Crypto Bloodbath & Debt Dynamics ft. Richard Galvin

23:57And I actually minted some back in, I think, March 17 and sort of worked it out. And to be honest, it was one of the key reasons I committed to the space. I thought if people are coming up with such cool ideas like that, this space has got a real future. And then we see where it goes today. And it's obviously grown into kind of the beam of the space. And if you think about it, the ability for tethers at both a utility level for crypto, but also at a strategic level for the US, I think is quite incredible. I guess we've been kind of early advocates that the ability, and I think we've kind of helped because we live in Asia and we've seen that penetration of tether, particularly through Asia, from both the retail level up to the corporate level.

24:40We make family-run businesses that do hundreds of millions in revenue in Tether through Asia every year, right? And they're selling building materials or traditional furniture or whatever. Yeah, and they're taking Tether, right? And I guess you just – I think Asia's been at the forefront of that. Because they've got a lot of friction and capital controls. If you've got like a ringgit-yuan cross, right, it's not liquid. But if you can just do it in stable coins, you can make instant payments, dollars in, dollars out instantly. instantly. And they have, you know, they ring-fenced to pretty small amounts of US dollars.

25:13They get rationed US dollars from their banks, right? And so they've got more customers that want to give them US dollars than they can finance for their traditional routes. And so it's no surprise they then turn to stable coins. And so we've been, and if you think about it and you go down to the smaller level, you know, if you're a Thai retail investor or user, you know, try and open a US dollar bank account, right? It's impossible. I mean, that's even hard in Australia, right? Getting a US dollar bank account, you need to be certain size. You're going to go through a whole bunch of KMC, AML to prove and size to put to the bank that you can justify it.

25:47Now, if you've got a phone, if you've got a smartphone, you can get 10 US dollars right now. And the US has figured this out. I mean, like Scott Besson's gone, oh, this is how we dollarize the world. And we can fund like$3 trillion of short-term notes for stable claims. Yeah, and that Thai investor or that Cambodian consumer that's now got$15 US on their phone, that's$15 of pure incremental demand for treasuries, which doesn't exist, right? And it sounds like small dollars, but that's the bulk of the world's population. So if you start scaling those numbers across the world's population, it looks like a pretty good sponge for some of the sovereign selling we've seen in treasuries, right?

26:27Like it's kind of the counterpoint. It kind of surprises me that Besson kind of seems to be the first guy that got this. Because from our perspective, it's been that incredible kind of push into developed markets that can develop that sort of demand for US dollars that they kind of need to fund where they want to go over the next five to 10 years. Yeah. And also part of this is the Eurodollar markets, which have been the traditional source of funding, don't operate very well because a lot of the banks in a lot of countries are now constrained. So people can't get access to dollars. And as you said, the euro dollar market, you can fund corporates, but you can't get individual dollars.

27:03And now it's gone to the TAM is now 8 billion people. I mean, that's a big fucking TAM. Yeah. And you've got, look at most reports now, six or 700 million people using crypto in some ways. Stablecoin's kind of at the frontier of that. I think if I bring it back to from an investment perspective and how we see it playing into, I guess kind of where we operate. I think one of the interesting things, and I've got a tradfi background, albeit seven years in the past now, so I like to sort of do a lot of crossover events to sort of get the temperature read on how traditional finance views crypto and how the crypto natives view crypto.

27:42I think we're probably in a weird spot where we're probably seeing the biggest divide in that, actually, that I've ever seen in my time in crypto, with the reverse, that traditional markets, traditional investors, traditional investment banks, super excited about crypto. And the crypto native people are kind of in the doldrums and depressed. And I'd put stable coins as kind of flipping a lot of that sentiment. You know, stable coins, from our perspective, are an incredible killer use case, as we've just kind of talked through. But it's also a very simple revenue generating use case. It's the sort of thing that you can take to a Goldman's commitments committee to an IPO committee at JP Morgan or Morgan Stanley, and they can get it.

28:21They can get that that's a business model that makes a bunch of sense. And here's a use case for this thing called crypto that we've been sort of sceptical about for the last five to seven years that makes a bunch of intrinsic sense to me. And by the way, it's already making a bunch of money. So in a weird way, it's also been what I'd say is that kind of, that wedge that sort of pushed crypto into traditional finance world and has allowed it to sort of get through those barriers has kind of stopped that crypto kind of investment case logic getting through over the last five or seven years and you know attended the goldman conference which is a great conference every year in in london in june and you know stable coin summer was probably the most you know uttered phrase throughout that and for the first time i think we sort of the the the attendance there flipped i think it was kind of three quarters traditional finance quarter crypto people.

29:10And stablecoins is kind of that use case that's putting crypto on the map. Now, I also think it's also one of the killer use cases for growth for on-chain. On-chain liquidity revolves around US dollars and bringing more and more of that on-chain is a no-brainer. And we're starting to see more traditional businesses like a Robinhood. If you look at the profit margins they make on crypto versus equities, it's chalk and cheese and the extra profit they can make. So The incentives for traditional finance to bring stuff on chain have never been stronger. The other thing that's interesting to me was the Circle IPO, traded at a massive premium to revenues.

29:49And I've seen this before. It's either like a full-on retail frenzy speculation, which it wasn't, or the price is telling you something that is not priced off discounted cash flows that they're pricing on Metcalfe's Law, that it's a network. And then you saw the announcement. I think it's called ARK that they did. It's like this huge labyrinth of people involved. And they're like, there you go. They're actually building a money network from scratch with instant velocity. And the market is going to price this very valuably. Yeah, I think it helps when you've got a Treasury Secretary of the US saying that he wants stablecoins to supply to grow 10x over the next five years.

30:34I mean, you cover a lot of traditional assets. you don't get that kind of backdrop in any kind of asset class, right? Like you don't, you know, even in the most front, even in the greatest of tech markets, you don't get sort of from the top down push for growth statistics like that. So I think when you look at Circle's performance as an equity, you've got to compare it with, you know, what are the growth rates in other equities that people have access to? And, you know, I would say this is one of the failings of the crypto market now. I don't think the crypto market gets the insane growth rates that it's achieving and the profitability that it's achieving, because we're kind of being used to this triple digit growth.

31:12And we're kind of, I guess, in our own little world for so long that we kind of forget that the growth rate that crypto generates is just off the charts compared to even traditional tech. I think, I saw a good stat the other day, I'll caveat this because I haven't done the research myself to back it up, but like three of the fastest five startups in the history of the world come from crypto now, right? I think it's Axiom, Hyperliquid and Pump. And if you look at Pump, I think in the first 18 months, it's made like$800 million of revenue, which is about the same as the profit number. So that doesn't happen.

31:44That's never happened in tech before. And there is no other asset class where you've seen that sort of growth and that sort of profitability over those sorts of timeframes. There's also directly investable. So AI is growing faster. What can you do? You buy NVIDIA. I mean, if not, it's part of Google's balance and part of Microsoft and part of Meta, you can't get pure exposure very easily. Yeah, and I think that goes to Circle's success, right? I would argue even on the crypto side, it's kind of hard to get direct exposure to stablecoin minting, at least, apart from, say, in Athena. And I guess that's what the beauty of Circle and its position with Equity Invest is it's that pure look through to that underlying sort of tailwind they've got around stablecoin growth and minting.

32:27What do you think about Athena? I still have a lot of red flags about that business model. I mean, Guy's a great guy. They're smart people. But I've kind of been around so many times to realize if you manufacture yield from arbitrage, somebody's going to blow up at some point somewhere. Yeah, I think we're a supporter of that. We think the – I think at the moment you've got the strength of stablecoin demand and growth I think is unquestionable. I think the ability for the issuers to maintain control of their yield, I think, has to decrease over time. So Athena's kind of at the one end of the spectrum in terms of giving that yield back, whereas we've got the circles and the tethers which get to keep 100 % of that in that moment.

33:11So, yeah, I think Athena is a great test case, one that's been super successful to date in a model that sees that yield distributed to the users. because I don't think the circle and the tether model longer term can sustain that kind of ring fence around keeping all the yield for themselves. Now, how that gets distributed is another question. But, you know, looking at Athena, I think it's a pretty robust example today of how you can grow something or bootstrap something by giving that yield back. And I mean, the growth metrics are kind of incredible. And, you know, developing that model around generating that yield, there should always be some sort of basis yield around that.

33:47Now, they're probably going to make, as they get more successful, they make markets efficient themselves and that yield drops. But I can't see, I think that's the model we end up with more like an Athena than we've got with the Serple and Tether today. And what about the private stable coins that have been launched? That was like, really, are we doing this all over again? This is like the 2017 thing where we're going to have these private networks. But that seems to what's happening. They're building their own Layer 1s, not even Layer 2s. yeah i think and i think this is the interesting contest that crypto keeps to throw up against the world like when you start to and look i hark back to the intranet versus the internet like you had this you mentioned this before you had this ongoing battle for years between people that wanted to sort of you know the internet internet's great but i need to control it and it's kind of like well the internet is great because you don't control it so yeah and you had this tug of war until one of the yeah until you get that clear winner and i think if we looked at stable coins Part of the reason that Thai consumer owns TEDR is because it doesn't have to go through the AML and the KYC that you'd have to go through to open a bank account.

34:55And you can argue, well, is that right or wrong? But the reality is it doesn't scale if you wrap that compliance framework around it. Because it doesn't make sense to make that user go through that compliance for the revenue or the$10 of usage that you're going to get out of it. So, yeah, and it's not because these people are using it for nefarious means. It's like if you're in the Philippines and it's$10 you're sending to your arms, it just makes no sense. And half of these people don't have a passport and they don't have, you know, it's like it just can't be done that way. Yeah. And so it comes down to question to the US.

35:30Do you want that extra demand for treasuries or do you want to keep the AML KYC wrapper around it? I think, look, I start with a pretty simple rule when I look at all technology. I think technology trumps regulation every single time, and particularly technology that enhances user experience in utility. I think it's extremely hard to ring fence technology within old regulatory frameworks. And we've seen this time and time again. You know, you could argue, I mean, the one I always hop back to, which is an old one, is, and not many people seem to know this, but it used to be illegal to send the fax direct to an end user in the US, like under the regulatory regime that existed when faxes came along.

36:13Some of your listeners probably don't even know what a fax is, but when faxes came along, you had to actually under law send it to the US post office before you sent it to a person, and they were supposed to hand deliver it to the end user. Now that's just nuts, right? Like that's just regulation and it's not going to exist. And even Uber, right? A much more topical recent example. In most markets, Uber was illegal, right? Because you had taxi licenses in a regulated market, but it was better tech and users wanted to use it. And so regulation kind of falls in line because at the end of the day, it's a strong government that stands in front of a product that lowers costs and people want to use.

36:50And so I start with, you get this tension for some period of time, but regulation always follows technology, in my view, and catches up. And where there's utility in user demand, regulation meets it. There's another narrative that's gaining traction, I just want to get your view on it because it is interesting, is privacy. And this kind of rises Zcash and the idea of zero knowledge. Because as we build out this and blockchain is getting co-opted by the institutions and the governments, that if we're not careful, we've just given our bank accounts publicly to everybody on the internet. And somewhere within this, if we see where Europe's going with regulation, I mean, Australia has been you know regulating individuals highly the uk has canada has it's like people are like you know what we probably still need privacy as a main thing how you think about that have you been involved in that trade at all yeah so if we looked if we look back in history it's probably one of the trades we got wrong at launch so when i actually launched this fund we had two kind of key themes one that were proof of stock proof of stake blockchains would take over the vast majority of crypto we got that one right um second one was that privacy coins looked grossly undervalued and And as we saw growth in the monetary assets like Bitcoin, we would see a commensurate growth in the privacy spectrum as well.

38:08And so, you know, and so, I mean, if you look at any economies, right, like, you know, as a normal economy grows, the black market in that economy sort of grows side by side. And I don't want to ring-fence it to the exact analogy, but yeah, it's a similar thing that we would, we would, we thought our view was we would have a dominant monetary asset, which has become Bitcoin. and there would be a dominant privacy monetary asset that would be much smaller, but would serve a market that would grow at a similar rate to that. Now, I think we got that wrong. I think a couple of things happened. Those markets didn't get the liquidity.

38:45They lost a lot of their utility because frankly, they got off-boarded by most exchanges, right? And so they didn't have that liquidity to meet the users. Or maybe we were just seven years early And we're starting to see that. Well, there's a lot of people who've owned this stuff for a long time saying this is one of the foundational principles of crypto. And people forgot it for a while because the governments weren't involved and because big banks weren't involved. It's like, it doesn't really matter. And now suddenly it's like, oh, OK, maybe it does. Yeah, I think when we launched our fund, it had pretty material holdings in Monero.

39:19And it was one of our biggest holdings for probably a year and a half. Now, the chart actually is not too bad. If you look at it compared to Bitcoin, it's not a disaster particularly versus a bunch of stuff. But, you know, maybe the time's come. You've seen, as you mentioned, you've probably seen, you know, you've seen governments move much more on a censorship level than they were seven years ago. And you've probably seen a regulatory regime get less intense in terms of their combat around some of these assets. So we are at an interesting point. So it's not a complete surprise. I think the only thing I would note from us at an institutional level, they're still sort of difficult assets the whole.

39:54I remember working with our auditor to try and prove that we owned the Monero. And to be honest, that was kind of one of the best sales pitches that I actually saw firsthand. He's actually trying to prove that we owned it to our auditor. It was super tough, which is a validation of how hard it is to actually track. I love it. And what about the AI crypto nexus trade? you know barry silbert's still chilling tau which seems interesting seems to be getting a bit of traction what are you thinking of looking at in that space or nothing really interesting for you yet just observing it yeah i think it's i think it's super interesting i think the um uh just like stable coins look inevitable ai intersection with crypto looks inevitable as well and yes stable coins is a key part of that yeah i just think you know the the concern we have of the market the speculative premium in crypto at the moment is kind of non-existent to negative and the ability for crypto markets to support big ideas at this point is pretty low.

40:59So I think for funds that on a venture side where you can take a longer term timeframe, where you can have a five plus year view to see this sort of build out happen, I think it becomes a much more investable asset class to sort of see that happen over time. I guess we have some exposure to Nier. For example, we've got some exposure in our venture fund around Tau. But it's very much, we would say from our perspective, we're still on a sort of scene how it shakes out over the next three or five years. We've got huge conviction that the intersection of AI and crypto will be massive. Where that utility lies and who the winners are, I think we're still a long way from knowing.

41:40The other one that's on my radar screen that's at that nexus is the digital ID idea, like the world coin idea is like that's inevitable whether it's world coin or whatever format but somebody's going to have to do that because we need a token to pass to get onto all of this stuff without proving who we are and to prove we're humans proof of humanhood yeah and it's just such a it's just such a incredible uh um such an incredibly big idea and i think it's such a frontier sort of tech idea i think we're a little way away from them so what you're saying is the Secondary markets don't have the liquidity or the capital to reward the long-term big ideas right now, generally.

42:23Yeah, I would argue particularly on, and that's why we're seeing that disconnect. I mean, Whirl Corn is a good example, right? Like I've seen some of the best perspectives I've seen on the need for exactly what you're talking about, that sort of proof of life, proof of realism, comes from Mark Andreessen. He talked about, and one of the best examples he gave, which resonated with me, is as you start to move forward into elections, how are you going to tell what's a real Donald Trump interview and statement versus what's just an AI-generated one? I mean, and we're seeing on the other side, you're seeing the ability for AI to generate what looks like to be real.

42:59We're kind of crossed that nexus, right? Like you can kind of fool the vast majority of the world using AI. So the give and take of that is, one, scams, but particularly around things like political advertising, political statements. You're in a world where, how do you know what to build anymore? And so you have this huge idea that WorldCoin's looking to serve. And then it becomes super unsurprising to us that then you see A16Z moving to the market and buy a massive amount of WorldCoin off the market, because they kind of get the long-term trajectory there that the short term... I didn't see that.

43:30They bought a bunch on the open market. Yeah, well, from the foundation, I think, I'll get the numbers wrong, but it's a pretty big number in the kind of nine-digit number of dollars into WorldCoin from the foundation because they can take that long-term bet. They can see the long-term trajectory here. And if it started by Sam Altman, he's probably got some decent plan of how to integrate this into something broader. Yeah, because I think we can all see the use case there, but that's a big idea, right? And I guess I would suggest we're in a market We're seeing a massive disparity between crypto day to day to be able to value big ideas well.

44:05And so we'll start to see that disconnect happen more and more, where longer term investors with big patient capital will start to buy and fund these ideas. And I suspect they'll do super well over the next three to five years from short term people that are looking for the next thing with a month to month trajectory. And so it's difficult in hedge fund land right now because there's a lot of value and not enough momentum. And we've gone through a horrific year of chop so far, really. Yeah, Bitcoin's managed to eke its way higher. ETH had its rally from its lows, and it's now kind of in line with where it should be.

44:38But it's tough, right? Because unless you're a trader, you can't make money. You can't sit on anything because there's not a lot of liquidity. So the alts market bleeds, even if it's cheap. But it's super attractive, some of this stuff. Yeah, I mean, the high level stats are, it depends how you cut the numbers. But anyway, you look at it, app revenue now is multiples bigger than blockchain revenue or protocol revenue. It's grown triple digits over the last 12 months. And almost all indices that include apps and strip out mega caps are down 50 % to 80%. And you've been flagging this for a while that the DAP economy is going to be the big thing.

45:19And it is. but the market's not rewarding it because of the shortage of capital it seems. Yeah. And yeah, I think the interesting thing is how token prices perform doesn't stop the revenue from growing. So the apps continue to do their thing, right? And they continue to generate$7 billion to$10 billion in revenue. And that dam's got to break at some point, right? Like you can't have tech that's growing at triple digit, quadruple digit in some cases that trades at low single digit you know multiples of revenue at some point in time that's kind of got to give and i think that's where that's what kind of an interesting sort of first look and it'll be interesting to see where they go particularly as we sort of work down the stack over the next 12 months at some point liquidity will find that value um but patience is required yeah and it's not like we haven't been here before it's just been it's just been a very it's a very frustrating market and we probably end up finishing much higher into year end, and you've waited all year, and all the returns come in two months.

46:19I mean, we're kind of used to this kind of ridiculousness of this market. Yeah, and it's a tough market. But I 100 % agree that the traders have been the only ones rewarded in crypto. The traders and Bitcoiners have been the only ones kind of rewarded in crypto for the last 18 months, even two years. Yeah, and that to me means that there's a bigger opportunity than people can see. Because a lot of people have got their heads conflated with like, it's the end of the cycle, it all failed, crypto is dead. And I'm like, no, I think the cycle has been extended for a bunch of reasons. And liquidity is this reason.

46:52And once you see it through a liquidity lens, it completely explains what we've been talking about and then why there's all this discounted stuff. So therefore, once liquidity flows, you're going to see a re-rating of the space in a way that people don't even believe is possible again. Yeah. Because I mean, if you look at 2021 as the analogy, right? Like you saw fees spike dramatically, usage on crypto spike dramatically in that sort of second half of 2021. You know, you sort of saw people become completely insensitive to fees. You saw the Luna start to go nuts, all those sorts of things, right?

47:26And then it drops off a cliff. With that cycle mentality, we've seen prices effectively fall pretty dramatically, like I've spoken about outside of the majors. The revenue has continued to grow. So we're seeing that disconnect between the reality of what's actually happening on chain you know dexas now make up 25 percent of spot value uh we've seen you know i think apps now make about 3x spot protocols make in terms of revenue and that's not looking back that's based on you know prices have fallen that whole time that that's been growing and growing and growing and so you know we've got this bizarre disconnect now they can last longer than people want them to last but they break always at some point.

48:07Like at some point you'll see that snap back where, just like in the internet days, right? Like where, you know, the analogy we kind of see and help to sort of build this thesis, if you look at the overcrowding in the, what I'd say is that infrastructure phase of the build out of the dot-com boom of, you know, the Juniper networks, the Nortels and the Ciscos. And then if you look back on today and look, some of them are still super successful companies, not to take away from that, but you look back at where the value is today, it's at the app and user level, right? The Googles. Because in the end, the network is a utility, although because of token economics, you capture some of that.

48:48So yes, I mean, the network value still goes up because you're building on a network and you create MedCast law value, but the applications layer is the thing that drives it. Yeah. And I think the application layer has been super helped because network fees have been dropping dramatically. And so you've had this, and that's not through usage, that's through just efficiency gains, right? And Solana's probably been helpful to sort of put that pressure on everyone in the space to continue to push because they kind of proved what sort of use cases could be driven by sort of low-fee, super-speed blockchain.

49:20So I think you've seen this drop in revenue and they've kind of been the sacrifice of the protocol layer, dropping their revenues, which has boosted app usability but also app profitability, right? And now you can generate 60 ,000 meme coins in a day and people can experiment with weird stuff because fees are dropped. But apps haven't seen that pressure on the fees. And we've seen people like Uniswap, people like Aave that have been around a very long time now, or particularly in crypto years, they haven't seen the pressure on that sort of fee levels that we've seen at the blockchain level. They've been able to keep that moat.

49:55RAOUL PAL So where is, when you look at it, is it still on Solana that's capturing most of the app stuff? Or is it DeFi on Ethereum? Where are you seeing the particular value? Because the problem is, is Aave and bloody Uniswap have traded at huge discounts forever. So it's not like the market ever wants to reward them. RAOUL PAL Nah, but at some point, that breaks, right? At some point, they make so much money and buy back so much of their token that you sort of see that break. And we're starting to see some and particularly the small cap level now some of the small defi tokens some of the biggest buyers each day is their buyback right and so when you get to that sort of framework you kind of go well it looks pretty asymmetric right if the revenues can basically hold this token where it is because they're buying back 25 of their daily revenue for some of these smaller liquid coins from us as an investor it feels like that's pretty asymmetric we're investing alongside a revenue buyer and we're you know when demand returns and when they when you can actually get some multiple on these cash flows over time, it looks pretty asymmetric to us.

50:59But markets can remain inefficient way longer than most capital can hang around. And I think that's probably what we've seen at the altcoin level. I think when we look at apps, I think one of the things we've seen change over the last probably 12 to 18 months is crypto is probably what I'd say is consolidating around those use cases that it's kind of proven work now. And so we would see, particularly on the venture side, because we work across both venture and liquid, right? That's right. On the venture side, we're probably seeing a consolidation in those use cases. We've gone through that sort of crazy period where everyone's kind of thrown everything at the wall to see what sort of works.

51:34And now with stablecoins, with DeFi, we're starting to see there is some use cases here that generate a bunch of revenue. And that risk return of backing that next crazy idea probably doesn't look as good as just putting more money into sort of the use cases that proven product market fit now. When I think about it, the issue is a lot of this is like a bit of a circle jerk of the same clients moving from one chain to the other and from one DeFi protocol to another. It feels that stablecoins is going to bring the new people on for DeFi in a scale that we're not really prepared for. because if you have a stablecoin app that works really well, that can be built on like a network, and it can go to the end user in Thailand, and you build borrowing and lending on it, okay, we're now bringing net new people, doing net new things on chain, and it's not us lot shuffling money around to try something out and make a few bucks, right?

52:29Yeah, the framework we put around that is kind of moving from the sandbox to the mass market. And us moving stuff around to try new apps or new stablecoins or new ways of actually trying to generate yield from those stablecoins can be rewarding for the people that take that risk. Super productive from apps in terms of finding that product market fit and developing that robustness. But we would argue that crypto has come to the end of that sandbox phase. And we're now in that mass market phase. So we would also frustratingly say that crypto is probably super long tech expertise, super short marketing expertise.

53:10And so we're in that sort of interesting period now where we've got that stable coin sort of buy-in on that sort of traditional fintech investment banking world, married up with that sandbox technology that you and I and all the crypto users have helped develop over the last seven or eight years by just kind of putting it through its bases. And we think we're in that sort of mass scale market. I don't know if you've been following, people like Revolut starting to onboard stablecoins, right? So you're starting to marry that real fintech distribution and marketing now with those crypto rails, even Robinhood, right?

53:45Like bringing a company that has that kind of global leading ability to actually market products, get them in users' hands and make them super usable, right? And they understand how to make this stuff usable by broad global markets. And what about the other side of the promised land, which was the Web 2 to Web 3 conversion? That seems to have completely ground to a halt right now. I just don't see a lot of stuff. Yes, there's a bit of sandboxing going on with encrypted messaging, on-chain messaging. There's a few things, but it's kind of none of that's happened yet. Yeah, but isn't that what we're seeing with stable coins?

54:19I mean, the people like the Revoluts, people like - Well, I think there's the whole bunch of financial applications and then the non-financial use of blockchain at scale for companies like Facebook and Google and digital ID being one of the kind of dominant cases. You know, having creator economy tokens, all of that stuff that's supposed to be there, it just never gets traction. Again, it's probably because of the reason that you said there's not enough long-term capital yet in that space at liquid level. liquid market level. At VC level there is, and many people have put money into that kind of space, but nothing on the liquid side yet.

55:00Yeah, but I think that's kind of what we tested out in the sandbox stage, right? There's a bunch of stuff that doesn't work that well on-chain. There's a bunch of use cases that were tried,

55:12but on-chain, the cost of bringing them on-chain or the usability of everything. Or the benefits of doing it. Yeah, the benefit of having the transparency and those sorts of things that we all know that bringing something on chain can add just didn't add up to that, I guess, the drop in usability. So, yeah, our view as we look forward is we'll see much more of a marriage between some parts of on-chain tech with some parts of what I'd say sort of fintech traditional. You know, like Pump.com, right? Like, yeah, Pump.com is kind of proving now that the marriage of streaming capabilities with the ability to generate a meme coin is kind of a marriage made in heaven for that attention economy.

55:51It doesn't mean that that streaming capability needs to be a fully on-chain thing, right? They're just marrying up that. And I see that as experimentation of where the world is going. In the world of AI, we need to get paid for the communities we're involved in and how we do stuff because we're not doing the same jobs. And so I love that experimentation. I also think that the pump dot fun thing and the whole Solana meme coin thing was really testing, battle testing at scale, instant capital formation around ideas. That's really disruptive. It's super disruptive. And we've already seen it sort of morph from this sort of niche thing to this insane kind of volume game in a pretty short space of time.

56:31You're starting to see people wrap trading apps. you suddenly see people wrapping streaming apps where you can stream some form of video and effectively click this button if you want to generate a coin based off it or buy and sell it, right? And that's insane new capital markets. That's going to come up with some weird stuff, but it's going to find some killer use cases as well. The next stablecoin type use case can come out of those sorts of things. So I think one of the interesting themes we're seeing as well, and this is a focus of us for funds we're bringing to market, is the real sort of split between at a generational level as well.

57:06And we kind of saw this back in the dot-com boom, harping back to that as well. We saw a massive divide between the people that were using online apps, users, media, versus those that were still in their traditional kind of world. And from our perspective, if you look at all the metrics around what Gen Z and millennials want, it's on-chain delivery of those sorts of things matches where they want to be. Just in terms of point, click, get things done fast. The barriers to entry for a bunch of these sorts of things, for these new people coming into markets around finance and insurance and investing and media in the traditional world, just don't stack up.

57:52They're just not going to go to a bank and fill out a 20-page form with their, even in developed markets, with their passport. It just makes no sense to them. It just doesn't match with how they want to live their lives. And so we see this real generational divide that we also think from an investor perspective, you always want to invest behind sort of the gross generations and the millennials and the Gen Zs are where they are. And I can just see this sort of new, new media landscape growing on this on-chain sort of growth phase, particularly Solana seems to be leading as a place to be for the next five to 10 years.

58:23Now, that doesn't mean everything in these apps is on-chain and every video is streamed through some on-chain technology, but it means it's married up with that point-and-click on-chain capability. Yeah. The other one that's been a really interesting rise is prediction markets. And it just shows you how you can abstract away options, because a lot of these are option markets. You can bet on where Bitcoin is going to be at the end of the year. Will Bitcoin break 150 ,000 by the end of the year? It's like a 13 % chance, which is stupid low. But that abstracts away an option down to the probabilities and make it ultra easy for people to point, click, shoot, done.

59:00No onboarding with Robinhood and Coinbase or the interactive brokers, none of it in seconds. Yeah, because you've changed the market from needing a quant to price it for you to a retail investor with a red and green button. Right. And I guess that's my kind of sandbox to mass market example of where you've got some good marketers and some good kind of like UX developers that have said, hang on, we can reinvent this product to capture a whole bunch of people that would never use something like this in the past. And I think, you know, we're kind of seeing similar. I don't know if you followed some of the gambling apps as well.

59:34They've seen incredible growth. Yeah. As an Aussie, Stake.com down here and Shuffle, which we're an investor in, just incredibly resilient growth of marrying traditional gambling type apps. And Shuffle's got really interesting lottery app as well with that on-chain rail and making these apps much faster, much easier for people to use. And so we put those in that sort of, when I talk about what are the verticals that have found product market fit that are going to attract the capital over the next three to five years, we put prediction markets and gambling solely in one of those categories that we think has got a lot of growth over that period.

1:00:12The other one that I'm fixated on as well is asset management. We can see the Apollos and Blackstowns and everybody, they want to tokenize their funds to try and sell them to investors, which these are illiquid assets with tokens. Retail don't want that rate of return. But what I see on the other side is the rise of these vaults where you can create baskets, you can do stuff instantaneously, and it becomes much more efficient for individuals to create asset management firms. Think of how difficult it is to start a hedge fund, right? The amount of paperwork and cost to do it, when basically you can do it on chain four, zero cost in seconds.

1:00:50And people haven't, that's just early, but it's coming. Yeah, I think we're starting to see the growth of that through some of the platforms like Morpho and those that are starting to make these accessible to people like us that want to bring asset management capabilities on chain. Now, I think that becomes, that just becomes a function of the growth of stable coins, right? Like the more stable coins there are looking for investment and yield opportunities on chain, and that's been, you know, markets growing at 40, 50 % per annum and probably accelerates from here, the more it will attract, you know, traditional asset managers to try and capture some of that allocation.

1:01:23I think the other factor that probably gets overlooked a little bit and became clear to me talking to some of the massive traditional, I won't know names, but some of the massive traditional managers that are bringing assets on chain it's not just that they want to experiment and with some sort of cool technology they also see some of those dynamics i spoke about earlier where they've got you know a declining user base of frankly older people that are dying right that have been trusted these brands with their pensions or their treasury investments over the last you know 100 years but they're not replenishing the tube they're not replenishing the funnel at the front end with the millennials and the Gen Zs as they start to get more investment capital into markets because they don't have the funnels to catch them.

1:02:08No, because they don't want those products. Well, I would argue that some of them want those products, but they're not going to fill out a 50 page form, right? And they're not going to go through the hassle, right? So I think as you would like just with prediction markets, as you lower the friction for them to have some of those products i think you will find users for them um but these companies realizing that if we don't reinvent our distribution channels to match where youth and capital is going yeah we're going to die pretty quickly we're going to go the way of the newspaper publishers right we're not going to capture that new user so it's i think we've moved from that sort of yeah they're not just checking out the tech they're not just bringing stuff online just because you know some tech guy wants to try it out, they've kind of realized that if you take a 5 to 10 UV, they've kind of got it, or they're going to miss the mark.

1:02:55So we've covered a lot of ground. Looking forwards, you still think the year-end finishes strongly? And what do you think about 2026 overall, which is the best guess, considering most of us thought this year would have been stronger than it is. So I'll give you a mulligan anyway. Yeah, look, we think the market finishes higher at year-end. I think 10th of October was a pretty idiosyncratic shock to crypto, right? and I think we're probably just going through some of the consolidation that comes out of that, some of the reductions in liquidity. And you would have seen the short-term liquidity drops through that sort of period were kind of insane.

1:03:29So I think, you know, we're just sort of working through, continue to consolidate and work through that. But from my perspective at a macro level, liquidity is only going one way as we look out over sort of three to five year view. Crypto continues to perform at that sort of fundamental level. Like if we'd seen token prices drop like they have 50, 70 % in most indices over the last 12 months and revenues had fallen as well, you kind of go, well, you know, that's the same. I mean, that's what happened in 2022. And that's typical of the structural bear market side or the cyclical bear market. But this is not like this at all.

1:04:03And we've seen the opposite, right? And at some point, something's got to give. Like users aren't going to stop. You know, the users that are driving so much of the fee pool in crypto today aren't going to stop using it just because token price, because app token prices keep going down, right? And stable coins continue to grow. So at some point, the weight of revenues, the weight of buybacks make the market get more efficient. But my caution is that takes time. Brilliant, my friend. Well, good to see you. And let's see how it shakes out over the next few weeks and into the end of the year. Thanks for having me again.

1:04:35Good to speak again. All right. See you soon. Cheers. So Richard, as ever, is full of insightful information. He has a lot of history, a very thoughtful framework and approach to his investing in crypto. And I think it's very important to share that with you guys. So you can see the kind of work that gets involved when these hedge funds make bets in this space. Anyway, hope you found it useful. I'll see you next time. You obviously enjoyed the episode because you're here with me at the end. But listen, don't forget to go to realvision.com forward slash join and grab a free membership. It's an incredible community packed with alpha, great investment ideas, and the research that you need to help you unfuck your future.

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