Alex Pack, founding partner of Dragonfly Capital, and Haseeb Qureshi, Dragonfly managing partner, talk about why Dragonfly has a global focus, how they choose investments, and why they try to be as agnostic as possible about asset type. They also discuss why most protocols, including Bitcoin, still look like venture bets, why, at the moment, Bitcoin looks like a better investment than anything built on top of Bitcoin, and why Lightning hasn’t yet taken off and why they think it won’t. We also cover what the future holds for Bitcoin. They explain what they think will happen in the smart contract platform race, why Ethereum is so far in the lead and whether anything will become an Ethereum killer. We also cover Libra, and how Libra affects their investments in stablecoins, why Xi Jinping’s “blockchain, not crypto” emphasis is a dead end, whether blockchain-based identity is an investable area, what they think the killer app is or will be and their predictions for 2020. Also, Haseeb, a former professional poker player, describes how poker playing is similar to crypto trading.

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Episode links:

Alex Pack: https://twitter.com/alpackap

Haseeb Qureshi: https://twitter.com/hosseeb

Dragonfly Capital: https://www.dcp.capital/

Dragonfly Capital’s blog: https://medium.com/dragonfly-research

Forbes on Dragonfly Capital’s $100 million initial raise: https://www.forbes.com/sites/alexkonrad/2018/10/09/new-fund-dragonfly-bridges-china-us-crypto/#572aeb953c9a

Venture Beat story: https://venturebeat.com/2018/10/09/dragonfly-capital-partners-scoops-up-100-million-for-cryptocurrency-investments/

https://www.globenewswire.com/news-release/2018/10/09/1618445/0/en/Dragonfly-Capital-Partners-Unveils-100-Million-Inaugural-Fund-for-Cryptocurrencies-Bridges-Gap-between-East-and-West.html

DeFi cannibalizing POS security: https://medium.com/dragonfly-research/how-defi-cannibalizes-pos-security-84b146f00697

Mimblewimble blog post: https://medium.com/dragonfly-research/breaking-mimblewimble-privacy-model-84bcd67bfe52

Haseeb’s 2020 article on CoinDesk: https://www.coindesk.com/what-defi-needs-next-year-three-priorities

Transcript:

Laura Shin:

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host Laura Shin. I know a bunch of you listen to Unchained at the gym. Since its January and I suspect some of you will be hitting the gym more than usual why not get really meta and listen to Unchained while also wearing an Unchained t-shirt. You can buy shirts and other Unchained items at shop.unchainedpodcast.com.

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Laura Shin:

Today’s guests are Haseeb Qureshi and Alex Pack managing partners of Dragonfly Capital. Welcome, Haseeb and Alex.

Alex Pack:

Hey, Laura. Thanks for having us.

Haseeb Qureshi:

Yeah, thank you.

Laura Shin:

Why don’t we start with each of you giving your background and how you came to become managing partners at Dragonfly Capital. Alex, why don’t we start with you.

Alex Pack:

Sure. Thanks. So, Dragonfly Capital is a global crypto venture fund. We’re based in San Francisco and Beijing. We launched about two years ago. It’s founded by myself and my partner, Bo Feng, and Haseeb joined about a year later. So, my brief background is I’ve been in venture capital most of my career. I started at a FinTech firm in Hong Kong, then I was a partner at AngelList, then joined the venture arm of Bain Capital the hundred billion-dollar private equity firm in SF where I sort help them build out their early-stage investing and started their…a crypto investing practice, and just to flesh out the Asia side of our story, my third partner is Bo. He’s one of the early pioneers and leaders of the internet industry in China, founded one of the first China-focused internet VCs, invested in some of the large Chinese internet companies, and he’s also one of the early investors and many of the big blockchain businesses that are out of Asia, like the exchange OKX, and Haseeb joined us a few months ago.

Haseeb Qureshi:

Yeah, so my background, just real briefly before I joined Dragonfly I was at MetaStable Capital, which is another crypto hedge fund that’s run by Naval Ravikant, and then before that, I was doing a lot of stuff in crypto. I was working on Defy and the stable coin project as an entrepreneur. I worked for a little while at 21, which is now Ear.com, which got acquired by CoinBase, and then before that, I was at Airbnb as a software engineer, so I’ve had a pretty varied background, and then in my previous life before I ever got into tech I used to be a professional poker player, and all that kind of gives me a pretty different set of perspectives on what’s going on in crypto, I think, relative to most people who come from more traditional VC backgrounds.

Laura Shin:

Yeah, for sure, and Haseeb, I actually really wanted to ask you a lot about this. You started doing this when you were 15, so can you tell us how…

Haseeb Qureshi:

That’s correct.

Laura Shin:

How that happened, and as far as I understood I think you became one of the top 10 in the world or something, at some point, and you were teaching it and yeah. Tell us that story, and just out of curiosity also how, if at all, that experience affects the way that you invest in crypto.

Haseeb Qureshi:

Totally. So, I’ll give like a super abridged version. I was 16 when I started playing poker and I was like I think it’s really actually surprisingly analogous to these really, really young crypto traders who made a bunch of money speculating. I think every generation has its hustle for young really smart people who don’t want to go down the beaten path, and I think a decade ago it was online poker, and then maybe five years after that it was like fantasy sports or something, and then now it seems to be crypto trading where I was just…I was young, I was bored. I felt like I really wanted more of a challenge then kind of what sort of academia, or just kind of going down this normal beaten path laid out for me. I remember at the time I was in college and I was studying philosophy, and I just…nothing seemed as compelling as just this intellectual challenge of playing poker and making money, and I think now, so many years later, having come into crypto one, it helps me understand a lot of the dynamics behind a lot of these speculative manias.

Online poker had many elements of that, especially after Chris Moneymaker and this big online poker boom that happened around 2007 to 2010, but then at the same time a lot of the skills that you need to have as a professional poker player around thinking about risk, thinking about psychology, thinking about game theory, thinking about how…different competitive dynamics, not just between people but between…in crypto obviously, you think between protocols. A lot of that kind of thinking, and the other thing, too, is thinking probabilistically. All that stuff I think has been really, really valuable in not just evaluating crypto projects but in becoming a good investor. So, all these things are…I think are super related and it’s part of the reason why we see a lot of ex-poker people make their way into crypto.

So, funny enough, I’ve met a lot of people from my past as a poker player who are now some of the biggest names in crypto, so there’s a lot of overlap.

Laura Shin:

Wait. Who are some of the others? Would I know any of them?

Haseeb Qureshi:

Hasu. Hasu was a professional poker player before. He’s Hasufly.

Laura Shin:

Really?

Haseeb Qureshi:

Yeah. Yeah. Who else? There’s a Doug Polk, who’s like a big…he’s kind of a big content creator. There are a few others. You know honestly, so many people have reached out to me and told me like oh yeah, I used to play poker professionally back in the day, but who weren’t quite on my radar back when I was a poker player, but I’ve run…oh, yeah. I’m just remembering some names, like Kaopig, and a bunch of other random folks. A lot of people who are dabbling in 2017 but even some now who are still in the game.

Laura Shin:

That’s super interesting. I feel like maybe I could do a show on that. I don’t know what lessons…

Haseeb Qureshi:

One hundred percent.

Laura Shin:

It could be like…I can already think of it as a listicle, you know 10 ways that poker can make you a better crypto trader, or something.

Haseeb Qureshi:

Oh, I could riff on that for a long time, but I’m going to spare you.

Laura Shin:

Anyway. Okay. Well. Why don’t we actually then just go back, Alex, when you were talking about how you and Bo connected like you were already investing in crypto stuff when you were at Bain so why did you decide to start this new fund as opposed to continuing investing through Bain?

Alex Pack:

Yeah, I had a much more traditional path into crypto, I suppose than Haseeb with poker. So, I’ve been doing it professionally, I suppose, as a VC since maybe 2014 at generalist big funds. The problem is it’s very…crypto, I think, is a new asset class and it has resemblances to older asset classes, probably the most similarities to venture capital and FinTech investing, but it’s only somewhat like venture. It’s actually there are many ways in which it’s way different, there are many ways. There’s liquidity, and the trading aspect of these tokens, there’s the extraordinary deep technology, and then there…most importantly, for me, is the global aspect to crypto, which is that most of the usage of crypto today is overseas, outside the US, primarily in Asia actually. Probably anywhere from 60 to 80% of all crypto usage, I think in a very rough sense, is in Asia, so…and that’s where I got turned on to crypto.

I was at a VC firm in Hong Kong. Before that, I had sort of played around with Bitcoin in college, but I just felt like it had…it was very…it wasn’t for me, like I was not the end-user or anyone around me, sort of Western affluent affluence. We’re not the end user for cryptocurrencies, and when I went to Asia, to Hong Kong, I saw a lot of consumers and end-users who…for whom crypto solves a real problem, people who are underbanked, or unbanked, and so forth, so for me Bain Capital Ventures we don’t really do that much on the venture side outside of the US so I’ve spent a bunch of my time trying to learn about what’s going on in Asia, and that’s how I connected with my now partner Bo and yeah. It just became sort of apparent that to build the sort of global firm I wanted to build I’d have to go…I’d have to do it myself and start this new franchise.

Laura Shin:

So, Dragonfly’s portfolio includes a pretty big range of companies. You’ve got companies in Defy, others doing hardware, there are some exchanges, protocols, stable coins, analytics firms, custody, etcetera. What’s your strategy for choosing investments, like how do you feel like this space is going to develop and how do you choose investments within that?

Alex Pack:

Yeah, so we…our overriding mission is we’re looking to sort of build this global ecosystem and invest in the leading participants in the crypto economy across what they’re doing and try to be relatively agnostic about things like geography, and even asset type. I think it’s quite…probably the biggest mistakes I made…actually, by far the Ethereum, or something, because I felt like we couldn’t do tokens, even though I met Vitalik years ago during the pre-sale in Hong Kong, and many VCs have this story, so I think having no blinders on is very important.

Generally, the biggest trend that we see and that sort of guides our strategy is that in the Western world is where most of the technology is, most of the deep cryptography, most of the actual commits and people that are building the really core layer one protocols, and so forth, come out of the West, and so we primarily invest in layer one tokens, Defy products, very deep technologies that come out of…and the west is sort of a broad term. I mean, where’s Ethereum based, right. It could be California, it could be Boston, Toronto, Israel.

Laura Shin:

Berlin.

Alex Pack:

Yeah, Berlin, of course. And then in the east is where a lot of the adoption is, so we primarily invest in exchanges, trading firms, and sort of trading platforms, and wallets, and a lot of the end-user products that come out of Asia, the greater China area.

Laura Shin:

And are you just trying to pick one company in each of those areas?

Haseeb Qureshi:

So, I don’t think we think so much in terms of one company from each area. It’s really hard to draw a strict analogy between what we do and traditional VC because I think a lot of traditional VC kind of comes out of looking backward through history of 30 to 50 years of investing in these particular industries, and seeing okay, what did it look like when the winners played out? What sort of companies, what sort of business models, and what sort of categories were they that actually succeeded, and so if you look at crypto and if you assume that crypto is a different asset class, and therefore it has different behavior and value accretes to protocols differently, which I think is at this point pretty obvious, then it’s pretty hard to say well, probably we should invest the same way that VCs invest.

So, notions like you should only invest in one company in each category. Well. It might be like, what is a category? Is a category a layer one? Well. Then, in that case, Bitcoin might be your only investment and you wouldn’t touch Ethereum or is a category trading. Well. There’s trading in China, there’s trading in…the US is trading in different products, and so it’s pretty hard to draw clear boundaries without really having the foresight to know how is this market going to play out, how are these spaces going to get partition in the future, so I think the hardest part about being a crypto investor, in that sense, is keeping your mind open to being changed very rapidly about what ends up becoming valuable.

We fundamentally believe that there’s going to be…Bitcoin isn’t the only thing that’s going to succeed in the space. There are going to be other investments that succeed at least in the rough order of magnitude as a Bitcoin or Ethereum, but they might look very different from a Bitcoin or Ethereum, and it’s way too early to call now and say what are the patterns of how those investments are going to play out, so we try to remain agnostic and we try to, also, let our mind to be change year-over-year and not get stuck on any particular paradigm. If you were back in 2016 or 2017 and you were like okay, great. This is how value gets created in crypto you would be totally unequipped to invest in the landscape today because crypto just looks completely different than it did two or three years ago, and I suspect that two or three years from now we’ll see the same level of transformation just because the space moves so quickly.

Laura Shin:

Yeah. I literally feel like every year there’s a new trend or two. One other thing I was curious about with your strategy is, so at least when you initially raised your first 100 million in the fall of 2018, or I think that’s your only raise, you said you had invested in three types of assets, crypto native funds to centralize protocols and applications, and then pick-and-shovel tech startups that build bridges between the decentralized and centralized worlds, but for the first one crypto native funds I just was confused. Why would you invest in other funds or more to the point, why would your LPs invest in you in order to invest in those other funds, like aren’t they just kind of paying fees twice, or like…I kind of didn’t understand that part.

Alex Pack:

Yeah, so part of our strategy, and our core part of our strategy. is fund to fund in the beginning, but we do it as VCs with a long-term approach, so actually this…oddly enough, this approach is quite a bit more common in crypto than in other types of investing. I did it at Bain Capital. We invested in several funds…several the same funds and then Sequoia, Founders Fund, Bessemer, USV, Andreessen Horowitz they all had investments in about three to four, or more, different crypto funds and I think still today most of them do, so for us, the thinking was it’s a frontier asset class and industry. There’s a lot going on around the world, there’s a lot of different categories, and our goal is to get our LPs sort of single diversified exposure to what is happening in crypto, and along the way to be part of this global ecosystem of information flows, and deal flow, and things like that to make sure you know what’s going on in the space at all times, and so for that investing….co-investing with funds, investing alongside them, we’re investors in Paradigm, and Polychain, and MetaStable, and a few others.

That just made perfect sense because fund managers and investors they’re a core part of the ecosystem. Actually, they’re probably more important, almost, in the ecosystem of crypto than they are in traditional venture. There’s no boards and there’s governance, and there’s staking, and so investors are sort of…they’re doing more work than typical investing and they’re sort of part of the ecosystem overall.

Laura Shin:

And do you also buy things as basic, I guess I would say, as like Bitcoin and Ethereum as well to give your investors exposure to that, or…because I know that was a thing with some funds early on, but I don’t even know if people…if you guys do that anymore.

Haseeb Qureshi:

So, we do yeah. So, we do buy just public liquid crypto assets because I mean, ultimately as investors are our goal is to give our LPs the best and sort of highest value exposure to crypto and it’s a question that we constantly ask ourselves of where does value accrue, and so it might well be that value accrues to companies that are building on top of an Ethereum, or on top of Bitcoin, or on top of Tezos, or Algorand, or any one of these publicly traded assets, but it’s very clear.

I mean two things. One is that it’s really not obvious where value accrues and as an investor you need to make it…only investing in second layer protocols or businesses is ultimately a bet that that’s where value is going accrue, and so if you think it’s going to accrue to the underlying protocol instead then sometimes you might say like, well. These guys are building on top of Tezos, but I think it’s really Tezos that’s going to capture the value, not this project, but then second is that most of these protocols they really actually still look like venture bets, in the sense that they…it might look like okay there’s been a lot of price appreciation and these things have really grown, but it’s pretty clear that most of these things, and depending on who you ask I would definitely put Bitcoin in this basket, they’re still very binary bets, in the sense that either these things work and they become what they say they’re going to become, such as digital gold, or the world computer, or whatever, or they basically don’t work and it becomes sort of a wash, and so Bitcoin right now is like a call option on this digital gold thing.

Ethereum is a call option on it winning the smart contract platform for the world, and smart contracts being a thing. All these things still have that very, very asymmetric return profile, and so I think for us we constantly ask ourselves the question of what do we think is the best investment given where things are today, and sometimes we’re more bullish on particular venture deals, and sometimes we’re more bullish on the underlying protocols, so it really depends.

Laura Shin:

So, since this is the first episode of 2020, we’re just going to go through kind of all the really big themes in crypto, so let’s start with Bitcoin. From your perspective as investors how do you see Bitcoin, and at this moment in time what investable opportunities do you see related to Bitcoin, and…well. Let’s just start there.

Haseeb Qureshi:

So, I think Bitcoin, it’s been pretty hard…as investors when we look at Bitcoin there are two questions you need to ask yourself. So, one is, is Bitcoin itself undervalued or overvalued in a way that I can detect right now, and if so, how much do I think that’s the case, and the second is what about the Bitcoin ecosystem? What about things like lightning? What about things like liquid, or other businesses that are built on top of Bitcoin? So, for the latter, businesses built on top of Bitcoin, I think it’s been pretty hard to see any successes so far.

Bitcoin is sort of the perfect example of you know Joel Monegro’s famous fat protocols thesis, that Bitcoin basically eats everything on top. Anything besides, basically, exchanges, which is purely facilitated trading and speculation. Anything besides that just has totally failed to capture any value, so when we look at Bitcoin the question that we always ask ourselves is, is it better if we think Bitcoin is…if we’re bullish on Bitcoin, which we are, to just invest in Bitcoin or to invest in proxies for the growth of Bitcoin, which might be venture companies that are building on top of Bitcoin, and so far I think that this has been pretty resoundingly in favor of Bitcoin itself, and I think I’d say, yeah, we’re pretty bullish on Bitcoin, especially at the prices that we see today. Although, this might not come out for a couple of weeks, in which case maybe the price has changed.

Alex Pack:

Yeah, I would classify the centralized businesses that are sort of in the trading and Fiat on-ramp space as kind of the Bitcoin ecosystem, so much more broadly actually than Haseeb does, where he’s sort of just talking about the decentralized applications. I think trading, and speculation, and store of value transfer is…that is the application of Bitcoin today and it’s the latest stage of all the of use cases in crypto today by far, so for us what interests us most is, yeah, how are people going to get their first Bitcoin, where are they going to trade it, and things like that, and that’s thriving. I mean that’s an enormous industry, and it’s actually a fairly large percentage of…in terms of market cap, mining, and the biggest exchanges. It’s a fairly large percentage of the overall Bitcoin market cap at this point.

Laura Shin:

And what do you think about Lightning? There’s been a lot of talk about that, but I don’t know if it’s really taken off the way people expected, especially in recent months. It looks like it’s actually kind of decreased in activity, although I did read something saying that there’s a lot of unaccounted for activity that’s private. Do you think it has taken off?

Haseeb Qureshi:

I mean, I think you answered your own question there, is that Lightning clearly hasn’t taken off. If it has, we all would know it. There wouldn’t be any question of whether…there’s never a question if something has taken off, the only question is why it hasn’t, so I’ve never been a bull on Lightning. I think for a couple years I’ve been the annoying friend who’s always like yeah, I don’t think this thing is going to work, I don’t think it’s going to go anywhere for a few reasons. One is that I think it’s not a hard explanation. Bitcoin, clearly most of the reason why people want it is to hold it not to transact for small amounts of money, so Lightning in and of itself it just isn’t really serving this big wellspring of demand for sending Bitcoin to your friends, but then second, over and above that, I just think like the Lightning model as a mechanism for payments just isn’t economically sustainable, like the fees that are getting paid out to Lightning nodes that actually wrap payments are just not enough for them to want to lock up Bitcoin on this thing when they can basically get better yields elsewhere.

The fees that are being paid on Lightning are minuscule and so that really prevents it from growing and creating this flywheel because it’s just so capital intensive, so I think early on it was easy to be ideological about these things. Now that there are a bunch of competing ways to pay people using crypto it’s hard to just kind of ride or die on ideology, so I think…it sounds a lot more plausible to me that if people want to pay each other with Bitcoin in a decentralized way it might end up happening on…through tokenized Bitcoin on some other mechanism that is just much more capital efficient and doesn’t require huge Bitcoin holders to lock up tons of capital and create this network of…I just don’t see how that works in the limit without incentives really coming into play.

Laura Shin:

Oh, interesting. Well. So, since a lot of layer two development on Bitcoin has…or people have said that that will basically be Lightning. If you don’t think Lightning, it will take off then what do you think will happen to Bitcoin?

Haseeb Qureshi:

I think Bitcoin will continue to be what it is, which is you know…overwhelmingly today all of the side chain and the things like RSK, and any augmentations on top of Bitcoin have really been tiny ornaments on top of what the real market is. The real market is I want to buy and hold Bitcoin because I see it as a digital store of value. That overwhelmingly is, I think, what Bitcoin is going to be used for and that use case actually is totally fine with the state of Bitcoin clearing today, and maybe it gets augmented with things like liquid for cross-exchange transfers, and things like that, but I don’t expect Bitcoin to actually change that much, except in relatively minor ways through its technological roadmap of just making things more efficient at the margin, and maybe marginally more private.

Alex Pack:

Yeah, I think the idea that Bitcoin would ever be a medium of exchange has always been a bit of a libertarian pipe dream.

Laura Shin:

Yeah. Well. There was that period in 2014 when all those retailers started accepting it but then nobody was spending it, but we still have people today saying that they’re going get retailers to accept Bitcoin and people are going to spend their Bitcoin, so I don’t know. I thought we learned that lesson years ago but maybe I’m wrong.

Alex Pack:

I mean, there’s no…

Haseeb Qureshi:

I mean that’s the power of ideology.

Alex Pack:

Why don’t they accept gold at this point, or copper, or silver? Nobody’s claiming for that.

Laura Shin:

Haseeb, what did you just say?

Haseeb Qureshi:

I just said that’s the power of ideology. In a way, I’m glad those people are there because they are the people who are propelling Bitcoin forward, like Bitcoin would not be where it is today without its religious acolytes who are like yeah, you know what, I still believe that Bitcoin is going to be used for payments, and I’m glad they’re trying but I don’t think they’re right. I don’t think it’s going to work, but without those people there all we have left are the rationalists who will just basically…who’ll leave the room the most at the first sight of danger, so it takes all kinds.

Laura Shin



So, Haseeb, I know that at one point you also said that you thought Ethereum would clearly beat Bitcoin and that later you had to revise your thesis, so can you explain why it was that you used to think Ethereum would clearly beat Bitcoin, and what do you think now.

Alex Pack:

Wow. Great research. I didn’t even know that.

Haseeb Qureshi:

Yeah. Well. So, this was very, very early when I first got into crypto, so I had known about Bitcoin for a long time just like it’s one of those things like your friends used to buy drugs, or just whatever, right. It was sort of on the periphery of my attention, and then when I first started getting into this space full time you learn about Bitcoin, which is like this thing that doesn’t really do very much, it’s got this terrible scripting language, and it’s got all these weird edge cases, and like backported things. Then there’s Ethereum, which can do anything and it’s got this awesome welcoming community and I’m like okay, there’s no way that this curmudgeonly old thing is going to win over this new shiny thing that could do strictly more, right, which I think is a very common belief by developers who come into crypto and see these two things as open-source projects, but the reality, of course, that Bitcoin is a lot more than just an open-source project, and at the time I just didn’t really grasp that, and this was around the time…the ICO boom was just really kicking off and there was all of this momentum behind Ethereum and it really took me…it honestly didn’t take me that long to really realize what it was that I didn’t understand about what made Bitcoin so powerful, is that in a way the fact that it’s so static, the fact that it doesn’t change is a large part of what makes Bitcoin so valuable, and it’s a property that Ethereum cannot emulate because Ethereum is trying to be a different thing.

It’s not trying to be digital gold, it’s not trying to be this unalterable vision of 21 million deflationary store of value. Ethereum is trying to be something else and so it cannot out bitcoin, Bitcoin, and so after…I think after there was this moment when people thought about, oh crap, there might be a flip in it, like Ethereum might actually become more valuable than Bitcoin, and I think after the deflation of the ICO bubble, when Ethereum dropped from 1200 down to sub 100 dollars I think that was kind of like…you know, there’s this line in The Wire that…I think it’s Omar who says if you aim at the king you best not miss, and I think that was sort of the nail in the coffin for Ethereum, that Ethereum once it…once it aimed at Bitcoin and missed I think sort of the game is over. Bitcoin kind of wins and I think it’s pretty hard for anybody at this point to dethrone in Bitcoin as being the claimant to what will be the digital store value or the digital gold.

Its sort of like you can eventually find a shinier metal than gold, like maybe platinum or something else is shiny. I have no idea if it is but it’s sort of too late. Gold has already been just impressed into all of our minds as being somehow the most gold that anything can be, and I think that’s kind of happened to Bitcoin.

Laura Shin:

Interesting. So, we’re going to discuss a little bit more about Ethereum, but also really big projects including Libra China and more on Dragonfly’s area of expertise in Asia, but first a quick word from the sponsors who make this show possible.

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Laura Shin:

Back to my conversation with Haseeb Qureshi and Alex Pack of Dragonfly Capital. So, we’re still a ways off from Ethereum 2.0 launching with full capability and yet I feel like there’s this smart contract platform race that’s about to really get started with all these Ethereum killers coming online, so how do you think that whole thing will shake out? What do you think is the likelihood that Ethereum will lose its lead, and if Ethereum does get killed what do you think will kill it?

Haseeb Qureshi:

So, that’s a really big question and the way you framed that was that there’s a battle coming up, and I think a lot of people thought that that battle was coming up six months ago when a lot of the earlier folks were launching, such as Tezos, and Algorand, and Hashgraph, so actually we’re…to my mind, we’re halfway through that battle and everybody…every soldier that’s come up to the line has just gotten decapitated so far, so already I think we know more than we did six months ago of why Ethereum is so far in the lead, and we know more about how much harder it’s going to be for somebody to dethrone Ethereum.

Early on, I think six, nine months ago, I really strongly believe that the overwhelming likelihood was that Ethereum was not going to make it, that they just had too much technical debt, their road map was way too long. People were not going to wait until 2022, or whatever, for Ethereum 2.0 to get there and the pent-up demand for using smart contracts was just going to mean that whoever got there first, whoever really offered a high-throughput decentralized blockchain was just going to win the day and that that was like…Ethereum is like MS-DOS, and these guys are…somebody else is like the actual technology that we’ll end up using, and the probabilities now, I think, have updated to now being that Ethereum is the favorite to retain its lead, and there are a few reasons for that.

One, I think, is that there’s…one is that Ethereum has just really shored up its roadmap a lot. There’s a lot more clarity now on how to actually get there, which doesn’t mean any faster of a timeline but it does literally mean the more time that we wait the closer a theorem is to launching and all that time…the longer we wait…every day that passes that Ethereum doesn’t get dethroned it’s more likely Ethereum wins.

The second thing is that it’s become really clear one of the really dominant applications for crypto is Defy, and that wasn’t really that obvious a year ago but it’s become much more obvious today, and the thing about Defy is that Defy, one, it’s only working on Ethereum and Defy has a huge network effect, meaning that it’s very hard to spin up a fledgling Defy ecosystem on a chain that doesn’t have other assets, doesn’t have interoperability with other chains and doesn’t have high-quality collateral, so if you’re trying to build a Defy ecosystem on EOS, for example, you can try and there is a small Defy ecosystem on EOS but the problem is EOS doesn’t have a lot of stable coins. itself isn’t as high-quality collateral as ETH. It’s just not as liquid, it’s more volatile, and at the end of the day those network effects just really keep ETH locked in as being the home for Defy, and most of Defy doesn’t require super hardcore scalability because most of the applications today if you’re taking out a giant CDP on maker you don’t need 500 TPS in order to do that, so…and the last thing has really been almost all the startups that we have seen that are not building their own chains are building on Ethereum, so very few companies are making bets.

You know, there are a few things at the margin that are saying okay, we’re going to build on Polkadot and be a relay, or we’re going to integrate with a real a chain, or we’re building on Cosmos-SDK, we want to be part of the Cosmos ecosystem, but almost everybody else is building on Ethereum because it’s just the only game in town. To quote a famous bank robber, people build on Ethereum because that’s where the money is, and so if you’re building a product that needs to integrate with money you have to go build on Ethereum, so it’s very possible that if somebody brings their own distribution, so like a Telegram, although Telegram has its own problems as we’ve seen with recent regulation, I really didn’t know what to think if Telegram were to come in to crypto and bring with it a huge new ecosystem of developers, and same with Libra.

The Libra would…if it were to launch in a way that allowed external developers to build stuff they would just be bringing a huge growing of the pie, in terms of the number of developers and entrepreneurs who’d be building on top of them, but if you’re only targeting crypto developers today it’s just really, really hard to stand out as a smart contract platform, so I think there are a lot of platforms that are launching soon that have better designs, and have better architectures, and will come out to market with a much more scalable product, but the thing they’re really going to have to prove them is just how do they win developers. How do they win the hearts and minds of people who right now, like the best developer experiences and all the other things they want to enter it with, they live in one place and that’s Ethereum.

Laura Shin:

Well. I have a question for you because you made a strong case for how if you were building a Defy DAP you would want to do that on Ethereum, but let’s say that I wanted to build some kind of crypto gaming, something or other, where throughput really was important then would somebody like that, who maybe couldn’t really tap into the network effect of Defy would that person have a different incentive when it came to choosing blockchains to develop on?

Haseeb Qureshi:

Absolutely. I think that’s one of the things that we’ve seen chains start to specialize on, and a lot of chains have really tried to brand themselves, actually, as like we’re friendly for gaming, we’re friendly for high throughput use cases. The problem is that those things, one, they don’t really seem to generate network effects, right, so if there’s a game that has really, really high throughput on, let’s say, EOS, or let’s say Algorand, right. That might be a great platform for that game but that game isn’t necessarily going to attract a lot of other users, it isn’t necessarily going to attract a lot of other assets, it isn’t going to attract a lot of other applications because, so far, at least what we’ve seen with the games, that they’re not particularly interoperable so…and the other thing is that Ethereum is getting really, really close to developing a more robust layer two-story of how you can develop high throughput applications, but just on layer two getting security from layer one, so companies like Matter Labs with their ZK Rollups approach, or Optimistic with Optimistic Rollups. These things are moving ahead really rapidly so I think a lot of people see, okay. Well. If I just wait and then once these things already, I can just deploy in Ethereum and benefit from the fact that I don’t need to onboard my user into a whole new blockchain that they’ve never heard of, I can do it all within the Ethereum ecosystem.

Laura Shin:

Okay, so out of curiosity then like how do you…I mean, your investors so are more trying to invest in things building on Ethereum, or are you still looking at investing things that may compete with Ethereum?

Haseeb Qureshi:

Well. To be clear, we invest in a lot of platforms that compete with Ethereum so what I’m saying there is not that I think Ethereum is definitely going to win. What I’m saying there is that Ethereum’s lead has grown a lot, but there’s a lot of game left to be played, right. Three years until Ethereum fully launches Ethereum 2.0 with smart contracts in, I think, what’s a reasonable timeline, two to three years. That’s a long time and if we see a blockchain platform really get product-market fit before then, which…beyond just what we see today, which is like crypto native speculation, I think you could see a very, very rapid transition outside of Ethereum to something else being the dominant platform, but it could also well be that Ethereum sort of stays the way it is as like the Defy chain where if you want to do crypto native speculation, or take out loans, or do this kind of stuff all of that stuff happens on Ethereum, but the other big use cases for blockchain, such as gaming, or such as STOs, or something like that, might happen on a totally different chain, so we might see a splintering of applications across chains.

I think it’s really early to say. There’s a natural effect that things want to be together, things want to be interoperable, things want to live in the same ecosystem but if the platform’s…if the applications require super high throughput and properties that Ethereum can’t give it then they may just go elsewhere. We have we have a lot of investments, actually, in platforms that are competitive with the Ethereum and I think they’re really awesome, and I think they have a really good fighting chance, but I think they know they’re fighting a juggernaut right now and that juggernaut has grown stronger in the last six months.

Alex Pack:

And the one major exception to this story is the geographic factor. There are some regions, especially China really, where usage, I think, may, in fact, be fractured and the dominant global smart contract platform loses to a regional competitor and this is because of cultural issues, language issues, which is actually bigger than you might expect, and just sort of government nationalist influence. China is very publicly advocated for using Chinese technology infrastructure. We see this with Alibaba Cloud displacing AWS, and things like that, and that influence is where corporates and all sorts of parties decide to build on top of in the smart contract universe.

Laura Shin:

Yeah, so we’re going to talk about China in a little bit, but actually, I want to talk about Libra first. Haseeb did mention Libra, and I actually wanted to ask you…so the launch of Libra seems somewhat imminent. I don’t think we have an actual timeframe, but maybe, I don’t know, in the next year or so, and they did already launch a test net for developers. So, I’m just curious to know, first of all, …why don’t we just talk about this aspect first. How do you think that Libra will affect existing stable coin projects, and how does the launch of Libra…or how will the launch of Libra affect your investment strategy when it comes to stable coins?

Haseeb Qureshi:

So, that’s a super difficult question to answer, because I think…honestly, we know surprisingly little about how the Libra is going to play out. If the Libra actually does launch in what form it’s going to launch is a very open question right now, so to my mind, I think the likelihood that the Libra launch is in the way that we are originally imagining with, basically, a network that looks like what they described in the initial white paper and all the documents that they first published earlier in 2019. I think there’s almost no way that we see exactly that.

The amount of pushback they’ve received from regulators around the world, especially in Congress in the US, I think it’s very likely that we see either some regulatory categorization that gives regulators a lot more oversight over the Libra than what they were originally expecting to get, and ultimately you just can’t really expect being a player on the size of Facebook to be able to sneak in through some kind of loophole and essentially offer an entirely new currency, or entirely new whatever you want to call it, ETF or whatever notion you want to apply to what exactly the Libra is, without being subject to really, really stringent regulations.

So, if we assume that what the Libra is going to launch is actually a smart contract platform that does have this stable coin that pretty much anybody can acquire on the underlying Libra platform. Calibra might have AML and OLC, but the underlying Libra chain allows anybody to send and receive Libras. I think that’s like massive, massive, massive change to the landscape of what crypto ends up looking like, and it has a huge consequence for stable coins, but I think that universe is long gone. I think there’s no way the Libra launches and looks like that.

If the Libra does launch, I imagine it’s probably fairly neutered. It probably is closed off to various jurisdictions, and I would also guess that the ability for people to write arbitrary smart contracts, and really do the kinds of things that we expect of in crypto, of like people to build decentralized companies and decentralized products that can basically do whatever they want, I expect that to be very limited if Libra actually launches in a big way. So, I think it’s pretty hard to prognosticate right now, given how little we know, but no matter what Libra will have a big impact it’s just hard to know exactly what that looks like.

Laura Shin:

Alex, did you want to add something?

Alex Pack:

Sure. Yeah, I think to the second part of your question, we only invest in decentralized stable coins. I don’t think there is a great economic model for investors in fiat-backed stable coins and actually, it’s really more of a feature to increase usage of something else, like trading for BitFenix and Tether, or usage of a payment platform like Calibra and Libra, and I doubt that Libra…especially in its form that Haseeb describes…predicts. I doubt it will compete much with decentralized stable coins. It’s probably not that going to be that censorship-resistant, but I think certainly it will onboard a ton of new users and wallets into crypto, and this is particularly important because crypto is as much a social revolution as a technical one, and just like trading on the internet with eBay, it requires people to change their trust model, which could take a few months, a few years, or decades sometimes, right. I mean, that’s not inconceivable, and Libra helps speed that along significantly if it gets traction.

Laura Shin:

And out of curiosity, because you were talking about how Libra will probably launch quite differently from how it was originally envisioned, and it might be more neutered. Do you know if any developers who are interested in building on Libra?

Haseeb Qureshi:

I know that they’ve had a lot of interest in their…I can’t remember what it’s called, the developer boot camp, or some kind of startup school type thing for Libra. I know they’ve been running those sorts of things and I know they’ve received a lot of interest, but I wouldn’t read too much into the Libra test net and the code as being any indication of when they’re actually going to launch a monetary network, like the…it’s very clear that the regulatory go to market for Libra, is happening in parallel to the technical go to market, and they’re technical go to market is awesome, and fantastic, and I have all the respect in the world for what they’re doing on the protocol front, but the regulatory front is…they’re not going to be ready within a year. There’s almost no way because they just have…there’s so many unanswered questions and I don’t think they’re going to get the green light from any major country to launch in their jurisdiction within a year, like things like this don’t move that fast.

Laura Shin:

Well. And then, also, I was wondering would you invest in something that was building on the Libra network or would you be nervous to do so for, I don’t know, regulatory reasons or because there’s a sort of general anti-Facebook bias from a lot of regulators overall.

Haseeb Qureshi:

I think for us we’d want to see more clarity around what the Libra is going to be. I think there’s actually decent money, at this point, that the Libra just gets shuttered completely, and I think a lot of that also depends on who wins in the 2020 election might really, really influence the outcome of Facebook, but there are reality is that Facebook has just so many things on their mind right now that if…as this antitrust probe increases in seriousness, and again a change of party in the White House might really, really change the dynamics of how that antitrust investigation goes. Facebook just might say look, we’re not in a position to want to bring down more scrutiny on ourselves. We’re just going to play nice and shut this thing down quietly. So, I think there’s a lot of…there’s just a lot of uncertainty on where this thing plays out, so it’d be hard to invest right now in somebody building on top of Libra unless they were sufficiently agnostic to where they were going to build on, and they’re like okay. Well. If Libra’s not there we’ll build on something else, but somebody who’s going all-in on Libra I think right now it’s a tough time to make that bet.

Laura Shin:

All right. So, now let’s switch to Asia. I’m sort of going chronologically, Bitcoin, then Ethereum, then Libra, then China because that’s sort of how things have happened broadly in crypto, but why don’t we just start with a kind of broad question, which is I’m just curious, and I ask this of all the various crypto people who kind of work in both Asia and the west, but how would you characterize the differences between crypto in Asia versus in the west?

Alex Pack:

Sure. Asia is even more fast-paced and frenetic than the west when it comes to crypto. Things are changing so radically, and the reason is because it’s where the true crypto users are, it’s where the action is happening. The most organic early users of crypto assets they’ve always been in Asia. It’s very ripe for adoption of crypto digital finance applications. I mean, you never…this confluence of widespread internet adoption and smartphone penetration it’s even higher than it is in the US in many ways. Rising incomes, new middle class, but very low financial of the economy. A lot of people are underbanked, a lot of limited access to global financial products and capital markets. This means there’s so much pent-up demand for crypto, and unfortunately most of the core technology is still not in Asia, or however you want to make of that. It just so happens crypto is very…the technology that underpins it used to be quite obscure, right. There’s not many cryptographers.

There were a handful of zero-knowledge proof researchers in the whole world before crypto blew up and really none of them were in China or Asia, they were in big universities or cryptography centers in the west, so projects in that space tend to be a lot rougher, but there’s just way more innovation and experimentation, I should say. Platform tokens like BNB really all got their start in Asia, sort of corporate coins, innovations on how you do…like how an exchange operates, giving it back to their customers, the gamification of finance, sort of the financialization of games, is all happening in Asia, so really all the stuff that is tweaking how users will interact with crypto is getting their start…is getting its start in Asia.

Laura Shin:

Yeah, that’s really interesting because I definitely feel like the lower-level stuff tends to be more western but that, yeah, when it comes to people actually using this rather than just speculating or hoarding it does feel like Asia’s a little bit ahead. One thing that I was wondering is…so obviously, now you guys do have this office in Beijing, so now that Xi Jinping came out all in favor of blockchain, but its blockchain not Bitcoin or crypto, I’m curious to know how that’s affected your investment strategy, like am I right in assuming that the kinds of efforts that China is interested in are not the kinds that would be open to investment from Dragonfly Capital?

Alex Pack:

Well. I think that’s broadly correct, but it’s a little different than how it’s…well, actually…so what’s happening in Asia, I think, is playing…is what’s been playing out in the US, actually, for the last five years in crypto too but on a hyper-scale. In many ways Xi’s speech on October 24th it was one of the greatest endorsements, and sort of implicit allocation of resources to an early-stage technology, in a very long time, maybe ever, and so you have this rush of like government-related entities, and banks, and corporations that are racing to show how innovative they are with blockchain and that they understand it. You have massive education campaigns. Every university is going to have a blockchain class. That’s great. I think high level, but yeah, the Chinese vision for crypto is very different from our vision, but it’s not just a Chinese vision. This happened in the US too where the first-time people in suits interacted with crypto in the US government agencies and big corporations, they all got it wrong. They all said blockchain not Bitcoin, they were into enterprise and private blockchains, things that weren’t super disruptive, that felt safe to them to play around within their innovation labs, and the same thing is happening in China today just on a couple year delay, and it takes a while to play out.

A lot of these proof of concepts that are going on in Boeing, and Goldman, JP Morgan, things like that. They’re taking four or five years for their bosses to realize that it’s a dead-end and they should stop doing this, so I think that exact thing will play out in Asia and there’ll be a multi-year period where there’s this frenzy around enterprise use cases, and then the technology…the best tech always wins eventually if it’s massively better so they’ll come around to it eventually.

Laura Shin:

Oh, wow. So, you think China will…

Haseeb Qureshi:

Yeah, and one thing I want to add…

Laura Shin:

Oh, go ahead.

Haseeb Qureshi:

Yeah. One thing I want to add, just kind of for color, is that one of the knock-on effects of what’s going on in China is just, yes, there’s sort of this misapplied enthusiasm about blockchain, not Bitcoin, but there’s also a normalization of a lot of the stuff that’s going on in crypto that so far has been very pushed underground and kind of has these negative associations that now suddenly has kind of come into the daylight, so one, you have a much larger pipeline of just young smart students, and engineers, and entrepreneurs who are now learning about blockchain and crypto and are sort of set on that path, where it’s now sort of much more normalized to be studying the stuff and to be in the space. Actually, so one of our junior partners, Mia, she was recounting a story of how she’s been encrypted out for a few years and her grandparents just had, basically, no idea what crypto was other than that they heard Bitcoin and they associated it with being a scam, and so they were kind of vaguely embarrassed of what their daughter was doing, and then after President Xi’s speech they were just like…they were just like oh, we get it out, and she was really you get it now? I don’t think you get it, and they’re like no, no it’s great.

What you’re doing is like for the future of China and it’s awesome, and so just little things like that. They sound silly, but they really do add up in just sort of completing the picture of what makes the space healthy in a certain region, and we think that’s kind of, probably, what will be the biggest knock-on effect of what happened in China.

Laura Shin:

Well. I actually wanted to ask about what Alex kind of implied at the end of his answer, where he was sort of saying that oh, eventually they’ll realize these enterprise blockchains are not going to work out, and so he kind of seemed to imply that they’ll then turn to public blockchains, but I’m just thinking about DCEP. I mean, that’s a stable coin, right, so in a way, if people have something that’s stable and usable, I don’t know-how…like part of me is like, is that just going to kill all of the Chinese crypto projects? Do you know what I mean?

Haseeb Qureshi:

Well. Maybe I can take a crack at that. So, DCEP…I mean, I wouldn’t even call DCEP a stable coin, like literally, DCEP doesn’t use a blockchain it uses UTXOs and private keys but it’s not a blockchain it’s just a central bank digital currency. I totally care what you’re saying in that, well maybe, that means they just throw the whole thing off and they realize crypto is useless. I think the claim that Alex and I want to make is even stronger than that, is that like the real value of blockchains is in coordination and it’s in permissionless innovation, and we think that eventually wins out because it is valuable because it creates more valuable businesses, it creates more value for…more possibilities of trade and free access, and in the long run that wins because it’s just better for human beings, right, so if…we believe that eventually there will be experimentation along the lines of public blockchains because of course there will.

People always want to push the frontier forward, and people always want to try out things that they think might become more economically valuable, and if we’re right that public blockchains produce more value for some intrinsic reason over these private enterprise gated blockchains then they’ll win, and if we’re wrong about that and they aren’t actually more valuable, then probably this whole enterprise is doomed and the only thing that mattered was Bitcoin, and all this like smart contract, and permissionless finance and innovation, and…. if all of this stuff is totally wrong then we got it wrong, but we think the rules apply just as much in China as they do anywhere else, and ultimately public blog chains will…they’ll find the value in it because entrepreneurs will find the value in it.

Laura Shin:

Well. But one question about that is I feel like with the internet a lot of people were like oh, this is going to kind of open up China, but here we are now in this era where they kind of basically just have their own internet, so do you think that they really will turn to public blockchains, because what if they’re just like no, we’re going to have like public Chinese blockchains and people will just interact in China, or transact within China with each other? I mean, it’s such a huge market that they could kind of exist in that world and not realize that it’s limited, which I think is basically how they interact on the internet now there. They don’t miss Google and Twitter.

Alex Pack:

First of all, I completely agree with that and I think what you’re pointing at is a real question that I don’t think we have a strong answer to, of will it be a global single platform that unites everybody who uses a public blockchain, or will it be there’s Ethereum for a bunch of people, and there’s this other one for this country and another one for this country. Probably, it’s too early to say and it’s hard to know the answer to that, and also it could well be that…it could go either way and its super path dependent on where is it that…like right now, if you look today at Ethereum, right. Ethereum’s localization for China is just abysmal. A lot of the services that you think are like, okay. Well. This is Defy, anybody can use this around the world like they don’t even have Chinese UIs.

Literally, people in China need to know English in order to interact with a lot of these things, so there’s a degree to which it might just be as simple as look, these guys just built products for China and everybody in China or anybody who can speak Chinese can use these products and that’s why they won, and it wasn’t some intrinsic deep reason why the whole world needs to get connected. It’s just that, look, public blockchains are awesome because permissionless innovation is awesome and you guys just didn’t build the right tools for these peoples, so they’re going to go where there are tools, so I don’t know. I think it’s early to say, but I totally see to your point that it really could go either way at this point.

Laura Shin:

All right. So, we’re going to actually switch topics because since this is the first episode of 2020 I want to look forward, but one thing that I wanted asked about was 2019 kind of saw the beginning of this revival in DAOs, but that’s kind of like a governance area, and I just wondered is that one of those trends that doesn’t really lend itself to investing, or if that’s not the case then how do you invest in something in a trend like that?

Haseeb Qureshi:

So, I think DAOs…I really hesitate to think of DAOs as a trend, or a specific thing because people mean so many different things by DAOs like is Maker Dow one of the DAOs, is it when you think about DAOs do you think about on-chain governance? Is that in the category of DAOs, or do you think Moloch Dow, or do you think things like Nexus Mutual? DAOs on the whole, which really just kind of breaks down to on-chain governance, in some sense if you want to be sufficiently general about it. Clearly, that’s a trend that’s growing and I think there are a lot of things that are investable in that category, but then there are the sort of much more speculative, much more cyberpunk types of DAOs, like Moloch Dow, or things that look like it, and there I just think we haven’t really seen anything of meaningful scale.

The last meaningful scale with Dow, Dow, like sort of emblematic DAOs, was the Dow and since then I think everything has just been really tiny, and in a sense, people knock on the Dow. The Dow was actually a pretty straightforward…it made sense as an idea, like okay. It’s like decentralize venture firm. All right. That kind of makes sense. Let’s see how it goes. It didn’t go well, and I think it remains to be seen, like what are the things that DAOs will do better than other forms of firms, and we haven’t gotten an answer to that yet, and so I think people are kind of jumping the gun, thinking well, DAOs should exist because they’re DAOs and DAOs are awesome, and I think DAOs are cool. They’re super interesting, but I also want to know the answer of what do they do better than other firms, and so if you can…if I see something that answers that question for me then I’m going to happily invest.

Alex Pack:

Yeah. Governance is a very obviously good use case for crypto. I mean, the purpose of governance is to govern shared resources and shared value, and so now you can have a digital native value, you can have digital native governance over those things, but it’s really an innovation on what a company is and what an equity, right, that’s what a Dow is, but you know “investing in companies” that’s not an investment thesis, so it’s an underlying tool that enables new forms of companies. You still need to figure out which company to invest in. I mean, the same thing with ICOs, right, or startups. I mean, just because…not all utility tokens, or whatever, all tokens…in fact, 99% of tokens are garbage just like 99% of unfiltered startups are garbage, and they don’t make sense. It’s like why are using a token, and things like that, and we’re going to have the same question with DAOs.

Hopefully, it’s not as frenzied as with ICOs where there’s just like thousands of DAOs, and the tokens for them go up, but it might be. It very well might be, but just like with ICOs and tokens there will be some great use cases and new innovative things enabled by the underlying governance tech.

Laura Shin:

So, Haseeb, I saw that you wrote one of those essays for CoinDesk, and one of the things that you mentioned was about how you think identity is one of the next steps necessary for the space, but I also wondered, again, like with DAOs, is that an investable area? Is that something that you can make money from?

Haseeb Qureshi:

That’s a good question. To clarify, I think identity is important to getting to the next step of credit, right, getting credit on the blockchain, and that said I don’t know how far away that step is and I suspect it’s pretty far like I would be very surprised if anybody does a really, really good shot at identity in 2020 because it’s intrinsically really hard and there’s just a lot of other low-hanging fruit before that’s the next thing that we need to crack. That said, is identity investable? If I see a credible enough approach to it, yes, but identity is also…to some degree, what makes it really hard is that it’s a public good, it’s like pure infrastructure in the deepest sense and I think a lot of times…in 2017 I think a lot of people got into their heads this really, really nefarious meme that infrastructure is magically investable, like for some reason if you have infrastructure and it’s valuable you can make money off it and in general that’s obviously not true, and there are some exceptions to that that are really interesting, like Ethereum or Bitcoin.

That’s super interesting that you can invest in this public good and make money, but in general that’s not the case and you should be surprised when that actually is the case that public goods do end up becoming investable. So, something like an identity provider it’s just really, really hard to find the right business model for something like that because it requires people willing to pay for supplying that identity, and that ecosystem just doesn’t exist yet, so I think it would be really, really hard but if I saw the right entrepreneur and the right go to market I think it could be really, really interesting.

Laura Shin:

All right. So, to wrap up why don’t we have you guys each give a prediction for 2020, and also, I’m just curious to know what you think will be the first killer app for crypto, so two questions in one.

Haseeb Qureshi:

All right. I think Alex goes first.

Laura Shin:

Alex dropped off.

Alex Pack:

Sorry. Wait. Remind me, what was the first question? Okay, let’s edit this part out. First question.

Laura Shin:

Oh, a prediction for 2020. A prediction for 2020 and also what you think the first killer app will be in crypto.

Alex Pack:

Okay. Let’s see. I think the first killer app is already here. It’s very clearly trading and HODLing store value assets. That’s not as sexy an answer as possible, but you know, and then Defy is the higher-level version of that, so once you have an asset you seek to use it as collateral, like owning a house or owning art is only the first thing you do with it, or owning gold, and then you use it as collateral for other things and that’s what Defy projects like Maker Dow or Compound do, and so we’re seeing this sort of systemic building out of this early use case of figuring out how to collateralized digital native store values and that might take a very long time but it’s already here. I mean it’s already…crypto’s a couple of hundred-billion-dollar business so it’s already here and it’s growing.

Laura Shin:

Well. What do you think it will take it will take for those to go mainstream?

Alex Pack:

Go mainstream. There’s a few things. One, you do need more scalability to go very mainstream. Defy projects tend to be the most high value, like economically efficient uses of blockchains today because you could put a lot of value through each transaction but it’s not infinitely scalable, so you need better solutions to layer one and layer two, and then, two, I think it’s just about having more endpoints, and building out the UX, and build…not just UX but building out the security and the tooling to make sure people trust that these Defy projects they won’t get hacked immediately or things like that. The same with Bitcoin, right. I mean, the first few years there were math…it was very questionable whether you should own much of your assets in in Bitcoin like it easily could be hacked or something at a fundamental level, so I think that’s going to have to happen to the Ethereum / Defy ecosystem.

Laura Shin:

All right. And a prediction for 2020.

Alex Pack:

Let’s see. I think one that’s interesting in the…we follow the exchange landscape quite a bit because exchanges are sort of the closest things to crypto native companies. They’re centralized today. They’re not run on blockchains or anything like that, but they’re as close to the future of a decentralized autonomous company as you get, and so I think one thing about the exchange landscape is they’re morphing very aggressively into basically financial portals and quasi banks, and they’re basically becoming the distribution channel for all crypto products and they have all the users, and so they’re aggressively building out bank…you could take loans out, you could have deposits and do custody from your exchange, but you can also you know use a DEX, you can…you’ll be able to use a lot more Defy products in the coming months, games and all the other applications as well. Once these decentralized applications take off, I think… barring a big growth of Calibra or Telegram, like a big new distribution channel coming in from the old world these exchanges are going to actually look a lot more like portals from the internet era than just a traditional exchange, like the New York Stock Exchange.

Laura Shin:

Okay. Haseeb, killer app and 2020 prediction.

Haseeb Qureshi:

So, killer app I would say is almost without a doubt stable coins, so in some sense the Libra kind of made it clear that people are actually already terrified that they’re certain that this stable coin thing is just going to take over the world, which I think is a little bit premature but I think is directionally correct, so stable cars I think will be huge and will probably be the first really widespread killer app of crypto, and then prediction for 2020. I would say 2020 is probably the year that we’re going to see synthetic assets really, really start to take off, aside from the US dollar. So, right now the biggest synthetic asset that we have is Maker Dow, and that produces a synthetic US dollar, but I think there’s going to be a lot more synthetic assets that get created and more creativity around distribution, where essentially…at some point in the future one of my big theses about crypto is that the internet did a lot to disrupt many, many different markets but the one thing that really did not touch is finance.

Finance is basically the same before and after the internet, but crypto is sort of going to do to finance what the internet did to all those other industries, and a lot of that is his vision that some random person anywhere in the world can open a mobile phone and buy a synthetic asset of whatever it is that they want, so if I’m some random guy in Africa, or Indonesia, or China I can just get on my phone. I can deposit some money and then I can buy a synthetic exposure to the S&P 500, or a Treasury bond, or Netflix stock, or whatever it is that I want, so finance getting completely democratizing and disaggregated by the blockchain. That, I think, will begin in 2020.

Laura Shin:

Yeah. I had a funny thing happened to me the other day where I was walking down the street, I passed by a bank and I don’t even know what I was thinking, I just wasn’t thinking anything, but I just heard this voice in my head like, that’s not going to be here in five years, and I remember like whoa. I wasn’t intentionally thinking that thought but it just popped in my head and I had the vision of Virgin Records, and Blockbuster, and Barnes & Noble…Borders and it was just so funny that it just popped in my mind, and I was like, maybe not exactly five but definitely 10.

Haseeb Qureshi:

Yeah. Five’s a bit aggressive, but yeah, I think it’s clear that this is going to be our Blockbuster.

Alex Pack:

For retail locations. Privacy concerns aside, I would love to just put a camera outside some of these banks, and who goes into banks anymore. I just want to talk to these people and figure out what they’re doing from a customer development perspective.

Laura Shin:

They’re older. My parents definitely.

Alex Pack:

Sure.

Haseeb Qureshi:

Yeah.

Laura Shin:

Yeah. Anyway. Okay. Well. This has been a great conversation. Where can people learn more about each of you and Dragonfly? Hello?

Alex Pack:

Haseeb, what’s our website again?

Haseeb Qureshi:

Okay. All right. Yeah, you can find me on Twitter, I’m @Hosseeb, and you can learn more about Dragonfly at dcp.capital. We put up a bunch of research and blog posts just kind of analyzing the space from different angles.

Laura Shin:

Yeah, I’m bummed I didn’t get to ask you about any of your blog posts. There were so many good ones. I’ll just link to them in the show notes you guys.

Haseeb Qureshi:

Totally.

Laura Shin:

But I’ve talked about some of them on my other show before anyway, so people have heard about some of your cool blog posts.

Alex Pack:

Great. Well. Fell free to yell at me afterward if you don’t like them.

Laura Shin:

Alex, do you want to share your Twitter?

Alex Pack:

Oh, it’s @alpackap. Just look up my name, Alex Pack, and check out our medium on www.medium.com.

Laura Shin:

Okay. Yeah, I do really recommend the Medium, you guys. It’s very, very good.

Alex Pack:

That’s where most of our interesting content lays. Yeah.

Laura Shin:

Yeah. Okay.

Haseeb Qureshi:

Great. Well. Thanks for having us, Laura. This was a lot of fun.

Laura Shin:

Yeah. Well. Thank you both for coming on Unchained.

Haseeb Qureshi:

Thanks.

Alex Pack:

Thank you.

Laura Shin:

Thanks, so much, for joining us today. To learn more about Haseeb, Alex, and Dragonfly Capital check out the show notes inside your podcast player. Want to show your love for Unchained? Check out our t-shirts, mugs, hats, and stickers at shop.unchainedpodcast.com. Unchained is produced by me, Laura Shin, with help from Fractal Recording, Anthony Yoon, Daniel Nuss, Josh Durham, and the team at CLK Transcription. Thanks for listening.