The Next Bull Market is Here, and Obvious | Spencer and Aleks, Blockchain Capital

Crypto prices are weak, OG sentiment is exhausted, and institutions are leaning in. Blockchain Capital GPs Aleks Larsen and Spencer Bogart join David Hoffman to explain why this disconnect may be the opportunity. They unpack crypto’s shift toward application-layer value, stablecoins as onchain working capital, tokenized equities, Aave V4, public blockchains, and BCAP. Is the cypherpunk dream fading, or becoming the foundation of global finance? --- 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium --- BANKLESS SPONSOR TOOLS: 🔓NEAR | TRADE CONFIDENTIALLY, GET 20% BACK https://bankless.cc/near-pod 🔑BITKEY | GET 10% OFF USE CODE: BANKLESS | #bitkeypartner https://bankless.cc/bitkey ✈️COINBASE ONE CARD | EARN 5% BACK IN BITCOIN https://bankless.cc/coinbase-one-card 📊BITGET | TOKENIZED STOCKS 2.0 https://bankless.cc/bitget-stocks 🎯THE DEFI REPORT | ONCHAIN INSIGHTS https://thedefireport.io/bankless --- TIMESTAMPS 0:00 Buybacks, Burns and Tokenholder Trust 5:47 Why Blockchain Capital Is Doubling Down 14:38 Institutions Arrive as Crypto OGs Lose Faith 21:03 From Infrastructure Scarcity to Abundant Blockspace 30:24 What AI Can Learn From Crypto 38:43 Stablecoins Become Onchain Working Capital 44:41 The Stablecoin Revenue Multiplier 47:40 Aave and Open Financial Infrastructure 55:08 The Roadmap for Tokenized Equities 59:41 Public Chains, Ownership and Compliance 1:04:24 Blockchain Capital’s Tokenized Fund 1:09:03 Bringing BCAP Fully Onchain --- RESOURCES Spencer Bogart https://x.com/CremeDeLaCrypto Aleks Larsen https://x.com/alekslarsen --- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

• 0:03Speaker 00

  Bankless Nation, we got Blockchain Capital on the podcast today. We got Spencer and Alex, two GPs over at Blockchain Capital. Spencer, Alex, welcome to the show.

• 0:11Speaker 01

  Fired up.

• 0:12Speaker 02

  Thanks for having us, David.

• 0:14Speaker 00

  Spencer, you and I have interacted in crypto as long as I can remember. Have we ever had you on the podcast before?

• 0:20Speaker 01

  I think a couple of years ago.

• 0:22Speaker 00

  Yeah.

• 0:22Speaker 01

  Yeah.

• 0:22Speaker 00

  I think it's been a while, though.

• 0:23Speaker 01

  But yes, as long as I can remember, too.

• 0:24Speaker 00

  More than a few years.

• 0:26Speaker 01

  I was gonna say, in a way, I feel like we've like grown up together in the industry, you know, like especially for me, following along with the show.

• 0:31Speaker 00

  Yeah. I, my, my first memory of interaction with you was talking about MKR value capture back in like 2019, 2018 or something, because like B cap was considering buying MKR. And I think that's, that was our first, our first like interaction before.

• 0:46Speaker 01

  Wow, that's actually very funny. Alex was actually very involved behind the scenes on that discussion, too. Like, I remember that one well, and was going back and forth with Alex Evans, who was that placeholder at the time, now over at Bain.

• 0:57Speaker 00

  Poor, yeah.

• 0:58Speaker 01

  And you know, I think he, I saw him about a year ago, and he still loves that MKR. And I get it.

• 1:04Speaker 00

  I, I still love MKR, and I tweeted this out not terribly long ago, but just even the most modern projects, so Hyperliquid, Lighter, Venice, are all doing the buy and burn model. And MKR was the first one to pioneer that. And there's been so much like gnashing of teeth about the inefficiency of the buy and burn model. But it's like, it's undefeated, dude. Like, here we are in 2026, and the best projects are still doing the buy and burn model.

• 1:32Speaker 01

  It's 100% works. And it's funny, because back in, back in the day, I was, I was overly critical of it of like, at the end of the tunnel, like, you can do a buyback, a buy and burn, right? At the end of the day, people need to think about like cash flows. And so like, the only thing I struggled with was like, at the end of the day, there needs to be like, when there's one share left, you need to have some cash flow to direct to it, right? Otherwise, like, you're buying back, and you can never really build a model around what, what the realistic value is. All of that was overthinking it. Buy and burn works well. I understand the like pushback from people of like, why it could be capital inefficient to do so. But I think it's, it's the most logical model today, because token holders, like, unless we get clarity act passed, like, the, the rights of token holders are not very clear. Right? So like, in theory, it'd be better if I was a token holder, you're a startup,

• 2:17Speaker 01

  I want you to continue reinvesting those cash flows and identifying more growth opportunities. But today, like, two things have happened. One, not very many protocols have demonstrated an ability to find an adjacent opportunity to expand into, and then actually been effective in doing it. So a lot of token holders are saying, wait a minute, when you intake, when you take the cash flows and go and pursue that path, it doesn't lead to anything, at least not anything good for me.

• 2:39Speaker 00

  For me as a token holder, yeah.

• 2:41Speaker 01

  Yes, exactly. And so they'd say, listen, I'd prefer that you just, you, you stake a flag in the sand, and you say that this is what we're gonna do for, we're gonna, we're gonna buy back and burn. And that at least provides some level of certainty, right? If markets hate uncertainty, that's like, that's a, a, you know, token network providing some degree of certainty for it. I don't mean to like, launch straight into some of the topics, but you happen to open it up with something that's like, super interesting to me.

• 3:04Speaker 00

  I, I also think this is super interesting. I wonder to, to what degree does the need to buy back the token on day one, which again, inefficient, not what startups do, poor use of capital to do buybacks on day one, but part of that has to be downstream of the fact that tokens in crypto have been so dogshit, that quality tokens need to like, show, put their money where their mouth is, and show the market that they're serious. And the one, the best way to do that is buy and burn. Maybe in a different equilibrium, when a higher percentage of our tokens are quality, can we start to like, trust as the investing community that just because they're not buying back their token today, doesn't mean

• 3:45Speaker 00

  that the, the cash flows that they're making aren't actually going to the enterprise value. So maybe it's a little bit of just like, we need to kind of grow up, and we need clarity to allow us to do these sorts of things. And then maybe the investor base can have more confidence and trust in these crypto assets. But it's been a bit of a lemon market. And so the people that are serious about their token have to buy back and burn their token, just to show that they're better than the rest.

• 4:09Speaker 02

  Feels like definitely like a sign of the times, and we'll look back on it as a rather like inefficient use of, of capital in a protocol treasury. I mean, if you think about it, we've got like, what, around 75 billion of, you know, aggregate deposit base in, in DeFi today. And like, the focus should be entirely on how do we make this trillions of dollars over the next couple of years, right? Or the next 10 years, whatever the time horizon is. But, you know, to, to, to the points you guys have made, I mean, this has been the only way to like, make a credible commitment, that you are high quality, that you are aligned with token holders. You do it now, because it makes sense, and because token holders really want to see that, you know. But in five years from now, I'd be surprised if, if, if that's still the dominant operating model.

• 4:51Speaker 01

  I think it's a, it's a great point, Alex. I mean, because, like, we invest in both tokens and equity, right? Oftentimes side by side. If we have a series A stage company, whose business is taking off, right? Product is flying off the shelf, and they said, hey, Spencer, we want to send you a dividend. And say, what are you talking about? We need to grow into this opportunity. Like, there's no way that any venture investor would be sitting there saying like, yes, a dividend would be a great thing for you to do, or a buyback, whatever it is. Like, I mean, fundamentally, like, approximately the same thing. Right? And so I think that Alex is right, that we'll look back on this as like, this brief moment in time, where really what those teams are trying to do is acknowledge that there's a lot of ambiguity of whether or not some of the folks around the network are aligned with token holders. And what they're trying to do is put that flag in

• 5:36Speaker 01

  this, in the sand and say like, we are, we're aligned, this is what we're gonna do.

• 5:40Speaker 00

  I think that's the optimistic case. Like, we want that to be, in five years, we want that to be the case, where teams can use their capital more efficiently. And if, you know, things going according to plan, that's better. And maybe that's because we have a growing proliferation of like, native crypto assets that people can trust. And like, we're kind of out of this lemon market. I would say that's like, the, the happy case. Not ever, not always the happy case, it happens in the crypto industry.

• 6:06Speaker 01

  Little bit of pain is healthy, you know?

• 6:08Speaker 00

  Sure. One conversation I want to have with you guys is, there has been a growing conversation in the VC sector of crypto, about how there's no such thing as a VC, crypto VC anymore. And all the mega funds have expanded their mandate to include AI, robotics, other frontier industries, simply because, you know, the bear case is like, VC in crypto is dead, or just that crypto is growing up, and like, a lot of, a lot of the, the meta has shifted. And so there's no, there's no crypto VCs anymore. That's like, kind of the critique of the crypto VC industry. That's not what you guys are doing. You guys are staring this perceived malaise in the crypto industry and the crypto VC industry, and you're not blinking, and you're doubling down on crypto. And so I want to learn a

• 6:53Speaker 00

  little bit about like, what you guys are excited about. Because everywhere I look, I see two things. I see like, institutions licking their chops about blockchains and crypto, and what can crypto can do for their businesses. And then I also see sad crypto OGs. And like, why do I see so much of both? And how do we square these things? And I want to get into like, how that kind of leads your guys' investment thesis, Blockchain Capital. But maybe, Alex, I'll just start with you. Like, how do you, how do you square the two things of just like pessimistic crypto OGs, and then institutions that are just like licking their chops?

• 7:25Speaker 02

  I mean, there, there's a lot of things going on here, right? Like, I think for us, what we try and do is zoom out and, and not pay attention to the ups and downs in, in, you know, bear and bull market cycles. And I think it's very easy, when you're in a bear market, a token bear market especially, to get very pessimistic about the, the opportunity space. And especially when there's other sectors that are doing really well. That's what's different about this bear market. I mean, there's actually a lot of things that are different about this bear market, and some of them are really bullish. Like, we've never had a bear market with this many positive catalysts, right? We're getting regulatory clarity, we got the genius act, you know, fingers crossed on, on clarity, but it's a matter of time, right? We're gonna get it. If it's not right now, it's gonna be, you know, in the next couple of years. And so the rules of the road are, are being laid.

• 8:07Speaker 02

  Institutions have, have clearly seen the writing on the wall, and have, you know, gotten into the space in a, in a serious way over the last couple of years. And we have use cases now that have sort of broken out of the, the crypto zeitgeist into the mainstream. Got things like prediction markets, where people don't even, you know, know or care that it's on crypto, right? But it is, in Polly market's case, and a bunch of other ones. And we have stable coins, where what people get there is they get dollars, they get payments, they get cross-border payments that are cheap, they get remittances that are cheap, these, these types of applications. And so these are the kind of early examples where like, they've been growing through a bear market. And that, that's really, really notable to us. So like, that, that's something actually, in past bear markets, we, we didn't typically see. We didn't see like concentrated, like secular growth in, in a couple of different

• 8:51Speaker 02

  verticals. But now we have this dynamic of like, AI has sucked the air out of the room. It's been moving much faster. Like, it had its, its sort of like, really big moment in 2023, and then maybe, you know, another one about like, seven, eight months ago, when people started using coding agents, like the open claw revolution, and that kind of stuff. So I think there's, there's just been so much attention drain that is being kind of coupled with the bear market dynamic, where people are getting a bit distracted from, you know, the broader, I, I think, you know, dynamic that's playing out in crypto. And when, you know, for us, like, we, we were started in, in 2012. Like, we, we've weathered a lot of these crypto ups and downs. At this point, I think we've gotten pretty good at zooming out and like, staying focused on the, on the long-term picture. And from,

• 9:36Speaker 02

  from that perspective, what we see is like, we've crossed the threshold in crypto, where like, this is inevitable. There, there's a network effect that has taken hold, it's growing, but people don't appreciate how early it still is. And like, if you, I, I think probably that, you know, the best analogy for it is the internet. And like, the internet, like, if you think about the timeline here, and at what point the S-curve inflected, like, we're not there yet in crypto. Like, the internet became publicly usable in 1989, right? Takes, takes a long time for network effects to take hold. And so the first like 10, 11 years of that are like, you're, you're trying things out, you got a couple of applications, a few of them are really working. By the time, you know, you're in 1999, 2000, you

• 10:17Speaker 02

  have a couple hundred million users of, of the internet, but it's still clunky, it's bandwidth constrained. You know, then you have 2000 through 2005, and you have the broadband shift. And so, you know, I would argue, that's kind of what we basically just went through. And maybe we're at the, like, the tail end of that. Like, block space has just become cheap and abundant. Blockchains have, like, in the last few years, become very scalable. I mean, obviously, we had Solana in 2020, but that was like, the first of its kind, right? That like, gained traction and wished, and showed the path forward. L2s didn't get fast until 2024. And today, that's the status quo. Even Ethereum is scaling progressively now. And so that's the state of play. Blockchains are cheap. You can build mass market applications on them.

• 11:01Speaker 02

  And then, really, for the internet, it wasn't immediately when broadband shifted, that S-curve inflected. It was because of the mobile explosion in 2006 through 2010. So this is a good 15, 16 years since the internet first became publicly usable. So to me, there's this question of when does the clock start? And it's convenient to say it starts when Bitcoin was created. I think you could make an argument that it starts when Ethereum launched in 2015. And we're like 10, 11 years into that internet of finance or internet of assets gaining steam. And when you look at it from that perspective, we've made a tremendous amount of progress. There's 700 million, some odd crypto holders out there. That's like your most immediate top of funnel.

• 11:46Speaker 02

  Then you have maybe about 10% of those are on-chain active users that have like, basically for the last couple of years, chewed glass to be able to use crypto applications. And a big, big dynamic here that people don't talk about enough is the fact that good crypto applications, usable crypto applications that a retail person didn't need to be like a part-time cryptographer to take advantage of, have been around for like two, three years. Like, the consumer stack in crypto is three years old. It takes a while for people to learn the new lay of the land and then start using those tools and being able to build the type of applications that really are going to bring the next cohort of users in where crypto is totally abstracted away.

• 12:31Speaker 02

  And so that's things like, obviously, cheap execution, but like embedded wallets, policies around recovery and social recovery, this kind of thing, spending limits, these types of things, a familiar authentication. Like, these are important primitives that really didn't mature or become widely used in crypto until the last few years. Like, today, this is how you build a consumer crypto application. But like, three, four years ago, this was a new concept. Ethereum didn't even have account abstraction at the protocol level at that point. So you're kind of doing like extra protocol ways to get it done. And so my perspective is, we're in like 2003, 2004. We've just had that shift to broadband.

• 13:16Speaker 02

  And we're maybe like pre the mobile boom. And so we're in the flat part of the S-curve. At some point, it's going to inflect upwards. You're seeing signs of that starting to happen, maybe on the edge of things. So in new application areas like prediction markets, where you simply didn't have these types of products before, or in stable coins, where payments networks just didn't reach into where stable coins are now showing a lot of transactional activity. And so that edge around the use cases, eventually, that's going to come into the center. And when it starts permeating the center, that's when we inflect upwards. And so I think this is right, that moment, when it's best to double down on crypto, actually.

• 13:57Speaker 02

  Like, the hardest parts of crypto's path into the world, I think we've already crossed that chasm. And now we're just waiting. Like, it's a bunch of kindling, waiting for that fire to really start roaring. And when it does, it's going to look obvious in hindsight. But we're just in that period of uncertainty where attention has shifted away and asset prices are down. But this is a distraction. It's an absolute trap. And we're headed for that inflection point.

• 14:23Speaker 00

  I am coming around and starting to accept this idea that my prior, my earlier perception of crypto was too ambitious too soon. Like, I was talking to Mike Dudis on the podcast recently, and I was talking about, when I got into crypto, I was 26, 27 years old, borderline a child. And I thought we were going to change the world tomorrow. And 2021, everyone was realizing that. And maybe I was just a little bit too accelerated in my timelines. And so, Alex, it's nice to hear, kind of like, the pretty traditional, just like, our rails needed maturing, the tech needed maturing. And actually, the sign of the times is that they're quite mature now.

• 15:06Speaker 00

  And that bullish inflection point is ahead of us. But I don't completely think that that accounts for my question about why institutions are bullish, but the OGs are jaded. Because there's something else about the path that crypto was on that it seemingly, according to the people who came before 2024, 2025, don't feel like crypto is on that path anymore. Like, it's like a way-of-life-style question that our way of life is no longer exists. And so I accept your answer, that things take a little bit longer than my expectations. But I don't know if that accounts for everything. Spencer, I want to know if you have anything to add to this conversation.

• 15:49Speaker 01

  There's, you know, that psychological dynamic, you see it in all sorts of places, right? Like, when a startup has its IPO moment, all of the early employees will talk about like how magical it was in the early days and how it became a large corporate entity. Because that's what it had to do. It had to grow up. And I feel that. I've been along for that entire path as well, right? Like, I love the crypto punk version of it, right? Like, the rebel pirates that are creating something better, a better alternative. It's not being fused with the traditional financial system. It is distinct. It is parallel. It is already better in some ways. You know, I'm thinking from a perspective of years ago. It was already better in some ways, and it's going to continue to get better. Like, I love that about it, right?

• 16:34Speaker 01

  And there is something that's a little bit hard to see, like, to see it kind of grow up and see it starting to get fused with the traditional financial system. But we have to acknowledge that that's what success looks like, right? And that dynamic, it could be the same thing for like, when you, you know, we've all had that friend that finds that really niche band that eventually blows up. And they love it until they blow up. And then they talk about how, I actually only love their original albums, even though those are never the albums that got them big, right? And they almost regret the fact that they've become wildly successful. So I think that there's a lot of that. I think that some of that sentiment would dissipate if some of the success that the industry has seen on a fundamentals basis was reflected in prices.

• 17:18Speaker 01

  But it's not today, or at least not relative to where prices were a couple of years ago, right? And the path dependency here matters. If we had gone from, David, when we started working in this industry, we started following all this stuff. If that line was like a nice, steady, linear path to where we are today, sentiment would be completely different. But there is some path dependency there. Because we were once higher than we are today, it doesn't feel as exciting to a lot of market participants.

• 17:45Speaker 02

  The only thing I'd maybe add here is like, and David, I think what you're getting at here is like, it's not cypherpunk anymore. Like, that is not the meta in crypto. The conferences are full of suits. Like, the conversation is about permissioned rails, compliance, and these types of things. And like, that is not what the conversation was like 10 years ago, when we were first getting involved in this industry. And like you, I was excited about that. I was excited about freedom tech and self-sovereignty and the cypherpunk version of what finance could be. And I think to Spencer's point, like, success in this case means accommodating so many different use cases.

• 18:26Speaker 02

  A huge amount of the pie, especially in finance, is just like, this is a very regulated category. And like, there's no way around that. You just can't succeed without accommodating these types of users. But what I'd say is that some of the elements that made this interesting to the cypherpunk audience, the fact that Ethereum and Bitcoin are decentralized networks, they're neutral, they're not controlled by a company or a government, right? Like, these are also attractive properties to institutions that value a substrate with better trust assumptions and better trust requirements that allow them to do business more broadly. And so I don't know that they're necessarily mutually exclusive. Obviously, the areas of the space that are getting a lot of traction right at this moment

• 19:09Speaker 02

  are taking a more kind of like buttoned-up, regulated form. But a lot of them are doing that on top of a permissionless substrate. And so I think that cypherpunk dream is alive. It's just not loud.

• 19:23Speaker 01

  And I don't think they're mutually exclusive either, right? Like, Bitcoin's not going anywhere. ETH isn't going anywhere. Like, they're going to be around. Those are going to be important assets, to me, I think so, important assets. It'll be an escape valve in some ways, right? I mean, if you think about Bitcoin, are governments going to stop debasing their fiat money? No, right? So I think that it's at least an interesting asset. Whether or not people should own it is up to them. I don't know. I'm not going to make that decision. But like, it's at least an interesting asset in that world. ETH as well. These are interesting, unique assets. So I don't think that the cypherpunk view totally dissipates. It's just that there's, we're upgrading the financial system, and it's actually happening. Like, we've talked about this for years. It's really materializing, and I think people should be excited about that. It's this like-

• 20:08Speaker 01

  It's not the sexiest thing to talk about, honestly, when you're talking about upgrading the financial system, because like most of our financial products that we use are invisible to us day to day. But if you can create more efficiency, more utility from them, it genuinely benefits everybody in the world. And so like, that's what motivates me. It's super exciting. Small improvements in efficiency have these huge reverberating effects across the economy. Like, everything that happens in the world flows through some sort of a financial system. If you can make that piping better, it makes everybody better off, and you should feel motivated and excited about that.

• 20:41Speaker 00

  Yeah, that's definitely the optimistic perspective that I think has been missing from the crypto industry for a while, where like in crypto 2021 to 2022, we were so incredibly optimistic about doing exactly that. Like, how do we spread the wealth? How do we get everyone on board? There was another inflection point, one last inflection point perspective that I want to bring into the conversation. At the same time that the institutions came in, in a very big way, and Alex, you haven't mentioned this yet, but a line that you said to me that I think stood out when we were prepping for this was that for the first time ever, institutions are leaning in while prices are down. So like, they're leaning in under their own merit, rather than kind of being compelled by narrative to lean in when prices are up.

• 21:26Speaker 00

  And so that's validating, that's great, that's signal. And at the same time, at the same time that that is happening, for almost all of crypto's history, it's been in this infrastructure investment cycle, like infra-investment spawning infra-investment spawning infra-investment. And like now in 2025, 2026, it seems that like alongside the vibe shift, alongside institutions stepping in, it seems that we have permanently departed from that infrastructure investment, just for the sake of infrastructure investment. And that used to dominate the entire crypto industry, and now we don't do that anymore. We don't do like the next L1, and we don't do like the 13th L2.

• 22:09Speaker 00

  How would you account for what happened here? Like, what does this represent for like where we are in the maturity of the industry?

• 22:16Speaker 02

  Clearly, if you go back to 2019, and you're, you know, let's say you're using Uniswap, you're paying $5, $10 to make an exchange. You know, obviously, there was an infrastructure upgrade that was needed, and that was the number one problem in the industry. It was like, people want to use these applications, but there's so little block space that is just way too expensive, and so people can't do it. And like, what we needed was way more block space. So like, as markets do, especially when you have, you know, a dynamic where you basically put a public price on like a Series A, you know, maybe Series B startup. Markets, the pendulum swung too far. We over-invested in infrastructure.

• 22:59Speaker 02

  We got that, you know, that block space expansion that we were looking for. We got the scalability we were looking for. And now the pendulum has kind of swung back, and we're probably a little bit too negative on the infrastructure at the moment, because a lot of the blocks are empty. And that's because we over-invested in them. So we built so much block space that like, we got ahead of where the demand was at this moment in time. We have an abundance of block space, but like, that is the prerequisite, I think, for application developers to come in, take advantage of that cheap block space, and build some of those applications that, you know, five, six years ago, were just too expensive to deploy on a blockchain.

• 23:36Speaker 01

  And David, to put some numbers to this, because you're exactly right. Like, it's been a huge shift. Like, the data really bears this out. In 2021, over 70% of the fees that users were paying were going to infrastructure. That was because we had elevated transaction costs, we had limited block space. The industry went on this big effort to say like, hey, listen, we can do better than that. Right? Transaction fees shouldn't be a couple hundred dollars. Let's improve block space, let's improve the infrastructure. And I think it was 2025 was the first time that application layer fees surpassed infrastructure fees. So what happened here is that as we reduce transaction costs, value moved up the stack to the applications themselves.

• 24:20Speaker 01

  So users are paying less for the infrastructure, more for the financial services that are built on top of them. And if you think about a maturing, healthy ecosystem, that's exactly what you want to see, right? People shouldn't be, the infrastructure itself shouldn't be extracting enormous amounts of rent. This is the whole thing that we set out with crypto to avoid, right? We said, listen, the banking system is sitting here and extracting a massive amount of rent. We can do better than that. So like, what we're seeing is actually success, even if there's moments of pain associated with that kind of transition and that structural shift.

• 24:50Speaker 00

  Does that mean we've kind of just like migrated? We're done with the fat protocol thesis? Not to say that the fat protocol thesis was wrong, it was just apt up until maybe 2022, 2023. And Solana really came and changed the game and was like, oh, sweet constrained block space you have over there, Ethereum, what if I made it abundant? And then all of a sudden, the abundant block space meta took over. And all of a sudden, that was the end of the fat protocol thesis. You know, like ETH is money was the ultimate expression of that. And then now we're just moving higher up the stack. So now we're at the fat app thesis, which is just, you know, applications are businesses, applications capture value. That's just kind of like the natural trend that we would expect to see over and over and over again.

• 25:35Speaker 00

  Had we reran the crypto simulation, you would just expect to see value capture slowly move up the stack.

• 25:40Speaker 02

  I mean, my take here is like, this is a sort of an inevitable consequence of blockchains. Like, the protocols were never going to capture a huge amount of value, like Spencer said. Like, this is about disintermediating finance and making the system fundamentally more efficient. That implies, you know, a small rake. What I think, though, is maybe like the nuance, or at least like the way I think about this longer term, like it's thin protocols, but massive markets. So like, if you have a small take, but you expand the size of, you know, global finance by an order of magnitude, you could still be fat by today's standards. In the context of that larger system, you're thin, and that's good for everybody involved.

• 26:22Speaker 00

  I think this goes back to what I was saying about, maybe I was just a little bit impatient and overly ambitious in 2021, 2022. It feels now crypto is just like a pretty small industry, at least from the OG perspective. But we're doing a lot of the things that we've set out to do. And like, to your point, like institutions coming on chain, finance, real finance is coming on chain. And in the grand scheme of things, that is what it is actually going to take in order to actually become like the global market, like literally put the world on chain. And maybe just in the fullness of time, we'll get there. We just need real finance to happen on chain. And like, maybe ETH is money in the big sense of the word, not like the moderate sense of the word, but like the grandiose version of ETH is money.

• 27:06Speaker 00

  But first, we have to get all of finance on chain, and that's how we do that.

• 27:10Speaker 02

  That's certainly my perspective. And I mean empirically, like ETH is money. Like ETH is used on many, you know, non-ETHereal L1 networks. Like, it is, it's a popular currency in the crypto economy. I think that no way you can argue it's not, you know, despite people, you know, maybe wanting that to be true or like telling a narrative that like, no one's going to use it as money or collateral. Like, it continues to be used for these purposes out there. So you can see it on Robinhood chain, right?

• 27:37Speaker 00

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• 29:01Speaker 00

  check out the link in the show notes and see if you're approved today with no impact on your credit score. Or just visit Coinbase.com/Banklist. Terms apply. That's Coinbase.com/Banklist for more information. I've been trading crypto assets for almost a decade, and I've used so many wallets, exchanges, aggregators, frontends, and I'm kind of always looking for the same thing. One interface with deep liquidity across a bunch of chains and assets, and the ability to act in private. And I still control my own funds. And I've never really found it, and I'm always switching wallets, juggling gas fees, or getting eaten by slippage. Near.com feels fundamentally different to me. My account is easy to use, and I can take all the actions I want from any chain while my activity remains confidential. It runs on Near, which has moved over $23 billion cross-chain using post-quantum signing,

• 29:46Speaker 00

  and has over five years of uptime. Near.com is the best way to be on-chain and be in control. Get 20% of your trading fees back through the Banklist link. It's in the show notes, not investment advice. There's been something that's going on in the AI world, especially with the release of Kimi K3 from China, which is compressing the margins of some of the fat protocols on the AI side of things, OpenAI and Anthropic, which are taking in huge rakes because they have the world's best models and people are willing to pay for them. Is the same economic dynamics kind of playing out with like the AI industry and the AI labs? Like, do these two industries rhyme together?

• 30:22Speaker 02

  So like, to some extent, I mean, there are similarities in how they're financed. I think a lot of the similarities end up breaking down, but like, I mean, it's when you're staring it up in the face, like, there are some things that are, you know, too obvious not to notice, right? Like, in crypto, we had, you know, L1s launching on a white paper and founding teams at multi-billion dollar valuations. Like, that's like the alt labs right now, right? Like, you know, with a research thesis and elite talent, maybe coming out of OpenAI and Anthropic, like, you can do something similar here. You know, we were raising money on like having really good, maybe testnet benchmarks or TPS. So like model benchmarks are the equivalent there, right? Like, exchange listings were like hyperscaler distribution.

• 31:06Speaker 02

  So, you know, and then obviously validator is market maker support, this kind of thing. Like, you could make an analogy to like cloud chip infrastructure partners and maybe token prices like private financing valuation. And so that, you know, that's obviously one of the big differences, that the tokens were public. You had a price on it, like sort of a, you know, real time sentiment gauge. In AI, that's obfuscated, it's hidden by private markets. And so like an unwind of that like alt lab thesis, you know, probably looks, you know, much more like, you know, down rounds, structured financings, aqua hires, like talent migrating to other opportunities, maybe consolidation.

• 31:46Speaker 02

  Like, some of the hyperscalers might like pick up some of the alt labs at like much cheaper than where they were financed. That, you know, strategic control, basically, and talent acquisition. Versus in crypto, you know, that decline was like, your token's down 90% in a month, because the narrative just fell out totally and like it became clear that demand wasn't there for that. And so, like, I think in that sense, like that these parallels hold quite a bit. But like, in other ways, like, you know, crypto is just, I think it's been, it's been more difficult for crypto to put the pieces together, like, to really make it, make it usable around the world. It's not as simple as just deploying through existing channels with a product as obvious as intelligence.

• 32:31Speaker 02

  Like, this is a network effect that gets built by stitching together the hundreds of financial systems around the world, and then eventually absorbing them. And that's just a longer transition. It involves regulation, I think, in a much more direct way. You know, obviously, like, AI has regulatory implications, but, but the financial system has sort of established rules that, that, you know, crypto had to find their place in, and then maybe to some extent, like rewrite them for the crypto markets, which is happening now. And so that's where I think it kind of breaks down. But like, yeah, the parallels are, are very interesting, especially on the financing side.

• 33:06Speaker 00

  If we are trying to extend this, and I don't want to extend metaphors too much, because they can only take it so far. But just like, you know, if the fat protocol thesis, which is like, to me, OpenAI and Anthropic are the protocols, does, if the trend follows crypto, and it does kind of feel like crypto is just five years ahead of like the AI industry, especially when it also comes to like regulation, like I think AI is going to have to fight the regulatory fight that crypto has kind of already, or is working its way through. But if the trend does go from fat protocol to fat app, doesn't that imply that there's going to be like a layer above the LLMs around applications that also provide all the value and are kind of like the consumer front end? Maybe I'm, maybe I'm taking this too far, but Spencer, I don't know if you have any thoughts here?

• 33:46Speaker 01

  I think that's right. Like, I think that that parallel works as well. And the reality is like, I mean, this is what, you know, Alex Karp and Palantir are talking about, right? It's like, somebody needs to actually take this into the enterprise and make them successful in it, right? And so like, it's one thing to have the model and have the intelligence that doesn't produce the outcomes that people are looking for. And so we see this even with some of our portfolio companies where like, you know, that whole model of forward deployed engineers is becoming very real. Like, you have to produce outcomes, not just the raw intelligence. So it's moving away from just analysis and intelligence and more into like workflows and actual outputs. So again, there's like, there's definitely a lot of rhyming there, especially amongst investor sentiment is the one where like I see the strongest parallels, right? Where for the past year, it has been like, I don't know if I want to invest in any AI applications.

• 34:31Speaker 01

  I should probably just put another, every marginal dollar should just go to one of the frontier labs. That's it. And then all of a sudden, we had this big reckoning of like, oh no, software moats are no longer a thing. What are we going to do? And that was kind of funny, right? Because for all of us, we're sitting there going like, wait a minute, you guys had software moats? We've never had software moats. Like, we've been navigating a world without any software moats the entire time, right? Like, our entire industry is built on open source software that anyone can fork. So like this entire notion, like all the questions of like, where is value going to accrue in the stack? How do you build in defensibility without software moats? Like, it's funny to watch like an entirely new industry, an entire new group of investors wrestle with the same questions that we've been tackling for, you know, 10 years now.

• 35:13Speaker 02

  I do, I do think the point is really good, because like, you know, alt L1s, you know, from my perspective are, you know, they're asking that question of like, which part of the application layer do we have to play in? And like, to an extent, OpenAI, Anthropic, any other frontier lab that joins them is, is going to have to ask the same question at a certain point, because it's, it's clear, I think, today that like, you know, like your, like weights are, you know, are largely going to be a commodity, but the harness is certainly not. And so what do you specialize in? You know, obviously, like, there are some use cases where you can't hallucinate, you can't get something wrong. Like, manufacturing for semis is a good example of this, where like the AI tools that probably speed up manufacturing a lot

• 35:56Speaker 02

  are like not the frontier models today, right? It's the frontier models plus fine tuned models plus data sets that like the companies that are supporting this build out have accumulated. And there's very clearly a moat, I think, at the application layer there, if you can improve outcomes significantly versus a frontier model. So are they going to chase that opportunity? You know, probably not. Like, my guess is depending on how difficult it is to move into that part of the application space, they may not. But for certain other applications, they will. Like, I could, you know, something like accounting, right? Like, they're probably going to figure out how to do that, would be my guess. But like, something more complex where like, it's, it's a lot harder to specialize, where there's a feedback loop,

• 36:38Speaker 02

  the more problems you solve for customers, the more you know about how to solve that problem. Like, those areas are probably going to create a lot of value at the application layer, where that's not going to generalize to the model. So bit of a mixed bag, and like, maybe you see a similar kind of thinking going on in L1s right now, where you're realizing, look, the protocol fees just aren't going to sustain the business long term. Or at least there's no story, if you're at like 5 billion FDB now, like you, you might already be at the market cap implied by like huge future adoption. So you need to figure out something else, some other way to create value.

• 37:10Speaker 00

  I do appreciate, after being like an investor in crypto for a decade, how sharp teeth are cut in the crypto industry from being an investor. And maybe this is just what all investment is like, like you start seeing patterns everywhere, but this one feels particularly salient. And I feel much better prepared to invest in like the AI industry, simply just because like I've, I've seen some shenanigans that you would have never seen in the equities markets in the crypto world.

• 37:37Speaker 01

  You've seen the shenanigans, so you know how to be careful of the, you know, three layer SPVs. You've seen the wild sentiment shifts, you've seen the fast money grifters that storm into any industry that's hot. That's not something that's unique to crypto, that's any industry that's hot.

• 37:51Speaker 00

  Yeah, that's the human condition.

• 37:53Speaker 01

  100%. And that's the nice thing about the market environment that we're in, is those people are all distracted. They're all gone. And it's so nice. Like, honestly, I can sit there and I can analyze these businesses on a fundamental basis, without all the hype attached to them and without all the noise. It's beautiful.

• 38:06Speaker 00

  Yeah, yeah. Let's get back into, into the crypto world. Tokenization of real world assets, tokenization of equities seems to be like we're on the frontier of that meta. And it seems to also be kind of a logical next step after we have just a massive explosion of tokenization of dollars, like the first real world asset, the first, the first, the, yeah, first real world asset. What lessons, now that we have the tokenization of dollars, more or less in the rearview mirror? Plenty of dollars still left to tokenize, but like, we're doing it. What lessons from the growth of the stablecoin sector can we apply to just the growth of tokenization of equities?

• 38:41Speaker 01

  Stablecoins have gotten the flywheel already spinning. Okay, so that's going to, you know, before I even jump into the flywheel, let's step back like a little bit here. This whole, the emergence of RWAs, something we've been following from the very beginning. Okay, so we're, I have a hard time tooting our own horn sometimes, but we're the only venture investor in all three of the major stablecoin issuers, Tether, Circle, and Paxos. And all of those investments were made almost a decade ago, right? So, you know, the classic like 10 years to make an overnight success. Everyone's very excited about stablecoins today. We were excited about them 10 years ago. It took a while for them to realize their full potential. Even today, we have not realized their full potential. Okay, so, you know, today we're at something like 300 billion. I have zero doubt in my mind that we're going to the trillions by 2030.

• 39:26Speaker 01

  Like, zero doubt. To me, that is like, it's an almost outlandish prediction, and yet I can put like a 90% plus certainty on that. That's my confidence level anyways.

• 39:36Speaker 00

  What about, what about 2 trillions? We're at 300 billion, what about 2 trillion by 2030? Do you think we'll get there?

• 39:42Speaker 01

  I do, yeah.

• 39:43Speaker 00

  Yeah.

• 39:44Speaker 01

  Like, I really do. I think the flywheel is spinning incredibly fast now. We have to realize that like, as more dollars move on chain, it creates more liquidity for all the applications on chain. That creates an incentive for developers to build more applications to service this larger market, which creates more use case and more utility, which pulls more dollars on chain. And now, historically, that flywheel, so this has been in place for now a few years. That's what's been driving the adoption, is that same flywheel. Today, that flywheel, each turn of it, is larger than the last, because it's driven increasingly by institutional adoption. Right? Historically, that's been, that flywheel was entirely retail driven.

• 40:24Speaker 01

  So today, as it spins, it's not just pulling in dollars, it's also pulling in tokenized equities, money market funds, treasuries. Basically, all traditional assets are getting pulled on chain. And why? Because we have better financial infrastructure, right? Like, having financial infrastructure that is global, always on, and programmable, is simply better. If we think about like all of fintech, all of financial innovation, like fundamentally, what are you trying to do? You're trying to improve capital efficiency. Now, like, what are the hallmarks? What are the signs that we'd be looking for, that we've actually built more efficient financial infrastructure? One of the things I'd be looking for is to see that the money that's in there is, is working harder for you. One way to measure that is velocity, right?

• 41:08Speaker 01

  And if we look at the velocity of stablecoins, it's something like 120x, meaning that the average stablecoin dollar turns over 120 times per year in the on-chain economy. That's actually extraordinary, right? Like, I'd have to pull up all the latest benchmarks, comparing it to like what your favorite payment network or, you know, what M1 or anything else does.

• 41:30Speaker 00

  I have so many favorite payment networks.

• 41:33Speaker 01

  So it's much, much more efficient, right? And so this is what's pulling in a massive amount of capital on chain. And we actually ran the numbers because we were curious of like, what is actually the impact of stable coins moving on chain? Because there's this big misconception, I hear this all the time from other investors, from casual market participants, they say, stable coins are cool, they're a payments product. Like, no, no, they're actually not a payments product, right? Because when you, when you have the mental model them as a payments product, they're used for payments, they're not a payments product. There's a difference there. Because when you think of them as, as just a payments product, the, the mental model that you're thinking of is a dollar moves on chain, it transits from A to B and it hops off chain. But that's not what's actually happening, right?

• 42:18Speaker 01

  What we see is that dollars that move on chain tend to stay on chain. Like, there's a very high attach rate, they tend to be very sticky, and they find their way into the applications that exist on chain. And so we actually went there and we mapped like, what happens if you have a billion dollars of net new issuance of stable coins? And like, the vast majority of that is actually not set aside for payments, like a little over half of it is immediately deployed as working capital into the on-chain economy. That might be in lending protocols, exchanges, other things that exist on chain, purpose protocols. And it generates, it doesn't just sit there idly, right? Like, this isn't working capital that just goes and sits there in AVE or sits there in Uniswap. It produces an enormous amount of economic activity.

• 43:00Speaker 01

  So a billion dollars of stable coins in a year produces about $122 billion of economic activity. So what happens is these dollars are not just coming on chain and transiting and hopping off. They're coming on chain, they're being deployed as working capital, they're producing an enormous amount of economic activity, and all of the applications, protocols and networks downstream from that are capturing revenue from it. And so when we ran these numbers, what it came out to was roughly a billion dollars of net new stablecoin issuance produces about $19 million of downstream protocol revenue. So David, connecting where we started with.

• 43:35Speaker 00

  Nineteen million, is that like, on a yearly basis or in total? How do you think about that?

• 43:39Speaker 01

  Over the course of, over the course of a year. So it's just like, we went through this mental model of like, let's just track a billion dollars as it courses through the on-chain economy over the course of a year. And that's what we landed is produces about $19 million of downstream protocol revenue.

• 43:53Speaker 00

  So just going back and I want to let you finish, but just to talk about some of the numbers, you think there's going to be $2 trillion of stablecoins in four years? And one, and you're saying the math, you ran the numbers, you got the receipts, $1 billion of stablecoin issuance creates $19 million of revenue a year, reoccurring revenue a year. And so with $2 trillion more dollars, multiply that by 2,000, so 19 million of yearly revenue by 2,000, and then that is the level of revenue that's going to be coming in the, in the applications if these numbers hold.

• 44:28Speaker 01

  Exactly. That's exactly the point, it's going to connect the dots on, is like, exactly that. That's why we're so optimist, that's why I'm, I'm looking around the corner, I'm like, I cannot believe that people are talking about fair market, or they're feeling like maybe the industry isn't succeeding. I'm like, literally, it's the, it's the fattest pitch of the game, and a lot of people are taking their eye off the ball right now. Right? So even if we, you know, David, let's assume that like, fundamentally, we should want all of this infrastructure, all these applications to continue getting more efficient the way they have historically. Let's say that going forward, instead of 1 billion of net new stablecoins producing $19 million of downstream protocol revenue, let's say it's only 10.

• 45:05Speaker 00

  It's still big.

• 45:06Speaker 01

  Like, these numbers, these numbers are extraordinary, and that's just the portion that's captured on chain, right? These are just the on-chain protocols and applications. This doesn't include what's being captured by, you know, Tether, Circle, Coinbase, Kraken, TRM, like, all the great companies.

• 45:21Speaker 00

  Because you can't measure that, because that's closed. You measure the data that you can measure, which is the on-chain. So like, the $19 million is on-chain protocol revenue, which is like, from the crypto native, the OG people who are like sad and bummed lately, like, that's their stuff. That's like the crypto punk stuff.

• 45:37Speaker 01

  Yeah, and it might not be all of the things, right? Like, not every crypto token's going to benefit from this, but we are seeing a lot of the, you know, a lot of the same blue chips that you and I have been following since the early days, right? Like, AVE and Uniswap, right? They are participating in this downstream protocol revenue.

• 45:50Speaker 00

  Yeah, that was my next question, is like, what, what types of applications are receiving some of these revenues? Are you able to kind of like categorize which are the, the most exposed types of applications to this 19 million per $1 billion issuance of revenue a year?

• 46:05Speaker 01

  Yeah, I mean, certainly like the, the lending protocols, the exchange protocols, those are a huge portion of it, derivatives venues.

• 46:14Speaker 00

  So like AVEs, Uniswaps, Morphos, Vaults, kind of like the, the DeFi stuff that we see having activity these days is probably, probably the answer?

• 46:23Speaker 01

  Exactly, yeah. And so, and I mean, you know, we, we touched on earlier of, there's been this structural shift of the fees that users are paying are shifting away from the infrastructure and towards the application. So like, we should acknowledge that this will continue to change over the next four years. Maybe infrastructure fights back, right? Like, maybe the network effects like materialize stronger, they develop more pricing power, and they're actually able to squeeze the applications a bit more.

• 46:47Speaker 00

  Possibly. Is AVE an application or is it infrastructure?

• 46:51Speaker 01

  We have this debate internally, I'd say it's somewhere, it's both, but Alex, I'd like to hear your, your answer to this.

• 46:58Speaker 02

  Yeah, I think the, the answer is both, right? Like, they, they operate applications on their protocol, they also built the protocol and launched new versions of it and invested in R and D. So it's kind of both, but like, the, the, the cool thing about AVE is obviously their backend is open, unlike, you know, a traditional fintech or like a financial institution where you might expose APIs to developers, but in, you know, you're never sharing state, you're never just opening up your, your liquidity for, for folks to use. And so I think the really clever thing that AVE has, has done now is like, they're, they're very much anticipating the growth drivers for the next 10 years, which is, you know, stablecoins are step one, and that's been a huge driver of the business, right? Like, I think something like half the deposit base, maybe even more are stablecoins.

• 47:43Speaker 02

  And that's the thing that people want to, to borrow against their, their collateral. They're anticipating that growth driver is, is going to start to be other tokenized securities. So, you know, tokenized commodities, tokenized stocks, tokenized private credit, you know, obviously, the, the treasuries have been, have been driving that. And so moves like Horizon, moves like AVE V4, set AVE up to continue to evolve in that world. And, and like, you know, for us, like, as, as an issuer of a tokenized fund, like, we could create an AVE V4 spoke, and we could add liquidity, and then all of a sudden, people who own the B cap token could go in and they could borrow USDC against that. You know, that, that's a capability that is now possible as like the V4 era, you know,

• 48:27Speaker 02

  sort of begins, and it's still early days for V4, so like, that activity hasn't really shown up in a big way yet, but you don't have to squint to see what's possible now with, with something like AVE, and you're seeing the same kind of dynamic with Uniswap, you're seeing the same dynamic with Hyperliquid, that's now platforming other trading venues. And so the answer is both, crypto protocols simultaneously are platforms, and then, you know, oftentimes, they build that application layer out first. I think in a successful world, they're, they're an awesome application, maybe the most important, unclear, we'll see in the future, right? But they're one of many applications that share this, this, you know, this, this more like networked financial product that really has organized itself around the token as

• 49:11Speaker 02

  the kind of unit of value, which is, is a very different thing here. Like, traditionally in finance, you are building a bespoke relationship with an institution, you're being given sort of a limited menu of things that they deem, you know, are appropriate for you. In, in the internet of assets that's reorganized, where markets are reorganized around the token, you have a balance sheet, you have assets on that balance sheet, those assets have capabilities. You can go look across the network, where is this asset useful as collateral? Where could I pledge it? Like, that's the shift that's happening here, it's a subtle shift, but it's super powerful. And like, I mean, maybe, you know, the, the, one of the ways I've, I've kind of thought about this is like, an analogy to shipping containers, where, you know, before shipping

• 49:56Speaker 02

  containers, like, pre 1950, crates, barrels, sacks would be individually unloaded, counted, inspected, you know, repacked, like, wherever cargo moved between a truck, a port, a ship, a railroad, and like, this effectively made it super costly, it meant that ships had to, you know, be, be docked for a while, like, ships spent more time parked dealing with cargo than they did at sea moving it around the world. And so global supply chains were constrained by, by the cost of, of, you know, the, the equivalent of like a transaction cost in shipping. And as a result, we just did less business with other countries. We did, like, companies couldn't establish global supply chains, that just simply wasn't economical at the time for the vast majority of goods.

• 50:39Speaker 02

  And then you introduce the container and you standardize it kind of in the 60s through the, you know, the early 80s. And like, that doesn't change the, the goods that move, but what it does is it says, okay, here's the way that you can, you know, here's the way you can build ports and machinery that can handle these things. Here, now you can build larger ships because you can ship way more things more cheaply. I think it was like a 97% reduction in like loading time that, that the standardized container produced. And so the container reorganized global supply chains, that's what the token is going to do. And it's very early innings now, but like, the token basically is that interface to, it, it's the interface in the same way that the, the standardized shipping container

• 51:23Speaker 02

  was, was the interface for shipping. Like, this is the interface for economic rights. And so it does, like, all, you know, all tokens are different, and, and it, it depends what types of economic rights and the strength of those rights that you build into the token, that's why we see this big spectrum of like, quality of assets in, in the tokenized space. But the point is that with tokens, you can have things like AVE, you can have things like Uniswap, that pop up, that build like a network solution to that problem, rather than a new financial institution that's a, you know, centrally managed company that, you know, operates within one specific jurisdiction. Like, now you have a global marketplace, you have a network of opportunities where tokens can, you know, petition for the best deal. And so I think that's what it ends up looking like.

• 52:06Speaker 02

  It's really like, you know, the, the, the type of financial engineering that is accessible only to the most sophisticated and well-capitalized institutions around the world, that becomes just like the state of play for anyone, even down to like a thousand bucks in a savings account, right? Like, you're going to have the ability to use sophisticated financial products, and you're going to be able to be part of, of the global market. Like, there isn't going to be this. This, you know, like barrier to entry and that's going to be transformative. That's why I think these markets are, you know, they're going to allow like the global financial market coordinated on blockchains through protocols that, that, that are reorganized around the token. That's how we get 10x bigger.

• 52:47Speaker 02

  That's how we make sure that there's nobody with merit that actually has an opportunity that someone out there would be willing to underwrite. Like this is the substrate through which you connect opportunities with capital in the future.

• 53:00Speaker 01

  This is the whole thing, I think, like generally of why RW isn't getting exciting is like, and by the way, also the reason why the private permission chains, I don't think are going to work. Right? Like there could be some level of permissioning around these, but I think they must be public because like the entire value prop is that Alex was just outlining is like, hey, let's take these assets out of these silos. Where like, it's really hard for me to get a competitive bid when I exist within one of those silos. Right? Like, yes, in theory I could borrow against my equity portfolio at Charles Schwab. It requires me to get on the phone with somebody. There's extreme limits around it. I have to get permission. It's, it's a process that is fraught with friction and I can't get a competitive offer for it.

• 53:42Speaker 01

  Right? When all of a sudden I can hold that same portfolio on chain. I now have an open marketplace of people that will want to bid for the right to service my assets. This is inherently very pro consumer. It's pro a competitive marketplace and that's just good for everybody. Right? But in order to do that, you must pull them out of these private silos and you must put them on public infrastructure. Where other people can kind of compete to service those assets.

• 54:09Speaker 00

  I opened up this conversation asking about like, what lessons did we learn from stable coins? So we can apply to, to public to tokenize equities. And I think Spencer, you kind of just like rightly said, like, whoa, whoa, whoa, hold on. There's so much left to talk about in the stablecoin world. That's very bullish. And I think the, the really the TLDR of that is that we, there's so much left to bootstrap in stablecoins. But once you do, the bootstrapping for the rest of finance is primed, is, is primed. And, you know, that, that also feeds back into like satisfy the crypto OGs with $19 million of revenue per $1 billion of issuance. I'm going to remember that, that metric for every single podcast moving forward. It's such a good one.

• 54:50Speaker 00

  But then it also produces the liquid marketplaces to bring institutions on that they wouldn't, they wouldn't have come if somebody wasn't there. But now that the stablecoins are there and the liquidity is there and people are going to bid for rates, bid for, for lending opportunities. All of a sudden there's like room for institutions to come on chain. But let me get back to the original question because we're moving from stablecoins into tokenized equities. So like Spencer, what's your, like your roadmap of sorts for expectations for how tokenized equities come on chain and then grow in liquidity? Cause we have tokenized equities. We've had them for a while. There's, they're marginally starting to grow in liquidity, but like they're still not there yet.

• 55:32Speaker 00

  So like, what, what's your roadmap for how tokenized equities goes from like A to B by the end of the decade?

• 55:37Speaker 01

  Okay. So, so two things. The first one is just access. And this is kind of the first wave of adoption for stablecoins as well. Right? It turned out there was intense demand for dollars globally. There was a lot of friction in actually accessing dollars. It's not that they were, in, in most cases, they weren't explicitly prohibited. There was just a lot of friction in actually getting your hands on them. Right? All of a sudden, once they became internet native with global distribution, stablecoins proliferated around the world, especially US dollar backed stablecoins specifically. I think the same is true of the US stock market. There is a lot of demand for internationally. Yes, people can set up accounts to access the US stock market from most countries. It is not the easiest process. Truthfully, in today's day and age, people want to click a button and get access to it.

• 56:21Speaker 01

  And I think that that's what tokenized equities are going to do. It's not going to be super interesting for American investors. Right? The same way that stablecoins are not super interesting for a lot of US participants that are generally reasonably well-served by financial products in, in the States. The second wave though, and the one that gets me much more exciting is when you can leverage the programmability and composability of these. Right? So it's not just that suddenly people can access them easier than they could before, but it's actually that they're better. Right? And this gets into the point that we were just talking about of like, once all of a sudden I can have my equity portfolio on chain. And I have service providers competing to provide me the best offer to borrow against it or to generate securities lending revenue, whatever it might be. That's exciting.

• 57:07Speaker 01

  Right? And so I think that that's, that's the world that we're going to. But there is some tension in here. Right? Because to get the programmability and composability benefits, we, we should unpack the different models that are kind of emerging here. Right? We have like the X stocks model that's produced by backed, which was acquired by Kraken. And the upside of this model is you get full composability in DeFi. You can use these things across all of DeFi. That's fantastic. That's actually what I would love to see.

• 57:33Speaker 00

  Fully permissionless, like offshore.

• 57:36Speaker 01

  Exactly.

• 57:37Speaker 00

  Probably not clarity approved, but also indifferent to clarity approval.

• 57:41Speaker 01

  I think that's right. I think that's right. And, and that's the part that actually gets me most excited, but there is a serious downside to them, which is you do not own an actual share. Right? Like I own a debt instrument that is tied to a vehicle that owns the actual share. Now for retail participants, that's close enough, but that's not what's going to get you to trillions of dollars of tokenized equities. Because the largest institutions that are holding these, like, once you're holding, you know, a billion, 10 billion, 100 billion of them. No, no, no, I want to actually own the share. Right? Like not a debt instrument into an SPV in the Cayman Islands. Right? So I think that like, there's a little bit of attention there. I think it can be reasonably resolved. I don't think going to full ownership is going to mean that you must sacrifice all programmability and composability.

• 58:26Speaker 01

  But it does mean that it's less likely to be in a, a pure, fully permissionless environment. Because I don't think the SEC is about to say, yeah, we don't really care if you trade shares of Apple with Lazarus Group. That doesn't seem very likely.

• 58:38Speaker 00

  Right? Or I, or we don't really care if Lazarus Group hacks your Apple shares. They just get their share of Apple. Congrats Lazarus Group, like sweet hack. Yeah. I think that kind of like begs the, or like kind of illustrates the sign of the times where for as long as I've been in crypto, the crypto industry and TradFi have been on two parallel tracks, not intertwining whatsoever. And like, especially in 2021, like, you know, CryptoPunks, NFTs, DeFi, you know, Ethas money, all this crypto native stuff. And we had this parallel financial system and we were building it in spite of TradFi. We didn't care about TradFi. They were kind of going to come begging on their knees to become relevant to us. And that was great.

• 59:20Speaker 00

  And like now in 2026, it's like, oh, like your guys' blockchains are really cool. We're learning how to use them, but we kind of need some KYC on the tokens. And we kind of need some like, you know, inter-centralized intermediaries for you guys to do all this cool stuff. And that's not tenable to me as like somebody who believes in like public permissionless access. And so I don't, I don't necessarily know how to square these things because the financial system has been built in a particular way. That is not aligned with the way that public permissionless blockchains are. But there is just so much momentum to trying to make tokenized equities work. But I don't know who, who gives, like, does the SEC give?

• 1:00:05Speaker 00

  Or does the values of our public protocols give? Like who, who bends the knee to who and how, how do these things get resolved?

• 1:00:11Speaker 01

  I don't know that they have, anyone has to give though. Right? And like, it is the first time, it's a very unique moment. I've actually been relatively bearish on the notion of tokenized equities for some years. But we do have, you know, an SEC that is pounding the table and saying like, tokenized equities can and should and will happen. Right? And I don't think that the two things are mutually exclusive. Cause like David, believe me, in my heart, like I love the whole parallel financial system. Let's go build this in isolation. Let's go prove to the world it's better and let's let people opt into that system. Right? And we don't need to fuse them. I don't want to adopt the bad standards over here. But I still think that that can continue to exist and it will exist.

• 1:00:47Speaker 01

  The proposition that's on the table today is like, hey, would you guys like to have tens of trillions of equities that also exist in like little, almost like sidecars to the main public permissionless chain? Right? They're not going to be totally private. They're not going to be totally walled gardens, not going to be totally permissioned. But hey, guys, listen, if you want this, which is going to be riding right alongside.

• 1:01:07Speaker 00

  Yeah.

• 1:01:08Speaker 01

  That like pure cipher punk version.

• 1:01:10Speaker 00

  Paper thin wall.

• 1:01:11Speaker 01

  Yeah, exactly. Like, I think that's a pretty good outcome for everybody. Right? I think that that will actually accelerate. The pure public permissionless cypherpunk version as well, because now the capital is sitting right alongside it. It actually gives us an even better opportunity to prove why we can continue to build better systems, right? Now the capital can easily move into that. If it wants to go and say, hey, I'm actually done holding my Apple or Nvidia right now, it can go choose to hold ETH and SET. And it can use that in a purely permissionless context.

• 1:01:42Speaker 00

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• 1:02:27Speaker 00

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• 1:02:30Speaker 03

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• 1:03:12Speaker 03

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• 1:03:17Speaker 00

  This is something that you guys have some real-world experience in, actually. Fund 3, Blockchain Capital Fund 3, you guys actually tokenized into tokens on Ethereum. Tell that story about why you guys decided to actually tokenize the fund, for the real tokenization of a real fund, real world asset on-chain, but so early in 2017. So like, why did you do that? What lessons have you learned along the way?

• 1:03:41Speaker 01

  Yeah, I think this was maybe like March 2017. And we're sitting there, it turned out to be very early days of kind of ICO mania that manifested in 2017. It's not always obvious at that point that you're early in that type of mania, but it was certainly picking up steam. And we're sitting there saying, hey, listen, we are a venture capital firm that is dedicated to the blockchain industry. And all of a sudden, we're looking at this new phenomenon that looks like it could disrupt the business of venture capital using blockchain technology. We said, hold on. If anybody is going to go and disrupt this business and this industry using blockchains, it better be us. And so we said, listen, let's go walk the walk and not just talk the talk, right? Like sometimes you have to go roll up your sleeves and go and actually build products in the space.

• 1:04:25Speaker 01

  That's both awesome and a great learning experience and incredibly painful, because when you're trying to do it in 2017, the infrastructure doesn't exist, right? There isn't, you know, we

• 1:04:36Speaker 00

  You're doing like command line interface to issue a tokenized security on Ethereum? Yeah.

• 1:04:43Speaker 01

  Well, and then you can issue it compliantly per SEC exemptions, but then you need to, all of a sudden, then people are trading these assets and that could put you out of line with where you're supposed to be. And none of the, like, none of the other infrastructure exists to enable you to stay in compliance of the SEC's requirements, right? And so that actually, that's what led us to leading, I think, multiple rounds, three rounds in securitize, was specifically because they came along and said, hey, guys, we know that you have this problem, we can solve the problem for you. Said, listen, okay, if they can solve this problem for us, they're going to solve it for a lot of people, right? But it's been fun. I mean, the entire purpose of it was really two-fold. One, it was to expand access. So it was, hey, listen, could we improve access to a venture capital fund?

• 1:05:27Speaker 01

  We were very successful in this regard. I used to know all the stats off the top of my head, but I think we had participants from like 80 different countries, including, by the way, a researcher up in Antarctica. I couldn't believe that when we saw that, like, on the actual subscription form, like, no way, they're actually in Antarctica. We reached out to them.

• 1:05:42Speaker 00

  What was their address?

• 1:05:44Speaker 01

  Yeah, something like Santa Claus Lane or something, I forget. And then, so that was the first thing was access. And then the second one was, can we improve liquidity, right? Because, I mean, typically for a venture fund, you're locked up for 10 to 15 years, right? That's one where, again, the challenge ends up being like, we can't just put the token on Uniswap and let anybody buy and sell it, because it is a security, right? Explicitly. And so I'm optimistic that now is finally the first time where, as that fund has gone from an initial $10 million, we kept it small, knowing that this is an experiment. Like, there was a lot of demand for this, as you can imagine, in 2017 of like, could you guys, could you guys make it 25, 50, 100 million?

• 1:06:26Speaker 01

  Said, listen, I think it's better, given this is like very early stage, let's keep it to 10 million. Let's see if we can make it successful. Today, that fund is somewheres around roughly $1 billion in assets, so it has been wildly successful for those participants. But what I'm most excited about is the opportunity to like, help it fulfill its full vision, right? Because ultimately, we can now have the trading infrastructure built around this to make it liquid. Alex was talking about, maybe we could enable token holders to borrow against it, that would be huge. I mean, so I think all of that is now on the horizon, and it's an opportunity for us to continue to use that fund, because it's a permanent capital vehicle, there's no end of life to that, to that fund.

• 1:07:06Speaker 00

  So the token never closes, the token is the token.

• 1:07:08Speaker 01

  Yep. If someone wants to exit it, they go and sell the token. So that is their choice, that is, they don't actually redeem from the fund, they sell it to somebody else, right? And so, you know, for us, that gives us a unique opportunity to, I mean, we can invest in a company and actually hold it forever, right? Like, we never have an end of life of the fund, we are never forced to sell something. So like, that's pretty unique that we can go to a founder and say like, listen, we can hold this until like, you're done with the business. And you say like, listen, guys, it's over, wrap it up. We don't have to do that on year 10, which, by the way, again, like, that's, you know, Circle, Paxos, Tether, all of them are like, having their day in the sun finally now in year 10, when, you know, those investments were originally made quite a long time ago.

• 1:07:49Speaker 00

  So what are you doing with the token on like, the crypto native side of things, inside the crypto applications to provide, because the name of the game is capital efficiency here, like, why are people going to come on-chain? Because of capital efficiency. So what ways is or will be the B cap token gain capital efficiency using on-chain mechanisms?

• 1:08:09Speaker 02

  You know, I would say, like, you know, we're an RIA, like, we, I think, are subject to some of the stricter rules of, you know, participants in the crypto ecosystem. And so obviously, we're beholden to that, that does, that does limit the speed that we can move at here, it doesn't limit our thinking on it. And so we're, you know, we're getting ahead of what we think is going to be possible in the near term. And part of that has been the application space hasn't necessarily had the right infrastructure for like, a tokenized fund to, you know, with our set of rules and requirements to be able to, you know, create a line of credit against it, or like, you know, NAMM or something like that. But, you know, for us, this is always a lens when we invest in a company, we're talking

• 1:08:52Speaker 02

  about the founder from the perspective of, obviously, as a venture capitalist, but then also from the perspective of, you know, the creator of the first tokenized fund. And so we're thinking, you know, how can your, your product, whether that's, you know, something like AVE, you know, how is that going to be usable with our product? Because we represent kind of like, the hard end of the spectrum. If you work on the easy end of the spectrum with like crypto native collateral like ETH and then stable coins and things like that, that's one problem. But if you're extensible, so to like, our end of the spectrum, that's when we start to get really excited. And when we're having conversations with Stani about, you know, what does the V4 spoke look like here? And for the first time, you know, as of like, the last couple of months with V4, that

• 1:09:36Speaker 02

  conversation has been, oh, you know, that'll take like a day to set up, basically. And so for us, it's a lot of thinking on the legal and the compliance front, but these are the types of ideas that we're kicking around right now and we're getting really, really excited about. And I think, you know, give us, give us a year or two, and, and you'll, we'll probably have a more exciting story to tell here about utility on-chain. But it's certainly, it's something that has recently become possible and that I think, especially as we get regulatory clarity, becomes easier for us to do.

• 1:10:04Speaker 00

  Yeah, I would suppose the whole idea around B cap is like, it's a canary for what other people can do with their tokens. And you guys are just doing it first, because you guys are on the frontier, is what your guys' job is. But like, if you guys can do it with a B cap token, any other institution can do it with any other token. And compliantly, which is like what the big, you know, the big game is here.

• 1:10:24Speaker 01

  Exactly. Yeah. Sometimes you just have to like, show that you can do it, right? And so, and instead of just deploying capital, like, again, let's walk the walk and not just talk the talk. Demonstrate people, show them that it's safe, the water's warm, you can go and do this too.

• 1:10:37Speaker 00

  Spencer, Alex, this has been great. It's been, it's nice to do a bullish episode. This episode has probably been one of the more bullish ones that I've recorded in a while, so thank you for coming on and just making me bullish.

• 1:10:48Speaker 01

  I don't know how anybody could be anything other than bullish. Like, honestly, with the stuff we're looking at, like, I think the sentiment is almost confusing to me. I'm excited, I'm fired up, let's go.

• 1:10:57Speaker 02

  Yeah, thanks for having us, David, this was great.

• 1:10:59Speaker 00

  Of course, of course. Bankless Nation, you guys know the deal, crypto is risky, but it's not risky enough. The institutions are here, so we're going even more westward. This is the frontier, it's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:11:31Speaker 00

  You