 Live from Nassau in the Bahamas, it's theCUBE covering Polygon 18, brought to you by Polymath. You're welcome back, everyone. It's theCUBE's exclusive coverage. We're live in the Bahamas here for day two of our wall-to-wall coverage of Polygon 18. It's a security token conference, securitizing token economics, cryptography, cryptocurrency, all this is in play, token economics powering the world. New investors are here. I'm John Furrier, Dave Vellante. Our next guest is Nathan Epene, who's the Chief Investment Officer for Arcadia Crypto Ventures. Welcome to theCUBE. Thank you very much, John. Thanks for coming up. Thanks for joining us. I'm excited to have you on for a couple of reasons. One, we've been talking since day one, a lot of hallway conversations, small intimate conference, so we've had a chance to talk. Folks haven't heard that yet, so let's kind of get some of the key things we discussed. You are very bullish and long on cryptocurrency and blockchain. You guys are doing a variety of deals. You're also advising companies, and you guys are rolling your sleeves up, so kind of interesting dynamic. So take a minute to explain what you guys are doing, your model, and when you try to get some of your partners on later, you have a great team, experienced pros in investing, and you got whales, you got pros, so you got a nice balance. So take a minute to explain Arcadia, your approach, and philosophy. Okay, so Arcadia Crypto Ventures, primarily, we are a private fund. We invest our own money. We believe in the whole crypto space. We believe this market is expanding, and it is growing, and it's gonna be the biggest thing that ever happened. It's gonna be this fusion of internet and PC and mobile and everything is gonna go to the blockchain. We believe in the whole tokenization world. Everything is gonna be tokenized. So as a whole, we believe this space is gonna go very big, okay? So that's one piece, and because of that, we invest in the space, the whole space, not one Bitcoin or Ethereum, but everything in the space that makes sense, people who have a use case. Now the second piece of it is we advise great founders. We want to get founders to come out and build these new things because this is the new internet or the new era, and people have to come out and build these things. And so many of them are traditional businesses and we have to explain to them why this matters, why you should come to this space and be decent flies and reach the whole world. Because initially the internet came, the idea of the internet was everybody gets information. Now information did get everywhere. You don't have to worry whether mailman is there to deliver your email anymore. Even if it's a Sunday, your mail will get delivered. So that part was good. But now you have these few companies that's holding all your data. It's okay for most people, but they do censor a lot of people. So that is one point, that's censorship. So we want a censorship-resistant world where everybody's ideas get up. So that way, we believe that's how this whole internet space itself is going to change because of that. See this is, if I explain it in one word, this is the greatest socio-political economic experiment or revolution ever that has happened in humankind. In the history of the world. I mean this is important. I'd sit down in my opening today. Dave and I were riffing and Dave and I have always been studying. We are entrepreneurs. We live in Silicon Valley, he's in Boston. And so you're seeing structural change going on. So it's not just make money. There's mission-based, younger demographics. So you're starting to see really great stuff. So I want to ask you specifically, because you guys are unique in the sense that you're investing in a lot of things, but startups, pure playing startups, which had only one path before, or two paths. Cashflow financing, our venture capital. So that's a startup model. The growing companies that are transforming their growth business with token economics, those are what everyone wants. Those are the best deals. Then there's like the third deal. Well, we're out of business, throw the Hail Mary, pivot. So categorically you're starting to see the shape of the kinds of swim lanes of deals. Okay pivoting, that Hail Mary, you can evaluate that pretty much straight up on that. Startups need nurturing, right? So the VC model actually works really well for startups because the product market fits going to be developed. You got cloud computing so you can go faster. So you guys are nurturing startups. At the same time, you're also doing growth deals. We do. Explain the dynamic between those kinds of deals, how you guys approach them, what's the dynamic, what are the key things that you're bringing, is it just packaging, is it tech, so on and so forth. So with a lot of people when we are on the advisory side, so primarily we look at the founder and the tech. What are they trying to solve? That is key. You can't, if it's a third, you can't package it. No matter how you package it, that's not gonna work. You can't package dog, you know what. Yeah, exactly, okay. So that's one thing that we look at. The founders and their idea. Now, their idea, can it be decentralized? Some models are meant to be centralized maybe, so it doesn't work. See, it all boils down to, when we break it down, we look at it, okay, do you have an asset behind the scenes, is there an asset? Is that asset being transferred among parties? If you have an asset and it's being transferred, is there some central mechanism in between? Because if there is a central mechanism in between, that means you're gonna be paying rent to them, okay. You have these things, okay, great. Now you have your asset, you have that in between party. But in some of them, like, let's say you have money in your pocket. You walk, it falls down. Somebody else pickups the money. It's his, it's a bearer asset, okay? So that's where Bitcoin sawed a very big problem, right? It was a bearer asset. Unless they hack your wallet then they take your money. Right, that happens in real life too, right? Somebody can take money from your wallet. So it can happen in Bitcoin, they can hack your wallet. All right, so Bitcoin was solving that problem. Now the second piece is a registered asset. What I mean by registered asset is, take your car. You buy your car, you go to the DMV, stand in line, register. There's a record updated in the DMV, in the central database. If somebody steals your car, the car is still not his. It's only if they can change their record over there in DMV, then it becomes his. Now there, maybe you do want the DMV to be there. Or maybe we can, but the DMV being there, now you have a problem. They're gonna charge you rent. And they can decide, oh, you know what? John, I'm not gonna give him a license or a car in the state of California or they can decide, right? So that is where now you decide. Do you wanna go the centralized route or the decentralized route? So we break it down to the asset. So it's gonna be a fit for decentralized. I get that. Let me ask you a tactical question because I know a lot of entrepreneurs out there, they're watching, they'll hear this. A big strategic decision up front is, I'll say token selection. It's just pretty clear that security token works really well for funding and whatnot. Then there's a role for security token. I mean utility token. So do people, should they start from a risk management standpoint, a new company? So let's just say we're in an existing business. Entrepreneurs say, hey, you know what? We're doing well. We're doing $10 million in revenue and I wanted to do tokenize because this is where decentralized business, perfect fit. Do they start a new company or do they just use the security token with their existing safe company? I would suggest usually at that time, okay, that's more of a, it's very a legal question at that time, okay? I don't know if I'm a lawyer to answer that, but I tell them, okay, you have a business. The business model is going on. If you're happy with it, let that be there. Make a new company, okay? If your business model was not doing good, you might as well start from there because you figured out it's not working. But again, at that time, we tried to come up with this question. Are you trying to put out the old wine in a new bottle kind of thing? If the wine is old, it ain't going to work. You know, you have to get to that realization. So here, the answer- People are being sued. So mainly the legal question is, do I want to risk the- Yeah, all right. Let me hop in here. I wanted to ask, go back to something you said about censorship. Okay. I was in a conversation with my kid the other day. I was explaining, Google essentially censors your search results based on what they think you're going to click on. Yeah, they do that. And he's like, whoa! And he thought about it. He's like, okay, yeah, they kind of do that. Okay, so that's an underpinning of we're going to take back the internet, right? Yeah. Okay, I just wanted to sort of clarify that. From an investment philosophy standpoint, you're technical, yet you don't exclusively vet or invest in infrastructure protocols and dig deep into what you read the white papers. But you know, there are some folks out there, hedge funds, et cetera. All they do is just invest in utility tokens. They're trying to invest in stuff that's going to be infrastructure for the next internet. Your philosophy is different. You're saying, we talked about this. We don't really know what's going to win, but we make prudent investments in areas that we think will win. We like to spread it around a little bit. Why that philosophy may reduce your return, but it also reduces your risk. Maybe you can describe that a little bit. Sure. In general, picking winners in the long run has been, it's a proved fact that nobody could pick winners. Like if you take active hedge fund managers, active hedge fund managers in the long run, like if you take 10 to 20 years, they lag the S&P. So if you had money, if you give it to an active hedge fund manager, instead of that you just had to buy the S&P, you would have beaten 93%. That's Buffett's advice, buy a S&P 500. Buffett made a bet with Todd and they did a 10-year bet for a billion dollars or something where, you know, so take Warren Buffett for that matter. His fund is lagging too. And in reality, all his stock investments are down. Like he put it in IBM at 200 bucks. It's after eight years. It's at the 143 or something, right? So realistically, there's a lot of luck element, okay? You can do all the analysis and you could still end up buying Enron, Lehman and their schemes, right? Right, yeah. At that time, see they were using some models that they knew till then. Most people, investment comes from, you know, you have this background that you know, okay, this is what I look at. Cash flow, discounted cash flow, great. If that is their price to earnings, I'm going to buy. But then when Amazon and Arcane, most of the traditional investors, never invested in Amazon, they were like, oh, it's a loss making company, you know? They're never going to survive. But they forgot the fact that companies like that, there was this network effect and once the people are there, at any point Jeff Bezos can just turn off the switch and take off the discount. You're not going to change, you know, your shopping from Amazon at that point, right? Because this month I lost my 15%. You're so used to it. So people miss that. Nowadays they see that, but when it came to blockchain, they're like, oh, no, no, this is a fact. That's what most people do. So we talk about discounted cash flow as a class evaluation methods. I see guys trying to do DCF on these investments. I mean, we were joking about that. How do you, what's your reaction to that? Well, if anybody is saying that if they come to me and I'm like, I don't know what Kolein did you drink at that point, okay? Because what cash flow are they at this company? There's no cash flow. It's not like you're going to get dividends on these tokens. There's no dividends. It's like, can you find out how many people are going to use it? What is the network effect? And again for that, a lot of people are coming with a lot of these matrices or matrix right now, but I think even that they're trying to retrofit into it. They're like, oh, you know, I can use this matrix, you know? But really we don't know. So people tend to want metrics. Dave and I talk about it all the time. When people partner with their money, they need to know what they're betting on. So the question is, when you look at an investment, when you spend cash, when you write checks, what is your valuation technique? Do you look for the long, how do you play that long game? What's the criteria? And besides like the normal stuff, like founders, disruptive, like you got to write the check, what's it? Okay, buying a token. It's got to be worth something in the future, obviously. So we look at the, we look at that space, okay? Where ever they are trying to disrupt, is there a big market or even if it's a niche market, okay? So we're doing an arrow chain token, okay? It's a very niche market. It's just the pilots, the maintenance folks, and the charter people or the plane charter guys. It's a very small market, but that's good enough. It's very niche. They can have an ecosystem between themselves rather than being incentivized to log the miles and stuff like that, right? It doesn't have to be a very big market. We just look at it, okay, founder is good. He has an idea. It is a space that can be decentralized and people can come in and they can feel that they're part of the ecosystem. See, the whole thing with the token economy and a traditional economy, like let's say I've been spending money to buy a stock. So I buy stock. As an investor, what do I want? I want maximum returns. The employee, he wants to get maximum pay. And the consumer who's buying the product, he wants to get it at the cheapest price. So there's a, it's not aligned, okay? The moment you're given the cheapest price, my profits go down. If I increase the employee's salary, my profits go down. So we have all three of us are totally misaligned. Super important point. I just want to think, do you favor certain asset classes, you know, token security tokens or utility tokens or you're looking for equity? I mean, maybe just- No, right now we've moved away from the whole equity bonds or any of those things. We are totally concentrated on utility or security token. We don't mind if it's a security token or a utility token. If it's a security token, are you looking for dividends? Are you looking for- At that point it's some kind of dividend. So you're not expecting equity as part of that security token? No, we're not expecting equity, but if they are saying, okay, my token, if people buy and if they pay me $10 and out of that, you're going to get $1 back, okay, that's fine. We don't mind that, okay? As long as it's legal and all those things, we are fine because it just makes the process easier. Earlier you invest and you didn't know when you could get out of your investment. At this point it's become so liquid at any point of time, within two or three months, the token is listed, people are either buying and selling. We know, otherwise, early when we used to do venture investments, we would get into a product once average times seven to 10 years to get out and in the meanwhile, they say great stories or we're doing great. How do I check whether we're doing that? I'm not getting any dividends. Nobody's buying this from me. How do I know where am I? I really don't know. I can make these values up and on my Excel sheet and say, okay, we value this company at a billion. So your technique is to say, okay, look at the equity play is the long game and you need an exit on liquidity, either an M&A or IPO. Now you have a new liquidity market so you play the game differently. I won't say spray and pray, but you have multiple bets going on and so you can monitor liquidity opportunity. So that's a new calculation. It's a great calculation also because, see if you're in the market and now we know at any point of time, we don't have things on our books that are like, we don't know what the value is. We know what that price is because the market exchange is there. Whatever people are willing to pay for us, that's a price. It's like saying, my house is worth a million dollars. Actually, it might be worth to me. It depends on what people are willing to pay me. If I have to synthesize this, you're taking high-frequency trading techniques with classic venture investing and looking at the token from those two perspectives. Yes. In a way, high-frequency trading meaning I'm looking at volatility and then option to abandon and get rid of whatever or whatever. The only thing is we're not exiting our positions. We are in the long game. We believe this whole market is supposed to at least reach $8 trillion. When we started this whole investing, at that time, the whole market was at $6 billion and we said, okay, this market, based on our thesis, supposed to reach $8 trillion. Until then, we keep buying, okay? But to your HFT now, so you're not really arbitraging. No, no, we're not doing any of those. Because they're applying real-time techniques to the token evaluation. So their game is try to get into a winner. Yes. Right, with the token. A lot of the funds, they're doing this arbitrage model, okay? They're trying to do arbitrage. But the problem is they're missing the big picture at that time. So arbitrage works in a very tight market, okay? So S&P, let's say, somebody's doing 5% return on S&P. The guy with the arbitrage is coming and saying, I made 5.3, 5.5% or 6%, that's great in the equity world. Now, our returns last year are 10x or 30x or 50x. And if somebody comes and tells me, I made an extra 0.2%. It doesn't really matter to me. I'm like, instead of wasting that time doing arbitrage and paying taxes, I'm like, just, you believe in the fundamentals. You believe in the fundamentals at that point. You guys are in New York, obviously, Arcadia, crypto ventures, that's how they get a hold of you guys. Final question for you to end the segment. As new real pros come in, let's take New York as a senior in New York. The New York crowd comes into the Silicon Valley, comes crowd, existing market players from other markets come in here. How important is optics, packaging, and compatibility with the sector? Meaning, I just can't throw my weight around on a hedge fund saying, we do it this way, I got money. Because people here have money. So what's the dynamic of pros coming in with seeing institutional folks come in, we're seeing real pros come in? They've never been to Burning Man, so they get the Burning Man culture, but this is not a Burning Man industry. Businesses doesn't run like Burning Man. Maybe it should, maybe it won't, that's an debate we'll have. Your take. So the new funds that are coming in, so they have a fear that they have missed out. They are missing the picture that this is just the beginning, okay? So they've seen that this industry has gone from six billion to 500 billion in a year, or a year and a half. They're like, oh my God, I missed it. It's gotta be over. So I have to write these big checks to get this. We don't write big checks, we write much smaller checks because we believe that if a founder is raising money, he has to raise it through smaller checks from everybody. That means all those people are really interested in this. And all of them really want the token to go up. Whether it's the investor, the user, and the employee who is working there because all of them, their interests are aligned. The moment you give a big check, so let's say you could raise 10 million from 10,000 people, or you can raise it from 1%. So when the big check is there, let's say I go to raise my money, there's this fund who's missing, he says here's $10 million, okay? Now I've got me and the fund and my tokens. Nobody else knows about my tokens. My tokens are as good as valueless, right? Now the fund is looking, okay, I need to exit. Nobody knows about my tokens. The fund is the only guy who has my tokens. He's trying to exit. Obviously either the market is going to crash, or there is no market. And he's like, why did I get into this? So he missed that point that you need people around you. It's not just you alone. See, earlier days- This is your point about understanding how token economics work. Yes. So having more people in actually creates a game mechanic. It is. For trading. Because then you know, you're not the only guy interested in this. In the earlier venture capital space, there were these bunch of few venture capitalists who wanted to capture that whole thing and try to sell it to the next guy. Here, what I'm saying is, we all have to come in together. We all can be together at the same price. Which is good, because the small person has, the common man has a chance to be a VC right now. Earlier you could never be a VC. I could only see Google after IPO. I could never get it at what KPCB or Sequoia got it at. I had to wait till they go through CDC, CDB, which they bought at 5 cents. I would get it about $40 maybe. In this case, the big fund has a lot more money than me, but I can have my small 5,000 and 10,000. I can invest in the ICO. If you pick the right spot and you're there at the right place at the right time, because you are seeing guys come in and trying to buy up all the tokens early on. They're trying to do that. They don't get it, but they will understand. So it is a learning mechanism. Even they will evolve. They're like, okay, this is not how it works. And you have to make mistakes. All right, so I got to ask you one final, final question that you brought up about this, more people the better. So we're hearing rumors inside the hallways here that big whales are buying full allocations and then sharing with all their friends. Possible? It is possible. So we see some of that behavior. Dave calls it steel on steel. You know, you have groups, I'm going to take this whole deal down. We see that in venture capital. It used to be syndicates. Now you're seeing Andreessen Horowitz doing the whole deals. That kind of creates some alienation, my opinion. But what's your take on that? I'm a big whale. I'm taking down the whole allocation. It's okay. Some of those things are going to happen. It is fine. The only problem is usually when that happens, the big whale who takes it, he will realize very quickly. He's got to get more people. He needs more people. Otherwise, he might be able to exit to his five buddies who were always taking it from him. Now those guys, they also have to exit at some point, right? Nobody knows about the project. Might as well just take a small piece. Even the founders in this case, typically in a token model, founders who have taken 20% or 10% have done better than founders who took 60% of the whole token. Nathan, great to have you on. Love your business model. Arcadia, crypto ventures. They got real pros. They got a whale. They got people who know what they're doing and they're actively understanding the ethos. I think you guys are well aligned and you're not trying to come in and say, this is how we did it in New York before. You get the culture, you're aligned and you're making investments. Great perspective. Thanks for sharing. Thank you so much, John. Hey, this is theCUBE bringing the investor perspective live here in the Bahamas. More exclusive CUBE coverage. Token economics, huge opportunity for entrepreneurs and investors to create value and capture it. That's blockchain. That's crypto. That's token economics. I'm John Rodeve-Vellante. We'll be back with more coverage after this short break.