 Hello and welcome from the coin telegraph research terminal. I'll be your host michael's bone senior economist with coin telegraph research Today's panel will be discussing the latest blockchain industry buzzwords web 3 and metaverse Last year venture capital investments in the crypto space were focused mainly on decentralized finance or DeFi And over the past two quarters this focus has shifted to the term web 3 Tim draper Web 3 is a sector of the blockchain industry which can mean a lot of different things What does the term web 3 mean to you and do you think it the term might be too broad as it is used today? The media is capturing people's imagination, and they're kind of going Web 3 like we got a new thing coming and what it does is it forced me And I'm sure it's forcing entrepreneurs everywhere to think okay with web 3. What can I do? And and so all of a sudden they're they're getting more creative They're coming up with really interesting new projects that nobody ever imagined and they're saying We're we're gonna make it simpler for you the user in some ways I think oh, it's a hype monster that means nothing and in some ways I think this is such a great idea It's like like we're going to the moon or going to Mars and it gets people thinking What's it going to look like how exciting is this going to be? So that's my web 3 diatribe Absolutely, I love that Simeon Bell reed you're the founding partner of keychain ventures, which is an investment platform aiming to provide institutional investors exposure to the blockchain and web 3 ecosystems through funds and co-investment opportunities, but what are some of the trends in web 3 as you see them and Can they be broken down even further? Maybe even to more helpful categories as as Tim alluded to you know, everything is just kind of love jump together I guess I totally agree what team said about web 3 It's it encapsulates all the innovation that is happening today But if I have to simplify it, I think web 3 is about the decentralization, right? So it's about decentralized technology that you know is used today for Bitcoin or for any other ecosystem For at least the general masters now if we double-click and you try to Look at what what are the subsectors? Let's say or the different layers in web 3 It's today used as a catch-all within the industry for anything that we cannot define as a subsectors To give you some examples and illustrates maybe what today falls on the web 3 we talk about digital identity for instance It has not emerged yet as a key a clear vertical and today to people put it in their report Or they're reporting and they're web 3 but eventually as that category grows and that is drives more builders and more use cases and more Applications that will emerge as a new category and will not be any more Included in web 3 but you know in in short is a bit a catch-all Phrase for anything that is not yet defined as still being built and still very being very exciting to see emerge from this ecosystem That's a great transition over to Julian Linger Who is a from rally is a Bitcoin only app focused on helping to bring the next generation of long-term investors and giving them simple User-friendly experiences to stack Bitcoin Which I am a proponent of and how has the process of onboarding people in the market since the downturn over the past few quarters How is that? How is that journey been? Yeah, that's that's changed quite a lot actually so when whenever there's an uptrend in the market look mainly people new commerce that we talk to or we Focus on they look at price. So whatever whenever the market is moving. There's more activity Usually the most activities and markets are moving up because there's FOMO. So for us as a business It's basically free new customer acquisition, right? They're just they're just coming they're trying out everything that as as easy as possible as fast as possible And and they want to get into it. They want to rush into it Whenever the market is stable, we don't see that much activity We mainly see kind of the core Bitcoin community that is still running their savings plans their DCA is still buying the small Dips, you know, but really the mainstream the PR the media and therefore the normal people on the street Don't really care that much. That was what we observed kind of in the second phase in the last couple of months And so there what we see is basically again newcomers coming in because they see a chance now Oh, it's a cheap point of entry and also the the bit coiners obviously buying the dip And even Ex-accelerating or increasing their savings plans amounts the more the market moves the more people are coming in But different people are coming in when it goes up more newcomers are coming in when it when it goes down The the Bitcoin only proponents or the Bitcoin maximalists the enthusiast basically stepping in with bigger amounts VC capital inflows Have been on a decline since April with October actually dipping down below one billion dollars Which is the one billion dollar mark, which it hasn't done for a long over a year Mr. Draper, do you think that the rest of 2022 might see a slight change in this activity for VCs? Who might have to meet financial obligations in a year, you know for the year whatever for tax reasons or whatever it happens to be Or we likely to hover around this level activity as firms remain risk-off No investors always get it wrong They They come in when it's just hyped up and everything's great And then the venture capitalists all have to compete with each other and it's venture fat fratricide because all the companies fight each other to the death And now of course would be the best time to be investing in venture capital, but The markets are down people are not feeling that That kind of Comfort with their own portfolios and they're saying well, I can't take a risk on something that's venture capital I can't invest in something risky right now. And so my advice to my entrepreneurs is Go out and get your money from customers because the venture guys are tightening up and And people I mean it's it is a little bit more logical You know, this is where bitcoin would be awesome because right now we've got the fed and the fed kind of over compensates and undercompensate, you know, and so when when the fed pumps interest rates up the markets come crashing down And and when the markets come down then nobody has any money And so they can't risk their money and they can't put it to work And so then we we get sort of whipsawed back and forth If this were all a bitcoin economy, it would be a stable economy and and people wouldn't have to go through these terrible whipsaws where they Have huge layoffs and everybody's out of work and you wouldn't have to have that You'd have a very stable economic system and I think That people eventually will recognize this It's right now they it isn't the way they're Thinking it isn't the way they're voting but investors are They do pile on when things are good and they pull back when things are tight But it it should actually be the opposite This is a great to be Putting money into new startups. It's just amazing. Smith. You're the firms that you engage with from all over the world I'm sure are feeling similar sentiments to that What are some of the feelings and concerns you are hearing from your circles? Well, definitely, I mean Inflation has been a big concern over the last year And you know, as team said, it's a very, you know, let's say difficult to market for fundraising both for funds and for projects so I guess, you know The trend is Is probably going to continue for 2023 and Project will have to find to be more efficient to, you know, find more runway and maybe you know, as team said Be able to get capital or funding through sales and from their customers directly. So uh, I'm pretty excited about to see how you know Space in general some of this application could, you know, drive more adoption and drive more revenue and be able to be more profitable Julian Where does relay see themselves in the web three space staying true to the bitcoin only ethos? And are there any plans potentially partnerships or expansions to your product offerings with that kind of mindset? Yeah, so I kind of look at web three in in in a historical way I mean historic historical from like web one web two and web three whereas web one is kind of Read only so this was only like displaying things texts and images and looking at it web two Was now read and write so you could also do stuff you could interact with Services and other people and so social media and all that kind of stuff And now web three is read write and own so it's all about ownership of data But it's also about real ownership of of of value So it's this internet of value that in my opinion needs An innovation decentralized network like bitcoin and it doesn't necessarily need any other protocols Because the true innovation of of blockchain and crypto and whatever it's called today Decentralized finance and all that kind of stuff is really bitcoin. Yes There are a lot of things with other protocols that are now like these other 20k plus And tokens and coins and blockchains there are many things tried out which are interesting But I feel that it's play basically playground where a lot of experimentation is happening and whatever will work will sooner or later be Be manifested and implemented on the bitcoin Network which is not only the base layer like a lot of people always talk about bitcoin as this base layer But no, it's it's going to be a layered innovation like the internet having seven layers Also, bitcoin is now developing several layers. So for example, the second layer Called lightning and then many more like rgb and so forth Which will enable everything that you now see on these other protocols like smart contracts nfts defy tokenization like all that stuff can happen on the bitcoin blockchain And that's for me the true Web web three that is going to develop in the in the next decade I would be completely remiss not to comment on the current state of the crypto market Which we all know does not exist in a vacuum and is impacted by the macroeconomic conditions across the entire world This is a growing industry the blockchain industry that does face special challenges during times like this as we have seen with Three arrows capital others, you know now potentially ftx Tim and you're late in in our latest coin telegraph research interview with danta apiero from 10 t holdings we talked about regulation Do you think with the recent issues that have popped up with different crypto custodians? They will only accelerate the call for regulation and or can the industry come to its own aid? Well, I think regulators regulate at their own peril. Um, they're not It turns out that Countries that trust their people Uh and create freedom End up with the best economic outcomes and so every time you add a new regulation you are Hurting your economic outcome the u.s. Was very good in um in keeping hands off when the internet came uh And I guess now that they're dealing with money. They're a little more Um control based there the government officials are all sort of sort of saying wait wait This is money information was one thing But this is money and they feel like they've got to control everything that I think The control works to the detriment of a country And so you're seeing Some countries Totally mess up china and r China and russia with their total control Freak leaders And you're seeing some countries jump on the the opportunity Um and those were japan when they made a bitcoin and national currency El Salvador beautifully done Now the the uh central african republic um Yeah, uh now they are making bitcoin and national currency that um Ukraine uh in a desperate situation decided that yeah bitcoin counts um and And and so some of these countries are saying hey, we trust you We think you're going to figure out how best to run your life and And we will only step in if there are some real issues that are affecting many many millions of people I think that's kind of my stance that the winners over the next 40 years are going to be The ones the countries that decided that they were going to allow It going to rip And uh and allow freedom in their countries freedom just works. It just it it's so clear in my head You know, you look at south and north korea. It's pretty clear um You look at cuba versus vong kong before she came in and took over hong kong Uh, it's really clear that that the free countries are the ones that um that thrive and the and the socialists communists dictatorship government control regulated Countries just stagnate absolutely Absolutely smear on our last interview we discussed a lot about regulation and we talked about institutions You know worried about regulation Coming in as a good thing Has your view changed on this at all or has from what you've heard from your circles? Has it has they do they have a new understanding of it? Or they still seeking that for regulatory clarity for them before they jump in Yeah, I mean On the institutional side Um, I'm still of the that they need some form of regulation framework Uh to be able to adopt the technology in its fullest Um, but to go back to the team's points. I mean, I will nuance the regulation or I will split it in a few buckets There is regulation for driving control and controlling populations But there is also regulation just to provide protection for certain participants in the in the ecosystem Uh, obviously I'm a proponent for regulation to drive protection And I think having some form of regulation I guess from for for uh Institutional adoption is in my view pretty required I mean, it's difficult to see how large financial institutions that are regulated today will jump on to Something that is decentralized and you know where they would not be able just to operate in the way they've been operating today So just to be clear, I'm not a proponent for just You know Copy pasting the regulation that we have to then apply it on decentralized technology Obviously, that's not that that would be the worst outcome ever. Yeah, and um in america We've recently had bills proposed in america that talk about um State-to-state trade, you know the this interstate commerce clause and it's it's almost laughable Interstate commerce is not even a question. We're talking about something that is interworld You know, it could be it's going to be on a satellite as well, right? We have bitcoin on a satellite So it's it's everywhere. It's not just, you know, I don't have to worry about just massachusetts Stay kinetic and I have to worry about the whole entire globe So this is almost laughable when you read when you know about the technology and you read the the frameworks that are being out there Which was you know the howie test, you know or something like that's written in 1960 whatever it is, you know Which highlights a very important point in my view about education of the regulators, right? And I say I feel that's you know something that is pretty much incumbent on us as players in the ecosystem to Educate and drive more education and knowledge about what the technology is about so that's you know, the regulators can You know Come up with the right the right framework. Otherwise, we're going to see you know examples of what you just mentioned Absolutely julien you're a ceo of a of a blockchain company. Do you agree with with tim smith on on these points of regulation? Yeah, absolutely. I don't think it should be it should be and it can be Overregulated. I think especially europe where where we are active for we're active in Pretty much all the 40 something european countries and there There's this new regulation coming up. It's called mika Which is about you know framework for all crypto asset handling and this it is it is held super strict so they even tried to ban things like mining or transferring From custodial wallets to non custodial wallets stuff like that. So it's it's really Strict how they want to grasp it and as you as as you said michael It's it's really about you cannot grasp this it is it is a free technology. It's open source It's out there. It's not going to go away back to your point smith about regulation about Educating the regulators. I think this is super important They will come to the conclusion that it is not possible and also not beneficial to try to criminalize these things like mining for example, I mean we saw What what what happened after china? Band mining just the 30 percent of hash power coming from china and this whole huge industry that was built around it with all the You know taxpayers and and and employment and stuff like that is all it all went away within within a month or two It just spread around the the rest of the free world and and just created prosperity there So it was really a shot in the foot. It's something you cannot you cannot stop bitcoin doesn't care But but I think the regulators Still are yet to understand this but they will at one point Tim how are you working with your portfolio of companies to help them go through this market cycle? well, um for the last two years, I always get It's like I get nervous during bull markets and I I feel very uncomfortable And um and then during bear markets, it's like my time. I get all excited um And so during the bull market, I said, oh, yeah raise as much as you can just don't spend it and a few of them actually listened some of them are running into walls now and um And so what I've told them is to focus on your customer Figure out how you can get money from your customer See if you can turn profitable. I mean, that's that's a word that nobody's heard for five years um and that um And then of course in in companies where the burn rate's gotten too high um I suggest that it's time to lay some people off and that um always gets a lot of resistance And so we I tend to say, you know, you got to remember during the dot-com bust I said to a company Uh, well, you've got how many people do you have 400? And I said, well, you're gonna have to cut that to three and they said 300 and I said no three people because You you've got a lot of money and you're burning a lot of money, but you don't have customers yet. You got to get customers Uh, I I think they didn't take my advice and they crashed into the wall and died These bear markets can be short or they can be long If they're short, hey, you cut back and you can always hire those people back later If it's long, you're gonna be in this for a long time. You got to figure out how to make money You're not doing anybody any favors by not making money Smith, do you have any thoughts on on that? No, I will totally agree with what team said. I think uh, what you know founders and entrepreneurs Tend to do badly in downturns is react fast first of all Sometimes it takes a long time for them to realize the severity of the situation And also build enough runway because as team said, we don't know if it's going to be three months six months 12 months or 18 and you have to Be you know, provide for the worst and build for that, you know worst-case scenario Because ultimately you need to be you need to be able to Whether the storm and come out Come out from from this Alive, I guess that's the end that that's survival mode During these times and I think that's what sometimes gets forgotten is you know, we always Feel that we reached the bottom and it's going to turn it's going to be a quick recession And in three months we're going to be back up and therefore we're going to absorb all of this But you know most often than not we are bad at judging that one way and we end up and you know, we end up And not surviving what that's making it through Yeah, I think from a from a founder perspective is really true that you stacked you stacked fast and You should really prepare for the long bear markets. You never know how long it's going to be That's why the closer you come to the bear market or the more the deeper you go into the bear market The more closer you want to think about profitability and your runway. I'm sorry for that And and it's also about the the art of reassembling resources when everything is going up Yes, you can invest a bit more in marketing because it's easier to get like cheaper customers then But then and you can maybe neglect a little bit of of the product And and build up some technical Adept but then when it turns and there's a bear market You definitely want to stop like all the the the the ad spend and marketing budget because it's anyway going to be super Expensive to to get new users But then you should cherish the users you have and invest more in the product And also invest more in the team. I'm actually I know this is kind of an american thing This higher and fire whenever there's a bear market. You just just fire the majority of the team Not really where I come from in switzerland We really try and we did now kept keep all of our all of our people is only only 21 But still because we really really believe that it's the power that you have We need we just need to reassemble things and invest maybe I said more in product less than marketing But we this is this is the the core value and the core power that we have and we want to keep it because if we now Get rid of half of the team And then in a year from now, we yes, we can rehire them But it's going to be super expensive process to get this talent again and to get them productive again Which where where you lose maybe in my opinion even more time and money Than if you just find ways to keep them now and keep them productive and invest more into Into the product so that you better positioned When the bear market ends but then in the end it's really about surviving like the ones that survive That the big guys today in the crypto market are like the the binance and coin base and all these kind of guys That just that just here because they survive two three or four Bear markets and most most of them don't and the more bear markets you survive that the bigger you get Absolutely one thing I learned from martial arts is sometimes not how good you are It's just how who can last the longest, you know, so So sometimes that's the truth Thank you guys very much. I really appreciate you guys being on the panel today and being here Julian Linger from Relay Tim Draper from everything from twitter to to SpaceX to you know, you name it I'm it's amazing. You're you know when I was growing up the reading You know going to school for everything you were one of the names I read about in books So I'm honored to have you on the pot on the podcast. So thank you and Smea Bell readie who's always here Thank you very much from keychain ventures. Thank you everybody for tuning in and hope to see you all my next one Thank you