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Alex Lin | Head of Research at Shima Capital | Market Outlook and New Developments | EP #67

1 hours 3 minutes 47 seconds

Speaker 1

00:00:00 - 00:00:17

Yeah, I couldn't be more bullish. Honestly, if I didn't look at the prices, if I didn't look at our market cap, I would say, you know, we're back in 2020. We're back in early 2022. It was really phenomenal. And I think, you know, several trends like 0 knowledge, super, super hot topic, everything from privacy to scaling to a number of really unique use cases.

Speaker 1

00:00:17 - 00:00:38

Discourse around infrastructure, the EVM, in my opinion, focuses a lot on infra, so on application layer protocols. And I think that that was kind of visible and present. That said, there was discourse on count abstraction, wallets, on ramps, whatnot. I think it was just a good preface, in my opinion, to what's to come. I think all of these protocols have really robust roadmaps that they're trying to fulfill over the next few years.

Speaker 1

00:00:38 - 00:00:54

And I think it's just really exciting. But it was a good reminder that, you know, things are still early. Early can kind of mean different things, but I would say maybe immature. And there's a long way to go, but super promising with respect to the types of people that are building these protocols, as well as kind of what they're envisioning.

Speaker 2

00:00:58 - 00:01:10

Well, I'm super excited today to be joined by Alex from Shima Capital, who leads their head of research. Alex and I have been chatting a little bit and I think this is going to be a great conversation.

Speaker 1

00:01:11 - 00:01:22

Awesome. Everyone, thanks so much for having me. Super excited to be here. I have obviously been a huge fan and viewer of the pod, so good to be on the other side.

Speaker 2

00:01:23 - 00:01:39

I appreciate the kind words. Well, I would love to start a little bit about your background. I always try to start the podcast with a little bit of context on who you are, how you got involved in the crypto world. So if you could give a quick spiel, that'd be great to kick it off.

Speaker 1

00:01:40 - 00:02:08

Sure. So I guess Kind of starting from the beginning with undergrad, I studied applied math, computer science and economics at the Virginia Military Institute. I didn't end up commissioning for a number of reasons, which I'll explain. In a moment, but through through my work. I had a professor who 1st, kind of introduced me to.

Speaker 1

00:02:08 - 00:02:43

Photography and a number of just base crypto systems in my degree. And I remember thinking to myself, this stuff's really cool. It was like, ranging from like Grosvenor basis concepts to obviously like the different encryption themes that we now see today. And so I was kind of along the educational path of picking up what's kind of going on within the space. But indirectly, I actually also was super into RuneScape growing up.

Speaker 1

00:02:45 - 00:03:17

And I had sold a few accounts and was running a bot farm in college to people around the world. And I had a few buyers of my accounts, And I played legitimately, I wasn't just a bot. But I had a few buyers that purchased my accounts using Bitcoin for a number of reasons. You know, they didn't want to use PayPal or they couldn't access PayPal. And I remember it was very degenerate back then.

Speaker 1

00:03:17 - 00:03:44

It was like using, I guess, degenerate in the word that we use today, in the sense that I was using like encrypted emails to communicate. Like I was experiencing pseudonymity pretty early on, and I was receiving Bitcoin. And Bitcoin, I think it was like 20 bucks at the time. So that was like my first foray into the space. Didn't really think much of it, read the white paper and was like kind of connecting the dots with the schoolwork that I had.

Speaker 1

00:03:45 - 00:04:10

Fast forward to 2014. So this was back in 2012. Fast forward to 2014, I was an intern at Dell. And Dell had just started a partnership with Coinbase Commerce that summer when I was an intern. And they essentially were accepting Bitcoin for the purchase of their products.

Speaker 1

00:04:11 - 00:04:49

Monitor, computers, mouse, etc. And I remember thinking, Oh, I have, I have some of this stuff or what remained from, you know, the Mount Gox hack and I'll just, you know, use this to purchase some items. And this is kind of a sign that things are going mainstream in my mind. Uh, it wasn't as bad as like the crypto or like the Bitcoin pizza purchase, but still, still hurts if I calculated out today. Um, and so, and so that's kind of the second part of my, wow, things are kind of getting more serious time to dig a bit deeper And then, you know, I have these different kind of phases in my life.

Speaker 1

00:04:49 - 00:05:15

I ended up going into consulting right after undergrad. I didn't go into, you know, the space full-time or anything. At Deloitte, when I was in S&O, Strategy and Operations, I tried to join the blockchain group in SF. It was more so private blockchains at the time. I think a lot of the big 4 consulting auditing firms were addressing kind of the hyperledgers of the world, trying to figure out what private blockchains and what they were and how could it change supply chain, for instance.

Speaker 1

00:05:16 - 00:06:17

And obviously IBM leading that kind of initiative. And then I ended up getting rejected from that opportunity just for a number of bureaucratic reasons, large consulting firm stuff, and then essentially removed myself from corporate opportunities with respect to blockchain, but kind of kept up with it over the years, 2017, 2018, so on and so forth until finally in 2020, summer, I guess, you know, DeFi summer, a number of other things kind of told me, hey, like you should probably consider getting into this full time. During that time span, I was an engineer, PM, and founder at several Web2 companies. I worked at Teed's AdTech, which was acquired in 2017, and then an enterprise SaaS company called Concertive, which was majority acquired in 2020, a long our capital PE firm. And then I decided to go back to grad school to kind of focus specifically within crypto and studied computer engineering and got a technical MBA from Cornell, where strategically it was twofold, right?

Speaker 1

00:06:17 - 00:07:02

I wanted to get into crypto full-time and I wanted to become an investor after being an operator for many years. And really I started tweeting. I think a lot of people realize how the power of crypto Twitter at the time during the bull market started tweeting, got the attention of a team called Old Fashioned Research, OFR, which is the former Binance executive team that helped bring in Axie Infinity, FTX, a number of other companies through Binance Labs. They started a fund after they left Binance and joined them as a venture partner, did a number of deals for them. And through that met the current GP of Shima capital Ida at Art Basel in 2021.

Speaker 1

00:07:02 - 00:07:12

So like peak, you know, post above $3 trillion market cap, good days of crypto. Um, and essentially joined, it

Speaker 2

00:07:13 - 00:07:14

was a wild time.

Speaker 1

00:07:14 - 00:07:23

Well, yeah. Remember or not remember, you know? And yeah, joined Shima as I finished up my last semester in grad school, and this is now 2022.

Speaker 2

00:07:25 - 00:07:43

Amazing. And maybe just give like a quick overcap and then of Shima and then dive into, I know you recently went to Eat Denver, if you could kind of recap kind of that, but if you could share a little bit more about the firm and kind of like your high-level thesis.

Speaker 1

00:07:43 - 00:08:25

Yeah, sure. So Shima Capital is an early stage, so pre-seed, seed venture fund focused exclusively within kind of the blockchain Web3 realm of investments. And We raised about $200 million mid last year, pretty sizable for early stage. But I think the way that we think about it is, we're really trying to build out a full stack firm that offers a number of different, I guess, support for our portfolio companies beyond the investment. I think as an investor, you're aware capital is abundant even in the bear market.

Speaker 1

00:08:25 - 00:08:56

Record number of capital is raised by firms to invest in the space. And so you really have to differentiate yourself in a number of ways. And so the way that we thought about it was, we're going to kind of focus on 4 core areas beyond the capital, which is we marketing. So really focusing on amplifying the narratives of our portfolio companies. We have a talent team to help recruit, you know, I would say beyond monetary capital, the most important capital is humans, human capital and what they bring to the space.

Speaker 1

00:08:56 - 00:09:28

And so helping our portfolio companies hire the right people. We do a lot of business development work, everything from table stakes of introductions and business development to strategic partnerships to just ensuring that our portfolio companies meet and get access to the right entities. And then lastly, technical advisory. So we have a very technical operator driven team. And I brought, I mentioned my background, a number of other investors on the team have previous operating experience.

Speaker 1

00:09:29 - 00:09:55

And We provide a number of services from like technical advisory of architecture, design, token design, product development, to help kind of get our projects from 0 to 1. Right. Awesome. We focus on a number of areas where general is fun within the space. So DeFi infrastructure, middleware, to gaming, very heavy on gaming, NFTs, metaverse, so on and so forth, and kind of everything in between.

Speaker 1

00:09:55 - 00:10:02

And that also kind of goes to the tech stack, right? So application layer protocols all the way down to network layer.

Speaker 2

00:10:03 - 00:10:21

Well, we'll definitely get into some of those specific names, but as a participant in the recent events at Eat Denver, I'd love for you to kind of like recap some of the big themes that you saw while attending at Eat Denver and kind of overall market sentiment?

Speaker 1

00:10:23 - 00:10:57

Yeah, the, I mean, it was incredible. The amount of people that came out, I think the record number kind of ranged between 25, 000 to 35, 000 people. I arrived a few days earlier than from kind of the main event because there are a lot of side events from like Hacker Houses to the Interop Summit, which was sponsored by Axel Art. That was an incredible two-day event focused on cross-chain interoperability. And then there was like WallyCon, which was like a one-day event.

Speaker 1

00:10:57 - 00:11:35

So there were a lot of kind of tertiary events in addition to the main event, which I think really boosted the attendance and really boosted just general overall positive sentiment, right? So across all of the different side events, you know, builders are building. Really good discourse among founders across, you know, the different protocols and organizations within each vertical. And yeah, I couldn't be more bullish, honestly, if I didn't look at the prices, if I didn't look at our market cap, I would say, you know, we're back in 2020, we're back in, or I guess 2021, 2022, early 2022. And so it was really phenomenal.

Speaker 1

00:11:35 - 00:12:11

And I think several trends are kind of being rotated maybe a bit too much or discussed too much as like 0 knowledge, just a super, super hot topic. Everything from privacy to scaling to a number of really unique use cases, which I think we'll touch on a little bit later. A lot of kind of discussions and discourse around infrastructure. I think that the EVM, in my opinion, focuses a lot on infra, less so on application layer protocols. And I think that that was kind of visible and present.

Speaker 1

00:12:12 - 00:12:43

That said, there was, you know, discourse on count abstraction, wallets, on ramps, whatnot. So I think it was a very, I would say, comprehensive and well-rounded ETH Denver. So everything was pretty much touched on, but if I had to, I guess, extract a few things, big focus on interoperability, big focus on use cases from like kind of a web 2.5 on ramping wallet access perspective and then 0 knowledge.

Speaker 2

00:12:43 - 00:13:01

Nice. Maybe if we could just touch upon those 3 then. On the interoperability side, what were some of your biggest takeaways from the conference and just what people were specifically excited about from the interoperability point of view?

Speaker 1

00:13:02 - 00:14:01

Yeah, so interoperability is a very catch-all term, as is with, I guess, CKs and a number of other themes. I would say there's a lot of attention kind of with respect to EVM, you know, on like the Shanghai update coming up and the shared security around that, what it means for liquid staking and protocols like Eigen layer and Babylon chain with leveraging staked assets to improve the security of other middleware infrastructure protocols. And so I think that that was a very common theme and I think that that's really exciting, but also just realizing how early it is. If we just think about interoperability cross-chain at its kind of core idea of bridging different protocols, right? Layer 1 protocols, layer twos as well, layer 0, Axelar, Orblabs, Hyperlane, right?

Speaker 1

00:14:01 - 00:14:28

So a number of these different solutions are still pretty much, in my opinion, in its infancy. And you can categorize them in its infancy in different areas, right? From like the scalability to security, to really what can be built on top of these messaging protocols. And so I think it was just a good preface, in my opinion, to what's to come. I think all of these protocols have really robust roadmaps that they're trying to fulfill over the next few years.

Speaker 1

00:14:28 - 00:14:46

And I think it's just really exciting. But it was a good reminder that things are still early. Early can kind of mean different things, but I would say maybe immature. And there's a long way to go, but super promising with respect to the types of people that are building these protocols as well as kind of what they're envisioning.

Speaker 2

00:14:47 - 00:14:57

And then is this like particularly interoperability between like the middle layers or between layer twos, like, or all of the above?

Speaker 1

00:14:58 - 00:16:01

I would say all of the above. I would, you know, I think IBC is probably 1 of the most mature, I guess, examples of interoperability within the Cosmos ecosystem. And they just had like an update, I think yesterday or 2 days ago, with respect to interchain querying. And so, yeah, so I would say all of the above, but I think a lot of attention is around just like taking staked assets from 1 chain to another, and it's not, and it has been less so, you know, around, so like Babylon Chain, for instance, taking SACE Bitcoin and leveraging that to enhance the security on Cosmos or EVM, Eigen Layer to enhance security within EVM, So on and so forth. So, there's that aspect, but then you have your typical, you know, XLR or layer 0, the applications being built on top, for instance, like a Cedro Finance, who's building out a lending borrowing protocol, to that's like native.

Speaker 1

00:16:01 - 00:16:15

So you're not using any wrapped assets, unlike say for instance Aave's portal. So it's kind of like these are all developments that are happening and I would say it could mean across layer ones, it could mean across layer twos, it could mean across or within an ecosystem like Cosmos.

Speaker 2

00:16:17 - 00:16:43

Interesting, Very interesting. And then on the layer 2 front, I mean, within like 0 knowledge, obviously being a hot topic, was there a main kind of focus because layers or 0 knowledge can also be kind of a all-encompassing term. Was it more focused on privacy or like strictly kind of viewed through the lens of scalability? How were people thinking about it?

Speaker 1

00:16:44 - 00:17:37

Yeah, so I saw an interesting dichotomy occurring between attendees and builders. A lot of the builders were looking at and leveraging 0 knowledge for use cases more focused on the application layer side. So I met some great founders, or excuse me, builders at like the 1KX to Lindum Hacker House that was focused on building a ZK wallet. Also, there was a project building out like a ZK Oracle that enhances kind of real-world assets, bridging on the chain, and which would enable a lot of applications to kind of be built on top of that. Whereas a lot of the discourse at like ZK Day, for instance, in the discussions I had with people kind of walking around, it was very much around scaling, very much around privacy and kind of the consistent themes that we've seen with ZK over the last few years.

Speaker 1

00:17:39 - 00:18:06

So I think that bifurcation is starting to happen, which I think is very healthy, right? Because On the builder side, we need more application layer protocols. And I think from a scaling perspective, there are a number of advancements that really need to be battle tested by applications. And so, I'm very bullish on kind of the headspace that builders are kind of going through with respect to focusing more on applications when it comes to zk use cases.

Speaker 2

00:18:07 - 00:18:28

Yeah, I think we'll probably maybe dive a little bit more into like layer twos down the line but on the last note that you kind of touched upon like as a main theme was like the wallet space and account abstraction. How do you feel like that is going to kind of shift the momentum like in the Ethereum ecosystem?

Speaker 1

00:18:31 - 00:19:10

Yeah, I think it's such an important topic. That honestly, even with more attention being put on it. It's still not enough in my opinion, and I believe there was an account of traction update. That happened during the week, and I haven't I haven't even been able to catch up on it and I remember seeing a tweet that was highlighting, you know, account abstraction happened and no one's talking about it because everyone's at Denver or whatever. But it's, I've always had kind of a problem with the, how we've addressed wallets and how we've addressed on ramps.

Speaker 1

00:19:10 - 00:20:03

I think it was a necessary evil to kind of get to the point that we are today. But I've been, you know, I've been pretty vocal about, you know, for instance, on the EOA side, how MetaMask, like the best thing that could probably happen to the space is if MetaMask were acquired by like a more product or first principle product company, like an Apple, for instance. And people are like, wait, what? Yeah. But, you know, I think before the podcast, we were talking about this distribution is something that MetaMask was able to achieve something that no other wallet to this day, even, you know, while it's that have exceptional user experience and user flows such as Phantom, Backpack, et cetera, on the Solana side, that they just haven't been able to reach, you know, I think 10 million plus, 11 million MAUs on the Metamask side.

Speaker 1

00:20:03 - 00:21:01

And all that really needs to happen, and I'm obviously generalizing, but all that really needs to happen is this focus on ensuring that, you know, users have safety, have security, and have really good access to different application layer protocols that I think a lot of the work that has been done thus far has been ignoring. And so I think we're kind of bringing up this MPC, multi-sig, a kind of traction conversation because nothing has happened yet. And we're kind of thinking of different ways that we can enhance that experience. But I would say, you know, the conversations at the conference kind of reflect a lot of what I'm saying now. And hopefully very soon, some of these things will be realized, but still kind of in its infancy and hopefully we can speed that process up a bit more.

Speaker 2

00:21:01 - 00:21:44

Yeah, yeah. Now I'm definitely interested to see how it all plays out. I think the fact, I mean, the industry is getting mature, more mature, but I would still argue it's very, very early in terms of like user adoption and just general adoption on chain. So to that kind of point, I mean, Ethereum ecosystem, I mean, at the moment kind of undisputed as like the king of like where things are happening. But how are you personally like thinking about other various ecosystems, whether it's layer ones or layer twos and like kind of the scaling roadmap that some of these different ecosystems are taking?

Speaker 1

00:21:47 - 00:22:11

Yeah, I think it's really hard to say, right? We constantly ask, why does there need to be another layer 2? What does there need to be another layer 1? I think when it comes to just the actual development of these protocols and you kind of break down the stack, it makes sense. But it obviously comes at a cost, right, for the end user and for our industry as a whole.

Speaker 1

00:22:11 - 00:23:01

But I think it is necessary. And so what do I mean by that? For me, I think that if you kind of break down the stack, right, from consensus to the network protocol to the data availability that you choose, settlement, execution, right, all the different components, the node software, the client, there are incremental innovations happening at each part. And the combinatorics of those like innovations exceed the number of protocols that we see today. And so in my mind, right, the upper bound is a significantly higher number of alt L1s and L2s, which I'm not saying that there should be, but it makes sense as to why people continue trying to build out more and more.

Speaker 1

00:23:03 - 00:23:43

And so, and then when you start tacking on the community and you start tacking on kind of more of the non-technical side of things, then you even have more, you have like, you know, I guess larger design space, right, to work with. And so the current state of things, I would say, we obviously see our consistent players with Solana, Avalanche, EVM, of course. It's like Phantom making a comeback with Andre coming back. The Arbitrum, Optimism, ZK battles, between, I guess, Optimistic Proofs and ZKs. In my mind, they're all just innovating at different parts of the stack, some more than others.

Speaker 1

00:23:44 - 00:24:18

And I think it will continue to play out that way, right? I think that it's kind of like this, you know, the whole competition drives innovation race, and I'm okay with that. And I'm glad that there is a lot of conflict and discourse on, you know, Twitter and media between the 2 or between all the different players, because it really kind of breeds a good thing for the industry at the end of the day. That said, you know, I guess kind of digging a bit further and kind of double clicking on some of these areas. The question is, what is more important to focus on?

Speaker 1

00:24:19 - 00:25:15

So for instance, parallel execution is very top of mind for a lot of these protocols. Solana has done it quite well with C-level, but at the sacrifice of maybe some other issues that they've experienced and people like to call them out for the network and going down and whatever. But if we just focus on C-level, that innovation is quite important in the overall competition and I guess market landscape of what is possible, right? I would say that the idea of independent transactions, how to identify independent transactions is very difficult. And Solana, for instance, makes programs stateless, requires transactions to specify all state, and to read or write that during execution is like, is really incredible.

Speaker 1

00:25:15 - 00:25:58

And so that's why you see the record TPS that they've achieved over the last few years. SWE, for instance, MIST and labs, so they do it at the bytecode level through MOVE, smart contract language, that is object oriented. And so with kind of that functionality and that kind of difference, then you have digital assets that are represented by the built-in resource of that asset type. And so on EVM, for instance, each transaction operates on the global block state, right? But in suite, every transaction operates and provides reference to the actual objects itself, right?

Speaker 1

00:25:58 - 00:26:28

Instead of accounts. And so any object that doesn't have the same input or output can be executed in parallel. So, and I can keep going on, right? Fuel does it through UTXOs, right? Multiple inputs, multiple outputs, and in any UTXOs that aren't aligned with a previous UTXO, then you can parallelize that relationship.

Speaker 1

00:26:28 - 00:26:39

So like, it's really fascinating to see all of these developments and like, you're doing it in so many different ways and that's just 1 thing, right? Parallel execution versus everything else that I listed as a component to the stack.

Speaker 2

00:26:40 - 00:27:19

Yeah. I mean, there's kind of these big innovations, I think that going from like 0 to 1 type things. And I think going from like single threaded virtual machines to parallel virtual machine was a pretty big jump. On that front, I mean, you kind of listed off like various different ways of doing parallelization. In your point of view, is there 1 that has specific advantages that you think will, over time, as long as that community kind of gets built out, will kind of be the dominant kind of virtual machine strictly on like a technical side?

Speaker 1

00:27:21 - 00:28:09

I think it's hard to say because a lot of the stuff that I mentioned isn't truly battle tested or proven out yet, in my opinion. And like I said, on the Solana side, it comes at a cost maybe in other areas of their protocol. You know, with proof of history, you know, not being able to, you know, once it gets bloated with transactions, it could go down. And SWE, I think that SWE is really interesting because I'm not too sure how they're versioning the different objects, for instance, and the different states within those objects to allow for that kind of execution. Monad, which is a recent investment that we made, like they're improving upon the EVM, right?

Speaker 1

00:28:09 - 00:28:40

So, and they're pretty quiet about it. And so like the, how they identify the transactions and ensuring that, you know, transactions that don't need to be linear are pulled out and executed in parallel is kind of their innovation. It's all super, you know, essentially they're like moving the bottleneck from 1 process to another part of the process. And at the end of the day, it could all end up performing the same, right? Like we don't know.

Speaker 1

00:28:41 - 00:29:17

And so that's like another risk associated to kind of this method. But I think that's a hard question to answer at this point in time. But I think there are advantages conceptually that we can kind of see, right? So like on the SWE side, doing it at the smart contract language side, it allows for a lot more flexibility with like the compiler and just being, you know, super low level, there's a lot more design space. And I think there are limitations with hardware and latency of the actual blockchain that also affects what they can parallelize, depending on, you know, like for instance, fuel doing it with UTXO.

Speaker 1

00:29:17 - 00:29:25

So, so yeah, I guess I could go on and on, but I think it's, I'm giving you a non-answer that it's too hard to tell.

Speaker 2

00:29:26 - 00:30:09

Yeah. It'll definitely be interesting to see. I'm definitely, if anything, kind of a parallelization maxi. I think it's super important to have parallel virtual machines. But on that front, I think, I mean, industry is kind of bifurcating in some sense where you have these kind of like large kind of single state ecosystems where they're trying to keep everything on a single shard and then you have ecosystems like Cosmos and avalanche where they're trying to do application specific chains or either kind of migrating from an L1 to an L2 and having different L2s.

Speaker 2

00:30:09 - 00:30:28

How do you kind of see in these like different architectures from an infrastructure like standpoint, like, are there any like kind of specific ecosystems and designs that you're leaning towards? Are you kind of agnostic and just kind of like, we'll follow the builders and wherever they choose to build?

Speaker 1

00:30:29 - 00:30:50

Hmm. Yeah, I think that's, It's really interesting kind of the state that we're in. Because as an as an investor and user. Or I would say, okay, I think there are differences there. As a user, I shouldn't care.

Speaker 1

00:30:50 - 00:31:32

Right? I think we don't really kind of, we don't really acknowledge the difference between SMTP when using email versus HTTP when using the internet. And in the future, I don't think that there needs to be a distinction between the 2 or between many protocols. That said, On the investor side, I'm also looking and considering where does the value accrue to when it comes to the tokens that are involved with establishing consensus and the role it plays in generating fees. And at the end of the day, revenue for these protocols to continue running.

Speaker 1

00:31:33 - 00:31:59

And then as a technologist and operator, the idea is how do those fees affect what I'm building and the costs associated with building? How does it affect my protocol that I'm building on top? And then the customizations. So breaking down each of those, I guess I'll start from the end. I think the rollups as a service opportunity from a technologist perspective is really, really cool.

Speaker 1

00:32:00 - 00:32:44

And I think what most people don't understand, or maybe they do, but I think from my purview, you know, what people kind of have a hard time understanding and grasping is like, the limitation isn't necessarily just block space. Because if you wanted more block space as a DApp, let's just say, you know, I'm building a DeFi dApp and I just need more block space. Roll up as a service isn't necessarily just like spinning 1 up, right? Say with Caldera isn't necessarily my first option because I would probably go to a network with more block space. But then once you start incorporating a number of other features and factors, such as community, where the liquidity is, and most importantly, customizability, then it becomes a bit more attractive.

Speaker 1

00:32:44 - 00:33:09

But then some of these rollup as a services don't offer that customizations. And what do I mean by customizations? I mean, being able to pick, you know, different VMs, being able to pick different data availability, being able to pick the different proofs that I want among the VMs and then different consensus, right? And so, like Caldera, Eclipse, there are a number of these protocols that have kind of sprung up and it's very advantageous for a builder. Like I think it's fantastic.

Speaker 1

00:33:10 - 00:33:44

Now then on the investor side, if we think about where does the value accrue if these Rollups as a service offers a solution for these protocols, it still goes to the settlement layer at the end of the day, right? Because you're kind of extracting value across the different stacks, right? So Caldera is dependent on, you know, a Celestio or an Eigen, I think they're using Eigen layer. And then they're using fraud proofs and then they're settling on EVM. And it's like, I think Ethereum still gets most of that value accrual.

Speaker 1

00:33:45 - 00:34:31

I was looking at a project building a VM on Avalanche, same thing as Subnet, same thing with Cosmos. And so I think it's very important to consider that you need to have a very tightly coupled layer 1 network with the layer 2, if you wanna go that route, to ensure value accrual to the right people, entities, if you are building that network. And then lastly, as a consumer, like I said, I don't think it really matters. I think what, When it does matter to me is how does the design space and what does the opportunity of the developers and what they're kind of equipped with affect me as an end user? I think it makes a lot of sense to ensure that if developers are happy and building the right products, then the user experience and the users become happy.

Speaker 1

00:34:31 - 00:35:20

And so I think user and developer might have some parity there with respect to maybe Rollups as a Service and what customizations enable you to have might be the better or bullish thing. But I think it's important to kind of find balance across all 3 entities that play a role in the space. And I think that it'll be really interesting to see Rollups as a service kind of mature and how monolithic layer ones, right? The suites of the world, salons, etc, etc, address that and kind of deal with this kind of new, new customization. But like I said, we still don't know what part of those customizations like if the DA improvement actually makes a difference if something else fails.

Speaker 2

00:35:21 - 00:36:00

Yeah, yeah, a lot of that makes sense. I think, yeah, I always say like all these different like design decisions will work, But from the user perspective and the engineering point of view, kind of what is the most simplistic? And I think when you start to go down the different architectures, they really highlight in the real world some limitations that you just can't get around. So it definitely is a super, super interesting rabbit hole. But yeah, it is fascinating, just all the different design decisions.

Speaker 2

00:36:00 - 00:36:57

I think, I mean, that 1, I mean, the fact that we're still talking about it still kind of shows that we're still early and it's still kind of a pivotal role or role to play in the ecosystem. I think on that front though, there isn't, I mean, today we're not really constrained by block space, even on Ethereum, like block space is not being fully utilized. So it's not an issue of blockchain block space today, I think ultimately down the line, once we get adoption, it will be. But what in terms of like applications do you think need to be built? Or I mean, going back to what you're talking about initially with Shima and kind of your high level interests, like what applications do you think could bring in that user adoption or take advantage of more block space that actually bring in kind of like some real world use cases into crypto outside of number go up?

Speaker 1

00:36:58 - 00:37:29

Yeah, that I mean, that's that's the billion dollar question. Billion people question, right? We look at it in several different ways and, you know, I consistently reference Nick Grossman's piece on infrastructure application relationship. And, um, I had written about it in a blog post last year on kind of how infrastructure is a means to an end to really enable application layer protocols and drive consumer adoption. And what that really means.

Speaker 1

00:37:29 - 00:38:00

I think We are at the point where we have all of these incredible innovations happening at the infrastructure layer. We're just waiting on the right use cases. And so to me, that really comes in several different forms, but I think top of mind is gaming. I think gaming is a very interesting, kind of contentious point as well. Some people think gaming has no reason to be related to being on chain.

Speaker 1

00:38:01 - 00:38:35

I mean, in its current state, most of gaming is just NFTs, right? Being on chain, and maybe you have some derivatives of its underlying asset being leveraged token, right, on the Axie, for instance, Axie Infinity, to drive adoption and to drive user access. So we're still super, super immature there. But if you really think about the opportunity of, say, more assets, more types of games, more use cases of on-chain gaming. And it doesn't have...

Speaker 1

00:38:35 - 00:39:16

It's a spectrum, it's not binary. Like, I'm not saying first-person shooters, every action needs to be on-chain, but if you have super like hyper-casual mobile games where it might be turn-based, for instance, that can technically go on chain and the types of transactions that are being, or I guess the types of things that are being transacted at scale across all the different users playing a game can really take eat up that black space as we're talking about. So I would say gaming for sure. And some themes here. So we have a gaming team and so I'm really kind of quoting them on kind of the research and work that they've done.

Speaker 1

00:39:16 - 00:39:56

But on the gaming side, a lot of the innovations are around or what we're excited about is mobile. I think that that'll continue to proliferate across multiple generations and multiple geographies, particularly Asia. Mobile hyper-casual. So like kind of lunch, like the games that you would play at lunch, turn-based, with either deep progression systems, right, so there's an incentive to continue going down the lore of the game, even if it's hypercasual, as well as having really strong IP. So intellectual properties related to the types of lore that is associated to the game and the assets as well.

Speaker 1

00:39:56 - 00:40:42

So if you think about how much of a role or how significant of an impact anime plays in our day-to-day lives. Like anime is profoundly impactful when it comes to entertainment and media. And the IP associated to that really generates, you know, very strong retention among the user base. Like those are the types of games in the studios that we are looking to invest in and to support because I think that that has really strong kind of optimized retention mechanics. And so across all of those different areas, if we can identify games that are looking to go on chain and leverage new primitives, right, blockchain rails, then yeah, I would say block space, it's gonna be an issue, you know, finding more block space at that point.

Speaker 1

00:40:42 - 00:40:43

Yeah.

Speaker 2

00:40:44 - 00:41:44

I mean, the gaming, The gaming category or industry as a whole, kind of being built on blockchain rails, is going to be really fascinating just how it ultimately prolificates. I think now, because the industry is so small, I mean, even looking at Uniswap and OpenSea, they do a lot of volumes, but like their active addresses or like people that have ever interacted with those contracts is extremely small compared to Web 2 standards. And if you have 1 popular game that has like some cracked token incentives or on-chain mechanics, that can onboard the entirety of users and become the most popular DApp overnight. Easily, yeah. So I think from that point, the gaming, kind of similar to NFTs, and even highlighted in electric capitals, like recent report, I think it was like 80 or 83% of all first-time interactions on chain have been through NFTs.

Speaker 2

00:41:45 - 00:42:17

So to onboard people into Web3 and kind of get them out of these safe havens of, or unsafe havens of these exchanges onto kind of crypto rails, I'm super fascinated by. From the investment standpoint though, I think games are a little bit tricky. Uh, so I'm like, just in like, they're either complete winners or kind of slowly fizzle. I guess you could kind of say that same for startups though. So maybe not too, uh, too, uh, different.

Speaker 1

00:42:19 - 00:43:01

Yeah. I think, yeah, I guess just to add onto that, it's, I would treat it like any other investment opportunity and there are, you know, it's all about defining a thesis, similar to what I just mentioned with the types of studios and the types of games that you really think can take off. I would say we've largely not necessarily ignored, but we've largely Passed on a number of AAA games just due to the long build cycles. And risk becoming more difficult to hedge against. With the production of those types of games, and I think in a lot of people's minds, AAA games are still.

Speaker 1

00:43:02 - 00:43:20

Somewhat present given the last cycle, but I think we're kind of slowly moving away from that. And your point on NFTs is really fascinating. I would say the 2021 boom was predominantly due to NFTs. And because of the requirement that DeFi is tied to NFTs. Like DeFi was the on-ramp in a way to NFTs, right?

Speaker 1

00:43:20 - 00:43:46

Because how do you purchase your NFTs? If it wasn't like wrapped in a, if it wasn't done through like a Moonpay or something, but, or these brands kind of, you know, allowing for credit card payments. But I think that that ebb and flow relationship will be extremely profound with games. And I think that that, you know, once again will be another unlock in the next cycle for sure.

Speaker 2

00:43:47 - 00:43:50

I say we run it back with RuneScape on-chain.

Speaker 1

00:43:51 - 00:43:58

Yeah, oh man, I saw RuneScape on-chain like MVP at ETSF.

Speaker 2

00:43:59 - 00:44:00

Oh

Speaker 1

00:44:00 - 00:44:12

really? Yeah, last few months ago. I should probably check on how they're doing. I mean, it was very, it was very like lo-fi, but it really kind of- For Escape or World of Warcraft,

Speaker 2

00:44:12 - 00:44:15

I'd be down to a rebuild either, aren't you?

Speaker 1

00:44:15 - 00:44:40

Right, right. But, But yeah, I would definitely say the games. And then I think social, you know, for sure. And all the different derivatives of social, you know, obviously an onion that has many different layers that you can peel back. And I say social because it's 1 of those things that really aligns itself with decentralization and distributed networks quite well.

Speaker 1

00:44:43 - 00:45:30

And then also, I think Tech history gives us a really good example of how it could work out. I would say social media really pushed the envelope of innovation on the infrastructure side. You know, cloud, compute, and the AWS suite to GCP with Google and Azure, Snowflake, et cetera, kind of really came about because of the amount of big data that was happening and the amount of big data that was being generated, because social media also drove advertising, right? And so with the amount of big data occurring, a lot of these cloud compute companies, data companies needed to innovate and improve their infrastructure. And so like Azure had a relational database called RDS early 2000s.

Speaker 1

00:45:31 - 00:46:03

They built out Redshift and the entire AWS suite to adjust for those things. And I think that that's kind of the catalyst that we need for Web3 as well. And I think more generally, right, when you start factoring in all the different components of social, as I mentioned, with music, with NFTs, with entertainment, sports, media, et cetera, then you create a much, much larger pie that hopefully proliferates across a number of the existing ecosystems and incumbents that we use today.

Speaker 2

00:46:04 - 00:46:50

I definitely agree. I think, I mean, social kind of like crater-esque economy to me is super fascinating because as you said, like it does lend itself really well to kind of crypto rails. And today there has not been very many options kind of outside of like the historical monopolies that have existed. I think now it's kind of interesting Twitter throwing its hat or we'll throw a hat in the ring and kind of sharing some of the ad revenue. But outside of that, I mean, really the creator side of things, I mean, you're when you're a single creator and you're building a brand with that audience and exploring different ways to kind of monetize or share a value with your audience, I think will be extremely fascinating.

Speaker 2

00:46:50 - 00:47:19

And I mean, even looking at, like, I feel like every year a new report comes out and it says kids no longer want to be astronauts and doctors, they want to be YouTubers. And so if you kind of like continue on that trend, like being able to help kind of individuals or even groups of people kind of monetize their creativeness on the internet, I think is very powerful. And so I'm personally excited about that as well.

Speaker 1

00:47:20 - 00:48:10

Yeah, I think what's beautiful about that is also, that's also not like the first degree of benefit in a way. And so What I mean by that is, to me, if you think about digital ownership and data sovereignty with what you do online, it unlocks the monetization as kind of like a second-degree benefit. And the first degree is purely having control and having sovereignty of the stuff that you do online. And so the fact that there are trickle-down effects that go beyond the initial benefit is super, super powerful. And being able to tap into that effectively, I think, is why there's so much stuff happening on kind of like the multi-sig homomorphic encryption MPC-ZK side.

Speaker 1

00:48:11 - 00:48:40

And really what we need to achieve, I think, from, And even going beyond use cases, right? I think all the use cases that we see in Web 2, this is actually probably a better answer. I would say every use case of the internet should be a goal for Web 3.0 to find parity in. And so, 1 really cool innovation happening right now, or development happening right now is this idea of ZKML. So 0 Knowledge Machine Learning.

Speaker 1

00:48:41 - 00:49:06

And I think that this discussion kind of came about over the years and people arguing like AI on chain, big daily, doesn't make any sense whatsoever. But if you think about, you know, our consumer applications today, AI and ML is like running the show. We just don't realize it. I think with chat GBT, it's kind of finally become in our face. We're like, wow, this chatbot is insane.

Speaker 1

00:49:06 - 00:49:38

But the recommendations on Netflix have been around for how many years now? Amazon and their recommendations with shopping, your recommendations that run the ad networks, right? That provides you with tailored messaging and ads. And if we can identify, if we can essentially bring about the inference calls that exist within the process of machine learning and artificial intelligence and putting that on chain so that we can develop this idea of trustless autonomy. That's incredible.

Speaker 1

00:49:38 - 00:50:50

Like we are just 1 step closer to really realizing that every application can be put on chain, right? Because you're essentially taking a core piece of what is a black box, what is considered to many the reason why, you know, this stuff needs to be brought to attention and why we need decentralization. And if you're able to put that on chain, Yeah, like we've started to unlock massive opportunities with really addressing things that should and can go on chain from social, from like your Netflix's of the world, from streaming, so on and so forth. So I think like ZKML, and so that's essentially utilizing ZK proofs to put the weights, put the architecture, put the actual prediction data that you're using on chain and validating that the data that's being presented in the recommendation or the inference of the AI call is on chain, it is honestly such a beautiful thing. And I know a number of teams that are working on it from like Modulus Labs to 0xpark and a number of others, but that's an area that I'm personally very excited about, and it kind of bridges the gap between infrastructure and applications.

Speaker 2

00:50:51 - 00:51:03

Yeah, I would definitely echo that sentiment. I think if that all happens, then we go back to our initial conversation or the beginning of the conversation, we need a hell of a lot more black space.

Speaker 1

00:51:04 - 00:51:05

Right, exactly.

Speaker 2

00:51:06 - 00:51:51

Step by step. And then maybe like kind of progressing slightly, I mean, 1 thing that we kind of touched upon, I think initially, is maybe like some of the physical, like infrastructure kind of and how outside of, or using kind of the crypto incentives, whether it's a token or like blockchain rails. How are you kind of thinking about like the, I think they call it now TIPINS as the acronym. How are you kind of thinking about the category, that category and kind of blockchain's future role within that.

Speaker 1

00:51:52 - 00:52:40

Yeah, so there was this real world. So this was another kind of tertiary event at East Denver is kind of like the real world on chain event that was really touching on all the different machines and the data that these machines or these hardware devices, right, Internet of Things devices generates and putting that stuff on-chain, tokenizing a lot of that. I think that that's an area that's super early, earlier than a lot of the stuff that we talked about. In a sense that, you know, I would say a lot of the companies that we saw or we see today are kind of trying to fit a square peg into a round hole and still trying to figure out the proper token design. I think token design is the crucial aspect of that space.

Speaker 1

00:52:42 - 00:53:31

But like why is it important? So taking a step back. I think it's really important because if you think about the data landscape as it stands today, there's even the existing data landscape within Web3, we're taking off-chain data, pouring it on-chain with some, you know, Oracle service and product. But there still exists that data set off-chain. And so despite, you know, a part of us being assigned to, you know, say owning that data or having some level of decentralization and sovereignty associated to that data within the Web3 realm of products, the copy that lives off-chain and then the products that revolve around that data off-chain is still not decentralized, right?

Speaker 1

00:53:31 - 00:54:35

And so if we really kind of think, however, maybe 10 decades ahead or hundreds of years, who knows, of this very utopian vision of true distributed networking, user ownership of everything digital, we need that transition of hardware to on-chain to be absolutely seamless. So I experimented with this a bit a few years ago. I tried to build a decentralized wearable because in my mind, if I'm taking health data and I want to do something with it, like say, own my health data, the value that you can accrue through true ownership versus partial ownership because part of it is owned by Apple or Whoop or Oura Ring, doesn't truly make sense, right? And the only way to properly mitigate against that risk and the risks associated with that partial ownership is when the data is originated, you take that data and it automatically gets imported on-chain, directly from the hardware on-chain. And there is absolutely no copy.

Speaker 1

00:54:35 - 00:55:02

And then, you know, the storage aspect is another kind of category that I'm super excited about. RWEVE, IPFS, you know, storage, CIA, et cetera, et cetera. Like that opens up a whole new opportunity. But now it's like, I truly own my data, right? My heart rate data that I collected over the last 24 hours, if I built out this wearable, is now owned by no 1 else but my private key that I have.

Speaker 1

00:55:02 - 00:55:24

And there's no copy of it. And so if you kind of scale that across every hardware device, right? The sensors on your car, the internet data that you're producing from your usage and all of that is owned by you. Like now it's like, and most of the data is from these hardware devices, right? The cameras on the side of the street, et cetera, so on and so forth.

Speaker 1

00:55:24 - 00:55:48

Like, now we've opened up the actual true decentralized network that everyone kind of is thinking about. Um, And so that's why I'm super bullish on machine. And that's why I'm super bullish on like Solana's saga phone. I think people are very myopic with like, oh, you know, decentralized apps. And obviously on the negative side, wow, like why is Solana building out a phone, you know, when their network's going down.

Speaker 1

00:55:49 - 00:56:16

Well, they're, they're brave. They are taking the first, you know, courageous step of saying. We're taking the hardware approach and we understand that the data that you're producing on your Apple device, regardless of it's, you know, you're gated by the app store, you're gated by, you know, something associated to the hardware companies that are these walled gardens that we're trying to run away from. We're going to take a fully decentralized approach at data origination. The dApps that you build on top of it are truly decentralized.

Speaker 1

00:56:16 - 00:56:45

Like that's incredibly powerful. I'm thinking where longer term than most, you know, critics are. And I'm, and that's 1 of the many reasons I'm bullish on sauna. And, and I just think that the, like, we're going to start seeing that happen over and over again, the Jambo, a super app, um, that, uh, for Africa, for instance, they built out their own phone, right? So think like the WeChat, WhatsApp of China, but for Africa, like they have their own phone.

Speaker 1

00:56:45 - 00:56:53

So it's starting to happen. I think it's a trend that will continue to grow and grow still very early, but I think it's a sign of a truly decentralized future.

Speaker 2

00:56:54 - 00:57:10

Definitely. No. Uh, yeah, lots of clarity there. And I, I definitely agree. I think, I mean, the original kind of vision, regardless of which chain you're kind of building on to me, blockchain is like self-sovereignty.

Speaker 2

00:57:11 - 00:57:52

And that was actually our first name for our fund. We had to change it for a variety of reasons. But yeah, self-sovereignty, I think, I mean, is kind of the true ethos of crypto more broadly. And by owning that data, whether it's real world data that's being brought onto blockchains or different digital items, kind of in the web 3 world, it's that sovereignty is a key component. And I think to that point, like going back to earlier, talking about wallets and kind of how wallets will ultimately still need to mature quite a bit.

Speaker 2

00:57:52 - 00:58:20

There's definitely a lot to be done in the Web3 space to get us there. Maybe talked about a lot. It's been super fun conversation. Maybe kind of wrapping it up, in the original podcast, I always did like spicy questions at the end and it was kind of fun. And so I kind of want to bring it back on maybe kind of like just throw a couple at you.

Speaker 2

00:58:21 - 00:58:28

What like ecosystem do you think in the blockchain space will not be here long term?

Speaker 1

00:58:31 - 00:58:36

These are, OK, these are spicy. Not here? Correct. Oh, man.

Speaker 2

00:58:36 - 00:58:41

Or do you just think it's doing like kind of taking the incorrect approach?

Speaker 1

00:58:41 - 00:58:47

Yeah. Okay. I mean, I think proof of work. Actually, no, I can't say that. Bitcoin.

Speaker 1

00:58:48 - 00:59:25

No. Yeah, I mean, I think that, I think a very generalized answer to this is like, I think any ecosystem that has just failed with community is going to fail. And so I think there are a number of these that have kind of either, you know, you haven't heard a peep from them in months or like no one's really talking about them from a user perspective. And I think that's drawn predominantly from the developers, right? And it's kind of like this Maslow's hierarchy of needs pyramid that I see where it's like, the developers, the consensus, the tech, like that's all food, water, shelter.

Speaker 1

00:59:26 - 01:00:17

As you kind of go up, if those core elements aren't addressed, then the users will be unhappy and then you then hit a community aspect that kind of really is the flywheel and a sustainability engine. And so, I guess, not going to name specifics, but any ecosystem that isn't properly addressing those and thinking about the trickle up or I guess down effects of their lack of innovation, their lack of development and just spending a ton of money for no reason. You know, and I think a number of them have died off. Like, I remember, you know, Harmony, for instance, they were, they were throwing massive parties at 2021 Basel. Um, and, and I don't, I, I, you know, I'm what's going on there, but, uh, yeah, exactly.

Speaker 1

01:00:18 - 01:00:48

Um, And I would, oh, and then I would say, you know, because you have this open source ethos, like if you can just have a very core lean team, I mean, I have so many examples of, and this is, this is honestly a call out to every protocol as well. Like keep your team lean. Like you don't need to be spending the capital that what we're familiar with seeing in the space during a bull market, like stay lean. If you don't do that, like when, you know, people are down bad, like you're pretty much screwed. And so, and I think that's going to continue to happen.

Speaker 1

01:00:48 - 01:00:52

So anyone that just doesn't have that right mindset is for sure gone.

Speaker 2

01:00:53 - 01:01:04

Yeah. Yeah. Maybe like flipping that question around, what is your like strongest held belief or conviction and kind of the space?

Speaker 1

01:01:06 - 01:01:30

I think, oh wow, okay, so strongest doesn't have to be chains. Okay, strongest held belief, We absolutely need to solve the on ramp process and whatever form factor that takes. I don't think like, it should not be ignored. I think. Yes, for dedicating attention to it, But not enough.

Speaker 1

01:01:31 - 01:02:14

Because if that's not solved, it could, if it's not solved, you're going to have centralized entities come in and win. And we're essentially back to square 1, in my opinion, because they're going to reset the design space that's tailored to a very walled garden approach. And what do I mean by that? Like if I see like a Stripe, you know, come in and this is just an example, but if I see a Stripe come in hypothetical example, a Stripe come in and address the on-ramp process, particularly around like e-commerce, like that's not great. I think Coinbase, taking the decentralized approach of building out their own chain, love that.

Speaker 1

01:02:15 - 01:02:37

I don't necessarily think that certain centralized entities will replicate that same mentality. And so we just have to be very careful and we got to do it from the, we have to do it from the web 3 side to win out. Another 1 is cross-chain is inevitable. So we need to focus more on interoperability. And then smart contract language.

Speaker 1

01:02:38 - 01:03:17

I think the battle between smart contracts is very similar to kind of, not really the battle, but like the proliferation of the proper languages being used in proper financial institutions. So if you look at most financial institutions, they're not building their core infrastructure on JavaScript. I think Solidity is a JavaScript of Web3 and the assembly and the C and like the low level high security code and the expertise associated to building on those languages needs to be what core infrastructure is brought to the Web3 space. So like that's why I'm so bullish on Move. That's why I think Rust will continue to be such a strong player is because they address issues that Solidity does not address.

Speaker 1

01:03:18 - 01:03:32

But Solidity is so popular, JavaScript is so popular, it'll be used. But I think we really need to think about low-level smart contract language adoption, optimized adoption by developers so that we're building the right products for a sustainable future.

Speaker 2

01:03:33 - 01:03:45

Interesting. Awesome. Well, we'll end the conversation there, but I really appreciate you coming on the podcast, Alex. Super interesting discussion. Yeah, it was a lot of fun.

Speaker 2

01:03:45 - 01:03:45

Thank you.

Speaker 1

01:03:45 - 01:03:45

Yeah, this was super fun. Thanks, Logan.