The Battle Between Crypto VCs & Retail Investors | Regan Bozman

✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-the-regan-bozman-interview ------ Today we explore the frontier of Venture Capitalists vs Retail Investors, are they at war? That’s exactly what we debate on the show with crypto writer and VC Regan Bozman. Lots of questions to be asked on this episode: - Is crypto experiencing an identity crisis? - Are memecoins a reaction to VCs - Why is the current wave of Airdrops broken?. - Is attention more important than fundamentals? - Where do we go from here? It’s about time to gain some clarity into what’s really happening in the crypto space. ------ 📣 SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🏠 CASA | SECURE YOUR GENERATIONAL WEALTH https://bankless.cc/Casa 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku 🌐 CARTESI | APPLY FOR A GRANT https://bankless.cc/CartesiGovernance ------ TIMESTAMPS 0:00 Intro 6:10 Crypto Identity Crisis 17:15 Stories 25:18 Terminal Liquidity 20:14 VCs vs Retail 38:33 Token Sales 46:22 Airdrops 52:27 The Attention Economy 1:02:03 Solutions 1:09:31 Regulatory Hurdle 1:12:28 The Weirdness of It All 1:14:41 Memecoins 1:16:17 Where do we go from here? ------ RESOURCES Regan on X https://twitter.com/reganbozman Regan on Farcaster https://warpcast.com/regan Regan Thread https://twitter.com/reganbozman/status/1776293611036197059 ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠

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

• 0:00Speaker 00

  Like I was talking to someone last week and he's like, every VC I talk to is utterly miserable. Like you would not be able to tell that prices are like-

• 0:08Ryan Sean Adams?

  Cause retail's miserable too. Everybody, all, everybody's miserable.

• 0:11Speaker 00

  You know, yeah, we all, um, maybe we all need to go to like a Mexican beach vacation. We can claim our, our Aigun airdrop, you know, while we're south at the border and just like chill out for a bit.

• 0:25Ryan Sean Adams?

  Welcome to Bankless, where today we explore the frontier of VCs versus retail. That's the conversation today. As always, I'm Ryan Sean Adams and we've got David Hoffman and we're here to help you become more bankless. VCs versus retail. Are they at war this cycle in crypto? Have they always been at war? That's the through line of the conversation we have today with crypto writer and VC Regan Bozman. A few things we talk about to get to the subject matter. Number one, why this cycle in crypto feels weird? Number two, why retail attention is actually the tail that's wagging the dog right now? Number three, why airdrops are broken and how to fix them? Number four, the toxic combination of high F D V and low float and how we got there?

• 1:08Ryan Sean Adams?

  And number five, is a casino our primary use case? Should we give up on this whole fundamentals thing?

• 1:14David Hoffman?

  Understanding the crypto markets and why they are what they are has been one of the more interesting things to investigate. I think since I've ever gotten into crypto.

• 1:24David Hoffman?

  There's so many different things about the way that these markets are built that are fundamentally different and peak people in, in different ways. And one of the ways that they're different is that they're all of the middlemen between end market liquidity and retail buyers and early stage venture capitalists are gone in crypto. There are no middlemen. One thing that we do in crypto is we do disrupt the intermediaries, but now it's really smushed VCs, early stage VCs and late stage retail liquidity into the same room, into the same very small market. Three trillion dollars is a lot, but it's still a very, very small market in the grand scheme of things. And so how retail attention and what retail wants to invest in has changed over the years has really dictated the way-

• 2:10David Hoffman?

  That VCs invest in the space. And so there's been this like tenuous relationship between retail, which this entire industry is built on. Like the early people that bought Bitcoin, those are these are retail people. This entire crypto movement is spawned out of retail. But nonetheless, there are early stage VCs. How do these two parties come to terms with each other? How do these markets develop? And I think lately, one of the reasons why this crypto cycle feels so weird is we're kind of coming to some sort of conclusion about people's education and understanding about these market structures. So this is a conversation that we unpack here with Regan Bozman. But first, before we get to that conversation with Regan, a moment to talk about some of these fantastic sponsors that make this show possible. If you want a crypto trading experience backed by world-class

• 2:55David Hoffman?

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• 3:39David Hoffman?

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• 4:22David Hoffman?

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• 5:07David Hoffman?

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• 5:36Ryan Sean Adams?

  Bankless Nation, Regan Bozman is an investor at Lattice, which is a VC fund. He's come on our radar a lot recently and particularly, he writes these powerful threads on crypto, which I think just like synthesize various investing topics around crypto markets, private markets, airdrops, like whatever's going on. One of the themes today that we're going to explore is VCs and retail. Is it like a defining marker of this era that we're in? Maybe versus retail or maybe how they collaborate and work together. Regan, welcome to Bankless.

• 6:08Speaker 00

  Yeah, thanks for having me on.

• 6:10Ryan Sean Adams?

  So there's maybe going to be a common through line through this episode. We're going to set up a problem statement, let's say, and even discuss whether it's a problem of kind of the current meta in crypto and the relationship between VCs and retail. And then we're going to discuss the reason why that problem exists. And then finally, like what that means and where it's going to evolve moving forward. So I actually want to throw this to David because I know David's been exploring this thread recently. It's a Travis Kling thread.

• 6:41David Hoffman?

  And Reagan, I actually found this thread through one of your threads. So ThreadSeption right now. Travis Kling thread started off more or less titled, "A Lack of Pretense That Any of This Shit Does Anything or Will Ever Do Anything." This is kind of what I call like the crypto identity crisis in 2023 and 2024, especially after coming off of the terror that was 2022. And then now looking around and reflecting about like, what have we built as an industry? And this resulted in some kind of like bull market despair that I think the crypto industry has felt. Like Bitcoin is at all time highs because of the Bitcoin ETF. Ether, people perceive, will be at all time highs once it gets its ETF. And then some quotes from Travis Kling's article that people want to gamble on vaporware

• 7:26David Hoffman?

  and next year looks like a good year to be at the casino. And the ratio of expectations to market cap feels like the lowest it's ever been. And lastly, financial nihilism is growing like microchips. So Reagan, when you read this Travis Kling article, you, like I said, wrote your thread about it and have processed it. How do you think that this kind of just like defines the market cycle that you in it? Elaborate on your thoughts and your interpretation of this.

• 7:53Speaker 00

  Yeah, so I mean, I think, you know, it's a common thread that people talk about how the past two cycles were sort of like kicked off by some new form of speculation. You had ICOs in 2017 and then you had DeFi summer and yield farming and then NFTs in 2020 and 2021. And those were both new forms of speculation, but there were also companies that came out of both of those, right? ICOs, you had AVE and MakerDAO. MakerDAO was maybe a little bit earlier, but you had, you know, a lot of companies come out of that cycle. And then DeFi summer and NFTs and you had Compound and OpenSea and you had a lot of large companies, right? There were things for people to do. And so I think this cycle, it's different in that you kind of just have this external water hose of capital with the Bitcoin ETF coming in.

• 8:39Speaker 00

  That's been the cycle rather than something internal. So it's been the catalyst for the cycle rather than something internal. And then you actually don't really have like a new thing for people to do. It's just been meme coins. Which are not new, right? Doge came out maybe in 2013, 2014, but it's like the most kind of pure form of gambling and just like, if all you wanted to do is make money on crypto tokens, like punting on meme coins is the purest form to express that investment view. And so I think what we're seeing is, you know, people on crypto Twitter are arguing about whether meme coins are good or bad or whatever, but it's clearly what people want to do in this moment is just gamble on whether these things go up or down without any care in the world about whether this stuff will actually do anything.

• 9:24David Hoffman?

  I think part of this sentiment also comes from the fact that there doesn't really seem to be any new people coming into the crypto industry. Like the Bitcoin ETF is bringing in new capital. But there's actually no new players. There's no like Bitcoin Capital is like the most vanilla type of capital that exists in the crypto markets. It's actually not, there's no inventing anything new here. It's just Bitcoin. And so like while we are getting new capital and Bitcoin has, you know, punched through all time highs, we're not getting, there's no new crypto people, right? We're actually not really scaling this revolution. We're actually kind of just like scaling the market cap of Bitcoin. And then people are kind of like recycling that capital like down into the long tail. And so I think maybe that also kind of helps define about like why this market has been so weird lately.

• 10:09Speaker 00

  I think that's right. And I think, look, people have gambled on things for thousands of years. If you look at sports betting or the lottery, clearly gambling is like ingrained in our society. And I think being able to spin up permissionless betting markets on Solana, people can like, it's cheap, it's fast, it works. It clearly is like innovative in that regard. But if all we, if we don't get anything beyond that this cycle, I think it is a little bit boring. And I think part of why maybe you don't have new people coming in is like gambling on the meme coins or doing it on Dexes, you need to use something like Dex screen or bird's eye. You're like looking at new token contracts, getting, uh, getting deployed, like it's a very crypto native thing to do. And it's not that, it's not that easy to navigate.

• 10:54Speaker 00

  I think another interesting thing to think about is like you look back at last cycle and like you had all these stories that were really powerful. And this is like what every LP was told. It's like, oh, art is a $10 trillion asset class and NFTs are going to revolutionize every aspect of art. Oh, finance, you know, banks make hundreds of billions of dollars of fees a year. You guys are, you know, being bankless. You're probably more familiar with this than I am. And DeFi is going to like cut out all these middlemen and just whatever. Anyone can send money to anyone in the world. And you don't have any stories like that this cycle. Now, I think that both of those things are actually true, like DeFi, NFTs, all of this stuff kind of slowly eating away these industries. I think we're further along than we were three years ago, but that's not what people are talking about.

• 11:39Speaker 00

  And so I think there's just not really a new meta for people. It could be retail, it could be LPs, but it just, there's not like a story to latch on to of like, this is why crypto is cool and this is why I should be involved.

• 11:54Ryan Sean Adams?

  Let me ask you, Regan, so is all of this a, is it a problem? So, I mean, we, we couched this section and said, like, maybe there's, there's a problem or like that, you know, there's something weird about crypto this cycle. And then Travis Kling talked about this and framed it as a form of financial nihilism. And then you said that there've been arguments back and forth on whether this is good or bad. Is it like a existential problem? Or do you think that this is just like what crypto is here to do? Maybe it's good in some way? Like, is there really a problem here?

• 12:29Speaker 00

  I think it's a problem if it, if this is all that occurs this cycle, yes. I mean, I think people have talked a lot about kind of trying to wrap like speculation and sort of like an academic lens. People point to Carlotta Perez's book, which I think is called something like speculation and financial innovation, how like speculative booms have led to a lot of investment, which has kind of lowered the cost of infrastructure. And that's then allowed like real. Technological innovation to happen. So people use this like the example of the dot com boom, subsidized a lot of like, you know, bandwidth getting laid in the US. And now 20 years later, you have a lot of very, very large companies that came out of this. So I think it's speculation in and of itself is not bad. As I said before, right?

• 13:11Speaker 00

  People, you know, were gambling on like what Gladiator was going to win in like Roman times. But clearly it's not enough of a thing to draw new audience in because we're not seeing that happen now. And this cycle has been very PvP, which is, you know, crypto is big. It's not that big, right? If the industry doesn't get any bigger from here, it's not that interesting. So I think it can be like a step in the journey. But if this is the end of the road, then I think we all have kind of a bigger thing to worry about, which is like, where do we go from here? Are we just going to be sitting around arguing on Twitter about whether meme coins are good or bad for the next five years? Like, that doesn't sound very fun to me.

• 13:51Ryan Sean Adams?

  Well, hopefully you can answer some of that in the, in the, the process of going through this episode. But another question I have on this thread is, is it really that different? So like we're, we're saying that this time there's financial nihilism in crypto. Oh my God, like wake up. Hasn't it been here every cycle would be a retort to that. So I mean, 2017, we had ICOs, didn't we? Uh, and that was like a form of speculation and gambling, certainly. Like what else would you call, uh, some of these ICOs? Uh, the previous cycle, we had all sorts of mechanisms for the, the animal spirits, right? Not least of which was, uh, monkey JPGs and all sorts of things. Sorry, I didn't mean to single out a, a community, but all the JPGs we were speculating on that, uh, that moon went down. Now this cycle, it's just the same sort of animal spirits,

• 14:36Ryan Sean Adams?

  not expressed in ICOs, not expressed in NFTs and other things like this, just expressed in, in meme coins. And hey, isn't it, by the way, uh, incidentally, isn't that the purest form of speculation anyway? We get it distilled and it's not, uh, like VC, um, you know, like bag shilling like the previous, uh, cycle. So, you know, is it really that different, I guess, is the core question here?

• 14:58Speaker 00

  So I think the ethos of it is not necessarily that different, right? People want to get rich. And to me, I think if you distill down, like, people love to talk about crypto communities. In my view, like, community is basically making money with your internet friends. That is really how these, like, communities form, is like, positive financial upward mobility.

• 15:20Speaker 00

  But I think the retort to like, oh, all of that was just speculation is like, well, yeah, Solana did an ICO in 2020. And like, now it's 2024 and Stripe is using that thing. So clearly, like, real things have emerged out of this. You had, like, DeFi Summer, and now Lido has, like, what, $25 billion in TVL and Ave and Compound? Or these very real things were like, you have these global permissionless lending markets, which is like an incredibly powerful primitive. So, yes, I think, like, most things in life and venture, like, 95% of it is kind of useless and will fade away. But from both of those prior speculative cycles, you clearly did have, like, generational companies or protocols or primitives come out of it.

• 16:03Speaker 00

  Now, the question is, like, what comes out of this and what comes out of meme coins? And I, you know, I wish I had the answer to that. One interesting data point is, you know, we have built basically software that, like, tracks Twitter activity to try to source companies, right? It looks, we have a few hundred accounts we think are like, alpha generating to some extent. And every time, like, we follow a new account, we basically try to source us out, like, okay, is this a new company or not? And then, like, we basically source some of our deals via that mechanism. And interestingly, in prior cycles, you know, more companies were started, right? Crypto prices went up, more attention went on the space, people were talking about crypto, and so people started companies. And we actually haven't really seen that happen this cycle, which maybe isn't that surprising, right?

• 16:48Speaker 00

  It's, okay, this meme coin thing is interesting. It's kind of a long leap to be like, okay, now I want to start a company in crypto, right? There's just not that much meta about productive things yet. And so that is kind of a leading indicator that, hey, like, maybe not that much useful is kind of coming out of the current paradigm.

• 17:06Ryan Sean Adams?

  Just to be clear, Regan, you're seeing more meme entrepreneurs and fewer, like, sort of, app entrepreneurs?

• 17:12Speaker 00

  I think just, like, less entrepreneurs generally.

• 17:15David Hoffman?

  One thing I want to open up is the conversation of the stories that always seem to come with with every single crypto market cycle. I remember coming into 2017 crypto and just fell in love with the massive amount of stories that were told. Like every single ICO would tell a story of like a future internet that like, you know, just got me going. I loved it. I just ate it up. And it wasn't really wasn't like into deep in 2018 where I realized kind of the reality of what was going on here. And that was actually like the retail individual that was learning his first lessons in the financial markets. But like, as the next cycle came around, the DeFi story and like you said, the NFT story came about, which seemed to be just so much more coherent, right?

• 17:57David Hoffman?

  And it actually meaningfully did onboard people into the crypto world, right? Like DeFi is going to disintermediate trillions of dollars of intermediaries and put that hands back into the, to the margins, right? Like, we're going to tokenize the entire art market and put it on chain. And there's going to be a revolution in digital art culture. Like I, I believe those stories. I still believe these stories. These are, I think these are good stories. But telling these stories, I think in 2024, people like just don't want to hear it. The stories don't land as well, both I would say for crypto natives and for external non- crypto people. And I think external non-crypto people in 2024 actually understand kind of the crypto story, even if they're not crypto people. Like crypto is a household name now. Like people know what Bitcoin is.

• 18:42David Hoffman?

  At least they get the vibe, they get the gist of, you know, democratizing access to finance. They kind of get that. And so I think we've hit some level, and I want to get your sentiments on this, Regan. I think we've hit some level of like story saturation, where even with the stories of like NFTs coming to disrupt the art market, still had like nefarious NFT drops milking retail users and milking people who would like, you know, buy the top of their NFT, right? Like, there's plenty of these examples. And nonetheless, like we had the DeFi story and then there were still plenty of just like startups that would play the get rich game for ourselves and not for anyone else. And so like nevertheless, there's always some sort of nefarious, or at least there is perceived to be some sort of nefarious motivations in much of the makeup of the

• 19:27David Hoffman?

  crypto industry. Like at least when it comes to the private markets as they go.

• 19:31Speaker 00

  I mean, DeFi is a perfect example, right? It's like we had two years of like incredible financial innovation and then UST and Mirror destroys like $15 billion of value overnight, right?

• 19:43David Hoffman?

  Totally, yeah. And so like telling stories these days, I just don't think people want to hear it. Both outsiders and insiders. And so maybe I think that's kind of also contributing to the nihilism. Whereas people have heard these stories before and they like kind of shout like, well, these are these are the VC podcaster stories that are here to like, kind of work the narrative. How would you react to that?

• 20:06Ryan Sean Adams?

  David, though, is it like that they don't want to tell stories or hear stories? Or they just don't want to hear those stories? Because there are all sorts of new stories that are brewing, but they're more like casino, like meme type of story. It's a different type of story.

• 20:21David Hoffman?

  Maybe. I mean, there's always an appetite for some sort of story somewhere, but the stories that I'm hearing are not like being broadcasted to the point where they're actually bringing in new people, right? Like if they're not bringing in new people into the crypto industry, are they like useful stories? Like Regan, what are your thoughts on this?

• 20:37Speaker 00

  Well, I think it ties back to what we were talking about before, right? It's like the prior two cycles, you did have this form of speculation, but it was like, hey, this is funding this like new wave of companies that pretty clearly do something, right? A permissionless lending market has a function. Whether or not you think that's a big opportunity, that's like a different question. Clearly, these companies did something. And this cycle, you kind of have meme coins, this new form of speculation, but it's not really clear like what it's funding. So I think, you know, there's like different audiences for stories, right? I think if you look at retail investors coming into crypto, like what has been the main goal of most of them? My assumption is like, it's to make money, right? Like, maybe you're interested in this stuff.

• 21:19Speaker 00

  Maybe if you just buy Bitcoin, you know, you kind of believe in this like hard money thesis. But if you're like punting on tokens, like you probably pretty clearly want to get ahead financially. And so maybe now with like just cheap meme coins on Solana that were like, you can make 100X in a day. You can also lose your money in a day. That is just like, it's what you wanted to do, but you don't need the story, right? You don't need the icing on the cake, just like, that's the purest form of gambling you could find. And so it's like that segment of the market maybe doesn't even need stories anymore. Or they don't believe the stories that they were told. I think for institutional allocators who've funded a lot of, you know, what's happened in crypto,

• 22:03Speaker 00

  they don't want to hear that story, right? If you're like a foundation or an endowment and you're trying to compound money over a 20-year timeframe.

• 22:13Speaker 00

  A new form of like, oh, this is like a casino, but better. That's just like not a story you want to hear. Right? You want to hear big dreams because historically like that is what has produced big financial outcomes in the past is like industry changing companies. And you don't have that right now, which is why I think, yes, like price has gone up, Bitcoin has hit all time highs. The floodgates of institutional money coming into the space, it has not happened yet. And I think a lack of like a coherent story is a big reason why.

• 22:44Ryan Sean Adams?

  So Reagan, I think this brings up the question of like, were we fools to believe the like the DeFi story to begin with, or the crypto money story? Right? So like, at some level, I totally acknowledge that crypto has always been about, as you say, the main story here, the through line is making money with your friends. But it used to be like that. Plus, if we do that and when we do that, we get to economically secure this permissionless, open internet property rights system for the world. We get even the Bitcoin, the original Bitcoin story was like, if we do that, if we went as we make money with friends, right? We create this sound money standard that protects us against fiat debasement.

• 23:24Ryan Sean Adams?

  The Ethereum story is like, as we make money with friends, as we get ultrasound money, right? We start to create this DeFi system that anyone can use, free us from the bankers. I mean, this is part of the the bankless origin story as well. And now it's just, as you say, like a more distilled version of like, we make money with friends. And like, maybe there's some element to and creators and influencers get to kind of like democratize access to their fans. Maybe there's vestiges of that, but like, I guess my question is, were we fools to believe all of the original crypto origin stories? It was like, was it only about making money with friends to begin with?

• 24:06Speaker 00

  No, I think that incredible things have come out of all of those, like you look at Solana, right? Like it is now this incredibly fast blockchain, Stripe announced last week that they're going to use it.

• 24:20Speaker 00

  And if you kind of think about like this, you know, shared upside amongst an early community and early adopters like. Solana was live and liquid under a dollar for like months in 2020, right? Early adopters of that community have seen huge financial upside. I think you look at stable coins, like I talked to a company yesterday that is working with like merchants in South America that import and export goods and they need to deal in a bunch of different currencies. Like they are using stable coins and it is much cheaper and faster for them than like using the SWIFT system that exists today. So I think there are real success stories coming out of crypto, but you know, using the stablecoin company is an example, but it's not necessarily something that's like

• 25:04Speaker 00

  investable or you could trade day to day. And so I think the attention of the market is clearly focused on like the fastest part of it. But there are a lot of really successful, cool things happening in crypto. It's just like, that's not the current meta.

• 25:18David Hoffman?

  I want to turn to why all of this story talk is so important. Like, why, why do stories matter so much? And one of your threads, Regan, you said a line that's now stuck with me, which is terminal liquidity in crypto comes from retail. And so this is, this has been just true about crypto from the get go. Retail interest has always had an outsized impact on the crypto markets. Like the Bitcoin itself was molded out of like casual retail investors. The first people that bought Bitcoin were not the VCs, were not the fund managers. They were just the internet casual people who stumbled upon the Bitcoin white paper and were crazy enough to buy Bitcoin before it actually had a market price. And this is, this has reverberated throughout the halls of like crypto cycles throughout time, right?

• 26:03David Hoffman?

  Retail predominantly owns like the long tail of assets in crypto. And so like what retail cares about, what the average, average Joe with an internet connection and a couple hundred dollars, what they care about, it actually matters like quite a bit in the crypto markets. And so your line here is that terminal liquidity for VCs comes from retail. And I think this kind of opens up the, the conversation of the relationship between venture capital firms and retail. But just, let's hang on that moment, that, that line for a second, just like terminal liquidity comes from retail. Just express a little bit more about what you mean by that and how that has impacted what the crypto markets actually are.

• 26:43Speaker 00

  Yes, I think if you look at traditional venture markets, you know, a seed investor will back some SaaS company at the seed round, right? Maybe they have a few customers, they're generating a few thousand dollars a month in revenue. And then there's series A investors and there's series B investors. And you know, basically as a company produces more cash flows, like there are more investors who are willing to put more money into a company as it grows. And eventually there's like a number of exit possibilities for that company. It could be sold to a private equity firm, a strategic acquirer could buy it or it could go public. But there are a lot of different avenues and generally there are, it's not like retail buying a SaaS company. Maybe in an IPO, like some retail investors buy those shares,

• 27:26Speaker 00

  but there's a lot of institutional allocators that are focused on companies that produce free cash flows. And there is this universal currency of free cash flows. Most of those things don't exist in crypto, right? There's not a lot of growth stage investors. Generally, companies aren't raising more than a series A or a series B before they launch a token. And if you look at who's trading these tokens and let's just take Bitcoin and ETH out of the equation, everything kind of below that in the CoinGetGo rankings is probably at least 80% retail. So I think there's always been this kind of uneasy truth that there is just a lot more money allocated to crypto venture than there is to like fund managers holding liquid tokens.

• 28:08Speaker 00

  And so ultimately, the kind of assembly line we've built of like protocols getting funded and launching, ultimately it's dependent on retail investors wanting to trade these assets when they go liquid. And if that breaks down, then you know, there are like things that need to be fixed.

• 28:26David Hoffman?

  Just to elaborate on the point that there's so few like funds that hold liquid tokens. Cause if you were a hedge fund that held like liquid tokens and you are buying the cream of the crop of tokens in 2017, you're probably down 97%. Right, like if we're not talking about Bitcoin and ETH, like what was like one of the best tokens of 2017 that I can remember, like basic attention token? Like Augur, like these tokens don't make it through the cycles because crypto is so heavily like evolving and so research focused and we are developing new systems. Like we didn't have the word data availability until 2022, I think. And so like they're holding tokens for the long term.

• 29:08David Hoffman?

  Like crypto moves so fast, it evolves so fast. And so like, there's always like a new meta of like industry infrastructure. That means that like being a long-term investor in the long-tail tokens is like kind of untenable in this space.

• 29:22Speaker 00

  Yeah, I think that's right. I mean, clearly there are assets that last through multiple cycles. Bitcoin, ETH, MKR, but generally they don't, most don't. And I think just in an industry where there are 90% upswings and drawdowns, it's very hard to manage a liquid fund across cycles. Because at some point, if you have a liquid fund and your investors can redeem money, you will be down 75%. And so the way most investors have chosen to access the asset class is through venture funds. Which I think has worked well. It's funded some incredible technology and it's helped drive a lot of like the industry's forward progression. But ultimately, there still is a big delta where there's all this money going in on the private side.

• 30:07Speaker 00

  And eventually like that money needs to turn into more money to go back to those LPs to then fund like the next wave of crypto venture funds.

• 30:14David Hoffman?

  Yeah, so would you say we've cut out the middlemen, right? We've cut out all of the steps between like early seed stage venture capital and late-stage public markets. We've cut out, you know, series C, D, E, F, G. We've cut out the investment banks. We've cut out all these things. But like that capital actually just like kind of re-pointed itself towards venture capital. Making venture capital very like overweight in the crypto world versus like retail. And so when we have like an overweight VC pendulum, and then we have no net new incomers into the crypto markets, all the retail individuals, the long-tail buyers. It's actually the same people that have been here since 2021.

• 30:57David Hoffman?

  And this is kind of where like this meta has emerged, where we have an overweight VC. And then when we have like the same supply of retail people, and that's kind of the current structure of the market. Would you say that's right?

• 31:09Speaker 00

  Yeah, I think that's right. And I think, you know, people want to launch tokens in a bull market, right? So you have a lot of teams that have been building, maybe kind of getting ready for TGE during 2023. The market starts ripping in December and it's like, oh yeah, like, let's, let's launch, let's get the token out the door. And if you don't have any new retail inflows, who's going to buy these things, right? And I think that's maybe why you're starting to see the market kind of like get a little bit shakier than it was two months ago, where some of these new token launches are not going well. Now, for what it's worth, I think structurally, the current paradigm we've set up of these high FTV, low float tokens is terrible. I think it's like the worst innovation in the industry in a

• 31:51Speaker 00

  long time. And I can talk about that. So I don't think it's like, it's not an intractable problem. But the current paradigm is just not working.

• 32:00Ryan Sean Adams?

  Let's come back to that issue of high FTV. But before we do, just to flesh out, like, why we're, why we're in this state, I want to ask you a question, like, structurally, why do we even have this or like, need this division between retail and VCs, right? I remember the original promise of 2017 with ICOs was like, VCs are dead. We don't need VCs any longer, right? And I'm wondering if you think that that is like, like, why? Why, why there's this division? Is it a product primarily of like, accredited investor laws? Let's say where like, it's a product of the regulatory regime that that we're in? Or is there something deeper here? Because it's not, I mean, permissionless access to

• 32:43Ryan Sean Adams?

  kind of launch a token and like, raise funds. It's not clear that you'd need a whole separate class of investors and call them VCs.

• 32:51Speaker 00

  So I think crypto VCs get a lot of flack, and some of it is definitely deserved. I think they generally do serve a purpose, which is taking very early bets and accepting a very different liquidity profile than most people who are just punting tokens. So maybe to like frame kind of the timeline of this, generally when we make an investment, tokens are locked for at least a year and that TGE event may be six to 24 months away. And then our tokens vest over another two to four years. So it can be three, four years before we even have half the tokens, you know, that we kind of purchased with like a token warrant or something like that.

• 33:31Speaker 00

  So I do think VCs take a liquidity timeline that is very different from how most retail participants want to trade tokens. So I, I do think you need a different class of participants. And I also think, you know, oftentimes when we're underwriting these investments, it is like two people in a room with a deck, right? There's nothing live on main net. There's nothing to use like, it's just very different and it's, it's kind of subjective investing, right? You're really just trying to back awesome people who are going to stick with this. Now, that's not to say like VCs are necessarily smarter than like the average retail participant. I mean, most of us probably, I'd probably like to think we are, right?

• 34:10Speaker 00

  But it's like, it is, you know, it is more liquid than traditional venture, but like almost always we are holding these positions for at least three to four years. So it's just very different than trading tokens. Part of it is definitely regulatory, you know, I think there is a path to kind of sell tokens to the public in a compliant manner. I mean, generally you exclude the US, but a lot of teams have done this file coins, Solana, near Avalanche. Like a lot of large blockchains today did do something like this. But generally I think that that happens at kind of a later date when there's, when there's more to show. But for what it's worth, like, I don't think that these, it does not need to be a PvP game, right?

• 34:55Speaker 00

  Solana, Avalanche, near, a lot of the most successful watches from last cycle. Yes, they sold tokens to VCs really early on and then they sold them to retail, probably at a bit of a higher price. But all of those tokens launched below billion dollar FTVs. Like both the retail participants in those public sales and just people who bought those tokens at launch, everyone did well. So I, I don't think this like paradigm of like, oh, it's like VCs versus retail. It doesn't necessarily need to be like that.

• 35:25Ryan Sean Adams?

  It doesn't need to be like that, and yet it is. And I feel like in our current environment, like now, maybe more than ever. And I'm wondering if part of the reason you think that that's the case is because you're very much right. Retail right now does not value tokens based on discounted cash flows or something like that. Right? There's like, almost like no investor class in this space that actually does. Much to, I think, the chagrin of like, you know, people who love fundamentals, like David and myself.

• 35:54Speaker 00

  Love fundamentals.

• 35:54Ryan Sean Adams?

  I would say we love fundamentals. Like, look at the cash flow that Ethereum Maker are throwing off. Like, no one cares about that, Regan.

• 36:00Speaker 00

  No one cares.

• 36:01Ryan Sean Adams?

  And so like,

• 36:02Speaker 00

  No one cares.

• 36:02Ryan Sean Adams?

  Because we have the nature of the market structure and the buyers are predominantly retail. And what they care most about is sort of like narrative. Then you get into this, you do get into almost like a PvP scenario of VCs who have early access to these deals. Right? And then retail on the other side, who are supposed to be sort of the exit liquidity, the buyers of these deals. They, they actually can start giving what the market wants, which is rather than product market fit, narrative market fit. And so it turns VCs into sort of these narrative spinners, let's say, who are just basically like, here's a, here's a great narrative market. Do you accept it or not? And retail goes, yes, we love this narrative and they buy, buy, buy.

• 36:44Ryan Sean Adams?

  And so I'm wondering what, why you think this dynamic exists? And if you think that that's like sort of a bad trap to fall into where now we're, we're sort of feeding the market what it wants, which is like memes and narratives rather than actual useful, useful products.

• 37:01Speaker 00

  Yeah, I mean, I think it's, you're not wrong. And I think a lot of it is VCs fund what has done well in the market. And so if you believe that like retail, they speak their opinion through the market, then I think VCs are funding what retail and the market want. You know, I think it's a common refrain or like, we hear this all the time from LPs. Yeah, like why, why is all this infrastructure being funded? Why do you need the 10th DA solution and like the 17th L1 and like all these L2s? And VCs fund it to some extent because that is what the market has placed a premium on, right? There are like every tier two L1, you know, it's like Algorand probably trades at like one and a half billion FTV. The market has kind of put a floor on these things.

• 37:46Speaker 00

  And so that's what people fund. And you know, David, you talked about the tail wagging the dog, like, that's exactly that. And part of it goes back to like, in traditional markets, you kind of have cash flows as this universal asset. Narrative can help, right? Like, investors will probably pay a higher multiple for those cash flows if the company is in AI or whatever. But there is this like universal currency of like, okay, this is an asset I want to buy. In crypto, it's kind of just a tension. And so, you know, people can criticize VCs for like, just funding things that fall into the narrative. But if the market doesn't value cash flows, then funding things that have cash flows is kind of irrational, right? Like, you just need to front run the narrative and invest

• 38:30Speaker 00

  in what you think is going to be hot.

• 38:32David Hoffman?

  Exactly. The, uh, the idea that Solana, Avalanche, a lot of these networks that launched at a very low token pricing, and they got retail in at a low token price, and then, then they, you know, went through their price appreciation. I don't know how much control anyone really has over that. Um, I think like a number of teams that like I've hung out with and spent time with, they're like, uh, how do we make our token launch go like Celestia's, where Celestia launches at $2, and then it hangs there for a month, and then it does a 10x. Like, oh, you got, that's what you guys want? Because everyone wants that. That's what everyone wants. But like, if too many people want that, you

• 39:13David Hoffman?

  enter into the world of high FTV, low float, because it just skips to the part where it launches at a 20x, and then there's no price appreciation. No one can get on the bus. No one can get on the ship. So like, Regan, is it that even a possible thing to engineer? Because I think you're kind of like dictating what the market should do, but like, the market doesn't do what you think it should do.

• 39:33Speaker 00

  So you're right in that regard, and I think Celestia, they did a good job with it. I also think they launched maybe in mid to early November. They kind of like were a little bit early. The market hadn't really heated up that much yet.

• 39:46Ryan Sean Adams?

  Yeah.

• 39:47Speaker 00

  I think letting retail buy in is kind of a pretty good solution and doing public token sales. You know, I'm biased. I worked for a long time at Coinless, like I worked on a lot of these. But I just fundamentally believe that people value things that they buy more than things they get for free. And I think with airdrops in this current paradigm, you kind of set it up where people expect tokens for free and then they go out at a high FTV and okay, well, you got $5,000 in Eigen for free. Are you really going to go buy 5,000 more at a $10 billion FTV? Probably not. Um, and if you think about, again, going back to like what community is, it's making money with your internet friends.

• 40:29Speaker 00

  If the amount of money you can make is capped at what the airdrop is, which is a somewhat arbitrary amount that's dictated by the team. It's very hard to build community if that's like people's only shared upside in a project. So I think you're right. Like ultimately, the market determines what the prices are, but having a higher float at launch and more creative ways for your community to get bought into what you're building, I think at least helps the problem.

• 40:57Ryan Sean Adams?

  I agree, and I think most like VCs would agree, and I think most people in crypto would agree, and I think most people on founding teams would also agree. Like basically, there's a chorus of people who are crypto natives who give you a resounding agreement on the idea that retail should participate far earlier than they do. Let me tell you who doesn't agree, though, and that's like the SEC, right? And it's like, I'm wondering if you think, given the constraints, that any of that is possible, right? And like, we had a, an ICO with Ethereum, right, back in, what, 2015?

• 41:36Ryan Sean Adams?

  That would not have been possible in this regulatory climate. So like, just revising David's question to you, but like with the constraints that we have a regulatory like whack a mole who is like actively prosecuting this industry and preventing earlier token sales from, from happening.

• 41:56Speaker 00

  Yes, it's definitely, the regulatory issues are a large part of the problem. I think. To my knowledge, almost every token sale that Coinlist and most other platforms have done in the last five years has excluded US retail. And so you have kind of offshore foundations selling assets to non-US people, which I think solves a lot of the problem. But you're right, there definitely is more risk, or at least a perception of more risk in doing some kind of public token sale. Now, I think you look at like the Eigen airdrop and like, do you see that like map of like what countries are excluded? And it's like, you know, it's like half the world, right? Clearly, like, these risks still exist with airdrops. So I don't think the airdrops are a perfect solution.

• 42:39Speaker 00

  But a lot of teams that are successful today did public token sales. So clearly, these things can work, although I acknowledge like they've gotten harder from the regulatory side.

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• 46:22Ryan Sean Adams?

  Regan, we're about, at the time of recording, a day or so into the recent Aigen drop, airdrop, stake drop. That's kind of how they've phrased things. And there's been quite the reaction. And I would phrase it as like a retail versus VC reaction to this. David and I did a live stream on this. You should have seen the chat box. A lot of

• 46:42Speaker 00

  I saw screenshots of

• 46:44Ryan Sean Adams?

  What do you make of this? So like, what do you think in the context of the discussion we've had so far?

• 46:49Speaker 00

  I think the current airdrop paradigm is just really broken. If people expect something for free, like they will inevitably be disappointed in what they get. Like, it's just, I think it's just human psychology. And, you know, the current points paradigm where it's almost like, you're like, the prize you get, it's like, you keep like extending it out. Right? Like, oh, I'm going to put my ETH here, and then I'm going to get like some points in three months, and some points in six months, and some points in nine months. And then the token, like, to some extent, it does align, like, people using the platform for its intended use with like financial upside, which I like.

• 47:30Speaker 00

  And like, the fact that early users of these protocols are rewarded financially is beautiful. It's awesome, right? Like, that's a way better model than how software works today. But if people just expect tokens for free, and they're never going to buy any, and kind of like, again, going back to what I said earlier, the max amount of exposure to a project they're ever going to have, because these things go out at a really high FTV, because you need to maximize the notional value of the airdrop, you're kind of just setting yourself up for disappointment no matter what. So it's not to say like, Aigen did anything wrong, or they did anything that people haven't done in the past, but it's just a bad paradigm we're in, and I don't think it's sustainable.

• 48:14David Hoffman?

  There's been this like arms race around airdrops that started with like Uniswap, right? Uniswap didn't invent airdrops, but they really, it really popularized it. It was like the retroactive airdrop. But it was also kind of like immaculate, right? Because the only people who could really do a true, fair, retroactive airdrop was Uniswap. And then the game of airdrop farmers really began with the introduction of like the Uniswap airdrop. And there's been an arms race ever since, right? And it's gone back and forth. Airdrops got more precise, right? Like optimism had a very precise airdrop. There was like six different categories that you would have to checkbox and you would get more every single time. And so like there's been an arms race. The points is like the most recent meta in this arms race.

• 48:57David Hoffman?

  But even the points thing is like even like changing. And really, there's never been any sort of just like equilibrium, because as soon as any equilibrium gets set in about like how you distribute a token, the lawyers come in and say, "Well, you have to change it now because like this, because like the SEC is on to us, basically." And so like I think the EigenDrop is like the most recent like arms like evolution of this whole like relationship between like airdrop recipients and protocols who need to distribute their token in order to make their whole thing work. But like the most recent like phenomenon that I've noticed is there's been a bunch of airdrops where like the team stumbled for some like perceived reason.

• 49:41David Hoffman?

  It could be a small reason, it could be a big reason, but like the community starts to rabble so hard and yell scam, scam, scam, scam, scam, to like bully the team to dropping more tokens to compensate. And this has, I've seen this work like two or three times now. And so like now you're getting like the DDoS attack of like the airdrop attempted farmers, who like are trying to rabble their way into more tokens. And then it's causing like angst in the actual team. And overall, the meta that's emerged is just like, everyone just feels shitty about it, like the team feels shitty. No one's happy about it.

• 50:16Speaker 00

  No.

• 50:18Speaker 00

  VCs aren't happy, like yeah, no one's happy.

• 50:22Speaker 00

  Yeah, I I definitely like don't have all of the answers, but the current meta is broken. I think teams like at some point just need to give up on the airdrop is like gonna be the big thing that gets people involved. Because clearly, like, everyone's going after the same pie, right? Like, the market is not growing. And so, like, kind of definitionally, you know, only so many assets can flow into like any given airdrop or farm. They take away from everyone else. So, you know, I always think back to like, what's the most powerful community in crypto? Probably like the link marines. And like,

• 51:05Speaker 00

  people could have bought link. There was probably a year and a half where it was under fifty cents. And so like link could be two dollars, it could be five dollars, it could be fifteen dollars. Like, they are gonna go to BAFR survey because they're in the black, they've made money, and they love link. And so now again, you know, the market is very different than it was in twenty nineteen. I'm not saying that that is like perfectly replicable. But if you give community a chance to like, put skin in the game and have upside in a protocol or project and they can, you know, size it depending on what they can afford. And, you know, I think giving some to people for free makes sense, but like, just going back to even like, people buying, you know, retail being the ultimate liquidity

• 51:48Speaker 00

  for most tokens, if retail is not gonna buy any more of your token because they got it for free, this whole system breaks, right? It just literally does not work. So, the current paradigm is just bad, and we need to get out of it. And it like, I don't think we can just blame the lawyers. VCs are also to blame, right? If you're funding these projects at insane valuations, like you need them to go out at a high FTV because otherwise it's like, well, why did you do this at five billion with a four-year walk-up when like, John, the dentist from Florida could buy it at four and a half billion liquid, you know, next month?

• 52:27Ryan Sean Adams?

  Yeah, and I'm sure we'll talk more about meme coins, but interesting retail reactions to all of this is just like ignore the high FTV, like low float tokens and like go buy a meme coin. And that's at some level, kind of a rational reaction to all of this. But I want to ground this into another insight and bring us back to an earlier point in the conversation where we basically said traditional cash flows don't matter in this market. Okay. When you go and you look at equities, there's a whole industry analyzing like PE ratios and like, how much cash is this thing, you know, going to throw off now in the future? And what is like the dividend profile look like in crypto? None of that matters right now. As much as I wish, you might wish, listener, that it did, it just

• 53:09Ryan Sean Adams?

  like doesn't right now because there's no buyer that's evaluating assets based on that. What they are evaluating assets based on is kind of attention, I would say. You have a tweet thread where you ask the question, you pose the question, how do crypto markets value things? It ain't cash flows. Crypto markets value attention. What does attention mean? It means you're part of the current narrative. It means crypto Twitter is talking about you. It means a retail audience wants to own your token. It means your community's meme game is firing. It means other projects want to do quote unquote partnerships. Tell us about this. What is this attention economy? And like, why do you think retail is, what's just like, how does this factor into your analysis?

• 53:55Speaker 00

  I mean, I think it's not, you know, I don't want to like, it's not me casting any subjective opinion on the market, like, oh, the tokens that people value are right or wrong. I think you just look at what people want to trade. And pretty clearly, it's just like, it's attention, it's narrative, it's momentum. Maybe an interesting example is like these GPU marketplaces that have kind of fit into like the AI trend, right? You look at things like Nosana, which is like a GPU marketplace and Solana, it's valuing every like GPU they have at like $5 million, like something totally insane, right? Or you look at WorldCoin and it pumps because of like

• 54:34Ryan Sean Adams?

  Sam Altman, super charismatic.

• 54:35Speaker 00

  GPT releases a new version, right? It's just like.

• 54:37Ryan Sean Adams?

  Didn't, didn't we get, by the way, the metrics around this for WorldCoin from like, if, if you look at true market cap, right? Fully diluted, like market cap, north of like 100 billion or something like this? At its peak, yeah.

• 54:50Speaker 00

  That sounds about right. So, look, I think people, it's again, it's, you don't have like hedge funds and mutual funds that like value companies on PE ratios. They are not the people trading these assets. It's retail investors. And clearly retail investors, at least in this market, value attention and narrative more than anything else. And maybe even it's just like a game theoretical thing, right? Where it's like, maybe you actually care about cash flows, but if you know that the market doesn't.

• 55:20Ryan Sean Adams?

  Oh, yeah.

• 55:20Speaker 00

  People just want to punt on AI tokens. Rationally, you should go buy some AI tokens.

• 55:25Ryan Sean Adams?

  Yeah, and I think a lot of VCs are, are like thinking like this too. Let me ask you though, Regan, is, is, uh, maybe this gets to a little bit of the solution, but like, is there a way to change that? So, one way of changing that is, um, education. So, um, hey, hey, retail users, do you know that your, your token is just basically like, uh, not producing any cash flows? It's, you know, uh, I don't know. I pay money to see this conversation. I mean, we've tried to, we tried to have it, uh, sometimes, right? We try to, um, like preach fundamentals and I know a ton of great analysts that are doing this, this work, uh, now. There's, there's one, uh, from the DeFi Report is putting out fantastic fundamentals about particular crypto assets

• 56:07Ryan Sean Adams?

  and evaluating them like a, a smart equities trader and, and looking at the kind of the, the cash flow prospects. And we have tokens that generate cash flows. I mean, Maker last quarter did like 30 to 40 million, just in one quarter of cash flows. Ethereum, if you, if you kind of like evaluate that from a, a network perspective, something like 300 to 400 million in Q1 of 2024 of like cash flows, right? So we can begin to educate the retail market or we could begin to bring in those net new TradFi investors who are just like, as you said. Earlier in the conversation, Regan, like, they're not going to be excited about the new casino, and they don't want to deploy funds to that. They're excited about Bitcoin. Maybe the next thing they start to evaluate

• 56:49Ryan Sean Adams?

  is these tokens with cash flows. And so we get a new crop of buying pressure. And so maybe this is just the symptom of a young, immature retail forward market, and maybe in the fullness of time, call it like years, hopefully not decades, but call it years, fundamentals begin making a comeback. And there's some smart set of investors who just go bet on that. And they're like, you know what I'm buying? I'm buying tokens with strong fundamentals. And they carve out their path, they make their name, and they bring that buying activity. Is that a too optimistic or too hopeful a take on how this plays out?

• 57:25Speaker 00

  I think maybe in the sense that like, if you wanted to just go trade assets based on cash flows, like Robinhood works pretty well.

• 57:36Speaker 00

  Now, I'm not saying you're wrong forever, because I think that directionally, like, the ETF leads to institutions coming in and wanting to trade these assets. And I think you're already starting to see that happen. And yeah, like if you're whatever, at like, one of these financial institutions, and you want to trade crypto assets, like saying, oh, we're gonna buy like this random L2, because like the memes are good, like you're probably, you're gonna get laughed out of the boardroom. So I think like, directionally, over time, that is where the market will head. But in this game, if you're two years too early, even if you're a year too early, like, you might as well be wrong. So I personally like

• 58:16Speaker 00

  making venture bets on the assumption that like the current kind of capital market structure is going to change. I am like, I don't want to do that.

• 58:25Ryan Sean Adams?

  That's not what you're trying to, like, so you're still-

• 58:27Speaker 00

  It's a good way to get wrecked. But I would also argue that like, maybe VCs should be more creative. Like we funded all this random infrastructure for years under the assumption that like retail wants to trade it like, I don't know, like, I think there's some burden on the industry because like, you know, people have asked this question like, oh, how many L ones can there be? How many L twos can there be? And I feel like a lot of VCs have been like, oh, well, there can be infinite number.

• 58:55Ryan Sean Adams?

  Yeah.

• 58:56Speaker 00

  Because retail has wanted to trade that in the past. And so I think maybe actually like the burden is on the industry to create more interesting assets. And for what it's worth, I actually think we're starting to see a little bit of a shift towards applications that have kind of built some proprietary brand or distribution, starting to capture more value. And I think the way we're starting to see this is basically like flagship apps start to roll their own infrastructure and basically commoditize down the stack. Now Blur launching their own L two, I think is a really interesting example, right? We're like, they could have deployed on Optimism or Arbitrum if they needed like a high throughput chain. And they're just going to roll their own thing.

• 59:40Speaker 00

  And it's basically like they've built, you know, by some metrics, like the leading NFT marketplace. They want to capture all that value. And we'll see how Blast does, but I think that's interesting in that attention users like those are kind of more fundamentals driven than like the random next like high throughput L two. So I think maybe the market is going to start valuing that more than it just does like, oh, this ZK coprocessor, blah, blah, blah, blah, blah.

• 1:00:12Ryan Sean Adams?

  So you are definitely long on attention markets being a driving force and like not fundamentals. And you don't think that structurally changes anytime soon. However, what you're saying is the nature of that attention might shift. And VCs should be careful to be mindful of that shift. It might shift out of, I know, um, yeah, people have said to me, the alt L one trade is never, is never dead. Right. And they're, they're talking about just previous cycles, how like alt L ones have always been a thing. And so you could always like generate.

• 1:00:44David Hoffman?

  A new alt L1, it's gonna like be unicorn status and like you're done. But maybe that changes in a world where we are beyond infrastructure. And we actually have apps that retail is is using. And maybe that's kind of the missing piece here. And then then like what the VCs have done is like over allocated towards infrastructure because they've been under an old retail attention paradigm. What they should really be doing is focusing on like these full stack, app-integrated infrastructure plus app type of experiences. Is this what you're saying?

• 1:01:14Speaker 00

  Yeah, and I think there's like a subjective way to look at like what attention is. And then there's like a somewhat of a fundamental way, right? Like a lot of social networks, when they IPOed, you know, they were not profitable, right? From like a P and L perspective, it's hard to say like, oh, that like fundamentally is worth $100 billion, but they had a lot of eyeballs. They had a lot of users. And I think what you're going to see is companies that have built some proprietary attention, distribution, audience. We've started to see this with with some portfolio companies like Galaxy and Layer 3. Like they're in a pole position to just kind of commoditize the more boring parts of the stack, like all of the middleware and basically like monetize the attention they have by owning vertically integrating and owning their own infrastructure.

• 1:01:58Speaker 00

  And so I think we'll see more of that this cycle. Like Blast is not going to be the last team to do this.

• 1:02:03David Hoffman?

  A lot of this podcast has been just kind of presenting VCs in retail as like opposing forces, like opposite ends of the spectrum, right? Two different groups of people who want different things, but they're smushed together by the properties of crypto to be in the same room and have to like contend with each other.

• 1:02:20David Hoffman?

  Reagan, I want to get your perspective on just like how to kind of, not that it necessarily needs fixing, but just like what can we add? Or what can we change to how companies raise capital? How they progress in their product? How they onboard users? And then how they also do the thing that crypto promises to do, which is push ownership to the margins and by bypassing all the intermediaries? Because right now, this whole like high FTV, low flow airdrop meta is untenable. And like, maybe we're starting to see signs of that, like being becoming in the rearview mirror. So if you had your way, if you were God's hand, kind of dictating how this could be, how could this be?

• 1:03:01Speaker 00

  Yeah, I mean, I think there's some smaller structural changes, like the team at Six Man Ventures did pretty good research on like token unlocks and how it impacts price. Avoiding like large chunky cliffs is just an example of something we could do where, you know, retail investors expect, they see this big cliff coming, they expect that like, people are going to sell tokens, they dump, it just leads to a lot of price volatility. Moving towards linear unlocks is just like a better paradigm that we should all do. But that's like a small thing. I think really at a high level, allowing retail to buy into your project is the direction we need to go back to. And I don't think it's going to work for every team and some teams,

• 1:03:43Speaker 00

  whatever the risks entail, they may not be comfortable with, which I get. But to the extent you can structure some sort of public token sale, where your community can really get bought into your project, like, clearly that has worked well for a lot of the largest protocols that exist today. And I think there's a reason for that. People have skin in the game, they've made money. And it's just a much better paradigm than, okay, you can kind of get your handout, but like you're not going to be able to get anymore. And we have to like maximize the FTV of the network to maximize the value of your handout. And so this thing is probably just going to go down and bleed out. Like, that's not good for anyone.

• 1:04:25Speaker 00

  Um, so I think having higher floats at launch, maybe it's like linear unlocks from day one. And really allowing people besides VCs to buy into projects, like that is the direction the industry should go back to.

• 1:04:42David Hoffman?

  We've seen a couple of projects in recent years actually do the, maybe it was Coinless, maybe it was a different distribution platform, I think. Immutable was the most recent organization that I know did a private sale. Maybe you can like a private sale to public markets. Um, and of course, like US investors were totally banned from this. You, I think you had to do some sort of KYC. So, you know, it's not perfect, but it is what it is. Uh, for people that aren't familiar with this process, can you just illuminate it for them? Like educate on what this actually process looks like?

• 1:05:13Speaker 00

  Yeah, so I may get some of the specifics wrong because I'm not intimately familiar with all of these sales. But at a high level, like the way I've seen it work is you basically do, it's called like a regas sale, like a non-US company sells tokens to non-US participants.

• 1:05:29Speaker 00

  And, you know, I think most of these teams do KYC because ultimately, whether you agree that that's right or wrong, it's kind of the way the financial system works today. And these tokens are generally sold either at like a fixed price below where you think the token will go out, or there's some sort of Dutch auction to establish a market clearing price. And then, you know, the tokens launch and generally some are liquid at launch, and then there's some vesting over maybe a year. Because I think there's not an expectation that retail investors are willing to accept the same liquidity trade-offs that VCs are. And generally, at least the way I've seen most coinless sales structured, there's like a cap on what you can buy. Maybe it's $5,000, maybe it's $10,000. But it really, you know, again, it allows retail participants to buy into these sales.

• 1:06:13Speaker 00

  And from the numbers I've seen coming out of coinless, you know, you have 10, 20, 50,000 people participating in these, right? Like clearly you can get a base of token holders that's quite large. To me, it's just like a good way to seed a community because you can kind of get people again with like skin in the game and with shared financial upside. That's how a lot of the most successful networks today have existed, right? Like go back to Ethereum and the ETH ICO. There's plenty of people who've held their ETH from, when was it, 2014?

• 1:06:45David Hoffman?

  Yeah.

• 1:06:45Speaker 00

  Yeah.

• 1:06:47David Hoffman?

  33 cents, yeah, all the way to, yeah, sometimes every now and then you still kind of see like an ICO wallet move their ETH for the very first time. Okay, so I get this point and just to really elaborate on this, like it is a private sale that is like capped, like $5,000 max, $10,000 max. You're probably in like a Latin American country, a European country, Africa, like anywhere that's not like with like any of the sanctions that you would typically find. But you're not from the United States and, and so then you can invest your $10,000. But, and I think it's much less of a capital formation event for the team and it's much more of a Hey, let's find our most proximate 10,000 to 50,000 holders of our tokens who are

• 1:07:31David Hoffman?

  ready to put some of their capital at risk because they are taking a one-year-long liquidity lockup as part of this private market sale. But they are our closest, most proximate people, and we're going to give them tokens at like a relatively low valuation because they are taking that risk as an investor. And so it's kind of like a VC light play. So like, there's the seed round, and then maybe there's like a series A, and then there's maybe this private market sale. And so like, first, it's the early VCs who are taking the longest-term time horizons, and then maybe perhaps the last sale is this private market sale. And these people, these retail investors, have the most lenient lockup terms, like one year.

• 1:08:11David Hoffman?

  To vest is like a pretty short, and they get their liquidity first. But there's also the network launch, and then the actual token, like, maybe there's still an airdrop or something, but the network goes live, the token is now functional, the network's functional. And then the private market retail investors who just invested $10,000 or something, they get their tokens first. That's like this alternative model that we have seen actually play out, right?

• 1:08:37Speaker 00

  Yeah, 100%. And look, I think the exact mechanics are less important. It's really like moving away from like, the airdrop, it's almost like a handout state, right? It's like, okay, you get this number of tokens, and then these things all go out at high FTVs, so people don't buy more. So really, like, your upside in any given project in this current paradigm is what the team says you should get, which is somewhat generally correlated with like, how wealthy you already are, right? Like, I can layer it as linearly correlated to how much ETH you have. Now, the token sales are, to some extent, also that, because you need to put in money. But you give people a lot more upside, and most importantly, like, you give them skin in the game. Now, I think people giving the community ways to

• 1:09:18Speaker 00

  earn tokens by contributing to a project, that's awesome. And like, I am 100% for shared financial upside. But the current, like, airdrop-only paradigm...

• 1:09:28Speaker 00

  You just look at the data, like it's obviously not working.

• 1:09:31Ryan Sean Adams?

  Regan, so I can't help but come to the end of this like conversation as we're talking about like solutions for the current paradigm that we're in. And I can't help but blame a specific individual or set of individuals in the US government, which is Gary Gensler and the SCC Tribe, for basically constraining us in this way. I mean, let's talk from a reality perspective of why, why this has evolved in the way that it's evolved. And it's been regulatory hurdle. Even the solution that you just kind of outlined basically precludes all unaccredited US investors, right? And there's like the, the one regulation like that, that kind of barely works. I can't think of it off the top of my head that you can file and get like a crowd sale type of regulation.

• 1:10:16Speaker 00

  Yes. So Blockstack did do like a Reg A plus sale.

• 1:10:21Ryan Sean Adams?

  Yeah.

• 1:10:21Speaker 00

  Which allowed US retail to participate. It's, there's a lot of like legal and compliance hurdles to doing that.

• 1:10:29Ryan Sean Adams?

  It's too complicated. It's not.

• 1:10:31Speaker 00

  There's a lot of drawbacks.

• 1:10:32Ryan Sean Adams?

  It's not, it doesn't like fit nicely with kind of crypto native ERC 20 tokens and all of this. And so one of the observations from the recent Eigenlayer airdrop was like, a lot of people were upset, and I think rightly so. They, they were, they had ETH deposited into Eigenlayer. And then when it came to kind of qualify for their airdrop, it was the VPN ban. They were geo locked out of it, basically. And like they couldn't access it. I go back to like, okay, yes, whose fault is that? And I keep going back to, it's the current US regulatory apparatus. And I do think that the VCs and investors and also projects have a stake

• 1:11:17Ryan Sean Adams?

  in this to like, fight back and push regulations and allocate some of their, their, their capital to actually push crypto favorable legislation. But like, I mean, if we didn't have that problem, I think all of the projects that we've been talking about would launch with the widest distribution possible, because you're actually just making an economic argument, which is like, who has the strongest communities? It's people like the chain link community and everybody wants to have the chain link community. So is it just not the fault of the regulatory apparatus that we're in right now?

• 1:11:51Speaker 00

  It's definitely a large part of the problem. Like, if you think about the SEC's job is to protect retail investors from predatory institutions, clearly preventing people from participating in shared financial upside is not that, right? And people, there's like a graph of like how well like people would have done participating in all the coinless sales and it's like, oh yeah, thank you, SEC. Like I missed like the 10x and the 50x and the 1000x that was like Solana, right? So yeah, clearly it's, it's hard to make an argument that the current paradigm is really protecting retail investors. So yes, it is a large part of the problem.

• 1:12:28Ryan Sean Adams?

  Regan, as we maybe close this out, I think we've, we've talked about a, a current paradigm of VCs and retail and how that exists in this market. And I think some that we've talked to have described the, the current environment that we're in or this cycle as being like weird in general. And I'm wondering if this is the main driver for why it's weird. It's kind of like meme coin, financial nihilism. There's like a PvP game right now with like airdrops between like the VC class and, and kind of like retail. Is, is that the reason all of this is weird? Would you even characterize the current cycle that we're in as weird as compared to previous cycles?

• 1:13:09Speaker 00

  Oh, it's super weird. Like I was talking to someone last week and he's like, every VC I talk to is utterly miserable. Like you, you would not be able to tell that prices are like-

• 1:13:18Ryan Sean Adams?

  Cause retail's miserable too. Everybody, all, everybody's miserable.

• 1:13:21Speaker 00

  Yeah, we all, um, maybe we all need to go to like a Mexican beach vacation. We can claim our, our eigene airdrop, you know, while we're south at the border and just like chill out for a bit. I think there's an existential angst amongst VCs like, hey, has this like assembly line just broken? And like, if all retail ever wanted to do was get rich, maybe now like the random infracoins, like they don't care, right? Like meme coins are a more pure, simple way to express wanting to make money. Now, I don't know that I believe that. And I think like, we're four to six months into this cycle.

• 1:14:04Speaker 00

  I think it's way too early to tell how it's going to play out, but- It's definitely not like a rising tide lifts all boats cycle like the last one, at least yet. And so I think that has caused just a lot of angst amongst VCs. And it's also like it's Bitcoin and it's meme coins that have done really well, right? Maybe in Solana as well, but like those two things are not VC investments generally. So it's like, you know, the people who've made the most money this cycle, to some extent at least, are not crypto venture capitalists.

• 1:14:41David Hoffman?

  We've got a take about meme coins, Regan, that I want you to reflect on. Meme coins, generally all things in crypto start off extremely fair, right? Bitcoin, the most fair launch of all time, the immaculate conception. Ethereum, the immaculate ICO, like Dogecoin, the immaculate meme coin chain. But then things start to like go down that euthanasia roller coaster and they get more and more toxic as they go along. And I personally have just like no faith that meme coins will be actually able to retain some of its like retail virtue that many people purport them to be. Like meme coins are just like, it's the reaction to VCs. It's a reaction to the high FTV, low float, and I totally understand.

• 1:15:24David Hoffman?

  But I also think there the the direction of meme coins is also going to go to a very toxic, like extractive conclusion. I'm wondering if you agree with that.

• 1:15:34Speaker 00

  I'm sure it already is to some extent, like I'm not firsthand familiar with this, but like I would be very confident that there's kind of like a cabal of KOLs launching meme coins and helping pump your meme coin and you help pump mine. Like, I'm sure that happens today, right? I think you can make these things like, kind of maybe like technically fair with like pumped on fun. Like you can make sure there's no like prement, but like, yes, pretty clearly at some point, I think these things will become a category where like industry insiders, and again, I don't think it's VCs. I think it's like KOLs and the kind of like meme coin insiders try to make money off of like new retail coming in. I'm sure that that will happen if it hasn't already.

• 1:16:17Ryan Sean Adams?

  The conclusion I kind of come to at the end of this episode, Regan, is like the way to solve all of this is to actually build apps and use cases that normal mainstream users can actually use inside of crypto. And that is the solve. And if and when we do that, then everything else, all of the other pieces will, in a messy way, start to fall in line. I am still, maybe naive or not, a believer in the the original idea of crypto, which is this is a revolutionary, open property rights system, open money system for the world.

• 1:16:59Ryan Sean Adams?

  Like, I believe in I believe in DeFi, I believe in Bitcoin and an alternative to the fiat system, I believe in Ethereum, I believe in all of these things. And I think we just haven't delivered on that original promise yet. And yet, I think we're actually closer than it seems to delivering. And I'm wondering if you can, like, back me up here, or if you think that's true. Like, how do we get out of this? What's the what's the timeline? Will we actually build real crypto apps that people will use this cycle anytime soon?

• 1:17:34Speaker 00

  I think these apps exist today, right? You know, you can use Maker Dow, you can use Athena, you can go on Karate Combat and bet on David's fight, you know, coming up next month. But the main thing people want to do today is speculation, and so that's where the attention has shifted. I think the burden is on the industry to, like, make things people can do besides that and call out more attention to those things. So I agree with you, like, I totally remain fully committed and I believe, like, in all of the potential of all of these different categories of crypto to change finance and how a lot of these markets work for the better, 100%.

• 1:18:17Speaker 00

  But I think, you know, the way a lot of this technical innovation has gotten funded is through the financial innovation. It was token sales and then it was like yield forming and now like maybe eardrops, bootstrap, some of it. I mean, we didn't even talk about DePin, right? But like, that's kind of a really interesting example of like, Airdrops like bootstrapping real networks. So I think this financial innovation beyond like it can have really cool, unique features and do good. But like everything in this world, right? Like there's always going to kind of be like a just like some speculative form of it. And that's like where a lot of the attention is shifted to today. So I remain really optimistic.

• 1:19:00Ryan Sean Adams?

  Yeah. As do we, Regan. And I have faith that we'll muddle our way through. This is kind of a like a different season. But there's also on the flip side of this, more building than I've ever seen. We actually have like scalability, low transactions per second. Like that's actually happening. So there's a lot of good that we can see on the horizon in the market today. Regan, thank you so much for joining us. This has been a fantastic conversation.

• 1:19:24Speaker 00

  Yeah, thanks for having me on.

• 1:19:25Ryan Sean Adams?

  Bankless Nation, I think you should go follow Regan on X, on Twitter. He's probably on your Farcaster as well, because he has some of the best threads on crypto investing that I've seen in this, this weird crypto cycle that we're in. So we'll include a link in the show notes, so you can go do that. Also, gotta let you know, of course, crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.