 And we are live. What's up guys? Welcome back to another live episode. We got a special guest for you today We got Kyle who is a serial technology entrepreneur from Austin, Texas prior to founding multi-coin capital Kyle founded pristine which built software for Google Glass used by surgeon He served as CEO and under his leadership pristine grew to millions of dollars in revenue. Kyle welcome to showman How you doing? Amir glad to be here. Thanks for the time looking forward to it Yes, we've been trying to connect for a while on and off on and off. You're busy I'm busy technical issues, but we're here. We're finally fucking here and we're gonna have a good good chat an honest chat And the chat that I want to have with you because you're knee-deep on the investment side of the industry is two things number one when it comes to Risk analysis from a hedge fund point of view investing in let's say tokens or variations of tokens and Be I really really love the paper that you wrote a month or two ago talking about token velocity So why don't we start with the first part? You as an investor working with your own fund. How do you actually calculate risk in this industry? Yeah, happy to dive in that stuff Amir and just first of clarity for the audience. I run multi-coin capital or a crypto hedge fund So we're We invest exclusively in tokens So when we think about risk in the space I find a lot of the traditional financial metrics to not be too useful things like sharp ratios and volatility ratios and those kinds of things The reality of the market is is overwhelmingly noisy I think one of the key things to think about is to have a strategy and stick to it. So for example, we are not traders We spend most of our time rather than watching charts and figuring out kind of what's going on in the market on a Short-term time scale. We spend most of our time learning And trying to zoom out a little bit from the trees and really see the forest kind of at a higher level And make investment decisions accordingly So as long as you have your strategy and stick to it, I think that's that's really key Another thing we really think about when we think about risk is liquidity So, you know, obviously people like talking about pre-ICO's if you can get into them as a fund There's a lot of exciting opportunities there. The problem with pre-ICO investing, of course, is that it's illiquid And as a hedge fund that that's a real risk if you have too much of your portfolio You know in illiquid assets and then let's say the market crashes And then maybe your investors start pulling out of the fund You can quickly end up in a situation where you have these illiquid assets that you can't liquidate and your you know Your investors are trying to pull out of the fund And so you have you have a real risk of kind of basically your hedge fund exploding when that happens So we think about liquidity very seriously Today given the state of the markets and kind of the frenzy we're in We're really working hard to minimize our illiquidity. We're right now a cap where we're about 5% illiquid And when we're probably gonna stay around that that neighborhood Just because like you never know what's gonna happen in this market and we don't want to be We don't want to be left in this this kind of awkward situation So that's another major area and then the last kind of I'd say major bucket of risk We think through today is Like let's call it the things that caused the bubble to pop So there's a few obvious catalysts things like what if an exchange exploded right if coinbase exploded that would obviously be really bad If the next exploded if Zappos somehow got hacked like if any of those institutions got we got you know Exploded like it caused the bubble to pop and you know long down that went from there another major Risk obviously is like government crackdown Thus far we seem to have like pretty like it seems like the most of the major governments around the world I said hey this crypto thing is interesting Got don't be fit scams and frauds and you can kind of pay your taxes and you can kind of keep doing this stuff That seems to be the general sentiment of the of governments That could change in heartbeat I mean there could be a terrorist attack linked to the coin tomorrow and if that happens I can you know guarantee you that the markets are gonna are gonna take it take it down So, you know, we think like well if it happens, how do we want to be positioned if coinbase explodes? These are things we can't possibly forecast, but that there's a real non-zero risk of them happening And so those are the kinds of things you think about when we think about risk in This kind of a frenzied market cycle and we just don't want to be stuck, you know holding the bag But what kind of thesis is do you have a multi-coin capital when it comes to actually investing? Like you see a white paper a pitch like in front of you Do you have kind of like a checklist they go the you know, does it does it have this ABCDEF? Yeah, so we have a general process we follow. It's not too rigid Is like there's just all kinds of idiosyncratic things to think about but we have a general process So the first is like, okay Well, what's the problem understand the problem they claim to solve and then like really trying to understand is the solution something that needs to be a Blockchain we don't invest in anything that doesn't need to be a blockchain So like my one of my kind of examples of a space right now is the idea of decentralized work marketplaces So these are like competitors up work or to fiver and those kinds of things And there's like gems and storm thing and there's a bunch of these decentralized like labor market things They connect people who need to do different jobs together. I don't find that to be something that that's like you don't need a blockchain for it There's arguably some benefits of decentralization, but you definitely like we have proof today that you don't need a blockchain to solve that problem I I'm personally a huge fan of up work. I've used up work for years People don't understand about these platforms. What they offer is amazing customer service Yeah, I mean amazing like the liquidity is there. This is a supply of labor is there and like they generally do a good job And like for the cost I'm paying like I'm thrilled So I find you know like stuff like that for example, I don't think is necessarily something that's blockchain native There could be some other interesting things to decentralize in the future But as of today, like I don't find that to be a very compelling use case So to zoom back to your question of like what do we look for? So one is what's the problem? Is this something that fundamentally needs to be decentralized and solved by a blockchain? Once kind of those two boxes are checked the next thing we really look for is like what's the size of the market? Let's say the the thing works as advertised and becomes a massive success. Well, how big can it get? and Like some things are $50 million problems globally some things are 50 trillion dollar goal 50 trillion dollar problems globally and like it just depends on The nature of the market they're going after so like for us like investing in smaller markets just doesn't necessarily make sense It's just not a good use of time or capital For us, I mean right now we have 30 million in assets and I mean we're gonna cross 50 in the next month or show Like it, you know, we can't name it at small markets. It's just not viable for our current asset base So like that's a big thing we look at the next is probably the token mechanics So like the velocity thing that you mentioned earlier, and I think we're gonna talk about in a few minutes That's a huge thing to us is understanding. Okay. Well, what are the motivations people to hold the token? What's the token used for? As the system grows and matures, how can we expect that to play out? That's a very very important thing We look at next is the team. So who's building it? What's their backgrounds? How scrappy are they? You know, what are they doing etc? And then the actual technology itself looking specifically at technical risk We don't necessarily like it's not a good use of our time to go review code I am an engineer by background, but like that's a terrible use of my time A much better use of my time is to understand. Okay. Are there fundamental technical risks here? And if so then like instead of trying to really like if there are fundamental technical technical risks The way we manage that at the portfolio level is we simply size the position down based on the risk profile Right the more ambitious the claims are the more, you know You want to size down because like what if the thing just doesn't work for whatever reason, right? So those are kind of the major buckets of things we look for before we make an investment And so talking about like token utility and you probably see a million deals on your table every single day What's your take on token utility? Do you have a specific definition a multi-coin of what a token what your definition of token utility is? I don't think we ever tried to define like what is utility in the concept of a token. I Mean you can say like We were seeing toke we're seeing security tokens. We're seeing money tokens We're seeing governance tokens, right? We're seeing kind of different classes of tokens Some of these things are overlapped some tokens have different features of them In general like when we think about tokens, we think of free major buckets We think of security tokens. So that's like taking an Apple stock certificate and putting it on a blockchain Which is not terribly interesting for us. We don't invest in security tokens The next category are utility tokens. We do invest in utility tokens and the third category I call them our money tokens. So These are things like Bitcoin, Monero, Ethereum Can you give an example of utility tokens? Some people probably won't know exactly what it is Yeah, so most of the ICOs these days are utility tokens. So Civic Great basic attention token funfair auger These are all file coin. These are all utility tokens Where that token is designed to be used in some big network to do some specific thing Okay And then the third bucket there was money tokens. So Bitcoin Bitcoin cash Monero's you cash Ethereum I think all of these are making a play at being money Are being some sort of general-purpose currency? And so we think there's also like that's a third bucket of tokens And what's your take at multi-coin with token distribution token models like for example? I know a lot of funds in the space a lot of will groups as well And obviously everyone's looking for 30 40 50 percent off pre ICO do you guys have You guys have initial framework of what you think is a good token model of distribution So it depends on the usage of and how the tokens those for you So for example, there are a number of tokens out there today that are not intended to be used as money If your token is not intended to be used as money then the initial distribution basically doesn't matter as long as you fundraise Security token then that's great If you have what I call a tax medallion token So for example auger's a tax medallion token in the auger network They don't really care about distribution of tokens Beyond some let's call minimum threshold and the reason is like the auger people in auger will go do work for the network But they don't need if you want to make bets on the auger platform You don't need to buy rep tokens. So auger doesn't care about distribution as much so I always we always try to understand you know distribution in the context of You know, what are they stated goals of the token and how the tokens intended to be used From there, I don't have a strong preference one way or the other About things we will evaluate them pretty idiosyncratically We do look for obviously teams that have some sort of unique go-to-market Such that not just for the ICO, but even after the ICO How are new users going to find this cover the platform and get engaged and get involved? And that's the kind of the go-to-market Challenge and that's a major thing we do look at is okay. Well, you're building this thing I like how are people going to use it? I kind of you know Bitcoin is kind of the ultimate like there was never ever like a cohesive top-down strategy You had guys like Roger Varan the early days, you know pick up Bitcoin and start evangelizing it Right and so there was that if you look at Ethereum people say well, you know Vitalik just built a theorem and the talking Gavin and those guys and like that's not true But the talk has lived in an airplane for the last three years like that guy's been traveling I know right and like he's evangelizing. He's speaking. He's getting people engaged Like they have a they've had a community. They've had community management teams Since basically since inception like they've been doing a lot of hard work To get the Ethereum community going and like I mean, it's amazing right Vitalik is worth a few hundred million dollars by now and like the guy basically doesn't have a home Because he's just on the road in you know constantly so Like getting your thing out there takes a lot of real work and you need a real plan Everyone's plan shouldn't be go live in an airplane and like travel on evangelize That doesn't make sense for everybody for smart contract platforms that is probably necessary but if you're building something more specific whether it's a platform for gambling or a platform for Identity management or whatever like you need to be thinking about go to market very differently But this is this this is perfect segue tying into token velocity like my take on majority these tokens like 99% of you people don't want to keep them in the future. There's no use case for them whatsoever Yeah, so for some context, maybe let me describe that token velocity problem if you haven't if you're not familiar with it If you do want to see this in writing if you go to our website multi coin capital Kind of that we have a featured sections. I'll leave a link below the video so people can click on it Awesome. Yeah, so you please go check out that post that will kind of walk you through the problem I'll give a quick verbal description now So the token velocity problem is basically the problem that for a lot of use cases For utility tokens specifically that there's not a strong intended to hold the token So I'll use tick ticketing as an example ticketing is actually a use case where blockchains make a ton of sense in the The ticketing business like going to a concert. There's a lot of fraud That's people literally like just copying a ticket and selling the same ticket multiple times There's like the problem of scalpers you just buy the tickets on you know when they go on sale and sell them at a 50% markup Like and like if you make these things on a blockchain, you guarantee there's no double-spend problem You can like set rules for profit shares profit You know re-ticket resales those kinds of things. There's a lot of pretty obvious benefits to putting ticketing on a blockchain um, the problem with that I see with the ticketing kind of class of tokens specifically is that um, like if I want to go buy tickets to you know, um M&M concert, right? Let's say M&M's the venue is that takes Uh, it takes these proprietary tokens for the system. So I have my ether I go trade my ether for these proprietary tokens Then I go like immediately five seconds later trade the proprietary tokens for the M&M concert tickets Right, then the venue you receive those proprietary those proprietary hand tokens and they go and five seconds later turn around and sell those For ether and so if you think about that like that that set of tokens just turned over the like right like in 10 seconds Um, and so the problem is like if that happens then there's no reason the price of that token would ever appreciate Um, no one's ever holding the token So what's crazy about this is that if you kind of follow this logic out a little bit You could actually have systems or you could be you could have a system that like you're powering Billions or tens of billions of dollars of global commerce But the under the value of the monetary base supporting that could be 10 or 20 or 30 million dollars and the velocity is just 100 or 1000 x and so Uh, the the turnover so fast that the token can't really capture any value Um, the specific equation that you use to model this is mv equals pq Where m is the value of the monetary base and v is the velocity And then pq it basically is the gdp or like the total money that flows through That system and so Uh, it's it's a real problem. Um, and basically all utility tokens kind of we have a problem Generic pollution is you need to have reasons You need to have a reason to hold a token and there are like different kinds of solutions to it So there's like you can come up with what I call kind of velocity sinks Or like reasons that like someone needs to like hold the token So in the case of the concert tickets, for example, you could say that for a venue to list a show They need to stake x number of tokens from the day they start selling tickets until the day the concert lasts And so that would lock up some tokens and take them off the market Um, you could say like if it's a show that's going to be sold out You could ask consumers and say, hey, you need to buy these tokens and stake them like early And then we're going to do priority access based on like how long the tokens have been staked So like there's other there's these kinds of mechanisms you can build into different systems to create what we call velocity sinks Those will obviously help. It's not clear to me how much they will help and that certainly is very It's very idiosyncratic, but like there are conceptually Ways to reduce velocity. I'm working on a number of of ideas on some more generic frameworks that any token could adopt And like you'll hear we'll start to hear us and multi-coin to capital talk about those in the coming months And what's your You know for me one of my issues with a lot of these app tokens utility tokens Like, you know, you we're using facebook or youtube and facebook and twitter. They don't force us to use a token I don't need to use a token to be on their platform The whole idea of like and it's also like onboarding issue, right? Oh, I gotta have this thing this technology this wallet yada yada yada The whole idea of me needing and manually using a token on a platform I don't see that as like a long-term solution for platform success Yeah, so I concur right like if you tell people the first thing you need to do when you get out Of my site is to go like buy my token to use and interact with my site like that's not a good user experience That problem will be abstracted away through Um, so zero x will from zero x has spoken publicly about this He called the idea token abstraction and you can imagine like metamask or some equivalent system in the not too distant future integrating with some zero x relays, you know a decentralized exchange and then and then using that to um We're like you have ether in your wallet and then you go to some website the wall You know say you go to a casino. It's gambling and that's powered by the fund by fund tokens Right like it's pretty odd. It seems pretty obvious to me that in the not too distant future Um, the site will communicate with metamask and say hey, I need fund tokens Metamask will communicate with the site say I don't have any fund tokens Metamask will then automatically whenever the there's some price listed on the website page It's going to communicate with metamask and say here's how much fund tokens you need to buy Here's the conversion price, you know based on current ether and then to show the the number of ether you need to spend Like do the thing you want to do and all of that can happen transparently and in real time so the user doesn't even know Um, I that that's a good thing for the ecosystem I fully expect that to happen As a result of that happening that will increase velocity because that means consumers will literally trade their ether for some other token And then immediately spend that token without ever having held it for more than a couple of seconds Right, um, what the what the vendor does with that token when he or she receives it is is less clear But because actually if their interest is you know holding ether as a general purpose currency Then like that that's exactly the velocity problem. We talk about the ux around that will get better Um over time also there has to be staking solutions You know you have the civil attack issues over here where if I can enter an ecosystem and Spam them directly without actually having any skin in the game. That's a massive problem from a lot of these icos that I've seen Yeah, absolutely. I mean you need to use something like civic for example, um At the handle KYC depending on the nature of what you're doing So orchid has this problem right the orchid protocol is a system Uh, it's like a decentralized vpn or it's more like tour with the token And like the toward orchid team, right? They don't they don't want to do staking to get people to Um be a relayer because they want there to be 50 million relays in the world Right, like the point is to not have five relays would have 50 million relays And so you have a real challenge on how you do with civil attacks in the scenario again every every system needs to be Uh managed a little have you looked into plasma? I I think yeah, I've spent some time on plasma. What's your take on that because dicken you can actually stake erc 20 tokens within those contracts Yeah, so in general i'm a big supporter of plasma. Uh, I think it conceptually makes a lot of sense to me. Um The good thing about plasma is like structurally we know it can be done the risks around like We know that if it works the scalability like clearly goes through the roof Um, the risk with plasma is like, how do you handle a lot of collapsing the thing and like going back up the chain If if you have bad bad block producers and then given we give it subchain Um, that is very unclear to me how that will work. Uh, I don't think there's a lot of clarity out there But like it's a very exciting concept. Um In terms of staking tokens in those I guess i'm not familiar amir with um specifically what you're referring to So like let's say you and I do an ico We have a utility token and going back to what we're just talking about civil attack since getting the game and token velocity With plasma we can have the option of on our system for you to use it. We you can actually stake your token on plasma So I don't need to just stake ether. I can actually choose which token I want to stake as opposed to just staking ether Right, I mean you can have any erc 20 token in any plasma chain. Yeah. Yes. Yeah So that that's fascinating for me where you actually have optionality So i'm big on optionality where like let's say you go up and you mentioned earlier with the relayers and zero x What they're doing where you have an ecosystem this whether it's a dap or utility token or app token Where you have the optionality of choosing what you want to use Yeah, there's I mean there's a lot of value in option like that's the whole point of the centralized ecosystem Is that the consumers have a choice and builders can build right so I'm all for it So we're what would you like to see going forward? And I know you mentioned that multicore and capital is going to be releasing a framework But where would you like to go or what would you like to see the ico space change? Like You know, there's obviously problems through evolutionary process right now But what would you like to see in the next six months happen? um In the next six months, I would like to see Uh, actually, so this is a little bit simple, but I'd like to see everyone back towards pitch decks and away from white papers Um I like pitch decks. I think are much easier to read and process papers for something technical I prefer a white paper, but for like a general. Hey, here's the problem. Here's the solution. Here's what we're doing I strongly prefer for a pitch deck. Uh, so that's somewhat semantic. Um, I I would hope all icos, you know use ens Um ens now is usable, you know and missed is usable in metamask to make payments Please use ens to help avoid with with uh thought with uh, you know hack risk, um I think teams should be raising less money and selling fewer tokens Uh and have more in the reserve and intend to raise Raise more money later at a higher price much like traditional startups in venture capital work I think that's similar how fatality the guys from true bit, um interactive coin offering paper No, so I'm not referring to the interactive coin offer paper I'm referring to like let's say when you launch your system you uh, you're you do your first ico You sell 15 of your tokens and then I got you kind of like a precede series a series b. Yeah, okay Exactly. Yeah, so multiple kind of rounds of funding at higher and higher prices Uh, I like that model a lot. Um, I think the idea of trying to raise $15 million, you know after four months of work is crazy Yeah, so, um Those are some of the things I like to see happen Fantastic. All right, we're gonna wrap it up there Kyle, thank you so much for coming on the show if people want to get in touch with you Maybe they have a pitch deck for you as opposed to white paper. What's the best resource for them to contact you? Yeah, so uh, you can find me on twitter. I'm pretty active on twitter My twitter handle is just kyle samani, which is just my name Uh, you can go to our website multi coin capital. You should subscribe to our blog We publish. I think some of the best research in the crypto space Um, and then feel free to email me. Uh, you can just email me my email is kyle at multi coin dot capital Thank you kyle and once again, um, I wish you best of luck brother. Talk to you soon. Awesome. Thanks to me. I appreciate it Thank you