Sam Harrison, Managing Partner, Lightspeed Faction 
Li Jin, General Partner, Variant 
Sriram Krishnan, General Partner, a16z crypto 
Moderator: Anne Sraders, Senior Writer, FORTUNE

Brainstorm Tech 2022: Tales From The Crypt(o) - Volatility Is A Feature, Not A Bug

Conferences

Sam Harrison, Managing Partner, Lightspeed Faction 
Li Jin, General Partner, Variant 
Sriram Krishnan, General Partner, a16z crypto 

Volatility Is A Feature, Not A Bug


Brainstorm Tech 2022: Tales From The Crypt(o) - Volatility Is A Feature, Not A Bug


So I want to start off and hear from each of you, you know, we're clearly in a crypto winter, um, but from your vantage points, you know, do you think we've seen the worst of it sam we'll start with you in the head down the line. Yeah, I think, I think there's probably a bit more pain to come. We're in an interesting spot where we've not really seen a global sustained downturn um, during a crypto cycle and there's a lot of self inflicted wounds in the crypto space too right now where, you know, there's some bad practice, bad risk management outright scams obviously where the spaces put itself in a pretty delicate spot. I don't think we've seen the last of The contagion from stuff like three hours. Um, so when you pair that with a soft global macro, I think we could probably have, You know, week rest of the year for sure, maybe a week, 2023 And then hopefully positioning for a really nice 20, which is also a Bitcoin having year. So I'm excited for that. Yeah, so we are definitely not professing to be macro economic experts were not short term traders. And so the volatility in crypto prices doesn't really faze or affect us in any way. We are focused primarily on early stage venture investments and web three. And from that perspective we're still extremely bullish on the future of Web three as a technology. What happens in every bear cycle is that the critics come out of the woodwork with the, I told you so, um, calling projects and phenomenon uh, flashes in the pan or um non sustainable novelties, this happened in 2017 and it's happening again now. But what they fail to mention is that a lot of those seeming silly toys or silly novelties actually paved the way for more innovation and um, there's some seed or spark in them that then get innovated upon and get built into a more sustainable version. So we saw that with crypto kitties, which then paved the way for N F T S I C O s, which paved the way for governance tokens. Um, Maker DAO, which paved the way for defi. And I think it's interesting to reflect on this last bull run and look at some of the projects that people are singling out now for being not necessarily sustainable. Um, for instance, play to earn games or um, collectibles like NBA top shot or phenomenon like constitution tao and think about what is the core innovation there. What is the thing that consumers are trying to accomplish with this technology? What is the unmet demand and think about what that could become as it paves the way for the next cycle. Well, there's some definitely overlap with what we said. You know, here's a 16 Z, you know, we're not trading every single day. We don't look at the price every single day. We are an early stage venture, we are here for the long term. And you know, and if one of the things about the firm is we've been doing this crypto, we're almost close to a decade. And because of that, we've seen multiple of these cycles, you know, bull cycles in crypto winters and kind of like what lee said, if you look at the last crypto winter, I think circa 2018 out of that, you saw FTS, you saw, you saw all these innovations and our belief is, you know, these price cycles kind of, you know, that lead into product innovation cycles and you get these amazing founders building companies which leads to then prices going up. But you know, having said all that, you know, we just raised a, you know, $4.5 billion fund. Um, pretty recently, you just, this morning we announced an investment in a company forecaster. And you know, one thing that I think I get really excited about is uh, every day I talk to founders and I used to work in large consumer platform companies And every day I talked to product managers, designers, engineers who are working on 50 on the side who have an idea or you know, they're building a team and they want to go take nextel and that is just, you know, going on unabated. So I'm really, really excited and plan on working on this little stomach career. I'm glad you mentioned the $4.5 billion because that was my next question. Um, you guys just raised the funds, which is the largest crypto dedicated fund ever. And SAM fortunate reported this morning that you guys are raising about $325 million for your new fund. So I'm curious, you know, to hear from both of you, what's the right number for this market appetite? We'll start with you Sam Yeah, yeah, I can't comment specifically on our fun size as, as you know, um obviously that advice from our lawyers, but I will say, you know, a fund around that size could be, you know, a size that's kind of commensurate with the opportunity that we see today. Um you know, again, just thinking about deploying and about pacing as well. I think pacing is really important. Our last one Blockchain dot com ventures, um it took a full three years to deploy that fund and I'm glad about that. I think it was the right strategy to kind of take some time, see, you know, crypto has a habit of getting ahead of its keys whenever there's some hot topic and, you know, we've mentioned a couple of them, it gets really overheated and then crashes back down to reality. And I think having a smaller capital base and taking a longer time to deploy that capital allows you to kind of navigate, you know, if you went head first into defi and we love defy we invested invested in Zurich, but You know, if you went headfirst into defi and deployed the whole fund in a 12 month period, um yeah, that's when I think it becomes challenging for you and investors. So I really think, you know, it's about how big is the opportunity set and how quickly do you deploy? And I think fund of that magnitude feels about right for the opportunity that we see today. Um you know, I think every firm is obviously very different than, you know, how they think about things. And I think for us, you know, it kind of reflects our belief in the space, uh you know, we are long term players, you know, we've been doing this for many, many years, we hope to do this for many, many years or decades to come. And in some ways it's kind of a reflection of the founders and the companies and, you know, the opportunities we see, uh you know, like, you know, uh we we see people coming to us every single day working on something cool interesting and we want to take advantage of that. And so this is really a reflection of our belief in the space, you know, in a very long term capacity and, you know, the people that we hope you're fortunate fortunate to work with and I guess given what we've seen in the market, you know, you guys all focus a lot on sort of consumer products and applications of crypto, but certainly in the past few weeks and months it seems like Crypto still is very much a speculative investment speculative asset. So you know lee I know, you know, you talk to founders and companies all day basically um what are maybe one or two like actual practical use cases for consumers within crypto that you're noticing emerge? I think it could be useful to share my journey into crypto and how he became a Web three investor after about six years of doing traditional consumer investing, I was really drawn to the potential to distribute ownership much more broadly to participants of network. The killer application of the past decade of internet companies has been networks whether their social networks or multi sided marketplaces and they have generated tremendous amounts of wealth for their investors and founders and executives, but notably the people missing from that equation are the actual participants and users who are doing the work on a daily basis to actually contribute value and make these networks interesting and have utility. Um and so I was drawn to crypto really as a way to balance that equation and as a technology that would enable the distribution of ownership to a much broader set of participants and we're seeing that already across a number of different categories ranging from N. F. T. Marketplace is to use their own financial marketplaces. Um but to single out some specific instances of, you know, this is real, there are actual use cases happening in Web three which I know is a debate that's raging right now I think it's interesting to call out that N. F. T. S. And social tokens have introduced a completely new business model to the creator economy that previously didn't exist. They've enabled creators to monetize based off of their digital content. Um rather than just relying on the altruism of their fans and today creators are earning something to the tune of $3.9 billion last year according to a 16 C. Report from N. F. T. S on ethereum. That's a staggering sum. When you consider how much creators are earning from really mature platforms like Youtube which are paying out I believe something like $10 billion a year after being in existence for a couple of decades. So that's one example. Um There are now thousands of doW's or internet communities that are enabling people all across the world to pull together capital at a really rapid unseen speeds before to acquire assets and to manage them collectively ranging from things like NBA teams to golf courses to an attempt to acquire the U. S. Constitution. So I think all of these examples speak to the fact that there is a real consumer need and there is real consumer benefit that is being delivered by Web three today. I think clearly you know we're still not near critical mass for these things for the most part and true I know you you know you've been interested in sort of the social media aspect of web three. Um and same as you if you want to chip in as well. But I mean in terms of, you know, when do we get to that point where enough people are using this one? They're logging into their social apps. It's a web three social app. What what is the timeline that you guys are thinking? That is a fantastic answer from lee and I was actually gonna use some of that and um and look some of my personal story, you know, just for context, I spent nearly the last 10 years working in these large social media companies, facebook snap and twitter and I think what pulled me into crypto and we have three was two things right. First, you know with the token and you know what is possibly we have three, you don't have a new set of primitives, which I think, you know, I'm old, You know when I think back, I felt the same way when the iPhone came out when the Internet first came out in the 90s. And I feel like this is a new technology canvas which is going to lead to a whole set of new applications. That is one. The second is I saw all of my smart peers, engineers, product managers all go into Web three but you know, we had some fantastic examples around creators but to pick something out on social media. Um we announced investing today in a company called forecaster. And what's really interesting about that is first of all, you know, if you download it, use it, it's fun. It's a fantastic community, kind of what you expect. But that it gets really interesting is you anybody here can go build on forecaster as a protocol without any middlemen, without any app store review process, without needing any permission. That's number one. That used to be a thing which is possible on the internet back in the day. You could build on your own email client or you could even build back on social media networks over 10 years ago. But it all ended. This is not possible. Again, the second thing is if you sign up for a podcast and you sign up for a user name that is yours and the relationship with your audience is yours forever. That is encoded on chain. And so let's say 10 years from now, there's a new leadership team or something, nobody can take it away from you. So I think these two, um, you know, along with what is possible with a token are just fundamentally new primitives. I'm just gonna add to the story. I remember in the late 90s when somebody told me about Wikipedia, it was crazy and then anybody can edit that just nuts or when Twitter first came out the idea that you want to tweet what you're eating for lunch. That's just nuts. But I think they were all powerful in terms of how they harnessed kind of the collective human energy and that's kind of what I see with weapons and social web marketplace and honestly like a lot of stuff that Lee was talking about as well. So when will my parents be using a web three social media app? Can you give me can you connect me to them? I can set them up today. I don't know if I can just um I agree with all of that. I think it's um from our perspective it's still so early you know the amount of time spent. The amount of developers, the developer infrastructure the later ones all of these things are still nascent. So what we're seeing more kind of organic product market fit and traction around the simpler use cases almost primitive like where you can you know simple financial use cases take, Yeah paid for payments from essences. I thought there's a good headline today bit so is doing four of U. S. And Mexico Remittance with crypto rails. I mean that's real that's like Remittance is a real thing touches real people. They're finding it more efficient to do that. So it's kind of simpler you know debt trading anatomically swapping between tokens arguably some some of that speculation some it's not but it's hundreds of billions of volume of month and then the N. F. T. Point as well. I mean there is again speculation there but there's also that connective tissue between you know and we touched on it between creators and fans And that that that that really yearn for that additional layer of engagement And that that's consistently doing a few billion dollars a month in G. M. V. As well. So these are kind of organic real use cases just simpler. And I think it's you know we think it's the Infrastructure improves. We'll see some of these higher order use cases. They're just starting to break out and lends you know another social projects as well. I think they're just about to get to 40,000 accounts and they've been getting it so that there is demand. But it's you know there's a few years left of development. Sure. And I want to turn to the audience if you guys have any questions feel free to raise your hand once you do please just stand up and say your name and your company, keep an eye out. In the meantime, I did want to ask um you know through your firm Blockchain dot com ventures you invested in uh Carolina which was if you guys don't know the algorithmic stable coin that kind of imploded earlier this year. And and sort of set off a chain reaction in the market. Um I guess you know how are you sort of thinking about that experience in terms of you know where you're thinking about investing moving forward. Um And maybe you know how you think about risk. Yeah I think Terror exemplified a lot of what we look for in a venture investment at the outset at the very beginning high I. Q. Team solving a real world problem. That's a big problem. You know one of the co founders, he's not often talked about now um was the founder of one of the biggest e commerce companies in Korea and originally it was a payments play had millions of Koreans that had been, you know it was a hook to get them off credit cards which is an expensive way to pay and use this stable coin as a as a payment mechanism. And it's better for the merchant fast element cheaper and better for the consumer that's paying because they got a rebate from some of that cost saving. Um And I had real usage, you know that was the origins of Terror. Um It also you know Exemplified eventually return profile. You know, it was a 3 400 x multiple for early investors and and then sadly where it went wrong and it is truly sad. I think it set the industry back, it's an awful story for lots of people that have gone involved later. Um you're truly regrettable that it morphed into uh you know basically using this to as a tool for growth. They heavily incentivized anchor. Everybody probably knows the story, you could get 20% yield that wasn't organic, that wasn't coming from um you know actual activity on the network and as a result grew too quick to relative to the scale of the whole terror ecosystem. Fickle money, you're about to tell me to stop. You have time for a super quick questions, quick answers. I think I saw a hand over here. If you just say your name and company please. Sure, steven Wolfe Pereira, chief business officer at. I'm curious a lot of talk about creators and lee your great evangelist for it. I'm curious. How do you think about brands? You know, and do you see brands actually launching their own coins and really participating as well? Yeah, I think um definitely it definitely extends beyond creators utilizing some of this technology and we've seen lots of instances of brands or companies um and enterprises getting involved as well, uh, leveraging N. F. T. S, um or tokens in different ways in order to engage their customers. I think there's a really interesting um future of how brands deliver really personalized experiences to consumers based on their on chain activity today, your status with one brand, your loyalty to one given company doesn't move from merchant to merchant. And when you go to a new e commerce website, they don't know anything about you based on your other behavior, other other stores with other brands. And I think there's a real opportunity to build um sort of this like shared data layer on chain that enables merchants or any other type of consumer application to know the consumer from the moment they walk in the door from the moment they land on your page to personalize those experiences, unfortunately, out of time. But thank you all so much for joining me. Come.