The Secrets of Crypto Hedge Funds ft. Richard Galvin

26:30That's just discount upon discount upon discount. Now, the one caveat I would put on that is the market can stay inefficient for a long period of time, Rale. So there's patience, right? You need to have patience. And as I mentioned, kind of when we started this discussion, that's what's in short supply crypto, and that's something that we sort of make sure that we continue to keep up the patience to buy those assets when they are at that discounted level, but then the patience to hold them until the market works that out. Now, one of the things that I thought has kept the lids on the market for the last three, six months since it peaked out in March was there's just an enormous redistribution of tokens out of old hands from the last couple of cycles into newer hands.

27:15So as you mentioned, there's Mt. Gox is one. So that was a long time ago, but they're finally coming to market. The FTX estate, that whole bunch of stuff had to get sold, took liquidity out because a bunch of hedge funds and family offices took up the liquidity. But it still takes liquidity out of the market. We've had the Germans selling distribution. We've had jump liquidating a portfolio. We've had a bunch of token unlocks from these things, plus new supply coming and tens of thousands of meme coins. and it feels like there just was not enough liquidity. So the market, I think, has done pretty well absorbing that by trading very sloppy sideways in the majors, sure.

27:57The olds get crushed because they're getting replaced with these other things. How do you think about that kind of structure going on? Yeah, I think I'd add the Bitcoin ETF and now more recently the Ethereum one. And the unwinding of the grayscale as well. Well, I think the Bitcoin ETF in a way has definitely sucked capital out of the rest of the crypto market. So if you look at, you know, speaking to our LPs, speaking to our prospective LPs, speaking to my peer group, I think there is a bunch of capital that would have come more broadly across the market over the last 12 months that hasn't because the ETF has become a simpler, easier sort of first step solution for a bunch of family offices and institutional allocators.

28:36And so I think there's a lot of capital in those Bitcoin ETFs that probably would have come more broadly across the crypto space if that ETF wasn't there. Now, longer term, I still think the ETFs are an incredible positive thing for the crypto market, but we have been in that sort of short-term window where I think they have been, on top of the other factors you've mentioned, have taken some capital out of the broader crypto market and partly driven sort of the outperformance or the extended outperformance we've seen from Bitcoin through the last sort of 18 months. Yeah, so I think that's one of the other factors that we've seen at play there that's sort of changed the market dynamic for what we've seen the last few years.

29:16Now, I think, you know, at some point that plays out. There's only so high Bitcoin and, you know, now Ethereum and those sorts of value valuations can get versus the rest of the space before you see those sorts of valuation gaps close. But again, I come back to my other point that takes patience. I mean, we look at the altcoin space and in particular some of the sort of key DeFi coins and there's an index of about the 12 kind of core DeFi apps that have been around since 2020, 2021. And so they have a good track record of generating users and revenue. We look at that subset that covers all sorts of that sort of DeFi activity.

29:59We look at their revenue generation. So this is revenue that could go to token or fee generation that could go to token holders. they've grown that by 4 to 5x from that FTX collapse, so from the bottom of the market in 2022. So they've grown daily users, they've grown revenues sort of 4 or 500 % or 4 or 5x from that period. Over that same period and adjusting it for what's happened in the last 24 hours, their prices are flat, right? So you've seen the fundamental side of the sort of the non-Bitcoin crypto sphere actually do keep up in terms of the bargain. They've generated the users. They've generated incredible revenue growth.

30:39And these numbers are getting pretty close to world-time highs, right? We're getting close to 2021 peaks in terms of that fee generation. Token price has done nothing. Now, should the token price match that revenue growth to a degree? Well, you're going to have, to use a tradfire term, multiple sort of recalculations in that as well. But from all the metrics we look at, from a fundamental perspective, crypto market's healthy across the whole sphere. it's attracting users, it's generating revenue, the token prices lag, but at some point that's kind of got to give. When you're getting tokens that are doing buybacks of 25 % of their tokens in a year or paying cash yields of 20 plus percent, there's only so low that those sorts of things can be sustained before people start to see that sort of value.

31:26One of the things, there was Kobe on Twitter, one of the things he mentioned that made me stop and think he's like well i don't think the altcoin bear marker has finished yet and if you go back and look at 2017 alts didn't bottom until i'm sorry you know 2016 the market bottom but 2017 alts bottom so a year later so the equivalent of 2025 this year uh also in 2020 the same thing They bottomed later after Bitcoin. So maybe there's a delay in alts versus Bitcoin by maybe 12 months. And maybe that is something we haven't kind of factored in. Yeah, if you look at 2019, 2020, you had some kind of false starts where you had some kind of initial sort of layer ones come to the market through 2019, early 2020.

32:22that got some pretty substantial kind of market upticks and some of that sort of petered out. I think the thing that really sort of drove the altcoin space, and it comes back to the fundamental point I was just making, was really the launch of DeFi at scale. Where they started to see, you know, we saw Compound come to market, we saw Aave and other players come to market, start to use tokens to bootstrap a protocol, start to see quite enormous sort of growth amongst users and TVL and start to see some sort of real fundamental growth. And that starts to drag capital away from the luxury of just sitting in majors and trying to get beta into this sort of high-growth sphere.

33:04And I think that's what gets the altcoin market going. It's got to, you know, we're not, we try not to be too passive in thinking about what can drive prices in the altcoin market. It's not just, you know, Bitcoin's gone up a lot, I'm going to allocate the altcoins. Altcoins, they're a smaller, higher risk, less liquid investment. They need to demand that investment. So they need to actually perform to grab that capital. And we saw that in DeFi summer, as it's affectionately known back in 2020, as they started to see huge user growth out of kind of zero, right? You started going from sort of four users to 10 ,000 users to 50 ,000 users over a few weeks.

33:41And that starts to demand investment as opposed to just a passive reallocation. And I think that's what gets altcoins going. They need to demand that investment. Now, I think the difference we're kind of seeing this time in the way we're starting to see that from a financial perspective is starting to demand investments just given some of the metrics that are on offer for some of these more mature protocols that have been around in the market for sort of four or so years. Also, if you speak to younger people in this space, the more Bitcoin goes up and the more you see this lag of alts, the more they say well what's the point of owning bitcoin ethereum solana i can't make the returns because they you know they're a 30 32 year old they've got ten thousand dollars saved up they're like a three or four x in bitcoin just doesn't move the dial from there i can't buy a house i can't do anything and you and i talked about this a bit in australia is like they're forced out the risk curve, which is why memes have been so big.

34:42But once alts start to move, it feels like that capital gets recycled into those. Yeah, I think that's the difference this time around. Like traditionally, we would have seen with the strong Bitcoin runs, we would have seen DeFi or, you know, for this cycle, AI coins or whatever it might be, attract a lot of that capital looking for that sort of higher risk, higher return. Today, to your point, it's gone down in that main coin space where you can get that five or six X in a few days. Now that comes with all sorts of other risks and all sorts of things that everyone could be aware of. But that has been one of the differences this time.

35:16That's attracted a pretty substantial amount of capital. Now the one thing I would say is as you've started to see that get more attention, as you've started to see more kind of celebrity coins and those sorts of things, I think that runway and that meme coin space where it was pretty open to some good traders that made some sensational returns and, you know, credit to them for taking that risk and, you know, sort of taking on that market and getting, you know, that sort of short-term specialised skill to pick, those sorts of coins that it differentiates. We're starting to see that sort of slant a little way against those investors, though, as you start to see more sort of insider's returns coming to that market.

35:54So, you know, I view it would be you start to see some of the returns come out of that. You start to see retail investors looking for probably a little bit more lower risk, a little bit more sort of something that's a little bit more tangible that starts, it's not so tilted against them as that mean coin market seems to be trending towards at the moment. Yeah, and don't forget, it was a year ago, much easier. There was Bonk, there was like 10 new mean coins. It was the old ones from the old cycle. And then suddenly Pump.Fung comes, and there's fucking 10 ,000 a day being launched. Right, and then it becomes impossible.

36:27It's good for Solana, of course. Great for Solana. This is an attention economy game, right? And there's a fixed amount of attention. Yes, the space is growing, but right now we still don't have that many new entrants into the physical coin space versus ETFs. So the more coins you give, the harder it is to focus attention. So the harder it is to capture value. when there's very few and people go, oh, this is a fun idea. They all do well. So you're trying to divide attention, which is a finite resource, only driven by the number of new people in the space. Yeah, you get the anomaly like in the main coin space where you get stuck in sniper bots, and it goes from owning the right main coin to owning it first and getting out of it almost instantly, right?

37:10So you create sort of micro attention periods, even as a sort of another layer on top of that. I think you do get that sort of that velocity in that space that people sort of crave in crypto that they've traditionally wanted from the altcoin space. But yeah, to your point, you're starting to see that oversupply. And to be honest, that's a bunch of the story we're starting to see in the altcoin space as well. we've already spoken about what I'd say is the under allocation into the liquid space versus the VC space which has driven that VC coins effectively VC coins and tokens come to the listed market at some point in time and so when you've got a$60 billion market trying to sell into a market where you've got$10 to$20 billion of allocated capital and a lot of that isn't even net long you can start to see what's going to happen and so you're seeing the same dynamic play out even in the altcoin space as a maincoin space.

38:05And there's just too many alts for too little capital. Now, as I mentioned, there's two ways that gets fixed. You allocate more capital to that space or that space gets vastly revalued. That's a new coin's coming out. And that's what we've probably seen over the last 12 months or so. We've seen a dramatic revaluation in Bitcoin in some of the majors and we've seen the alts, that oversupply push the value of alts down. And we're starting to see levels now where we're starting to see that sort of fundamental value cut through. Yeah, because, I mean, there is a limit to the number of layer twos. Because, I mean, what's the difference between one to the other?

38:40It's, you know, we're starting to see that narrative coming at first. People are like, well, let's see how these layer twos are going to be valued, etc. The first round, Matic and stuff from last cycle did pretty well. And then they've just been nuked to death because these are kind of infinitely replicable things, right? Yeah, I think the markets fix them or heal themselves through all sorts of different phases. And it means that VCs will start to make a lot less money and start to lose money on the next layer two or the next layer one that they invest in. And so you start to see the whole sort of structural shift in the market.

39:17Because I think today in crypto, the big returns in the VC space, which we've been fortunate to participate in as well, of picking those right layer ones, like picking that Solana, picking that avalanche, that VC type round where you get those sort of your 100X type returns. And that playbook's played out probably longer than most people expected, but I think we're starting to see that online now. So you start to see the valuations come down in the liquid market for that next layer too and start to come down below the levels that VC markets have funded them at. And so you start to see less funding of those things happen and the markets sort of heal themselves.

39:58But it does take time. Also, I thought it was very interesting what Coinbase did by launching Base, which is a layer two with no token. And that kind of made sense to me in some respects is some of these things don't need tokens. No, and we're starting to see people sort of reinvent the way these tokens are launched. You know, if you look back at the broad crypto environment that probably generated the broader spread of returns, you know, of retail versus insiders was back in the ICO craze of 2017. Now, that had a whole bunch of other issues around legal risks and disclosures, and I'm not stepping back from that.

40:36But if you looked at it, that was probably the most even playing field in capital markets across any asset class we've seen for a long period of time, right? Like as crazy as it was, you know, retail investors were making huge returns and the returns they were making versus the insiders in that market were probably the most balanced we've seen in the crypto market to date. right and now that's gone away for a whole bunch of different reasons but oddly enough that that that sort of drove a much more balanced market where people were investing in the liquid market because there was still a lot of valuation upside left on the table from those ICO launches and a weird way it had got to a place in a very short space of time that the IPO market you know where I spent spent a bunch of my time as well has got to over 50 years in the equities You don't list an IPO.

41:27And IPOs don't price at their maximum price. They price at a fair price to leave something on the table for secondary market investors. So initial investors make money. Secondary market investors who take that risk on day one, day two in an IPO generally make money as well. And that's a much more conducive capital market to what we've seen in crypto lately where either the insiders waste way too much money or the listed market waste way too much money and it's just getting that balance right. So I think what we're starting to see is teams, more sophisticated teams, think about how do I approach the crypto market and the funding market in a more balanced way that avoids some of the pitfalls we've seen over the last few years.

42:07And so we're starting to see what we think is a trend towards more of a fair launch type approach. Something that's just really interesting that we're following at the moment is the Arweave team launching their protocol, AO, where it's a completely fair launch. The team don't have any tokens. No insiders have any tokens. you effectively have to farm that token by giving either owning our weave and getting access to the token or staking your ETH. So you stake your ETH to a contract, you earn AO tokens for doing that and the team gets to keep the staking rewards to effectively fund the development.

42:42And anyone can access that contract, anyone can effectively earn those AO tokens over the next three or four years in size by giving up the yield on their ETH to effectively earn them. And it's a fair launch. It's open to anyone with half an ETH to 10 ,000 ETH. And, you know, the team even starts with none, right? So you start to get that sort of fair, open access allocation to anyone that wants to take the opportunity to get involved in the ecosystem and turn up. And so when that protocol launches, you're not going to have this capital that's got in a much lower price and is looking to exit. that's got a different sort of risk return profile that people buy in the segmented market.

43:28Yeah, and people try to get around this whole concept by airdrops and kind of points, but it still disadvantaged everybody. And it just also felt like what you did was rent attention and you didn't bootstrap most of the networks who did it. People just went there, got the airdrop, dumped it as fast as they could, did exactly what they accused the VCs of doing, which most of the VCs actually don't because they're usually locked up. But they'd farm this stuff, figure out how to get it, get the airdrop, dump it, move on to the next one. And it's like, well, that doesn't work either. No, and then that starts to get gamed, right?

44:08So I think there's two things that make people committed to an investment longer term, which is what you want when you're building an asset, when you're building an ecosystem or a protocol. You want people alongside you that are committed. Now, there's two ways to be committed. It's either capital and over time, right? Now, I think the problem the airdrops faced was that it made people committed but over a very short period of time. And so attention just moved to the new, new thing as soon as an airdrop passed. And you effectively gave away substantial quantities or ownership of an asset to people that were only there for a few weeks of time.

44:51Now, when you're building something and you're a team and you've got tokens and you've got skin in the game over a five-year-plus timeframe, that kind of doesn't make a bunch of sense. So what I think we'll start to see is things where you're making that commitment to an ecosystem over time, like staking capital and giving a return or giving up a return over a longer period of time to earn those tokens over a longer period of time. And so you start to get alignment between the investors and the team and the ecosystem that's building over that longer period. And look, this isn't rocket science.

45:27This is how traditional markets work, right? VCs make investments in traditional markets over five to 10-year timeframes. They go through the good and the bad of building things from the ground up. Traditional markets have worked out that's the best way to get alignment with capital and builders. And the crypto market will get there over time and starting to get there now. And the other thing is, as you mentioned, because of this misalignment between tokens that have a lot of VC investors that come to market or have token overhangs from unlocks, they tend to get really quite cheap. At this point in the cycle, you've got this hugely stretched relationship.

46:11and for me i think the big game that i'm looking at is usually there's a chosen group of four you know the four horsemen the ones that get chosen for the next cycle if you remember last cycle it was avalanche polygon luna solana they were the kind of that was the big race where this huge gains because they got sold off they were all like eth was sold off as soon as it had its um ICO as well, they came off like 70%. They kind of stabilized. And then as the market regime changed, the capital came in. I'm really eyeing kind of, I'm doing a lot of charts of one versus another, trying to figure out, okay, what is strong once you filter out market movements?

46:56But that feels like that's a big game. And it feels like it's probably a layer one game because they're bigger. Sure, there's going to be other stuff. We'll talk about the other stuff in a sec. But how do you see that layer one race? I mean, do you agree with that thesis? This is probably going to be another group. My current view is it's probably, and again, I don't know, don't really have an insight, but I'm guessing it's something like Avalanche. Even those last cycle token, they seem to be doing interesting stuff. SWE and Aptos, because they are a whole different kind of ecosystem, but all of these have this kind of high LDV, low float.

47:35I think Monad has not come to market yet. That's another one. Maybe Nier. I don't know. What do you think is this race? And again, it's very early to pick it, so I'm not holding a gun to your head, but what's your hunch? Yeah, I think we look at layer ones as a – we've always had a view that there's going to be a number of, what we'd say is a multi-trillion dollar layer one protocols. Now, how big that number is, I think, is hard, I think, to predict. But when you think – but they're going to offer different things. They're going to offer different opportunities to different use cases. They're just decentralized businesses that sell block space.

48:12Yeah, so they need to have something that's unique about that block space. Either it's speed of transactions, it's security, whatever it might be, it's language on them, whatever it might be. So we've always taken a view that there's going to be multiple multi-trillion dollar layer ones. They're all going to find some area where they have a comparative advantage. advantage, that comparative advantage is going to lead to more and more apps and use cases being built around that. And that's going to crowd out other use cases. And yeah, we've already seen that play out, I would suggest, between Ethereum and Solana.

48:50It's not a coincidence that the pump.farm and all the mean coin activities happened on Solana versus Ethereum, because it's a fraction of the price to do that on Solana versus Ethereum. Now, that's not a bad thing for Ethereum. It just means that Ethereum has become more valuable to people like us that are moving millions of dollars around in a transaction, right? And we're happier to pay the higher fees, although that's been addressed a little bit by layer twos, but we're happier to pay the higher fees for the security that comes with Ethereum. But then that left the door open to someone like a Solana to grab that, you know, initially that NFT marketplace and now that meme coin marketplace where you've got that sort of rapid transaction speed and that launch capability to launch tokens at a minute fraction to what it was on Ethereum.

49:45And so Solana has grabbed that market from Ethereum. Now, that's not, you know, that just plays into our thesis that there's not going to be a chain that's, you know, everything to everyone. But they're going to find this specialist use case. That use case is going to become successful. That's going to grab all that block space that you talk about and dominate that block space and crowd out other use cases. And those use cases will find another chain that suits the purpose that they want. Yeah. My view is this space is, you know,$2 trillion today after the sell-off. And I think it goes to$100 trillion.

50:19That's just extrapolating out the log trend of adoption or just the total market cap chart, put it on the log scale, put a regression on it. It gets to$100 trillion by, let's say, 2032, 2034. So you can see the space is still player versus player a lot. They're like, oh, my God, Solana's robbing Ethereum. It's not. The whole thing is going to explode. As you say, there's plenty of space for$5,$6,$7 multi-trillion ecosystems. Yeah, we've never adopted the Ethereum killer or Bitcoin killer type approach to anything because I just think it's the world mindset. We have exactly the same view as you that this asset class is growing way beyond everything it's at today, which means that rising tide can float all boats.

51:10It means that Solana and Ethereum can definitely win together. It doesn't mean the player versus play is the interesting thing And to a degree, that actually plays in the favour of crypto around the whole ecosystem building, having people that are passionately focused on one asset or one ecosystem actually is advantageous to that ecosystem. But from a purely financial perspective, it doesn't mean one fails and the other prospers, because I just think this space is too big to be catered for by one protocol. I mean, we're starting to see a whole bunch of consumer apps start to come to market, start to get that sort of traction that we haven't seen previously in crypto.

51:47And that opens a new opportunity for new layer ones. You know, we're a sizable investment across our firm in year, for example, which is starting to see a real sort of uptick on that consumer app level that we haven't seen in crypto before. and that's a new market that we think a layer one can grab that some of the players like a Solana or Ethereum don't have or probably won't grab at this moment given the use cases they're chasing. So you see new opportunities come along and you see new protocols like a Nier or a Telegram or a Ton open network start to grab those opportunities. And that doesn't mean that takes growth away from Solana or Ethereum at all.

52:27It just means that you're broadening the market. And I think as investors in crypto and as in people that also passionately want crypto to succeed and blockchain technology to get to where we want it to get to, that's what you want to see. You want to see broad based growth across multiple protocols and across multiple apps that have different use cases. So any other layer ones that are on your radar screen that might participate? You talked about Ton. You've talked about Nia. Anything else that's kind of on your radar screen? Yeah, outside of the, I guess, the recognized majors, they're the two biggest investments that we've got at this point in time.

53:03They're the ones that we think bring something differentiated to crypto outside of the Solana and Ethereum. You know, Telegram is a unique approach in crypto. Yeah, cryptos generally build the tech and they will come type approach, right? And, you know, something like Ethereum has been incredibly successful at doing that. But that's a very different approach to the Telegram where you've got this billion plus user ecosystem with a chain now getting introduced to that. So it's the other way around, right? Like, let's grab the users from an existing ecosystem onto a protocol, which is something that crypto hasn't had before, given the amount of bootstrapping that's gone into the tech today.

53:48And we think that's a super interesting opportunity. We also think with the way a lot of the consumer apps are going and even the way a lot of the trading apps are going, you know, the things like BananaGumBot and Unibot and some of those other trading bots, which are pretty incredible technology. you're starting to see that sort of crossover between Web2 consumer apps like a Telegram into the crypto sphere. And you're starting to see a much more seamless user experience around that whole let's get users across to crypto without having to interact with the ledger that's in the vault that you talk about, right?

54:22Start to get those clicks down to a more Web2 type basis, start to reduce that friction, which has been one of the key issues I think that crypto is adding in terms of getting those new users onto platforms. And we're starting to see things like Telegram and things like some of the consumer apps starting to sort of abstract away that crypto thing, that crypto part, traditional crypto part of the equation and use crypto what it's good for, processing transactions, providing security, moving value at high speed. But let's make a Web2 interface or let's use an existing Web2 interface to bring that usability to a whole new user class of people.

55:01And that's how you get to the billions of users as opposed to the millions and tens of millions. The other one that I thought was a great breakthrough for the industry was Polymarket. It's just a beautiful application that nobody knows really or cares that it's on blockchain and it works exactly as it should and it's captured the world's attention and people don't even know it's crypto. Yeah, I think that's what we get most excited about. when people are starting to use applications solely for their utility. It's got nothing to do with it having anything to do with crypto or anything to do with an underlying coin or whatever it may be.

55:39They're using it because it delivers more utility than the Web2 version that they've been using. And so things like Polymarket, which processes because of the utility offers, got nothing to do with the fact that it's using crypto. It's kind of like the holy grail, right, of what we want to see. There's an investment we've got on the VC side in a small messaging app called Session, which has over a million users today, growing at getting 100 ,000 downloads a week out of the app stores. And 80 % plus of the users have no idea that it has anything to do with crypto. It offers a messaging app that's just got far better security because it uses a decentralized network to deliver those messages.

56:23so it's effectively completely private and untraceable. And so it's offering a solution better than an open source solution like Signal with better security with functionality that's up there with Web2 functionality. You don't have to know anything about crypto to use the app. You download it from an app store just like you download Signal and you can use it just like you can use Signal and it's using Web3 to deliver the security benefit that you can't get in a Web3 environment. And that's what we need to see, more apps like that that sort of have Web3 under the hood and deliver the benefits of Web3 without making users go through a whole new gates to sort of get that utility.

57:00So on the VC side, are you seeing less deep tech and more application stuff or is it still more tech infrastructure and still less applications? Because we're kind of waiting for this applications layer. Yeah, I think we're starting to see a little bit more on the application layer. I think we're starting to see that cycle play out, like I mentioned earlier, because the returns from sort of deep tech are rapidly reducing, right? And so the VC market starts to get more sense of how they allocate capital. The next, you know, creating a layer three or a layer four isn't the easy money that people started to think that it was, right?

57:37And so you start to see over time returns force that capital and look for investments that offer better risk rewards. And we see that more in the application space, to be frank, on the VC side now where we're starting to see apps, like the ones I mentioned where they're starting to get sort of tens of thousands, hundreds of thousands, millions of users trading at material or raising capital at vastly discounted valuations versus anything in the protocol space. So from our perspective, that looks like a much better risk-reward bet for us on the VC side. Now, we're not seeing as much of it as we'd hoped to see at this point, but I think that's driven by success.

58:14We just need a few of these apps to get the sort to the investors and the founders that we think they'll get over the next one to two years. And then that drives part of that allocation and part of those founders to focus more on those apps and get that sort of success. And it only takes, you see it in crypto all the time, right? Like you see one DeFi app like Compound suddenly bootstrap users out of nowhere and it drives a whole sort of vertical in the space. It only takes one of those success. You see something like an Axie come out of nowhere with users from sort of zero to gazillions overnight and it drives the whole sort of gaming allocation both at a VC and a liquid space.

58:53So you just need those success stories, I think, to sort of show that what could be achieved and capital follows. I think one of the things that I follow from people I know is I think there are some very big game launches coming. I think Off the Grid is the first one that's probably this month, which these are kind of triple a ultra good games and that becomes if anybody has a breakout in that that's very interesting because obviously the user the size of the number of users for a big game it's not an easy game in itself to launch games it's pretty difficult thing but if you get it right somebody's going to really bootstrap a network unbelievably on this yeah i think yeah you've basically got people taking two approaches, right?

59:42Like it's take the traditional approach of building a game that's competing with a Web2 game today but uses crypto for that sort of value transfer or functionality that you can't get in the wall garden approach of those Web2 games today. And I think that's super interesting and like you, we're waiting to see the game that kind of sort of cracks that nut. And that's where a lot of the capital has gone in the VC space when you look over the last two to three years. So we'd expect some big winners to come out of that. But, you know, like developing games in a web two space or movies, when you step further back, you know, picking the winners, it's hard.

1:00:19You know, one of my earliest memories from banking days is listening to our analyst who was covering News Corp at the time come in and give the download to the morning meeting about what a massive flop News Corp had wasted billions of dollars on called Titanic and how this movie he'd just been to like the pre-screening as one of the analysts was going to be the biggest failure in movie history, right? And it ended up being a massive money spinner. And, you know, really smart guy, sophisticated guy covering, you know, he was a top-rated media analyst at the time, but it just goes to show how hard it is to pick winners when you start to get into that kind of artistic type overlay into the investment space.

1:01:01I think one of the other interesting things is games that have taken the other approach, that have taken a much more crypto-specific approach. Crazy things like combat hamsters and those sorts of things where you're getting hard to verify these numbers, but you're getting tens up to hundreds of millions of users that are coming at a much more crypto-centric type approach. So I think we're starting to see two kind of valid options come here. One takes a more traditional approach and sort of bolts on crypto So in the way that it can add utility to an existing avenue and vertical, the other one's taking a more traditional crypto sort of off-the-wall approach.

1:01:41Let's go up with a game where you've got to click a screen to effectively earn something over time. And that's bootstrapping. Yeah, but we're seeing those can be very fleeting, right? They're almost pay-to-play. You kind of do it, cost you money, you get a bunch of users and they fuck off to something else. So it's kind of... But, I mean, that's the challenge for the developers, right? Can they then develop that game into something that becomes more sticky? So you've got the audience, and, you know, as we know, getting the audience is generally the hard part. So that's can someone, you know, can someone, again, crack that nut off, you know, I've got these tens of millions of users from clicking the screen.

1:02:17Can the second iteration of this game now hold them? Yeah. And, you know, someone will get that right as well, right? That's right. Someone will get that next iteration of that game that will become the next Candy Crush. So what other sectors interest you right now? I know this might change, but what are you kind of focused on in other sectors thinking there's opportunity? Yeah, I think we started off as, particularly looking a year or so back, pretty skeptical around AI and the crypto overlap. I think when we looked forward sort of five to 10 years, we could absolutely see that. We could see the two coming together.

1:02:54I mean, you start to think about agents operating in a digital world. Agents aren't going to be sending SWIFT transfers, right? So it's natural then when you start to operate at an autonomous level at digital speeds that crypto is going to play a part in that. I think we became more sceptical when we started to see some of the shorter-term sort of use cases on the radar around the ones that could use kind of more the models in AI space today and overlay that with crypto just given the amount of capital in some of the traditional players and the amount of growth they were starting to see. I think where we got a little more excited is where we started to see two things happen.

1:03:38Firstly, the use cases and some of the entrepreneurs we talked to come up with more sort of tangible, shorter-term use cases around AI that made sense to us. and we started to see, which I think was interesting on the traditional side, some pretty big missteps from some pretty big players. You know, people like Google, you know, we also are around their sort of their image generation and those sorts of things, starting to skew their AI down avenues that sort of started to show that there was a place for open source and verifiable type attributes to play in AI, you know, where people could actually understand the model they were using and understand the output was coming from a model that they understood was unbiased or giving the results that they wanted to see unfiltered.

1:04:27And I think we thought that use case would come over time. I think it's going to come faster than we thought, just given some of the missteps made from some of the traditional players where, in our view, they've kind of shot themselves in the foot to a degree and opened the door for new players. So just to summarise, because we've been talking for an hour already, I can't believe it. where's the biggest position in your portfolio, knowing that it may change tomorrow or it may not or whatever, but where's your concentration of position? What are the names that you're mainly focused on? Obviously, you look at a lot of stuff, but just the general direction.

1:05:02Yeah, look, I think we've actually – our biggest position across the firm is in Soha, and we've done that. Basically, if you look across crypto at this point in time, growth – and most points in time, growth is getting rewarded. growth in users gets rewarded. And that's where Solana wins at this point, right? Fees and revenue and those sorts of things we think ultimately will drive value longer term. But at this point, we were at in the market as users that have been driving growth. And when we look across the chain… Yeah, very active users and they're very active on Solana, right? Yeah. And so the three of the bigger positions we've got across the firm are the three that have got the growth in daily users and monthly users.

1:05:45That's Solana, that's Near, and that's Telegram. And that's what the market at this point rewards. So when we spoke about earlier around those sort of 10 or 11 DeFi apps and how they've grown revenue by 3, 4, 5x, but their prices are basically flat. So revenue, TVL, those sorts of things aren't getting rewarded. What is generally getting rewarded is users, and that's the one metric that we follow that has been rewarded with price. And that was, I mean, when you go back to your TMT days, the early stage of the internet was the same. It was users first and then eventually business model gets the reward in the end, wins the game.

1:06:23Yeah, and I think that's, you know, and so it makes sense that investors are allocating capital and rewarding that, given that they're the chains that have got momentum and that's what people want. They want to see growing ecosystems. They want to see chains that are attracting that sort of triple digit user growth level. And there's a bunch of protocols out there that have reached all-time highs in their user levels sort of month on month, as we sit here, even in July, as prices are trading at a fraction of their all-time highs. So that's when value starts to emerge. So three of the biggest positions we've got across the firm are Solana and Nia and Telegraph for that reason.

1:06:59They're the ones that have got user growth. Outside of that, new protocols come into market. AO is one that we're excited about. And so we hold a bunch of RWEA to effectively get access to that. you know it's a fair launch it's doing an approach that we think can see a token grow over time in a much more traditional fair way without that sort of vc dynamic and overhang that we've spoken about and it's interesting tech focused on new use cases and so we own our weave to get that and we also use some staked uh staked eth to earn that as well over time so that's also bigger positions and ao will also you use our weave on the storage site so we think it can drive that sort of high user growth, high functionality growth to our week.

1:07:39So we sort of win on both sides of that investment if it plays out the way we think it does over the next 12 months. And are you thinking that we see price acceleration at some point relatively soon? Relatively soon, meaning next two to three months that we start to see the more typical crypto price action for that kind of election period, post-election period. How are you thinking about that in terms of structure of prices going forwards? Again, not talking about market timing, but just talk about overall structure. Yeah, I think we – look, there's a lot of factors. I didn't say the word banana zone, but you know what I meant.

1:08:17Yeah, I think we – look, I think the name of our game is to be patient, right? So we remain supremely confident that you see a vast revaluation of the space over the medium term, whether that's three months, six months. one year, it's hard to predict. There's a lot of factors outside of crypto's control. You've got US presidential elections playing a big part in price direction of crypto now, more so than ever before. And that's clearly something that, well, apart from the money that crypto is giving, which does influence it to some degree, that's clearly something that's out of all of our control, but it's going to have a big influence on which way crypto trades.

1:08:56We're seeing things on the macro market, particularly the last 24 hours, which may change the sort of short-term liquidity profile materially and that could sort of give crypto a jolt in one way or another that we can't sort of predict in the shorter term. I think where we take comfort is when we see price moves like we've seen over the last, to be frank, over the last six weeks and the last 24 hours, but the underlying things like user growth and TVL and fees generation is just trending in one direction and one direction only. And so at some point, as you know, Markets generally get this stuff right over medium or longer term, so things need to fix.

1:09:33So if we were seeing altcoins trade like we've seen them trade or we were seeing DeFi trade like we've seen them trade over the last 12 months, but user accounts look dynamic and all those sorts of things, then we'd be much more panicked than we are today. But we know longer term markets get these things right probably longer term. Brilliant. As ever, my friend, really good to talk to. Let's see how it plays out. You've given me some stuff to think about this. I think there's something really strong in what you're saying is some of these alts have prices near their lows over the cycle, yet their user growth or other quality metrics are expanding.

1:10:13I think that's a really good thing for people to look at. Now, the problem is, is some of these kind of are gained in terms of user growth and stuff. So you need to do a bit of work on doing it. I think there's something really big in that idea that becomes very interesting because this is very discounted versus, as you said, the VC markets and other stuff. Richard, fantastic to see you. And let's see how it all plays out. Great. Thanks for having me. Good to speak again. Yeah. Great to see you. Cheers. So a fascinating conversation with Richard as ever. We covered an enormous amount of ground.

1:10:49We got out of him what some of his favorite tokens are. We understand his thesis on Solana and where the space is going overall. I really like Richard's view that, which is basically my view, which is tomorrow is going to be more digital than today. So in which case the super trend continues and everything else is noise. Now, I also like the fact that he's tends to be just a long only investor and is looking for interesting opportunities as the markets sometimes dislocate. I found it profoundly interesting when he's talking about some of these VC tokens that people don't like, that's the narrative, and now getting very discounted in the market.

1:11:29And I see that myself in many of these tokens. And you'll start to think, huh, maybe that is interesting, because maybe now that's been taken accounted for in the price, and therefore there's big opportunities. So I, for one, are looking for the next big trade here, what the next big layer one is, and starting to look at this stuff that's got pretty discounted. You know, when Solana's near the highs, many of these are near the lows. And it's like, okay, time to start doing some work. The good thing, the hedge funds will get them first. So XPAM should benefit from that. And obviously, I'm an investor and that's that helps.

1:12:06But I also am intellectually interested in the next big trade, which I think is coming. So lots to do there. Again, if you get a chance, do me a favor. Sign up to Real Vision because I think you'll prefer the experience there. I know YouTube's easy for you, comes into your feed. But that, if you really want to dig in and become an expert and go on that journey from information to knowledge to wisdom, that's the place to do it. We built it for you. So go ahead and use it. Anyway, see you next time.

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