How to Become a VC with Haseeb Qureshi | Layer Zero

First, Haseeb Qureshi was a Texas Hold’em poker player. Then Haseeb learned how to code and worked as a software engineer for Airbnb. He went down the crypto rabbithole and is now the managing partner at Dragonfly Capital, as well as an accomplished writer and coder. When Haseeb has come on the podcast previously, we covered theses and mental models. Today on Layer Zero, we explore the dynamics of being a venture capitalist in Web3. How does one find a path to becoming a VC? We dive into what to look for in an internal team and external portfolio companies, as well as proper form for selling investments in a credible and honorable way. Haseeb’s long term approach to Web3 is salient as always, and this episode is must-listen if you are interested in becoming a crypto VC. ------ 📣 ZERION | Trade Across 7 Networks and 500+ protocols https://bankless.cc/Zerion ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: 👀 POLYGON | LAYER 2 DEFI https://bankless.cc/Polygon ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across 🦊 METAMASK | THE CRYPTO WALLET https://bankless.cc/metamask 💳 LEDGER | THE CRYPTO LIFE CARD https://bankless.cc/Ledger 🧙‍♂️ ALCHEMIX | SELF REPAYING LOANS https://bankless.cc/Alchemix 🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants ------ Topics Covered: 0:00 Intro 4:30 Extremely Bullish and Bearish 9:04 Play-to-Earn Gaming 14:00 Poker & Venture Capital 17:15 Positive Sum Games 20:20 How to Add Value 26:22 How to be a Good Investor 32:09 Haseeb’s Pitch to Founders 34:22 How to Sell Tokens 39:45 Fad or Generational Wealth? 45:08 Near Protocols and Alt-L1s 50:00 VCs vs Retail 57:30 How to Take Responsibility 1:02:44 Airdrops 1:09:04 Fulfilling Web3’s Promises ------ Resources: Haseeb on Twitter https://twitter.com/hosseeb?s=20 Dragonfly Capital https://www.dcp.capital/ Bankless Podcast 103 with Haseeb https://shows.banklesshq.com/p/-103-blockchains-are-cities-haseeb “Blockchains are Cities” https://medium.com/dragonfly-research/blockchains-are-cities-564327013f86 “Why Decentralization Isn’t As Important As You Think” https://haseebq.com/why-decentralization-isnt-as-important-as-you-think/ “I’m Worried No One Will Care About Rollups” https://medium.com/dragonfly-research/im-worried-nobody-will-care-about-rollups-554bc743d4f1 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

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

• 0:00Speaker 00

  There are some things that, again, you cannot buy, or that if you want to try to get yourself, will take you a lot of time. Time is the one resource that you cannot spend money on.

• 0:12David Hoffman?

  Welcome to Layer Zero. Layer Zero is a podcast of unscripted conversations with the people that make up the Ethereum community. Crypto is built by code, but it's composed by people. And each individual member of the crypto community has their own story to tell. Cypherpunks understood that the code they write impacts the people that use it. And Layer Zero focuses on the people behind the code, because Ethereum is people all the way down, and it always has been. Today on Layer Zero, we're talking with Haseeb Qureshi of Dragonfly Capital. And Haseeb, we've had him on the Bankless Podcast before, but always to talk about some sort of thesis or mental model. And instead, in this particular episode, we talk about just the dynamics of being a venture capitalist in Web 3. And so if you are interested in learning what's it like to be a VC,

• 0:56David Hoffman?

  and also what it might be like for you to find a path into becoming a VC, this might be the episode for you. I think everyone, at least most people, when they get into the world of crypto, always kind of daydream about like, one day they'll be a part of a venture capital fund, and one day they'll be on the research desk. And I certainly had that dream myself. And kind of growing through the industry, I realized it wasn't necessary for me. But if that is what you are interested in, this episode is going to be perfect. We talk about what it's like to establish relationships with your portfolio companies. We talk about what it's like to add value to your portfolio companies. We also talk about the timing on when it becomes time to actually sell your investments, and how you credibly and honorably actually find liquidity

• 1:42David Hoffman?

  on the projects that you've had relationships with, and what that means. And we also get into the concept of airdrops, whether airdrops are going to be here for the long term, or maybe they were just kind of a 2020 to 2021 thing, and really what it means to have a long-term thesis in Web 3 versus just kind of looking at what's going on in the present moment. So a really wide-ranging conversation, all about kind of investing in crypto, as we all do. So I hope you enjoy this conversation with Haseeb Qureshi, right after we get to some of these fantastic sponsors that make the show possible. The Layer 2 era is upon us. Ethereum's Layer 2 ecosystem is growing every day, and we need L2 bridges to be fast and efficient in order to live a Layer 2 life. A cross is the fastest and cheapest

• 2:27David Hoffman?

  and most secure cross-chain bridge. With A cross, you don't have to worry about the long wait times or high fees to get your assets back to the Layer 1. Assets are bridged and available for use almost instantaneously. A cross's bridges are powered by UMA's Optimistic Oracle to securely transfer tokens from Layer 2 back to Ethereum. A cross is critical ecosystem infrastructure, and ownership is being handed over to the community. You can be a part of this story of A cross by joining the Discord and becoming a co-founder and helping to design the fair-fair launch of A cross. If you want to bridge your assets quickly and securely, go to across.to to bridge your assets between ETH, Optimism, Arbitrum, or Boba Networks. Bankless is proud to be sponsored by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure.

• 3:12David Hoffman?

  Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum that lets you trade any token at the current market price. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. The Uniswap Grants program is accepting applications for grants. Do you have something of value that you think you want to contribute to the Uniswap ecosystem? No matter how big or small your idea is, you can apply for a unique grant at uniswapgrant.org and help steer Uniswap in the direction that you think it should go. Thank you, Uniswap, for sponsoring Bankless. If you're going Bankless, you need MetaMask. This is your tool to unlock the world of DeFi without giving up custody over your private keys.

• 3:56David Hoffman?

  MetaMask is both a secure in-browser wallet and also a secure bridge for your hardware wallet. You can now trade tokens on any Decks or Aggregator. MetaMask Swap gathers real-time pricing information across all the DeFi exchanges, allowing you to select your best price while getting all the MetaMask benefits of self-custody, lower gas costs, and increased transaction success rates. MetaMask also has a fantastic mobile wallet that I use when I'm out and about, which I use to collect PoApps, NFTs, and do all my DeFi things while I'm away from home. If you haven't downloaded MetaMask, you gotta try it out. Web3 wouldn't be the same without it. Download MetaMask for desktop and mobile at metamask.io and load up your Trezor, Ledger, Lattice, or Keystone hardware wallets so that they too can get into the world of Web3. What's up, Asib? How's it going?

• 4:40Speaker 00

  I am doing well. How are yourself?

• 4:43David Hoffman?

  Pretty good. Pretty good. Currently stuck between extremely bullish about the merge, but extremely bearish about most everything else.

• 4:53Speaker 00

  Yeah, that is reasonable. There's been a lot of good news about the merge. There has also been a lot of bad news in the world. So I think I agree with you. It does feel like we're in crypto. There's like a little bit of narrative exhaustion. It feels like people are people are getting a little bit tired of hearing the same old stories. But I don't know. I feel like fundamentals still look really good. So I'm I'm feeling confident.

• 5:17David Hoffman?

  Yeah, yeah. Same narrative exhaustion is definitely one, but also I think I've gotten a sense of like bull market exhaustion over the last like two months, maybe kind of the same thing. Just like, oh, like, sweet, another play to earn game. Oh, sweet. Another like NFT profile picture thing. All right. All right. Like, we're done with that. Talking about the merge again. All right. Like, cool. We've been talking about that for a while. Just like how many like crypto runs on attention? And sometimes like, well, like DeFi tokens, that was a thing that invigorated us in 2020. And then that kind of like spun out and then NFTs that kind of ran its course and gaming. And then it seems to be like in bull markets, we have these iterative cycles of new things that can capture people's attention. But eventually, like the sparkly new ideas kind of run out

• 6:02David Hoffman?

  and then people kind of like sober up. And it kind of feels like where we are right now.

• 6:06Speaker 00

  Well, macro is definitely the driver's seat this year. And it's also, you know, Bitcoin and Ether are doing most of the talking for the crypto market, which is which is also a sign that like, again, it's primarily about macro. That at that, at the same time, you know, I remember in January, we were getting so many gaming pitches. It was like five metaverse pitches a week. It was like just exhaustingly repetitive. That's slowing down. So I'm definitely seeing less kind of metaverse automatically raise tons of money hype. It feels like people are investors are trying to catch on. I am still seeing a lot of DAO infrastructure, but I was seeing a lot of that a month ago. We were seeing like so many people telling the same story about DAO infrastructure. DAO infrastructure sucks. We're going to build better tools for DAOs. That's finally slowing down.

• 6:50Speaker 00

  And so now it does feel like there's a little bit of a dearth of ideas. You know, there was a, we went through a few cycles of like, okay, you know, DeFi on new L1s. And then it was Metaverse and then it was down infrastructure. And now I'm like, I'm not sure what the pattern matching like, okay, here's the startup of de jour is. But it does feel like there's, I'm seeing more follow-ons from previous, you know, companies that already have established their, their businesses. And I'm seeing less interesting things happening at the very, very early stages right now.

• 7:21David Hoffman?

  So when you're engaging with all of these like startups, these seed opportunities, angel investment opportunities. Well, not angel investment for me, seed investment. Is, yeah, seed investment for you. Yeah. How do you keep yourself like at, how do you keep the bull market mania at arm's length and also still do your job? How do you, how do you balance those two things?

• 7:46Speaker 00

  Well, the, the nice thing is that at seed, um, the market has fairly limited impact on seed, right? So seed like it, seed prices go up, seed prices go down. It kind of depends on the supply of capital. But what's happening in public markets tends to have limited impact on what's happening there. The public markets have more and more impact on later stage rounds. It's, it's kind of imagine like a, almost like a spring. And it's like really hard to push that spring all the way down to seed. But it, you know, series D, series E, series C, they get affected pretty rapidly by changes that are happening in public markets. But the effect of that push and pull is, um, is not only graduated, but it's also, uh, there's some latency in how long it takes for that to show up in seed. So for the most part, public markets don't affect seed too much.

• 8:30Speaker 00

  It's more about ideas and more about like what markets are hot that are driving entrepreneurs in a particular direction, right? So you see more concentration of ideas, uh, in certain areas when those things are hot in public markets. So, you know, like you mentioned, there are always NFT projects raising, there's always NFT studios, there's always things that are. Kind of things that are tethered to the themes that are exciting in public markets. But for the most part, you can kind of ignore what's happening in Publix when you're looking at, when you're looking at C tier deals. When you go further afield to like Series A and beyond, then it really starts to matter.

• 9:05David Hoffman?

  So how do you like Axie Infinity, for example, like the Axie Infinity alone triggered an absolute mania in play to earn games? Like that, this one thing like started to move billions of dollars of capital outside of its own token into like, you know, play to earn games. The next Axie, we want to be the next Axie was like a line for a really, really long time. But like when you invest these things in these things, like you're minimum locked up for a year and usually much more, more than that. And so you have no amount of like guarantees that like, you know, the play to earn gaming thing is going to be around, let alone three months, like in three months, let alone like you one plus years.

• 9:46David Hoffman?

  So how do you, how do you just manage like, well, play to earn games is a really hot topic right now. And maybe the fundamentals are there, but, and we do want exposure to that concept. But, and so like, you know that like, yes, this is an investable theme. But are the game, are the startups that are coming to my, my desk right now going to be the thing that actually capitalize on that? Like, I guess it's another reframing of the same question, just like the mania and demand for it's like, oh, like play to earn gaming. We got to invest in that versus like, well, is it really going to be a year, a thing in a year again? How do, how do you navigate those waters?

• 10:24Speaker 00

  Yeah, I mean, you, you, that's precisely the right way to think about it is that it's not enough to say this thing is hot right now. You have to draw the economics forward and really understand that look, by the time that we get liquidity on our investment and the things that we're investing in now, which are pre-launch games, like from pre-launch game to actually getting a game in the market and monetize. And then you're, you know, you start, you know, the token gets launched and your lockup eventually starts to expire and you start getting liquidity. That is going to be multiple years. And so it's really not a question of what is Axie Infinity being valued at by the market today? The right question is where do you think this market is going to be in three years? And you know, for us, or I'd say for me personally, um, you know, I'm, I'm actually, um, I'm very

• 11:08Speaker 00

  bearish on this current generation of player and gaming. Um, I don't think it's particularly sustainable. And, um, and also, I mean, look, I've been in crypto long enough to know that like, although in general, you should assume that markets are smarter than you are and that markets are forward looking. Um, in crypto, I think those are both bad assumptions, depending on who you are. So, uh, I, I generally speaking, you know, I, I strongly take my own judgment over what the market's telling you. And if, you know, I think, I think it's very likely that when we see, now, we backed a number of games, um, and even games that are using play to earn style mechanics, but pretty much everybody we have backed, you know, when we asked them like, what do you think of Axie Infinity? Their answer is that like, yeah, it's bullshit. Like it's not going to work. And, you know, you need to have sustainable token economics in order for, uh, to build a game of

• 11:53Speaker 00

  real longevity and the game's got to be fun. And, you know, the one thing that you'll never hear in the same sentence is Axie Infinity and fun. Uh, and in fact, you know, you go look up any content, you could possibly find an Axie Infinity, 100% of it is about making money and 0% is about having a good time. And that has to reverse for crypto gaming to actually have legs.

• 12:14Speaker 00

  So the games that we're backing are like trying to be fun first. And the, the reality is that building a fun game takes time. Uh, you don't get a fun game by like doing much of NFT pre-sales and land sales and this thing and that thing. And then like paying one people in the third world to play your game. That's not how you build a sustainable game economy.

• 12:30David Hoffman?

  Right. You can't mint fun like you can mint a token.

• 12:33Speaker 00

  Unfortunately not. No, you can do that with NFTs, but not with, not with games.

• 12:38David Hoffman?

  Um, maybe, maybe that is in hindsight, like how we reflect on this whole NFT mania is like, oh yeah, we figured out how to briefly mint fun and then we milked that for all of its worth.

• 12:48Speaker 00

  Yes, yes. I, I do think that in retrospect, when we look back on this sort of gen one of crypto gaming, it's going to look a lot like gen one of tokens.

• 12:58David Hoffman?

  Sure.

• 12:59Speaker 00

  We're going to, we're going to have the same kind of embarrassment. Yes. Yes. Yeah. People are going to be, people are going to look back and kind of be like, I was kind of right, but like, yeah, maybe I missed like the particulars of why this generation wasn't going to work.

• 13:11David Hoffman?

  Right. Uh, when you do, do your, your seed investing at Dragonfly, uh, do you like, think about, is this going to outperform ETH? Or how do you try and gauge performance? Like, what is your, what is your measure for return?

• 13:26Speaker 00

  That is

• 13:27David Hoffman?

  Or Bitcoin or your preferred L1 asset.

• 13:30Speaker 00

  Yeah, yeah, yeah. I mean, you generally want to be thinking of, look, am I, is this a good risk adjusted return and risk adjusted relative to what? And the answer should be the risk and return profile of just beta, right? Which is buying Bitcoin or buying Ether. That being said, you know, our, our venture funds can't just go and buy Ether. So that, that actually is not literally the counterfactual, but that's ultimately what our LPs are going to judge us on is are you, is investing in you better than just buying the underlying? And so that, yeah, that's the metric by which we try to judge our investments.

• 14:00David Hoffman?

  And you see, switching gears a little bit, but also not totally, you have a background in poker.

• 14:07David Hoffman?

  Can you talk about how poker has influenced your decision making in these markets, especially the emotional ones?

• 14:14Speaker 00

  So poker, it's an interesting question. So, you know, most, you know, you're, most people are aware, a lot of poker players have found their way into crypto. But most of those poker players end up on the trading side. There are actually very few poker players I know that have ended up on the venture side. And trading and venture require very different skill sets. So I think poker and trading have a lot of crossover in common. There's a lot of stuff in there about risk management, controlling your emotions, thinking in terms of expected value, being probabilistic about, you know, understanding outcomes. Those are skills that poker trains you in that are very much rewarded in trading. Venture is a very different kind of business because in venture, so one, venture is driven by power laws, meaning that most things make very little money or make

• 14:59Speaker 00

  no money, and then a few things make a ton of money. And so you're really betting on this like asymptotic return profile on each individual investment. And trading is not like that. Like most times, trading, it's like, okay, it goes, it goes for you, it goes against you, but like, you just need to be right more than 50% of the time and you're going to make money. Whereas venture is like, you make 100 bets and three of them are going to pay for your entire fund and one of them is going to be like 1,000x, right? That's what venture looks like. And so the kind of thinking you need to do in venture is very different than the kind of thinking you do in poker, because you constantly, it's very difficult to do math when you're dealing with power laws, right? Like the, the convexity of individual bets is so High that something that like is most likely going to fail, but has a very small chance of paying off a very, very large amount of money.

• 15:43Speaker 00

  There aren't a lot of things like that in poker. The second thing about it that's different from poker is that venture is very relationship driven. It's very, it's extremely iterative game. So venture is all about building a brand, building the way that people know you and think of you and building long term relationships. Whereas poker famously is like, you know, it's like this hand. I just have to make money in this hand and I maximize value in this hand and that's it. And like generally speaking, you not really, although obviously poker is an iterative game in the sense that you're playing the same people at the same table for multiple different hands. You're not really worried about, okay, I want to be nice to this guy. So next time around, you know, he's going to be nice to me. You know, I don't want to check raise him too hard because then he'll check raise me next time.

• 16:25Speaker 00

  Like usually in poker, it's like, no, I'm just going to check raise him and screw him and like exert as much pressure as you can. Unless you're thinking about like, okay, this guy's a fish and like, I want to keep him happy because I want to keep him losing money to me next time and the time after that. But that's generally not a huge part of how poker is played. It's a fairly small factor in poker. So those are ways in which I think venture poker doesn't really prepare you that well for venture. It prepares you very well for trading, but not very well for venture. And that's why I think you see very few poker players find their way into venture. So that's, I feel like I've had to learn a lot of those skills really from scratch as a venture capitalist.

• 17:00David Hoffman?

  Interesting. Yeah, I never really considered that dynamic, but the, the zero sum versus positive sum games and the, the, the iterative game aspect of, of venture is, is a brand new concept to me. So I definitely want to dive into that particularly. What aspects of venture are like positive sum iterative, like you scratch my back, I'll scratch your back kind of thing, kind of thing. Like what, what are the relationships that you're trying to establish that help you become a better venture capitalist?

• 17:27Speaker 00

  There's a bunch of them. So beyond just, you know, creating a lot of value and putting out content that ends up becoming valuable in ways that are difficult to quantify. Right? Like that's what brand is. Brand is sort of difficult to quantify relationships. We have lots of small relationships, a lot of people who you've never met. That's brand. You know, the, the. The importance, if anything in poker, it's actually the other way around. And in some ways in trading, it's the other way around. In trading, you don't want people to know what you're doing. You don't want people to know that you're a really smart trader and that you're making a lot of money and that you're pushing these edges. Same thing in poker. In poker, generally, you actually don't want people to know you're good. Because if people know you're good, they won't play you. And so in some sense, there's like an anti-value to brand. Is that having brand, unless it's like, you know, you're getting on TV or you're getting invited to these invite-only tournaments.

• 18:12Speaker 00

  But then there's this big difference between like TV, you know, we would often call them like TV poker players than like real poker players. And like, you know, someone like Doyle Brunson, who's like, not actually very good anymore. He's like super, super old, you know, he's like kind of a TV famous poker player.

• 18:26Speaker 00

  In a real card game, he would actually be a terrible, he would be like a fish at the table in like a real high stakes poker game. But he, you know, he's famous, he gets invited on TV, and then he gets to play in these like really soft games where actually he's, he's good when he's playing against, you know, just like Jimmy Fallon or something, right? Okay, now he's, now he is the shark at that table.

• 18:44Speaker 00

  So in, in, most poker players don't have that experience. Most poker players, they don't want to be known. But in, in crypto venture, or in venture generally, you want to be known. You want everyone to know that you're really valuable and that you're a person they want to work with. And that extends not only to just random folks who might someday become entrepreneurs. It also applies to your portfolio. You want your portfolio to speak highly of you and you want them to be a strong reference when other people ask around about how, hey, what is it like to work with this VC? You also want to have strong relationships with co-investors. So other people who you're going to find in around and you want them to say like, hey, I've got this company. You know, I don't want to take the whole thing myself. Who do I want to partner with to take down this investment? You know, I want, you want, you want them to think of us. Or alternatively, when, when we know a lot of angels who find deals very early.

• 19:28Speaker 00

  We want them to say when they meet with a company, hey, you should really take Dragonfly's money because they're a really great investor. And so a lot of our deal flow comes from the relationships that we have and the people with whom we've been valuable. The sort of, I scratch your back, you scratch my back. You know, we bring a lot of angels into rounds, they bring us into rounds. We bring a lot of co-investors into our rounds, they bring us into their rounds. And those relationships are incredibly valuable over the long run to establishing your deal flow and your access as a VC. And that's the kind of thing you don't deal with when you're, when you're a trader or a poker player.

• 20:01David Hoffman?

  There was a meme going around in crypto Twitter not too long ago of, it was from the perspective of a venture capital fund. And it was like, when the portfolio company finally calls you up for that value add that you promised at the very beginning of the relationship. And then it was like, you know, some like small little girl like crying her eyes out, like being boo hoo, like, oh, I have to actually add value. What does adding value actually look like? And then like, what are the, how, what would one add value to one of their portfolio companies? And I'm assuming that being one of the most viable paths toward establishing reputation, positive reputation for the, for the, for the venture capital fund.

• 20:37Speaker 00

  Yeah. So there's a few avenues of value add that are most common. So the first, and there's a bunch of stuff that's really easy to do, that a lot of VC, no matter how large, would be able to do it. So one example is helping with recruiting, right? So, you know, helping them find candidates, helping them closing candidates, helping them just even strategize around a hiring strategy, which tends to be one of the biggest difficulties for early-stage startups. You know, support on just kind of rote things like legal compliance, like figuring out where to structure, given how complex structuring tends to be for crypto projects. So those are some of the very early and obvious needs that early-stage startups have. And then you can even go further afield, sort of more, you know, crypto native considerations. So, you know, a lot of people need help with getting an audit. So, you know, these auditors,

• 21:21Speaker 00

  they tend to have very, very long backlogs of audits. And if you can help them accelerate getting into, getting an audit more quickly, that's really valuable. There are a lot of service providers, like, you know, what's a good accounting firm? What's a good legal firm? What's a good, you know, what's a good PR firm? If that's what I, if that's what I need? Or even, you know, if there's a dev consulting shop that I might need access to, right? Then you've got things like, okay, can, can I help you place a story in PR? Can I help you get an announcement into the block or into CoinDesk or into, you know, one of these crypto native publications where with whom, you know, we have relationships. And then you start getting even more Specialized, which is, can you help me with my token economics? Can you help me with my strategy? Can you help me with my go-to-market?

• 22:02Speaker 00

  And these are places where it's not just enough to have people on staff who are, you know, good at those individual tasks. That's a place where you really need, um, you know, sort of investor level expertise. Right? So like, you know, someone like myself or someone like Tom, you know, who's another partner at Dragonfly, who used to be head of product at ZeroX, you know, folks like us who've seen a ton of projects because of our work and experience in the industry, then we can actually sit down with our companies and help them think through, you know, a novel token economic design or a novel approach to mechanism design or, um, you know, some way to, uh, structure their token distribution that really requires, um, the kind of expertise that they can't buy. Right? You can buy help from a recruiting firm. Like technically, we kind of bundle it together with our investment.

• 22:44Speaker 00

  You can, you can buy a PR firm that can, you know, give you access to CoinDesk or whatever, but you can't buy the kind of expertise that a relatively small number of firms actually have in-house. Um, you know, it's like for Paradigm, you can't buy Dan Robinson, right? You know, Dragonfly, like you can't buy a C to sit down with you and think through your token economics. And so that tends to be the most irreplaceable part of what, uh, strong VCs can, can provide to portfolio companies.

• 23:09David Hoffman?

  It seems like you, um, that what if, from what you just listed off, uh, more or less is somehow involved with almost everything about like a startup, just like, you know, legal or just like the rob token and economics of like how their project works or connections and hiring. It sounds like, you know, you can, you have the potential of helping them out with almost literally every one of their needs. And a lot of that comes from simply like the reputation and the connections that you've established from yourself as a brand, like, well, it's easier for us to provide that for you than it is for you to provide that for you because we have connections. Is that more or less right?

• 23:46Speaker 00

  Yes and no. I mean, the, the median company is not going to add, ask for even, you know, half of those things. Right? Like the median company has some of those things figured out and other ones of those they need help on. So

• 23:56David Hoffman?

  Right, yeah. I know, it wasn't saying like

• 23:58Speaker 00

  We're not going to go back and like redo your structuring, right?

• 24:01David Hoffman?

  I wasn't saying like you come and bring down like literally half of the company coming from Dragonfly to make this one startup. But just like you have the potential to and you have the optionality to do all of those things.

• 24:10Speaker 00

  Yes, yes. I think for sufficiently large firms, we tend to be pretty full stack in the way that we can can perform our value add. But there are some things that are more common than others that people actually want from us, right? Generally, what I the advice that I give to founders in thinking about value add is, you know, VCs, we're in the bundling business. Meaning that our job is to try to brand our capital as being different from other people's capital. And the reality, of course, that capital is not branded, right? Real actual capital is just like money in your bank and you can't tell who it came from. So it doesn't really matter who you get it from. And so what VCs really do is they try to make it so the package of my capital is worth more than the package of that person's capital.

• 24:52Speaker 00

  And it's our it's in our incentive to bundle as many things as possible in that package. Now, the most valuable bundles are bundles that include things that you can't buy otherwise, right? And so, you know, if I were to tell you like, look, I'm going to invest in your company and exchange, I'm going to market make your token. And that's going to be really valuable. And, you know, so a lot of market makers try to get into VC by offering, you know, a bundle of market making services. Or, you know, an auditing firm, I'd say, hey, I want to get some room on your cap table. And I will, you know, give you a discount on audits if you if you use me as an auditor. And these things are obviously valuable, right? Like it's them trying to compete in their own way in the bundling business.

• 25:29Speaker 00

  But the advice I generally give founders is that usually the most valuable bundles, like if you take money from an Andreessen or a paradigm or a Polychain or a Dragonfly, the most valuable part of that bundle, again, is the part that you cannot buy. Right? So like if if if somebody wants to offer you market making services, well, then you can buy market making services, right? There's it's a completely commodified market. You can you can buy it from any of the market makers. They all bought your price. But there are some things that, again, you cannot buy or that if you want to try to get yourself will take you a lot of time. And time is the one resource that you cannot. Spend money on generally.

• 26:04David Hoffman?

  Right.

• 26:04Speaker 00

  And so those are the things that are usually most valuable in that bundle. And it's why you see, in fact, that, you know, it is the top VCs who end up usually winning the allocation in a lot of these deals. Not market makers, not service providers and not other people who have more commodified forms of that bundle when they're trying to invest into early-stage companies.

• 26:22David Hoffman?

  And how does that change the game for what a VC is looking for when it's trying to grow out its own staffing and its own, its own resources in-house? Like what, what is hot, what's hot on the market for a VC firm? Is it poker players?

• 26:38Speaker 00

  Obviously poker players, very high demand. I mean, the hardest thing right now that I think most people are realizing is very, very hard to just get an investment team. Anybody who knows how to invest in crypto is in extremely high demand. And so you've got, you know, you've got like, you know, 23-year-olds who've got like two years of experience who are getting partner offers at like TradFi funds. And this is just, this is just the way of the world now. And I think it's gonna be a while until you see supply and demand equilibrate on the investment side. I mean, you're seeing it too, obviously, on the engineering side, whether you're getting, seeing crazy, crazy engineering hires, crazy legal hires, where folks who are making, you know, somebody in big law, for example, is making, you know, maybe 500K a year with,

• 27:20Speaker 00

  you know, four or five years' experience at a big law firm, is being offered like a million dollars a year in a top token project. That kind of pay bump is a function of supply and demand, right? There's just not enough supply of crypto native talent. So I think over time that will normalize. Like we're already, you know, you and I are seeing a huge influx of people coming into crypto. And those people, within a couple of years, are gonna be ramped up and that's gonna change the supply and demand mechanics within crypto. But it's gonna take some time for that to happen. And we're certainly far away from there today.

• 27:50David Hoffman?

  You said people who know how to invest in crypto. I mean, anyone who comes into this market can, you know, sign up for Coinbase, buy some ETH and Bitcoin, you know, make it self, take self custody of it, buy some tokens on Uniswap. But what does it really mean to be like good at investing in crypto? Like I've been in this industry for almost five years now, which is insane. Like I'm not even sure if I'm good at investing in crypto. So like, what does that actually mean?

• 28:15Speaker 00

  So when I say investing, I mean, the liquid market side, I have less expertise on just because it's not what I spend my day to day on. The venture side, what it means to be good at investing into crypto, generally, the way that you're going to be measured for your skill at investing is, one is just your portfolio. So what deals have you gotten into? So whether that's as an angel or whether that's at a firm where you're investing on behalf of a platform. But then there's one element of getting a check into a deal, which is kind of just your, it's really about judgment and having some degree of access. But the real barometer of like, how good are you investing in crypto is can you lead deals? Can you really extract large amounts of the cap table and really sell an entrepreneur on not just let me in the round,

• 28:59Speaker 00

  but have me be the guy who you partner with for this round. And that is, you know, it's sort of like if you, if you got into a great deal, like let's say you did, let's say you did avalanche early, right? You get some points for just picking avalanche. So it's like, okay, great. You have good judgment. You have good taste in deals. You get even more points if you've got a, if you're more than just an angel, but you got a platform into avalanche, right? Because as an angel, it's all right. You get like a 25K check in. Okay. That's like, not that hard to get a 25K check in. People will take a 25K check, you know, even if you just have a vague promise of being valuable. But if you want to get like a 500K check in or a 200K check in, it's like, okay, you need to really justify that for a platform.

• 29:40Speaker 00

  So that gives you more points, but the most points you'll get is if you get like, you know, a $3 million check in or a $10 million check in. That's like, okay, you, you really earned the trust of this person and you can win deals. And winning deals is kind of the, the hardest and rarest skill to get in crypto. And the reason why, of course, that that's a very multi-dimensional skill. In order to win a deal, you need to be competent, you need to be trustworthy, you need to have relationships that are really strong, you need to have a reputation of value add. It's like all those things that we were talking about, you need to, you need to kind of be the whole package in order to be able to lead deals. And so that's like the highest echelon of, okay, you are somebody around whom we can build a firm because you're a deal winner. So those are the ways in which if I were looking at a potential investment candidate, that's how I'd be sizing up

• 30:26Speaker 00

  the, the value of their, of their experience. So the worst of all is if like, if you're somebody who you've, you have a track record of investments into terrible deals. Then it's like, okay, I like would rather not work with you at all because like you're going to be bringing in bad deals and you don't have a good reputation and et cetera, et cetera.

• 30:43David Hoffman?

  Okay, so they need they need their own deal flow. They obviously need their own capital. But from what I heard is like the real magic is allocating size into a good deal that ultimately ends up working out. And so basically having the conviction and the knowledge to quote unquote ape into a very strong deal that turns out to be strong in hindsight. That's really what you're looking for.

• 31:06Speaker 00

  Right, but also the the ability to to win that lead position in a round.

• 31:09David Hoffman?

  Right, yes.

• 31:10Speaker 00

  Winning a lead position is a lot of it is really about sales.

• 31:13David Hoffman?

  Right.

• 31:14Speaker 00

  And it's about sales and marketing, right? So the way I like to put it is that as a VC firm, you have to do both. You have to do both sales and marketing. Marketing is brand. Marketing is like the research you put out, the talks you give, the tweets you do, like the way in which people know who you are before you show up to the table. That's marketing. That's your brand. But your ability to win deals, like when you actually show up and sit down with an entrepreneur and convince them, yo, you should let me lead you around because I'm awesome and I'm going to, you know, help you become successful. That's sales. That's more like hand to hand combat. And in order to be a great VC, you need to be able to do both. You need to be able to do both building the brand and the reputation of yourself and your firm, but you also need to be able to sit down with an entrepreneur and convince

• 31:57Speaker 00

  them that you're the guy. They should take you over Polychain or Andreessen or over Paradigm. And that's and that's hard. It's hard to do. But the very best investors have exactly that skill set.

• 32:09David Hoffman?

  Am I allowed to ask what your pitch is? Or is that trade secrets?

• 32:14Speaker 00

  You're allowed to ask. It depends a lot on the company, what the sales pitch is. But if I just sort of imagine myself pitching a generic company, I'd say there are a few things that I would lean on in my pitch. So assuming it's me, myself personally, who's the partner who's on that deal. The first thing I'd point out is that, you know, I've invested in, you know, a bunch of the great companies and products in crypto. So, you know, I did the seed round of Avalanche, seed round of Near Protocol, seed round of You know, Dune Analytics, Matter Labs, a bunch of the great company and you know, Compound and MakerDAO and One Inch and so on. So a bunch of stuff, whether it's in C-Fi, DeFi,

• 32:57Speaker 00

  Layer Ones, Layer Twos, I've been an early investor in all those things. So I know the industry extremely well. I, I think very deeply and strongly about token economics, something I could sit down with you on and help you think through, how to design your protocol and whether the pitfalls that I've seen other projects fall into that, that you can avoid. I have relationships with, you know, all the big folks in the space, whether it's auditors, whether it's, you know, the, the PR firms, or sorry, not PR firms, the, the publications that, that you want to get your story out into. And, and I'm somebody you want in your corner. You know, I'm somebody who can help you think through the ups and downs of like how to build this thing from zero to a hundred. And then of course, the other thing about Dragonfly that makes us very unique is that we're also a global

• 33:41Speaker 00

  firm. So we have a presence in Asia, which most of the firms don't really have. And we can help you think about how to bring your protocol or your company to a global stage beyond just the Twitter sphere. Twitter's huge, obviously. Crypto Twitter's a big deal, but it's only one part of where crypto operates. And crypto is a global phenomenon. And if you don't have a window into your community outside of the US or outside of the Anglophone market, then you're missing a big part of what's making your protocol tick. And that's something that I can help you navigate. So that's my very generic, it's my very generic pitch. But you know, usually it depends on who I'm sitting down in front of, what in particular I would be focused on in communicating why I'm the right person to partner with.

• 34:22David Hoffman?

  After you establish like relationships with these companies, like I'm sure they, they turn into, you know, more than just, you know, your portfolio companies. I'm sure like you get to know these people, get to know their face, you establish some sort of like actual relationship with them. How, how do you go about navigating the actual selling of the asset, selling of the token? Because you know, there are some brands, there are some VC funds out there that have the explicit brand of like this fund dumps your token as soon as available opportunity. And that's kind of definitely worked against them. So obviously that's something that you have to consider as a VC is like the timing and just like, you know,

• 35:00David Hoffman?

  Obviously, like, your job is to make money, so the commitment is like, well, at some point, the token gets sold. But like, also, that is like a choice of like, oh, yeah, we are choosing to

• 35:11David Hoffman?

  kind of transactionally end our relationship by selling this token, not all of it. But how do you navigate those waters of like, this is an appropriate time to credibly and honorably sell this token? Like, how do you time that?

• 35:23Speaker 00

  Yeah, it's a good and it's a very tricky question. So there's a few components of it. So the first, of course, is that, you know, SVCs were always locked up in every investment that we make. We don't do any deals without lockups. So there's a, and generally speaking, you know, when we're looking at a deal and there's not the pretense of lockups. Or, you know, there's like, okay, everyone is going to be fully unlocked in like a year and a half. Generally speaking, that's like a hard pass from us because we believe really strongly in the alignment of incentives. And, you know, we saw this in the, you know, 2017, 2018 ICO boom, is that when you don't have lockups, you don't have incentives aligned, then people, basically, they launch something and then they walk away.

• 36:01David Hoffman?

  Oh, by page, yeah.

• 36:03Speaker 00

  That's not, it's not healthy for the community. Yeah, exactly. It's not healthy for the community, it's not healthy for the investors, it's not healthy for the founders. So, so generally, we, we in general push for lockups and we like lockups. And we, and we often prefer them to be longer than what sometimes some of the initial state in which we might find these rounds being priced at. Now, that being said, like, obviously, as a venture capitalist, we eventually have to sell because we have LPs. And our LPs have the demand to eventually get their money back. So we do eventually have to sell, but we're in no hurry to sell, right? So as venture capitalists, we're not traders and we're under, there's no reason why we have to sell the moment that our lockup expires. And so generally speaking, we don't sell when our lockup expires.

• 36:43Speaker 00

  And the, and our view also is that, you know, most of the money in the space is made in the long run.

• 36:51Speaker 00

  Like, there's always money that you can make by, you know, flipping things quickly, you know, buying things early and then selling them as soon as they become liquid in the market. There are some folks who engage in that strategy and it's a strategy that can work. Sometimes it doesn't work, but a lot of times it does work. But that's not how, that's not how the big money gets made. The big money gets made by finding the right things and sticking to them and betting them as they continue to grow and becoming extremely valuable, right? Like, the way that you got rich off Ether and Bitcoin was not by jumping in and out of the market when, you know, things were good and things were bad. Like, there are people who made money doing that, absolutely. A lot of people made a lot of money in crypto. But the people who made the most money in crypto are the people who just sat there and held the most valuable things. And as a VC, again, we think in terms of power laws.

• 37:36Speaker 00

  And if you think in terms of power laws, you realize, like, look, it's possible that, you know, some of the stuff that we invest in, it goes liquid. And as it goes liquid, it, you know, the demand doesn't keep pace with supply, you know, supply keeps going out of the market, and I think the price just, you know, slowly slowly coops down, and you end up, you know, losing a lot of what initially looked like your markup might have been. This definitely happens, and it's happened to us in our portfolio a bunch of times, and it's very normal. But it doesn't really matter that much in the context of our overall portfolio compared to the things that are really going to work, right? So it's like, the layer ones that you bet on that didn't take off, all of them got more than paid for by the avalanches of the world, the nears of the world, that really did take off and really became extremely valuable.

• 38:18Speaker 00

  And so, in the overall picture of a portfolio, it just doesn't really matter whether or not you, like, sold this thing early or sold it late, like, it doesn't matter relative to the overall growth of crypto and the most valuable things that are being built. And that's why, one, we don't lose so much sleep over whether we timed this particular thing or not, and, second, why we're not under a strong impetus to sell things quickly, right? So if we end up being wrong in certain number of the bets that we made, then, okay, we'll take the L. It's unfortunate we didn't get what we, you know, might have originally hoped to have gotten in this particular investment, but we don't try to immediately dump the tokens as we get them because it's just not necessary. Now, that doesn't mean that we never sell things, you know, before 10 years or something. We do, we do sometimes sell things before some other period because of some fundamental view, or we might have lost, we might have fundamentally lost confidence in a particular

• 39:03Speaker 00

  project or particular position, in which case, we will do that. But if we, if we're, if we're still along for the ride and we believe in the entrepreneur, then we'll, we'll hold, and we'll, we'll wait to see what this thing evolves into. Because, again, you know, the thing about crypto is that crypto is very cyclical. And there are times when the market goes into a secular decline and we talk about narrative exhaustion. It happens in crypto, but the cyclicality of crypto also means that at some point, again, people get excited and it starts to go up and those things, you know, the animal spirits return. And so to some degree, like you don't need to overindex on what's going on in the market right now. Almost always, the right answer in retrospect was just keep holding and see what happens with the market. And probably that would have ended up working out better for you.

• 39:45David Hoffman?

  But how does that work when so much of crypto operates in fads, right? Like if you, the advice of just like, well, you can kind of just hold your way through it. Definitely doesn't always work. Like take, take for example, of somebody who gets into the world of the ICO mania. Like you can't really hold your way through the ICO mania. Granted, there are things like SNX and Lend, which then turned into Ave and Link, right? Like we got three big, big winners coming out of the ICO mania.

• 40:12Speaker 00

  We got more than that. We got a lot more than that.

• 40:14David Hoffman?

  Really?

• 40:14Speaker 00

  Right? Like what were the other ICOs? Cosmos, ICP?

• 40:19David Hoffman?

  Oh, yeah.

• 40:22Speaker 00

  What's the other one I'm thinking of?

• 40:23David Hoffman?

  Polkadot, I guess, was also one. Yeah. Okay.

• 40:26Speaker 00

  Exactly. There were a ton of huge winners in the ICO, right? If you, it's very reminiscent of the dot com bubble. Is that the dot com bubble included Amazon, it included Google, it included a ton of companies that ended up becoming absolutely generational winners. And so if you just bought a basket, a lot of things that basket would have gone to zero. And then you would have had some things that paid for everything, right? And today it looks like that's Cosmos, Definity, you know, Polkadot, and a number of other projects that have become tremendously successful that were part of that ICO bubble.

• 41:00David Hoffman?

  Yeah, I guess, I guess I might have revealed my 2017 investor naivete because I was definitely, definitely buying substratum and a bunch of other just like, you know, shitcoins all throughout 2017. Cause I didn't know what to do.

• 41:13Speaker 00

  Some things got absolutely wrecked, right? Some things got absolutely wrecked and are just lost to history. But there are a lot of things that end up becoming among the most valuable protocols in existence.

• 41:23Speaker 00

  So on the whole, I bet you that if you index the ICO bubble, you made money.

• 41:27David Hoffman?

  Hmm, hmm, interesting. Um, you, you talked about how like three, three Ws will pay for the fund and then one, one W will be like the, the 1,000 X that like really, really is a differentiator. Has there ever been like a, a time where you've been listening to a pitch or you've just kind of been reflecting or diving, diving deep on a, on a, on a, on a project and you're like, it's going to be that one? Like, did you, is there ever been a time where you identified it ahead of time?

• 41:56Speaker 00

  Uh.

• 42:01Speaker 00

  Where I identified it correctly ahead of time.

• 42:03David Hoffman?

  Yes, correctly ahead of time. Or at least, you know, ballpark.

• 42:06Speaker 00

  Correctly ahead of time. Yeah. Um, I think the only time that I have done that was near. I think near is the only one that I like, I saw that and I was like, I know that this one is going to hit. I know that this one is going to be huge.

• 42:22Speaker 00

  And that was only in the series A, not in the seed. In seed, I, I, it was very, very nebulous. But in the series A, uh, which was pre-token launch, um, I was like, this one is going to be absolutely massive. That was probably the only one that I identified. Oh, no, the second one I'd say was Bybit. Bybit was the other one that, uh, we bet on. We were like, this thing is going to be absolutely a massive success.

• 42:46Speaker 00

  But most of the time, uh, it was a surprise.

• 42:50David Hoffman?

  Do, was there anything you remember that really stuck out as to like, was just like pure product market fit? Or like anything that stuck out that really was like, well, this is, this is why I believe in this?

• 43:00Speaker 00

  For near, I'd say for Bybit, it was more straightforward. It's just that these guys were just growing like crazy. They had super good execution. They had super high margins. And, um, they were basically coming into the market right as BitMEX was falling off. And so they were filling a big hole in the market, um, and in the derivative space. So that was just like a market structure and it was just really obvious to anybody who had underwritten the business that these guys were just going to continue to crush. And of course, perps are just a huge market. So being one of the dominant players in perps and rapidly rising in your market share, um, it's, you know, I, I feel like that, that was just a hundred IQ. Like, doesn't require a lot of insight to realize that Bybit was going to win.

• 43:38Speaker 00

  To look at near, the reason why I was so bullish on near at that time, this was like, uh, before the, uh, the coinless sale that we invested into near and. The reason why I was so bullish on Near at that time was, one, is that I felt like Near was probably pound for pound, the best engineering team in crypto, in layer ones. Second is that they had basically innovated on the design for Ethereum 2.0. Like Ethereum 2.0 actually took a lot from the Near sharding design. There was a lot of, I feel like the two things that were most influential on, on Ethereum 2.0 were probably Near and Filecoin were probably the two biggest influences. And, and Near just had the most credible shot on sharding of any blockchain that I'd seen. And that seemed really, really compelling.

• 44:24Speaker 00

  And third is that they had an EVM story and I was, you know, very bullish on the EVM continuing to be dominant. And if they could integrate the EVM into a sharding based platform, but also with the developer experience of having a Wazim based runtime that people could also opt into that was higher performance, that I was just like, this thing is just going to be huge, given that the demand for Ether, the demand for Ethereum block space is so high. And I think sharding is just long-term, the most, the most credible path to scaling. So, or not the most, but one of the most credible paths to scaling. So that made me just incredibly bullish on Near.

• 44:57David Hoffman?

  Do you know when this was? When was this?

• 45:00Speaker 00

  This was late 2020. So this was like October-ish, I think.

• 45:08David Hoffman?

  Yeah, if demand space for Ethereum hadn't, it had started to pick up. We were at one Gwei gas prices for a really long time. And I can't remember when we actually broke out of that paradigm and went from like one to three. And then a few months later, we went three to 10 and everyone was like freaking out about how congested Ethereum blocks is with. I think that was towards the end of 2019. But you must, you must have been making in growth in demand.

• 45:32Speaker 00

  This is after DeFi summer.

• 45:35Speaker 00

  Well, this was after DeFi summer, but yes, like it was block, block demand. So 2020 was DeFi summer. Yeah, yeah, 2020 was DeFi summer.

• 45:42David Hoffman?

  So, sorry, I thought you said 2019. Yeah, okay. Well, that kid was obvious.

• 45:48Speaker 00

  So, yeah, yeah, it was, it was pretty straightforward that demand for block space exceeded what Ethereum was going to be able to do. And the other thing, of course, was this, that Ethereum 2.0 was so far away. And it was just really obvious to us that like, everybody who was thinking Ethereum 2.0 was coming soon, was completely off the rocker and like, it was going to take forever for Ethereum 2.0. So you needed to have other approaches to scaling block chains to come in the interim. So at that time, there was this debate that I feel like in my mind got resolved in early 2020 of is it going to be Ethereum and Ethereum 2.0 or is it going to be alternative little ones? And to me, like, it just became, I just became absolutely certain, basically, in, in like,

• 46:29Speaker 00

  early, mid, late 2018, it was not obvious to me. I feel like it really could have gone either way. Early 2019, I felt it could go either way. Mid to late 2019, I became more and more certain that other little ones were going to matter and that Ethereum was not just going to own the entire market. And then by, by late 2020, I felt like it was just a done deal.

• 46:48David Hoffman?

  And what do you think now?

• 46:52Speaker 00

  I, I think it's, it's been the same since 2020. It's a done deal. We're, we're in a multi-chain world, right? There's no longer a debate. It's just a fact.

• 47:00David Hoffman?

  Do you, what do you think over like 2025 to 2030? The distribution between market share between Ethereum and the rest of the, the alt layer ones? Do you have a kind of a gut ballpark field on, on what that, what that might look like?

• 47:18Speaker 00

  It's, it's an extremely hard question.

• 47:22Speaker 00

  If I just had to give a guess off the top of my head, I would guess that Ethereum was probably going to have like 50 to 60% market share.

• 47:28David Hoffman?

  And then, and then like three to five all layer ones split up the rest?

• 47:33Speaker 00

  Something like that, yeah. My guess is that like the number two player probably has 20% market share and then it like kind of falls off from there.

• 47:41David Hoffman?

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• 49:37David Hoffman?

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• 50:20David Hoffman?

  your ETH or other tokens and start playing around with any of the thousands of applications that are available on Polygon. Switching gears a little bit here, I remember going back to kind of the similar question where like you had this opportunity and you knew ahead of time that this was going to work. For me, in 2018, that was Cosmos. I learned about Cosmos doing just like basic, like very, like 2018 was my first like nine months in. To crypto. So I was very, very new, but I still had like my strong intuition that I think most people didn't have back then. And the multi-chain and like interoperability layer is very, very attractive. It's like a very simple concept. Oh, we got all these chains. Well, we need the chains to span the chains. That was Cosmos. Like, obviously, we need that.

• 51:05David Hoffman?

  And I remember I was working at an ICO advisory company, my first crypto job, and I went and printed off like the first couple pages of the Cosmos white paper, and I took it over to the research team. I slapped it down on the desk, and I go, guys, read this. And I was like, they were all like, oh, my God, this is so great. This is exactly what we're looking for. So basically, the TLDR of the story is like, I had that. Like, I called that. But after I was like, okay, like, how do I buy the token? Turns out, like, they had already sold the token to, I'm pretty sure, accredited investors, that I was not able to get in at the time, because I was like a recently broke college student. And so we've had this conversation about like, VCs and their

• 51:49David Hoffman?

  connections to media firms and to like, token or smart contract auditors, and being able to provide value to their angel or to their seed investment companies, their portfolio companies, by using their connections. And like, you know, we still have accreditation laws and all that stuff. And to some degree, part of the Web3 narrative is like, we can get away from all that. Like, we can have like the users. And that was the ICO narrative, is that, no, it's the users that are the investors now. Do you still see any like kernel of energy around that narrative in Web3? Because I see it less and less and less these days.

• 52:30Speaker 00

  Yeah. Well, first of all, didn't Cosmos do an ICO?

• 52:33David Hoffman?

  Yeah, it might have just been before my time. So I might have just missed it.

• 52:37Speaker 00

  Okay, okay. Yeah, because I'm pretty sure they did. I'm pretty sure they did.

• 52:39David Hoffman?

  This story is still the same.

• 52:40Speaker 00

  Yes, but I understand the broader point. I understand the broader point. Yeah, yeah. So the first thing is that when we say retail... What do we mean by retail? Because the reality and what do we mean by the community, right? Those are often the two terms that we kind of use interchangeably, but I think they also imply different things. The reality, of course, that you look at DeFi, right? When you, when you open up something like when you open up an IDO, the, the vision behind opening up an IDO or opening up like NFT minting is that the community or retail gets to participate, right? And the reality, of course, is that it's not retail or quote unquote, the community that participates. It's a bunch of trading firms with bots that actually can, you know, get into, get into flashbots or, you know, front around the men pool or do all this fancy stuff to go

• 53:23Speaker 00

  and fill out this entire thing before you can even show up, right? If you're, if you're sitting there clicking buttons on an interface, like you're already out of the game, like that's you're, you're, you're done, like they're, don't even bother. So the ability to really identify what do we mean by retail has become more and more clouded over time as the space has gotten more professionalized. So that's, that's one thing. Now, the second thing is that in some ways, one of the most pure embodiments of what we mean by retail and the community is, um, uh, what's, what's, what's the term called like Discord grinding, uh, or whitelist grinding, where basically like, you know, folks who basically will just go around and like, basically farm engagement in a bunch of different discords in order to get invited to pre-mint. Exactly farm participation, right?

• 54:06Speaker 00

  And like, in a way, this is actually very, um, this is like, these are true retail people who are doing this, right? Like this is not, uh, trading firms that are going in and doing it because you can't do that at scale, right? This is like true individuals, but of course it's the most cavalier mercenary kinds of individuals who are going in and doing that. The real thing that you want, what you mean when you say, how do we get the participation of retail is what I mean is like the really nice folks who are not trying to game things, who are not just standing for the money, who really just believe in the ethos of Ethereum or believe in the ethos of NFTs or believe in the ethos of the thing that I'm building. And the reality is that like, as you start slicing up the pie of what I mean by retail, it starts getting smaller and smaller and smaller and smaller to the point where like it's almost impossible to actually specify those people within a set of rules, right?

• 54:51Speaker 00

  Like, it's kind of like, I know it when I see it, when I know like a real genuine community member, but there's no mechanism I can come up with that actually distributes tokens to just those people and not these other people who I don't want to give tokens to because they're all a bunch of mercenaries. And I think the realization that as this space is professionalized, it's harder and harder to accomplish that true goal, which is, you know, I want to give it to my true community members, that you realize like, look, the ROI on giving it to the folks who show up in whatever mechanism I come up with, if 80% of those tokens are actually going to trading firms, then like, that's such terrible ROI on, on, on trying to do a community distribution that like, why am I even optimizing for that anymore? It's so inefficient to try to do that, that it just doesn't work.

• 55:34Speaker 00

  Now, we have things like, you know, ArcX or things like Galaxy that try to find ways to sort of do on-chain KYC for real good users who've been, you know, active in governance or who have participated in other DeFi protocols before as a, as a kind of civil resistance for, you know, how to identify really true, good community members. But the reality is that it's hard. It's really hard to do that. And so one of the reasons why people kind of throw up their arms and give up on this notion of, you know, really being, really trying to do an earnest distribution to community is that the definition and the ability to access the community has changed over the last three or four years, right? Four years ago, it was much easier. If you did an ICO, you could pretty much bet that most people who are buying your token were genuinely quote unquote retail or quote unquote community members. But that's just not true today.

• 56:18Speaker 00

  And that's why it's a lot easier to say, look, I know if I give my money, or sorry, if I, if I take capital from a, you know, high-quality VC, that they will help me. But I don't know if I, if I do a distribution to quote unquote retail, that it's not going to mostly go to a bunch of trading firms that are just going to dump my token the moment they pick it up, which is in fact what will happen if you just do an ICO without any other forms of gating. So that, I think, is, is where a lot of this exasperation with the notion of selling tokens to community has come from.

• 56:46David Hoffman?

  Yeah, it seems like a gigantic Moloch trap where even if there are a supply of very engaged, quality community members who definitely deserve the tokens, like the more and more of those people that there are, the more and more incentive it becomes to game, game those, that existence of those people and like become the wolf in the sheep's clothing, like, oh yeah, we're just like those. Let us in and then we'll just drown everyone out.

• 57:12Speaker 00

  Exactly. And that's and you see the same thing with like, you know, you saw it with ribbon farming. You see it with, you know, D Y D X, you know, wash trading. You see it with almost every one of these mechanics for distributing tokens to users of the protocol gets gamed in one way or another. And there's almost no mechanism you can come up with that will not get gamed somehow.

• 57:30David Hoffman?

  So say that there, that every single cycle of crypto brings in their brand new cohort. Like we currently have the 2020 to 2021 cohort of crypto people who are, you know, quote unquote, buying the top and like earning their stripes and all that stuff. But say there's a listener who is like, well, I'm one of those like, I believe in crypto. I believe in the ethos. I see the, the potential of crypto, not just for 2025 or 2020 or 2030, but like for 2050 and 2070. And I'm, I'm so crypto pilled and I believe in the ethos and I'm here for the long term. And I am a good community member. There's, I hope there's a number of those listeners listening to Bankless right now. Do you have any just perspectives or thoughts or advice for, for these types of people?

• 58:12David Hoffman?

  It's just how to navigate the murky waters of retail and actually become elevated to start participating in some of the conversations that, that we've been having here.

• 58:21Speaker 00

  Yeah, I'd say the, um, the number one thing that you can do in anything, but especially in crypto, is to take on responsibility. So the one thing that there is, there's a lot of engagement in crypto, right? There's a lot of people who show up in your Discord, a lot of people who will like, you know, especially on your first governance vote, a lot of people who might vote in governance or like weigh in on some forum posts. But there are not a lot of people who will take on responsibility, who will raise up their hand and say, I will be responsible for X and I will do the, you know, the cat herding. I will do the dirty work. I will write up the docs. I will, you know, organize the, um, the governance calls or whatever it is, right? Uh, that, that instinct to just raise your hand and take on responsibility

• 59:04Speaker 00

  in the communities that you're a part of is the most valuable thing. And the most likely thing that's going to one, get you a lot smarter about Web three. And also if what you're looking for is compensation as a, you know, member of the Web three community, you're going to get there much faster by taking on that responsibility and also getting invited upwards. To take on responsibility in other communities and other DAOs and other multisigs, right? Like if you if you show up in a bunch of these discords and you just, you know, type a bunch of random stuff and get into arguments and then, you know, expect an airdrop, that person is going to become much less successful over the next, you know, several years than the person who learns how to be an active and engaged and valuable community member. So that would be my number one piece of advice to the marginal person coming into crypto.

• 59:46David Hoffman?

  I think that maps on to a lot of the advice that I've seen in other industries give with when it generally comes like breaking into the industry. Like you're a no one and you're in a sea of nobodies. And so how do you stand out is that, well, you start doing valuable work for free. Uh, and if you do work for free, that's like the easiest way to stand out because no one does work for free. Like, why would they do that? Uh, but like doing work for free and willingly take on responsibility without everyone, anyone asking you, uh, is indicative of of perhaps so many more things. And that's perhaps why people, uh, why people like that pique the interest of of others.

• 1:00:24Speaker 00

  That's exactly right. And the number one thing that, um, I hear founders lament about, you know, their communities is that there are a lot of people who show up because they want an airdrop or they want, you know, to get some alpha or whatever. There are not a lot of people who show up and like, hey, I love what you're doing. How can I get involved? That is like music to every founder's ears. And if you just say those magic words, like, how can I help? They will be absolutely delighted and they will sing your praises from the rooftops and you'll start building your own reputation as being a valuable member of the Web3 community, not just somebody who's here to learn, but somebody who's here to contribute.

• 1:01:03David Hoffman?

  I will say that the question of how can I help? Not, not, not from the centralized projects, upstarts and startups, but from the DAO side of things, the question of how can I help has become like an absolute meme? Because everyone in a DAO, in a decentralized DAO, wants to ask that question, but no one wants to actually be the delegation of responsibility. And so no one in DAOs, no one can actually say like, do this. We need more people in DAOs to say, oh, you want to help? Go do this. We have not enough, not enough people to delegate responsibility and way too many people saying, oh, let me know how I can help. Are you, are you, do you pay attention to like the DAO dynamics?

• 1:01:43Speaker 00

  Um, in the DAOs that I'm actively engaged in, I do. But you know, there, there obviously the, the number of DAOs is just massively exploded. Sure. But the thing, the thing that I guess the, uh, maybe a more pointed form of advice is like, just go start doing things, right? Like you notice that this thing is a problem. And like, don't wait for someone to like deputize you to be the person who goes and does this. Like there's, there's this debate going on. You're the one who goes in and like, creates a, a doc that like summarizes everyone's positions. Or you're the person who goes and like, just is like, okay, man, we don't, we, we're not keeping track of like XYZ. And nobody can seem to get an answer on like, what has gone on up till now? And so you just go in and you're the documentarian. They're just like, you know, that just solves that problem for everyone.

• 1:02:24Speaker 00

  And the more that you start doing that, and the more that you start building the trust in the people who are actually in the positions of authority, uh, recognize, like the community leaders recognize like, oh, this person is a problem solver. This person, instead of sitting around waiting to be told what to do, does valuable things. Then they'll be like, cool. There are some other stuff that we could also use, you know, some extra hands on.

• 1:02:44David Hoffman?

  You talked about how a lot of founders are frustrated by the number of people in discourse who are just there to like get the airdrop. Uh, and I'm reminded about, I can't remember the name of this phenomenon, but just like when something just becomes the norm, then it becomes gamed, right? Like now everyone's just gaming airdrops. Uh, do you think like airdrops are kind of turning into a thing in the past just because they've just been overused and abused for the last like 18 months? Or do you think airdrops are going to be here for the rest of time?

• 1:03:12Speaker 00

  I think airdrops are probably going to be here for a long time. Um, I think there are some projects that will start to avoid doing airdrops, but airdrops are, although they are gamed, they're still really valuable.

• 1:03:26Speaker 00

  But there's a, the ability now to forego the airdrop, um, but to benefit from the implication of an airdrop. Right? So like, if you don't do an airdrop, when you launch your token, people get mad at you. Even if you never say you're going to do an airdrop, you know, you don't even imply that you're going to do an airdrop, but like people will automatically get mad at you. So like, what? How could you launch a project without an airdrop? How can you not reward your early customers? This is a terrible project. I'm going to leave a bad review. I'm going to report you or whatever. I'm going to like tell the SEC on you. Right? Like this is the kind of comments you'll get if you try to launch a product without an airdrop.

• 1:03:56David Hoffman?

  Report the SEC.

• 1:03:58Speaker 00

  Why is that the case? Why is that the case, right? Like, why is that? Why is it happening? And the answer, I think, is that what we have now is this very interesting, this very interesting thing that you generally don't see in economics, which is basically like backwards causation. In the sense that you are incentivizing behavior people did in the past by a pre-commitment that you're going to do something in the future to reward their past behavior. Right? So it's almost like, you know, I'm going to, like, here's one problem in general, like a generalized problem in just game theory, right? Like, let's say that I want to make you,

• 1:04:38Speaker 00

  let's say we're in Russia, and I'm like trying to make you become, you know, the next president of Russia. And, you know, becoming the president of Russia is a very cutthroat business, right? So when you become president of Russia, you just have total control over everything. You're just like a dictator. So if I help you to become the president of Russia, but when I succeed in making you president of Russia, I lose all my leverage over you. So I have no way to make you enforce your commitment to actually, you know, pay me back for helping make you the president of Russia. Then like, I have no way to stop you from backstabbing me. And it's not rational for you anymore, when you become president of Russia, for you to actually make good on the commitments you made prior to that, because you know you have total control. Now you can just like kill everyone who could potentially get in your way or who had any leverage over you. So this is a fundamental problem in a lot of systems,

• 1:05:23Speaker 00

  where you cannot actually reward people in the past, because there's no credible way to enforce the commitment after you, you, you know, become successful. Right? In the same way, right, like, how do you enforce, when a project actually becomes successful, that they are going to go do the airdrop? And the answer is that there is really no way to do it. There's no way to enforce that this DAO actually does the airdrop, and therefore rewarding the early community. Like, the way that you, the leverage they have over you is that they're going to yell at you, and they're going to say, this is a bad project, and blah, blah, blah, right? But like, if you become OpenSea, or if you become, you know, Uniswap, it doesn't really matter what those people say, because you're going to win anyway, right? So somehow, we've gotten to this equilibrium, that even though it's really hard to enforce this,

• 1:06:05Speaker 00

  every project is kind of benefiting from this assumption that The carrot. There is going to be an airdrop. We're not going to say it, we're not going to, there's an invisible carrot, right? That's now implied with almost every single project. And the projects benefit from that, because now a lot of people are using the project, they're putting TVL in the project, they're blah, blah, blah, blah, right? Like, they're getting the flywheel going in the expectation that there is going to be an airdrop. Now, if you don't do the airdrop, right? If you don't do the airdrop, you're kind of defecting in the prisoner's dilemma, right? You're the person who's like, you know what? Everyone else is going to get hurt for this because other people now are going to start assuming that maybe there's not an airdrop on the next marginal project, but it's to my benefit to not do the airdrop, right? Even if a few people get mad at me, I don't really care. It's not going to impact my community that much.

• 1:06:49Speaker 00

  I suspect that what you'll see, though, is that the risk of not doing the airdrop and pissing off your community is going to be perceived as being too high. That most projects are going to say, look, I'm going to do something, even if it's nominal, even if it's a very small airdrop. I'll do something, and that's the way in which I'm going to, quote unquote, defect from this equilibrium. So I'll do like a 2% to 3% token distribution airdrop, which is something, but it's not much, and that'll be my carrot to the community and say, look, I did an airdrop. You guys are just complaining, but technically, like I did the airdrop. I never told you how much I was going to give to the community. And that will become more and more closer to the equilibrium, but I think airdrops will probably just never go away because they are, they've just become the norm and people don't want to make their community mad at them.

• 1:07:31Speaker 00

  And so it's like, I'm okay with having my community a little bit mad at me, but I really don't want them to be like completely mad at me. And that's why like airdrops will just be this like sticky thing, kind of like white papers were, right? Like white papers, like why, why did we keep writing like LaTeX white papers after, even for things that aren't technical, right? Like they don't need a white paper to explain them. Like after 2017, there became this like cargo cult of if you're launching a token, you need a white paper and you need to put like math equations in it. And like we just still Or even worse graphic design. Gradually let go of this? Yes, exactly. Like we've gradually let go of this. We're like now, now you see like notions, right? Like there's like a notion and we've gradually gotten to the point where you don't have to have a white paper anymore, unless you're building something super technical, in which

• 1:08:16Speaker 00

  case, okay, you still need to have a white paper. But this norm just like showed up and it was so hard to make it go away. Even when I would tell on tours, look, I don't care. You don't need to have a white paper. Just explain what you're building clearly. That's all I ask for. I do not ask for a white paper. I don't want a white paper. I want a clear explanation of what you're building. But it took a long time for it to go away because a lot of these norms become really sticky and hard to, hard to dismantle.

• 1:08:42Speaker 00

  And I think airdrops might be one of them.

• 1:08:44David Hoffman?

  Yeah, right. It is such a useful primitive that you it seems like people with enough creativity would be able to derive some sort of value out of them. Because you can kind of custom custom design an airdrop however you like it's like like it's almost like Turing complete, right? Like you can kind of design an airdrop however you see fit. So it's really up to you to to make it work. See, as we as we kind of wrap up here, I have just a zoomed out higher level question for you. Do you think Web three is currently or at least on the trajectory towards trying to kind of fulfill some of the from some of the goals that the crypto industry has for it like Web three has an ethos, it has like a vision. Or are you or are we not doing that?

• 1:09:27David Hoffman?

  Or are you more agnostic to like people's subjective interpretations as to what Web three should be? Does that make sense as a question?

• 1:09:36Speaker 00

  It does, it does. I would say I am personally more agnostic about what Web three is and what it's supposed to be. You know, the term Web three has metamorphosed so much over the last few years, right? Like Web three, you know, originally we just called it crypto. Now Web three kind of is like this big basket of things that when I think Web three, you know, what that originally meant to me was a replacement for traditional web services intermediated by blockchains. Right? Like, that's what I think when I think Web three now, the term obviously has become much broader than that.

• 1:10:05David Hoffman?

  For the record, that is the first time that the first way that I started using Web three back in 2017, 2018. And then it kind of left, left the common vernacular and then it kind of resurfaced in the last year. Personally, I just use it because it pulls well and people like it.

• 1:10:19Speaker 00

  It does, it does. It is now it's now like the more it's a more respectable way to describe crypto. Web three like sounds more futuristic, sounds more idealistic, right? It's more respectable. And this is like, this is just a thing that happens, right? Like with with words is that some words get stale and you gotta let them go and you gotta adopt new ones. So, um, so yeah, what are my views on on the direction of Web three? I think the reality is that every single time I've heard somebody tell me what Web three was going to be or what crypto was going to be. They were almost always wrong. And the reality is that we are like, I've been in this industry long enough to know that no one knows where it's going. No one is able to predict the future direction of this stuff. The way that I see it, like, all of us, all human beings who are participating in the crypto

• 1:11:03Speaker 00

  revolution, we're all playing this like big, we're all playing this on this like giant Ouija board. And we're all pulling the thing in a different direction. And somebody who claims like, oh, I know what word, I know what word we're spelling. They probably don't know. They might know the direction that we're pulling in right now. But as more people enter the space, as more ideas are invented and as more founders come in and start, you know, moving the direction of innovation somewhere else, we're going to see all this stuff evolve and all this stuff change. And so the answer in my mind is like, I, I, I think that the job, at least of a crypto investor, is not to try to predict the future, but rather to pay attention to the present. And, you know, the, you know, one thing I often tell folks on our investment team, when they ask me like, oh, where, you know, how do we figure out what's going to work and

• 1:11:48Speaker 00

  what's not going to work? And the answer is like, look, no one can figure out what's going to work and what's not going to work. Like, it's really hard to do. That's why, you know, that's why venture is the way it is, which is that you invest in a ton of stuff and most of it doesn't work and a small number of things end up becoming really successful.

• 1:12:02Speaker 00

  You know, when we invested early into DeFi, we invested early into these alternative little ones. It was way before DeFi summer. It was way before Ethereum was congested, right? Or I guess congested in the ICO bubble, but, you know, not anywhere to the degree that it is today. And what we were doing at that time was not predicting the future. It was noticing the present. It was noticing that there were all these great entrepreneurs who had genuinely really novel ideas about how to build a next generation blockchain, that if in fact, we were going to get tens of millions of people in the crypto, that that was going to be necessary. And they were building it and they had insights that were real. You know, DeFi in the early days, it was a bunch of nerds who were just like off in a corner, playing with Lego blocks and like, you know, at that time, it was not obvious that any of this stuff was going to be significant or that it was going to be billions of dollars in locked in any of these protocols.

• 1:12:46Speaker 00

  At the time, it was just a bunch of nerds in their garages, right? And like, and that, but like noticing that what they were building was actually really sound, was actually going to work if it, if it really got to scale and that it was, it was really creating brand new innovations that had never before been invented. Noticing that.

• 1:13:05Speaker 00

  Was our superpower as investors. And so I think the same thing, I take the same philosophy today is that like, I don't see my job or even my ability as being able to predict the future of crypto. What I see my skillset as is being able to notice what's happening in the present, to understand it, to explain it, and to at least draw the line out. But the line is super uncertain where it goes. And, you know, to that extent, I'm kind of along for the ride just as much as anyone else is.

• 1:13:30David Hoffman?

  Yeah, and it's certainly, certainly a fun ride. Haseeb, one last one and we'll wrap this up. Is there any just like rule of thumb or life advice or just like law of the universe that you pay attention to and follow every single day when you wake up in the morning? Any like bit of advice that you think is pretty canon that you like to like to share?

• 1:13:52Speaker 00

  Hmm.

• 1:13:55Speaker 00

  Let me think. A piece of advice that's canon.

• 1:13:59David Hoffman?

  To you. To you.

• 1:14:01Speaker 00

  Yeah, I guess for me, the biggest thing I'd say is that your scariest resource is always time, even when it doesn't seem like it is. So anything that you can do to get more time is almost always the most valuable trade off you can make.

• 1:14:18David Hoffman?

  Time being the one asset that you cannot purchase or mint or freely create. And so Haseeb, with that, I thank you for your time and spreading some of your knowledge here on the on Layer Zero. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content, and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be.

• 1:15:02David Hoffman?

  Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and weekly rollups where we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Nation.