Posts from crypto

Digital Art

My friend Seth is an entrepreneur and an artist. I have two of his paintings hanging in my office in NYC. His latest work is taking photographs of the sunset every day at Venice Beach and then training an AI model to turn it into a 30 second video. The work is published in a MP4 video. Therein lies the challenge. Anyone can copy an MP4 video so how does he make this work unique?

He turns it into a “non fungible token” or NFT.

I have written about NFTs a lot here at AVC over the years, most recently on how our portfolio company Dapper has used them to invent a new kind of basketball trading card.

But NFTs are also a very powerful tool for digital artists to bring scarcity/uniqueness to their work. And we are seeing a fair bit of activity starting to happen in and around digital art and NFTs.

Seth minted an NFT of his work and listed it for sale yesterday and then tweeted this out:

I saw that tweet and placed a bid on it this morning. If you would like to do the same, you can do that here (you will need a Metamask wallet holding Ethereum).

There is still some geekiness/wonkiness about digital art NFTs (like needing a Metamask wallet and Ethereum) and I expect that will go away in short order and the experience of buying NFT art will be more like the experience of buying a rare Luka Doncic Holo MMMX card on Top Shot which requires none of that.

Crypto technology has many uses and is absolutely not limited to speculating on meme coins. In fact, the emergence of real utility (vs speculation) is the single most important thing that needs to happen for crypto to live up to its potential (and current market values). I think NFTs and digital art is likely to be an early example of that utility emerging.

#art#crypto

The Revenge Of Retail

A number of people have been asking me what I think of the Game Stop situation. This is not really my world. I don’t trade stocks, we hold them. I don’t use Robinhood, though I have an account thanks to my friend Howard. I don’t hang out on Reddit, though I visit it from time to time.

So I have not paid enough attention to this one, but it certainly is fascinating. The generational aspect of this is important. Boomer hedgies getting crushed by young folks self-organizing in social media. It feels like a moment where you realize that the power structure has shifted and things won’t be the same.

The financial system in the US, and in other developed countries, is a rigged system and has been for a very long time. Only big institutions can get into hot IPOs. Only rich people can invest in startups. Many of these rules are designed to protect “widows and orphans” but all they really do is make the rich richer and keep those without money out of the game.

Not anymore. Whether it is crypto (Coinbase) or day trading (Robinhood), the retail investor now has the tools to get into the game and win the game.

The new startup investing is buying into the Ethereum crowdsale. Had you done that in the summer of 2014, you would be looking at roughly 1,000 times your money right now. And that crowdsale was launched by a team led by a 20 year old. Though the SEC and others would like to impose the same rules on crypto that protect the rich and keep out everyone else, that has not happened and I pray that it won’t.

The new hedge fund is the Robinhood army self organizing on Reddit. They can move a stock more easily than the largest hedge fund.

There will be calls to regulate this “madness.” But it is the same madness we have always had. It is just a different crowd in charge.

I do worry that this Game Stop short squeeze will end badly and not only the hedge funds will get hurt. Markets can be brutal. But regulating markets to protect the small investor is not the answer. As we can see, the small investor is often a lot smarter than the large investor.

What we need to do is stop printing money to stabilize the economy. And start addressing the real economic issues that exist on main street, not wall street. Monetary policy is not the answer. Fiscal policy is. That won’t stop more Game Stops from happening. They are a by-product of markets. But it will get the money to where it is needed versus where it is just gameplay.

#crypto#Current Affairs#economics#stocks

Trading Cards, NFTs, and Crypto

I have written about our portfolio company Dapper‘s NBA Top Shot game here at AVC a few times now. Think of NBA Top Shot as digital trading cards. It is more than that, but that’s a simple way to think about it.

I tweeted this out today:

I don’t like to sell crypto, but I do like to trade crypto for crypto. I got all of our Ethereum by swapping Bitcoin for it a few years ago, for example.

NFTs (non fungible tokens) are a different kind of crypto asset. They are digital assets like art, trading cards, etc that are issued on a blockchain and as a result are rare, unique, and easily traded.

NFTs, like Bitcoin and Ethereum, can increase and decrease in value over time.

Rookie cards have been traded for as long as there have been physical trading cards. They are a way to speculate on an athlete and their career. This Steph Curry rookie card is listed for $150,000 on eBay right now.

So my purchase of the Tyrese Haliburton moment is a bet that Tyrese is going to have a long and successful NBA career. Hopefully, he will be an all-star someday. That would make my moment increase in value. Will it increase in value more than the 3.33 BCH that I parted with to buy it? Well, that remains to be seen.

#crypto#Sports

Smart Contracts On Bitcoin

While Bitcoin is the gold standard in crypto, Ethereum has been the innovator, bringing new ideas, particularly smart contracts, to the table. Smart contracts allow developers to easily build things on a blockchain and we have seen a proliferation of new things built on the Ethereum blockchain as a result.

But what if you could do all of that on Bitcoin?

Enter Stacks 2.0 which launches on its mainnet today. USV has been an investor and supporter of the Stacks team since they first got started about five years ago and are large holders of the Stacks token.

Stacks makes Bitcoin programmable, enabling decentralized apps and smart contracts that inherit all of Bitcoin’s powers.

Stacks 2.0 also includes the Clarity smart contract programming language which is a significant improvement on the Solidity language that is used for Ethereum smart contracts.

So if you are a crypto developer who likes to try new things, check out Stacks 2.0 on the mainnet. It goes live today.

#crypto

How Not To Regulate Innovation

The Secretary Of Treasury, in his last month in office, is giving us a textbook case of how not to regulate important technology innovation. The issue is “unhosted wallets” and how regulated exchanges and other “hosted wallets” interact with them.

Let’s start with why this is important. Our current financial systems are old, creaky, expensive, and do not serve enough people. According to a 2017 survey by the FDIC, 25 percent of U.S. households are unbanked or underbanked. That is close to 100mm people, mostly black and brown. This is a big deal. This is a piece of the structural inequity that exists in the US and around the world.

Technology can, will, and should change this. When a bank account can simply be a wallet on our phone or computer, it should be massively less expensive and much easier for anyone to have one. And when that wallet can connect to any other wallet or bank and send, receive, sell, buy, etc, as easily as a browser can connect to AVC.com, then you have the architecture for an open financial system that is several orders of magnitude less expensive and more available than what we currently have.

What I have just described is how blockchains and cryptocurrencies work today. You can download a cryptocurrency wallet onto your phone, you can send some Ethereum to it from your Coinbase account in the cloud (called a “hosted wallet” and/or “exchange”), and then you can send that Ethereum to anyone else using any other crypto wallet. All of this is built upon open protocols in the same way that the web was built on open protocols. It is completely and totally interoperable, like the web or email, unlike our current financial system.

The crypto sector is building a new financial system, that requires much fewer “middlemen” taking a piece of the transaction, that anyone can adopt and use by simply downloading some software onto their phone, and that is secured with state of the art technology.

But the Treasury Secretary and his advisors are concerned about bad actors using this new open global financial system to do bad things. That is a legitimate concern, but it turns out that only about 2% of transactions that go between regulated exchanges and hosted wallets and unhosted wallets are “illicit” according to Chainalysis.

So in late December, the Treasury Department issued a notice of proposed rulemaking seeking to make the rules around sending cryptocurrencies to unhosted wallets much more restrictive than cash.

The notice of proposed rulemaking is a long-standing approach to regulating new things. But this notice of rulemaking is not like any other. It was shortened to 15 days from the customary “at least 30 days and often much longer” and it was issued in late December making comments due yesterday. That means that comments were due over two holiday weeks in the midst of a global pandemic. And then the Treasury Department intends to wade through all of those comments and issue a rule before it leaves office in a couple of weeks.

That is madness and no way to regulate an issue at the very heart of a new open financial system that is poised to open access and massively reduce the cost of financial services for everyone.

One can only come to one conclusion about the Secretary’s intentions here and it is that this was done intentionally to stifle debate and discussion and jam bad regulation through on his way out of the door.

USV and many others in the tech sector, venture capital sector, and crypto sector have issued comment letters opposing this rulemaking. Our comment letter is here:

I hope the Secretary and his advisors come to their senses and realize that this is no way to regulate important new technology. This would be a terrible legacy to leave office with.

#blockchain#crypto#policy#Politics

What Is Going To Happen In 2021

Hi Everyone. Happy 2021.

Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right and some wrong. But having a point of view is very helpful when operating in a world that is full of uncertainty.

Let’s start with the elephant in the room. The Covid Pandemic will end in the developed world in 2021. I think we will see the end of the Covid Pandemic in the US sometime in the second quarter. I believe the US will work out the challenges we are having getting out of the gate and will be vaccinating at least 40mm people a month in the US in the first quarter. When you add that to the 90mm people in the US that the CDC believes have already been infected, we will have well over 200mm people in the US who have some protection from the virus by the end of March. By the end of the second quarter in the US, anyone who wants to be vaccinated will have been able to do so. All of this will be aided by at least two additional approved vaccines in the US in January and new and improved protocols, like emphasizing the first dose over the second one.

The second half of 2021 will be marked by two conflicting trends. First, we will see people returning in droves to offices, restaurants, bars, clubs, gyms, stadiums, concerts, parties, travel, theaters, and anywhere that they can be social with others, ideally many others. I personally cannot wait to do all of that when it is safe to do so.

But ironically, this mass socializing trend will not materially and/or permanently change many behaviors we adopted in the Covid Pandemic. I believe that we will continue to want to work from home, exercise from home, shop from home, watch first run movies from home, order in, livestream, and all of the other new behaviors we learned to enjoy and perfect in the last year.

Where all of this shakes out will be the big reveal of 2021 and will impact many tech companies and many tech stocks. As I wrote yesterday, I think the trends that were accelerated in 2020 will not reverse in 2021, although the slope of the adoption curves will likely flatten a fair bit.

While we are out mass socializing, we will also be picking up the pieces of our world that was shattered by the pandemic. In the US, we have racial equity issues that are longstanding, real and demanding to be addressed. We also have an economy that is in tatters. And we have sectors of our economy like retail, commercial real estate, carbon based energy, and more that will never be the same. The restructuring of our economy and government and corporate balance sheets and income statements that have been blown wide open will take a decade or more to work out.

Sitting above all of this is an atmosphere that is getting warmer by the day. As I wrote in last year’s looking forward post:

The looming climate crisis will be to this century what the two world wars were to the previous one. It will require countries and institutions to re-allocate capital from other endeavors to fight against a warming planet.

https://avc.com/2020/01/what-will-happen-in-the-2020s/

At USV, we have begun that reallocation of capital and we will be investing heavily in companies and technologies that can help the world address this existential threat. I believe that many of our colleagues in the venture capital world will do the same because not only does the world need this investment, it will generate fantastic returns too. Climate will be to this decade what cloud was to the last one.

The twin terrors of the Covid Pandemic and the Climate Crisis will drive the great US migration of the 21st century and we are already experiencing it. We will see it accelerate in 2021. If, because of what we learned in the Covid Pandemic, a good job no longer requires someone to live in a low lying flood-prone city like Miami or NYC or a city that is burning like SF or LA, we will see many people in the US choose to leave those places and adopt new homes that are less impacted by the climate crisis. We call this “adapting to the climate crisis” at USV, and this will be a huge investable trend for many years to come.

I believe that governments will respond to all of these economic challenges by continuing to print fiat money without restraint and by taxing and regulating innovative new companies to protect old and dying companies. This will lead investors to continue to allocate capital to new forms of money (crypto) and new ways of creating and financing innovation (decentralized projects and organizations). We are already seeing that happen in the finance sector, with breakout projects in decentralized finance in 2020 like Compound, Yearn, and Uniswap (a USV funded project). We will see this approach accelerate in 2021 and expand into areas beyond the financial sector. The idea of financing and executing innovation inside of a global decentralized autonomous organization is such a powerful idea and one whose time has come.

As I go back and re-read this post, I am struck by how obvious and unprovocative all of these predictions are. Either that means that I am not getting far out enough on the curve to see things before everyone else does, or it means that the trends that will define 2021 have been building for years and are finally coming of age. Maybe it is a bit of both.

In any case, 2021 will be a year of returning to normal, but it will be a new normal and not like one we have experienced before. Adapting to change is my mantra for 2021. Happy New Year everyone.

#climate crisis#crypto#Current Affairs#economics#entrepreneurship#life lessons#VC & Technology

NBA, NBA Top Shot, and Intangible Market

The NBA is back in business. Our family watched a ton of basketball over the long weekend including the Knicks huge win over the Bucks last night. It’s great to have my favorite sport back in action after a short layoff.

Also back in action is NBA Top Shot, the digital trading card game from the NBA and our portfolio company Dapper Labs. New packs will be dropped in the new year featuring all stars, rookies, and more.

But you can shop right now in the marketplace and buy cards from other players.

The trading opportunities in NBA Top Shot are exciting. I have purchased 11 packs since the game launched, for about $250 in cash and crypto. I have sold a few cards and now hold 61 “moments” that are estimated to be worth about $2800.

That estimate comes from a third-party app called Intangible Market that allows crypto collectors to estimate the value of their collections.

Intangible Market is an example of why building games and other experiences on crypto blockchains is so exciting. It means that others can build on top of your work and make it even more fun and interesting to use and play.

Crypto has a built in business model, tokens, that means that these platforms can be open to everyone to build on and enhance and evolve. That is radically different from the web and mobile ecosystems of the last twenty-five years and why developing on crypto is such an exciting and wide open opportunity right now.

#blockchain#crypto#digital collectibles#Sports

Innovation In Capital Markets

A few years ago, maybe in 2016, we held a discussion of blockchain and crypto technologies at the annual meeting of our limited partners. I recall someone in the audience suggesting that the NYSE and Nasdaq could rebuild their markets on top of these technologies. I replied that I thought it was more likely that new markets built on blockchains and existing for crypto assets would emerge to compete with them.

And here we are, with a 24×7 global marketplace for crypto assets that has a market capitalization of over half a trillion and daily volumes in the hundreds of billions. This pales in comparison to the legacy capital markets, but that is always the case with a new entrant on the scene.

The legacy capital markets are not sitting still. There is real innovation happening in the IPO process for example.

But if you want to see the world we are headed into, I think it is better to look at the crypto markets. They operate day and night, they are global, and anyone can buy, sell, hold, and send these assets as long as they have a crypto wallet and a browser or a phone. You don’t have to be wealthy to invest in crypto startups. Anyone can do it.

The crypto markets are also innovating in areas like lockups, vesting, and governance. In a traditional IPO, the existing shareholders are typically locked up for 180 days and then the lockups come off entirely. In the crypto markets, we see all sorts of different forms of vesting and lockups being tried. What is emerging are lockups for existing holders that are much longer, but with small amounts of early and regular liquidity.

We are also seeing a lot of innovation around governance, with crypto projects working on ways to allow the community of token holders to have real say in the way a crypto project operates. We have seen a number of communities make very significant changes in things like total supply of tokens, inflation rates, and technology roadmaps in recent months. I cannot think of a public company that allows its shareholders that level of impact on their direction.

Right now these markets are operating as parallel universes, but I don’t think that will be the case forever. It is fairly simple to tokenize equity securities and trade the tokenized version in the crypto markets. That is not really happening just yet, but I expect that it will in the not too distant future. Then we will have the opportunity to see two identical assets trade in the traditional and emerging markets. There will be arbitrage opportunities and more when this happens and the new markets will put pressure on the traditional markets to adapt and change and evolve as fast as they can. That will be hard, if not impossible.

The global nature of the crypto markets is also a challenge for regulators, who have stood in the way of innovation and continue to do so. Why, for example, does one have to be wealthy to invest in startups in the US? That’s simply a way to keep the wealthy rich and everyone else not rich. If you trade crypto assets and something is not available in the US, you can trade or lend or stake elsewhere. And many/most do that. This allows innovation to happen in crypto even when some jurisdictions, like the US, are slow to embrace and hostile toward innovation in capital markets.

So if you want to see the future of capital markets look here, not there. That’s where all of the innovation, experimentation, and new stuff is happening.

#blockchain#crypto#hacking finance#stocks

Digital Dollars

I have written about stablecoins a bunch here at AVC. I believe cryptocurrencies that are not highly volatile are important for use cases like e-commerce. I explained why here.

So we need crypto assets that are price stabilized and one of the best ways to do that is to peg a crypto asset to a fiat currency like the dollar. You do that by fully reserving the asset with dollars.

The two most popular digital dollars are USDT (Tether) and USDC. There is almost $20bn of circulating supply of USDT and just over $3bn of USDC.

There has always been some concern that USDT is not fully reserved. I share that concern. I am more confident that USDC is fully reserved and it is the digital dollar that I hold and use.

We got some big news yesterday about USDC which is that the VISA card network is going to “help select Visa credit card issuers start integrating the USDC software into their platforms and send and receive USDC payments.”

I think this is going to give more payment networks and financial services platforms the confidence to also integrate USDC. I could imagine USDC having a circulating supply of the current size of Tether by this time next year. We will see.

There are concerns for those, like me, who are big fans of digital dollars. A few members of Congress yesterday proposed a bill requiring stablecoin issuers to be banks. I appreciate that our elected officials want to provide for consumer safety and confidence. But forcing all of this innovation into the banking system is the surest way to kill it that I have ever heard of. Maybe that is what they want to do. We cannot allow that. The crypto sector and innovative financial services companies like VISA will need to spend time on the Hill educating our elected officials on what good regulation looks like and what bad regulation looks like. All we seem to be getting out of DC right now is on the bad side.

Finally, I should mention that while we are debating the role of digital dollars here in the US, China is rolling out its own digital Yuan. Goldman Sachs estimates that over a billion people will be using the Digital Yuan within a decade. I think that is way too pessimistic.

I think everyone who uses fiat currency right now will be using digital/crypto versions of these fiat currencies within a decade. The only question is which ones we will use the most. If we want the Digital Dollar to be in the top two or three, we had better get behind the ones that are out there and support the issuances of new ones too.

#blockchain#crypto#policy#Politics

Crypto Wallets Are Not Bank Accounts

We learned last week that the US Treasury wants to regulate crypto wallets like bank accounts. On the surface, one can understand that temptation. If people store, send, receive, and sell crypto assets in crypto wallets, then surely they should be regulated like bank accounts.

Except that is only one use case for a crypto wallet. It happens to be the primary use of crypto wallets right now but it is not likely to be the primary use of crypto wallets in a decade.

Regulators need to think of crypto wallets like web browsers. They are software applications that open up access to the decentralized internet and over time they will reduce our reliance on applications like Facebook, Google, Amazon, etc. But only if they are allowed to exist without crushing regulation, like we treated the web broswer when it came out in the mid 90s.

Brian Armstrong, the founder and CEO of Coinbase, pointed this out in a series of tweets last week and these two are particularly good examples of ways that crypto wallets are used that are not like bank accounts:

These are just early use cases for crypto wallets that don’t resemble bank accounts. There will be many many more soon if we don’t strangle crypto wallets with suffocating regulation.

Crypto will eventually lead to a decentralized internet but the first industry it is decentralizing is finance. It reminds me of the web browser that started in media. The issue with decentralizing finance first is that regulators are tempted to regulate crypto like it is just finance and that could not be more wrong. And it will take everything the industry has to push back on this temptation.

#blockchain#crypto#policy