[REPLAY] Ben Forman – Opportunities in DeFi (EP.256, Crypto for Institutions 2, EP.03)

29:56I'm curious, in practice, in a decentralized system, who would be aggregating these risks to actually see what's going on? So it's a great question. There are certain data-related services that are built to identify risks and track risks. So there are lots of different blockchain explorers that are built by community members that can flag risks in a network. There's also Twitter, which is wisdom of the crowds, a collection of people that are just constantly staring at blockchain-related data and identifying anomalies and raising their hand and saying, hey, this doesn't look right. And then there are smart contract auditors, which are a little bit different, but they assess the overall architecture of these networks, both from a code standpoint, as well as from a game theory and behavioral standpoint to ensure that there aren't edge cases that can be exploited.

30:57So certainly it's not perfect today, but the risk management around these networks is improving very quickly. You touched on this idea of kind of security tokens of gold and Amazon stock. Where are we in terms of, call it traditional assets, being either traded or lent against in the Web3 world? So zooming out, crypto today is about 20 basis points of all global assets. So it's a trillion and a half asset class. Global assets are roughly$600 trillion. And that number has gone from basically nothing to 20 basis points. If you really break down the trillion and a half, there are several different categories.

31:45There are things like Bitcoin, which are stores of value. There are operating systems or smart contract platforms, commonly known as layer ones, like Ethereum, like Solana, et cetera. There are applications built on top of those smart contract platforms, typically DAOs or these different DeFi applications. And then the fourth category is real world assets that are ported over and tokenized and brought on chain. That last category, the biggest bucket within that category is stable coins. So stable coins are about 200 billion of the$1.5 trillion in the blockchain space. And these are, in some cases, dollars in bank accounts backing tokens on the blockchain.

32:32And those tokens are redeemable one for one. There are also stable coins that are not backed by real world assets. There may be backed by digital assets over collateralized or backed by fictitious assets. And so that's the biggest category of stable coins. Outside of stablecoins, there are stablecoins, I would say, are probably 90, 95 % of all real world assets brought on chain. That number's moving lower over time. So stablecoins and certainly algorithmic stablecoins have been in the news recently with Terra and Luna. I'd love to get your help understanding what portion of stablecoins are backed by assets and therefore the one-for-one exchange is, let's call it, stable.

33:17Sure. About 75%. So of the$200 billion, about$150 billion are fiat-backed stablecoins. The largest one is Tether. The second largest one is USDC. And then there are a longer tail of others. Now, the final$50 billion are two categories, so credit-based stablecoins and algorithmic stablecoin. So in the credit-based stablecoin category, you may have$3 of Ethereum or$2 of Bitcoin backing a$1 pegged stablecoin. There's no dollar in a bank account in the real world. It's money created through credit. So it's almost like M2 instead of M1. And that category has exhibited a significant amount of stability over time and is growing.

34:09And then the second non-fiat-backed category are these algorithmic stablecoins. That's where UST falls. There are dozens of these algorithmic stablecoins that have been launched over the years. Most of them have failed. Some of them have temporarily failed and revived. There's just quite a bit of experimentation there. So I'd love to go through aspects of each of these three categories. So if the fiat money backed stablecoins, is there leverage in that system? So if you look at something like Tether, they come out with some transparency reporting. The last I looked, about 80 % of the assets backing USDT were in cash.

34:53The other 20 % We're in short-term securities, T-bills, some commercial paper. And really the way I think about fiat-backed stablecoins is they're almost akin to IOUs or credit issued by the institutions that are issuing the stablecoins. So if you own USDT, you're taking tether counterparty risk. How do you price that? What return do you need to earn to make that worth your while? If you own USDC, you're taking kind of circle counterparty risk, and you're making a bet on their risk management. It's no different than having a checking deposit with JP Morgan or Bank of America. You're ultimately taking the risk of the issuer.

35:35So I'd love to turn to any of your other favorite INGs. I'm excited about DeFi scaling. And my hope is that, and my sense is that people won't even use the term DeFi in five to 10 years. It will just be called finance because we don't call finance today centralized finance. It's just called finance. But I envision really DeFi as being the back end for all capital markets and financial activity. And the largest consumers of DeFi will be banks, will be fintech companies, and will be institutions. It's very complex to interact with DeFi applications. And the reality is, is most people just don't care about finance or blockchains.

36:24So the most of the people that are using DeFi applications today are, it's a self-selected group. But to scale DeFi, and DeFi since inception, there may have been roughly four to four or five million wallets, unique wallets that have ever interacted with DeFi applications, not that many. In order for that number to grow to 100 million to a billion and beyond, I think you need really two things. So you need abstraction. You need a layer on top of DeFi that abstracts away the complexity of using it. So the concept of people downloading self-custodial wallets, writing down 12-word seed phrases, understanding gas prices, and then being able to make risk assessments around which DeFi applications are safe or which ones are not, that doesn't scale beyond four or five million people.

37:21You want a world where people are using DeFi without even knowing that they're using it. It's really invisible. It's powering the backend because it's better, faster, cheaper. And so in order to get that, you need folks like Robinhood that are sitting on top of these DeFi applications, are using them on behalf of users, are risk managing, and are kind of the gateway. So really DeFi scaling is in my mind a D to B to C distribution model, DAO to business to consumer. You need that kind of layer in between. Not dissimilar from email. When you send an email, no one thinks about using SMTP. You just use Gmail or Microsoft Outlook and it works.

38:08You need that application layer. What's the second feature needed for scaling? So it's what's being called permissioned DeFi. And it's very important. And it actually could be one of the most important themes in crypto today. The idea of permission DeFi really comes from a problem. And the problem is that many regulated institutions cannot interact with blockchain applications today due to compliance and regulatory reasons. You don't know who your counterparty is when you're interacting with a smart contract. And earlier this year, the EU parliament passed KYC AML measures that basically said, whenever you're transferring crypto or whenever you're interacting on chain, you need to know who your counterparty is.

38:58And that's very problematic for institutions and is keeping a number of institutions who are otherwise interested in the space on the sidelines. And so that's really where permission DeFi comes into play. So I think just taking a step back. The DeFi that we use today is really this idea of permissionless DeFi. Anyone can show up to a website and connect their non-custodial wallet and start partaking in finance. Without any login information, usernames, passwords, you can just start using things. And that has scaled very quickly, but it just doesn't scale beyond the few million people that are really using these networks today for the reasons I mentioned.

39:49It's not institutional. So permission DeFi describes a new system where addresses are whitelisted by a centralized authority after they've gone through KYC AML. So just an example of this is imagine the big banks in the US, Goldman, JP Morgan, Bank of America, coming together and saying, hey, we want to build a trading venue on top of Ethereum. But the only people that can participate in it are those that have gone through KYC AML. And if they do make it through that process, they'll get an NFT in their wallet. If they're a qualified purchaser, they'll get a certain NFT. If they're an accredited investor, they'll get another NFT.

40:36Depending on which country they're located in, US, non-US, they're going to maybe a third NFT. And based on these identity verifications, memorialized these NFTs, they'll be allowed to use our architecture and our system. So it's permissioned, it's whitelisted. These are closed smart contracts, but they're still built on top of open networks. We're going to take a quick break in the action. to tell you about SRS Aquium. Want to make sure your M &A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches.

41:27Professional shareholder representation, online M &A payments, digital stockholder solicitation, SRS Aquium pioneered each and continues to set the bar for game-changing innovation. So leave the days of disjointed deal management behind and define your future with SRS Aquium, the smartest way to run a deal. Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. If we need this permissioned DeFi in order to scale, I'm curious what that implies for the large percentage of the world you mentioned earlier that are unbanked. And does that somehow the need for KYC type things for certain types of trading come in the way of those people entering a banking system through DeFi?

42:24Potentially. I think there's always a trade-off. We've decided on a global scale that money laundering is a bad thing. And we don't want criminals, terrorists interacting with the financial system. So there is a trade-off between just being totally open and letting everyone interact with financial products and being inclusive. And it's interesting because sometimes when you think about this state of the world, many would say, well, what's the point? Isn't that the world we have today? The whole point of this is that it's permissionless. And the reason I'd push back is I would say that's one benefit of DeFi and blockchains is that they're censorship resistant, they're permissionless, anyone can use them.

43:06But there are a laundry list of other really important benefits as well that I would highlight. So one, you have instant settlement when you're using DeFi. So it's not T plus two settlements for equities or T plus 20 for bank loans. These are all bearer instruments. So there's no global working capital drag from all the unsettled trades in the world. It happens instantly. That's powerful. The second is that within permissioned DeFi, there's still reduced platform risk. So we all saw what happened with the LME. when they canceled nickel trades, or what happened with Robinhood and GameStop, when they simply said, you can't buy GameStop.

43:53And there is judgment risk or platform risk you're taking whenever you're interacting with any financial product today, because you're doing it through a centralized authority. And in permission DeFi, there's not that same degree of risk, because you have the trust guarantees of interacting with a blockchain application. The next thing that comes to my mind is really that all the activity within permission DeFi is completely transparent and open. It's not in dark pools. So everyone can see tick by tick data, activity of all the participants in traditional finance, that data you have to pay exchanges for, or they don't disclose it.

44:37And you think about the traditional financial system, you have 13F and 13G filings where you have hedge funds that say, hey, here's what I own. They report that quarterly. The beauty of permission DeFi and permissionless DeFi is you can see every single wallet's ownership in real time and how it changes, including insider activity. And so those are, I think, the types of things that really make markets more efficient. You can build all sorts of new bespoke structured products because really you're only limited by the human imagination. It's really the intersection of software and finance. So anything that can be thought of can be designed through code.

45:15So for all those reasons, I still think permission DeFi is incredibly interesting, incredibly powerful, and probably will be orders of magnitude larger than the DeFi that we know today. All right. Well, you mentioned a couple other INGs earlier, and you're always going to peek my ears up when you mentioned indexing. So I'm curious to hear where indexing comes into play in DeFi. I think indexing is this idea of being able to buy a token that represents an asset management product. And so that could be an ETF, that could be a more actively managed product. And I think if you think about that category today, it's grown quite a bit, but it still has, I would say, limited product market fit.

46:01I mean, if you think about the financial system, Vanguard, Fidelity, BlackRock, State Street, ETFs are pretty efficient. You can buy S &P 500 exposure for a few bips. So I think we'll continue to see growth in that area. There hasn't been as much demand for people that want to buy index funds in crypto. people want to pick tokens and catch the next 100x. How about hedging? So hedging is really interesting. I think about hedging in the same category as insurance. It's how do people buy financial products that protect them? And one of the things that we've seen in talking to institutions is that they want to use blockchain-related products, but they're uncomfortable underwriting smart contract risk and software bugs and hacks.

46:53There's no FDIC insurance in crypto. So there are a few different insurance-related protocols that are popping up. One is called Nexus Mutual. This is an Ethereum-based insurance marketplace. It's regulated in the UK. And the way it works is you can show up to Nexus Mutual and you can buy a policy that insures against a particular protocol having a bug. So one example is, let's say you're lending out stable coins on Aave earning 5%, Aave being a decentralized money market, and you're uncomfortable with the software risk of Aave, you could buy an insurance policy on Aave from Nexus Mutual for say 50 basis points a year, rough numbers.

47:45So instead of making 5 % uninsured, you're making 4.5 % effectively mitigating that risk. And so it's an interesting product. Within Nexus Mutual, there's this capital pool that pays out claims. There's roughly$400 million in the capital pool. There's roughly$20 million a year of annualized premiums being paid in. And it's an interesting experiment. It's gone on for a couple of years. It hasn't really scaled. Again, I think people are, most of the capital in crypto today, it has been more risk seeking rather than focused on risk mitigation. So insurance is still kind of finding its legs. One of the INGs you didn't mention, but that comes up a lot is governing.

48:28And we hear about DAOs as a governance mechanism on the blockchain. It strikes me that it'd be pretty important within DeFi. And we'd just love to hear how that kind of governing piece with DAOs, when it's important in DeFi. So DAOs are really just a new way to organize people and capital. It's really just a new step forward or new evolution of an LLC or corporation. really everything in DeFi is a DAO. Whether it's a money market platform or a decentralized exchange or an insurance protocol, a DAO really refers to the equity, almost the equity piece of the capital structure that governs that piece of software.

49:18So one example, back on the point on insurance, I was mentioning Nexus Mutual. So there's a token called the NXM token. And anyone that owns NXM has a direct claim on the money in the capital pool, which is roughly 400 million. Plus, they theoretically have a future claim on all the premiums paid in from people buying insurance policies, less the claims paid out. And with respect to what types of insurance policies should be provided, if the DAO should be paying anyone, any fundamental changes to the protocol need to be voted on by NXM token holders. So anyone that owns an NXM token is theoretically part of the DAO.

50:11Whether or not they want to participate in governance is a different story. I think most people within DAOs or who own a token tend to just be completely passive. There tend to be a small group of people that really care, and then a long tail of people that really don't care. So everything in DeFi really fundamentally is a DAO. It sounds like, sorry, in that NXM example, that the DAO ends up being used as a form of capital allocation in the sense that you're deciding on what policies to write, you're deciding on how capital gets spent. So I'm curious how capital allocation works in DAOs. I think about these DAOs and these applications almost as being toll booths on the internet.

50:58Like if people interact with them, they take a small cut. And that value accrues to a smart contract and accrues to a treasury. Very similar to if a company in the real world earns cash, it accumulates in their bank account. If a company wants to return that cash to their shareholders, they can either issue a dividend, they can use that cash to buy back stock, or they can decide to invest in growth and distribute that value to employees or people helping their company. So it's very similar in the Dow space. So some of these earnings get funneled to token buybacks, which are akin to stock buybacks.

51:43Others are just distributed as a dividend to token holders. And then the last category is just sometimes in certain cases, these earnings just accrue to a treasury over time. And people can apply to DAOs and say, hey, I'm a developer or we're a group of five developers. We want to perform and write this type of code, perform these services for the DAO. We'd like to earn X amount of dollars for our services in the form of stable coins that looks like you have in your treasury, as well as tokens. And then what happens is token holders of this network come together, evaluate this proposal and vote on it.

52:27So a network like MakerDAO has something on the order of 50 different core units that are each responsible for the finance and accounting of the DAO, the growth marketing strategy of the DAO, the core engineering services, and they all have to apply to the DAO for compensation on a periodic schedule. So there's roughly$40 million a year of expenses that are being paid out to over 100 different individuals contributing to that DAO. So it's very similar to a company in that sense. But there's no board of directors, no management team, and the workforce is very decentralized and distributed. I'm curious, as you get into that example where there is more complexity in a decentralized system, how do decisions get made?

53:20It's very messy and it's very challenging. It's much slower to build a decentralized network than it is to build a centralized company. I think about decentralization really on a spectrum. Even in the world of companies, when an entrepreneur founds a business and it's his or hers, they make every decision. It's on the furthest end of the spectrum. They have complete control. But as that business grows, they delegate more responsibility to others. There may be a board. There may be venture capitalists. Decision-making is more decentralized. Ownership is more decentralized. through that process, things may move a little bit more slowly because you have to get more approvals.

54:06Communication isn't seamless. So there's a trade-off. Centralization produces more speed. Decentralization tends to produce less speed. Same in the DAO and the DAO space and DeFi, et cetera. The more decentralized the network tends to be, the slower it moves. but everything's very much on a spectrum. We've seen a lot of challenges in building DAOs. I suspect that 98, 99 % plus of the blockchain applications, the DAOs that exist today, are not going to be around long term. It's extremely challenging. And in some ways, governance and human involvement is almost a bug. It's not a feature. You want these systems and networks to stand on their own two feet, almost as public utilities.

54:59So one of the frameworks that we apply when we evaluate projects in the space, and sometimes this is more as a thought experiment, we said, if no one touched the code of this network ever again, no one contributed to it, what would that future look like? Would it still continue to accrue cash flow earnings? Or is it reliant on people? Because if it's reliant on people, there tends to be more challenges with that. And you're taking a different type of risk. How do you think about the underwriting process and valuing tokens? So yeah, tokens are really interesting because they're very much a new asset class.

55:38They're the fifth asset class in the world. Pre-tokens, there were equities, fixed income, currencies, and commodities. And really every asset could be put into one of those four categories. Interesting about tokens is they're really a brand new category. There are thousands of tokens now that exist. And what's interesting about this market is there's no gap financial statements, no 10Ks or 10Qs, no investor relations department to call and ask questions to. You can ask people in a Reddit forum or on Discord or talk to core developers. But because there's no person calling the shots, you have to talk to a lot of people to really understand what's going on.

56:23But this market is one where non-standardized information, the information is very fragmented. And it takes a lot of work to really get your arms around what these networks do, why a token accrues value, and really what a roadmap looks like, and what the team around these projects looks like. So the way I look at our research process is we look at tokens not dissimilar from the way someone at KKR or TPG, the way we would evaluate a company. So we are understanding, is there a solid use case and product here? What do the competitive moats look like? Is this company or product gaining market share, losing market share, and why?

57:14What's the value capture and margins associated with the product that's being offered? Who's the team working around the product? Are they incentivized or not? Are they working on multiple things or not. So we look at all the same types of things that you would look at if you were looking at a company. In addition, you look at the integrity of the smart contracts and code that's been written and you vet that. And then the other point that I think is sometimes lost is most of these tokens are claims on cash flows. We think about them that way. Most of these DAOs, you can either look at a book value or look at fee capture, and you could run a discounted cash flow, look at a price to earnings multiple, and you can see all these metrics in real time.

58:03There's not quarterly reporting, but every, at least on Ethereum, and it varies blockchain by blockchain, every 15 seconds, you get a new 10Q with new information. And so you can digest this in real time. And we're constantly reassessing our investment thesis. One big difference in this asset class is you don't only have to decide what to buy. You have to decide what to sell and when to sell. In venture, you typically just make a decision of what to buy. And then you wait. You help a founder and then you wait. Yes, you can take off money in a secondary. but generally you don't control the decision of when to sell.

58:44In crypto, you make a decision of what to buy, but then you can also decide to change your mind if your thesis doesn't play out. So we've had this big sell-off in the prices of tokens and crypto assets. And I'm curious, for those that are generating cash flows as you're looking at them, what are the range of multiples if you're comparing it to equity multiples that you see in the DeFi space? We've seen things that have traded at like one times earnings or two times earnings. We've also seen things that are trading at 100 times earnings plus. And all of them have very differing growth rates. I think that it's helpful to be mindful of fundamental analysis in crypto, but you also don't want to rely on it too much for a specific reason, which is in crypto, things are changing very quickly.

59:35You can have a protocol that's growing 10x year over year, and then all of a sudden earnings fall off a cliff because of some dramatic shift in the landscape. Because of that volatility of earnings, you have to ascribe at a lower multiple. Because if you're looking out like five years, 10 years and saying, how much cash flow will this protocol do? Well, we can make assumptions, but we know we're likely going to be wrong or our confidence interval is much lower. So you have to ascribe a higher discount rate to those cash flows very far out. So because of that uncertainty, I think DAOs probably trade at lower multiples than companies, at least in the near term.

1:00:19Now, offsetting that, these networks tend to not have any capex. There's no balance sheet. some of them have very high cash flow conversion. Some of them are effectively 100 % margin because they'll just clip a little fee of every transaction and they kind of run on their own. So there's a wide range and everyone requires very individual underwriting. But that's how I look at it. As the market's traded down, I think what we've seen is in crypto, when the market trades down, everything trades down. And then when the market trades up, things tend to kind of diverge. So over short periods of time, you tend to have a lot of convergence or correlation.

1:01:03But over long periods of time, there's a tremendous amount of return dispersion in this asset class. I'm curious, in your activities, you do call it venture equity investing. You're actively engaged in kind of arbitrage type trading. you buy tokens. In the traditional markets, you often think of these as very different skill sets, right? There's a venture investor, there's arbitrage hedge fund, quant hedge fund, or whatever it is. Is that the same or is it different as you are participating across the spectrum of kind of traditional activities in the crypto landscape? I think the lines are blurred between tokens and companies.

1:01:40Sometimes we'll invest in a company and they'll end up issuing a token. Sometimes we'll invest in a protocol, but a lot of value ends up accruing to a company that's really helping build products on top of a network. The actual exercise of understanding those two is very similar. The liquidity profiles can be very different. The risk return can be different, but I think the muscle groups that you're using in terms of evaluating teams, products, markets tend to overlap quite a bit. On the credit side, in terms of using these products, market neutral returns, that is helpful in the sense that we end up becoming users of the networks that we're investing in.

1:02:23And when you use something, you learn a lot, you understand it more deeply. It's a different type of investing. It's more quantitative. It's more technical, but it does help inform how we make decisions and how we build theses across the board. So you mentioned at the onset, having used a DeFi app this morning, how does all that come together? So back in the early days of Perify, one thing we forced ourselves to do whenever we invested in any token is we wanted to use the product that was actually behind it. And so we were tinkering around with Compound and Uniswap and some of these first-generation DeFi protocols.

1:03:07And what we found by using these products is, well, we determined whether or not they actually worked. We understood then from first principles more how they worked and where they fell short. But then we identified that there were all these inefficiencies within DeFi. You may be able to borrow a stablecoin on one application at 4 % and then lend it out that same stablecoin on another at 6 % and make a spread. And those spreads can be episodic in nature. They come and go. And maybe they only accommodate a certain amount of capital behind them. But there were all these pennies and nickels and dimes to pick up scattered across this new kind of economy.

1:03:51And that was very interesting to us. And so one of the things we do at Parify is we have a strategy that's focused on capturing those tenths of a penny that are scattered across different blockchains. And we do it, one, to make money. We think it's an interesting market-neutral strategy. But also, it's an incredible mechanism to learn about the space, about what's working. Because again, when you're using these things every day, you really understand them at a deeper level. What's an example of something that others commonly in the space thought to be true and you found wasn't by nature of using these applications?

1:04:32I'll kind of give one example. I mean, there's so many ways to answer that question. I think a lot of time there's a quoted yield in yield farms where it's a, hey, if you deposit this token, you'll earn 100 % APR. And what I think the market has done a bad job at historically is understanding the risk associated with that return. The capital tended to aggressively move towards the highest return, almost agnostic to risk. When you really dig into these stated returns in yield farms, one, there isn't always the right disclosure around the risks that you're taking. But also a lot of time the return is coming in the form of a token that may not have liquidity and there may be lockups associated with it.

1:05:20It's really messy. And so just taking a return at face value and not thinking about all the other factors that go into it is, I think, something that the market wasn't doing well for a while and will hopefully start to do a better job of. I'd love to get your sense on the fund landscape. I know part of your activities involve backing other crypto organizations. How did you come to that? And what does it look like today? So when I launched Perify, there were maybe 150 to 200 crypto funds in the world. There were a handful that were over 100 million of AUM. Today, there are roughly 2 ,000 crypto native funds globally that collectively represent, call it 50 to 75 billion of capital.

1:06:09And there are also a number of other crossover funds, traditional funds that are now investing in crypto. Perhaps there's been more money from crossover funds, traditional funds investing in crypto than there actually has been from crypto native funds. But I am obsessed and love the art of building an asset management firm. I'm just very interested in it and like all the different things that it takes, culture, team building, processes, compliance. And what we kind of saw over the years is a number of these asset managers in crypto were incredible technologists, but had never managed capital. So they didn't know what a financial audit was.

1:06:50They weren't familiar with valuation policy or what a PPM even was. And so they just needed guidance. And I enjoy kind of helping and mentoring people that are launching funds in the space. And so we started to take very small minority GP stakes in a number of new emerging fund managers in crypto. It used to be that everyone just ran a crypto fund, like a generalist crypto fund. Now the landscape is segmented by geography and by theme and by strategy. So there's obviously quant and fundamental and quantamental and a number of different flavors in between, whether it's closed-end venture or more trading-oriented strategies.

1:07:37But then even a step further, there are now funds that are solely focused on investing in blockchain projects in Africa or focusing on backing teams, building DeFi applications out of Asia. We're not going to be able to cover everything at Parify. the world's way too broad within this space. And so we want to back other managers that are pursuing orthogonal ideas, themes, and we can learn from them, share ideas, and then we can kind of help them grow and scale along the way. So if we circle back to Parify and where you were at the beginning, two years ago, roughly, you had battled through those first couple of years and then hit this inflection in this last wave.

1:08:22And I'd love to get your sense of what that journey was like to go from battling it out on very small assets to where you are today. I almost feel like we're just in the middle of climbing the mountain and every once in a while you have to pause and look behind you. It's been one of making a lot of mistakes and learning from them. It's also been a very humbling experience overall because you realize you can make great decisions and you don't necessarily see the results of those decisions for a while. One of the things I've just learned as we look to back founders in the space is just the value of perseverance.

1:09:02Sometimes if you just stick with things a little bit longer, they end up working. It's been really exciting. I'm just so excited about what's happening in the space. I mean, the amount of talent that's building in applications in Web3, the number of resumes we're getting from people on Wall Street in the hedge fund world, or engineers at big tech companies that want to enter and spend their career in the blockchain space, I think is a really powerful leading indicator. But I think to build an enduring asset management firm, you need to be good during times of war and also during times of peace.

1:09:39And in a way, we're back in time of war right now. So it's been exciting and I feel pretty fortunate just to be where we are with the team that we have. What have you seen in the last couple months as the cycle has turned down again, both in terms of people's interest in coming into the space and then also in the technology underneath? So look, I take the view that if you're investing capital really over a timeframe of quarters or even a year, it's really difficult to predict what's going to happen in the space. If you take a view of what will this world look like 10 years from now in the year 2032, it's very clear to me.

1:10:19These networks are growing. They're working. There's never been more talent entering and building in this ecosystem. The technology has, to a large extent, been de-risked. I think regulation is more of an opportunity at this point than a risk. And price is going to bounce around. Price is rarely a leading indicator for fundamental progress and traction. When I got into the space in 2014, there had been a bull market in 2013. Then there was a bear market in 2014, 15. People kind of wrote off Bitcoin and crypto at large. In 2016, people were excited about the blockchain space, but not Bitcoin. In 2017, there was a boom, the ICO boom.

1:11:04Then 2018, 2019, another bear market. A lot of stuff was built, but it was a bear market for price. Pandemic, crypto took another tumble. But in mid-2020, you had DeFi summer, 2021 NFTs, metaverse, tons of talent came in. And now in 2022, we're kind of back in a bear market. Now, it's happened at a time when capital markets are also trading off. So I think that the best way to approach the space is really to think long-term. And it's never been more clear to me that all the fundamentals are in place for a lot of growth. Great, Ben. Well, I can't let you go without asking you a couple of closing questions.

1:11:47So what is your favorite hobby or activity outside of work and family? Chess. So I learned how to play chess from my dad when I was four years old. I played competitively growing up. I still play at chess clubs or in the park, and I take lessons online. And I just love chess. It's the consummate game of strategy, skill, decision-making. I'm trying to teach my four-year-old son, but he is not interested at all. What's your biggest personal pet peeve? So I think when people overrate talent and underrate the importance of hard work, I've seen a lot of extremely smart people underperform. They aren't willing to work hard.

1:12:28And I think it's incredibly rare to find people that are willing to put in the work to succeed. I think the best people at what they do work incredibly hard to get there, whether it's like LeBron James or Michael Phelps or musicians, artists, investors, etc. They don't televise LeBron James practicing 16 hours a day, focusing on his diet, meditating in the gym, in the weight room with trainers. You just see the games and he makes it seem easy. but hard work beats talent when talent doesn't work hard is the way I look at it. How about your biggest investment pet peeve? I think for me, it's dogma and it's having a very strong, rigid view without doing work.

1:13:10I remember when I learned about Bitcoin, I was immediately dismissive. And my friends said, wait a second, have you done any of your own diligence on Bitcoin? And I was like, okay, no, it's a fair point. I can't have a view without actually having done my homework. work. In order to have a view, in order to have the right to have a view, you have to have done your work. Which two people have had the biggest impact on your professional life? Henry Kravis is one of them. He was a day one investor in Perify and was a mentor to me and believed in me. I think when someone believes in you, it's very humbling and empowering.

1:13:45I think he believed in me. I'm not sure how much he believed in crypto at the time, but he respected the entrepreneurial journey. And so that means a lot to me. The second, I've had a number of bosses over the years that have been extremely challenging to work for and extremely neurotic and have held me to a very high standard. It was painful to work for them at times, but I don't think I'd be where I am today if it wasn't for being in the trenches with them. What's the biggest mistake you made and what'd you learn from it? In fifth grade, I was playing in the Washington State Chess Championship.

1:14:22And it was a five-game tournament. I'd won the first four games. And I was in the fifth game playing for the title. And I was in a position that 99 out of 100 times I would win. But I let my guard down and I kind of rested on my laurels. And I lost focus. I ended up losing. And it was an absolutely devastating experience because I'd worked so hard to get to that point. I'll never forget it. My takeaway from it is you have to take a job end to end. You can't take something to the one yard line. You have to get it across the finish line. Otherwise, it doesn't count. What teaching from your parents has most stayed with you?

1:15:06It's really the importance of hard work. My parents always taught me that little by little does the trick. If you do the right thing over and over again and focus on practice and consistency, you'll get to where you want to go. So every big thing that's ever been built is the collection of lots of small things being done right over and over again. And my dad has said, you know, sometimes you need to swing the hammer a hundred times to get the nail in. And that's always resonated with me. All right, Ben, last one. What life lesson have you learned that you wish you knew a lot earlier in life? So someone once said, no one's going to help you, but no one's going to stop you.

1:15:47That's some of the best career advice I've ever received. I was of the mind that the path to success was maybe staying on the paved road. And that involved the least amount of risk. But the reality is that sometimes staying in that safest path is actually the riskiest path of all. And so really, it's two things. It's don't rely on anyone else to create your success. You have to really push for it yourself. And the second thing is, if you can add value to a person or a company, do it. They're not going to stop you. They're not going to limit your responsibility because you're too young or you don't totally know what you're talking about.

1:16:30If you're doing a good job, people are going to be more than willing to give you responsibility. And so I think that's an empowering message because it says, if you want something, you can create it. It's really on you and no one's going to stop you except for you. Great. Ben, thanks so much for taking the time. Yeah, thanks a lot. Thanks for listening to the show. If you like what you heard, hop on our website at CapitalAllocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time. Thank you.