20VC: Scalar Capital's Linda Xjie on Who Will Win The Smart Contract War, The Future of Exchanges: Centralised or Decentralised & The Pros and Cons of Differing Privacy Coins

Linda Xie is a Co-Founder & Managing Director @ Scalar Capital, one of the leading crypto asset funds to have been born over the last few years with Linda becoming one of the most prominent figures in the space. Prior to co-founding Scalar, Linda was a product manager at Coinbase where she worked with regulators and law enforcement. Before Coinbase, she was a portfolio risk analyst at AIG. If that was not enough, Linda is also an advisor to 0x, the critical infrastructure layer in the emerging financial stack built on a foundation of Ethereum token standards. In Today’s Episode You Will Learn: 1.) How Linda made her move into the world of crypto joining Coinbase back in 2014 and how that led to her founding of Scalar? What were her biggest takeaways from seeing the first-hand scaling of Coinbase? 2.) What is a privacy coin and why does it matter? What are some of the dominant legitimate uses for privacy coins? From ZCash to Monero to Dash, there are many players in the space, what are some of the core benefits and tradeoffs of each platform? What is the fundamental problem with privacy coins today? 3.) What is a decentralised exchange, why does Linda believe it is inherently important? How does Linda assess the current exchange environment today? Where does she see it moving over the coming years? What have been some of Linda's biggest learnings advising 0x? Given the mission and ethos of crypto, does Linda believe that centralised exchanges fundamentally go against the core ethos of the space? 4.) How does Linda perceive the state of ethereum today? What are some of the core challenges facing ethereum today? How does ethereum compare to alternative smart contract platforms? What is their differentiation? Will we see a winner take all/most market within smart contract platforms? Will we see smart contract platforms be regionally fragmented? 5.) How does Linda address the fundamental challenge of valuing tokens today? What has been her preferred model in doing this to date? How does Linda assess the mega raises we have seen over the last year? How does Linda think about preventing projects from raising huge rounds just to stay in step with the mega raises of their competitors? Items Mentioned In Today’s Show: Linda’s Fave Book: Sapiens: A Brief History of Humankind Linda’s Most Recent Investment: Kadena As always you can follow Harry, The Twenty Minute VC and Linda on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

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

• 0:00Harry Stebbings?

  Welcome back to another week on the 20 Minute VC with me, Harry Stebbings. It would be fantastic to see you on Instagram at H Stebbings 1996. I would love to hear what you like and don't like about a show always looking to improve, so please do let me know there. But to our episode today, and we've not dived into the world of crypto since our episode with Adam at Lightspeed. And so we're going to change that today. And I'm very, very excited to welcome Linda G, co-founder and managing director at Scalar Capital, one of the leading crypto asset funds to have been born over the last few years, with Linda becoming one of the most prominent figures in the space. Prior to co-founding Scalar, Linda was a product manager at Coinbase, where she worked with regulators and law enforcement. Before Coinbase, she was a portfolio risk analyst at AIG. And if that wasn't enough, Linda's also an advisor to Zero X,

• 0:43Harry Stebbings?

  the critical infrastructure layer in the emerging financial stack, built on a foundation of Ethereum token standards. And I'd also have to say a huge thank you to the wonderful Elad Gil, who's done so much for me. Really do appreciate the intro here, my friend. It means so much to me. However, before we welcome Linda to the hot seat today, and I want to spend a minute to talk about Brex, the first corporate card for startups. Brex founders Enrique and Pedro built a payments business in Brazil, but found themselves rejected for a corporate card when they were in Y Combinator. They decided to build Brex with instant online signup, no founder liability required, and limits 10 to 20 times higher than standard cards. Pretty incredible, I know. And you can sign up for Brex today and get fees waived by entering the code HARRY during signup. Honestly, it really is such a special service.

• 1:26Harry Stebbings?

  And with Brex in place, we now need a team to really use the cards. And that's where Terminal comes in. Terminal is a startup that appreciates hiring amazing developers is really hard. Plus, it's even harder if you're only looking in a 25-mile radius of your office. So Terminal is your dedicated partner in rapidly standing up world-class remote technical teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up, and support these teams. From physical elements like beautiful workspaces and equipment, to ongoing resources like HR, payroll, legal, professional learning and development. But don't take my word for this. Take the word of Eventbrite, former 20 VC guest Hymns, and DialPad, all of whom customers and lovers of Terminal. And you can find out more today at terminal.

• 2:10Harry Stebbings?

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• 2:50Harry Stebbings?

  Just go to lattice.com/20vc. That's L A T T I C E dot com forward slash two zero V C. Build an award winning culture with Lattice, the number one people management solution. But without further ado, and I'm now thrilled to hand over to Linda G, co-founder and managing director at Scalar Capital.

• 3:13Speaker 01

  You have now arrived at your destination.

• 3:16Harry Stebbings?

  Linda, it's such a pleasure to have you on the show today. I've heard so many wonderful things from Elad Gil. So thank you so much for joining me today.

• 3:23Speaker 02

  Yeah, thanks for having me.

• 3:24Harry Stebbings?

  Not at all, but I'd love to get started with a little on you. Really, where did all the love of all things crypto assets come from? And why did you decide to start Scalar?

• 3:33Speaker 02

  Yeah, so my parents are immigrants from China. And so growing up, I saw them send money back home all the time. And it was just really expensive and very inefficient. And then I also heard stories of them when they were children and during the culture of evolution. My family actually had their assets seized. So when I finally came across Bitcoin in 2011, I was really fascinated with this idea of just having an unseizable asset. And I thought the technology was absolutely amazing. But I ended up looking at the community a little bit more and kind of like what were the players around? And it was pretty sketch back then. It was Mt. Gox and Silk Road. So I didn't end up wanting to work in the industry. But when Coinbase came along, I thought they were actually the legitimate players in the space. I love that they were actively working with regulators and trying to take Bitcoin mainstream.

• 4:18Speaker 02

  So I based Basically left my job at AIG, told Coinbase I would do anything that they needed me to do. And I first joined them as a regulatory compliance investigator. So working with law enforcement and regulators and helping to build out the compliance program. And that was really unique insight and I felt really excited about that kind of work. And then later switched to be product manager of internal tools at Coinbase. So building out the tools for the internal teams. But ultimately, my day to day wasn't about crypto anymore, especially as Coinbase started getting larger and larger. It was pretty much building out systems for a large fintech company. So I decided to start Scalar because I was trying to think of like what exactly I wanted my day to look like. And that was pretty much researching new crypto assets that were coming along.

• 5:02Speaker 02

  And just really getting closely involved with the teams that are building the space and helping them out. And so that was pretty much investing for me. So I decided to leave Coinbase after being there three years and start Scalar. Was looking to have a very technical co-founder. So asked one of the software engineers I worked with really closely if he was interested and he said, yeah. And we launched Scalar, which is just a fund that invests in different tokens and coins that we really believe in. And we also help out teams as well. So we we view ourselves as not just capital too.

• 5:31Harry Stebbings?

  And what an incredible journey it's been since the start. I do have to ask, you mentioned your time at Coinbase there and I've had Brian, I've had Charlie Lee, I've had Olaf on the show before. I'm really interested, what were the big takeaways from really being there at the forefront of hyperscaling with Coinbase?

• 5:46Speaker 02

  Yeah, that was super interesting times. And so there are a few pieces that were like very closely related to crypto. So the first one being, I remember in the early days where there was actually just a bunch of copycats of Bitcoin that came out. And there was like just essentially people just took open source code of Bitcoin and copied it, forked it to a brand new coin. So there were a bunch of what they called back then alts, altcoins. And I remember just thinking, wow, this is like a huge growth period. And this was back like in the like early days when I joined Coinbase. And Brian consistently said, no, stay focused. We, you know, we really need to make sure we're being smart and conservative. We can't be adding every single asset out there. And then over time, when we saw this explosion of ICOs and tokens and coins, Brian also remained very

• 6:30Speaker 02

  Focused and I think that that's that was an important takeaway that I learned is that these cycles really come and go. And ultimately, you want to build something that lasts throughout this entire period. So by not getting super distracted by things that, you know, if you review and it doesn't seem like something that's going to actually stay around, don't add it to your platform or don't try to get involved in this. So I, I, I, that was a key takeaway as I've started reviewing this space and investing. Another piece was also just how the hypergrowth period might actually take some time to actually get to. So when I first joined in two thousand fourteen, the price of Bitcoin actually just plummeted. So it went from six hundred to two hundred and stayed at two hundred for a very long time. And then the year of two thousand fifteen was where Wall Street was saying, oh, we like blockchain, but we don't like Bitcoin.

• 7:13Speaker 02

  And so that was really crazy for me to see because it was kind of this period where everyone was able to just build and focus right before hitting that hypergrowth. You don't necessarily know you hit hypergrowth and it happens like overnight. So it's very important to just be prepared for that. And this is where I think it's a little bit more just like any company is just make sure that you don't build up technical debt. So that was an important lesson to me because crypto kind of just like skyrocketed out of nowhere. This was like end of last year and everyone, everyone all of a sudden was interested in it and buying it. And so we need to make sure that we actually don't have a lot of technical debt. And then at the same time, we have the right tools in place to actually scale. So if things are just very inefficient and people are finding their day to day to actually be very repetitive and manual labor, then you can actually just, you know, automate that away.

• 7:58Speaker 02

  So having those tools and processes and infrastructure in place before you hit that hypergrowth period is absolutely critical because it can just happen all of a sudden.

• 8:06Harry Stebbings?

  I would love though to kick off, Staelinda, with a theme that I spoke to many of our mutual friends about and they all recommended that I had to speak to you about being obviously privacy coins. So starting at a ground level, and for those that are maybe unaware, what's a privacy coin? And why does it matter fundamentally?

• 8:20Speaker 02

  Yeah, so privacy coins are essentially just coins that have privacy enhancing features. So when people think of Bitcoin, a lot of people actually think it's an anonymous currency, but it's actually pseudonymous, which means that when you look at the public blockchain, you can see all the transactions that are happening, but it's associated with different addresses. So you don't actually see names attached to it. But over time, as people start revealing their addresses, like let's say that they post it publicly and say, hey, everyone donate to this address. Or you pay a merchant and they now see your address. Now people know that that address is associated with you. And therefore they can see your balance and entire transaction history. And so for me, this doesn't really make sense because even in our existing financial system,

• 8:59Speaker 02

  we have this expectation of some financial privacy, like we don't broadcast our entire bank account statements for the entire world to see. And so therefore, we shouldn't really expect this digital currency to broadcast for the entire world to see. So I think that in itself is very important to just have this like fundamental financial privacy. But at the same time, I think that it's also very important that money itself is fungible. So fungible means that all units of the money are treated the same way. They're all worth the same amount. And when you have some coins, like let's say in Bitcoin, where it has a history of tainted transactions, meaning that it was used for maybe some illicit purposes. It might not get accepted on some exchanges or certain merchants or people might not accept it because they fear that this coin now has this association with tainted activity.

• 9:44Speaker 02

  Despite you not having been associated with that, but that it has this history of it, it might not get accepted. And therefore, the money itself is no longer fungible. And so that's a really core piece to what actually makes money successful. And so when you have something that has this history, I think that that's a big problem in actually getting it to be used as money. And then in general, it's not just people who are using privacy coins for illicit activity. There are a lot of legitimate cases where, let's say that someone lives in a society where their governments are very corrupt and they want to protect themselves from their own governments. I think that a privacy coin is extremely important. It's to me less relevant in the US. This might be something that many people don't actually associate with themselves with. But in a lot of other countries, I've talked to people where they actually understand this notion of why this could be important.

• 10:29Speaker 02

  And then similarly, like if you're just a company and you're operating, you don't necessarily want your entire history to be shown to the public. You can now have your competitors see exactly what you're doing or bad actors get access to this information and kind of try to do some bad actions with this information. So to me, privacy coins are just very important and kind of parallel what we're already used to.

• 10:48Harry Stebbings?

  You mentioned one word that. Being competitors, it is a competitive space with everyone from Monero to Dash to Zcash, many different players. I'd love to hear your thoughts on the different types of tech being used and maybe some inherent trade offs within each.

• 11:02Speaker 02

  Yeah, so there's a lot of different coins out there, Monero and Zcash and Dash probably being the most popular ones that you might have heard of. So Monero itself, the really like privacy kind of community really likes Monero because every single transaction on Monero is private by default. And so there's mandatory privacy on this network. And so because you have every single transaction that's private, it's really hard to kind of like piece together different information. The way Monero kind of does their privacy is through different technologies called Ring Signatures and Ring C T. So they're essentially, you can think of Ring Signatures, this is a very like high level explanation of it, but essentially mixing a bunch of different transactions on the network that are happening into a batch.

• 11:41Speaker 02

  And so it's really hard when you actually look at the blockchain to see like which transaction belongs to who, because they're just all mixed together. So the trade off with Monero right now is that in order to prevent what's something called a double spend, which is essentially being able to spend the same digital currency more than once. In Monero, you can't keep track of it because you don't have this like address association with every single transaction. It's all kind of convoluted. And so the way they keep track of it is they have to store some additional information called a key image. And this information that they're storing is a lot of data. And so Monero itself isn't as scalable because it's storing all this additional data. And so Monero might not be something in the current state that can actually be used mainstream quite yet. So they still have to work on some scaling solutions.

• 12:26Speaker 02

  And then alternatively, Monero is just also maybe not the most user friendly coin for people to use. And I think that part is just maybe a matter of time. And then you have something like Zcash, which is a newer currency. Um, Zcash uses a new technology called ZK Snarks, uh, which are something called zero knowledge proofs, which means that you can prove that something happened with providing zero knowledge about it, zero information about it. And this is really powerful because people are now are able to do a bunch of different things. And no one has to look at exactly what's happening and they can just generate this proof saying, oh, I indeed did do this. You don't have to actually. Check it. And so this to me is really exciting. But this is also very new cryptography. So some of the trade offs are that this hasn't been battle tested over a long period of time.

• 13:09Speaker 02

  So it's unclear in the current state if this is actually viable tech. So far, there hasn't been major issues, so it seems to be good. And also, one trade off right now is that these ZK snarks, these zero knowledge proofs, are actually really memory intensive and time consuming to generate. So it takes almost a minute for these ZK snarks to be generated. So that's not very efficient. If someone wants to use this as money, you don't necessarily want to wait like a full minute to send something. And so what ended up happening is that the Zcash set it up so that you can opt into using this privacy feature. And so what's the case in this current state is that a lot of people don't want to opt into just having something really inefficient. So only like thirteen percent of the network right now is actually private because they have to opt into using this.

• 13:54Speaker 02

  And so not everyone on the network is actually using private transactions. And one of the trade offs to this is that now you have some people that are, you know, just openly operating as usual and then a small segment of people that are being private. And so this runs into potential issues because you can kind of deduce a lot of information. It's kind of like a puzzle. You can piece together different puzzles trying to figure out what some of these privacy people are doing. And at the same time, one trade off is that, you know, when someone opts into privacy, you're kind of in a way painting a target on your back. So it's kind of like, well, why are you opting into privacy? Do you have something to hide? Everyone else is doing something public, so why are you doing this? So I think that's a big trade off and Zcash is fully aware of that and they're working towards making the ZK snarks more efficient to generate.

• 14:38Speaker 02

  So over time, I think it's gonna start, these privacy transactions are gonna start increasing and it's gonna be more of a fully private coin. And so that's kind of one trade off. Dash is another one. It's essentially, they use something called master nodes, which are these nodes that are actually mixing these transactions. So the downside to having a master node be the one mixing the transactions rather than like the protocol level where everyone's kind of, everything's being mixed, is that these master nodes actually have access to seeing more information. And so there's this like thought that Maybe law enforcement or bad actors are actually running these master nodes. But some of the pros to Dash is that it's actually a lot easier to use. And they've actually been going after the marijuana market. Because marijuana businesses actually have a lot of issue getting banked.

• 15:23Speaker 02

  And so Dash actually tries to cater to that market and make it really easy to use. So there's a lot of different coins out there. This is just a handful. In the end, I think something that most of the privacy coins really lack at this current state is just ease of use. And so there's like new coins coming out that are really trying to make it more efficient for people to use. And try to make it just kind of like a easy user experience. And you kind of, privacy is kind of like in the back, like you don't really think about it at the forefront.

• 15:46Harry Stebbings?

  My word, Linda, I think you deserve an award for that breakdown. That was phenomenal. I do have to ask, and I'll give you the time to breathe. I'm interested because obviously you've mentioned ease of use. So you mentioned kind of legitimate uses. I heard the Zcash team talking recently on, on another podcast. And they said that maybe a sixth was actually used for transactions. And then five, six was more speculative trading, so to speak. How do you think about that and that kind of inflection point of moving from speculative trading with the volatile pricing that we've seen? To actually transactional uses in everyday society, be it cross border payments, be it moving assets away from centralized regimes? How do you see that change from speculative traders to kind of a transactional use?

• 16:26Speaker 02

  Yeah, I think that part of it, we just need to actually have real use cases for this and make it really easy for people to use. In the current state, there's not many merchants that are accepting these kind of coins right now. And the process of accepting it is like not the easiest. Right now, like as I mentioned, Zcash, like these ZK snarks take a long time to generate. You're not going to have your average user just try to be generating these snarks and then pay the merchant. So I think that we need to actually still work towards improving the actual protocols and the, the different technology. And make sure that this itself can scale before we really try to take it mainstream. So I still see us as in the very, very early days where I'm more focused on trying to get the tech right. Versus trying to actually take this to kind of product sense quite yet. I, I think we're still a few years out from getting to that point.

• 17:10Harry Stebbings?

  Would you very much agree that we're still in the infrastructure layer, so to speak?

• 17:13Speaker 02

  Yes, definitely.

• 17:14Harry Stebbings?

  Got you. No, absolutely. But we spoke about the kind of the crypto assets themselves there in, in privacy coins. Going one step maybe closer to the source, we've got both centralized and decentralized exchanges today. The likes of kind of Coinbase, maybe a well-known one being a centralized exchange. I like privacy coins, starting from ground zero. What's a decentralized exchange and why is it fundamentally important, do you think, moving forward with the space?

• 17:36Speaker 02

  Yeah, so a decentralized exchange is essentially an exchange that the user has control of their own funds. And this is really important in this industry in particular because we have seen so many issues with centralized exchanges. I love Coinbase and Coinbase, I think, is like a sterling example, but we've seen a lot of centralized exchanges get hacked. I mean, just last week, a Korean exchange got hacked for thirty-one, thirty-one million. So like these kind of things happen all the time in this industry. We also have exit scams. We just have like general withdrawal issues. So just recently, Poloniex froze user funds from being withdrawn unless they provided KYC. And so people, you know, now had to wait for their KYC to get approved before they could withdraw their own funds.

• 18:17Speaker 02

  And then in general, we also just have centralized exchanges not being able to support certain jurisdictions. So Coinbase itself doesn't operate in every single country in terms of fiat rails. So it's very important, I think, to give access to everyone in the world. That's what this whole space is about. And so decentralized exchange allows anyone to be able to trade trustlessly and have access to this trading infrastructure.

• 18:39Harry Stebbings?

  Can I ask, does a centralized exchange with kind of demand and supply powers not almost go against the core ethos of the space?

• 18:46Speaker 02

  Yeah, I, that's a really good point and I, I've struggled with this concept for a while before. But in the end, the way I view it is that crypto and decentralized exchanges give people the option to use them. So not everyone has to be their own bank. I think that some people just don't want to store their own crypto. They either just aren't comfortable with the process of doing that. They feel like they're gonna lose their private keys and all of a sudden lose all their money. So they'd rather trust something like Coinbase to store it for them. And at the same time, there are some people that just don't even understand crypto and have no desire to. But what I love about crypto and decentralized exchanges is now people who are comfortable storing their own funds and want to have this option. And so people who live in these societies with really corrupt governments now have the option of being.

• 19:30Speaker 02

  Able to access a decentralized financial system if they want to. So to me, it's all about choice and optionality.

• 19:36Harry Stebbings?

  And you spent time advising Xerox, a project aimed at providing an incredible open protocol for decentralized exchanges. I'm really interested here. How do you think your experiences, maybe interactions with Xerox advising them have influenced your thinking?

• 19:50Speaker 02

  Yeah, so full disclosure with Xerox, um, my husband is the current CEO and co-founder of Xerox. And he's building this open decentralized exchange for Ethereum tokens. And I started advising when he dropped out of his PhD program to start working on Ethereum project. And I kind of saw the very start of, okay, putting together a white paper to running a token sale, to attracting developers to a platform, to just generally like, how do you start attracting all these relayers to build on top of you and and actually go mainstream and build a product? So I've kind of seen that whole phase and it's been so eye opening for me and I really enjoyed that experience. So one thing that was like a huge takeaway was really like helping them think through the token sale model.

• 20:34Speaker 02

  And so right before the Xerox sale, the process was that there were a bunch of different token sales that would raise a lot of money. And when I say a lot of money, it was nothing compared to current days, but it was like people would raise like 20 million to 30 million dollars in their token sales. And they would just set it up as like a first come, first served basis. And this was problematic because you ended up having these whales that just had a ton of crypto, just kind of sweep up the token sales. So they ended up just getting sold to a few people. And this really defeats a lot of the purpose of running a token sale because you want your tokens to essentially be in the hands of a lot of different people. And I think that this was something that Xerox and team and a bunch of people saw as a problem.

• 21:16Speaker 02

  And so they were trying to go after this model of, okay, how do we set up a token sale that has a more fair distribution to the public? And this was something that I spent a lot of time thinking about as well. And ultimately I loved what they did and I think that this was critical for building out a strong community. Is making sure that you actually do get your tokens in hands of a bunch of different people early on. And the people that actually own it should not Be a bunch of different speculators and people that don't care about the protocol. And so the way that they kind of like bootstrapped their community was really interesting to me. So what they did was they essentially did a registration process where they took an interest of who wanted to participate in this token sale. And they took the total amount that they wanted to raise and divided by the number of people that had registered.

• 22:01Speaker 02

  And set a cap for everyone in terms of how much they were able to contribute to this token sale. Making sure that everyone was able to get their full allotment if they wanted to. And this was really important because now everyone was able to have equal access to this. And at the same time, they did zero marketing of their token sales. So really try to keep it at a grassroots effort, like people who truly cared about the tech. So they released their white paper, they went to developer meetups to present at this. Stayed very clear from doing any like advertisements or, you know, trying to pay for services where they would help you raise money. So I think this has been really eye opening for me because this, to me, Zerex has one of the strongest communities out there. And I think it really all started with the way they did their token sale.

• 22:42Speaker 02

  And when you really show that you care about the tech and not about price and speculation, I think you're able to create a stronger community. So when I work with projects, I really emphasize the need for making sure you create a strong community early on. Because if you do a token sale, you're essentially public from day one and you're going to have to deal with your investors. You could totally ruin your community right off the bat if you, you have it in the hands of people who don't care about your project. So I learned a lot through this entire process and that's kind of been my, my one key takeaway is like just how to build a community.

• 23:12Harry Stebbings?

  Absolutely. And what a way to incentivize and seed the community early on. I am interested, you mentioned a buzzword there being Ethereum. Obviously, I've read much of your writing and tweets over the last week preparing for this interview. So how could I not ask about the state of smart contracts today? Getting straight to the core, there's always a lot of hype, but what is the state of Ethereum today, Linda?

• 23:31Speaker 02

  Yeah, Ethereum has the strongest developer community right now. I spend a lot of time going to hackathons around the world and really trying to see like what people are building on. And it's very clear it's Ethereum right now. And that's where we're seeing, you know, a lot of these token sales, a lot of these decentralized applications, DApps getting created. But We saw with the onset of a game called CryptoKitties, which for those not familiar is just this like online digital game where you can collect these unique digital cats and they all look really different and people were just collecting them. And this got really, really popular at the end of last year to the point where it was accounting for thirteen percent of the transaction fees on Ethereum and it actually ended up slowing down Ethereum because it was so popular. And so it really showed, I was also very obsessed with it.

• 24:16Speaker 02

  It's very addicting. And so people saw, and they kind of already knew, but people really saw for the first time that Ethereum actually really has some scaling problems to figure out. And so there's a lot of really brilliant people working on it and attacking it from many different kinds of perspectives. So it makes me feel a little bit better that, okay, you don't need all of this scaling solution to succeed. You only need a handful of them too. But essentially, the way that people are attacking scaling right now is to essentially take things off the blockchain. So it's this concept where you don't have to have every single transaction being validated on the blockchain. So meaning that you don't need every single node on the network to validate your transaction. Maybe you only need to do that in rare circumstances.

• 24:58Speaker 02

  And so there's different, there's different solutions towards this. So people are working on state channels, which essentially it's often referred to as like a bar tab where if you and someone else are interacting together, you don't necessarily need every single transaction settled on the blockchain for people to validate, but you can settle kind of between you two. And then only once you're done, move it back to the main blockchain and settle there. And so this concept is really common in Ethereum and there's a bunch of different ways, like Plasma and there's this concept of having blockchain within blockchain. So you don't necessarily need to keep track of like everyone else's transactions that are happening. You just need to kind of keep track of your own little blockchain. And so that's kind of been something that's in the works as well. And so there's all kinds of different solutions here that people are working on.

• 25:42Speaker 02

  But I really think that if Ethereum can't get some strong progress in these scaling solutions, that people are going to start moving to different smart contracts platforms because they're frustrated that their applications can't actually scale. And a lot of developers that haven't even entered this space don't have loyalty to Ethereum. So I think That people often think like, oh, well, the developers building on Ethereum, you know, really love Ethereum and there's such a community there. But there's also a lot of people who have built applications that have already gone mainstream and and people love to use in this very day. That want to build something maybe on a smart contracts platform and they're not loyal to Ethereum. So when they build something, they just care about how much it can scale. So there's a lot of open room for competition. So I think Ethereum right now is in a really great state with all these developers.

• 26:27Speaker 02

  But over time, I think that this is going to be a really major issue for it if they can't scale.

• 26:33Harry Stebbings?

  Can I ask, how prominent is developer loyalty and to what extent is it a fickle community, so to speak, in terms of a better scaling product? A more efficient community and the community transitions over? To what extent does that kind of come into your thought process?

• 26:47Speaker 02

  Yeah, so the current like early Ethereum community is very loyal to Ethereum. And I think one thing that is the reason for it is that the creators of Ethereum, mainly Vitalik, has done a really good job in kind of shaping this community. Making sure that it's very tech and developer focused rather than speculative. A lot of these other platforms that you're seeing being created, the founders will often kind of try to pump the coins and try to promote themselves. And so this is just not appealing at all to a lot of developers. And so I think Ethereum has a lot of sticking points there. And then as well, there's, there's just a lot of, there's this like huge ecosystem within Ethereum. So when you create an application, you want it to be interoperable with all these different things.

• 27:26Speaker 02

  And so if you create an application today, you you'd rather create it on Ethereum where there's all these other applications that you can kind of plug into. Whereas if you create this application on a brand new platform or no one else is using, it doesn't make sense because now you're kind of isolating your own world. So I do think there is a lot of loyalty within the like especially early Ethereum community to to stick with it.

• 27:48Harry Stebbings?

  We mentioned the other platforms there. A question from Avichal at Electric. He says, do you think we'll see a winner take all market or a winner take most market with some global winner? Or do you think there's going to be this kind of regional fragmentation, so to speak, with smart contracting platforms?

• 28:03Speaker 02

  Yeah, I think that there's going to be kind of this like two to three winner take all. I I really think that. Sorry, I guess maybe take most. I think that you're going to have these smart contracts platforms like Ethereum where it's fully decentralized. People really believe in the ethos of it and they just want this like sovereign grade censorship resistant platform. I do think that there are going to be some other platforms that come along that might be more compelling to other people for different purposes. So you might have something that is a little bit more centralized and and people might actually be okay with that. So let's say you build your CryptoKitties platform. You don't necessarily need to protect CryptoKitties from the government. Maybe you just want to make sure that this doesn't have a single point of failure.

• 28:45Speaker 02

  And so you might have a a little bit of a more centralized platform for creating these kind of applications and maybe more for gaming. I do think that that is going to be a compelling use case. I'm not personally as excited about those because that to me often defeats the whole purpose of an entire space. If you just have like this like concentrated group of people that are validating all the transactions. You're seeing that with platforms like EOS. They've openly made that trade off and said, "Okay, we're only going to have 21 block producers that are going to be verifying everything." And this is quite controversial in the crypto space, but I I do understand the need for it. I'm just not excited by that. And then I think that in general, you'll have like interoperability solutions. So people can hop between different smart contracts platforms, so it won't be as difficult to like switch between these.

• 29:28Speaker 02

  And I think that you're going to start seeing maybe like specialized smart contracts platforms for people that need something like formal verification. So making sure you're building something that's extremely secure. You know, you have to go through all these like extra processes to build something that can withstand all kinds of attacks. I think that you're going to see people that have more regional specific smart contracts platforms. I don't think these are going to be the ones that dominate, but you're already seeing things like people saying, "Oh, this is Ethereum of China. This is Ethereum of Japan or Korea." And I do think that does have merit to it because there's just different communities that are building on top of this. I just learned recently that in Korea, there's not as much of an open source community there. And so you you just you're coming at this community with a completely different perspective.

• 30:10Speaker 02

  So you can't expect that every single person has the same preference to use the exact same platform. And in general, I I think it's kind of like parallel to why we have so many different programming languages. Languages out there, people just prefer their own programming languages and I think that's perfectly fine. We just need to kind of build infrastructure to make sure that they can all be a little bit more interoperable.

• 30:30Harry Stebbings?

  Now Linda, we've covered so much ground state, but before we dive into the quickfire round, I do want to touch on a couple of topics really orientated around scaling and building kind of a high performing fund in the world of crypto. For me, the big question is always around valuing tokens. So help me out here Linda. How do you think about valuing tokens and do you have a preferred model?

• 30:49Speaker 02

  Yeah, so I think that anyone who says they have a perfect model for valuing tokens is maybe misleading themselves because we, all of us don't know, you know, what's the best model to use right now. So we kind of all, I view this as a little bit more like a VC style model right now, where you are approaching these coins and tokens from a fundamental perspective. You're looking at the tech, the teams, the community. And a little specific to crypto is you're looking at the token economics. So kind of what the, you know, supply overhang that's going to actually hit the market. Does this team own, a vast majority of the tokens are going to be flooding the market with this. If that's the case, I don't want my tokens to essentially not be worth as much in the future.

• 31:29Speaker 02

  So looking at these different perspectives and features, we kind of decide what's the coin we actually really like. I do factor in some of the models that have come out there. So a popular one has been the velocity model, the MV equals PQ model. Essentially meaning that if someone creates a token that is essentially this utility token, meaning that you have to use this token in order to access the platform. In general, these are kind of parallel to like gift card points in that like, okay, maybe you don't need to use this platform all the time. Maybe I don't need to use decentralized file storage every single day. So I don't need to hold on to this tokens at all points of time. I need to just only use the token whenever I need to access the platform. And so the idea is that when you have things like decentralized exchange

• 32:14Speaker 02

  that can kind of like quickly exchange these tokens from a liquid coin like Ethereum to this utility token, that people are not going to want to hold on to these tokens at all. It's kind of, you just only need to access this token when you need to use the platform. And therefore, as the Popularity of this platform increases, your token value doesn't also increase at the same rate. And so, because people don't want to hold on to it. So I do kind of follow that model. And there's a lot of really great work out there. People want to understand that model better. I think Chris Berninski has written some really great posts on this. So I do factor that in. It's like, at the end of the day, like, why would anyone want to hold on to this token? And why would value actually accrue to this token?

• 32:53Speaker 02

  So to me, like, this area is so new that it's really hard to, like, have, like, a single model for reviewing all of these.

• 33:01Harry Stebbings?

  Speaking of kind of value accrual, final point before the quick fire. We see so many companies do small seed rounds, maybe three million dollars, say, before going out to raise maybe much larger rounds, between thirty to, the sky is literally the limit. Meaning everyone has to do the same in terms of kind of staying in line with the competition. I'm interested, is there a way to correct this behavior? And what do you recommend your portfolio of investments when they say this is kind of cash is the defensibility? And we have to do this because it's what the ecosystem's done?

• 33:29Speaker 02

  Yeah, I would likely not invest in teams that kind of have this thinking, to be honest. I really like that the teams that are raising money, the amount that they actually need to build this product. Because I think that in the end, if you raise too much money, that you can also just kind of be a little bit more idle. Like, you don't feel that urgency of building something because you just have all this cash. So what's the rush? So I actually really like the teams that realize that this is maybe not the best model for fundraising and have actually shifted their focus to having smaller rounds. So there are really legitimate projects that have been going that route. And a lot of them actually have said, okay, well, we realize we actually don't need a token on this platform at all. Creating this token would just add additional friction and no one's gonna want to use this.

• 34:14Speaker 02

  So therefore, we're just gonna do a traditional equity fundraising round. And so there are a number of projects that kind of have shifted towards that. So I do think that people are being smarter about that. There's a couple of reasons for it. One being that just the regulatory environment right now. Doing these token sales, especially when the product hasn't launched yet, definitely runs at the risk of having issues with the SEC for unregistered securities offerings. So there's kind of a lot of people that are. Are being a little bit more mindful of, okay, maybe we don't want to take the risk of doing a token sale. And the other piece generally is that there has been a lot of burnout in this industry. There's so many different token sales raising massive amounts of money. The really good investors and funds, I think, stay away from that.

• 34:55Speaker 02

  And so like I kind of talked a little bit before with Xerox is that if you end up raising your token sale with just a community of speculators that want to just take your coin and flip it, you're actually not going to build a really strong community. So I've told a lot of projects this and that like if you're raising massive amounts of money, the value add investors are not going to want in on it generally. You're going to have the people that are newer to the industry and people that don't know what they're doing. And so a lot of projects have listened and they've raised smaller rounds or they've gone and done like a maybe a seed round first.

• 35:24Harry Stebbings?

  I mean, my word, so enjoying this, but I do want to move into a quick fire round. Essentially, I say a short statement, Linda, and then you give me your immediate thoughts. About sixty seconds per one. How does that sound?

• 35:34Speaker 02

  Yeah, sounds good.

• 35:35Harry Stebbings?

  So tell me your favorite book and why?

• 35:37Speaker 02

  I think this is probably a generic Silicon Valley answer, but I really do love the book Sapiens. I think that it has really changed my perspective on just like how society came to be. And especially this concept where people are able to unite themselves around stories and money in itself is a story. And so it's really cool to kind of see people being able to like unite themselves around that.

• 35:59Harry Stebbings?

  What do you believe that most around you disbelieve?

• 36:01Speaker 02

  In the crypto industry, it's very controversial whenever I say, oh, I actually don't think that everyone needs to be their own bank. People kind of think that goes against this whole industry. And I just don't think it's realistic to expect everyone to want to be their own bank. And it's okay that that's not the case.

• 36:17Harry Stebbings?

  This came from many suggestions and many mutual friends. How do you source your investments and kind of poignantly, does tweeting and blogging tangibly help in this space?

• 36:25Speaker 02

  Yeah, so it's strange because tweeting is definitely a critical role that I have to play. It's kind of the way that people know about us and Scalar. And so it helps me build up my network and logging in general has helped me just just teach others about crypto. And so maybe someone that is interested in the industry and maybe wants to join it, if they can read accessible material, then they might start their own project. So I've actually convinced a number People through my blog posts and other things they have read to actually join this industry and start a project. And so I've funded a few of those. And then generally sourcing my investments has just been my network, going to different meetups, going to these crypto dinners, going to conferences and building up that strong network. These crypto funds and investors often share deal flow with each other.

• 37:08Speaker 02

  It's really interesting because these crypto funds are very collaborative. I have weekly syncs with a number of crypto funds out there where we say, okay, these are the deals I saw. This is what I thought about the project and they all share it really easily with each other. And I've heard from a number of VCs, that's not the case in the traditional VC world. And so I I found that to be pretty interesting.

• 37:26Harry Stebbings?

  I can assure you that has never ever happened in the traditional VC world. I think that there's a greater elasticity on the allocation element, I guess. Will there be one global store of value or market fragmentation and why?

• 37:38Speaker 02

  There generally be like a winner takes most, I think, for store value. Because people just want to park their money in one thing and just kind of not have to worry about it. But I think that there will be some market fragmentation in terms of people have different preferences. So they might be a little more privacy oriented or they might want their store value to maybe not be innovative and not be iterating on itself too much. And so there are some people that just want something that doesn't change much and so they'll park their money there. So I think there's just different preferences, but it'll be a winner takes most.

• 38:08Harry Stebbings?

  How will China play out, able to compete and win globally?

• 38:12Speaker 02

  China in terms of crypto, I actually think that they're going to be a big player in this industry. I think they will really start using this blockchain tech and be building out different tech themselves. I actually think they might even create their own cryptocurrency one day. It's a pretty great way of monitoring what people are doing right now.

• 38:30Harry Stebbings?

  One from Albert Vanger at USV. When will institutional capital enter the space in a really meaningful way?

• 38:36Speaker 02

  So I do think that the institutional capital is already coming in. I've heard of a number of funds that we're raising and some of the names that they've raised from is definitely the institutional capital that I was hoping would come in. But in terms of a meaningful way, I think that it's going to be maybe end of this year, early next year. Um, there's a few pieces where we need to wait for for this capital to come in first, just having the regulatory. Uncertainty clear up a bit. There was some good statements from the top ranking SEC official on how Ether is not currently a security. And so as we see more statements like this and as we just have things get a little more clarified, I think these institutional investors will be more interested and feel a little safer coming in.

• 39:16Speaker 02

  And then the second piece is actually having custody solutions. Right now, these institutional investors can't custody their own crypto either legally because they are above a certain AUM or just because they don't want to or don't know how to. And so this has been a really big barrier for a lot of them to come in from my conversations. And so a number of them have outsourced this to different crypto funds, but in order for them to actually hold their own crypto, we need better custody solutions. Coinbase custody is one that's going to be launched soon. We also have things like Bitco that are creating custody solutions. And then there's a few in stealth mode. So I'm very optimistic that by the end of this year, we're going to have really robust custody solutions.

• 39:55Harry Stebbings?

  We've seen many traditional tech VCs enter the space. It's so new. It requires, in my eyes, such domain knowledge. What do you think of traditional tech VCs investing in the space? And is it possible unless you are solely specialized in this domain?

• 40:09Speaker 02

  I actually really like seeing the traditional tech VCs come into the space, but I really think that in the current state, we're seeing just a lot of FOMO from a lot of investors. So they kind of want to just have exposure to crypto for the sake of having exposure to crypto. So they just hear like, okay, these are some of the other VCs that have put money into this crypto project I might as well put money into. I've heard a number of them say that their LPs are demanding exposure to crypto. And so therefore they feel like they feel like they have to do it. I think that the one thing I really do love about the VCs coming into the space though, is because they have experience actually building out teams, building out companies and like actually taking products mainstream. And I think this is absolutely critical for this industry to actually succeed. So I love that these VCs are coming in

• 40:52Speaker 02

  and able to provide that expertise and advice. The only thing is just I think that they might need to get a little bit more exposed to actually what crypto is and why crypto is important. You just don't tack on a token to something and all of a sudden this token becomes valuable. You really need it to be necessary for the protocol to work. And so I think that having more conversations with more crypto native kind of people, maybe the people who are earlier in the space, having those conversations and truly understanding what this technology is, is going to be really important. So I urge a lot of people to do that kind of research and do diligence.

• 41:25Harry Stebbings?

  Now, final one, Linda. Most recent publicly announced investment from the fund, and why you got so excited?

• 41:30Speaker 02

  The most recent one, I think, Cadena added us to their angel list page. They haven't done as much press on it yet, but they're going to be talking about it a bit more. But Cadena is a smart contracts platform that is created by a former JP Morgan blockchain team, and they're creating a competitor to Ethereum. And this one, I think, is really compelling because they don't have every single node on the network validate every single transaction. They have this concept called Chainweb, where you essentially only have to validate your own transaction and those around you. And so everyone kind of links together in this like web. And so you know that it's secure without having to have every single node verify everything, which is just really inefficient. And the other

• 42:11Speaker 02

  thing I really like about them is that they have this human readable smart contract language. So you can actually have like lawyers and inventors just read this smart contract to see what's actually happening, which I think is really cool and makes things more accessible. And then just the team is just absolutely amazing. And I think are some of the smartest people that I've been able to talk to.

• 42:28Harry Stebbings?

  Linda, as I said, I heard so many wonderful things from Elan. It's been incredible to hear more from you. Thank you so much for joining me today.

• 42:34Speaker 02

  Yeah, thanks. That was fun.

• 42:38Harry Stebbings?

  I mean, what an incredible episode there with Linda. And I think she broke the land speed record for speaking without breathing there. And if you'd like to see more from Linda, you can by following her on Twitter at LJXIE. That's LJXIE. Likewise, we'd love to welcome you behind the scenes here. You can do that on Instagram at Hstubbings1996. That's at Hstubbings1996. It'd be great to see you there. However, before we leave you today, and I want to spend a minute to talk about Brex, the first corporate card for startups. Brex founders Enrique and Pedro built a payments business in Brazil, but found themselves rejected for a corporate card when they were in Y Combinator. They decided to build Brex with instant online signup, no founder liability required, and limits 10 to 20 times higher than Standard cards, pretty incredible, I know.

• 43:22Harry Stebbings?

  And you can sign up for Brex today and get fees waived by entering the code Harry during signup. Honestly, it really is such a special service. And with Brex in place, we now need a team to really use the cards. And that's where Terminal comes in. Terminal is a startup that appreciates hiring amazing developers is really hard. Plus, it's even harder if you're only looking in a 25 mile radius of your office. So Terminal is your dedicated partner in rapidly standing up world-class remote technical teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up and support these teams. From physical elements like beautiful workspaces and equipment to ongoing resources like HR, payroll, legal, professional learning and development. But don't take my word for this.

• 44:05Harry Stebbings?

  Take the word of Eventbrite, former 20 VC guest Hims and Dialpad, all of whom customers and lovers of Terminal. And you can find out more today at terminal.io. Finally, we now have the team in place. So as a founder or operator, your next crucial job is people operations. That could be hiring execs, developing managers, retaining that top talent and building a high performing culture. And that's where Lattice comes in. Lattice is the number one people management solution for growing companies, helping the likes of Asana, Reddit and Cruise build a really strong company culture. And with Lattice, it's easy to launch 360 reviews, share ongoing feedback, facilitate one-on-ones, set up goal tracking and even run employee engagement surveys. And Lattice is the only solution that combines both performance management and employee engagement. So operators can really make sure top performers are happy.

• 44:50Harry Stebbings?

  And Lattice is giving away three months of Lattice free to 20 VC listeners. Just go to lattice.com/20vc. That's L A T T I C E dot com forward slash 20 VC. Build an award-winning culture with Lattice, the number one people management solution. As always, I cannot thank you enough for your support. And I cannot wait to bring you a really exceptional episode on Friday with Phil Lebenat, all turtles.