#778 Developers Are Choosing Bitcoin, Crypto & Web3 w/ Avichal Garg

Avichal Garg is the Founder of Electric Capital, one of the leading Cryptocurrency focused Investment managers. Every year, Avichal and his team create the Electric Capital Developer Report. In this conversation, we break down the report, get Avichal's takeaways, and reveal the surprises found throughout. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin. Visit compassmining.io to start mining bitcoin today! ======================= Crypto is all about democratization and freedom of choice. But many companies limit their offerings to centralized trading products. The crypto companies leading the pack in terms of innovation are those that extend access to the industry's cutting-edge products and services — bridging CeFi and DeFi. If you're searching for a platform that reflects crypto's promise of a more open and less restrictive financial future, look no further than OKEx. On OKEx now you can easily switch over to the new DeFi mode, connect OKEx's bespoke Web 3.0 wallet via browser extension and start exploring opportunities at the bleeding edge of crypto. From the DeFi Dashboard, you can monitor your portfolio of self-custodied assets across a range of blockchain networks and generate passive income from yield-farming with top DeFi protocols. In the NFT Marketplace, you can participate in exclusive drops and trade nonfungible tokens without secondary market fees. Meanwhile, the GameFi section is your portal to the latest and greatest in play-to-earn and blockchain gaming. Venture to the forefront of crypto innovation and connect with OKEx DeFi today. =======================

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Avichel Garg is the founder of Electric Capital, one of the leading cryptocurrency-focused investment managers in the United States. Avichel, his team, and a whole host of large community contributors come together every year and they create the Electric Capital Developer Report. The 2021 Developer Report is fantastic. In this conversation, we break down the report, Avichel's takeaways, and a number of surprises that can be found within that 100-plus-page report. I hope that you enjoy this conversation, as I always do. But before we get into this episode, I'd first like to talk about our sponsors.

• 0:47Anthony Pompliano?

  First up is LMAX Digital, the number-one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. They leverage LMAX Group's liquidity relationships and ultra-low latency technology. LMAX Digital is the market-leading solution for institutional crypto trading and custodial services. If you've never heard of LMAX Digital, it's probably because you're not an institution. They have no retail, only institutions. They feature a central limit-order book streaming spot Bitcoin, Ether, Litecoin, and Bitcoin Cash, all paired with US dollars, Euro, and Yen. LMAX Digital, they're secure, they're liquid, and they're trusted. Learn more at lmaxdigital.com/pomp. Again, lmaxdigital.com/pomp.

• 1:33Anthony Pompliano?

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• 2:18Anthony Pompliano?

  Start mining your own Bitcoin today by visiting compassmining.io. Again, compassmining.io. Go check them out and let me know what you think. Last but not least are my friends over at OKX. Crypto is all about democratization and freedom of choice, but many companies limit their offerings to centralized trading products. The crypto companies leading the pack in terms of innovation are those that extend access to the industry's cutting-edge products and services, bridging C-Fi and DeFi. If you're searching for a platform that reflects crypto's promise, but more open and less restrictive financial future, look no further than OKX. On OKX now, you can easily switch over to the new DeFi mode. Connect OKX's bespoke Web3 wallet via browser extension and start exploring opportunities at the bleeding edge of crypto.

• 3:03Anthony Pompliano?

  From the DeFi dashboard, you can monitor your portfolio of self-custodied assets across a range of blockchain networks and generate passive income from yield farming with top DeFi protocols. In the NFT marketplace, you can participate in exclusive drops and trade non-fungible tokens without secondary market fees. Meanwhile, the GameFi section is your portal to the latest and greatest in play-to-earn and blockchain gaming. Venture to the forefront of crypto innovation and connect with OKX DeFi today. Again, go check them out at OKX. That's where you can find OKX DeFi. All right, let's get into this episode. I hope you guys enjoy this one.

• 3:41Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 4:04Anthony Pompliano?

  Well, Vichal, how are you?

• 4:05Speaker 02

  Good, man. Good to see you.

• 4:06Anthony Pompliano?

  Good to see you as well. This is an absolute beast of a report. And as I was thinking about all the different things that we could kind of talk through, I had to throw my hands up and say, there's zero chance we're going to get through everything. So I've done my best to try to pull out some things I found interesting and maybe you can kind of elaborate on. But before we start on that, maybe help us understand, like, why do you guys put this together? I know there's a ton of time and energy that goes into this. I know that it's not just your team, but your team has an outside share effort. But why do you guys spend so much time looking at developer activity? And how do you use the information from the report like this?

• 4:43Speaker 02

  Yeah, that's a great question. We, so the way we think about it is, you know, a lot of the price stuff that happens in crypto is just a lot of noise. You know, it's hard to, it's hard to think about. It's hard to be long-term minded when you see all this volatility in real in in real time on price. And so we thought about it a couple of years ago, and we said, you know, what is what is a real leading indicator of fundamental value? Like, where is stuff actually going to happen for real? And and how do we measure that? And and in our estimation, where the developers are going and where they're actually spending time building in crypto is the best leading indicator, in our opinion. And and it's because, you know, if you think about it, like, a trade is pretty easy to unwind, right? You're like, hey, I this doesn't work, I'm out. But a career decision is really hard to unwind, right?

• 5:26Speaker 02

  You spent a year of your life building something, you're not just going to bail on that. Or, you know, you you quit your nice job, and as a developer, getting paid a lot of money, and now you're doing crypto, like, that's a big decision, it's a big life decision. So in our estimation, that's the best way to know where real value is actually getting created for the long term. And so if you're thinking about this stuff on a 10-year time horizon, you know, like, if you if you saw Moxie's article about Web3, and does this stuff actually happen? You know, in our estimation, if you get 10s of thousands of developers in one place, like, that eventually, it seems like that will happen. So so we try to measure it. And this is our best guess at trying to measure what's actually happening.

• 5:59Anthony Pompliano?

  Okay. And so when I go ahead and I look at it, maybe we can start with the executive summary from the report. There's a bunch of kind of data points that you put. And it summarized with Web3 developers at an all-time high and growing faster than ever. There's 18,000 or more monthly active developers that commit code in open source crypto and Web3 projects. And there was 34,000 new developers that committed code in 2021, which is the highest in history. Obviously, the developers in the crypto industry are at an all-time high and activities at an all-time high. How does that compare to, like, other industries that are non-crypto? Is that a big number? Is the rate of growth here a big number? Or is this just, no, in this specific sector, it's big, but we're still pretty small compared to, you know, other types of technology verticals?

• 6:44Speaker 02

  Yeah, it's also a good question. It's kind of both, right? So if you look at this graph, I think there's a couple of takeaways. So one, you know, just from a methodology perspective, the thing to think about here is, this is, in our opinion, probably a big undercounting of what's happening. Because we're looking only at open source repos of things that are actually published to GitHub and GitLab. And so this is not counting, for example, all the developers that are working at Coinbase or Bitwise or Anchorage, like all these closed source companies, right? So the actual number is probably much, much higher than this. But directionally, we think it's interesting to track this number and look at it historically. You know, compare this to to other open source projects. You know, I think their their last year, there were about 3,000 or 3,500 people that worked on all of the Apache projects.

• 7:28Speaker 02

  So something like 35,000 people committing code and 18,000 people monthly

• 7:34Speaker 02

  is much larger than that. I think it's something on the order of about 40 to 50,000 people total have ever contributed to to Linux kernel. And the Linux kernel powers, you know, Android and operating systems and server side tech. And, you know, the Internet runs on Linux, right? So, you know, 40,000 people can do a lot of damage. But if you compare it to, you know, the number of people that are software developers, like in the US, which is in the millions, or if you if you compare it to the number of people who write JavaScript globally, you know, that's that's like tens of millions of people. These are really small numbers. And so I think it's actually a little of both, right? On the one hand, 20,000, 30,000, 40,000 people can do a lot of damage. You can have, you know, world changing software that gets produced by a few tens of thousands of people.

• 8:18Speaker 02

  On the other hand, I think we're still very early. If you play this out 10 years and you keep growing 70 to 100% a year, you know, you'll have millions of people here eventually. And so the kind of kind of both statements are true, I think.

• 8:29Anthony Pompliano?

  Yeah, it's really interesting to think not only about kind of snapshot in time where we are, but the growth rate and trying to understand that, you know, again, humans are really, really bad at kind of understanding the exponential growth for something like this. I figured the next place that we could go to.

• 8:44Speaker 02

  I think that's a really, really important point, actually. Like, if you think about, like, one of the fundamental things that the human brain is really bad at is exponential growth. It's like why we have this COVID problem, right? It's just like we're and that's why I like startup investing is hard. It's just like you take this stuff and extrapolate for five or seven years and and that number gets really large. And it has been, I mean, if you look at that shape, that curve, it's really impressive how that growth is compounding, right? And so I think it's a really, really important point. It's like people, this is why you get this whole, you know, that trope. I think it's a Bill Gates quote of. People underestimate what's possible in 10 years, but they overestimate what's possible in two years. And I think it's a side effect of exponential growth. So I think that's a really important point that you just made that like the exponential growth here, if it keeps going, it actually ends up being really meaningful in five to 10 years.

• 9:25Anthony Pompliano?

  Yeah, one of the things I think a lot about in this whole industry, right? So Bitcoin, crypto, Web 3, whatever you want to kind of slice it is it's all market expanding technologies, right? And I always use the examples of obviously like an Uber, an Airbnb. If you just evaluated how big's the taxi industry, how big is, you know, hotel industry, you missed majority of what the actual value ended up being. There's a lot of people who don't own cars now and they just use Uber. And so to some degree, this industry and this tech, these technologies are doing a very similar type of market expansion or kind of total adjustable market expansion. And so ultimately, you can almost like add a zero to the number of developers that are going to be needed compared to some of these older industries. And, you know, maybe that's correct or not correct from an actual number,

• 10:10Anthony Pompliano?

  but like at least directionally, there should be many, many more if it works and becomes kind of what you, I, and many other people think. Is that, is that a kind of a fair way to evaluate it?

• 10:19Speaker 02

  Yeah, I really like that first point. I think like when, when you go back and you talk to people that were, that were involved with like Uber's Series A, you know, the, the conversation people were having at the time was, well, hey, you're raising all this money, but can you really be more than a billion dollar or a couple billion dollar company? I mean, the entire taxi industry is only $12 billion. So how could you possibly be an IPO caliber company? And your point is exactly right. What ended up happening was not only did the market grow, grew by 10x. And so, you know, I think the learning there is when you put an app on somebody's phone and there are 3 billion devices in the world, like all of a sudden your total addressable market goes way up. And so actually you can hit these, what seemed like really large numbers, you know, with kind of the markets that we have today.

• 11:02Speaker 02

  And so I think that's, that's where you look at things like, you know, Bitcoin. And obviously this is not financial advice, but you know, the sort of comparison people make is digital gold, right? So they say, okay, this is gold. Gold could be worth 10 trillion, but I do think one of the lessons from the internet is that these markets end up being, when you put them on a mobile device and anybody in the world can get them, you know, the markets often end up being bigger. And so then I I think that has sort of two interesting observations on the developer side. One actually takes far fewer developers to get to these really, really large markets than you might expect. Right? So Uber only needed a few thousand people to to become a hundred billion dollar company. You rewind forty or fifty years and it wouldn't have been possible, right? So like the compounding that you get from software and the composability that you get means that you can have a smaller number of people have a bigger impact.

• 11:47Speaker 02

  And so the leverage you're getting with software is just, you know, keeps compounding. So, you know, maybe that you actually never need more than twenty thousand developers to have something that's bigger than digital gold. I mean, you look at Bitcoin and the and the report is only three hundred ish, you know, two hundred and sixty, I think, monthly active developers on open source Bitcoin. And that's remarkable, right? There's if you had a two hundred and sixty person company that was supporting a trillion dollar market cap, like that's unheard of, right? That's that's amazing. And so I think there's actually this thing here where you don't need that many developers to support really, really large market caps. Um, and on the flip side, to your point, if it turns out that the market cap ends up being way bigger than anybody expected of this whole industry, when you add all these things up, that also means you can support a lot more developers than than people may have previously thought. Um, and so I think both both things end up being true.

• 12:29Speaker 02

  Like you actually don't need that many people to support really, really massive outcomes from a startup investor perspective. And at the same time, if those outcomes happen, you end up creating this whole industry that supports way more developers than people would have originally expected.

• 12:41Anthony Pompliano?

  Yeah, I think that's right. Um, we we have one of the charts, the Bitcoin, um, kind of developers by month joined. Um, and one of the things that, uh, struck me here, uh, was if we look at the largest ecosystems, let's take Bitcoin and Ethereum as kind of the two largest ones. Uh, Bitcoin has about a hundred new devs per month coming in. Not all of them are retained. But when I first saw this, I was kind of looking through the report and I was like, oh, that's like a bigger number than I would have thought it was in terms of a hundred. But ultimately, your point about there's still only being, you know, let's call it two hundred and fifty to three hundred, you know, directionally, uh, kind of active retained developers tells me that a lot of people come in, they start building some stuff and then they move to other areas in the, uh, kind of developer ecosystem. But still a hundred per month, uh, is like a relatively big number.

• 13:25Anthony Pompliano?

  Is that how you kind of read both the people coming in on a month by month basis? But then also, uh, how we get to only two hundred and fifty to 300 or so developers working on Bitcoin in an open source way over like multiple months or years?

• 13:38Speaker 02

  Yeah, I think it's a couple of things going on there. One, I think contributing in the Bitcoin ecosystem is just a little bit more evolved than, you know, it's just, it's a, there's a lot of legacy code there. Um, you know, it's a, it's a pretty robust system. Making changes by design in Bitcoin is, is hard, right? You don't want this thing changing underneath you all the time.

• 13:56Speaker 02

  And so, you know, the, the sort of ramp up to actually getting code shipped in the ecosystem and making it useful is much higher than it is in other places where, where, you know, you know, like if you look at something like Ethereum or Solana, like the pace of development is much, much faster by design, right? They're, they're, they're in a different stage of their evolution. Um, and sort of philosophically, I think what Bitcoin's trying to do is something different, right? So, um, I, I think you're basically right now. What, what's interesting is this is not counting, you know, in some sense, I think Bitcoin sort of, um, suffers a little bit from, from the methodology that we use here, which is we're only counting all the open source stuff, right? So this is not, for example, counting all the people working on all of the exchanges all over the world, um, that integrate Bitcoin.

• 14:38Speaker 02

  And, and obviously Bitcoin is like the base pair that, that every exchange in the world integrates, right? You don't have, you don't have a crypto exchange that doesn't have Bitcoin involved. Um, and so in some sense, this is undercounting like the broader Bitcoin ecosystem. Um, this is just for accounting, you know, in some sense, core developers that are contributing open source to the open source community.

• 14:54Anthony Pompliano?

  So if we then go and we look at Ethereum, I think this was probably one of two major, um, kind of, uh, maybe not shocking, but just, uh, counterintuitive, uh, data points, which was that Ethereum consistently draws 25 to 25% of developers coming to Web 3. And I think that what was kind of counterintuitive to it is if you think about the long tail, there's just so many projects. And yet, even though we continuously get, you know, literally thousands at this point, Ethereum still gets 20 to 25% of developers. And so what was kind of your takeaway from looking at this and seeing such a big number on a percentage basis, uh, still in that ecosystem?

• 15:31Speaker 02

  Yeah, the, the big one is the network effects are, you know, there do appear to be some network effects here, right? And, and I think there's obviously, um, you know, liquidity network effects where if you built- Something in your Ethereum ecosystem by virtue of it having so much liquidity and so many protocols you can integrate with, that's a real thing. And from a developer perspective, you know, what do developers care about? They want to have either reach or they want to make money. And so if you have a thing that, you know, where all the money sits, then it makes a lot of sense that people would come in, right? And that's where you would start. The other thing I think that was kind of an interesting takeaway through the report was there is actually appears to be this ecosystem that's developing around developer tooling. And so, you know, how do you actually

• 16:15Speaker 02

  write code and ship it in the crypto and web3 ecosystem? There's some software tooling that you need as a developer, right? And Ethereum has started to build some of those network effects out. And so other chains now have started to catch on to that. And they said, oh, well, Ethereum virtual machine compatibility and tooling compatibility is actually a way to bring developers in. And so if you look at, you know, chains like Avalanche or Cello or Near, they've realized that what you need to do is have, or Polygon, you know, you need some kind of EVM compatibility. And so I think the other takeaway here is there might actually be some network effects on the developer's side because of all the tooling that Ethereum has built out over the last three to four years, that the Ethereum ecosystem has built out, which makes it easy for new devs to come in and get up to speed.

• 16:57Anthony Pompliano?

  Yeah. Now, speaking of new ones that are coming in that are not going to Bitcoin or Ethereum, you've got a kind of a stack ranked list of both the 10 fastest growing total monthly developers, and then the 10 fastest full-time monthly developers. And neither Bitcoin nor Ethereum are on these lists. And so when you see this, how do you interpret this data? So we've got, you know, in this first one, Phantom, Solana, Internet Computer, Near, Terra, Harmony, Algorand, Avalanche, Chainlink, Polygon, all ones that are generally popular, are well-known by people who spend time paying attention to the crypto community. But what do you all at Electric do when you see this? Does this mean like you go and you try to invest in all of them?

• 17:40Speaker 02

  Good question. I saw, you know, there's a great tweet somebody did where they, we, we had this, um, we had this slide, something like this slide last year. And somebody said, hey, I just went and like bought all the things that you guys said were really fast growing last year. Um, and, uh, you know, thank you, basically. Um, uh, so we don't do that. We, we don't just, uh, go, go buy all these things. But for us, this was, this is an interesting place to go poke around and say, what's happening here? If, if we don't already, you know, we already, a- as we disclosed in the report, we do hold some, um, some positions in some of the tokens that we've mentioned in the report. Uh, we, we receive investors in some of these projects, for example, because we, we're generally, um, early-stage investors. Uh, but yeah, we'll go take a look at these, you know, and, and every now and then something pops in here and you're like, wow, that's a surprise. Like, I wouldn't have expected that.

• 18:22Speaker 02

  Um, and, and so we'll go pay attention to those, but, you know, from our perspective, this is just one of the things you would want to look at, right? We, we'll go look at, you know, um, what are developers actually doing? Um, you know, uh, is the tech real? Is it, is it real projects or is it a bunch of copy paste code from some other ecosystem? And it's, you know, not really people that are pushing the boundaries of what's possible. Are they actually taking advantage of what's possible natively on that chain? Because a lot of these, a lot of these layer ones make technical trade-offs about, you know, like the reason they exist is they're saying, hey, look, Ethereum is not so great for certain use cases. And we're going to make a bunch of technical trade-offs at the layer one so that we can build new kinds of stuff. And then the question is, well, are, are developers actually going and building those new kinds of things? What is the caliber of those teams? Are they going to stick around? Um, are they good enough to, uh, attract independent funding, right?

• 19:05Speaker 02

  Or, or, um, is it a bunch of, you know, sort of copy paste, uh, you know, kind of code? And, and once the, you know, if we're like in a bear market now, if the bear market comes, do all these people leave? There's a lot of other stuff you have to consider before you just sort of go, go buy things that are, that are fast growing here. But it is a signal that, that we can consider to say, hey, is, is something happening here? And are there any surprises? And we should go pay attention. Um, because this, uh, like I said, this is to us really early signal that real value is going to get created, right? Like, because price may not track, I mean, we've seen that in crypto, right? It's like price may not actually track with real value creation. And so if you want to build something durable, right? Like, think back to 2017, think about the number of things that were in the top 10 or the top 20 that aren't even around anymore. Um, and so if you want to build something that's going to be around for 10, 20, 30 years,

• 19:50Speaker 02

  um, this is sort of one of the signals we want to look at. So, yeah, we'll, we'll take it pretty seriously. We'll go, you know, there, there were a couple in here that were surprised to us and we'll go, we'll go poke around with them.

• 19:58Anthony Pompliano?

  Are you comfortable identifying like one that was surprising and kind of like when you started to dig into it in terms of maybe not like what was the things that drove the surprise, but like when you look at it as something like this, is it more so you're saying, okay, I expect the people who have the fastest growth development kind of ecosystems to be things that people are talking about. And then therefore there was things that people weren't talking about. Or like, I guess like what drove the surprise, if you will, to something that's in the list that maybe you didn't expect?

• 20:24Speaker 02

  We're lucky in that we see a lot of the deal flow in the space at electric. The thing though now is the space has gotten so big, we can't possibly see everything. And so what we're starting to see is sort of like regional network effects and regional pockets. And so there are just certain places and communities where certain projects end up being much more popular. And so as a result of that, we don't see everything that's happening in those ecosystems. And so, you know, a lot of, and this is why I think the report is really useful for us internally is, you know, like VC is a really anecdotal driven kind of business, right? Like you, you get the, the info that you get, you talk to the founders that you talk to, and you have all these, you know, sort of, you have like qualitative data. And by putting some numbers against it, you can say, wait a second, does that match what I'm seeing qualitatively? Does that match the stories? Does that, does that

• 21:07Speaker 02

  match like what the founders are telling me? Does that match what I see day to day in my email? And so, you know, some of these have, have really interesting regional network effects. And let's, let's, you know, take something like Polygon has, you know, an amazing ecosystem in India. I think somebody told me, somebody, somebody who's been to a bunch of these conferences recently told me that their conference in India was, was, you know, bigger than the Solana conference in Portugal. And like, there's a real ecosystem that's forming around Polygon in India. We're not on the ground in India, right? So we just, we don't experience that firsthand. And so seeing them pop up on the chart, it wasn't a surprise. I mean, everybody's talking about Polygon and they have tremendous reach online. But that's a good example where you're like, oh, that's interesting that there's like data to back up what, what we're hearing from people on the ground. Or Harmony is another good example, right? People talk about it, but, but, you know, would you have

• 21:51Speaker 02

  guessed that that would necessarily be one of the ones in the top 10? Maybe not. If you aren't super plugged into that ecosystem. And so it's sort of, it's a way for us to try to account for some of our biases, basically, right? Because we, we see who we see and we, we talk to who we talk to. And this sort of lets us account for some of that just natural bias that Exists in venture capital.

• 22:08Anthony Pompliano?

  Yeah, so the the second very surprising thing to me was you had a chart that showed that there was essentially five different ecosystems that were growing faster than Ethereum did at this point in their kind of maturity. So Polkadot, Solana, Near, BSC, Avalanche, and Terra. So I guess six of them. And what you really try to do here is not to say, hey, who's growing the fastest at this moment? It's based on inception to today, kind of days, you know, since inception, who's growing the fastest? And all of these were growing faster. Now, how much of this is dependent on kind of like, you know, mobile benefited from the creation of the internet, crypto's benefiting from internet penetration, and like you kind of sequentially need it versus you can read something

• 22:50Anthony Pompliano?

  more into it than just, no, Ethereum was first, brought a bunch of people in, and now those people are kind of spreading out across these ecosystems?

• 22:56Speaker 02

  Yeah, I think, you know, the internet and mobile, I think is a really good one. So I think there's there's two, there are two big takeaways for me here. So one is there, there was this window, you know, starting, a lot of these projects were sort of, you know, the inception of them was like 2017, 2018, and then they launched kind of like 2020, you know, 2019, 2020. And what you see here, I think, is that there was a window of time where a lot of people were coming in and saying, well, maybe I want to make different technical trade-offs, or maybe I want to, you know, build on a certain different chain because of the geography that I'm in, or whatever reason. And so these ecosystems have been able to bootstrap, you know, faster than Ethereum, and kind of back to your earlier point, where you're talking about exponential growth. You know, you play this forward, and you know, if you were two years into Ethereum,

• 23:38Speaker 02

  if you were in 2017, and you saw the Ethereum numbers, you might look at it and say, ah, maybe this thing's real, or maybe it's not. And the growth rate kept continuing, and we have, you know, what Ethereum is today, which is remarkable. And so in some sense, it's a way to quantify this intuition of like, well, if this growth continues, where could they be in a few years? And what would that feel like, right? And and you might, you might look at this chart, and you might say, well, you know, a lot of these things feel like they might be as big as Ethereum one day, right? Like, that's kind of the trajectory that they're on. They feel today like Ethereum felt, you know, three years ago, which is, which is an amazing thing, right? That there are actually going to be, potentially be, multiple ecosystems that that could be that meaningful. Because I consider Ethereum a meaningful ecosystem at this point, right? If you just look at the amount of innovation that's happening.

• 24:19Speaker 02

  The second takeaway for me is it is so impressive that Ethereum was able to do this without Ethereum, right? Like a lot of these ecosystems are able to bootstrap off of Ethereum, like you were saying about mobile and the internet. So a lot of these guys are able to bootstrap because Ethereum exists, right? Like BSC, you can, you can port a bunch of code over, for example. And so, you know, Ethereum sort of paved the way in a lot of, in a lot of ways here. And so for me, it's actually, it's very, very impressive that Ethereum not only was able to have this growth, but able to sustain this growth in an era where actually, not only was there no Ethereum to bootstrap off of, but the, the absolute number of developers in the space was way smaller too, right? Because the Y-axis here is number of developers. And so, you know, Ethereum was able to do this in a market size that was much, much, much smaller three, four years ago. So it's, to me, is remarkable

• 25:03Speaker 02

  that, that, and it sort of gets at, I think, how special Ethereum is too, that they were able to do this. This ecosystem was able to emerge when the whole sort of market size was so much smaller three or four years ago.

• 25:12Anthony Pompliano?

  When you look at something like this chart here, you know, one thing that jumps out to mind is the Ethereum growth looks much more parabolic than, let's say, maybe the Polkadot growth, which looks more linear, but still Polkadot ahead of where Ethereum was at this moment. Do you read in at all to kind of parabolic versus linear growth? Or is that more so just us trying to outsmart ourselves as humans and we see visualizations on a chart? Like, how important is the, the difference?

• 25:38Speaker 02

  No, I, I agree. I, so what, you know, it's, it's sort of, you know, visualizations as humans are really interesting, right? Because you kind of get these intuitions for stuff when you look at visuals and you're like, huh, that feels like it's slowing down, right? And so, yeah, I think, I think there's a lot of truth to that. I mean, you look at the BSC numbers there versus, you know, you look at, let's say, Mir and Solana, right? That blue line and that yellow line, and it kind of feels like they're still sort of inflecting, right? It feels like they're still kind of growing up, going up this curve. And so, yeah, I think, I think there's a little bit of truth to that. And so, you know, the takeaway for me is, you're on this trajectory, can you maintain it? And it's actually very, very, very hard to maintain it. Kind of, you know, the same reason Ethereum is, or Bitcoin are no longer in the top 10 fastest growing. It's because when the numbers

• 26:23Speaker 02

  get large, you know, it's harder, it's harder to grow 100% from a large base, right? It's harder to keep that compounded growth up. And so you I would actually be surprised if all of these ecosystems were able to keep up that kind of growth. And so, you know, I think looking at it and eyeballing and saying, okay, that that feels like maybe it's slowing down a little bit. Or, you know, wow, that's really accelerating or wow, that's really keeping up. I think those are those intuitions are actually really important. Especially because, you know, as a as an early stage investor, as a venture investor, so much of it is gut feel. And so looking at some of the data and saying, is it actually slowing down? It feels like it might be. I think it's actually important signal to then go poke on and prod on, right? It's like, why? Why might that be the case? Is it because fewer people are coming in? Is it because people are churning out? Is it? No, what's going on?

• 27:05Speaker 02

  So it prompts a bunch of questions too. But yeah, I think, yeah, your read of the data, I think, is basically right. And my takeaway is like, it'll be really interesting when we do this again in a year to see which of these things actually maintain that growth. Especially, you know, if we enter another bear market, I think that's where rubber meets road, right? It's like, can you actually retain these people and do they stick around in your ecosystem? And do you continue to grow if the prices go down?

• 27:26Anthony Pompliano?

  So I've got one more question and then my brother probably have a couple of questions for you. When I think about price and maybe developer growth in an ecosystem, one of the things that I don't yet have an answer for, but but seems, again, kind of intuition wise, is that, let's take price as an example, there's this like price tracking network effect, right? So kind of Bitcoin followed a certain trajectory. It feels like Ethereum has followed a similar trajectory, but is, you know, just a couple of years behind or a couple of orders of magnitude smaller. It feels like Solana appears to again kind of be tracking. And so, you know, some of this isn't, doesn't have to be a direct science, but it's like, are we literally watching price over long periods of time? Just simply pricing network effect. We've never had that before and now we get to kind of track it.

• 28:09Anthony Pompliano?

  When I see these charts, especially the parabolic ones, it feels like maybe there's a little bit of truth to that as well as like, does this kind of what we should expect if a true network effect takes hold for developer ecosystem? Is like they should all follow along that same kind of parabolic growth? Like, have you guys thought about that? Is there a way, frankly, to maybe even like scientifically actually measure this rather than just, you know, me pontificate with a bunch of bullshit, frankly, and and and trying to convince myself that I know something that other people haven't figured out yet? Like, how do you think about it?

• 28:39Speaker 02

  You're kind of, uh, there's, there's this old school like, uh, information network theory thing called Net Cap law that people always reference, which is like, you know, what is, what is the value? Can you quantify the value of the network? And we played around with a bunch of that stuff and, and it, I mean, you can kind of fit, you can fit a bunch of stuff to the data and you can kind of say like, yeah, price seems to follow some network effect. Um, the problem is you're kind of, you're generally overfitting the data. It's like, it ends up being pretty hard to use that as like a predictive signal. And I think it's because, um, uh, you know, maybe one way to put it is like on the long term time horizon, that, that, that seems to be the case, that like if you have a real network effect, the market says there's value being created here. Like as a side effect of the network effect, people are, are coming in and creating real value. And so there is some relationship there.

• 29:21Speaker 02

  Turning it into like a, a formulaic thing has, has historically been really, really hard because there are all of these other factors at play too. So take, um, you know, I think if you, if you look at, uh, that chart, for example, um, uh, you know, uh, people, I think, you know, Solana has had an amazing, amazing explosion in, in their developer ecosystem. And the market sort of has observed that and sort of, you know, priced it in a particular way. Um, but that, that price will, you know, the, the curve very well may continue. And we saw this with Ethereum, right? In 2018, 2019, 2020. The curve kind of kept going and the price went in the exact opposite direction for a while. Right? And so like other factors like sentiment or, you know, emotion or people's need for liquidity and COVID, like these other factors, I think,

• 30:03Speaker 02

  in the short term will often end up dominating, which is why from an investor perspective, I think there is really interesting opportunity, right? Because in some sense, tho- those are like irrational drivers. And the rational drivers are like, well, are there real people here building real stuff, creating real value? Um, and if there are, then, then like in the long term, these things should roughly, roughly track. Um, but in the short term, they're, they'll definitely diverge. And so, uh, you know, it ends up being really tough in the short term to say, oh, the network effects are real. You know, like, can I price this thing fairly? It's, I think it's one of the hardest things in, in, um, In the crypto space and in venture in general is like, what is the fair price of a thing, right? So take something like Stripe at the Series A. Like, if you could invest in Stripe and it had crazy growth, is that Series A investment at the time of investment worth 20

• 30:48Speaker 02

  million, 40 million, 60 million, 100 million, 200 million? Like, at what price do you say no? And there isn't actually a fair market value, right? It's what you're actually doing is you're saying, if this growth continues, then 10 years from now, this company might be really, really valuable. And therefore, I'm willing to pay a certain amount today, right? So the sort of like network effect price thing in the short term, I think, is not that tightly coupled. But in the long term, I think they do tend to correlate.

• 31:11Anthony Pompliano?

  Joe, John, what questions you guys got? Hey, Vishal, thanks for coming on. I appreciate it. My question would be around like the quality of the developers. Obviously, we have some great statistics here in the in the report you guys put together about the total quantity of people coming on the network. And one of the things I thought was fascinating was just the idea of like, the run up we saw in the 2017, 2018 bull market, when the price declined, we still saw it pretty even out, even out pretty flat there. And then we've seen, obviously, an increase over the last year. But on a total basis, it's obviously impressive and important. But how do you how and if it's possible, maybe it's not, how do you determine the quality of these developers, right? Are they building legitimate things like you mentioned before? Or is it just kind of a total number that you guys are looking at?

• 31:47Speaker 02

  Yeah, it's a really, really good question. We actually, in our report, I would say last year or two years ago, we actually tried to like quantify this. It's like, is there a measure of like, how good, how good is the code commit? So it turns out, just it's a really, really hard problem. So I'll give you two examples, right? So you're like a naive thing to do, like as a first pass, you might say, oh, well, we'll just look at the number of lines of code, right? And and maybe that's a proxy for like, how hard it was, or how important that committed. And it turns out, that's like, that's not a great proxy, because you can write a bunch of fluff code. Or, you know, like, the counter example to it is, there might be some really, really important cryptography that are that a, you know, a bunch of PhDs thought about for years. And they productionized. And when you look at the code, it's 10 lines of code, right? It's 15 lines of code. It's like, you know, the 15 years that it took to make that thing work is somehow hidden in the lines

• 32:32Speaker 02

  of code. And so it turns out, like, measuring code quality here, I think, is actually really, really hard. I don't think we have a great way to do that. We thought about ways to do it around, like, you know, Is there like, um, is there, is there like a pay drink for people, right? Like, could you say like this developer consistently, um, you know, has, uh, has commits that are looked at by these other people or they're copied by these other people. And so we're trying to play with it a little bit. Um, and we haven't, we haven't found a good way, honestly. And so, yeah, right now this is just measuring total number of developers. It's not measuring like quality of code or depth of code, or how complex, or how important that code is. It's, it's, it's, um, it's a pretty high level measure in that way. I mean, if you, if you have any ideas or if anybody else has ideas on how we might actually measure like real

• 33:14Speaker 02

  quality of the commitments here, I, I think that would be actually a pretty meaningful way to look at this data.

• 33:18Anthony Pompliano?

  Gotcha. Yeah. I mean, that was my first impression was that that's gotta be something that's difficult to measure in a quantifiable way.

• 33:23Speaker 02

  Yeah. Yeah. Yeah, it's tough.

• 33:25Anthony Pompliano?

  John, what do you got? So the growth of developers has obviously been exponential in like the last year or so. But how going forward do you convince more software engineers globally to kind of get involved in this space?

• 33:37Speaker 02

  Well, in some sense, hopefully the, the market just kind of does it, right? Like people, uh, people look at it and say, there's something interesting happening here. I think, um, in my experience, I think we're seeing kind of, uh, two, two or three types of people come in. Like I, I can tell you personally, I've never seen this many people who are either really early in their careers. You're talking like college kids, people dropping out of college or really late in their careers. Like they've been extremely successful. They're a director, VP level at, at top tech companies, um, all coming in and saying, um, hey, is this stuff real? How do I get up to speed? Like I get at least one inbound a day from a very senior person.

• 34:16Speaker 02

  Um, literally for the last week, I've talked to seven to 10 people that are like director and VP level at, at top tech companies, trying to figure out how to get in. I mean, I'm in a WhatsApp group with about 20, 20, 25 of these people. Um, and so I think the real way to pull people in is, is philosophical. And I think there's, there's a sense now that, um, we've kind of gone up the S curve on the internet on web two, you know, like, are you really going to see the kind of growth that we saw over the last 10 to 15 years with mobile and the internet and SaaS? Are you really going to see that kind of growth going forward? And so I think in some sense, a lot of people are saying, well, where is the next high growth thing, right? Because growth is fun. Growth is interesting, like growth produces all these unsolved problems and and just as a smart, hardworking person, that's kind of you want to be in the middle of that.

• 35:00Speaker 02

  So I think part of it is going to be just that. This is where the growth is and and sort of growth, you know, will bring in a lot of people. The other is, I think, this realization that um in part because we've gone up the S curve with these internet companies. I think people are looking at the way that that played out and saying, well, that's different than what I thought would happen. Right? Like, these companies ended up with so much more power and so much more money um than anybody expected, and that has a lot of downstream consequences. And so. You know, I think politicians, and this this touches on a bunch of the macro stuff we could talk about at some point, right? Like, it it we have, we have like real. Problems in society that we need to think through, right? Wealth inequality is a problem. Concentration of power is a problem. Like, how does democracy actually work is a problem? Um, and we need to solve these problems. We need to like reimagine all these institutions.

• 35:44Speaker 02

  Zooming out for a second, right? All these institutions we created after World War Two, right? People always talk about like on the monetary side, Bretton Woods and. And the precursors to Bitcoin and how Satoshi thought about this stuff, and I think that's all true. But in the same way that we've lost trust in the banks, uh and Satoshi, you know, very well noted in the first Bitcoin block. Um, I think we've lost trust in all these other institutions. And so there's these bigger macro problems. How do we like reimagine these? These institutions in society. And so what's happening is everybody's taking the tools at their disposal. And the people who are well intentioned are saying, well, how do I contribute? Like, how do I fix these things? And so if you're a policymaker. You might say, you know what? Maybe I should pass some laws that try to fix this. Um, you know, if you're if you're uh an activist around, I don't know, police reform, you're trying to say, okay, like, let's let's. Figure out how to fix, you know, police departments and make these things function the way we thought they should function.

• 36:30Speaker 02

  And if you're a software engineer, you're looking at it, you're saying, okay, well, what can I do? And I think there's a lot of people that are saying, you know what? I don't like this concentration of power. I don't I don't want it to be that ten companies have a million employees. Um, and they control the world. And so how do I fix it? And and they naturally are coming into Web three and saying, oh, maybe this is the way that you fix some of these problems. Um, and I think that philosophical tailwind, I've seen it personally, I think probably in the last twelve to eighteen months, like something feels like it really tipped. Where all these really great people are saying, uh, we need to do something about some of these problems, and maybe this is the way to do it. Um, and what I like about that is I think those people being philosophical and motivated. Means they'll stick around. Right? This it's not for a lot of these people, you know, there I think there was a moment 2017 to 2020, there were like real money grabs from a lot of people and cash grabs.

• 37:12Speaker 02

  Obviously, speculation is going to be a part of crypto and any high growth market. That's just inevitable. But the number of people that I see coming in that are like philosophically motivated because they they're seeing all these problems in society and they're like, I want to do something about it. Like, how do I fix this? And I have some skills and I have some tools at my disposal. Let me use those. That, to me, is the most optimistic thing. And I think that's how you'll actually get the next, you know, like the next 10,000 people that actually stick around, the next 20,000 people that stick around, I think are going to come through that lens. I agree.

• 37:37Anthony Pompliano?

  Avichal, last question for you, then we'll let you go. When you think about some of these developer ecosystems, there's various languages, there's various kind of learning curves. So once somebody says, hey, I want to learn this, I want to participate. Do you think that there will have to be some sort of uniformity? Or kind of coalescing around certain languages or certain types of standards or infrastructure? Like, how do you think about kind of fragmentation across these and people, basically, if I want to switch from one ecosystem to another, sometimes I have to learn a whole other language or get up to speed versus that's actually a benefit, maybe in terms of really locking people into a certain ecosystem? Like, any thoughts there?

• 38:15Speaker 02

  Yeah, I suspect it's going to be more of the latter. So like, if you look at Solana, I think they took a really opinionated position by saying it has to be Rust. But their developer experience is really good. Like, if you look at the onboarding experience into something like Solana, I think they've done a great job. I think the Near guys have also done an excellent job in the onboarding on the developer experience. It's quite good. But I think by taking an opinionated position, I think what you do is you you really, you create a little bit of an upfront barrier, but the people that get through are much more likely to be retained. So I think there's kind of this like web two analogy of like, if you have a leaky bucket, right? Top of funnel growth is not the thing that you really care about. What you care about is, you know, bottom of funnel retention. And I think by having an opinionated position about, you know, how you create code for the ecosystem, you end up with more retention.

• 38:55Speaker 02

  And I think there's an analogy here, too, with if you look back at sort of cross-platform kind of stuff from the past, you know, think about mobile, you know, build once, deploy in multiple places, generally didn't work, right? Like, the right way to do it was to build native leave for the platform and really take advantage of the platform and what it lets you do. So I suspect you're going to get a similar thing here, where you're really going to want to build your application with the constraints of the layer one and the platform in mind. I do think, though, what's happened is you have the ability to write code in multiple languages and have it compiled down, right? You can write it on EVM, you have Wasm compatibility, like you have tooling and tool chains now that make it a little easier to get onboarded. And so I think like the programming language will matter a little bit less, but I think

• 39:37Speaker 02

  the opinionated nature of no, no, no, like the right way to write code is this, and these are the trade-offs that we make. And here are the kinds of things that our chain is really good for. Those kinds of, I think, opinionated positions, which means like you can't just take your code from here and go paste it, you know, into another ecosystem and it'll just work. I think actually that is where you'll get like a real moat around these and a real network effect around some of these layer ones. It's like being really, really opinionated about what you do and why you do it and how you do it. I think will actually create some serious moats.

• 40:03Anthony Pompliano?

  Makes sense. Awesome. And where can we send people to either find you on the internet or learn more about Electric and what you guys are doing there?

• 40:11Speaker 02

  Yeah, Twitter is pretty good. At Avichel, at Electric Capital. We're at ElectricCapital.com. So yeah, you can find us. We're pretty easy to find online.

• 40:18Anthony Pompliano?

  The @Avichel is, that's the ultimate power move on Twitter. First name or whatever, right? When did you join? 2008? Yeah, there you go. You were all over it, which...

• 40:28Speaker 02

  Yeah, there weren't a lot of Avichels online back then. For years, I thought my parents made that name up. And then like when the internet happened, I was like, oh, there's more Avichal in the world. For years, I thought it was a made up name.

• 40:38Anthony Pompliano?

  It's all right. Those are the best names, right? I always laugh. I just had a daughter, and so we went through the naming exercise. And the only advice that my father gave me was, listen, you can pick a unique name, you can pick a common name. The only thing that you can't do is do not pick a name that sets your kid back from the starting line to start, right? And he gave me some examples of, you know, people that the equivalent would be like Jackass, right? Like, don't do that to your kid. Maybe a Northwest probably, you know, might not be helpful. So it's, I think that our parents all have reasons for our names and we love them for it, right?

• 41:15Speaker 02

  That's right.

• 41:16Anthony Pompliano?

  Awesome, man. All right, listen, thank you so much for taking the time to do this. The report is fantastic. Anyone who has not read it yet, highly, highly, highly suggest going and reading it. And I think part of what I'm getting from you guys as well is like when I read through it, some of it's not even like necessarily actionable. It's not you're going to change what you're doing, but understanding how these ecosystems are developing is interesting. And then there was a lot of surprises, right? And those surprises may help you think more critically about certain parts of the ecosystem, etc. And some of the best advice I ever got as an investor was just follow the talent. You know, where's the talent going? Go follow that. And that tends to be a pretty good heuristic for investing. So I appreciate you guys putting all the time, energy into creating it.

• 41:56Speaker 02

  Good to see you. Thanks for having me.

• 41:57Anthony Pompliano?

  All right, buddy. Sounds good. See you later.

• 41:59Speaker 01

  Thanks, Avichal.