E233: Why Stablecoins Could Rewrite Global Finance — Faster Than Anyone Thinks

Speaker 1 Another thought experiment that a lot of people in crypto play is that the US dollar has gone down 75% against Bitcoin over the last several years, 50% against gold.

Speaker 1 People like to think in one Bitcoin: one Bitcoin equals one Bitcoin. Tell me about the usefulness of that framework and also, is it just a thought experiment?

Speaker 1 Is it really how investors should be thinking about it?

Speaker 2 I think it's a big mental shift, at least it was for me 10 years ago when I first got my head around it, which is it's not that my assets are necessarily worth more, it's that dollars are worth less.

Speaker 2 I mean, it's empirically true. The dollar is worth far less every year.

Speaker 2 And I think people are starting to realize it in other sort of intuitive ways, and not even capital allocators, but your average person is saying, wait a second, how can I be making $30 an hour now, but I still feel poor?

Speaker 2 Like, I can't buy the stuff that I thought I should be able to buy.

Speaker 2 When I was a kid, my parents made $30 an hour and we could go to Disneyland and we could buy a house and my dad didn't have to work overtime all the time. Like, wait a second, what's going on?

Speaker 2 And so the intuitive light bulb, I think, has gone off for a lot of people over the last 20, 20 years or so.

Speaker 2 And I think especially in the last five or six years, because the rate of inflation, the ability to perceive it sort of kicked in because of the rate of inflation that we had.

Speaker 2 And so from an allocator's perspective, I think it's if you don't understand that it's actually the dollars are depreciating, then I think you're for some tough times.

Speaker 1 Welcome to the How Invest podcast.

Speaker 2 Good to see you. Thanks for having me.

Speaker 1 Good to see you as well. So tell me about Electric Capital's very first fund.

Speaker 2 It was back in 2018. We kind of accidentally started it.
You know, we were doing a bunch of personal angel investing and investing into digital assets. And back in

Speaker 2 16, 17, there's no tooling available to do anything with digital assets. So custody, multi-party computation, just like even knowing where your assets were.

Speaker 2 And so we built some tooling for ourselves to be able to do these things.

Speaker 2 Some of our friends who were GPs at various venture firms started reaching out and saying, hey, I don't really understand any, you know, what is Bitcoin? What's Ethereum? What are ICOs?

Speaker 2 That's kind of what was happening in that era. And people started saying, I don't understand this.
It's out of the scope for my venture fund. I trust you guys.

Speaker 2 Would you consider taking my money and doing whatever it is you do with your personal assets and doing it with our money too?

Speaker 2 And so we got a fund off the ground in 2018, early 2018, took in some capital from some of those folks and scaled it up.

Speaker 1 It's interesting you said, I trust you.

Speaker 1 Can you manage our money? I went through a similar thought experience. I saw some crazy returning funds and I'm like, well, in theory, maybe, but it's crypto.
People could hide things.

Speaker 1 I'm going to go with this one fund, which might not be top desk dollar, top 5%, but it's, I trust the guy. I've known him for a while.

Speaker 1 And I'm willing to put my money with him, my own personal hard-earned money with him.

Speaker 2 Yeah. Yeah.
Trust is very important.

Speaker 2 Fortunately, our funds have been top 1% funds.

Speaker 2 So no trade-offs.

Speaker 2 But no, trust is really important. You know, it's especially with this stuff where, you know, audit and finance and tax and accounting, like all these little, the vendors didn't really even exist.

Speaker 2 Right. So a lot of it was sort of you had to trust the GPs of these things to make sure they weren't hiding assets, for example.

Speaker 2 So yeah, there's a huge amount of trust involved when these things were first getting off the ground several years ago.

Speaker 1 And we'll get to the story of how you grew to a billion dollars, but obviously a lot lot of people trusted you to get that kind of scale.

Speaker 2 Double click on the reasons why people trusted you, in your opinion. We were known quantities in Silicon Valley.
We'd done some startups. We exited a company to Facebook.

Speaker 2 And so a lot of the first people that came to us had worked with us

Speaker 2 across those projects. And so there's part of it is just, you know, knowing people.
And

Speaker 2 I think people observing you behavior for long periods of time, I think at the very least, they know that you're not running away, that you live in the area.

Speaker 2 They know, you know, you have friends here. It's, you know, there's sort of social connectivity that gets created, and that makes it certainly easier.

Speaker 2 When you're dealing with large amounts of money, I think the best signal often too with trust is how have people dealt with similar situations in the past when they've been entrusted with capital and other people's trust and what did they do with it.

Speaker 2 And our startup was

Speaker 2 a small success

Speaker 2 relative to the scale of Facebook and Meta today.

Speaker 2 But I think the way that we handled that situation was actually what gave people a lot of trust.

Speaker 2 So it was some of the people that were investors in that company were the first ones to come to us and say, hey, I trust you guys for this.

Speaker 2 Because I think the way that we handled that, we ended up adjusting the cap table to make sure that the investors got a very healthy return on their investment.

Speaker 2 And we ended up for the employees adjusting the cap table. So Curtis, my co-founder, and I took a big chunk of it and sort of redistributed it between employees and stuff.

Speaker 2 You can only really know somebody's character, you know, when you have sort of these kinds of difficult decisions that have to be made and and there's real money at stake.

Speaker 2 And so I think the way that we handled all that was gave people a lot of confidence that we were trustworthy people.

Speaker 1 When there was X amount of money to divide up, you gave from your pocket to somebody else. You did it behaviorally, not through some virtue signal.

Speaker 2 Yeah, yeah, revealed preference, right? It's easy to say the thing, it's hard to do the thing.

Speaker 2 I also think it's, you know, after if it's also, it's kind of like dating or it's kind of like any relationship.

Speaker 2 If you're in the relationship for long enough, it becomes increasingly difficult to hide who you really are. You know, like all the small things sort of

Speaker 2 add up.

Speaker 2 And at the end of the day, Curtis and I are not money-motivated people. So it would be out of character.

Speaker 2 It would break the pattern for us to somehow just steal the money and run away with it or hide it.

Speaker 2 That's just not, if you know us, you know, that's not what motivates us. It's like we've always been curious about how does this tech work and what can we build here?

Speaker 2 And, you know, being a little bit contrarian, but being right. Like those, those things matter to us a lot more than a little bit more money.

Speaker 2 And so I think part of it is if you just see how people operate for a while, the sort of revealed preferences will reveal themselves.

Speaker 1 So another way, if you pretend to be a good and honest person your entire life, you will be a good and honest person.

Speaker 1 If you keep on pretending to be honest, eventually you do become, you're honest through your behavior.

Speaker 2 I mean, people can run scams for a long time, right? People

Speaker 2 appear to be good and honest for many years, and then it flips at some point when there's enough money at stake. But I think.

Speaker 1 I'm curious to hear your thoughts. So I do think actually it's short-term versus long-term greedy.

Speaker 1 Obviously, it's good to have a moral view on it, but I find that if you're truly long-term greedy, if you're trying to run this billion-dollar scam, the best way to really do that is to just provide value.

Speaker 1 The best way to make a billion dollars through the long-term scam is actually not to scam and to make a billion dollars through providing a lot of value.

Speaker 1 And I think the people that are scamming are just short-sighted. Yeah, 100%.

Speaker 2 Yeah. I mean,

Speaker 2 to your point, in some sense, like, a long-term scam is indistinguishable from like, you know, short-term value creation, right?

Speaker 2 Because the right way to be a long-term scammer is to create short-term value.

Speaker 2 And then at some point, like you've accrued enough goodwill or access or whatever that you can fully scam or hit, you know, exit.

Speaker 2 Like the rational perspective on this might not even be, you know, scam is like a value-oriented term, but there was a great blog post or newsletter post from

Speaker 2 Ben Thompson at Strategory years ago, probably 10 or 15 years ago, 10 years ago, maybe, when Benchmark was suing Uber.

Speaker 2 And he sort of made the case that even if you're a good actor, like from a numbers perspective, if this one outcome was going to be more than the sum of all of your future venture investment, you know, GP carried proceeds, you were probably like rationally, it made sense to like sue Uber and try to extract that billion dollars or whatever.

Speaker 2 Rationally, it made sense. And so it's not even necessarily like a value term.

Speaker 2 Like you might argue, actually, the values only go in the other direction, which is like, if you truly have some principle, are you willing to forego large amounts of money when it's rationally the right thing to do?

Speaker 2 That's a much higher bar. But actually, in some sense, it's not even

Speaker 2 an extraction thing. It's just rationally speaking, that's the right thing to do.

Speaker 1 It's an interesting thought experiment, which is, would you rather have misalignment with a very good person or alignment with a very bad person?

Speaker 2 Neither of them are ideal, but yeah, neither is ideal. I obviously would rather be aligned with very good people, but we've thought about this, actually.
I mean, we

Speaker 2 this was this was part of the reason. I mean, we've made lots of mistakes over the years in our firm.

Speaker 2 Directionally, we've been right, which, you know, one big lesson is like, if you're directionally right, all the small things will take care of themselves.

Speaker 2 But we, uh, we dodged FTX for this exact reason, actually. Um,

Speaker 2 like the vibe I got from, from Sam very much was a like, you will be economically aligned with somebody who

Speaker 2 does not appear to be, uh,

Speaker 2 who, who, you know, in all those conversations, it was pretty clear to us that Sam would make a lot of money. It was unclear if you would make a lot of money, you know?

Speaker 2 And so it was sort of like exactly that. Where there are definitely been cases where, you know, I've taken leaps of faith.
I'm like, look, this like legal agreement is not like bulletproof.

Speaker 2 This is like a weird situation. There are a lot of edge cases here.

Speaker 2 You know, handshake, we're going to do this. And if it's with a good person, it's always worked out well.

Speaker 2 So, you know, lived experience is like the misalignment with a good person is way, way better than, you know, sort of contractual or economic alignment with a low character person.

Speaker 1 Sam's a great example of somebody too smart for their own good. If he was truly smart, he would just build a $100 billion company and make $10 billion and stay out of prison.
But

Speaker 1 it's almost like

Speaker 1 a compulsion. It's like a character flaw.
It's an Achilles heel. He is really smart.
He's brilliant.

Speaker 1 He's good at all these things, but he has this Achilles heel, which he perceives as he's smarter than everybody else, but it's really actually just a weakness. Yeah.

Speaker 2 Yeah.

Speaker 2 It's beyond me. I don't know him well enough to opine on what sort of ultimate led to that.
But yeah, what a missed opportunity.

Speaker 1 I mean, they so speak speaking of not missed opportunities i think a lot about this is like

Speaker 1 how does the next generation of gps capitalize on the next generation of opportunities so most recently it was ai some would argue next might be nuclear defense whatever whatever that next one it's not only knowing the next wave and you're actually a great a great uh example of this It's necessary, but not sufficient to call the right shots, but you also need that reputational capital or that right to be one of the people that people will bet on.

Speaker 1 So it's not enough to know what to bet on. It's to have that social and political capital that you will get a bet from other parties on.
And so you can't really build it just in time.

Speaker 1 You can't just say, oh, hey, hey, hey, everybody, I'm really bullish on nuclear. Here's a 55-page PDF on why nuclear is best.
No one's going to give you money because you haven't.

Speaker 1 gotten the right to win to make that bet.

Speaker 2 Yeah, I think that's right. And there are a couple of learnings there, right? One thing I always think about is if you think about companies versus investing, X-axis is time, Y-axis is difficulty.

Speaker 2 Starting a company actually is pretty easy these days. There's a lot of capital out there.
And as you get bigger, it actually gets harder, right?

Speaker 2 So the curve for anybody listening is sort of exponential up, right?

Speaker 2 Once you're raising $100 million, it's harder. Once you're raising $1 billion, it's even harder.
There are fewer people who can give you the money, and your competition gets more stiff, right?

Speaker 2 Like it's, you know, competing against every seed stage startup that's trying to do something is like one degree hard. But man, it's way harder to compete against Nvidia and Jensen right now, right?

Speaker 2 Like, how would you even do that? So, so as you get bigger, it gets harder, right? So, you kind of go up the x-axis and it's or sorry, up the y-axis and it's exponential up.

Speaker 2 Venture is basically like reflected over the y-axis. It's basically the inverse, which is it's basically impossible to start a new venture firm.

Speaker 2 Like, nobody wants to give you money to just invest and you're locked up for 10 years. And why am I going to trust you? And what are you going to do with the money? And are you a good investor?

Speaker 2 What are my alternatives? I can just buy the NASDAQ and make 14% a year.

Speaker 2 But actually, as you get farther along, it gets easier. So the difficulty drops off after a certain point.
And it actually becomes easier to raise.

Speaker 2 In some sense, raising 500 million is easier than raising your first 10 million because you've got a track record, you've got proof points, like there are bigger LPs that need to put more capital to work.

Speaker 2 There are fewer places to put it. The bottleneck becomes what do you do with the money? Like all the things work in your favor.

Speaker 2 And so, yeah, for getting off the ground, it's very, very, very hard as a new investor.

Speaker 2 And so you have to have something that kind of gets the flywheel going, whether whether it's personal angel track record, whether it's, hey, you wrote a newsletter, like a lot of great investors have started as writers.

Speaker 2 So you write it down and you say, hey, I'm calling my shots. I'm going to tell you what's going to happen.

Speaker 2 And then if you're consistently right, people start to pay attention and say, hey, maybe you should start putting money behind these bets.

Speaker 2 Going to an existing platform, proving yourself, and then spinning out.

Speaker 2 There are lots of ways to do it, but they all, I think you're right, they all sort of converge around this idea of, why am I going to trust you?

Speaker 2 Do you have some sort of track record that I can bet on?

Speaker 2 Which is, it's quite different than startups right like in startups a lot of a lot there's a lot of capital available to take a leap of faith and get you know a two million dollar seed round these days um there's a lot of money slashing around to do that it's very hard to go raise a you know even a twenty million dollar seed stage fund is not easy

Speaker 1 i like to put it the absence of a right to win is no right to win

Speaker 1 or said another way it's a hyper competitive market and if you don't have a very clear way why you have a right to win you are default dead yeah to your point versus startups are default alive in the beginning which was not always the case going back to when i when i started my first start 2008 it was incredibly difficult especially if you're under 30 to to raise a seed round took us 18 months so markets change you just have to pick your hard and and what challenge you're you're willing to take on so i want to get back to electric uh tell me about your original thesis for electric

Speaker 2 yeah it was actually well there's there's the business thesis and there's the investment thesis the investment thesis was our belief was that this infrastructure, distributed systems and cryptography and

Speaker 2 tokens and all that stuff, ultimately was the best way to move money around and better than anything else that had ever been invented.

Speaker 2 And what would happen over the next 25 years is it would replace all of the financial plumbing of the world. It would become the new backbone for FinTech.
It would replace all Wall Street.

Speaker 2 It would replace all of the capital markets of the world. So we wrote a paper in

Speaker 2 like end of 2017, I think. I say like November 2017.
I have to go back and look, internally, which was essentially the investment thesis that became electric. And

Speaker 2 we called it programmable money, sort of wrote this stack diagram that said, look, if we think that this base layer that's emerging is a store of value, like a Bitcoin or an Ethereum, on top of that, you're going to get stable coins.

Speaker 2 And on top of that, you'll get all of the financial permits. Because really,

Speaker 2 what is

Speaker 2 all of global finance? It's just here's a pile of money. Here's some rules around who has access to that money.

Speaker 2 Here's what I need you to do with the cash flow from this pile of assets over some period of time. And we just encode that into legal code and into legal documents.
And that could be software code.

Speaker 2 There's no reason it couldn't be software code. Once money becomes digital, it would be software code.
And so that was the core thesis, which directionally turned out to be correct.

Speaker 2 You know, I think that that's essentially what we've seen happen over the last several years, over the last seven or eight years.

Speaker 2 And, you know, I think we're probably something like seven or eight years into a 20 to 25 year transformation. Like, I think it's just now that Wall Street is starting to figure this out.

Speaker 2 It's just now that we're getting regulatory clarity in the United States. It's just now that the fintechs, you know, the stripes of the world are saying, wait a second, this is a thing.

Speaker 2 So I think

Speaker 2 directionally, we were right on that.

Speaker 2 In parallel, there was a business thesis for the firm, which said, hey, look, if this comes to pass, if we think that the capital markets of the world all move on chain because this is in fact the best way to move money around, then capital deployment has to change.

Speaker 2 And if you look at the history of technology, you know, every time the infrastructure changes, you actually have to change the companies that are built on top of that infrastructure.

Speaker 2 You have to change the human organization on top of the infrastructure. So I'll give you an example.

Speaker 2 If you look at an e-commerce company, e-commerce companies like Amazon were built very differently than Walmart. Like the structure of the organization internally is very different.

Speaker 2 Like who reports to whom, who has power, who gets paid the most, who makes the decisions, like all these things are different.

Speaker 2 And when you change the infrastructure, what you have to do is put in charge the people who understand the infrastructure.

Speaker 2 And so in a modern sort of software environment, what that means is you have to to put engineers and product people in charge because that's who understands the nitty-gritty of the software.

Speaker 2 And the software is what gives you operating leverage. That's what drives your customer acquisition costs down.
And that's what drives your LTVs up. And that's what drives your gross margin.

Speaker 2 Everything gets driven through software. And so the people who really understand software need to make all the decisions and you need to put them in charge.

Speaker 2 So at Amazon, all the engineers run the show. And it took Walmart like 30 years to figure out how to do that, right? They just weren't able to do that.
And in large part, it was because

Speaker 2 they just didn't have the right right people in charge.

Speaker 2 And so what you have to do is blow up the human organization and put the right people in charge. And that's very hard.
And this is where startups have an advantage.

Speaker 2 It's like when new infrastructure emerges, the startups are built natively for that infrastructure.

Speaker 2 And they put the right people in charge, whether it's Darwinian and the market produces what it produces or cognizant founders are saying, hey, I need to put certain people in charge to make certain decisions.

Speaker 2 sort of irrelevant. What ultimately happens is the startups end up winning in that.

Speaker 2 And so we said, hey, wait a second, if these capital markets are all moving on on-chain, there's no reason that the financial firms should look the same 20 years from now.

Speaker 2 What's going to happen to the financial firms is what happened to the newspaper companies in the 90s and 2000s, which is there's no longer a local monopoly. They have to compete at global scale.

Speaker 2 It's going to require a different set of skills. And really, if history is any guide, what you're going to need to do is put the engineers in charge and have them making a bunch of decisions.

Speaker 2 And so we said, that probably happens to venture capital. And so the best venture capital firms in 2030, many of them will probably have engineering at their core.

Speaker 2 They'll They'll know how to build stuff. They'll know how to operate on chain.
They'll understand how to move these assets around on chain

Speaker 2 and tap into these new capital markets to do interesting things. And that more or less has also played out.
I think we were correct in that. And so, you know, at Electric,

Speaker 2 we don't hire investors. We just hire engineers.
And then it turns out some of the engineers end up having a great commercial instinct and they end up being great investors.

Speaker 2 But we actually don't hire anybody with, you know, prior investing experience per se. And we have like derivative traders or people who have written code for

Speaker 2 high frequency kind of stuff, but not sort of like classically trained. I went to an MBA program or I studied business at Wharton and then I got an internship on Sandhill.

Speaker 2 We don't have any of those people by design.

Speaker 1 A lot to unpack there. There's the venture side and then there's the market side.

Speaker 1 If I subscribe to your thesis that traditional finance, Tratify will be disrupted by crypto.

Speaker 1 Is the next step essentially mapping out all the tradified industries and figuring out whether they'll be disrupted, whether they'll cease to exist, and kind of doing it piecemeal?

Speaker 1 How do you go about kind of mapping the future? Is it based on tradified, or do you just think from first principles, what would people love to do that they're not doing today?

Speaker 2 A little of both.

Speaker 2 So some of it is, you know,

Speaker 2 actually the traditional financial markets have been around for a long time.

Speaker 2 There's Wall Street, let's say, since World War II.

Speaker 2 But just broadly speaking, I mean, like banking and accounting, you know, let's say, you know, these sort of basic ledgers go back to like the Medicis, right? So you have several hundred years of,

Speaker 2 you know, financial thinking that's happened.

Speaker 2 And so, and, you know, financial people tend to be very creative. So there's, you know, CLOs and tranching, as we saw in 2008, and, you know, HELOCs.

Speaker 2 And people have invented like really clever instruments that solve all these problems. And so if you think of those things as products, In some sense, TratFi has already created a lot of products.

Speaker 2 And so you don't need to necessarily reinvent the wheel because those things solve real problems. And so part of it is looking at those things and saying, look, there are payments problems.

Speaker 2 There are global remittance problems. There are trade factoring and invoicing challenges and money solvement problems.

Speaker 2 You can start to go through all the big businesses of the world and say, what would this look like if it were software first and on-chain and stable coins moved all the assets around?

Speaker 2 I think there will also be entirely new categories of things that emerge. The analog here would be social media was uniquely enabled by the internet.
Anybody could now become a content creator.

Speaker 2 And so many of the biggest outcomes from the internet were things that didn't have an analog in the old world.

Speaker 2 It wasn't just that newspapers had to be digitized and stores had to be digitized and you could see those things. I still need to buy stuff.

Speaker 2 That's just an itch that I need to scratch and hence Amazon is going to make sense. There are flea markets, so eBay is going to make sense.

Speaker 2 But some of these new things, you know, like a Twitch, were just sort of a bizarro thing, or, you know, Twitter is just a bizarro thing.

Speaker 2 And they ended up being some of the biggest outcomes and so those are the really interesting ones and i think um you know things like prediction markets might fall into that like they've sort of been theoretically possible for a long time but it just didn't make sense you didn't have enough people you know to aggregate that that you could do this and the money rails internationally were really hard things like nfts and digital art are like this like you know i have i have um you know print up an nft behind me um and digital art is sort of a weirdo thing like i'm gonna value pixels more than i value you know like the painter who made it like it might even be computer-generated, like, somebody who wrote some code to generate the art.

Speaker 2 Um, and so I think you're starting to see, and that gets that sort of bleeds into digital luxury goods and digital signaling.

Speaker 2 So, I think you get entirely new markets as well that can be like shockingly large.

Speaker 2 But you could get pretty far, I think, as an investor, if you just looked at TradFi and you said, what are the big markets in TradFi and how do they move here and who's going to win?

Speaker 2 You could actually do quite well, I think.

Speaker 1 And do you can see that some of these TradFi markets may just prove to be

Speaker 1 non-disruptible for some reasons. Maybe they're purely relationship-driven.
There's some incumbent advantage. There's some connection to the Federal Reserve, or whatever that reason might be.

Speaker 2 I think, you know, unlike information, unlike the media, you know, money is a thing that governments hold very close. And so who has access to print money? Who has access to buy treasuries?

Speaker 2 Who has access to put money in banks? What kinds of licensing do you need to perform certain kinds of financial activities?

Speaker 2 This falls into, you know, in the United States, things like broker-dealer or money transmission licenses or money service businesses.

Speaker 2 You sort of have these designations because the government really cares about how money moves around,

Speaker 2 both for economic reasons and security reasons, right? You don't want to be in a situation where there are nefarious activities happening. You need some sort of oversight over those.

Speaker 2 So, yes, absolutely. There could be regulatory moats.
There could be incumbent advantages because the government needs to pick winners.

Speaker 2 It could be that some of those licenses are difficult to acquire or costly, and so that makes it hard hard for startups.

Speaker 2 So, yeah, it's entirely possible, I think, in this world that some of the incumbents will survive and potentially do well. And being thoughtful about where those industries are, I think, is important.

Speaker 2 At the same time, I think you'll see, you know, take the example of somebody like a Coinbase, which is now roughly $100 billion company, $80 to $100 billion, depending on the day.

Speaker 2 You know, they started with this sort of fringe set of things around things like Bitcoin and Ethereum

Speaker 2 and have since evolved into a full-fledged financial services firm, an institutional-grade financial services firm, offering a lot.

Speaker 2 And it seems inevitable to me now that they have some derivatives licenses, they're going to move into securities in the same way that Robinhood is moving into crypto.

Speaker 2 And so I think what you tend to also see is that startups that get to scale start to be able to compete with the incumbents.

Speaker 2 And so I think some of the incumbents will be fine, but I think the slowest moving incumbents, even the regulatory moats or even sort of those relationships and so on, won't be enough. Like I think

Speaker 2 a very sizable percentage of the incumbents also get disrupted and become irrelevant.

Speaker 1 It's so interesting. To further your point, let's say Coinbase in five years, they have all these aspects.

Speaker 1 Maybe they start investment bank focused on fintech because they have this right, this tangential right to win. Then they become one of the top fintech investment banks.

Speaker 1 They go head-to-head with JP Morgan and Golden Sachs. And then

Speaker 1 they're able to poach a top FIG group. And now they're in like financial services and they keep on expanding.
And at the end of the day, kind of they're doing consumer retail IPOs.

Speaker 1 And people are like, how did you get there?

Speaker 1 Well, you did it kind of incrementally every time having a dominant market position and or overpaying for talent in order to kind of incrementally gain market share.

Speaker 1 So it's an interesting backdoor kind of theory.

Speaker 2 In this specific case, and I think you saw this with

Speaker 2 media companies, for example, right? Like YouTube being able to back into the music industry.

Speaker 2 Like, you know, a huge percentage of global music listening happens through YouTube, which is if you have a profit center in one place that generates a bunch of revenue and you have some sort of technological advantage, you can leverage those things to create new value.

Speaker 2 So it's not, it's not even,

Speaker 2 not saying you were saying this, but you know, some people might say, hey, like investment making is zero sum.

Speaker 2 And I think what you could say is actually, you know, there is going to be a something like $5 trillion global capital market on chain. There's about $250 billion in stable coins today.

Speaker 2 There will be, in my opinion, at least, you know, $2.5 trillion, if not $5 trillion worth of dollars on chain. That's an entirely new group of people that can't buy U.S.
equities today.

Speaker 2 So if what Coinbase is doing, if you're an IPO issuer, when Coinbase came to you you and said, hey, look, we can do all the stuff that the old guys do. We'll take you to Wall Street.

Speaker 2 We'll get you in front of the banks. You can buy the pop, whatever.
We'll also tokenize your stuff and put it on chain.

Speaker 2 And by the way, there's an extra $2 trillion worth of demand, which otherwise can't buy equities. And now those guys are going to bid you up, which means that the banks over here all have to pay more.

Speaker 2 And so now your market cap just went up because you have a new pool of capital. That's a strategic advantage.

Speaker 2 So it's, you know, yes, you have to buy the talent. Yes, you have to be, you know, have the relationships and all those things.

Speaker 2 But I think there's an argument that the right to win here might be the global capital markets that are on chain, which you could bring to bear into legacy markets.

Speaker 2 And if you have the pipeline to those, this is why I think Coinbase is doing something like Base, this L2 that they built. Robinhood is now also doing L2, Kraken has done an L2.

Speaker 2 You know, all these companies are doing this because what they really want is those global capital flows.

Speaker 2 They want all of those dollars sitting in their ecosystem because that gives them this fire hose that they can redirect into products.

Speaker 2 And that gives them leverage, not in a financial sense leverage, but strategic leverage to go in and win in new markets because they can bring an extra trillion dollars of capital markets to bear that that Wall Street doesn't know how to access.

Speaker 1 As are many people, I'm concerned about the political unrest and

Speaker 2 the

Speaker 1 amount of fake news on both the right and the left and the amount of misinformation in the market.

Speaker 1 Is crypto looking at any kind of incentive mechanism to solve the number of fake information in the market?

Speaker 2 Yeah, I mean, the sort of hand-wave answer here would be a prediction market, right? It's like, well, if you really believe a thing, then you should be able to put some money behind it.

Speaker 2 So it's just a concrete example. Like, who's the next Fed governor going to be? Maybe there's some fake news that gets leaked that it's so-and-so.

Speaker 2 And maybe that's true, maybe it's not.

Speaker 2 But probably there are people out there that know that it's not true, whether it's the person who wrote the article or somebody who gave that fake news or somebody who knows what the real answer is.

Speaker 2 And so what you end up having is these market participants that say, hey, wait, I think I actually might know the answer. or I believe that that's fake news.

Speaker 2 And so I'm willing to bet that it's somebody else. And so they're putting money behind some other Fed governor.
And so prediction markets actually can be a really interesting source of truth.

Speaker 2 We saw this with

Speaker 2 we've seen this now with multiple elections, for example, where the sort of real signal seems to be in that zone. You're seeing this with

Speaker 2 like AI models,

Speaker 2 where people will create markets that are, you know, like what which company will have the

Speaker 2 best foundational model based on whatever benchmark scoring mechanisms, evalve mechanisms you want to use by October 1st.

Speaker 2 And you'll see after OpenAI launched GPT-5,

Speaker 2 very temporarily, it spiked on those prediction markets that OpenAI would have the best by October 1st.

Speaker 2 And then it actually crashed and Google ran up big time, suggesting that people who knew what the Google model was that was coming knew after playing with GPT-5 for a couple of hours.

Speaker 2 They were like, oh, Google's is going to be way better than this. I already know Google's is better.
And so you could see the market kind of flip, right?

Speaker 2 Like in real time, like in a couple of hours, it flipped and Google's was number one. And so, you know, prediction markets, I think, are actually potentially a really interesting mechanism for this.

Speaker 1 Yeah, I love this idea of policy via prediction markets. So the president wants to

Speaker 1 enact a policy. You could throw it up on the prediction markets and then people could, with their money, bet on it.

Speaker 1 And then they'll kind of take you to the ground truth on the policy versus kind of just having the different talking hats, essentially actors on TV throwing around different narratives with no skin in the game.

Speaker 2 Yeah, the hard part ends up being how do you adjudicate this, right? Like what is what is the oracle that you're going to use to say, yes,

Speaker 2 this is true or not? So

Speaker 2 we'll use a concrete example here. We just had this sort of like, does Tylenol cause, you know, increase the rates of autism? Yes or no?

Speaker 2 How would you determine that? Because agreeing, like everybody agreeing on what the adjudication mechanism is. Is it like a particular judge says it? Is it that a particular medical journal says it?

Speaker 2 Is it like, how do you, how do you know,

Speaker 2 what is the final answer here? And agreeing on that, actually, I think ends up being the the hard part. Like, the prediction market mechanisms, I think, are fine and easy.

Speaker 2 It's like, what is, what is the precise mechanism by which we determine the answer is yes or no? That, that sort of ends up being tricky, I think, in a lot of these cases.

Speaker 1 So you believe that crypto will be baked into the economy by 2030. What does that mean? And maybe give me one use case where that happens.

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Speaker 2 What it means is that if you take something like polymarket, in the prediction market world, people don't even think of it as a crypto product.

Speaker 2 Or, you know, this idea of stable coins, it's just money moving around. People don't think about that as a crypto product.
And so, the,

Speaker 2 you know, what happens with technology is once it becomes sufficiently useful

Speaker 2 and sufficiently accessible, it sort of disappears. Like, you don't think about it, it just sort of exists.

Speaker 2 And, you know, this is part of the reason we named the firm electric, actually, is inspired in part by electrum, which was the first coined money in the Lydian Empire.

Speaker 2 And so it was a technological breakthrough to have denominations of money rather than like, here's a chunk of gold.

Speaker 2 And now we have to wait and figure out if it's real.

Speaker 2 But it's also inspired by electricity, which is electricity is just baked in everything. We don't think about it.
So you don't call things like electrical appliances, right?

Speaker 2 Things just sort of, that term is sort of an anachronistic term at this point. There's a time at which that made sense.

Speaker 2 And so, because everything's battery powered, right? Everything's going to, everything's going to be enabled by electricity. And so our belief was crypto would be that way.

Speaker 2 I think stablecoins are probably the first place where people will sort of experience this, where money movement just becomes 24-7, it becomes real-time, it becomes

Speaker 2 integrated into every application.

Speaker 2 The yield profile can change now that we have some regulatory clarity in the U.S., where

Speaker 2 you as a mobile phone app user could make 4% because that's the treasury rate. It's north of 4%.

Speaker 2 So somebody can hold US dollar coins on their phone in their wallet and actually earn yield on it, which if you go to most banks, you can't. You're going to get 0.1% in your savings account.

Speaker 2 You're kind of getting fleeced by the the banks because they turn around and lend it for 7% to mortgages or buy treasuries with it. And so that's their business model.

Speaker 2 Now, all of a sudden, that yield just passes to the end consumer. So these kinds of things I think

Speaker 2 are already seeing on the ground. I mean, Tether has 100 billion plus.
There are some very interesting wallet products out there that have lots of deposits and are passing through yield.

Speaker 1 Are you bullish on Circle, Tether, stable coins? Do you think new players will enter? How do you look at that market?

Speaker 2 Stable coins are going to be a big unlock for all the global capital markets.

Speaker 2 You know, specific companies is tough because there's macro stuff rolled in.

Speaker 2 You know, so much of the business model today for a circle or a tether is what is the yield on treasuries because they're just sort of sitting on that float.

Speaker 2 And so as those come down, obviously that's trickier. At the same time, these are really smart people running these companies.

Speaker 2 And so Jeremy at Circle is, you know, they're building out additional business units. Paolo at Tether has already done that as well.
So they're building their own chains.

Speaker 2 They're building infrastructure. They're building developer platforms.
They're investing in other companies. And so,

Speaker 2 you know, do the companies do well? TBD, they're smart guys. And so they're sort of figuring that out.
It reminds me a little bit of, you know, back in

Speaker 2 17, 18, 19, people used to talk about how Coinbase's margins on the retail side would have to compress.

Speaker 2 Like there's no way people would keep paying 1% to 2% transaction fees, you know, if you compare that to $0 fees on equities or something in a lot of brokerages. And they were right.

Speaker 2 Those fees have compressed over time to a degree. But what Coinbase was able to do was spin up a bunch of other business units using all that revenue.

Speaker 2 And so the business today is worth 10x what it was worth five years ago.

Speaker 2 And so the market will be what it will be, but it's entirely possible actually that Circle and Tether figure out what to do here. And they're smart guys, so they very well will.

Speaker 2 But stablecoins, I think, has a big unlock. It's just all the capital markets won't move in this direction.

Speaker 2 This is why, for example, you're seeing Stripe. Stripe recently announced they're going to launch their own layer one.

Speaker 2 And they're going to try to rerun, I think, effectively the Libra playbook, which Facebook tried to do this several years ago and sort of build a consortium of people to come in and sort of snap to a standard around how to move this money around.

Speaker 2 Because

Speaker 2 if you've ever dealt with the guts of payment systems, it's pretty gnarly, globally speaking. There's all these edge cases.
It's a bunch of it was code written in the 70s and 80s.

Speaker 2 And sometimes there's bugs that are, in some of these payment systems, there are bugs that actually everybody expects the bug.

Speaker 2 So actually, if you return like the non-buggy answer from your code, people will be upset because it'll break their code.

Speaker 2 And for legacy systems, you end up in really gnarly situations like that.

Speaker 2 And so, you know, just this can be like a wholesale ripout of, you know, let's just get rid of the old system and finally, 50 years later, fix it.

Speaker 2 People may or may not experience that directly, but I think you're going to see a lot of companies running at this.

Speaker 2 This is like a plumbing, infrastructure, enterprise business kind of place to start, I think,

Speaker 2 in the U.S. at least.
You know, globally speaking, dollar use case is clear. You know, people want dollars.
It's actually, I always joke, you know.

Speaker 2 We do these

Speaker 2 brand surveys, you know, like, oh, what's the most well-known brand in the world or most respected brand in the world or most valuable brand in the world? And it's like Apple or Google or something.

Speaker 2 But I actually think it should be the US dollar because the dollar,

Speaker 2 like even if you hate the United States of America, you want dollars. Like, and it doesn't matter where you're in the world, you know dollars because the entire world is denominated in dollars.

Speaker 2 And so anybody that lives in another country that has experienced inflation relative to the dollar. would much rather have dollars.
It's kind of funny, right?

Speaker 2 Like stablecoins will be this retail phenomenon, I think, globally speaking and like domestically in the United States, very likely that it's like an enterprise infrastructure business phenomenon more than it is a retail phenomenon, at least to start.

Speaker 1 Another thought experiment that a lot of people in crypto play is that the US dollar has gone down 75% against Bitcoin over the last several years, 50% against gold.

Speaker 1 People like to think in one Bitcoin. One Bitcoin equals one Bitcoin.
Yeah. Tell me about

Speaker 1 the usefulness of that framework. And also,

Speaker 1 is it just a thought experiment? Is it really how investors should be thinking about it?

Speaker 1 And how should non-crypto investors, so let's say you're an institutional investor, you're University of Michigan, and you're trying to get the alpha from that way of thinking,

Speaker 1 just double-click on that and unpack that this thought experiment.

Speaker 2 Yeah, I mean, I think it's a big mental shift, at least it was for me. you know, 10 years ago when I first got my head around it, which is it's not that my assets are necessarily worth more.

Speaker 2 It's that dollars are worth less.

Speaker 2 And

Speaker 2 between sort of, you know, money printing and between the fiscal situation in the United States in terms of how much money the government needs effectively to operate, therefore creates money printing effectively, money creation, money supply creation.

Speaker 2 I think that's very much true. I mean, it's empirically true.
The dollar is worth far less every year. And I think, actually, I was looking at some data recently.
I think.

Speaker 2 This year may be relative, you know, if you look at like the Dixie, you know, the dollar relative to other currencies or other assets, I think may be one of the worst years on record, you know, over the last like 70 years.

Speaker 2 It's a pretty terrible year. Now, you might argue it was at a high a year ago, yada, yada, but I think people are starting to get their heads around this, that, you know, a government that runs 7%

Speaker 2 debt load, you know, twice what the socialist countries

Speaker 2 of the EU are.

Speaker 2 is unsustainable. And so people are sort of getting their heads around this idea, especially I think post-21, it's sort of clicked for a lot of people that this is an unsustainable path.

Speaker 2 And I think people are starting to realize it in other sort of intuitive ways.

Speaker 2 Like, and not even capital allocators, but your average person is saying, wait a second, how can I be making $30 an hour now, but I still feel poor?

Speaker 2 Like, I can't buy the stuff that I thought I should be able to buy.

Speaker 2 When I was a kid, my parents made $30 an hour and we could go to Disneyland and we could buy a house and my dad didn't have to work overtime all the time. Like, wait a second, what's going on?

Speaker 2 And so, like, the intuitive light bulb, I think, has gone off for a lot of people over the last 20, you know, 20 years or so.

Speaker 2 And I think especially in the last five or six years, because the rate of inflation,

Speaker 2 people's ability to perceive it sort of kicked in because of the rate of inflation that we had. And so, from an allocator's perspective, I think

Speaker 2 if you don't understand that it's actually the dollars are depreciating, then

Speaker 2 I think you're

Speaker 2 in for some tough times. I think what that ultimately means, if you buy this sort of, hey, look, where we are is

Speaker 2 in a fiscally untenable position, I think we have to think is what are the paths forward? And I think there's four paths forward. Path one is you somehow fix the spending, right?

Speaker 2 You cut entitlements, you change the retirement age, you somehow fix Medicare and Medicaid.

Speaker 2 And the reality is it's really hard to do that. And you have to pick some winners and losers.
And I don't think there's any political will to actually do that.

Speaker 2 It's just that it's not politically tenable to actually cut spending. Option two is that you somehow raise taxes to cover these deficits and the debt.

Speaker 2 And the reality is there's no political will to do that.

Speaker 2 Option three is what we have been doing, which is basically print your way out of it, just currency debasement.

Speaker 2 That's actually politically the most palatable because no one person has to take the fall for it. And it kind of feels good because the stock market kind of keeps printing all-time highs.

Speaker 2 And so the number is going up. So people feel good, but it's politically palatable, but it's actually like long-term has real consequences.

Speaker 2 This exacerbates wealth inequality, for example, because if you have assets, you're doing fine. If you don't have assets, you're kind of screwed.

Speaker 2 And so that's option three.

Speaker 2 And then option four is you grow your way out of it, which is, you know, you hope that AI productivity happens and all this infrastructure spending actually turns into something real.

Speaker 2 And so if you assume that like there's no political will to actually solve these problems meaningfully, then really option three and option four are the only paths forward from here.

Speaker 2 And if you believe that as a capital allocator, I think you have to do two things.

Speaker 2 You have to say, look, I need to allocate a significant portion of my assets towards things that are fixed supply, that are hard to replicate, that the government will have a difficult time creating more of, that is hard to seize.

Speaker 2 And that pushes you towards things like gold. That pushes you towards Bitcoin and Ethereum.
That pushes you towards the California coastline.

Speaker 2 Like the government can't create more California coastline. It's just there's a fixed supply there.
So, you know, I think it sort of reshifts how people think about. their assets.

Speaker 2 And then in category four, it's what are the high growth things?

Speaker 2 Like, what are things that can have a yield and have a return profile, a compounding return profile that outstrips all this inflation and debasement and the potential significant inflation that's downstream of all these things?

Speaker 2 And so you have to be in high growth tech. That's the only thing that can grow 30, 40, 50% a year plus.

Speaker 2 And so at a portfolio level, you can compound at a rate that you can outstrip all of this stuff. And so I think you end up in a very barbel situation.

Speaker 2 Like I think you end up with a lot of fixed supply assets and I think you end up with a lot of high growth tech. And I think a lot of other stuff just gets crushed.

Speaker 2 Like I think, you know, government debt, government bonds, a lot of private credit,

Speaker 2 you know, a lot of private equity that's not high growth, things that are compounding

Speaker 2 15% a year. That's just like not enough, in my opinion, to really be high growth.

Speaker 2 So I think it actually, for people who understand what's happening on the backdrop, I think it's you're, you know, most capital allocators, I suspect, are

Speaker 2 very underallocated to these fixed supply assets, especially the novel ones, where most of the capital markets have not figured out that they need exposure.

Speaker 2 And they're probably underallocated to high-growth tech.

Speaker 1 I'll also throw some things: commodities,

Speaker 1 equities, as you mentioned, real estate, whether California Coastline. I have a whole thesis on Miami high-end real estate and Miami Beach high-end real estate.

Speaker 1 I think that's kind of almost an index to billionaires. You also have sports teams, which are these essentially NFTs for billionaires, and

Speaker 1 which essentially has played out over the last 10 years.

Speaker 1 One thing that I'm still trying to square, frankly, and I've had some high-profile guests, I've pushed them on this inflation, and they keep on basically pushing me towards the CPI.

Speaker 1 So CPI lasts 12 months, 2.9%. If you take away food and energy, 3.1%.

Speaker 1 But if you look in terms of like ground truth, what is getting more expensive, that is more or less reflective of goods. Now, you could say real estate and other assets

Speaker 1 have grown faster, but how do you reconcile kind of the purchasing power only going down by 3% versus what people in crypto will say, you know, true inflation is 7% or 10%?

Speaker 1 Reconcile that for me.

Speaker 2 Yeah.

Speaker 2 Well, there's a thing I learned in product development, you know, doing startups and working at Google and Meta, which is sometimes what you'll have is you'll have all your metrics will say one thing.

Speaker 2 And then if you go talk to a bunch of users, they'll say something different. Right.
And so like if all of your metrics say, oh, yeah, our users really, really trust us.

Speaker 2 And then you go talk to 100 users and all of them say, yeah, we don't really trust you. The answer is not that the users are wrong.
The answer is that you're not measuring the right thing.

Speaker 2 And I think that's basically what's happening with inflation. Like, yeah, like you can look at some CPI metrics.

Speaker 2 You can like argue over the minutiae of like when we changed how these things are measured in the 70s or 80s or whatever, that we like. changed it.
That's all minutiae.

Speaker 2 I look at, wait a second, what are people on the ground

Speaker 2 And if a lot of people on the ground are saying, I can't afford the quality of life that my parents had, I can't buy a house, I'm choosing not to have kids, like that, that is the data point that the users are telling you that you're measuring the wrong thing.

Speaker 2 So I think we're just measuring the wrong things. And the kinds of things we should be measuring are like, you know, what percentage of people under 30 are married?

Speaker 2 What percentage of people under 30 own homes?

Speaker 2 You know, what is the debt load that we've put on our young people?

Speaker 2 You know,

Speaker 2 who is doing the spending? So like you were talking about the, you know, Miami Real Estate Billionaire Index.

Speaker 2 I saw some data that showed that like half of consumer spending is now the top 10% of Americans, right? Which is really bad.

Speaker 2 That means like there's a lot of people who can't afford to spend anything right now. And or the people who have a lot of money can afford to spend a lot and everybody else can't keep up.

Speaker 2 So there are all these other measures that I think you could look at that sort of map to the lived experience of a lot of people, which suggests to me that we need to be measuring other things.

Speaker 2 And so I sort of fall into the camp of, I think we're probably measuring the wrong things. Like I think CPI is probably not an accurate measure of what's actually the lived experience of most people.

Speaker 2 And it's sort of a wonky economist like, oh, but it does. And

Speaker 2 my take on that is no. Like if you go talk to 128-year-olds and they're telling you that like something is broken, then probably something is broken and we need to be changing what we measure.

Speaker 2 That's what any good product company would do, right?

Speaker 2 Any good product manager who's like built products would tell you that, like, you're, if, if, if that is the experience, you know, you're talking to users, and the users are saying something is broken, I'm not happy, and all of your metrics say, well, why aren't you know, my metrics say you should be happy, that means you're not measuring,

Speaker 1 yeah, uh, the finance equivalent is it's not on the spreadsheets.

Speaker 2 I think there's there's elements to that too, which are really hard to quantify, right? Which is,

Speaker 2 and you're starting to see it play out, which is, um,

Speaker 2 it's hard to know what's moving it, but you can feel it. I'll get, I'll give you like a concrete example.

Speaker 2 Like if you have a lot of people on the ground, if you have young people saying, I'm not going to get married, I'm not going to have kids, I can't afford to buy a house, then something upstream is broken.

Speaker 2 And so the question I would have for the economist or the Fed or whoever is like, what should we be measuring?

Speaker 2 If we're seeing the output, like what the question here really is like, what are the inputs? Because we know what the outputs are. And the outputs are people having fewer kids.

Speaker 2 We know that the outputs are fewer young people own homes. We know that the debt load on young people has gone up.

Speaker 2 So like, if those are the outputs, what are the inputs that would tell us that these things that we think are important, right?

Speaker 2 People getting married and having kids and owning homes and feeling stable and feeling optimistic about the future, like all of these things

Speaker 2 are the outputs. And so what are the inputs that we should be measuring? Because it's probably not what we're measuring right now.

Speaker 1 I've given a lot of thoughts to this because I hear both perspectives.

Speaker 1 And just to steal a man, the economist side is there's a lot of independent agencies, there's different universities, there's different.

Speaker 1 It definitely is not this global conspiracy where there's these 10 people at a table deciding that CPI to price it low. There are independent actors, so there's no conspiracy there.

Speaker 1 But I think it's if you look at spend and housing is a big spend, and I think it really just comes down to real estate has appreciated higher than wages and interest rates are high, so you can't really borrow your way into it.

Speaker 1 I think that's kind of the back of the napkin explanation.

Speaker 1 Then all the other expenses beyond real estate are kind of maybe they're growing at this 3%, but real estate is, that's kind of my best explanation.

Speaker 1 It's not very scientific, but I think there's some confluence of factors that are driving. And also, I think people want to live in cities.

Speaker 1 They don't want to live in the suburbs where the prices might be a fifth of the price and they could actually afford to have their home.

Speaker 1 I think there's all sorts of things being confluence of factors going into that.

Speaker 2 The real estate thing is a big thing. I think the move towards cities is a thing because then you need enough housing for those people.

Speaker 2 That is sort of a downstream effect, I think, of economic and tax policy, right? It's like,

Speaker 2 where have we enabled job creation? Now that we're 30 years into the creation of the internet, how have we not given more thought to how to take some of that and make sure that it's not just

Speaker 2 10 zip codes in the Bay Area that benefit? How do we really make sure that those benefits are

Speaker 2 available in other places? How do we make sure that

Speaker 2 high-skilled manufacturing doesn't leave the United States? Because those jobs would be created in some of these other places that have a lot of land that's cheap and build up big factories.

Speaker 2 I think housing is is a big part of it. I think there are other sort of like economic policy and geopolitical things that have been just abject failures for the last 30 years.

Speaker 2 I think there are like tax policy things that have been just abject failures for 30 years.

Speaker 2 I think there is this sort of, you know, lie that we told a bunch of people that you should go to college and just get any degree, which has not been true for 20 years.

Speaker 2 And so all these people took on a bunch of debt.

Speaker 2 And, you know, the sort of the way that government financing worked on these, you sort of gave these people a bunch of debt,

Speaker 2 which is really bad. So, just like poor economic decision-making, planning, and guidance being given to a bunch of people, and market forces taking over at that point with low-quality education.

Speaker 2 I think you're right. I think it's a big part of it.
I think

Speaker 2 there are other things that are big parts of it too, which lead to the intangible. So, that's, you know, it's hard to measure that.
It's like, what is it?

Speaker 2 I'll give you a, there's a, you know, I grew up in the Midwest. So I grew up in Kentucky and Ohio.
And so what I think about is if you do the back of the envelope math, right?

Speaker 2 Let's say you were born born in 1982.

Speaker 2 So, you were 18 in the year 2000, right? And you did what you were raised to do, like as a good Midwestern American, you know, young man. Like, let's say you did the right thing.

Speaker 2 You went to church every weekend. You like, you were a good member of your community.
9-11 happens, so you sign up for the military. So, what do we do?

Speaker 2 We like ship you off to like Iraq and Afghanistan. You know, who knows what you had to do there.
Maybe you learned some skills, maybe picked up some PTSD.

Speaker 2 You come come back and you didn't go to college yet, right? You're like 18 or 19 when you shipped off, maybe 20.

Speaker 2 And so maybe you try to go to college for a few years, pick up some skills, or maybe you go work in construction for a few years after you're back from your four-year tour of duty.

Speaker 2 And like two or three years into that, you get 2008. So you get a crash.
And so now all the construction jobs are gone. And you didn't finish your education.

Speaker 2 Or if you try to get an education and get out, maybe the job market kind of sucked for a few years.

Speaker 2 And so now it's, you know, you're, you know, in 2012-ish, like the market's been kind of up and down for you. You don't, you didn't accrue any assets.
You didn't have have any money.

Speaker 2 You didn't get to participate in the stock market boom after the internet came back in 2005 because you were too young. And so now you're like 30, maybe you have a kid.
What are you going to do?

Speaker 2 Like, are you going to go back to school? How are you going to like, who's paying for the child care? Who's taking care of your kid or your kids?

Speaker 2 And your spouse is probably in a similar situation. And so now those people are like 40 or 42, 44.

Speaker 2 Like, what do you do with this entire generation of people that basically did what they were supposed to do, right?

Speaker 2 They went to high school, they like tried to get a college education, they signed up for the military and got shipped off for four year duty.

Speaker 2 And they're like good, upstanding people, but now they're 40 and they don't have any assets.

Speaker 2 And this is like a non-trivial portion of the population.

Speaker 2 And so even if you fixed housing, I don't think you would capture the fact that

Speaker 2 a lot of what the social contract was for these people,

Speaker 2 the government kind of broke the contract. Like society kind of broke the contract with those people.
And those are the people that I worry about.

Speaker 2 Like even if you fixed housing, I think there's like 10, 20% of the population that's now stuck in this situation. And we don't really have a plan to get those people out of that situation.

Speaker 2 And we haven't for the last 20 years, right? It's not, this is like not a new thing. It's like, even if we built all the housing we wanted, like what gets those people out of that situation?

Speaker 2 And so that's why I think you need the like, okay, well, what is like the economic plan?

Speaker 2 What is what is like the strategic plan to get high-skilled manufacturing or to have solar manufacturing in the states or to have battery tech back or have you know robots or whatever it's going to be

Speaker 2 like I think without that, it's

Speaker 2 you're going to, I think maybe a succinct way to put it is I think if you fix the housing thing, I think you would help a lot of people, um, undoubtedly.

Speaker 2 I worry it doesn't fix the problem for another 10 to 20% of the people. And those are actually,

Speaker 2 we need to bring those people along too.

Speaker 2 It's, it's, it's a big part of the doom loop that we're in if we don't fix it, which is because then those are the people that are on Medicare and Medicaid, right?

Speaker 2 Because they, they got messed up in Iraq and, you know, they're on disability.

Speaker 2 Or, you know, those, those are unfortunately the people that if you got the PTSD, then like some company was pushing opioids on you. And so you ended up with like an opioid addiction.

Speaker 2 And now you're fucked for the last, you know, 10 years. And so now you're on, you know, disability.
And so all these things I think are like very, very tied.

Speaker 2 As a country, I think we let a lot of people down.

Speaker 2 And so we let a lot of hardworking middle class kinds of people down with the housing situation that we put a lot of young people into. And I think we let a lot of

Speaker 2 what would have been otherwise middle class people down because we took away the blue collar path to the middle class. And then we kind of fucked those people for the last 20 years.

Speaker 2 And

Speaker 2 that's like now the undercurrent because that's what creates the fiscal spending, right? It's like if you have all these people on government programs, like that's what's creating the problem.

Speaker 2 And so I don't think we can like fix the government spending fiscal situation that we're in and the money printing situation we're in without like addressing the underlying thing, which goes back to what you were talking about, which is like, well, if everybody's saying, I have a problem and the inflation is not showing that we have a problem, do we have a problem?

Speaker 2 And my assertion would be like, the inflation doesn't capture any of that.

Speaker 2 The inflation doesn't capture the fact that we put all the, you know, got all these people on opioids and we put all these people into a war situation and came back with PTSD and now all these people are 40.

Speaker 2 And so, like, what do we do with that population? People? And I don't think that none of that, in my opinion, is captured in the CPI metrics.

Speaker 1 Yeah, that's heavy. What are some policy prescriptions?

Speaker 2 AI might be the way out, right?

Speaker 2 Between AI and robotics, we have a shot.

Speaker 2 We need to build like giant energy plants. We got to get like, you know, nuclear reactors built.
We got to figure out how to like build, you know, data centers in all these places.

Speaker 2 We got to figure out how to get robots so that we can actually, as all these people get old, we'll have robots to help take care of people and everybody can have a personal doctor, right?

Speaker 2 And so there's a lot of building to do. We need like a proper national strategic plan to go do these things because these are the kinds of things that a good government could do.

Speaker 2 And these are sort of beyond the scope of any one capital allocator.

Speaker 2 Like, I think we can all kind of do our part and say, hey, hey, look, high growth tech, if done well, means everybody gets a teacher, everybody gets a doctor, everybody gets a robot in their home to help them as they age.

Speaker 2 This will be awesome. And so, like, as a VC, I can invest in that stuff.

Speaker 2 But without like a comprehensive government plan to think about how to like incentivize the right sorts of behaviors, it's very hard. You're swimming against the current.

Speaker 2 We saw this with digital assets, right? Like between 2020 and 2024, it was just swimming against the current. And it's so much easier now that the SEC is like, okay, let's be reasonable about this.

Speaker 2 And the CFTC is saying, okay, let's be reasonable about this. It's just night and day in terms of like company formation and founders.

Speaker 1 Do you think that created anti-fragility? Did that make that wave of company stronger having to deal with Gary Gensler and the previous SEC? Do you think that made them better?

Speaker 2 Yeah, it's an interesting take. I think it did, but it had some other consequences.
So it certainly did. I think like Coinbase is a much stronger company as a result of having to deal with that.

Speaker 2 But what it also did was it pushed a bunch of jobs overseas because there was too much risk to being in the United States.

Speaker 2 It created the FTX situation because what you got was people who moved to the Bahamas and had, there was no US oversight.

Speaker 2 And so all of a sudden you had all these people who looked like they were an American company back to your sort of opening around trust.

Speaker 2 And a lot of people trusted FTX because it looked like an American company, but they didn't realize it wasn't an American company. There was no American oversight, right? It was in the Bahamas.

Speaker 2 And so what you get are these like systemic issues where you've actually like hidden a bunch of risk. You know, you're actually gambling with your trust and the brand of the United States.

Speaker 2 You pushed a bunch of technical development overseas. So essentially, you're subsidizing technical development in other markets because of this policy.

Speaker 2 So it did make companies that survived stronger, but net net, I think, was negative because all these other externalities, right? Like as a VC, let's say I give them money to a company, right?

Speaker 2 And that company in this space says, okay, I'm a really talented founder. I have a PhD from Stanford and cryptography.
I'm going to start a company.

Speaker 2 But if they take half those dollars and hire a bunch of people in Southeast Asia because they're worried that the government here is going to try to shut them off and and they need resilience in their business.

Speaker 2 So, the business doesn't get shut down. What you essentially just did was took millions of dollars and trained a bunch of people in Southeast Asia how to become really good cryptographers, right?

Speaker 2 Which is like the opposite of what a good economic policy would do. A good economic policy would say, wait a second, this is like important technological development.

Speaker 2 Let's not subsidize the creation of expertise overseas. We should be creating expertise domestically, right? And so I think the externalities actually outweighed the sort of anti-fragility.

Speaker 1 Going back to 2018, you started out with a $15 million fund. You now have over a billion AUM.

Speaker 1 What is one piece of advice that you would have given the younger version of yourself in 2018 that would have either accelerated your success or helped you avoid mistakes?

Speaker 2 That's a good question.

Speaker 2 I don't know if there's

Speaker 2 sort of two forms of that question.

Speaker 2 One form of the question is like, what are the mistakes that you could have avoided? And I think there there are relatively few mistakes that we could have avoided knowing what we knew at the time.

Speaker 2 You know, it's sort of like a bad mistake is like, if you knew everything you knew at the time and you should have made a different decision, then that's a bad mistake.

Speaker 2 If you sort of like given all the information you had, you probably would have made the same call, then that was a right mistake. That was an okay mistake, and you can learn from it.

Speaker 2 I think probably

Speaker 2 the biggest one is to just be patient. I think the hard part, especially when you're early in the investment career development, is you know, these theses can take years to play out.

Speaker 2 And so you can be directionally right, and it's kind of working, and it just will take a couple of years to really fully prove out.

Speaker 2 And if you're willing to be patient, then you can make really long-term-minded decisions.

Speaker 2 It's a sort of a luxury now that we have that we have a brand and people know us, and we have a great LP base that trusts us and so on, that we can just say no to a bunch of stuff.

Speaker 2 And I think, you know, it's easier. It's just because, because you know, if

Speaker 2 you're willing to be patient, you have the luxury of willing to be patient.

Speaker 2 Whereas I think when I go back to like 19, 20, 21, I think there was a lot of sort of FOMOing going on. And I think we ended up investing mostly in very good companies.

Speaker 2 We just ended up paying too much for some of them.

Speaker 2 And so, as a result, you know, you, you know, in retrospect, like, I think we could have said, hey, you know, we just won't make some of these investments.

Speaker 2 And it'll be really painful because we won't be involved with some good stuff. But from an investment perspective, we won't overpay.

Speaker 1 Unpack why it's easier to be patient. So it's just you have higher status, you have more management fees, you have less scarcity and more reputation.
Or why is it easier to be a patient today?

Speaker 2 All of the above. I think for venture in particular, I think a big part of it is that you can't be out of the game for long enough.

Speaker 2 Like if you're not in the flow, if you're not in the conversation, if you're not top of mind, then when the market does turn, whenever that may be, you're not not going to be one of the ones that people are coming to because you didn't do the last four investments or the last six times that those founders came to you.

Speaker 2 You just keep saying no.

Speaker 2 And so you're sort of swimming against the current a little bit if you, if you sort of sit it out for too long. And so you have to be really careful about where you're sort of still in the game.

Speaker 1 Maybe to reframe that,

Speaker 1 beta during frothy markets is the price you pay for alpha in good markets.

Speaker 2 I think there's some truth to that. I think there's also a, you know, like, how do you call the top question?

Speaker 2 Like, there are people who have been calling the top since like 2012, right? They're like, oh, it's over, it's over. Like, tech is frothy.
You can go back.

Speaker 2 There's like every two years, there's an article about how like Facebook is overvalued and Google is overvalued and it's all going to crash.

Speaker 2 And if you, if you sort of took that approach rather than a, you know what, like, I don't know when the top is, I don't know when the bottom is. There's good companies all the time.

Speaker 2 And if you get the NVIDIA of that cycle, nothing else matters. And so I'm just going to be slow and steady.

Speaker 2 If you try to time it, then you may have sat out 2012 to 2020, which was like an epic, epic window to be investing, right? Even though for many years, 16, 17, 18, 19, 20, people were calling tops.

Speaker 2 They're like, this is zero interest rate, Zerp, like bad, bad, bad, bad. But actually, there are some great companies created between 16 and 20 in the Zerp era, right?

Speaker 1 So I've been spending my time more with politicians, not because I'm getting more political. I just think that it's underpriced.
So I don't think macro investors do a good job pricing in politics.

Speaker 1 One of the things that's very obvious to lobbyists, politicians, all these people is how

Speaker 1 the power of incumbency. So something like 95% of incumbents win in Congress every single two years.

Speaker 1 And the reason for that is they make these policies that make it easier for incumbents, Democrats and Republicans, to win. And one of those gauges is the stock market.

Speaker 1 So, there's this interesting idea that incumbents will never allow the stock market to

Speaker 1 be down for more than a kind of a two-year cycle. Essentially, they're going to, the negative aspect is they're going to inflate that away.

Speaker 1 It's not only the Fed that has the Fed, but it's also kind of the government and the president that's kind of buttressing these assets.

Speaker 1 You want to ride the upwave and also when there's a downwave, there's a good chance it won't be, it'll be temporary because of this kind of pressure from incumbents to

Speaker 1 buoy the market.

Speaker 2 Yeah, I agree with that. Hence the money printing, hence the debasement of currency, because the politically expedient thing

Speaker 2 to do. Yeah, the politically expedient thing to do, unfortunately, is to not have a five-year, let's fix the market.

Speaker 1 And then to gaslight the public into their perception that things are getting more.

Speaker 2 Yeah, it's just the way the election cycles work. It's just that's not the politically viable option.
And so that's not supposed to happen. And so,

Speaker 2 yeah, you know, and I think the other thing I worry about with that, too, is, you know, it's true until it's not, right?

Speaker 2 And so at what point does that does that break? And hopefully it doesn't break. Hopefully, you know, we have a long, long way to go and we can manage it.
And hopefully we can grow our way out of it.

Speaker 2 You know, like all these problems go away if you can grow your GDP at 3.5% a year, right?

Speaker 2 It's just like if you can manage to grow 3% a year instead of 1.5% a year, most of these problems just kind of go away, in my opinion.

Speaker 2 You can actually pay your debts, you can service the costs, you can pay for your old people, like everything works.

Speaker 1 The most bullish factor I see in AI specifically is that it's not just that

Speaker 1 the early adopters are lowering down their costs.

Speaker 1 You have this kind of seat-strapping idea where at Henry Xi, who runs the AI startup leaderboard, where you have like these two, three people teams making it to unicorns.

Speaker 1 You have that, but it's also on the revenue side. So a lot of people think it's just lowering costs.

Speaker 1 But now, if your three salespeople could do the work of 30 salespeople, you're also able to scale more on the revenue side. So, you're both lowering costs, increasing revenue.

Speaker 1 So, it's a pretty bullish, at least early signal. And it doesn't seem like AI is limited to technology in any way.

Speaker 1 It seems nobody has really found a limit to AI, even within the commodity space, in terms of like order flow and all these things that's disrupting and helping that. So, that is my

Speaker 1 bullish case for the future.

Speaker 2 Yeah, I think we have a a real shot.

Speaker 2 The fact that

Speaker 2 so many of the world's leading researchers and leading foundational models are all based in the United States,

Speaker 2 the Chinese ecosystem is doing some great work too. But yeah, the U.S.
has a real shot here.

Speaker 2 And there's a lot of building to do. I think even if you set aside just pure software layer, it's just like the infrastructure spend that's going to be required to build data centers and power and

Speaker 2 just the plumbing to make all this stuff work, I think is a potential economic boom.

Speaker 2 I mean, I think if we we could rejuvenate some of these communities that have been left behind, I think you might fix a lot of these problems. Like, growth is the best way out.

Speaker 1 Well, Avishal, we only got to a third of my questions. We got to run this back soon.

Speaker 1 Thanks so much. Really enjoyed it and looking forward to continuing this conversation live.

Speaker 2 Likewise, thank you. Thanks, Avish.

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