EP 24: QED’s Frank Rotman Talks Crypto and Capital One Origins, Plus Redpoint’s Own TikTok Guy Revealed

In the 24th episode of Cartoon Avatars, QED Investors Co-Founder and CIO Frank Rotman joins the crypto debate with Zach, and discusses Capital One’s unique origins and structure with Logan. Plus the “Redpoint TikTok Guy” Rashad Assir is finally revealed in his first appearance on the pod. (0:00) Intro (0:44) Introducing Rashad Assir (3:25) Introducing Frank Rotman (6:36) History of Capital One (14:40) Building the infrastructure (16:25) Starting QED (18:29) Frank’s Web3 journey (24:15) Where’s the substance? (28:37) What in crypto makes the most sense? (30:48) Lending vs Leverage (36:55) Crypto in different countries (45:14) Products are the hard part (50:24) Noisy data (52:40) To what extent is this interesting? (1:00:16) The oracle problem (1:07:47) Protections of a bank (1:12:45) Reversibility (1:17:52) Embedded features (1:23:13) Mercenaries vs missionaries (1:27:13) Web3 living up to its name (1:36:06) Immutable public database (1:39:09) Outro Links: https://www.tiktok.com/@redpoint?lang=en https://www.tiktok.com/@corporayshid?lang=en Mixed and edited: Justin Hrabovsky Produced: Andrew Nadeau and Rashad Assir Executive Producer: Josh Machiz Music Griff Lawson 🎙 Listen to the show Apple Podcasts: https://podcasts.apple.com/us/podcast... Spotify: https://open.spotify.com/show/5WqBqDb... Google Podcasts: https://podcasts.google.com/feed/aHR0... Follow on Socials 📸 Instagram - https://instagram.com/cartoonavatars 🐦 Twitter - https://twitter.com/cartoonavatars 🎬 Clips on TikTok - https://www.tiktok.com/@cartoonavatars About the Show A Saturday morning podcast hosted by Logan Bartlett (Partner and Managing Director at Redpoint Ventures) covering the tech news with his friends and other people with industry expertise. Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Logan Bartlett?

  Welcome to the 24th episode of Cartoon Avatars. I'm your host, Logan Bartlett, and I am joined today by one of our producers who has been behind the scenes for the last, the last couple of weeks, helping us with everything with regard to the show. We thought we'd do something a little different for this episode, and we're going to spend the next 90 minutes to two hours talking about Elon Musk and his, his twins that he's having with Siobhan Zillis, who's formerly a VC as well. I know a number of people in the ecosystem know her, and so thought we'd have our resident paternity expert Rashad come on to, to weigh in. So Rashad, thanks for joining us.

• 0:46Speaker 01

  Yeah, no, I'm glad. 23 episodes in, and this is finally what it took to get me on the, the pod. So happy to be here.

• 0:53Logan Bartlett?

  Yeah. How did I, how did I do deadpanning that? We are not gonna, I am not gonna touch that topic with a, with a ten foot.

• 1:00Speaker 01

  I was ready to do it.

• 1:01Logan Bartlett?

  Yeah, yeah, yeah. It is an interesting, I mean, I don't know, people seem outraged by it because it's like a direct report situation, or like, I don't know, but she, and she's on the board, so it's certainly a little unusual. I have to think people knew, but I don't know. This feels like something that is, it gets people very up in arms because it's Elon Musk, and, and it's just more kind of absurdity. I think this is his ninth kid, which is, you know, he's very prolific, but yeah.

• 1:31Speaker 01

  Yeah, this feels like better material to be covered using short form sketch comedy as opposed to.

• 1:37Logan Bartlett?

  Yeah, that's right. I think you're, people will know you from your TikToks. Maybe that's where we, we make the jokes. I'm not sure, I'm not sure serious commentary on this is our two, two unmarried guys without kids. I'm not sure we're the, we're the appropriate audience to be weighing in on this subject.

• 1:54Speaker 01

  Someone tweeted after Miami Tech Week, "The Red Point TikTok Guy." That's my official title here.

• 2:00Logan Bartlett?

  Is that right? Have you changed your LinkedIn? Uh, not yet, no. The Redpoint TikTok guy, that's your new branding. Well, what you're actually gonna hear on this episode was a conversation Zach and I had with, with Frank Rotman, who was kind of one of the quasi co-founders of Capital One. He was, he was certainly very early on there and then, and then he is now founded QED and, which is a fintech investment firm, one of the best investment firms in the world. He's been a regular on the Midas list. I think this year, maybe he was 45 or something on that. And he's now, despite being a very hardcore kind of fintech investor and very skeptical

• 2:44Logan Bartlett?

  of DeFi space, he has gotten down the crypto rabbit hole, if you will. And so we talked through what he believes in about the ecosystem, where he thinks there's bullshit, his history with Capital One, what works, what doesn't. So definitely a interesting conversation from someone that I, I think is very well versed in, in all the stuff related to fintech and what can actually be solved here. And also is, I think cautiously optimistic. He says he's agnostic or indifferent to it, but he also has a, an NFT profile picture. So I'm not sure that's actually the case, but trust, trust people will enjoy that conversation. Frank, thanks for, uh, thanks for doing this.

• 3:28Logan Bartlett?

  So I know we've been trying to schedule this for a while, but given your background, I thought you would be someone that could help, uh, help level set us or give some perspective on what's going on in the crypto universe, both because you spent a lot of time investing in, I think they call it tradfi, uh, traditional finance world, as well as you came from the traditional finance world once upon a time, helped build one of the biggest financial institutions we have today. So first, thanks for, uh, thanks for coming on and, uh, yeah, entertaining us with, with some questions here. Happy to be here. So maybe for people that don't know, maybe can you just give a little bit of your background and what led you to investing and having a NFT as your Twitter profile? Sure.

• 4:11Speaker 02

  So my history in finance is almost three decades old at this point. So I've been working in the business world for about 29 years. All of it in the world of finance in one form or fashion. My alma mater was Capital One. So I was one of the original guard before it was even Capital One. Helped build it from the ground up. Played a variety of roles there that ranged from building businesses from scratch that the company needed to fixing some of the big businesses when they were broken. Also spent a lot of time with the foundation of what it took to be a bank and what it took to be a good lender. So I was actually the first chief credit officer of the company before it even had a title.

• 4:54Speaker 02

  So a lot of the core infrastructure of what it took to lend, what it took to navigate these weird things called recessions that happen about every eight to 10 years.

• 5:06Speaker 02

  You know, putting the infrastructure in place for, you know, credit risk and underwriting, putting the infrastructure in place for collections, recoveries, fraud, a lot of the risk areas. So my background was on building P and Ls, building businesses, the risk infrastructure and a lot of just core banking. So did that for a number of years. Eventually left Capital One, built a student lending company for a number of years and then joined back up with the co-founder of Capital One, Nigel Morris, to form QED Investors. And for the past 14 years, we've really been investors,

• 5:46Speaker 02

  I would say second and operators first. So we're really in operators masquerading as investors, if you want to think about it that way. We have operating backgrounds. We know how to help and build companies. We've invested in about 180 companies in the past 14 years. We now have, gosh, somewhere between 25 and 30 companies that are worth over a billion dollars where we were the first or second check into the company. And really, we just roll up our sleeves. We figure out how to help a company crack the code on their business model. And we've now done it, like I said, 180 or so times. We have about 20 investment professionals globally. And we're just trying to figure out how to take our operating backgrounds and build real businesses.

• 6:27Logan Bartlett?

  That's awesome. That was super helpful. Zach's actually a former operator as well. So yeah, he knows the world. He knows that whole ecosystem.

• 6:34Speaker 03

  Or so I've been told.

• 6:36Logan Bartlett?

  Yeah, so he's been told. So just out of my own curiosity, I think it's an interesting story. Can you just give like the, I don't know, the shortish version of Capital One's history? I think people know it from the commercials and maybe people are customers of it. But Nigel was one of the founders, your partner now at QED. Can you just give the like quick primer on how it started, what industry it was in, or what it was doing originally? And then like the machinations over the course of whatever the last 30 years? I know it's, I know we're synthesizing a lot into a very short version, but I think it's helpful as we sort of think through DeFi and crypto applications and also just my own curiosity.

• 7:17Speaker 02

  Yeah, I mean, the Reader's Digest version is that Capital One was really one of the first fintechs, right? So it was a fintech of the 1990s. So that that does, you know, date it quite a bit. But it was a spin out, you know, from a traditional regional bank called Signet Bank. So Signet Bank was the 50th largest bank in the country at the time, serving mostly Virginia, Maryland, and DC. And it happened to have a decent sized credit card portfolio at the time. There only were about somewhere between 10 and 20 banks in the country that had sizable credit card portfolios. And Rich and Nigel, who eventually became the co-founders of Capital One, were consultants at the time, working for a consultancy

• 7:59Speaker 02

  called SPA. And they were going around to different banks with this strategy, this credit card strategy that they called the information-based strategy, and said, you can use information to run your business instead of just guessing. Instead of just figuring out what you want to do and then, you know, hopefully you would be right in the marketplace, or just copying everyone else and having an industry that looked the same. You could run lots of little experiments because of data availability. You could actually do test and control experiments, the same way that you could with any type of scientific experiment. And because you had a channel called Direct Mail, that you could put offers in people's mailboxes, where they weren't comparing offers to other people, it was just showing up in their mailbox.

• 8:43Speaker 02

  You had kind of the formula for lots of experimentation, where when you found a winning strategy, you could then roll it out with a lot more certainty, and there wasn't a lot of guesswork. So, the information-based strategy was basically taking the scientific methodology and applying it to banking. And at the time, they were talking to all of the major banks in the country about this. And all of the banks, except for Signet Bank, either said they weren't interested in it, or they said they were already doing it.

• 9:12Speaker 03

  Was the thesis here around like, underwriting on the credit risk itself? Or where was the big data advantage that you thought it would come from?

• 9:21Speaker 02

  It was a little bit everywhere, right? So, the ability to treat the credit card industry, which was a law of large numbers, right? I mean, if you succeeded, it was millions and millions, tens of millions of people that would be adopting your product. Everything from marketing, which would be the message going out to the consumer, everything to the product, you know, what are the terms of the product? And there are a lot of different terms in a credit card product, to how you manage them on the backend. You know, when do you give credit limit increases? When do you give credit limit decreases? You know, how do you collect against individuals? You had such large N, right? If you want to think about it in terms of the scientific method, that you could experiment with small groups for every single little piece of the credit card process.

• 10:05Speaker 02

  You know, every part of the product, every part of marketing. And once you had an answer that was a good answer, you then could roll it out with larger scale, and then you had a lot more certainty around your results. So it was the first time that data warehouses were needed. You know, a lot of structured testing was needed in banking. Because up until that point, you know, little committees would get together and say, this is the price. This is what we're going to be offering our customer. We're just going to roll it out in all of our bank branches and it's just going to be the product that we offer. And the concept of getting the right product into the hands of the right customer at the right time through the right channel was really what Capital One was all about.

• 10:48Speaker 02

  And Signet Bank, when they heard the pitch from Richard Nigel, they said, we're very interested in this, but we don't want you to consult. We want you to actually build and run it.

• 10:56Logan Bartlett?

  So were they going around and pitching this as a thesis to people with existing credit card businesses saying like, hey, here's how you should do it? And the the the bank actually took them up on it to run it?

• 11:08Speaker 02

  That's right. So they were turned down by Citibank and JP Morgan and Chemical. And like all of the banks at the time just turned them down, saying either they weren't interested or they thought they were already doing it.

• 11:20Speaker 02

  And they weren't, right? So like in order to do this, there was a whole bunch of new technology that needed to be put in place. So, you know, it really was the first set of data warehouses that needed to be created, you know, within banking in order to store all of this data. First organized tests, you know, we were on the cutting edge of using Oracle and databases in different ways than banking was used to.

• 11:44Speaker 02

  But once the machinery was built, you know, you were able to conduct thousands and thousands, if not tens of thousands of experiments every year. Because really what a credit card is, is a number, it's a bunch of numbers sitting in a in a computer about all the different terms and all the things that you do and when you do them. And then there's a marketing pitch and there's a plastic and there's a bunch of other things associated with the card. But you can configure it almost uniquely to the individual level if you know what you're doing. So, you know, arguably, if you think about that, it's a lot of technology, a lot of data science, which back then we used statisticians. Today they're called data scientists. Um, you know, it was a lot of structured thinking about what is the hypothesis?

• 12:29Speaker 02

  How do we test it? How do we get a result? If we get the result, what do we do? And we built the whole company around that.

• 12:35Logan Bartlett?

  And so to get the actual spin out, so they said, okay, uh, to doing it and said, we want you to run it. Uh, don't consult, go in and do it. And, and so then what, what happened? How big was the company that actually ended up spinning out? Um, and when did you get involved in all of that?

• 12:52Speaker 02

  So I was hired when it was still Signet Bank. I was one of the first analysts hired by Rich and Nigel directly out of college. I came from the, the University of Virginia, uh, with degrees in applied math and science, uh, which was undergraduate. And then systems engineering, uh, graduate degree, which was mostly artificial intelligence and a lot of like deep optimization work. So I didn't know anything about banking. I didn't know anything about finance, but was brought over by Rich and Nigel because of this, this dream that they wanted to build around, you know, building a, a scientific, you know, finance organization.

• 13:24Logan Bartlett?

  And were they consulting at that point with the path that they were going to take over? Or how did that work? Cause it sounds like you, you actually went in as a full-time employee before they did.

• 13:33Speaker 02

  Uh, no, they were, they were brought in full-time. So they pitched Signet Bank. Signet Bank said, leave SPA, come work for us. They came to build the credit card division within Signet Bank. And then I was hired into Signet Bank to be one of the early people there.

• 13:47Logan Bartlett?

  Got it. With a path towards ultimately spinning out, or was that already, uh, in, in, uh, was that TV to be determined?

• 13:55Speaker 02

  Yeah, it was TBD, but you know, the beauty is once this thing started cranking and it was working, it was growing so fast, it was consuming all of the resources of the company. So if you're a bank and you've got many divisions and one of them is growing faster than the others, it either consumes all of the capital and everything else is starved, or you end up starving the thing that's growing fast because you don't have enough capital. So the easiest thing to do was to spin it off. You know, most people forget that an IPO is actually a fundraising event. But it was the fundraising event that helped fuel Capital One. It spun off at somewhere around a billion dollar valuation. And, you know, over a handful of years, it ended up becoming a 30, 40 billion dollar, you know, enterprise with tens of thousands of people globally.

• 14:40Logan Bartlett?

  That's super interesting. And eventually we'll get to the crypto component of all this. But was the core insight just building the infrastructure and the enablement for experimentation across a bunch of different manners and just the ability to try different things that banks weren't going to be nimble enough to actually do and kind of putting all that infrastructure in place to test all this stuff and see what actually works?

• 15:03Speaker 02

  Yeah, so a big piece of it was the scientific methodology. But what went along with that is the fact that you needed to hire people who knew how to structure tests, who knew how to read the results. And ultimately, we always thought that we reported to the data, not the other way around. Like, so you almost have an inverted pyramid where instead of a command and control structure, where the person at top actually makes decisions. Like, you can think of it as an inverted pyramid where, you know, ultimately, there's someone who's structuring tests and when the data actually comes in, like, the answer is there, right? And then it's about organizing everyone around that answer. So, you know, the senior most people are really talent managers. They're hiring the right people. They're pointing them against the right opportunity.

• 15:47Speaker 02

  But the answers are coming from the data itself.

• 15:49Logan Bartlett?

  So to say that back to you, it was both the insight and the ability to execute on that insight and then to hire people and run it like a technology startup company. It was all those things that kind of led to the success that Capital One, I just looked it up, 40 billion dollar plus company today.

• 16:12Speaker 02

  That's right. You can't collapse it to just.

• 16:14Logan Bartlett?

  Yeah, sure, sure. Yeah, I'm sure it's a, I'm sure there's a very law, I'm sure there's books written about it and all that.

• 16:22Speaker 02

  There's a HBS case on Capital One, among other, other things.

• 16:25Logan Bartlett?

  Yeah, I'm sure. Okay. And so then you started QED, you said 13 years ago, is that right?

• 16:32Speaker 02

  It was right at the beginning of 2008. We were envisioning it in 2007, but at the beginning of 2008, which is really interesting because building a fintech-focused VC fund before there was even a thing called fintech, so there wasn't even a name, and right at the beginning of the financial crisis, really interesting decision to start a fintech-focused VC fund at the time. But as Nigel and I joke, it was the only thing we knew how to do. Right? So we were going to do it, whether it was going to be lucrative or not, whether it was going to be big or not. We were just going to take our operating backgrounds and try to help out really young companies that were trying to innovate in the banking space because we thought we would be helpful.

• 17:18Logan Bartlett?

  That's great. And you guys have obviously been super successful. I know both of you have been on the Midas list a bunch of times and have had a number of iconic companies in the portfolio. I was just looking at the list, but I guess we share New Bank, you have Klarna, you have just a host of, I mean, amazing companies in the portfolio in and around the fintech space. And so have you guys stayed? Is that still the core focus area? Is fintech broadly defined and focusing around that?

• 17:53Speaker 02

  Yeah, so fintech broadly defined is probably the right way of phrasing it because there are so many fintech adjacencies and there are so many businesses that, once they get to a certain level of scale, they're now layering fintech solutions on top of them. So the intersection of fintech and fill in the blank is a big piece of what we're doing. And then a lot of core fintech infrastructure and a lot of core fintech originations. But if it has anything to do in and around the pillars of banking, or insurance, or prop tech, which a lot of that has very, very close analogues with fintech, we're interested in.

• 18:30Logan Bartlett?

  And so take me, I remember, I don't know when it was, you can date me on the time, but you've been pretty trad fi, traditional finance oriented and a lot of the infrastructure and stuff around that. And then one day I saw on Twitter that you had, you had switched your avatar to an NFT and it seemed like you started curiously kind of pursuing things around the, I don't know if it's crypto or web three or whatever you want to call it, NFT ecosystem. So maybe take us through your journey of, it was later than, than most people that have gone deep into the space. So maybe take us through your skepticism

• 19:14Logan Bartlett?

  around all this stuff and then what ultimately led you to, to pursuing it.

• 19:19Speaker 02

  Yeah. So I made the decision eight months ago. So almost to the day, eight months ago to take the red pill and, you know, at least understand and dive into web three, DeFi, crypto and everything surrounding it.

• 19:35Logan Bartlett?

  How does that time, how does that coincide with the market top? By the way, is that pretty close?

• 19:38Speaker 02

  It pretty much was the market.

• 19:39Logan Bartlett?

  Yeah, okay.

• 19:40Speaker 02

  So I've been writing this down the entire time.

• 19:43Logan Bartlett?

  Causation or correlation, who's to say, but?

• 19:45Speaker 02

  It is interesting because I think if you're going into it as a student, it is easier to learn lessons on the way down than it is on the way up. You know, the same way that it's easier to learn from mistakes that you make in investing than it is when things just magically succeed. My introduction was around assuming that the bank and the government is ill-prepared to make use of all this tax income that's coming in and they're putting a lot of governors on things that should be in the hands of individuals. And I disagreed with that. I found out later that there were other use cases from people in other countries, right? Where it could be about preserving the value of earned capital because their governments were mismanaging a lot of the corporate treasuries and inflation

• 20:29Speaker 02

  was out of control and they wanted somewhere where they could plant money that was much more stable. And, you know, they didn't want the banks to have control of their money because the money might not be there when they need it. But my introduction was a very different introduction. So you can fast forward many, many, many years because I got busy with QED and all of the interesting innovations that were taking place in the fintech ecosystem. And every single time that crypto would come up, I would get confused because I would talk to people. And I even remember we were looking at Coinbase in, I think it was the seed round of Coinbase. And one of my partners at the time said, let me set you up with an account and I'll, I'll send you $2 worth of Bitcoin.

• 21:14Speaker 02

  So he sent me $2 worth of Bitcoin. And I said, well, now what do I do with it? And he said, I have no idea. I said, can I spend it? He goes, I don't think so. I said, well, $2 of anything doesn't really mean anything. Can I get it back out? He goes, well, maybe. Like, it was a really interesting thing because we were used to kicking the tires on products where you could do diligence and figure out what the problem statement was and the solution statement. And I just couldn't figure it out. So every time I just kicked the tires and said, we have too many things going on. Let's concentrate on the things that we do understand.

• 21:51Speaker 02

  Well, QED and QED's brand is about being the best advisors to our companies bar none.

• 21:59Speaker 02

  And little by little, a lot of our companies, or I should say gradually, our companies started asking questions about this thing called crypto. This thing called Web 3, this thing called DeFi. And we were ill-equipped as an organization to basically answer their questions. You know, I had my own skepticism, but at the same time, you saw these waves of growth and you saw waves of adoption and whole businesses that were being built around this. You saw a lot of talent flowing into the ecosystem. A lot of really, really intelligent people started having conversations with me and other people on the team that were more rational and much less what I would call, we could talk about the fundamentals, not just about the religion.

• 22:45Speaker 02

  Right? So it wasn't about just starting with first principles that we disagreed with each other on. You actually could talk about utility and use cases. So I just decided that the only way to live up to the brand promise of Q E D was to dive in. And the only way I know how to is to go all the way in. You know, people who know me know that, you know, I can only give advice if I am an absolute expert on something. And it's been maddening. You know, I agreed with one of our companies to actually learn in public as a way of holding myself accountable, but also distilling everything that was being

• 23:26Speaker 02

  learned along the way, putting it out into the world to have other people challenge it, a way of attracting other people to the conversation, and really putting an agnostic view out there about saying, here, here's the good, here's the bad, here are the things that are still unknown. You know, here are some things that I don't have the answers to. Does anybody want to help me? And it's been one heck of a ride, I'll tell you that, you know, over the past eight months, because now I feel like I have my sea legs. It actually is an area where as much as I am a good student, I am learning every day, but I feel like I'm farther behind every day than I am ahead. That's how fast things are moving.

• 24:09Speaker 02

  But that takes us to today, where I feel like I have my sea legs, and I feel like I have a pretty good perspective on what's going on.

• 24:15Logan Bartlett?

  And so maybe, let's go from there. Like, what do you believe? I think there's kind of a couple of different buckets that we've sort of touched on, and Bitcoin's almost its own thing, and then, you know, maybe Ethereum and a handful of the other things are its own thing. And then there's DeFi, which is kind of its own thing. Then there's NFTs, which are its own thing. Like, what do you believe? What is bullshit? And you just fundamentally don't believe? What is, where is there substance that you're most intrigued to continue to pull on the threads of things?

• 24:49Speaker 02

  I was very confused when I first dove in, because it's hard to know where to start. Right, I mean, the space is very confusing. It's intimidating. Nothing actually works. Everything kind of sort of works, but nothing actually works. You almost have to, to, I would say, debug things yourself along the way, which means if you don't have a good friend network, you know, people who are willing to actually help you that are farther along the journey than you are, then you're either lost or you're going to make a lot of really big mistakes, inexpensive mistakes along the way. So what I would say is like, the entire ecosystem isn't actually ready for the typical new

• 25:32Speaker 02

  consumer, you know, to use anything in the space. It's really about building up the infrastructure at the atomic unit level. It's about, you know, putting these things together once you actually build the foundation into usable units. But we're still at that stage where we're building the infrastructure and putting these things back together in a way that hopefully will create, you know, some solution to some problem with an entirely new infrastructure and an entirely new incentive system. But, you know, the first steps that I took were very intimidating because I didn't realize that things weren't built out to be ready for a typical consumer to really engage with it.

• 26:15Speaker 02

  But fortunately, as soon as I raised my hand, you know, there were a lot of people who are more than willing to actually help me on the journey. I found so many people in the space who were incredibly friendly. They were helpful. They were there when you had questions. They would step you through kind of process and how you get from point A to point B. But what also struck me is most of them, even the so-called experts, they knew the buttons to push, but they didn't know why. They didn't understand what was actually happening at the atomic level. They didn't understand why certain protocols were structured the way they were. They weren't questioning things at kind of the very deep first principles level that I'm used to thinking about things.

• 27:00Speaker 02

  And part of my confusion that I think is being cleared up as we speak is that I would look at things and say, none of this actually makes sense. So I felt like I was behind. And the reason why I felt like I was behind is because the things actually didn't make sense.

• 27:18Speaker 02

  Right, so you're seeing a lot of things unwind in the industry right now, especially in the DeFi world, where there are companies and protocols that were trying to defy the physics of banking. So when I would challenge the teams, or I would talk to people about protocols, or I would ask like the deeper questions, because I actually understand banking at the atomic level, I would get answers that made no sense, because they were trying to violate the physics of how banking works. And now you're seeing kind of the effect of either ignoring things like Alco, right, assets and liabilities and making sure they match, or duration mismatches, or, you know, run on the bank issues that you try to take care of when you're actually,

• 28:02Speaker 02

  you know, building a bank and putting the right protocols in place.

• 28:07Speaker 02

  You know, you're starting to see some of the challenges with under collateralized or uncollateralized lending, you know, versus over collateralized lending, which by the way, are not the same thing. They're not anywhere close to the same form of lending. So now that things are unwinding, I think it's actually a pretty interesting time, because so many of the questions and challenges that I had for teams and for individuals, you're now seeing the effect of having, you know, models that weren't built on a solid foundation.

• 28:37Speaker 03

  That's what I found. You know, it was, I spent a whole bunch of time asking the,

• 28:44Speaker 03

  well, do you understand how it works today? And you'd get like surface level answers. Clearly, people didn't understand the mechanics or the players or, you know, even the math, if you will, behind many of these things. It was just like so crazy and out of whack and definitely made me realize what we had was a lot of kind of technical people, I think, discovering the rules of finance and to, I like the way you put it, the physics, if you will, of banking for the first time. When you, when you did dig in, which areas started to make sense? If any, actually, like what areas made the most sense to you?

• 29:24Speaker 02

  So not a surprise, the first places I started digging in were DeFi. Right? Just given my background, you would expect that anything that was like technically banking oriented would be interesting. And the funny thing is, eight months later, I find DeFi the least interesting part of what I've learned.

• 29:44Speaker 02

  In fact, a lot of DeFi is trying to solve already solved problems, just with a different infrastructure and different incentive system. And I get it, like, you know, the movement of money through a ledger that is permissionless, like, that's a pretty interesting thing. It has to be assembled the right way.

• 30:03Speaker 02

  And I think if it's assembled the right way, things like stable coins really could work with international settlements and it could work with good funds, which by the way is a really important topic in banking that I think a lot of people don't understand, like the concept of good funds.

• 30:19Speaker 02

  You know, lending is something that I dug into pretty extensively. And it was pretty clear that everyone that was referring to lending in the DeFi world was really referring to over collateralized lending, which is really leverage. It's not lending. It's leveraged. It's not, and in fact, most of the use of proceeds was to get leverage on doubling down or tripling down on things in a crypto ecosystem. It wasn't about raising capital for any use of proceeds in the real world.

• 30:48Logan Bartlett?

  Frank, can you maybe just explain that distinction just at an elementary level for people that maybe aren't familiarized with it?

• 30:57Speaker 02

  So traditional lending is about giving someone capital today in return for a stream of payments in the future with some payment frequency associated with it, where there's a distribution of outcomes in terms of that, that stream of income that you expect to get back in the future. Right? So I give you money today to buy a car. And then over the next 60 months, every month, you agree that you're going to pay me a fixed amount of money back that adds up to whatever the principal was, plus the interest that I charged, you know, for that loan. Like, that would be an example of a loan.

• 31:38Speaker 02

  When you're dealing with over collateralized lending, you're really pledging collateral that you know is liquid. You have the ability to liquidate at any time because of the way the markets are structured. And usually the use of proceeds is to say, in the crypto space, was to say, look, you pledge Bitcoin or you pledge Ethereum at 20 cents on the dollar for, or 20 cents on the ETH, or however you want to think about it.

• 32:07Speaker 02

  Point two ETH on ETH, you know, for access to more capital, that you could then go buy more ETH or buy more Bitcoin and lever yourself up because you have a desire to take one side of the directionality of the movement of that particular token. So you would see this a lot where people are saying, I'm staking my tokens so that I could actually go buy more tokens, which is really about getting leverage in the ecosystem.

• 32:39Speaker 02

  Those are not the same thing. You know, as the token prices started falling, if it really were a liquid market, you'd have the ability to liquidate or put a capital call in place, which is not the same as understanding ability to pay, willingness to pay, stability of income and what the distribution of payment was likely to look like for lending you proceeds for a purpose. So they're not the same business. Lending is really about statistical modeling, analytics. Again, understanding the core tenants of ability to pay, willingness to pay, stability of income collateral. Very different than just having an over collateralized asset

• 33:21Speaker 02

  that you now have control over and giving money to someone that usually wants to double down on that same asset.

• 33:28Speaker 03

  Yeah, in the same way you could borrow against your S and P 500 stock portfolio or you could borrow against, you know, some asset class where the lender kind of actually holds it. You know, they actually have possession of the collateral typically before they're willing to lend to you so that if the... Collateral as a percentage of what they've lent you kind of gets out of whack. They can just grab it and reclaim it, right? There's no runaway risk, if you will.

• 33:58Speaker 02

  If you've taken possession of the collateral and you've lent less than the value of that collateral against that collateral, do you actually care who the person is? Right, like that, that, that's a very important distinction because I would talk to a lot of companies that said, we'll start with fully secured or over secured, over collateralized lending, and then we'll move into unsecured lending. I say, these aren't the same thing. Like, in the world of, of crypto, in the world of Web 3, you only know, you know, a wallet. You don't know who the person is behind the wallet. And if you're underwriting them for the probability of them paying you back, you kind of sort of need to know who they are.

• 34:42Speaker 02

  And in case of default, you kind of sort of need to know who they are so that you could have collection activities and figure out, you know, how to claim money in some form or fashion if they end up defaulting, right? Because there's not enough collateral there to make good on the loan. And a lot of the companies that I talked to in the DeFi space said, we'll figure that out when we get there. But that's not a good answer, but it was an answer I would get from a lot of DeFi companies. When you would start to get down to the first principles, they would say, we'll figure it out when we get there. And they were trying to reinvent banking, but through the lens of a Web 3, I would say, zeitgeist and ethos that actually might have had no intersection with a solution that worked.

• 35:26Speaker 03

  I would actually argue, in, in some cases, it ends up with a system that is materially worse. And in terms of, it's not only like the lack of understanding of how it works, but the lack of diligence and KYC and like knowing who the actual person is that you're like, it just didn't understand it. They just didn't understand like how the current process works. The international settlement one is always interesting because at the end of the day, you know, why would banks use a public ledger for settlements? Like, the idea of a common ledger between banks without trust, maybe, although you'd argue that that lack of trust is inherently a symptom of other issues. And so like, where does this really apply?

• 36:10Speaker 03

  But now you're getting into like the underlying, deep, deep guts of settlements and so.

• 36:17Speaker 03

  Like, how big of this of a market are we really talking about here? And isn't this honestly just at the end of the day, like a Fed sponsored protocol? But I, I, I always got lost in like, what problem are we solving here and for whom?

• 36:31Speaker 02

  Yeah. Yeah, there, there are a lot of interesting use cases, especially as a, uh, the, the ability to, in some ways, bet against your own country's monetary policy by storing your money uh, in, in a vehicle and a currency that is not subject to the movements of the inflation or the monetary policy of your own country. So for a lot of, a lot of people, they earn their money in local currency. And if it's in a country, let's say a Latin American country or an African country where inflation is out of control, they're losing spending power every day.

• 37:09Speaker 03

  Well, you can do that today, right? Like you can buy assets, equities, credit.

• 37:15Speaker 02

  Yeah, very difficult in some countries.

• 37:17Speaker 03

  Is it though? Like, I always hear that and I'm not disagreeing necessarily, but then I kind of ask, well, which countries is it difficult in? And then I get a bunch of vague answers of like, well, Latin America. I said, well, that's not a country, like which country in Latin America is it hard? And then you kind of dig into the details and you realize like, it's, you have to open a bank account and you have to do like normal credit, like KYC checks. And you've got to ask for the, you know, non-local currency denominated account. But that also gets you access to not just crypto, right? That gets you access to international markets for, for anything and everything.

• 37:55Speaker 02

  But I think these are the questions you need to ask. You know, Africa would be another example where a lot of people in Africa travel between countries pretty frequently. And, uh, the currency pairs between individual African countries aren't treated with enough depth.

• 38:13Speaker 02

  That almost every single African currency actually goes through USD to be converted to the other African currency, which is a really inefficient way of moving money or transferring money if you're about to travel. So there are other types of, you know, payment solutions and the ability to convert into neutral currency that is much more tradable and much more liquid that makes sense. But you need to get to these use cases and understand what's happening, you know, in order to understand if there is a real problem to solve. And by the way, I do think unsecured and under collateralized lending is possible in the DeFi world. I just think some fundamental questions need to be answered first.

• 38:55Speaker 02

  I think almost every aspect of banking could be built on DeFi rails. You have to ask yourself why, but I think you could. Like I wrote a whole thread early on about what it would take to tear down Visa, Mastercard, and actually create it in a DeFi context. Because it's really interesting. Most of the people in the DeFi world thought that, you know, taking a payment was about swiping a credit card and moving money from one ledger to another ledger.

• 39:24Logan Bartlett?

  Yeah.

• 39:24Speaker 02

  But Visa and Mastercard are about so much more than that. Right? The underwriting of the merchants, the ability to reverse transactions. Right? I mean, there's so much that goes on in the Visa, Mastercard ecosystem that if you tear everything down to the atomic units, you understand what needs to be rebuilt in order to rebuild it in a DeFi context. So where this eventually led me was I spent a lot of time in DeFi and I think I understand it modestly well. I'm still learning a lot every day and it's changing very quickly. But I found the ethos and zeitgeist of what was happening in Web 3 more interesting actually than a lot of what was happening in DeFi.

• 40:06Speaker 02

  I found myself attracted to the NFT space, started really thinking about DAOs and a lot of the structures around decision-making. Spent a lot of time thinking about tokenomics and incentive systems and replacing, I would say almost inverting the order of building a business, where building it community first and product second, you know, versus the other way around, which is what's done in the Web 2 world.

• 40:35Speaker 02

  And I've actually been sucked in, you know, and trying to solve, you know, some of the unsolved problems, especially in the NFT space, where I think it is a magical new way to start a business if done right. And I think no one has really cracked the code on this. So it's a really interesting time and space. Same thing with tokenomics. I think if you get it right, it is an entirely new way to build your business about rewarding your customers, you know, through liquid currencies that reward certain behaviors. It's just a very, very new thing, new infrastructure.

• 41:18Speaker 02

  And I think it plays to the zeitgeist of this next generation where they don't want all of the profits to accrue to people at the top. They want to participate in building a business, participate in the proceeds of the business if the business does well. They want to be able to shout from the rooftops and be proud of the thing that they're associating with, like it's a They want to be, they want to be like equity holders in that company, essentially. Yeah, I mean, it's interesting. We've been incredibly disconnected over the past couple of years. Like, no one can deny that. Between what happened with the pandemic, but also politics are just nasty.

• 41:59Speaker 02

  You know, people don't really want to have the dialogue around really difficult topics. But the past couple of years have been really, really bad. And people have felt more disconnected from just about everything in life than they ever have before. And what I found is that in the web three space, if you ever want to take a pessimist and turn them into an optimist, all you should do is have them find an NFT project that they're interested in. Have them go mint an NFT at 0.05 ETH or, you know, somewhere around a hundred bucks today. And have them join a Discord group and start listening in on Twitter spaces that that NFT project holds. And they will be an optimist almost overnight.

• 42:43Speaker 02

  They will throw themselves into the project. They'll have a cause. They'll find themselves with hundreds of new friends. They'll have a common topic to talk about that isn't negative. They'll feel like they can participate in actually building something. They feel like they can help kink the curve on the outcome. And they feel like there's actually a monetary return that could come if this particular project ends up doing well and taking off. So it's a really interesting innovation to say you can spin up a community around purpose, have a fundraising event called an NFT mint, create a treasury around that team that now has to actually go build the business.

• 43:25Speaker 03

  But what is the, what is the business they are building? Like, isn't this just the same thing as like the chat rooms around the penny stocks where you could like chat with a bunch of other people who like this company and you all had the same underlying asset you were trying to promote? It's effectively what's happening here. And that if the value of that asset went up, penny stock or NFT, then everybody in that community wins, which makes sense like economically, you all win together. But at the end of the day, isn't it just like speculative art projects? Like, what's the difference?

• 44:04Logan Bartlett?

  There's going to be some chart someone comes out with eventually that has like organized religion down and NFT project up and a number of people like on NFTs.

• 44:13Speaker 02

  So there's the, the front end of a project and the back end of a project. And I think the front end of the project, we've seen 10,000 experiments in this space, if you want to think about it that way, about 10,000 projects listed on OpenSea. Of those 10,000 projects, you have to ask yourself, how many have teams on the other side that actually know how to build businesses and are working backwards from, you know, some vision that's going to turn into something of durable value? That's questionable, right? The answer might be 100. The answer might be 50. The answer might be none. The answer is not 10,000. But what I find so interesting is the NFT process, the technology behind it, the ability

• 44:53Speaker 02

  to spin up communities, the communication vehicles that are now available, that were not available in the past. Um, are inverting the order of operations of building a business if done correctly. You, you don't have very many business teams on the other side that are very good and capable of building something of durable value.

• 45:14Speaker 03

  The only thing you described, and I want to make sure I understand it, but the only thing that you described that is different this time is essentially the product is like a JPEG I can put on a blockchain, but besides that, the idea of like organizing a team around a central topic and communication around that topic and sharing of information and aligning incentives and all of these same things are essentially the equivalent of like anyone starting any business at any time post internet, right? You always had access to chat. You always had access to phone calls and you know, Discord's cool and new.

• 45:59Speaker 03

  I think Discord is kind of an amazing toolset, right? But the crypto piece of it is basically a like mental shortcut on the product. Cause kind of what we're saying is, hey, we're going to make all of this easy. And then we're actually going to make the product, the thing that ultimately is supposed to have value and eventually make money in a normal world, we're going to make that part easy too.

• 46:21Speaker 03

  And in reality, like products are not, that's the hard part.

• 46:24Speaker 02

  Yeah. So again, this is what's interesting is that it has not been solved because you haven't seen very many teams come together that have the business acumen to complete the story. So when you lower the barriers of entry to zero, you get a lot of people coming into a space and like it's a cash grab. Like there's a lot of money that's being pulled out of the ecosystem into the hands of creators that aren't actually creating anything. But what's interesting is if you did have a talented team, the ability to spin up these communities, have the communication vehicles around them, the ability to have a shared purpose, like, these are all about the ethos of what Web 3 is about. And I think you're

• 47:09Speaker 02

  going to see new businesses built in this particular way. You're going to see more participation of your own customers in the economics of your product. So, you know, an example, I think a lot of these businesses, if you get the tokenomics right, are trading lower acquisition costs because people are so excited about the product and they shout from the rooftops about it and they become your marketing channel. And you're trading it for lower economics on the back end because you're sharing in the economics with your own customers.

• 47:44Speaker 03

  Can I ask you about that? Because I keep hearing that. I keep hearing that. And I want to make sure I understand the mechanics of this, because when we say share in the economics, usually, how I translate that is a percentage of the equity or of the revenue, right? There's some like, future income stream, because ultimately, I want to get cash, right? Because I actually want to like, buy something. So, we say you get the share in the economics. But then I actually understand what's going on here. And really, what we're saying is you get early access to the coin, which is likely to run up in value as we add more users, right? As like, more people come on. And then eventually, you get to this like,

• 48:29Speaker 03

  funky economic system where you're actually incentivized to then get rid of the coin that you own and move to the next one, because your expected return on the coin itself is trending down. Because the coin itself has no future cash flows, right? It has no income stream. It's just a coin. So, and it's made up. And has no real...

• 48:50Speaker 02

  You're describing poor tokenomics.

• 48:54Speaker 03

  Yeah. So, what's a good, what's a good one? That's kind of what I'm asking, I guess. Like, what would, is it, is it a rev share?

• 49:00Speaker 02

  Imagine if you had spun up AWS in a Web 3 context.

• 49:08Speaker 02

  And the token represented AWS credits. And before AWS had actually been created, you could buy those credits at a very, you know, deep discount to what they would trade at once the system was actually created up and running and had utility.

• 49:24Speaker 03

  Yeah, like a prepay for a product like Tesla taking in cash for the cars that they're going to build.

• 49:30Speaker 02

  Right, but those AWS credits would be incredibly useful and incredibly valuable, and you would have bought them at an incredible discount to what they're worth once the system is actually up and running. So that would be an example of a tokenomic system that could work. Now, part of the problem is when you have a speculative world, when you have full liquidity, I think there's a duration mismatch issue with a lot of the tokenomics where a lot of the tokens are tradable before there's actually utility.

• 49:58Speaker 03

  Yes.

• 49:59Speaker 02

  Right, then you have all sorts of weird incentives that are coming into play where people are trading their AWS credits, to use that example, while AWS is still being built. And there's a lot of relation about what is this thing going to be worth, what is it going to cost, what are these credits going to be worth? And, you know, then you've created a very liquid market around something that has no utility, except in the future.

• 50:24Speaker 03

  Even more importantly, I would argue, Frank, is like, you have a bunch of users who actually aren't users. They're not real. Like, they're there, they exist, it's somebody's dollar, but they're not there because they're interested in your product and have any sort of, like, benefit to your product development lifecycle and feedback. They're there to speculate on the future utility of your product, which is part of why I feel like it's actually almost inversely related to the right way to do product design. Like, what you really want in an ideal world is actually more of like what a Tesla did, which is you have people put up real money to buy the product, like a Kickstarter or whatever the use case is, because then you can at least measure that they're there because

• 51:09Speaker 03

  they want the thing you're building. The tradability aspect of it, to me, actually introduces a factor that if I were building a company, trying to figure out what that product is, it's noise. I mean, to your whole point of looking at the data, like, that is noisy data. Who's actually there because they want to use the, you know, Web3 AWS? And who's there because they want to trade the actual token?

• 51:33Speaker 02

  Liquidity is both a feature and a flaw. And I think that it's created a duration mismatch issue at almost every single aspect of the Web 3 ecosystem that will need to be solved in order to build big durable businesses. Right? So, you know, when I talk about being fascinated by tokenomics, I don't think it's the solution to everything. And in fact, I think it's the reason for a lot of problems in the ecosystem. Right? So if you actually are able to get liquidity on something before there's actual utility, you're basically trading on the option value of what that will be worth at some point in the future. You're a speculator. You're a speculator, yeah.

• 52:15Speaker 02

  And there's a lot of speculation going on in the space, which, you know, as you can see by tokens going up and tokens going down, like, there are a lot of people making money and a lot of people getting wrecked, you know, because of the speculation involved. But I find the mechanics of tokenomics interesting. I find the mechanics of NFTs and the ability to invert the order of operations of building a business fascinating.

• 52:41Logan Bartlett?

  And by the way, when you, when you say interesting, like, and I guess this is one of the things that Zach and I have debated with people, like, to what extent do you find this interesting? Like, I think all of this stuff is interesting as well. Not interesting enough that I'm going to go invest in a lot of it. Not interesting enough that I want to spend a whole bunch of time figuring this out. But I think it's intellectually interesting to watch smart people figure out the financial system that we've built over the last 200 years and the last two, right? I think that's intellectually interesting and to watch how that's playing out. Like, to what end do you find this interesting? Have you done, have you guys, as a, as a fund, done crypto investments? Or is this a fun side project that maybe

• 53:25Logan Bartlett?

  one day is going to, who knows, right? But at least you're at the ground floor or groundish floor figuring this stuff out. Like, what altitude and expectations do you actually have to putting your limited partners' capital behind some of these things versus Frank having fun?

• 53:41Speaker 02

  Yeah, so we have a number of investments as a fund. So we're investors in Bitso and ShakePay and, you know, Tribal has a token and Milo is doing crypto mortgages and Blockspace is, is doing things. Meow is another one in our portfolio. So we have a number of, you know, Web 3 themed investments. We are learning more. Ultimately, if we want to be the best advisors to companies bar none, you have to answer the question, why would a talented founder take your capital? And you have to answer the question, why would LPs give you money to deploy in a particular space? And a lot of the journey over the past eight months for myself and other people on the QED team,

• 54:26Speaker 02

  I'm not the only one, you know, going through this journey. But it's to build the capability so that you could answer those questions about why would LPs give you money to deploy in the space? And why would talented founders take your money? So, you know, we found very specific companies where we could answer definitively why? And we were the right investor for them. Hopefully, the number and the vista of businesses that would qualify for that is now increasing. You know, especially now that there have been some, let's just say, companies that have tried to violate the physics of banking have been blown up. And now people realize you need someone who does understand the physics of banking.

• 55:10Speaker 02

  I think we become more valuable to the ecosystem going forward than we were in the past. But this is going to be an area of focus for us because, again, the idea of digital programmable permissionless money, like, that is almost the definition of fintech, right? It's a financial technology and the question is, is it being wielded right? Is it being assembled right? And, you know, up until now, it's been a lot of experiments. And most of those experiments are either, you know, fizzling out or they're still being built.

• 55:47Speaker 02

  You know, so it's still very early and I think we could play a seminal role.

• 55:51Logan Bartlett?

  And so did that end, like, if, I don't know the right way of thinking about this or how you want to talk about it, but like, the percentage of dollars that you feel like either out of your fund or are maybe commiserate of the venture ecosystem with the opportunity, right? So I think last year, something like $25, $30 billion went into Web3 crypto globally, right? And what we're talking about, it sounds like your perspective, and correct me if I'm wrong, but... It sounds like your perspective are, hey, a lot of DeFi is solving problems that maybe don't exist, but there are some use cases that do exist. And I don't know how you think

• 56:32Logan Bartlett?

  about or size the opportunity of those. And then also talking about, we spend most of our time talking about NFTs, but also I think a lot of the pillars that you talked about are applicable to DAOs as well, right? Of, you know, starting a community first and building product after the fact, or some of those things. But how do you help us? Like, I think our cynicism, if you can call it that, or at least perspective, is not that there aren't things, or not that it could get there. It's just, how do you match the appropriate sizing of the dollars, right, with the opportunities that exist today? And what it can be in the future? And so, how would you help us frame, or for people

• 57:15Logan Bartlett?

  listening to this, frame like, just that question of like, what is appropriate for the opportunity set as you see it? And you obviously don't need to speak for the venture ecosystem at large, but just, you know, using that as something of a framing, how would you, how would you help level set us?

• 57:33Speaker 02

  So, this dates me quite a bit, but I remember Web1, right? And when there were companies that were building around Web1, you would literally say, is it a web company? Or is it not a web company? Right? Did they have a website? Was kind of a delineator about whether they were a web company or not a web company. And a lot of companies were trying to figure out, do we need a website? Do we have the technology for it? What does it do? How is it going to help us? How do we maintain it? Do we outsource it? Do we in-source it? Like, there were a lot of questions about becoming a web company. The same thing

• 58:12Speaker 02

  happened with mobile phones, right? Are you a mobile company? Do you have mobile technology? Do you have an app? You know, can people access it on their phone? Do they have full functionality? Or do they have to go to a website? Or do they have to go in person and do something? Like, are you a, you know, a smartphone-enabled, a, you know, tech company that has adopted that next wave of technology? I think we're looking at a technology that could be seen in the same way. Right, where we're now asking, are you web three?

• 58:46Speaker 02

  But the reality is, it's an infrastructure layer, a different way of doing things, a backbone about having a, an immutable permissionless ledger and a bunch of other things that go into the technology. There's some level of decentralization that goes into the technology. Some level of tokenization that goes into the technology, you know, NFTs go into it, DAOs go into it, like, there's a lot that goes into web three. But 10 years from now, I don't think we're going to be saying, are you a web three company? Right, the same way, we're not going to ask people, you know, are you a Ruby on Rails, you know, development firm or not, like, it's just infrastructure and your technologists

• 59:29Speaker 02

  will figure out the right infrastructure that they'll use or the right use case. But when I think about things like NFTs, you know, which really are immutable proof of something. Right? That you can actually have the whole providence behind it, but you can prove that a particular wallet has some characteristics associated with it. Right? The ability to say, proof of ownership, proof of accomplishment, proof of credentials, proof of working somewhere, proof of making a certain amount of income, proof of certain credit credentials, like, today, all of that resides in centralized databases controlled

• 1:00:14Speaker 02

  by third parties that need permissions.

• 1:00:16Speaker 03

  But Frank, once you put those on chain, you still have the exact same underlying oracle problem in every single one of these issues, right? Which is like, at the end of the day, the source of the data that you're putting on chain is a third party that you have to trust. And it's not only just that third party you have to trust, however that third party gets the data, you have to trust the person at the data, you have to, the person who's typing the data, which is all like, working backwards, basically, from the exact same setup, unless the data itself is like inherent to the chain. Right, unless the underlying data.

• 1:00:55Speaker 02

  Let's take an example, right? So yes, you have an oracle problem, you always are going to have an oracle problem. But why, when I go to a landlord and apply for a job?

• 1:01:08Speaker 02

  And they say, I'm sorry, would go to a landlord and apply for tenancy, right? So I'm trying to rent an apartment. When they ask me, I need proof of employment and I need proof of income so that I can pass an application process. Why do I need to send them to a third party instead of having proof of right on my phone or in some other immutable form where they can prove it, I can prove it, you can do it in a ZK snark way where the data might not even be fully transparent and discoverable, but you can ask, you ask no questions about things.

• 1:01:43Speaker 03

  But you can't prove it.

• 1:01:44Speaker 02

  But it is a new technology layer that if the technology is adopted by companies, they don't need a third party because they can permission me with it. If I graduate from a university, why can't I have my transcript? Why can't I have proof of graduation following me around instead of in a centralized database? Right?

• 1:02:06Speaker 03

  Well, because the proof itself, let's just use that one as an example, right? Like proof of employment or proof of graduation or proof of, I don't, it doesn't matter, right? Like invent the thing you want to prove. There is still an entity, a third-party trusted entity who is the source of that truth. Your university, your bank, if it's like proof of money being in existence inside of like a bank account somewhere, proof of employment, which is like an employment verification company that actually checks with your employer that this exists and they put their brand and stamp on it. And so all we're saying is like, pretty please to these companies, could you please now

• 1:02:47Speaker 03

  register your data on this public database? Because there's no incentive, by the way, for them to do it, but like, that's what we're asking. We're basically asking like all of these middlemen. And then we also have to trust that the way that they enter that data onto this public database is secure and never messed with. And there's no issues if they like make a mistake because of the whole like irreversibility angle of it, because then they have to go and fix it. So like what we're not really, it's not really proof and it's not really immutable in any way. Right. It's actually just this like third party writing to a public database. Now, I think there's probably a lot of reasons why it doesn't exist because I doubt they have the incentive to do this well and at scale.

• 1:03:30Speaker 03

  I think that's really the issue. I don't view it as a technology problem. It's like an incentive problem because the technology doesn't actually solve the problem.

• 1:03:37Speaker 02

  So you are asking the right questions and for some problems, this new ledger technology is going to be the right solution and for others it isn't.

• 1:03:50Speaker 02

  My point is this is a technology. And as the technology is built out, as it becomes more efficient, as it becomes more accepted, there are things that can reside in people's wallets that point to public blockchains that are much more efficient than having middlemen, you know, involved in the middle of transactions. Right. Where you would have to call upon not just the oracle to furnish the data to a centralized database, but then have a protocol with the centralized database, you know, to be able to grant permission to someone to get access to that information. A lot of that information could reside at the individual customer level because you own the data as well. And I think this is a technology that enables that to happen.

• 1:04:32Speaker 03

  But can't you do that now? I can permission any, like I can permission data to be stored in your Apple pass, Apple wallet, Google wallet, like I can get a airline ticket permissioned into Google wallet. I can get a purchase history permissioned into Google wallet. Like none of this is anything to do with blockchain. It just has everything to do with the underlying company who owns the data agreeing that there's a value in exposing that data out to a third party. This has nothing to do with the blockchain because the blockchain doesn't actually solve any of these problems. Because the blockchain really is just like an immutable public database

• 1:05:12Speaker 03

  where you can register information there, but the you registering again always is still this like third party company. So I can never get my head around like. What problem is the blockchain solving unless the data that you're trying to prove is real is inherent to the chain, right? Meaning it can't be edited because it's part of the underlying chain itself.

• 1:05:37Speaker 02

  So again, you're asking the right questions. You're going to hear me say that a lot because ultimately you have to solve a problem and use the best technology to solve that problem. And I think part of the problem with, you know, Web3 and crypto today is people are starting with the infrastructure as being the best solution and then almost building the problems backwards from the best solution, which, you know, we see a lot of that happening. But think about a bank account as an example, right? One of the reasons why a typical bank account, a typical person has a bank account that they bank at the same institution for 10 years, 15 years, 20 years is because it's a pain in the ass to actually change out

• 1:06:21Speaker 02

  your banking account relationship because those numbers, your routing number, everything dealing with that ledger is now so ingrained in so many things that undoing it can be really problematic for people. Like there's real friction.

• 1:06:36Speaker 03

  Yeah, because the bank doesn't want you to move.

• 1:06:39Speaker 02

  The bank doesn't want you to move, but you as an individual, if that is your data, if that is your money, if everything associated with it were immutable on a public ledger or in a ledger, it doesn't have to be public, but on a ledger that you control, theoretically you could pick that up and then go to a new bank. You could hang it with that new bank and then the bank would have to actually offer you the right front end, the right service, the other things associated with, the other things associated with a bank account that are over and above the ledger itself.

• 1:07:13Speaker 03

  I mean, that's, that's got to be regulatory for that to work because under no circumstances is my bank going to agree to let me rapidly move all of my account routing, like that, that accountant routing number is registered in with the bank.

• 1:07:31Speaker 02

  That is what happens when you have an Ethereum address or a Solana address like. You can pick it up. If I'm using a MetaMask account today, I could decide not to use a MetaMask account tomorrow and use a different front-end interface, pointing to the same data that I own.

• 1:07:47Speaker 03

  Yeah, but then you give up all of the protections of having a bank.

• 1:07:50Speaker 02

  That's right. So are people ready to actually be their own fiduciary? Are they ready, you know, to, to basically be their own bank?

• 1:08:01Speaker 03

  So we're gonna, we're gonna reverse 150 years of financial innovation so that I can switch accounts?

• 1:08:07Speaker 02

  Yeah, so the idea of being a self-custodian is something I think is really being explored in the crypto space in a very big way. And I think right now, just talking to people who are using these things, like they're not ready for it because of all the fraud associated with it, because of all the, the issues with your own keys and, you know, what happens when you lose your keys and the ability to actually recover things? Right? So I've, I have another thread, and again, now I am as agnostic as they come to these things. I am neither a champion of Web 3 nor am I a denier of Web 3. I think there's a lot of interesting things happening. But I wrote a thread about how people don't really understand the benefits that a bank gives you

• 1:08:53Speaker 02

  for storing your money. Right? I mean, think about if you had a million dollars or $2 million, $10 million, and it was all in physical cash that you stored in your house.

• 1:09:02Speaker 03

  Yeah. No, I mean, that's what we used to have to do. We used to like actually hold it. Yeah.

• 1:09:08Speaker 02

  Yeah. If that were true, what other products and services would you have to procure? Well, now you'd need a security system on your house. Right? Now you would need actually a container for all of that cash. You would now need to procure insurance because if something were to happen, if there were a fire that burned down your house, and if that money burned down with it, you wouldn't have access to it anymore. So you would buy fire insurance or you would buy theft insurance, right? So you would start layering all of these things on top of it in order to protect your money. And a bank does all of that for free. And in fact, they're paying you for storing your money because they're using it for other purposes. Right?

• 1:09:47Speaker 03

  It's the best defense of banking I've heard in a long time, Frank. That was pretty good.

• 1:09:52Speaker 02

  Right. I mean, that, that is what they're doing. So

• 1:09:55Speaker 03

  I agree.

• 1:09:56Speaker 02

  They give you money for a set of services that actually aren't free for them to deliver, right? It costs them money to actually deliver this. But they know that if you want to access your money, they are going to make money off of that if it runs through the Visa Mastercard rails through your debit card, and that's going to be paid for by a merchant. Right? So a merchant is paying for you to be able to store your money and get interest on it. Or they are going to take your money and lend it out to someone. Uh, and the interest that they are generating minus the interest that they are paying you minus the cost to create that product is enough to justify actually borrowing the money from you and lending it to someone else. Right? Those are the two business models that really revolve

• 1:10:40Speaker 02

  around why a bank can store your money for free and in fact, pay you for it. Right? So when you enter into this web three world, like you have to really think about this. I got into a debate very early on when I was still, you know, uh, I'll call myself a no coiner, you know, at some point before I, I started uh, in the web three space. But when I was a no corner, I was talking to someone who was a Bitcoin maxi and they were trying to argue with me that lost equals lost is a feature. And I, I just could not wrap my head around this. I was like, when in life is losing something making it always lost a feature? Like if I lose the keys to my car and I can't use my car, how is that a feature?

• 1:11:25Speaker 02

  Right? At a bank, if I lose the keys to a safety deposit box, like there is a process, a procedure for me to regain access to those keys. Right? If I lose a password, I have a way of recovering that password, which then gives me access to my things. So I think you have to be very careful. Like a lot of the, the arguments from maxis are arguments trying to justify a position rather than getting down to the foundational principles of where there are features and where there are flaws, and then trying to assemble things in a way that is smart to solve the problem you're trying to solve.

• 1:11:59Speaker 03

  Well, and that right there, which I totally agree with is why anytime I hear about like,

• 1:12:07Speaker 03

  Real world assets or data or anything where the like underlying source of that information kind of sits with a third party or starts with a third party or is controlled by a third party or however you want to frame it, that ultimately, all we're really doing is introducing this like feature set of irreversibility into the transaction, which introduces a whole bunch of like new risks. Actually, it's not just downside, right? It's now like the impact of a mistake is really, really bad. What happens if you lose your admin keys?

• 1:12:45Speaker 02

  Yeah, people don't realize in life how many things we reverse. Like it is a feature of life that we reverse many things. When I buy something, I have the ability to reverse the transaction by taking it back to the store. Like, we reverse things all the time.

• 1:13:01Speaker 03

  That reversibility is also, it's a disincentive to try and defraud people. Because even if you're successful in like an initial defrauding, you kind of get cut off relatively quickly, or you have to get your money out in a certain way. So it's not only that we actually do use them quite a bit. I agree with you. It also prevents people from wanting to be fraudulent.

• 1:13:25Speaker 02

  Yeah, but irreversibility is a feature if you care about provenance.

• 1:13:31Speaker 03

  Assuming that provenance exists exclusively on chain, because otherwise the provenance is not actually real. Otherwise, that provenance still sits with like a human typing something into a database that makes its way over to the chain.

• 1:13:44Speaker 02

  Yeah, if I am an artist and the day that I finish a picture, it is registered on chain and every single transaction is then recorded about who owns it when it's transferred, then I have full provenance.

• 1:13:58Speaker 03

  If that digital picture was you created.

• 1:14:01Speaker 02

  Or if it were real, like, again, the key is registering everything from day one all the way through. Otherwise, you have to trust the entry, the oracle problem. And if you do not trust that, then the provenance break.

• 1:14:15Speaker 03

  By the way, I can also take that same picture you just made. Register it myself, put it on another NFT marketplace, claim that it's yours, even though it's mine. And now you, as the consumer or some centralized NFT marketplace, now has to figure out how to make the distinction between yours and mine. And then I can do it like a thousand times over almost immediately. Because this is what crypto enables is essentially like an immediate copycat where you can kind of play the game of, well, there's not one marketplace, right? It's a decentralized marketplace. It's kind of centralized at the end of it, but it's decentralized in the beginning. And like, I'm still lost as to what is central and what's decentralized. But the fact that it's kind of open allows me to like immediately

• 1:15:00Speaker 03

  fake the thing that you said has provenance, because yours has provenance, but so does mine. And by the way, it's a digital picture. So it looks like the same thing. And so it's just like unlimited ability to scam the system like over and over and over again, unless that, I keep going back to the same thing, right? Unless that data point is like inherent to the chain, there's going to be fraud left and right. And it's kind of unstoppable by design. Right? Because ultimately, if you really want to stop it, this is what I always get back to. And the art one is always fascinating to me. If you really want to stop it, what you actually need is a trusted, third-party, neutral source, who has reputational risk and future income on the line, which you need is Sotheby's.

• 1:15:44Speaker 03

  Right? You need an auction house or an art house or someone who's going, I verified that this thing is real. I triple checked everything. I know it's the right one. And if I screw up, you can sue me, which is kind of the role Sotheby's acts, plus they do like marketing and other stuff. And all of the natural conclusion to this ends up with Sotheby's, which by the way, we talked about another podcast, I think has like, or Christie's, I don't know which one it was, but it had a market cap of like $3 billion and it has a giant vig, right? It takes a huge fee. So I don't, I don't, I work these problems through just like you do. And I can't figure out how any of this stuff works without the data being 100% native to the chain, which basically leaves us with like, Kind of digital gaming, maybe some like,

• 1:16:29Speaker 03

  maybe digital NFT that's like triple verified, so it's not really tradable because you want to go through all these checks. Like, I really struggle to find what is actually made better, knowing the incentive to, you know, defraud the entire system. And we're watching it happen, you know, left and right, like the incentive to steal and to create fraudulent transactions. All of it is incredible right now. So anyway, that I like, that's my challenge even with the digital NFT is like, it's not the only one.

• 1:16:57Speaker 02

  Yeah, and again, you point to the art of the NFTs, but the NFT is really just, you know, a provable piece of code.

• 1:17:08Speaker 03

  Right.

• 1:17:08Speaker 02

  Uh, that's put on chain and that piece of code can represent lots of different things. Right? It can represent membership, it could have gating, you know, to access. Um, it could be ownership of something like a ticket, you know, that you buy, or it could be a membership that you buy, it could be a piece of art, it could be ownership of something. So.

• 1:17:29Speaker 03

  Still back to the third-party oracle problem, right? It's still that ticket, like, that ticket is issued by a third-party company, verified by the like, security guard at the gate, making sure you're allowed in, because they gotta go check with the people who issued it, it's the real one, and someone didn't fake it all along the way. Because it does come from a third party and you're kind of like, oh yeah, I guess this is why we have like ticketing systems.

• 1:17:52Logan Bartlett?

  Hey Frank, one question I wanted to ask, you said the thing earlier of, hey, uh, you used the example of internet companies that had a website and then mobile companies, and then ultimately these things were subsumed back into they just are companies, right? Um, I guess I, I could all, maybe this is revisionist history, but I could always imagine a world in which information needed to exist on the internet. I grew up around this time and so maybe it just came second nature to me to understand it. But I at least understood that, uh, the endless access to information that the internet enabled, right? And I could think about that and then mobile, once people poked around.

• 1:18:34Logan Bartlett?

  Mobile in the early 2000s and then to some extent the iPhone unlocked like all of the potential of it. But when you make that case that in 10 years, we're not talking about web three companies, right? And these are just embedded features. Do you think they're embedded features into all companies in some way, shape or form? Do you think they're embedded features into some subset of companies that are using this to incentivize? Some level of ownership or speculation or whatever it is to pre-fund some type of community in some way? Like, what do you actually think that the most ubiquitous case you could make for web three? What does it actually look like?

• 1:19:13Speaker 02

  Yeah, so again, I am very much a pragmatist. I am not about the stuff of science fiction, even though that's all I read. You know, so I love science fiction and I find it a lot of fun.

• 1:19:27Speaker 02

  But I'm really about problem statements and solution statements. Right? Like, that's everything that, you know, I invest in, what Q E D invests in. It's really about saying, here's a profound problem. You know, that's not being solved well with today's companies, today's incumbents, today's infrastructure. And hopefully you have a new solution through a solution statement that's going to provide, you know, higher quality or lower cost or, you know, some new solution that solves that problem. So you almost have to ask yourself, like, this new infrastructure layer, the new ethos, right? Because it's more than just about infrastructure. I think when we start talking about web three, you're talking about many different things.

• 1:20:11Speaker 02

  Like, we've talked about DAOs, we've talked about N F Ts, we've talked about tokenomics, we've talked about, you know, DeFi, like, there are a lot of different corners of web three. And in fact, we're going to see some companies be web 2.5 for a while, which is most of their infrastructure is web two. And they're going to have some component of it that is tokenomics or some component that's an N F T. Or, you know, some component where customers can give input through being members of a DAO. But it might not be their core business. It might not be the core infrastructure. It might be a piece of it.

• 1:20:45Logan Bartlett?

  So what's the broad based case, though, for? I don't want to use Capital One because that implies DeFi in some meaningful way. And so what do you think? I don't know, for Nike or for ex-CPG brand Budweiser? Or for whatever it is, like some company that's going to come on this journey? Do you think it's going to apply to all of those in some way? And it's just going to be maybe smaller for some of those than it is for others? Or do you think it stays cornered off to some native Web three businesses? Plus, you know, a handful of others that come along for the ride?

• 1:21:25Speaker 02

  I think the concept of engaging your community and rewarding them with some form of valuable, liquid,

• 1:21:37Speaker 02

  you know, I don't want to just call them tokens, but reward system, I think is going to permeate a lot of businesses going forward. All right, so if you think about Web two, Web two is about designing a product,

• 1:21:51Speaker 02

  manufacturing it and delivering it so that it could compete head to head against the incumbents and win, you know, for what it is, the day that you're actually putting it into the marketplace. Right, Web two is about building the product first. And then if you're good at that, you end up with high NPS scores. And if you have high NPS scores, maybe if you're lucky, you can build a community around it of people who are recommending your product and actually almost being your marketing agents. That's Web two. I think when we talk about Web three, it's about creating champions within customers before the product is even built and creating a reward system that rewards the people that are actually helping you spread the word.

• 1:22:33Speaker 02

  And I think that a lot of companies are going to get on this bandwagon and they're going to figure out creative ways of incenting communities, actually building diehard and loyal fanbases for whatever the products are, whatever the new launches are, engaging with the community in a way that you could hear the discourse from them and at the same time reward the people who are part of those communities. So it's community first and product second. I think you're going to see a lot of companies actually take a play out of this playbook. And to me, that's actually web three and it's not just about DeFi and tokens and blockchains.

• 1:23:13Speaker 03

  Here's why I don't think it's web three, because we do this already, right? Like this idea that we can give people an incentive to be early, to buy in early, to feel part of a broader community, to feel like they were first or second or whatever in the first thousand. Like, we've done this, we've did this before the web, to be very clear. Like, this isn't necessarily an internet-enabled thing in the first place, right? Like, we give people early access if you're one of the first 500. We give you a discount. We give you a special color. We allow you to customize your thing, right? We give you a signed copy of the album that you purchase.

• 1:23:56Speaker 02

  There's no disagreement.

• 1:23:57Speaker 03

  Right? So these are like all mechanisms that we have had pre-internet, actually, in a funny way. And then we still had them in the internet. And then we had them all the way up until someone decided that the best way to do this in the future is a coin that you could sell to other people down the road. And I think that's the part that's really in play here is this idea of like, well, maybe this coin will go up in value and I can sell it in a highly liquid market. And to your own statement earlier, which I agree with, it's like, well, guess what that attracts? It attracts like the speculators. Pop called it, I really liked it, actually. He called them, you know, mercenaries versus missionaries,

• 1:24:40Speaker 03

  right? It attracts the mercenaries and not the missionaries. And it's just true. It's like human behavior. I think web three is this thing we just made up.

• 1:24:50Speaker 03

  We just decided like, hey, here's this really cool technology that by the way was invented basically for digital money, right? If you go all the way back to like, why were we doing this in the first place? It was Satoshi trying to come up with like a governmentless, permissionless money, which he or she successfully did, by the way, right? Like, it actually kind of worked. Like Bitcoin is out there and it's got a few hundred billion dollar market cap. And then a bunch of people were like, wait a minute, what if we try and apply this to a whole bunch of different areas? Nobody's asking for it, by the way. Nobody's out there saying like, wouldn't it be better if it was like, we have this hammer, let's go find like a thousand more nails because it's like a cool computer science thing. And to me, that's the like,

• 1:25:32Speaker 03

  Web3 is maybe the best branding in the world, because for like, all of the other web iterations, people were asking for it, right? Like, maybe not everybody was asking for it, but people were definitely like, why do I have to call you? Remember how annoying it was to have to like, call everybody? And they're like, why do I have to go to the library to like, find this information out? Why do I have to pick up a telephone to call a business? Why do I have to send somebody a piece of mail? Like, why do I have to be at my desktop computer in my house to access these things? And there were all of these like, very fairly simple, I would argue, like, easy to understand user problems to keep it, you know, in the products kind of

• 1:26:13Speaker 03

  frame of reference here. We're like, yeah, it actually would be a lot better if, you know, we gave you a phone that could access the same thing that your computer does. And like, all these other things were solved for fairly established problems. And I don't know, somehow we decided to call that Web 1 and Web 2, which I guess is like, a good way of seeing like, the evolution of the internet. And then we said, this is the third version of it. And that doesn't make any sense to me, because it's not improving in any way, shape or form, the first two, besides creating this like, front-run, odd, multi-level marketing. Frankly, and I hate to use the term Ponzi scheme because it makes me sound like I'm crazy, but in reality, what I mean is like, it just creates this incentive structure for people to like, rapidly get in early, pump up the value, at least the perceived value, and then

• 1:26:58Speaker 03

  sell. And that's what the tokenomics that exist today and have existed since we've tried this in a few different ways, they kind of almost all end up in that spectrum, right? It's like, speculate early, get out at the top, run to the next one.

• 1:27:13Speaker 02

  So this is a

• 1:27:16Speaker 02

  I won't say unpopular, but I might get the words wrong and I'm going to ask the audience to forgive me for it because it's a controversial topic. But the topic is whenever there's a new innovation, especially when there's money surrounding the new innovation, there's going to be somewhere, make up a number, 10% of people with the drive and the intellect, the intelligence, the backgrounds to be able to take advantage of that new technology to be the leaders building something, right? So again, that's the elitist or arrogant way of looking at it, but there's going to be some small percentage of people that are going to be looking and using at this new technology to design new things.

• 1:27:58Speaker 02

  But within that 10%, half the people are going to be altruistic and half the people are going to be out just for themselves. And the problem is when there's money involved and you have half of the people that are out for themselves, it dominates the narrative because it's not only half the activity. They rinse and repeat over and over and over and over again because it is easy to commit fraud, the base of the pyramid is easy to get them to part with their money, which is really sad. There's more fraud in this space than in any space I've ever seen. And I ran a fraud department before, like it is infuriating how easy it is to be a fraudster in this space and win, right? You could even raise your hand and say, I'm about to commit fraud.

• 1:28:43Speaker 02

  People will look at that and say, yeah, I hear that. Where do I put my money? Because I think I can make money before you defraud me.

• 1:28:50Speaker 03

  Yeah, I'm in that window where you take it, that like little, yeah, totally.

• 1:28:54Speaker 02

  Right, but it's this really weird situation where now we have an innovation that by definition is digital programmable money, which means there's money involved. And if there's money involved, you have the 5% of the 10%, right? Half of the 10% that are out there just dominating the narrative and you're seeing a lot of the negativity about all of the things that can go wrong with tokenomics, all of the things that can go wrong with rug pulls, all of the things that can go wrong with parting the base of the pyramid who are wide-eyed and they're looking at potential life-changing returns if they get it right. And they're throwing their money at these things, right?

• 1:29:36Speaker 02

  But the other 5% are altruistic in trying to actually innovate. You're seeing a lot of talent go into the space. If there's one thing that should make you bullish about it, if there's a bull case to be made, is that where talent goes, usually innovation follows, right? Something will be built of value with the amount of talent that's gone into the space. But, look, I am 100% on the same page as you are. Like, if you just scan everything that's happening in the space, you're going to see 10 times as much negativity and things that are wrong or broken than you are things that are going right? The question is, is there something that's salvageable in there that turns into the innovation that has Web3 live up to its name? And I don't have an answer to that.

• 1:30:21Speaker 02

  I'm still a student, you know, trying to figure these things out. You know, I'm deep in the DeFi space, I'm deep in NFT communities. I'm actually working with some projects, trying to help them figure out how to build big durable companies on the back of this fundraising event called an NFT mint? And how to return value back to the NFT holders? Like, I'm actually working on that problem. Uh, working with DAOs to try to figure out, how do you actually kick people off the island, right? Which is really important if you're going to have good governance, right? DAOs aren't very good at that. Like, again, they're big fundamental issues, but, you know, it's worth exploring. Like, there's a lot of interesting things that are happening.

• 1:31:02Speaker 02

  And the question is, does something emerge to allow Web3 to live up to its name?

• 1:31:07Speaker 03

  The only one, the only thing I'll touch on, we can jump, because I, I, this like, the really smart people are spending time in it. Obviously, everybody likes to talk about that. Mark Andreessen likes to talk about that, because it sounds smart. And it does sound smart. I'm not disagreeing with that. Uh, my, my pushback to this would be two things, three things. One is, part of the reason why there's so many smart people working in the space is because a lot of people got rich very fast. Like, very fast, and made a lot of money.

• 1:31:37Speaker 02

  It's creating incentives.

• 1:31:40Speaker 03

  Unbelievable incentive system, right? And then a few people got very rich very quickly. And you're looking at them going like, you really? Like that fast? And then what happens is like a bunch of venture dollars chase it, right? And so then the money enters the system and actually like software engineers follow the money because like you got the your your alternative is a great software engineer is a very well paid job. Right at Google or Facebook. And then, you know, I saw from some of our startups in our portfolio, like one of the companies not now anymore. But like as of a year ago, that was poaching people with these crazy compensation packages was Coinbase. Among others, right? So like, I think it's a little bit of a red herring of like, look at all these smart people as if they're doing it for free. They are not working for free, right?

• 1:32:23Speaker 03

  Like they are there chasing the money just like everybody else. And then the last piece is like, unlike the internet, where most of the like, smart, techie people were like, yeah, this is going to be pretty cool. There are a lot, and I'm not putting myself in this category, but there are a lot of very smart, successful, technical people, right? Like the CEO of Airbnb and Duskin Mosovitz and obviously like, you know, Aaron Levy at Box and a whole bunch of others who ping me on Twitter through direct messages because they don't want to talk about publicly, who are like, this is the dumbest thing I've ever heard. I can't believe people are working on this thing. And like, they work in technology and not just like dabble in technology,

• 1:33:05Speaker 03

  but these are like technology entrepreneurs who love technology, myself included. Love technology is the only thing I spend time on. So I just like, doesn't make sense.

• 1:33:14Speaker 02

  The narrative from both sides actually makes sense. Both things can be true at the same time. You could have 99% noise and 1% you know, being signal that something emerges. And it doesn't transform the world into saying web three is the biggest thing ever, but something emerges of value. Right? And if a number is 10% or 15%, then you have something that's transformative. If it's 1%, you know, it's marginal and you see, you know, something in the world that wasn't there before.

• 1:33:44Speaker 03

  It's just gonna cause $100 billion in scams and destruction to find that 1% to get there. It's like the ROI is probably negative at this point.

• 1:33:52Speaker 02

  But hopefully you understand why I've thrown myself into this because either you could be a sideline skeptic or it's a very technical, um, you know, space where if you're not deep in the weeds and almost a practitioner, you don't actually understand what's going on.

• 1:34:11Speaker 03

  Oh, I totally agree. That's why I did it too. I was, I was interested. I wanted to learn about it actually. And the only way to learn about it is to do exactly what you're doing. I totally agree, which is you gotta go talk to a people working on it.

• 1:34:21Speaker 02

  And by the way, like the first time I set up a wallet and the first time I decided that I was gonna lend money, you know, through the Ave, you know, blah, blah, blah. Like moving money is a really intimidated thing, intimidating thing, when you press a button and you don't know if it's going to get to the right place. And you're playing with lots of zeros, right? Like playing around in this space tells you a lot about is it ready for primetime or not? And the answer is no. Right? Like, I don't think anyone would disagree. Like if you said, is, is, is the Web 3 ecosystem ready for the next billion people to be onboarded? Like, no. You know, there's just so much that has to catch up from a user interface and protections and, you know, all of the things that we're used to.

• 1:35:07Speaker 02

  But you're actually looking at the primitives being built. And once you understand that you're looking at the primitives being built that need to be assembled, kind of the Lego blocks that are eventually going to build something. As long as you can wrap your head around that, you then have to ask, are these primitives valuable? Are they more valuable than the infrastructure as it exists today? Can they solve problems in a different way that is superior to the way of solving it with the primitives that we have in Web 2 and the incumbent ecosystem? I don't have answers to that, but without understanding the primitives and what's happening, I was a sideline skeptic and now...

• 1:35:44Speaker 02

  You know, at least I can ask the right questions. I can help companies navigate, should you or should you not do this? And I'm connected enough in this space to at least see the innovations as they're starting to come up from the ground and as people are starting to question, like, should we be doing this? Yes, no? So in my journey, that's all it really is.

• 1:36:06Speaker 03

  Yeah, I know. Look, I think it's great that you're doing it and I had to do the same over the last few months, just so I like knew kind of what I was talking about in this. I just wish we didn't call it Web 3 with this like giant implication, like it implies like, you know, some next step up and like, you know, to you and I, we realize it's branding, but to a lot of people like, well, it's the next innovation of the web. And it's like, no, it's not. It would be great if we just called it an immutable public database. I know it's a mouthful, but like, we would actually probably get to the answer a lot faster if you're like, really excited about using this new technology. It's called an immutable public database. And if you just had to like, say that over and over and over again, these people like, wait, what's an immutable public database? Why do

• 1:36:51Speaker 03

  we need it? And we'd get, we'd get to the answer a lot faster, but we call it Web 3 and we put this like, nice little pretty brand around it and we talk about it as like the next big thing because it's like a nice, I don't know, it's like a clever way of branding a immutable public database.

• 1:37:04Speaker 02

  And look, it's, it's not lost on me that many venture capital firms, I will not name them, but many venture capital firms are PR machines that monetize through venture capital.

• 1:37:15Speaker 03

  Yeah.

• 1:37:15Speaker 02

  Right? So the narrative actually matters quite a bit. And, you know, when it was called crypto, it ended up getting a bunch of negative branding for a whole bunch of reasons and it needed a new name if there were any chance of it being accepted publicly as a bigger thing than just tokens. And, you know, I think the branding was deliberate. I think you can look at the origin of Web 3, you know, who created it, where it came from, how it was spread. But I think there is some PR about it to make it much more accepted. Like, of course, if there is a Web 1, if there is a Web 2, then there must be a Web 3. So this is what Web 3 is about. But don't mistake incentives, you know, for reality.

• 1:38:01Speaker 02

  You know, show me the incentive system, I'll tell you the behavior. Like, that's a lot of what's going on. And Web 3 is about a dozen different things, not three things or one thing. Like, it's actually pretty complicated. And that's why, you know, I stated this earlier. I find the ethos in the zeitgeist of what's going on more interesting, maybe than the solutions that are at least present today.

• 1:38:23Speaker 03

  Web 3 really should be machine learning applied to software. Like, that's really what the next web is. If you think about the true innovation, like where all the like real cutting edge work is happening. It's really an ML. And, you know, I guess the ML people were too busy doing math and not enough time doing branding. And they missed their mark, you know? But like, think about, I mean, like, Google rebranded its like whole engineering focus around machine learning. Like, you're seeing it pop up in day-to-day utility, both in the just like pure web companies and then obviously in the real world. Like, it'd be so much more exciting if we were just talking about Web 3, about machine learning than about tokens.

• 1:39:09Logan Bartlett?

  So that'll do it for the 24th episode of Cartoon Avatars. Thanks to Zach, as usual, for coming on, as well as Frank for talking through all the crypto use cases. And to Rashad for acting as producer and coming out from behind the camera. Rashad, how was it coming on for the first time?

• 1:39:26Speaker 01

  I got the stage fright for sure, but...

• 1:39:29Logan Bartlett?

  You're used to, you're used to being, at this point, you know, the TikTok guy, the video. People know you at this point, right?

• 1:39:36Speaker 01

  I get to do as many takes as possible. It is funny, though, ever since like I've been involved with this podcast,

• 1:39:44Speaker 01

  like on the production side or whatever, I like randomly, as a byproduct of just like helping out with stuff behind the scenes, know a ton about like crypto now and finance. And so all my friends who I was friends with before I joined, started this job,

• 1:39:59Speaker 01

  that like know me from before, like, I'll just like drop random like knowledge bombs that like, whatever, Weinberg or any of our guests have, and they're like, dude, what the fuck?

• 1:40:07Logan Bartlett?

  Certainly not, it's certainly not the knowledge bombs coming from me. Yeah, any of the guests or Weinberg or any...

• 1:40:12Speaker 01

  Right.

• 1:40:14Logan Bartlett?

  Yeah.

• 1:40:14Speaker 01

  I'll share some of your hot takes and like I'll share it as like, you know, I think that's half the reason people listen to podcasts anyways. It's just to regurgitate it and sound smart amongst their friends.

• 1:40:24Logan Bartlett?

  Yeah. Well, well, uh, thanks for doing it. Only in one, one cut and I only had to call you, uh, one insult to, uh, to get you to, uh, to come on and do this. So yeah, well, uh, it's different. It's different than when you're doing all the Tik Tok dances a little bit, right?

• 1:40:39Speaker 01

  This is a more of like a live broadcast.

• 1:40:42Logan Bartlett?

  Yeah, we're getting better. Right? The early days, it was definitely not a live broadcast. Now, uh, I think we're pretty close to what you see is what you get. So, uh,

• 1:40:50Speaker 01

  We should do it outtakes at some point, uh, bloopers or whatever. Real. I still had that compilation before you killed Zach and Nikita off the show of like, I had this compilation of Zach's, uh, Zach's can we cut this is, you know?

• 1:41:03Logan Bartlett?

  Yeah.

• 1:41:03Speaker 01

  Every time he'd be like, can we cut this? Or actually I'd rather not. Can we say that a little bit differently? Like?

• 1:41:07Logan Bartlett?

  For Weinberg, I have like, I mean, there's a supercut to be done of like, that's not true. That, that's, that's just not true. When he's like disagreeing with people or there's one where he's like,

• 1:41:17Speaker 01

  But like, no.

• 1:41:21Logan Bartlett?

  There's a funny one where he's like, uh, and, and guns and guns.

• 1:41:28Speaker 01

  Yeah. My favorite thing that Weinberg does is when he like, he'll like, under his breath be like, oh yeah, like losing billions of dollars. Like that's not a big deal. But but like, you know, and they'll just like continue on the argument.

• 1:41:39Logan Bartlett?

  Yeah. Yeah. Yeah. That's for the Sam Blessin podcast that'll be coming out, uh, at some point here. But yeah, yeah. No, I mean, what's a few billion dollars lost among friends? But

• 1:41:47Speaker 01

  Yeah. Like real, like human times, like that we actually live in, like the real world. But like, yeah, that's, that's not important. Like for the sake of this.

• 1:41:54Logan Bartlett?

  We're teasing that one. At some point people will hear it. I, uh, yeah, that's been a, that's been a little bit of an exercise to get that one, uh, to a listable, listenable state. So, uh, well, thanks everyone for joining. We'll, we'll see people next week. Episode 25, uh, of cartoon avatars.