops with dexes and memes and NFTs and all this stuff. His claim is that the industry rewards zero sum games and narratives over real products, and that he thought that ultimately he had made the world worse by building what he ended up building. He made some money and he's like, but look, I don't really feel good about what I did, and maybe I wasted my eight years that I spent in crypto doing all this stuff. So got a lot of different responses. I wrote a response that got some play talking about how crypto's always had casinos from the very beginning. If you look at Satoshi Dice was the first viral game on bitcoin. King of the Etherhill was the first viral game on Ethereum. And there's always been stupid games. If you can allow people to do anything with money, first thing you're going to do is learn how to gamble. But nevertheless, there's a lot of real stuff that's happening in the industry. And I think for people who are disillusioned or who just built something that didn't work. Evo obviously has not been successful in the broader scheme. It's important for those people to build, move on, and to kind of leave the space for the rest of us to build stuff. And I think actually I really like the post by Chain Yoda, who said, I'd like the president of cryptocurrency to compensate this person for the eight years of their life they could have wasted Outside of crypto instead. Anyway, kind of a bit of a dump, but I thought that was really funny. Yeah, good post. Curious what your guys response was. I'm sure this came across your feed if not just the kind of fallout when this post came across your guys feeds. How do you guys feel about this? The sentiment that I think many people echoed when they read this, like, yeah, I'm feeling that same way. I feel like I might have wasted eight years of my life in crypto too. How do you guys feel? Did you waste eight years of your life in crypto?

A (41:42)

You know, I've certainly had on and off thoughts of that. Whenever people, other people tell me that from outside because like, you know, like I said like the, the sometimes talking to people outside of crypto they're like like patting her head. How's that Web three thing doing, buddy?

B (41:57)

You know, you have really shitty friends. I just have to say like every, every show we get like a glimpse into you getting bullied by your friends.

A (42:06)

I mean because like all of them think and generally do not kind of think it's like a scam. So it's, you know, it's like I feel like I've just, I've trudged through. But I would say I think I can see where that disappointment came in for Ken. I mean we also invest in Evo and I feel like they had a chance. You know, there was kind of in crypto. Something funny about crypto is that despite there being low barrier to entry for a lot of markets, like anyone can start a new perps exchange with like kind of low amount of capital in theory. Right. Like you have this thing where like there's like extreme concentration effects to like two players. You see this in like MEV markets. You see this in perp sexes. You're starting to see, you can kind of see like the, the distribution of OI and Perps X's spot is kind of weird I guess because it's like there's like geographic reasons. It's weird but. But there's like lots of markets in crypto where like it and I think like if you have spent a long time building a product that works is pretty good and then suddenly lose all your users one day to someone and then they just don't come back. Yeah, it feels shitty, right? Like usually you either pivot or kind of move on and I think in their case they just really stuck with it because it is a big market. There's not going to necessarily be one winner. But I do think like yeah, it can be grinding. I think 2023 in particular was, like, obviously a tough year for a lot of people, and Ken's been lived through that. And I think, you know, if you look on the outside and you see things in AI or bio or nanotech or whatever that are, like, exciting, you might be like, okay, well, should I miss. Right. There's always this opportunity cost. Now, the weird thing is that it does feel like the crypto market fundamentals just seem to be expanding. As. I mean. Yeah. Like, as if there's no tomorrow. So it's sort of. There's kind of. You have to have this dialectic in your head.

B (44:09)

Yeah. I feel like this is a weird time to say this, right? It's like, maybe after FTX collapsed, like, that's. Yeah, I felt that. Like, I was talking about that, but.

A (44:16)

I'm like, that was, like, the time I felt it the most right now.

C (44:19)

That was the trough of disillusionment for sure. Was, like, three years ago.

B (44:24)

Totally, totally. So, like, now we're on. I mean, like, up. I mean, it's like, I love Ken, and obviously, yeah, we backed avo, but I'm like, bro, you. You decided to pivot into a Pertex. Like, that was your decision. Like, if you. If you did not want to build a casino, don't build a fucking casino. That's literally literal casino. Yeah. I don't know, Tom, what's your. What's your take?

D (44:46)

Yeah, I mean, I think I agree with a lot of the sentiment. I think there's this, like, pattern that happens a lot in crypto. I mean, it happens in general tech, but it's like, I think one of the most painful paths for founders is also, like, being early but missing on timing or execution, and then just seeing someone else lap you and kind of seize the crown. And it's like.

D (45:09)

You feel, like, entitled to have the crown because you're like, no, I was here first. I saw the thing, and I did the thing, and I should be here. And. And there's many, many teams and companies and protocols that this could be applicable to. But I'm sure it is also painful to have been building in crypto for so long. They said be early to perpdex, have a thing that was working and had users and have volume, and then feel like, actually, I don't have this thing, even though I was right. And so I don't know. I think I empathize, but I agree, too. It felt like a weird time to publish this when it's like, I think I don't Know, it feels like overall sentiment is, like, pretty good and fundamentals.

B (45:46)

Are good for, like, a month. And you're just like, oh, I wasted eight years in crypto. It's like, yeah, this seems like a weird time to have that realization just because eth is down. Robert, what's your take on the piece? You're the builder defi guy.

A (46:03)

Yeah.

C (46:03)

I mean, I do think that a lot of ideas have been played out. I think people are learning or have learned, right, that there's two types of crypto. There's sugar water crypto, and there's build real things crypto, Right? And yes, there was an era where there was a lot of sugar water crypto where it was like, oh, let's have points, and then turn them into tokens, and then use the tokens and the points to incentivize the thing that has not that much fundamental value, besides the fact that there's points and there's tokens. And that's a thing that goes in circles.

D (46:36)

And.

C (46:36)

And most of the time, people are happy, and some of the time they're not happy. And we're not trying to achieve anything new. We're playing a merry go round with sugar water, right? That has always existed, right? There's been a lot of that. There's also people who are saying, crypto's amazing. This technology is useful. We can build things that have never been possible before with it. And that power can be used for fun games in sugar water, or it can be used for transforming the way that assets move and transforming the way that social consensus occurs and transforming the way that, you know, this incentives work to, like, align cooperation. Right? There's.

B (47:21)

Come get a job at Superstate if you want to build real shit, come work at Superstate.

C (47:25)

Yeah, like, if you want to build real shit, come get a job at Superstate. But there's a lot of companies that are our peers as well, that are, like, building real shit that are like, hey, we're here to make financial markets faster, cheaper, better, more efficient, more awesome, right? We're here to make things more fair and more transparent, right? So that, like, people can't get scammed in the same ways. You know, it's like there's a million incredible use cases. You can choose to work on those you can choose to work on Sugar Water Merry Go Round, right? Like, I get it. Like, I also can see getting burned out easily on that stuff, right? And anyone who does has a choice leave or find the pockets of, like, really cool use cases and work on Them. But you know, crypto is a massive umbrella. It's so wide, there's so many subsections to it. There's so many different niches and verticals within crypto itself. Like it's very easy to get bored of one thing and find excitement in another corner of it. So I don't know. I agree and I disagree. Like, I get why he got burned out on it, right? There's a lot of people that have gotten burned out in this space. Right. There's always the joke where it's like meet so and so, like he's been in crypto for a year and it's like a gray haired old man. It's like 24, you know, it's like this space can be brutal, but I think any new technology, any new market's brutal. I bet the people working in I are like in AI are like, this is brutal. Like I work so hard and like.

B (48:46)

I read blog posts, people talking how brutal it is to work in AI.

A (48:50)

Yeah, I was just in SF last week, week. And I, I can tell you all my friends were just like, had dinner and they were all like timing their time to leave to go back to work. It was like, it was, I was like, wow, this is, we're back to that era. I haven't seen this in a while.

C (49:06)

So I don't have too much sympathy. I'm sorry, Broom.

B (49:10)

But look, Rob, I will just say I have enormous respect for the fact that you have always dedicated yourself to working on like the really big ideas within crypto.

C (49:19)

Right.

B (49:20)

So whether it's like compound decentralized money market, the first of its kind to do on chain lending, or now with superstate of like, hey, we're going to take all financial assets and securities and tokenize them and allow them to be freely tradable. Like that's big fucking shit. And it's hard and like, you're right, it's not as easy as the sugar water stuff that like you know, boom, launch the next thing. And there's nothing wrong with perp Dexs. Obviously we're investing in cryptaxes, but there's like, you need people who are going to go tackle the big hairy shit. That, that's the zero to one stuff.

C (49:47)

Yeah. Like this is a crazy technology. It's not even that new. It's a crazy technology that we have like the good fortune and luck of being alive and like old enough to be able to innovate with before others do. You know, it's like the thing that I always wished Watching from the outside because I was a little bit like too young for. It was like I saw like the.com era. I grew up as a kid in like the 90s and it was like, like, oh my God, if only I could have been like a little bit older when like the Internet was new. Right. And like incredible things could be built for the very first time with it. And it was all about just saying like, what can we do with this crazy new technology? Right? That's it with crypto. Like we're here right now. Like if you're an adult of the proper age and skills, it's like we still haven't like figured out all the incredible things you can do with this yet. There's still so much room to take this like magical new technology and do something like important with it. So like, I don't know if you're not in crypto yet, come in now. It's a great time to build.

B (50:49)

That's great. Okay, we have to drop shortly, but Tarun, last thing I want to talk about is you. You recently put out a paper speaking of sugar water and playing stupid games.

A (51:02)

Well, I was going to say like, you know, my raison d' etre is like finding all these niche problems in crypto. There's always a new.

B (51:09)

Okay, that's right, that's right. Deep in the sugar water. He's like reaching into the recesses of the sugar water pool and pulling something out. Interesting. So give us one minute explanation of the paper that you put out on auto deleveraging on ADL's and how to do ADL's better.

A (51:24)

Yeah. So basically.

A (51:27)

Yes, I think I actually have talked about it on kind of around the time when we had the episodes, around the time I had this sort of intuition that one of the weird things about this ADL algorithm is like it was clearly made when people assumed it was never going to happen much. And also isolated events like there's not going to be 20 ADL events in a row. We are just going to clear out the bad debt once and then the market will recover. Right. October 10th was particularly bad in that we had a bunch of repeated ADL events where it's like we tried to clear out bad debt, more bad debt came in. We tried to clear up bad debt, more bad debt came in. Right. Like the flow of bad debt was faster than like the recovery and that I think the assumption hidden in all these things historically was like, hey, if we reach this bad debt state, it's like a one time, one off thing. It's never going to cascade. And I think what we saw was it cascaded. And so basically I tried to formulate, what's the math behind this? And from the math, can you kind of say, like, hey, are there more strategies than what people have done? And Arthur Hayes actually put out a really good blog post on November 20, like around Thanksgiving that talks about the history of ADL, of why, why it was invented. And it was sort of invented as like a hack in some weird way.

B (52:40)

Your minute's coming up, your minute's coming up. You got a wrap.

A (52:42)

And, and so, yeah, I just focus on, like, how do you improve it? And empirically, it seems like you could have saved hundreds of millions of dollars on October 10th.

B (52:51)

Hundreds of millions of dollars. So if you are trading on your neighborhood perp Dex or your neighborhood central change, tell them, check out this paper if you're interested. Tarun's got it. Just look up his Twitter, look up his blog and get yourself. Learn yourself up, learn yourself up about some ADL's so that somebody can build.

C (53:09)

Tarune decks that doesn't.

B (53:12)

There you go.

A (53:13)

I think all the existing ones will. I think the existing ones will just improve over time. Right? Like. Like, I think it's. I think it's actually a good thing because you. I think for years we never knew that, that this stuff was not working because the data wasn't public. Right. Binance. When they have an ADL event, you could see yourself getting ADL'd. You couldn't see the whole order book, so you don't really know how it's cascading. The Hyperlo was the first time you could see everything. And so I think that opens the door to new innovation. Right? And that's the stuff I think in crypto that motivates me is you can find these kind of crazy things.

B (53:44)

Very good. Well, appreciate you doing the work, Tarun. We got a wrap. Thank you everybody and we will see you all next week.

B (53:54)

Sam.