Matt Huang - Investing At The Frontier - [Invest Like the Best, EP.420]
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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts at joincolossus.com.

Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc. My guest today is Matt Huang, co-founder of Paradigm, a leading crypto investment firm with over $12 billion in assets under management.

Before launching Paradigm in 2018 with Coinbase co-founder Fred Ursham, Matt was a partner at Sequoia Capital, where he led many of the firm's crypto investments. It is widely reported that Michael Moritz called Matt the only regrettable loss in Sequoia's history.

In our conversation, Matt shares his framework for navigating the often illegible frontier of crypto, how his early investment in ByteDance, now worth 10,000 times his initial capital, shaped his approach to identifying exceptional founders, and why he believes so deeply in crypto's long-term potential. His firm, Paradigm, not only invests in many of the leading companies in the industry, it also builds open-source tools used by most of the crypto world.

Matt has a rare blend of IQ and EQ that allows him to understand technical complexity, bring together unique talents, and ride out crypto's notorious volatility. Whether you're crypto curious or crypto skeptical, I think you'll find his perspective valuable. To learn more about Matt and Paradigm, I highly recommend reading our Colossus Review profile about them.

Our managing editor, Dom Cook, spent time in their San Francisco office learning everything he could about them. You can find that excellent profile on our website at joincolossus.com and in the show notes of this episode. Now, please enjoy my great conversation with Matt Huang. ♪

If you think about chunking your life up into early chapters, let's say up until you're like a professional, what are those chapters? What happened during them? Why would you segment it that way? Let's see. I would say there's a childhood chapter where probably like a lot of other people, the primary goal I had was getting into college.

And in hindsight, I think that's, for a lot of reasons, very depressing and not something I want to bring up in my kids. But that was like a very primal thing in my life. Both my parents were PhDs and professors. And so becoming educated was the family North Star directive. Yeah. And I was very lucky. They were, if you think about stereotypical Asian parenting culture,

They were very liberal relative to what you'd imagine as the caricature. So they were very supportive later in life when I took risks and decided not to go down that path. But anyway, that was phase one. Phase two was probably a bit of a walk in the woods in college of naturally figuring out what's next. Phase three was building a failed startup. Phase four was learning to become an investor. And I

I think I'm now in phase five, which is building paradigm and figuring out my self-expression. In the chapter one, what is the first time that you remember being consciously aware of this family directive? It's one of those only in hindsight things. It was just the water at the time.

It's funny, I reflect back on family conversations and my parents would have friends over or introduce me to folks who they worked with. And every introduction would be almost like an honorific. They would say where that person went to college. So very deeply early, it was ingrained that

this was something that defined the value of a person. And I think that's deeply mistaken, but was directionally what drove me at the start. Did you enjoy college? Yes, actually. How? So I went to MIT and in hindsight, super special place. I actually didn't appreciate it

at the time, but it's one of the highest concentrations of strange people on the planet. I think there aren't many of those centers of gravity. I think Silicon Valley is one, crypto is one, but they're relatively rare and I think there's a lot of generativity and interesting outlier type activity that emerges from those types of places. I also met my wife, which again, not appreciated at the time,

But now watching some of my friends navigate that post-college, I don't envy the environment people have to wade through. Aside from meeting your wife, what was the most memorable day at MIT?

Well, the most memorable, it actually flows into next chapters. The startups are so in vogue now, but back then, 2008-ish, startups were still relatively new. Maybe if you went to Stanford, it was sort of the default thing a lot of people were focused on. But certainly at MIT, most people were the other typical tracks, finance, consulting, HFT. And I remember I had a close friend who was

was a year above me and told me he was dropping out to join a little startup out in San Francisco called Dropbox. And he was, I think, the sixth or seventh employee there. It broke my world model at the time, which, given the upbringing and parents, this very strong sense of one must not only get into a great college, one must graduate and maybe even do a Ph.D.,

But to drop out seemed insane. And yeah, this was someone I deeply respected and thought was tremendously capable. It wasn't someone who like failed out of his classes or was going to go pursue acting or something way off the wall. It was a real moment for me because I then was obsessed with figuring out what's the chain of thought that would cause someone competent to choose that. That brought me to

discovering Paul Graham's essays and My Commonator and learning about the entire Silicon Valley ecosystem. I remember reading Paul Graham. There's these moments or these windows that can get open for you to what might be possible. Walk us through like what happens next in your mind and literally what you're doing with your time.

Well, talk about an act of extreme leverage. Paul Graham wrote some words on a website and I think shifted the world in a dramatic way, opened up the universe to teach nerds how to build companies. And in a prior world where they'd be completely beholden to the MBA CEO. So I think that's just a generally interesting... Incredible, yeah. ...theme. But yeah, for me, it was very impactful because...

The meta takeaway was very much one of agency. I was in a headspace of, I'm going to MIT, my parents want me to do a PhD. I have to think about what I want to study and which places to apply to, like what's the thing you should do during the summer to start making research contributions towards that. Not even clear that's the thing I should be optimizing for. And I think one thing that was very liberating about reading PG was the sense that

You don't have to ask for permission from other people because that's what all the PhD programs are. You can actually figure out what you want to do and just go do it. There's this popular meme now, like you can just go do things. And I think it's a platitude. I think there's deep truth to it. I found it extremely enlightening and it reshaped my worldview of what I wanted to do. I was a math major doing applied math. I had learned to make websites growing up and messed around with Photoshop.

A lot of kids did that, but I didn't really learn how to code or the principles of computer science. Immediately at that time, I basically pivoted to a lot of the CS courses actually counted for the math major. So from there, just started to learn everything about how one would build things. And then with my roommates, started working on things that eventually led to the startup. Tell us the story of the failed startup, the rite of passage. We

We applied to YC twice, and the first time we didn't get in, I just think I remember flying out to California for the interview, and we interviewed with PG. And when he called us that evening, maybe they still do this, like it's the same day, he's like, we love you guys. We couldn't hate your idea more. Can you come by again? Let's brainstorm. Let's try to figure out something for you guys to do. And we did that.

and still couldn't come up with something they were excited about. And then I think a week later, he released an essay, something to the effect of like why young people have bad ideas. You were inspiring. Right, exactly. So I do think we were falling down all the obvious traps of young people. You overrate your own problems. A lot of young people are attracted to like the problems they have in college, but college students aren't very representative of the average consumer.

So anyway, from there, six months later, we had continued to build and hack on things. And eventually the next batch, we already had a prototype with users. And it was still a terrible idea, by the way. But if you remember back to that period of time, this was when streaming content was coming online for the first time. So like Netflix and Hulu, this was 2010. And so we were building a TV guide website for that era.

I think in hindsight, it's just not a good business and very concentrated. It's a two-sided market where one side is extremely concentrated and the other side is super lazy, low willingness to pay. Just how you draw it up. Yeah, exactly. So we went to YC and raised some angel and seed money and continued to build and eventually it just wasn't working the way we wanted. So we pursued acquisition opportunities and ended up getting acquired by Twitter.

And that itself was an interesting chapter. What did you learn in that M&A? In the M&A process? This was the era when they weren't acquiring the business. They were acquiring us as a talent acquisition. We interviewed their Airbnb and Palantir.

I ended up choosing Twitter, probably the least well run of the three companies. I would say the most important takeaway for me, I don't think there's a lot of things to learn from failure or a failed startup on a substantive level. But I think there are certain lessons. I certainly learned this now much more or experience this now much more as a parent. Some things you have to learn by experiencing them. You can read all you want. You can think that you understand them. But the aha doesn't really happen until you're in it. And

And I think the ambiguity of trying to create something new from scratch and the loneliness of the founder journey and kind of all the founder empathy stuff was probably the main takeaway. And I think that's the biggest thing that has helped me from that experience. If I could somehow go back to that time, whatever the last day of that chapter was, and ask you, Matt, what is your worldview? What do you think you would have said at that point?

Well, I knew I wanted to be in technology and building things. I was definitely not sure whether tech Silicon Valley was the ideal place to do that. That actually connects to, I toyed with the idea for a little bit of going to build something in China because this was 2012 now, Silicon Valley. I felt at the time was somewhat saturated. Obviously it wasn't.

But the iPhone was released in 2007. You had a lot of mobile apps get built. I think 2012 was the year Instacart and Snapchat were started. Those are probably the last two big consumer outcomes that were mobile first. I'm probably missing something.

And that's what I was interested in. Enterprise is not really, I think it's super interesting for some people. It's not interesting for me. And so China felt like the place where you could have that level of compounded annual growth of the underlying space. And I thought, hey, I'm Chinese American. Maybe I'll have an advantage there. When I took the trip, I realized, no, I'm not actually Chinese.

It's a very different thing, but that ended up leading me to the ByteDance investment. And we can unpack that. But when I came back, the next time I felt like there was that underlying multi-decade potential to compound with Tailwinds was crypto. I

I have this visual in my head, like somehow what we were doing here is making a movie about you. The opening scene would be like you landing in China on a plane in this 2012 trip. And that would be like the opening vignette. Can we like do it in audio that way? Can you go like in crazy detail and tell us about literally in as much detail as you can muster this pivotal trip? I'll give it a shot. If you visualize back in 2012, every U.S. venture capitalist and company was trying to go to China. China was...

entering Hollywood is very much a globalization at the forefront. And I thought maybe that's where I should spend time. I took vacation from Twitter. So this was like a week long vacation. I had some mutual friends with folks who were VCs or tech people in China. And so they helped me set up a bunch of meetings and

And so I land in Beijing. And I had been there before. The summer before MIT, I went to do some language learning. But even in just that time, which was basically six years,

the whole city was transformed. Like you land and it's a massive, massive city, very gray. But I just remember feeling the energy on the ground of this is a culture that feels like it's experiencing hyper growth. Whereas Silicon Valley at the time, there's like a lot of enthusiasm about startups. But even then the culture was a little, in some ways, complacent. And so that was very inspiring. And so I went from meeting to meeting,

not expecting to make any investments, but just trying to learn. And I'm at the Dropbox of China and the X and Y of China. And I remember rolling up to the ByteDance, this apartment complex split across two apartments. I had a translator with me. We go up the elevator and very unassuming wood floors, I get pulled into like a little kitchen and

where you imagine like a really old refrigerator looks like it'd be dirty inside and a very simple Ikea-like kitchen table with some stools. And I'm sitting there with the translator and the founder of ByteDance, Yiming.

One thing that's really interesting, we have a mutual friend, Graham Duncan, who talks about interviewing and referencing and kind of observing people. And Reflection is a very unique experience where he would say something and I wouldn't really understand what he was saying. And then the translator would translate and I could understand. But while he was talking, I could just internalize all of the nonverbal. Yeah.

I don't know if we're having this very deep sense of this is an extremely competent, obsessed person that is also somehow balanced and not crazy and going to blow himself up, but also extremely aggressive and take over the world. I think that's a rare mix to find.

I also hated the idea, which was a personal news. This was pre-TikTok Douyin, so pre-video. And their primary business and what built the company was a personalized news app. And I just remember that being an idea that basically hadn't worked in the U.S. Lots of people tried it. I have like a post hoc understanding now of why it worked in China. But at the time, I hated the idea. But I came out of that meeting feeling like, holy crap, I got to figure out some way to get behind this person.

How did you do that? Did you have $20,000 and say, here's $20,000, let me invest in your company? Like what was the literal conversation and mechanic? We left the trip and I chatted with a handful of other folks who were mutual friends with the investor who set us up. And the takeaway I had from the trip was that's the one. And so then that group basically begged the existing VC to figure out some way to let us in. They were really kind to

What was the valuation that you invested in? There was a mix of shares, but 20 million and at 30 million. Okay.

What starts to congeal to get us into like the more investor brain and investing chapter of your life? Was that a feeling like, wow, this is something I want to do over and over again? What changed in you? I think at that point in my life, he might have been the most, and you must experience this a lot, the most impressive single person I'd ever spent physical time with. Would read about a lot of impressive people. And that was very inspiring and kind of addictive experience.

Now, as a venture investor, you basically get to do that all day. So going back then, you mentioned two attributes about him, which was that he was both not going to blow up. He was like in control, but like audacious and aggressive. Maybe just say a couple more clicks of detail about if not those two attributes. Try to describe that encounter a little bit more, what you saw and felt.

He had a very, very high clarity on what he was trying to build and why. I was recently rereading Elon's 2006 Tesla master plan. And if you read that document, there's just a tremendous amount of clarity on what the business strategy is. And

Yiming had that for this personalized news idea. And personalized news undersells it. I think he saw it as what it ultimately became, which is the global marketplace for attention and media. Like, could we get in front of you the most relevant thing that you're going to want to see at any given point in time instantly? Pre-algorithm, maybe you use social, pre-social.

newspaper editors to do that. But this was sort of the HFT version of the media marketplace. And he

he saw that back then. It took me longer to like fully grok it. But yeah, the clarity and the aggressive ambition. I think from day one, he was very focused on building an international business, which at that time, every Chinese company was a Chinese business, even Tencent, Alibaba. And so the audacity to even believe that you can do that

I'm assuming you held the investment for a long time. I'm curious if you've continued to hold it. What I want to know about is what it's like to hold something like that. And we can talk about this in the crypto context as well. Lots of mutual friends that were early in Bitcoin. One notable thing I see often is that they were quite wealthy to start, which made it easier to hold. Whereas those that this was the first time they were having some smash success. At some point, if you're up 100x or something, you just sell. You've made so much money.

And then that costs you a huge amount for not having held longer. So have you held it? And if so, what did you learn holding something like that where the value is like beyond any reasonable expectation you could have put on it at the start? I have held most of it.

Well, it's a weird thing where it was mostly e-liquid most of the way. So, I mean, in contrast to crypto, it's a lot easier. And I think by the time there were robust secondary markets and it was possible to sell, I don't know, I wasn't comparing it to the basis. It's sort of comparing it to its future potential. And at those points in time, it was always, this could be on track to be the biggest company in China.

As an investor, it definitely messes with your head though, in the sense that, I mean, it's probably the best investment I'll ever be a part of. Well,

What's the multiple on capital? I don't have the full adjusted for dilution math in my head, but secondary today is trading around $200 to $300 billion. The simple math is that's a 10,000x. Let's say it's a 5,000x. Pretty good. If a U.S. company had those numbers, it'd be worth $1 or $2 trillion. So it'd be worth another 10x. Yeah.

Is that weird knowing that maybe you've made your best investment ever? It is weird. Yeah. I find I'm increasingly zen about it, but let's not pretend that it was some great act of skill. I think I had some intuitions and it was a good investment, but like a lot of early stage investing, it's saying yes once. Yeah. I'm curious what they are. If I went one through five of the five most successful investments that you've ever made, how

How many of them shared in common some felt sense of like the energy signature of the person of the way you described? Go on. And maybe list what they are. Yeah, I would say all of them except for crypto ones. Of course, yeah. And I think there, you know, there's the analog of the energy signature of the community or the meme or, yeah. Yeah. Give us a sense. What do you think the four other most important investments you've made?

So I don't have a spreadsheet. For some reason, I don't track this. Can do it on Vibes. Yeah, exactly. If I had to guess, it would be ByteDance, Bitcoin, Ethereum. And these are personal or including the fund? Both. One I deserve no credit for is Uniswap, which we talk about more. And then there's some normal tech ones like

Instacart, for example, I was part of the seed round. Okay. So let's go to pure investor chapter and Sequoia specifically. So tell me how you got to Sequoia. What is the bridge story? And then I've got lots of questions about the formative experiences there. So I was sitting at Twitter one day and a random email appeared in my inbox, which was a recruiter reaching out about an opening at Sequoia.

And I had no actually ambition or intention to become an investor or venture capitalist. So I actually initially thought the email was a spam mistake. Why would they send that to me? Wouldn't they be looking at, I don't know who feeds into, yeah, exactly, an investor or maybe like a banker or something that might feed into the investment world? I didn't have real understanding at the time of the varied backgrounds that end up

in the space. But I was intrigued and ended up taking the call with Pat Grady, who I think you know. As he was telling me about Sequoia, I just started to get very interested in it. And I met more and more of the team. And I still think it's one of the highest quality teams and cultures on the planet. Again, I was interested in investing, but I wasn't sure whether I wanted to do it. But I decided to join almost purely based on the strength of the team.

Thinking back on that time, how many years were you there? Four and a half. In those four and a half years, what changed? If I talk to you the day one and the last day, what was the treatment effect of Sequoia on you? It was definitely profound. I'd say the biggest thing is probably exposure to high standards. It's probably the highest standard place ever.

I've ever experienced, inclusive of startups that I'm involved in and inclusive of Paradigm, their ability to maintain extremely high standards. I think it helps to have the legendary history of Apple and Google and

Cisco. It's an impressive wall when you walk in there. The logo wall. The posters and the S1s, the absurd statistic of 20% of the NASDAQ. So I think that helps. And when your track record includes those things, even something that would seem like a great success to anyone else would be small ball. So there were many days when there were multi-hundred million dollar outcomes.

that would be kind of viewed as a mediocre success. I remember day two of me joining was the WhatsApp acquisition getting announced. And there was this very awkward champagne celebration in the lobby. Like they called everyone out there. There are all these glasses everywhere.

Everyone raises a glass, nobody drinks, and everyone five minutes later goes back to their desk to work. So it's not a culture that celebrates often. But yeah, I think high standards is not just on the company or investment level, but on individuals, taste in individuals, standards for yourself. They aim to operate at such a high level that I think Tyler Cowen has a

blog posts on this of like one of the free lunches is raising the ambitions of the people around you. I do think cultures of high standards are this version of putting surplus out in the world. If you expose someone to that, you can permanently alter their standards for everything. Does an anecdote stand out, a personal one, of you feeling that the group or a specific person making you feel like, oh God, I need to do better than I did? I mean, that question is somewhat framed

in kind of the negative version of it, which is you're doing poorly, you need to do better. There's also another version, which is the positive flip of that, of you're awesome, we believe in you. And I would say Sequoia, Doug Leone in particular, was a big impact on me on that. I think the first investment I sourced in 2020

brought to the firm and we ended up choosing to invest was when I worked on with him. And in that process, one, just getting to observe him work with that team, but then have him validate the opinions that I was having about the investment and what we should do with the company was a very ambition-increasing, confidence-increasing experience.

But a lot of the high standards are unspoken. They're the habits and rituals that you see everyone else embodying of like $100 million investment outcome. I was expecting everyone to celebrate. Instead, everyone's like, this company is kind of a waste of time. Why did we waste six years for this middling outcome? And so that just rubs off.

What do you do differently as an investor when the objective function is the next Apple and not a billion-dollar company that we forget about? In some ways, it's daunting because the bar is so high, but in some ways, it's liberating because it's much easier to determine where it's not worth spending time. And I think as an investor, the temptation to good over great in terms of

Every level of Zoom, ways of spending your time, making an actual investment, company or founder quality is extremely great. And so unless you have very, very high standards, you can spin wheels for a long time chasing things that won't end up mattering. There's so many incredible investors there when you were there, and obviously a lot of them are still there today. They're very different from each other, which is going to be a big topic of our conversation, like this idea of a collection of mutants or something that I think you've done exceptionally well at Paradigm.

What do you think are the keys to creating a group of people that are extremely different from each other, very heterogeneous, but making sure that they're working really well together?

There's a lot of different personalities at Sequoia, but there's also a very impressive level of consistency along some key dimensions. Another takeaway back to your prior question from my time at Sequoia, which was, I think it was the first time that I realized very intuitively that there were many paths to greatness, whatever you want to call it.

because at Sequoia there are many, many great people who, if you just looked at their track records or what they've accomplished, it's insanely impressive. And yet,

They're very, very different styles. That was very liberating for me, the realization that I can find my own way and do it the way I want to do it. And that's actually like a flavor of thing I think is really fascinating to follow. Like you see it in athletes or performers of all kinds. You can sometimes read in their interviews the moment that they realized that

that they didn't have to follow some existing mentor or some book of orthodoxy, but that they could figure it out themselves. And that ultimately being the catalyst for the greatness. I want to go back to two key parts of the timeline. The first is your original encounter with Bitcoin and crypto. And then the second related is your decision to leave Sequoia and start Paradigm. Maybe start with the first one. Similar question around like the TikTok thing, like how and when did you first encounter it?

And what did you see? And I want to just introduce the word legibility right now, which is going to be like, I think, a big topic of our discussion in general. Bring us back to that. What was legible? What was illegible about Bitcoin when you first saw it? How did you first see it? Just like tell us about it. So I first encountered Bitcoin right when it launched in 2010. White paper launch.

I was in college at the time, and I internalized it as just like a really beautiful idea. It sort of hits the intersection of computer science and math, economics, game theory, the kind of history of money. And it caused me to go down a bunch of rabbit holes learning about some of the tributary ideas. Because if you look at the citations in the Bitcoin white paper, people have been thinking about this for a long time. It references a lot of old work.

So it was fascinating, and I didn't have capital at the time, and it didn't seem like an investment. It seemed like a toy.

My next encounter with it was in 2013. And I think that's the first Bitcoin bubble that I participated in. And I think there's a deep point here about the cohort adoption of Bitcoin. You almost need to lose money or be stupid the first time. Then I find this was certainly true for me. You give up on it, maybe write it off, it's dead. And then when you see it come back,

Then you start to wonder, because there are lots of bubbles and tulips and all this stuff, but the tulips did not have multiple successive bubbles over time. Beanie babies did not have kind of a second and third and fourth cycle. It's a key point. And so there's like a time-shifted cohort adoption curve, if you think about the adoption of Bitcoin based on encountering it. So 2013 was that first cycle for me. I think I was not a professional investor initially.

I was day trading on my Coinbase account, bought it at two or 300, it rode up to a thousand and it crashed back to 600 and then slowly ground down from there. Actually, right around that time is when I joined Sequoia. So this was right before that. And I remember thinking that, I mean, it was a topic I was fascinated with. And when I was interviewing at Sequoia, they asked me to put together, part of the interview process was put together a one pager on a company you think we should invest in.

And I picked Coinbase. And I think it was seven employees at the time. This was pre the A16Z investment. So just Union Square and Ribbit. And I had a strong belief that it would be an interesting space. And this was probably the best company in that space. But after joining and after the crash, I kind of tuned it out. Bitcoin was just an asset and there were some companies serving it. But it wasn't clear that it was

this really generative software platform. And so it wasn't until a couple of years later that I re-engaged once seeing the activity happening on top of Ethereum. So what was the moment, assuming it was when you were at Sequoia, that you first thought, I need to make a bigger bet on this ecosystem and ultimately led to you starting Paradigm with Fred? I had tuned out crypto before.

I still owned some Bitcoin and I still followed a couple Twitter accounts that would post the Bitcoin price every now and then. And I think for a couple of years, they like stopped posting the price or maybe I missed those messages. But as it started to pick back up, I started to see those again. Oh, there's actually signs of life in this ecosystem. And then I also noticed the activity happening on top of Ethereum. It wasn't just another digital asset like Bitcoin or,

But there were actually these projects like Augur, which was an early prediction market. I thought, OK, it's not just an asset. It's now an entrepreneurial platform. And so I started to spend time there. And Sequoia was very supportive of that. And we, on behalf of Sequoia, made a bunch of, I think, interesting crypto-related investments at the time.

And honestly, I think what makes Sequoia great is the kind of multi-generational team that for any given tech idea, there are 12 opinions and there's this intellectual sparring to find truth. And that was just lacking in crypto. And so I ended up going outside the firm to find thought partners that could test my thinking and I could learn from them.

And Fred was one of those people that left Coinbase at the beginning of 2017, started Angel Investing. We ended up looking at a lot of projects together. And just in that process, found both someone. The first, I'm sure you experienced this. I sat across from him.

and started talking to him. And as soon as he started to articulate his thinking, I had a deep sense of this feels like someone I would want to work with in some way. I don't know. I definitely wasn't thinking, let's start something, but maybe I'd try to invest in whatever next project he was going to do. And it was from there that the seed of Paradigm was born. Cool.

One of the often repeated things, if you ask people about you, is they'll say, oh yeah, Matt's the one partner that left Sequoia that they really didn't want to lose. Ground that for me. What was it like to tell them that you're leaving? Did they try to keep you? How did it work?

First of all, I don't know about whether that's true. I do know that it was very hard for me to leave. I remember a very intuitive sense that when I got to Sequoia, I experienced the culture, all the great personalities, the extreme high standards, the excellence that everyone strove for. I thought, wow, I could be here forever. This doesn't feel like a job. This feels like a place I could retire from. And then ultimately, I became obsessed with crypto.

I mean, that's the simple answer. And I really developed a strong sense that this would be one of the most important technical economic trends over the next couple decades, and that it was very important for humanity to develop this technology from a financial freedom and privacy and individual sovereignty point of view. And it was just the first thing that I really felt was a calling to try to make this happen.

So from there, it was intellectually easy that this was the right call, but on relationships and personally, it was hard. So finally, we get to talk a lot about Paradigm and crypto and everything that's happening in the world today. Paradigm today is a $10 billion plus asset manager focused on crypto. Maybe talk through what is it? How do you conceptualize what you want it to be and what it is like a high level overview?

I mean, our founding insight that both Fred and I had around Paradigm, we had a shared belief that crypto would be one of the most important technical and economic trends. We believed that to invest in crypto required being what we call crypto native. And we sought to build that. We didn't actually have a top-down plan. What that meant to us was making sure that we had the right group of folks who could navigate that uncertain future by

Back to the legible, illegible point. I think crypto, even today, but definitely back then, is a frontier that's extremely illegible. It's hard to understand what is valuable, what will be valuable, to separate noise from signal. It's a deeply technical space.

And we knew that hiring investors from central casting was not going to be it. We were lucky with some of our first hires that skewed us in a much more technical direction. And I think today, I would say two primary things that drive us at Paradigm. The first is we think of our mission as advancing the frontier of crypto. We care about investment returns, too.

But we're not primarily optimizing for that. I think if we advance the frontier of crypto, make crypto work, grow the pie, get a little bit lucky, I think we'll also generate great investment returns. But it's really that first thing of this is an important set of technologies that really needs to exist. We think a lot of value will also be created. The second thing is that we try to build a team that embodies being builders, not just investors.

Part of this is just aesthetic orientation of, I think both Fred and I liked building things and a lot of the early team do as well. And we were just oriented towards trying to figure out on the technical or product side where the frontier should be going. But part of it's also, we think it's one of the best ways to also invest in the space. Perhaps the analogy is somewhat like biotech where you're

It's so technical that you really need subject matter domain experts to understand what's happening. That's not enough on its own because you have to mix that with the commercial sense too. But a lot has emerged from thinking of ourselves not just as an investment firm, but as a place that builds products and does research. Yeah. The original chapter of Paradigm is so interesting because I think you raised

hundreds of millions of dollars and effectively just put it all in Bitcoin. Can you tell that story? Because it worked out quite well. When you put it like that, it sounds reckless. I mean, part of the founding idea was to create a vehicle. We didn't even think of ourselves as venture capitalists. We wanted to create a vehicle that was very flexible and could participate in the value that we saw being created in crypto and to contribute to that. And it

It wasn't always clear what form that would take. In the early days of Bitcoin, for example, there's always this question of should you invest in the Bitcoin startup or should you just buy Bitcoin directly? And I think a lot of people got caught in that. The right answer was just do both. But I think it was very important to us to be able to participate across the stack of early stage investments, currencies themselves, tokenized protocols. And we viewed the

the early fund as a barbell strategy between what we viewed as extremely high conviction crypto monetary assets and early stage startups on the other end. How much did you raise? What was the initial couple months of action? The first fund was an evergreen fund that could hold publics, privates, and everything in between. We raised $400 million. And that itself was an interesting process.

Crypto was somewhat hot the prior year. And so it was on everyone's radar. This is 2018? This is 2018. Yeah. Early 2018. It was still deeply controversial and almost everywhere we talked to had plenty of crypto skeptics at the table.

But we raised $400 million, launched late 2018. And our plan was to start averaging into our highest conviction positions, which were at the time Bitcoin and Ethereum. Yeah. And that was like, to orient people, like $3,000-ish Bitcoin, roughly? Yeah. Basically between $6,000 and $3,000 and Ethereum was $100. And then in the year after launch...

Launch, we raised another about $300,000, $400,000. So about $700,000 to $800,000 raised total. Then we also have a venture fund that we raised in 2021. That was $2.5 billion. And we're in the midst of investing that now. And we raised commitments for our second venture.

venture fund about $850 million earlier this year, or I guess 2024. But not investing out of that yet. Not investing. How about some stats on the team? There were 65 people, mostly SF.

some in New York, some in DC. The policy team is in DC. And what we call the investing and research team, which is the core group of folks making investment decisions and trying to figure out the future of crypto, that's about 10 or 11. Does that feel like the right size? That's a size I hear a lot.

that when you breach that amount, it ceases to be a team and becomes more of like a structure? You mean the 10 or 11? Yeah, the 10 or 11. Can you imagine it being 20? Well, we were 20 people on that team in 2021. Yeah, in hindsight, I think it was too large. There are many different ways to build a successful investment team. And I think one of the most fascinating things is learning about how

Lots of other people do it. I think there are teams that are very large, but I think it definitely changes the dynamic of how a group of people gets to a decision. I think at 10 or less, it is possible still to have a full contact mutual discussion and search for truth. The larger the room gets, the more people are self-conscious and afraid of saying something stupid or challenging someone more senior than them or whatever.

So it works for us. It's an eclectic group of people. So not every person. In fact, I don't think there's a single person on the team who would be central casting for someone to be hired at another investment firm. For better or for worse, everyone on the team has a unique entry into thinking about the future of crypto. We have engineers, researchers, security experts.

What is happening that's builder and research activity that is very clearly like not investing activity? What would I see if I came in and sat and looked over people's shoulder? Very rarely would you see an Excel model. Much more commonly, a couple people might be at the whiteboard hashing out some math. You have Georgios with his three screens, 200 tabs typing code.

A lot of the work that we do is really in the weeds of the protocols and mechanisms that we think will be important for crypto. And one of the reasons we spend time there is we think that there are tremendous leverage points. On the open source side, the work that Georgios is doing, that code can be used across all of crypto.

On the mechanism side, the work that Dan Robinson, Dave White, many others on the team, those mechanisms are at the heart of protocols, for example, Uniswap, that serve thousands of people, millions, hundreds of millions, billions, trillions, actually, of trading volume.

All from a single mathematical formula. There's tremendous leverage in crypto in getting the mechanism right. And we think that will not just apply to what we've already seen, but there'll be a frontier of new ones to invent. And so a lot of the team is focused on that, where those mechanisms ultimately manifest eventually in products. One emerging story here that I'm realizing is you as a remarkable personality type on top of Vol.

both team, asset class, returns. You're in a unique structure that's kind of like a long-term structure, but the daily marks on crypto have been completely insane. Can you talk about that experience? So like you mentioned the numbers earlier, if you just look two points in time, money raised, money today, wow, amazing, 12X or 13X or something ridiculous. I'm curious what the painful sides of that have been

both on the team and on the performance. So it's a super volatile asset class. You've got like a high variance team. It seems like you're this incredibly sturdy calm on top of both those things. But I'd love to understand like the hard, painful parts of that for you across the history so far, both team and assets. I think the, honestly, the assets I find a lot easier because it's just a number. And I think volatility

Vol is just a lot less concerning when you have clarity about the long term. If you look at the underlying vol of our belief in, say, Bitcoin or crypto broadly,

There are definitely ups and downs, but it's much less amplitude than the price. I think that's comparatively easy. The organizational effects and the people effects are much harder. You get this actually throughout all of crypto when the easiest time to hire people in all roles at companies and at Paradigm is when crypto is hot and it's

And it's in the news. And if you think about the selection function there, it's also the people who may not be in it for the right reasons or may not truly believe in crypto on a 10-year horizon, but it's the hot thing today. And so that's created a lot of thrash in times of vol. And so more and more, we were always a bit oriented this way, but much more today, we're very focused on zeroing in on people who truly get it and understand

are in it for the long term. What was the largest peak to trough drawdown that you've experienced? I don't know. Do you know when it was, if not percentages? When it was, was definitely in the aftermath of 22, 23. Say a bit about it. What was going on? What did you have to do? Did you feel caught off guard? Was this kind of like, ah, you know, another one of these, I've lived through five

On the public assets side, our mindset is point to point. So we're less focused on the interim ball. So a lot of our focus was on this is clearly going to impact the entire private portfolio in runway for those companies' ability to fundraise, employee morale.

revenue, etc. So a lot of our focus is triaging to make sure that the rest of these companies in crypto would survive. And then we had a healthy amount of reflection about the 21 era because broadly throughout crypto and also tech, it was kind of a very abnormal time. And so the waking up basically in 22, 23,

A lot of the decisions we made in 21 were ill fit for what we thought the next five, 10 years would look like. If I were to somehow isolate the best criticism of paradigm, what do you think it would be? What critic saying something about paradigm would you be like, oh, fuck, that would actually land?

I think the trade-off of having a deeply technical, very building and research-oriented team is that we inherently have strong opinions about technical futures. And if you think about maybe the idealized version of an investor would be much more agnostic. That's a conscious trade-off that we always have to navigate. But I think a fair critique of paradigm would be sometimes they're too wedded to their technical views.

What's gone the most wrong in the history of Paradigm? Most visibly wrong is probably us investing in FTX.

I actually don't know the right takeaway on SPF. Were there yellow flags? He was a unique and different shaped person, but a lot of the best founders are. And the other thing is like we did identify the core issue that ultimately ended up being the problem, which is sort of the related party nature of the market maker and the exchange. We actually drilled into that in our diligence and were ultimately lied to. So it's

I think venture is very hard when founder is willing to do that because so much of the ecosystem depends on trust and it's hard to go diligence the lie. And we had no reason to think he was lying. Was that the point of peak personal stress for you in Paradigm's history?

You seem like kind of unflappable, but... Yeah, probably in the like immediate days after where we still didn't fully know what was happening. Maybe we can go into great detail on this concept of legibility and the relationship between legibility and what you mean by it and investment opportunity. I know there's a topic like you felt a lot about. Can you just let us in on your thinking on this? Why is this topic interesting? What do you mean by legibility? How does it relate to investment opportunity? I think there's probably...

Probably an inverse correlation between how legible a space is, how understandable it is to others, and prospective returns. Because almost definitionally, the more well understood it is, the more priced in, so to speak, everything should be.

Silicon Valley is an interesting case study because I think it's always kind of the frontier, but in some ways, the ecosystem of Silicon Valley has become very legible. Two, what used to be bespoke is a bit more factory farming today. And I think maybe the frontier of AI currently remains very illegible and a super interesting space for builders and investors. Software as a service is no longer illegible.

Maybe the phenomenon of Tiger and Kotu and everyone else pricing SAS multiples to perfection is just the expected outcome. And I think the legibility has very strong gravity. Or put another way, I think to make things legible inevitably reduces the accuracy. So there's this idea, the idea of the map versus the territory. We come up with legible explanations of things.

to better understand them, to better communicate and transmit ideas to other people. But they're always approximations of the fully textured version of the reality.

I think there's often a temptation. I see this, especially in crypto to like make it legible too quickly. I think there's a lot of value in tolerating the eligibility. So for example, a lot of people are wondering like, what's the crypto use case. First of all, I think we can get to that, but money and finance are the obvious ones, but a lot of people are wondering, okay, what's after that. And I think there is this temptation of this term web three, for example,

which I think is useful in the sense that it is an analogy that helps tech people understand what might be happening with crypto. But it also introduces a lot of incorrect comparisons too. And so if you're trying to build in crypto and you take the legible meme too seriously, then you might actually build something very wrong because you're misunderstanding the underlying complexity of what's possible.

It reminds me of that amazing, what's the author's name? James Scott or something that's seeing like a state book. 100%. My memory of that book is the top down desire to make something understandable perverts the thing.

So you plant trees perfectly in a line. One generation of trees are great, but like all the complexity that was happening in like an organic forest is lost. And like the second generation of tree doesn't grow by oversimplifying something that's not meant to be, or even just like the way cities are laid out. Should they grow organically bottom up or should they be designed top down? It's really hard to design a great system. Top down is like one way to remember that book. Does that book sit in your consciousness on the topic?

Totally. And maybe the modern version of that is seeing like a meme. The ecosystem selects for memes that are very simple because simple memes can gather a lot of power and energy and spread. And you see this basically on the current topic on Twitter every day is people fighting over higher dimensional versions of memes and

and the memes causing people to misunderstand what everyone is saying. But without the meme, you don't actually get the discussion. There, it's not clear exactly what to do, but the same thing happens in the investing world. Peter Thiel has this hate of buzzwords. As soon as there's a buzzword for an ecosystem, run away. Moritz has this great look for the interesting, complected bird. Don't look for the flock bird.

I think they're all getting at this idea of the outliers are going to be unique. And if you're investing by meme, you're kind of losing all the underlying texture and complexity.

Is some of this an appreciation of what I'll call product optionality, where the world tends to interpret what might be possible with a product through the lens of existing markets and not appreciate the ways in which a new product or platform technology just creates things that we can't imagine and that a lot of the return comes from that unimaginable part? Is that the reason why illegible things might produce better returns?

I think some of the most foundational platforms where generative outlier outcomes can happen like that are the most illegible at the beginning. I think the Internet was an example of this. Everyone today, I think, takes for granted how obvious the Internet is. But if you think about even just the idea of Google, the pitch for Google was this helps you search information.

the internet. But like, what is the internet for? Well, Google is like this use case of the internet. There's a circular reference there. And it just turned out that over time, more and more stuff ended up on the internet and became really useful.

Let's apply this topic to today. Ground us in your worldview of crypto right now. How would you describe it to someone that doesn't follow it? So I think of crypto as this very low-level change in how humans coordinate. What does low-level mean? Low-level in the sense of a very basic building block. I see. A change at the bottom of the foundation of the building. And throughout history, we always coordinate through institutions that are

companies, governments, monetary systems. And crypto enables us to do it in a decentralized way. I think it turns out that the most valuable application of that is money. And I think crypto is progressing in three rough stages. First, as money. Second, as

as a financial system and third as a kind of internet platform. And I think it's coming into focus most on the first two. Useful as money, useful as a financial system. I think the internet platform is probably the most illegible platform

at the moment. But I think on the money side, Bitcoin is the most valuable startup created in the last 15 years. Except most people don't think of it as a startup because it's competing in a highly unconventional market, the market for money. It doesn't have a conventional corporate structure or a team or a CEO. But I think if you step back and think about that, I think it's kind of remarkable that that even happened in a completely new industrial organization. Like Satoshi dropped Bitcoin

a nine-page white paper, wrote some initial code, and then the whole ecosystem grew up around it. It's not just the most valuable startup. I think if you told us at the Startup Paradigm 2018 that nation-states would be talking and actually adopting Bitcoin... In treasury. We would have thought you were crazy. We thought it was possible someday, maybe 10, 15 years. So honestly, I've been very surprised by...

growing legitimacy of Bitcoin as a monetary asset. And it's not just at the government level, it's at the institutional level. I think in 2017, Larry Fink called Bitcoin an index of money laundering, and now he's on CNBC's

once a month talking about how it's the future and it's digital gold. Jerome Powell at a conference the other month, I think was asked whether they would ever adopt Bitcoin or whether it's a threat to the dollar. And he said, no, it's not a threat to the dollar. It's just digital gold. Even the acknowledgement of digital gold, I think five years ago, again, was deeply contrarian.

And if you think about the adoption of any new monetary asset, it is this process of building acceptance and legitimacy. Like that is the actual KPI. Price is an output of that. But the primary input is how many people actually believe that this might be possible.

Let's just linger for a few more minutes on Bitcoin as money. Why is that important or interesting? What's its market cap today? Like north of just under two trillion. So let's say it's one of the biggest companies in the world in some way, but money separately. It feels like if you stacked it up to like Amazon and Google and Microsoft and the other multi-trillion dollar assets, it's like the most maligned ever. It doesn't feel like aside from maybe Satoshi himself or herself or whatever themselves.

It has these sterling champions along the way. Like there's some shady champions or shady characters along the way. What is it? Why is it valuable or interesting that we have it from your perspective? Basic question, but like seems important to get your answer on. I think the idea of a money that is non-sovereign is valuable.

I'm not someone who believes that crypto or Bitcoin should replace all fiat currency. I think they actually coexist quite nicely. And the rise of stable coins is a great example of that. But I think it's very useful to have an alternative. And we used to have that in the form of gold. And people adopt gold for that purpose.

as a hedge against hyperinflation, fiscally irresponsible spending, etc. But Bitcoin is not just that. It's also something that can help individuals and families preserve wealth in some of the least safe places on earth. You see...

whether it's people escaping Ukraine or Venezuela or other nations in distress, crypto has started to play a much bigger role there. So I think just from a humanitarian level, it's a tool that I think is very valuable. And gold solves some of the issue, but it's physical, heavy, inconvenient. Lots of reasons why a digital version is superior.

Do you think that it's valuable as money or just as a store of value? Where money implies a means of exchange, a unit of account, and a store of value? I think today it's primarily a store of value or maybe more accurately a bet on a future store of value. I think over time it may find some transactional use, but I don't think that's necessary for it to be really useful and interesting.

Do you think that the Powell and Fink and their ilk understanding of it as digital gold is like extreme legibility and therefore the available return in Bitcoin itself relative to some other options is quite low? It's sort of one in some sense. It has one in a way that's exceeded what I would have predicted a handful of years ago. But I think we're still early in the degree to which that really is understood.

despite some of the commentary around it. And one rough way to think about the adoption of Bitcoin is how many people around the world weighted by dollar amount believe Bitcoin is something they should own. And then there's the other axis, which is like what percent of their portfolio is in Bitcoin. And I think we're getting to a point where a lot of institutions are starting to think, OK, maybe we should get off zero. Maybe it's one to two to five percent. You

even have fidelity, like recommending baskets that have that waiting. I don't think we're going to get to or should get to people being broadly 100% Bitcoin, but I think it'll be much higher than where we are today. So let's go to the second basket, the programmable financial system, I think is kind of the term used. So if Bitcoin now is still young, but more mature, like people probably most people have like somewhat legible conception of it as digital gold or whatever.

What about stage two of a new financial system? Where are we in that story? What's possible today? What gets you excited? Just your commentary on that, and then we'll go to the most illegible part of the frontier. I mean, one remarkable thing about stable coins, which are...

for the most part, dollar-denominated tokens that are pegged to the U.S. dollar, but they live on blockchains. And I think over the past few years, stablecoins have grown to over $200 billion on-chain, and they're starting to be used in sort of real use cases outside of crypto. They were originally conceived, actually, to be a way to facilitate crypto trading. It's how you on-ramp to certain exchanges abroad and got dollars in, dollars out.

But now companies like SpaceX are using stable coins to move money around. And a lot of others will have this corporate treasury use case where they'll generate revenue in some country, let's say in Africa or Latin America, and want to repatriate those dollars back to the U.S.,

And so they'll use some local exchange to trade the local currency for stable coins, and then they can just send those stable coins over the wire. And that's ultimately a cheaper FX transaction than doing it the other way. Yeah. Stable coins are so interesting because it's like a perfect control experiment.

It's a dollar. It's not meant to replace or be better than or outperform a dollar. It's just a dollar. So really what it is in some pure sense is like the technology part, the programmability, etc. So what are the key core features of the technology now that we've abstracted away like a price consideration? What are they? What's about them is so important. What does the industry structure look like of stable coins? So it's a payment rail that's 24-7 global and programmable.

I think those are pretty key. I think it's amazing that we live in a world where the internet is 24-7, but payments closes over the weekend. So in some sense, this is just modernizing finance and payments in a way that we're already used to with the internet. And a lot of the fintech innovation has actually been product and go-to-market innovation on top of antiquated backends. And you can think of cryptocurrencies.

crypto as building a new finance back end from the ground up. I think one way to view the programmable financial system or one frame on it is as a two-sided market between

assets, and programs. So every financial activity we undertake through a traditional institution or through an app is some kind of program. There's logic that governs who pays who, and maybe there's an escrow, or maybe there's a payment condition. Think insurance or mortgages or payroll. All of these things are payment with money.

programming on top of it in an abstract sense. And all of that is possible to build on these new crypto rails. But there's a bootstrapping problem because most people don't trust the rails or use the rails. There aren't a lot of assets there. So there's this bootstrap between assets and programs.

And I think what's interesting about stablecoins, we've been bootstrapping the crypto native money for a while. Bitcoin, Ethereum, Solana. With stablecoins, we now have a very widely used monetary asset, to your point, without any of the volatility or crypto hair.

And I think for the first time, we're starting to see people build all these different ways you can program and use them. And I think 10, 20, 30 years from now, it seems inevitable to me that basically all of our financial transactions will run through rails like this in some way. What's a good example of a creative way that you've seen stablecoins be used that wouldn't have been possible in traditional finance?

I think a recent and topical example is the prediction market platforms, which are these contracts that say you deposit X dollars. And if X person wins the election and you bet on that person, you get paid. If the other person wins the election, you don't get paid. That logic is represented in a smart contract. There's a crypto-based way of resolving that event. And so that's an example where...

That wasn't possible before us. They're like self-settles. Yeah. Based on the outcome. Yeah. If we shift into the third gear, what feels to you like the most fringy part of crypto today? Now, everyone's heard of Bitcoin. Lots of people have heard of it, especially listening to this, have heard of stable coins or use them. What do you think most people listening either won't have heard of or won't use, but you are interested in?

Well, I think a really interesting frontier, which is still super fuzzy, is the intersection of AI and crypto. In a lot of ways, like if AI is intelligence, crypto is a way of coordinating intelligences. And that's really what money is. It's a database of value. And we shifted around. That's the coordination mechanism of capitalism, say.

And it seems to me that I have a hard time visualizing if AI agents really take off and become possible for them to primarily be transacting through traditional systems. Crypto is basically tailor-made for computer sentience to use. And I think right now a lot of people are focused on the idea of just agents paying each other or paying for things on the Internet.

But I think an interesting step further is you could think of crypto as ways to construct markets for participants to engage in. If you wanted to run some kind of auction or allocate a scarce resource through purely programmatic means, crypto is sort of made for that. And so I would envision a world in which AI agents are basically constructing more elaborate ways of coordinating with each other beyond just payments.

When you see something like what's going on with AI and you've built a firm where the mission is push the crypto frontier forward, how do you weigh the temptation of, wow, here's a new enabling technology, a general purpose technology? Maybe we've had 25 of these in human history. Here's a new one. What if this one's bigger than the one I'm working on? And not wanting to go jump feet first into the biggest enabling general purpose technology. Is that like a consideration that you've had?

Well, one, we have a team that is very curiosity first. Part of our process is everyone on the team can spend time looking at and investigating whatever they want. And so we have plenty of people who are super fascinated by AI. We actually spent some time going down that rabbit hole exploring it and ultimately decided that, okay, one, we're definitely interested in the intersection. I think right now might be some of the most interesting times in that

space. But also, I think there are extreme returns to specialization. And there's also a sense in which AI is, everyone's working on it, and it's going to be fine with or without us. I think crypto is a very important technology that needs to coexist with AI, that to your point, there aren't a lot of great champions. And we believe it's very important for us to work on it to make sure that it actually happens.

Can you give us your perspective on comparing crypto to other technology infrastructure build-outs that you've studied historically and the kind of boom-bust nature? I'm thinking here of like Carlota Perez. The fact that there's speculative manias could actually be a great thing because it lays capacity for the next generation of entrepreneurs to build on, whether that's fiber in the 90s or something. And it seems like for a while, crypto had so much influence

incoming interest and builders. And a lot of that was driven by the very public pricing of the underlying assets. And a critic might say, look, this thing's just a casino.

It's unregulated gambling on ideas. If you compare today's pipes and infrastructure and crypto, I'm like a couple years stale on this, I'm realizing. And I remember being super interested in all this, the detailed technical stuff in the last cycle. And then this cycle, I kind of lost touch of it. And I'm curious, has the speculation brought success?

sequentially higher and more valuable infrastructure. Is the boom-boss been a good thing in the traditional sense of boom-boss cycles, or is it something different in crypto because it's just so speculative at times? Yeah.

Yes, I think the speculation has been productive. Okay, you could debate the ratio of speculation to the utility that's been created and compare that across trends. And crypto, I think, is definitely more speculative than typical. But that's in part because assets that one can speculate on are part of the core thing that's being enabled.

And the core form factor. But yeah, within crypto, I think of speculation in two ways. One is that it's actually very core to the adoption of any new monetary asset, because to believe that other people will eventually accept some asset as money is inherently a speculative act.

And OK, you can have fundamental reasons for believing that because the supply is fixed or it has certain technical features. But ultimately, your belief hinges on belief in others. I think that makes people uncomfortable sometimes. And I think I see a lot of people very confident that Bitcoin, for example, cannot possibly be money or gold. And

And I think it comes from this place of just the inherent distaste for speculation versus trying to inspect it more carefully. Then, yes, there's the Carlota Perez idea of speculation as a bootstrap. And I think we have seen that play out productively in crypto.

So for example, a lot of the stablecoin activity that's possible now, 200 billion in stablecoin assets, lots of stablecoins being used outside of crypto, whether it's cross-border payments or access to USD in countries that struggle with their local currency, corporate payments, etc. That's all enabled by the infrastructure work that was done over the last two

two, three years. If you look at Ethereum L2s like Base or Solana, we have stablecoin transactions that are extremely cheap and fast now. Whereas in 2017 or 2021, those same transactions would have been $10 or $100 to send a mainnet transaction. So I think we're in a completely different place on the infrastructure side now, mostly invisible to the broader public.

but manifesting in real applications like stablecoin payments being possible. The answer to this is sometimes easier when you get away from the U.S. and these things have become very useful, whether it's El Salvador putting its treasury in Bitcoin or cross-border payments or store of value in places with hyperinflation. I really want to press you on your view of the mission of

for Paradigm and its support of the crypto ecosystem and what I'll call like the unfinished business. You personally, and probably lots of people on your team are now at the point like you don't need to do this. Sure, maybe you'll earn great returns. It's pretty clear to me that that's not your motivation. It's a byproduct of the work you're doing. And you talked a little bit about the mission of pushing this crypto frontier forward.

But I'd love to get more into asking why, why that matters to you, how that answer has evolved over time, what the why is today relative to what it was in 2018. I'm sure lots of things in 2018 you might have said maybe have happened. You even said some of the things that have happened you would never have predicted, governments using it in treasury, et cetera. So orienting today, beginning of 2025, why? Why are you doing this? What's the point?

I don't want to come off as I don't care about the investment returns and being a good steward on behalf of LPs and stuff. But I do think the mission that animates us is making sure that crypto technology can succeed in the world. And I think if we look at the internet, the idea that we have end-to-end encrypted messaging today, WhatsApp signal, I think is a contingent fact, as in there are many possible universes where we don't have that. It's not

It's not something that was inevitable. And it's something we possibly could lose or have been close to losing many times. And I think right now, putting the political dimension aside, there's a lot of discussion about the idea of free speech and censorship.

So I think these are some of the questions of our time, and that's just on the side of information and transmitting information. But I think if we look at, there is no free speech without economic freedom, because you can use economic violence country to country, country to citizen, to punish speech. And I think we saw this, say, in the case of the Canadian truckers, if you remember that incident.

And so I think economic freedom is one of these underrated frontiers where we are slowly walking our way into possible totalitarianism in how much financial control our governments have over the people. And I think everyone in the U.S. looks at China and says, that looks like a very... Dystopian. Dystopian system. Social credit score, full visibility into finances, one system. And...

I don't think they fully realize the same thing is happening in the West. So I think it's one of the more urgent problems facing freedom in the West alongside the speech issues. A common characterization, only criminals need encrypted messaging or only criminals need privacy of their financial transactions. I think it's increasingly clear that this is something that affects everyone. And it's not singularly political in the sense that...

It's not a right or a left issue. For example, I think in the aftermath of the first Trump presidency, a lot of people in the MAGA world lost bank accounts. Now, with the Republicans in power, a lot of people on the left are worried about people being able to access abortions and get proper health care without financial surveillance of their payments. These are issues that touch on all sides and this ultimate question of individual freedom and sovereignty.

I like your framing of us looking at China and thinking one thing and not looking at our... Can you detail that a little bit more? Like, in what ways do you observe financial economic freedoms being under attack or duress in the West, most notably? I think the most obvious recent example is the set of debankings that have happened in

Operation Chokepoint 2.0, which Nick Carter and the crypto community has done a really good job cataloging. There was also Operation Chokepoint 1.0, which happened prior, primarily with marijuana, gambling, and other... Can you describe what those things were? They're ultimately the government saying, these activities are technically legal, but we don't like them. And so they apply...

various kinds of bureaucratic pressure onto the banking system to refuse those people as customers. And I think the law should be the law. So if some activity is illegal, then let's make it illegal. But when activity is legal, I think it's sort of incumbent on the system to enable that legal activity to happen should it want to happen.

And I think of crypto as much like we would look at the Chinese control of media as something distasteful to us in the West. And the free Internet is something that seems more moral. And the Internet is a very useful check on that type of totalitarian control, because through VPNs or other technical techniques, people in China have access to the real Internet and can find out information should they want to.

That alternate system doesn't exist yet for finances. And I think crypto is building that. And so at a minimum, I think it's a check on the degree of overreach of the traditional system. But I think it's also a very important alternative system.

I think in the long run, we also get more efficient systems, more innovation, lots of positive effects. It's not just a political defensive point, but that political dimension is a very important part of what's being built. I love the answer. Connecting it back to you and the team, what is the story behind why you personally care so much about this? It's a great answer if I read that answer without an attribution, but yeah, it makes sense.

I never feel like the people really pushing the frontier as you guys have and are trying to do. It's not enough that like there's a good rational answer. What is the story behind why you believe everything you just said so deeply? Well, I'm not fully sure. I suppose I've always had somewhat of a skepticism towards authority. And so when I see authority exerting itself, it does make me wonder, is this the way we want the world to work?

Where did that come from? I'm going to chase this to the end. What early authority figures gave you that? What experiences of authority do you remember as potentially questionable? I don't fully know, but my hypothesis would be possibly my mom or parents. That makes it sound like I have some bad relationship with them or something, but

I think I intuited early on that in really small stakes, like not in a way that matters, but the trade-off between agency and authority.

Now I see it on the other side as a parent. But yeah, in really small stakes, just the notion of navigating individual agency. And I'm sure every child, every parent ends up in some situation where the child feels like it's unfair. And maybe it probably is unfair from some objective point, but it's the parent's call. I think that can make one skeptical of any system that

allows one party to coerce another. I think I developed very early aesthetic and intuitive skepticism of authority and the ability to coerce. And I have a very strong one should be able to choose one's own path mindset.

If I can bring your whole team here, the investment research team here, do you think that any of them would have a drastically different answer on their motivation for why they're devoting their lives to pushing this specific frontier forward? I think everyone will have different motivations, but I do think there's a shared underlying vector in this direction. I think a lot of us are working on it also just out of raw curiosity. It's just interesting. And I think you have to be really in it

to fully experience this because from afar, definitely the speculative noise is much louder. But it is just breaking down ways that humans coordinate into its most atomic constituent parts.

and figuring out how to enable better and better versions of that and different unique combinations. I think it's just a fascinating frontier. What are those most essential, what are the primary colors of those interactions, the way that people coordinate? I think a lot of crypto is this new kind of security technology where it can secure different types of human coordination,

And one interesting thing to look at is when people think about security, they think about preventing something bad. But security is also a huge enabler of things that are good. Countries with strong property rights do a lot better than countries with weak property rights. And if you look at the micro scale and just think about something like physical retail,

We have these big box stores today like Walmart that probably wouldn't have been possible without many different kinds of security innovation. For example, the idea of a cash register.

that tracks all of the payments and locks the drawer so that you can trust the cashier not to steal your money. And in a mom-and-pop store, that's actually a problem. And for a long time, the only people who could operate the cash register were people in the family that ran the store because those are the people you could trust. Or think about security cameras that watch parts of the store, allows it to be much bigger than what the cashier could look at themselves.

Or tags and security balusters that automatically detect when you've taken something out of the store without paying for it. These are all security technology that's preventing something bad. And you could say, well, you could just make shoplifting illegal. And you can do that, but the cost of enforcement is just too high.

So one thing that security technologies do is reduce the cost of enforcement of these things that you don't want to happen, thus enabling more GDP, more economic activity. I think of a lot of crypto as by removing the intermediary, by creating security around contract rules that you put on chain, lower the cost of enforcing these transactions that you want to be able to facilitate.

If you think about your Walmart analogy of all these security technologies that come together to enable Walmart, which is like this amazing thing for the world, what missing pieces, where are we not yet secure that you wish we were that maybe crypto could solve in like the more near term?

One thing that comes to mind is there's clearly the emerging markets use case. And I think a lot has been said about that access to a great currency, whether it's USD or some other cryptocurrency, rather than your local hyperinflating. But I think it's underrated how...

stablecoins could be useful to U.S. consumers. If you go on the Chase website and you look at the interest rate paid to Chase savings accounts, I think it's zero point something percent. Yeah, it's crazy. And this is with treasury rates at four or five percent. So I think the incentive for retail banks to pass along that yield somehow is broken.

It's a very easy proposition to say, this is a stablecoin. When we get stablecoin regulation, there'll be much stronger controls on the asset base that can back them. It'll be very safe. It's not a fractional system. And you'll get basically the full yield.

And that's, I think, a strong value proposition for everyone in America who has savings rather than letting someone else earn all the spread. So I think that's one where I'm excited about solving existing inefficiency. I'm probably most excited about exploring what might be newly possible. One abstract framework is this idea that permissionless platforms enable organic bottoms-up innovation.

and kind of an explore function that doesn't currently exist. And I think YouTube is a very useful analogy where it used to be that cable companies controlled content programming and you had 50, 100 channels and some sort of editor would figure out what people want. And with YouTube, we basically explored every possible permutation of human entertainment and discovered all these new verticals, whether it's underutilized,

unboxing or watching other people eat on and on. And we're probably not done. We're probably still going to find new ones in the future, especially as the culture changes. And that same thing has not happened in the financial space.

There's such high fixed cost to financial exploration. Either you got to start a company to list a new futures contract. You have some startup costs around it. When crypto rails are more mature, I think we will see this breadth first search of all kinds of different financial use cases that weren't possible before. I want to talk about regulation and I guess politics as it relates to regulation. How would you describe the state today of how crypto is regulated?

What do you hope changes? What might change? I don't have a good enough sense other than it's drastically different how the public talks about this, how governments talk about it. It's the financial firms, Larry Fink's of the world talk about it. We haven't gotten Jamie Dimon yet, but maybe we will. What is the state of regulation, especially here in the US from your perspective and maybe a touch on global as well? And what is its trajectory, do you think?

I would say the last five years of working in crypto in the U.S. has been fairly radicalizing on the competence of our bureaucratic institutions. And I think many different people come to this insight, I think, from different paths. I think COVID and the CDC was one example for people. But seeing the behavior up close is very illuminating because it's

The Aaron Sorkin West Wing vision of government is super competent, smart, funny people with the best of intentions. And that has not been our experience thus far. And I think some of this is going to become public in hearings around the debanking and other things that have happened. I am very excited about the shift in sentiment on these political dimensions. I think...

we're likely to enter an era where regulators view this as the enabling and innovative technology that it is rather than anyone who touches it is probably a criminal. If you think about the idea of custody, it's such an interesting issue for me because early in crypto and my exploration of it, there was always that phrase, not your keys, not your coins. Like if you're not self-custodying the Bitcoin, let's say to keep it simple, it's sort of defeating the purpose of the thing itself.

So if you're keeping your money at Coinbase or something, you're not really participating in this radical new system. But it just seems like the tendency of humans is towards more centralized custody. And I want to be able to call and yell at JP Morgan when something goes wrong. Like, I don't want to have to be the one that deals with it. And what if I screw up? I want a throat to choke. Can you talk about custody and like how you think about the spectrum of what's important and what it should be?

Everything you just articulated is fair and right. There's a lot of value in people providing services around crypto custody. And most people don't want to have to be responsible for their own key material. But I think the important thing is to have the option. The option to exit is important.

is a really important check on the system. And this is true in the information world too, where most people are going to use Gmail and Outlook for their email. But if you want to, you can go use ProtonMail or run your own mail server. And that option is important at the edges or in really unusual scenarios. And I think that insurance policy is just a very important thing to have in the system.

So this has been incredibly fun. Thank you for doing it with me. I know this is not a thing you look forward to doing, but I feel...

I've always known what's going on with Paradigm just from afar. And I feel like I understand it so much more now and you, and it makes me much more excited to like the next five years of things I see you guys do. I feel like I'll have like a appreciation for how that might've happened, which is so cool. My thing is just finding people doing their life's work. And I just feel that this is it for you, or at least has a high potential to be. And so thank you for doing it with me. My traditional closing question for everyone is what is the kindest thing that anyone's ever done for you?

Two things come to mind. One is that, and maybe this is trite, but my mom was a PhD in computer science at Caltech under Carver Mead very early to what would become the parallel computing revolution. And eventually a professor at Yale and BU. And she dropped all of that to raise me and my brothers.

For a long time, well, I wasn't even aware that there was another option. And then for a long time, I was confused by that because she was at the beginning of something so interesting. But now, especially as a parent, I understand it much more. And I do think it was...

this ultimate act of kindness that me and my brothers tremendously benefited from. And then the second, I think, is one of the kindest things anyone can do for anyone else is believe in them and to raise their future ambitions. And Doug Leone did that for me. Many other people did as well, but especially Doug. He had no need to do that, and I'll always be grateful to him for it. ♪

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