Transcript
slava (00:02.572)
Hello and welcome back to another episode of Smart Humans. Super excited for today's guests. Rarely do we get somebody as knowledgeable and experienced in a vertical that we all don't know about, which is crypto, web three and blockchain. So welcome to the show, Jake Bruckman. We have the founder and CEO of Coin Fund. Welcome.
jake_brukhman (00:20.514)
Hi Slava, thank you so much for having me on. It's my pleasure to be here.
slava (00:24.82)
Absolutely. So we always start with the same question for the first question, which is how did you even get into alternative investing? Where did it all start?
jake_brukhman (00:34.914)
That's a great question. I had a career for about 10 years, mostly in financial and pure technology, mostly in financial technology. So I started out my career in kind of quant trading and hedge funds. And I was, from the time that I started working and started making a little bit of extra savings, I've always been very interested in investing. Both my parents worked.
in financial technology, like throughout the 90s, where they started and throughout their careers. And, you know, as someone who was like a young person, you know, newly independent from his parents was like, okay, like, I would like to find some investing opportunities for my savings. And what are some great investing opportunities and a lot of, you know, stock markets seemed like pretty boring. I was looking at things like
peer-to-peer lending back in 2005, 2006, to try to create some more interesting returns. And eventually, I found crypto.
slava (01:45.1)
So would you say that crypto was your entry into alternative investments?
jake_brukhman (01:51.274)
Um, I would say it's been like my, definitely my major play in alternative investments. Yes. It wasn't my, so I did look at, I did look at stuff like peer to peer lending back earlier than that and, um, options trading and things like that.
slava (01:58.593)
Got it.
slava (02:06.488)
Was that like a lending club or whatever or Zopa back in the day or?
jake_brukhman (02:10.41)
That's right. It was things like Lending Club, which started out as a very like kind of peer to peer system and quickly, you know, a lot of banks got involved. But it had an interesting potential for returns at the time and kind of like was promised to perform stock market investing at the time.
slava (02:35.256)
So I imagine a good portion of your personal net worth has to do with your fund and has to do with crypto. So we'll dive into that in a second. But how about any exposure to the other asset classes like traditional art or collectibles like sports cards or real estate? Any exposure to any of that today for you?
jake_brukhman (02:53.61)
Um, you know, I know I hold very little stock market exposure or, or anything traditional. I really am an investor who, uh, whose core expertise is in the blockchain technology and digital asset space. And sort of most of my bets, um, have been in that space so far. But the other way I think of myself is more generally is, is like, as an innovation investor.
So as I would like branch out my investments, I'd probably start to look at fields like artificial intelligence, space, longevity, things like that. But that's something I'm in the process of doing.
slava (03:37.888)
I've never heard that phrase put together. I like it. I think I might steal it even. What exactly does it mean to be an innovation investor?
jake_brukhman (03:45.238)
Well, just the way that I think of blockchain as being like a really disruptive, cutting edge next generation technology. There was a, I think I tweeted this yesterday, there was like a really awesome TikTok where someone said, you know, like humans have been around for 300,000 years. And if you kind of like, if you kind of like map that onto like a whole year, starting in January, ending in December, you know, essentially most of our technology has been
created in the last five days, right? Like December 25th on. And what that exercise shows is that technology kind of started out really slowly and it took hundreds of thousands of years to make basic advances like clothing and cities and governance. And then as we get to where we are today, technology is moving at this incredible exponential rate. And so,
I really love the idea that these new technologies are starting to come at us faster and faster, almost like playing an asteroid's game or something. And it's kind of up to us to make investments that are going to be worthwhile, they're going to work, but also not going to be disrupted by the next asteroid that comes your way. And so innovation investing is kind of like making sense of all the new things coming at you these days.
slava (05:11.084)
So is Coinfun gonna need to get a new name?
jake_brukhman (05:14.634)
Well, I think a lot of people ask me, like, how do you think of coin fund over the next 10 years, 15 years, 20 years? And my answer is like, yeah, of course we're starting as, you know, world experts in blockchain technology, but just like there were, you know, internet funds in the early 2000s, over time, those funds have become generally tech funds because...
Internet technology is just technology now, right? And so if we're right about blockchain being as impactful and widely applicable as everyone seems to think that it is, then I think crypto funds over time just become sort of tech funds. So I answer that question when prospective candidates for employment at CoinFund ask me like, how do you think about CoinFund next 20 years? I say, well, we have an opportunity to be...
just a great tech investor in general.
slava (06:12.652)
Awesome. So before we dive into specifically what's going on in crypto markets, what do you think of the macro markets? And I'm gonna use that as a very general, open-ended question. Where do you think we sit today with the economy, the entire market? How would you put Jake's perspective on that?
jake_brukhman (06:38.006)
Well, I would say kind of the most salient way that we are in touch with, you know, that process is, you know, we talk to our institutional LPs at CoinFund almost every day. And the average view of our institutional investor is that we're heading into a really turbulent volatile environment. Rates are going up. There's a recession that's possible. Capital is drying up.
It's really like a kind of a sour outlook on the traditional macro world. And the other thing that they're observing is that there is now sort of measurable, quantifiable correlation between macro factors and at least some of the hype cap crypto, right? So Bitcoin and Ether has been moving kind of commensurate with Fed announcements and things like that.
And I think the conclusion that folks are at a high level coming to is that there's a, you know, because the global general outlook is so bleak, that's going to translate into crypto. And I think like to some extent, that could be true. And of course, today, June 13th, we're in quite a down market today in some of the high cap assets like Ether and Bitcoin. But there's also, you know,
I do see that there's been some resiliency in private equity evaluations and early crypto rounds, although we've seen some early indicators of, you know, kind of valuations maybe coming down a bit. We nevertheless, I think like crypto kind of moves a little bit more to its own drum in certain areas within it. And so you don't have to be in all the high cap assets necessarily. You
I think it's still possible to build a really interesting portfolio that over the medium term is going to be quite uncorrelated with macro. If you want to talk macro, you should chat with our head of liquid investment, Seth Ginn, the coin fund. He's absolutely the expert on this topic in our firm. But my general view is macro world looks bearish and we as a team are a little bit more bullish on crypto in that context.
slava (09:00.524)
Got it, well, we would love to have Seth in a future episode, but while we have you, do you think this is where we're in the bottom of the market and it's going to come back up tomorrow? Is this a V? Is this a U? Is this an L where we don't know how long this kind of bottoming is going to take? Do you have any perspective of do we need to take a nice step down further from here? So it might take till the end of the year. Any perspectives on any of that?
jake_brukhman (09:31.154)
General perspectives are this is a cyclical kind of market. We've been through many, many cycles. In fact, CoinFund was founded in the bare winter depths of 2015. It was a time, you know, in 2015, 2016 with Bitcoin was range bound between $200 and $400 for two years and there was like nothing going on in crypto.
Then we saw the 2017 ICO boom and went right back into a two year 2018, 2019, again, severe bear market in the space and as there wasn't very much revenue being generated anywhere and people continued to build infrastructure. That led us into a bull market of 2020, 2021. And now we've slid off here. So
You know, one way to look at it, if you are a believer that these historical cycles will tell us something about the future, is that you typically see, you know, look at the Bitcoin chart weekly over its lifetime or ether, right? You typically see this huge exuberant run up, then a 50, 60, 70% retracement, then a period of down market kind of building. And then the next leg is usually, you know, kind of an order of magnitude higher in price.
And we could think of that cyclical nature of crypto continuing in the future, which would suggest that we probably have a little bit more downside here. I do think that we've crossed the 1,400 level in Ether, and that was a five-year all-time high. So we've broken past that strong resistance point. So we could have to go lower. And there's going to be a period of time here where...
We're going to need to regroup, build more infrastructure, and kind of keep going. But the good news is that there's more people in the space than ever. There's more capital and firms operating in the space than ever. There's more founders than ever. There's more Web 2 people coming into Web 3 than ever. There's more infrastructure than ever that are allowing us to actually take some of these technologies to market. Like DeFi apps that...
jake_brukhman (11:52.49)
people can actually use on their phone and use in the store to pay for stuff. These are really exciting developments for bringing crypto to the mainstream. And I think when we start to do that, we will kind of get right back to, you know, the sort of growth we're seeing in crypto. I mean, like the fundamental theses of protocols and decentralization have not changed because of this price action.
slava (12:20.128)
Got it, got it. So 2015, you mentioned is when you started the funds. What was it in 2014 when you're thinking about this? Why did CoinFund need to exist?
jake_brukhman (12:34.206)
Very good question. So I came into the space through Bitcoin. I was shown Bitcoin by a friend of mine in 2011. I was following Bitcoin, you know, kind of throughout that time. And it didn't like start investing in the space and really paying attention. You know, I would say like every day until the end of 2013 when I bought some Bitcoin on Coinbase on that upslope to 1200 for Bitcoin. And then when I started to when I really like understood
what was happening here, what the nature of this technology was. And as technical of a person as I am, by the way, it took me a lot of time to really understand how Bitcoin and blockchains worked. But when it did, when there was this click, I really started asking the question, while many people were very sort of obsessed with this digital currency use case, I started asking the question, what else can we apply?
this technology to what is blockchain good for what is decentralization good for what are distributed ledgers which were not called that at the time what are they good for you know and if you look at the if you look at it you can't really find this online but the original coin fund white paper from 2015 you know for the most part frames everything in terms of like cryptocurrencies right because really the smart contract platforms were not
out in the market yet, it was not really a thing. But always trying to look for like, what are the other networks other than Bitcoin? What are they trying to do? Is Namecoin trying to do namespacing and domain registration? You know, is BitShares trying to do like asset issuance and really trying to understand like what the broader applications of this tech are.
jake_brukhman (14:29.894)
to look at and help the space develop those other applications of blockchain. I mean, it's now seven years later, it's gonna be our seven year anniversary on July 1st, which is less than a month from now. And I think that thesis has worked out dramatically well. I would say most of the applications of blockchain technology are not currency use cases today. There's something else.
slava (14:56.908)
That's great. Seven years. Congratulations. Just to clarify for the listeners. So you're investing mostly or all correct me here into private investments in blockchain and crypto, right? So, or are you also investing once they're public? And I know this is somewhat gray line in the crypto markets, but can you clarify that?
jake_brukhman (15:18.722)
Well, we are a multi-strategy firm. And so in our set of products, we'll have seed funds that are mostly doing early stage venture deals, working actively with teams in the space, helping them solve sort of what we say is the full stack of problems that they face, as an early stage team in the blockchain space. We just launched a classical venture fund, which invests in series A and B, also in crypto and led by David Pakman, who joined...
our team full-time from BenRock last year as our head of venture. And that will look at, you know, deals in that stage, but it also might be like digital network deals that were like treasury deals or something that are buying digital assets. And then our liquid funds, you know, we'll look mostly at high cap, what you might call kind of public crypto assets, meaning the high cap assets like Bitcoin and Ether and others that are trading on.
public markets. So we kind of as a firm cover the gamut of the different stages and opportunities in this space.
slava (16:27.092)
That's great. And in 2015 when you launched, which of those did you start off with? Was it the seed fund?
jake_brukhman (16:32.818)
Yeah, so we had like our very, very first funds, you know, it even sort of made the case and its mandate and said like, listen, we want to be like, just a digital asset fund. We think this is going to be the future. We think that, you know, this way of investing will become more predominant. What we learned very quickly was that the way that decentralized networks come to market
eventually develops a best set of best practices and that best that set of best practices is a mixture of things. It's a small private team that creates the project and they usually have an equity based private company that you can fund. It also involves building a network whose native monetization is generally using digital assets. And so, you know, when we fast forward seven years from that time to today, you know, like
a typical early stage deal in crypto looks like an investor buying a little bit of equity in that early company building the network and also getting a token warrant for future digital assets that are developed by that company and maintained by that network. And so, whereas we started quite rigid, what we realized is that over time we had to become more...
multifarious in the way that we approach getting the correct exposure in every deal.
slava (18:04.392)
As you mentioned, in the public markets, we're seeing the public crypto markets, we're seeing quite a bit of volatility recently. As of this recording, we have Bitcoin in the mid-low 20s and Ethereum and what is it like 12, 1300 plus minus. Is it this sort of volatility that you're seeing in the private markets as well, similar or different?
jake_brukhman (18:33.642)
I would say private markets look very different from public markets. Public markets are almost like volatility as a service, right? You see assets moving 10, 15 even percent in a day up and down. You have these sort of just fast moves in either direction. In private equity markets, I think...
It takes a little bit longer for some of the processes to reach those markets. You know, in recent memory, I think the typical early stage seed round in crypto is still on average something like 30 million. So I've seen like 20 to 40 million kind of range. As I said, we do see some indicators now of maybe like some repricings in private rounds that have been going on.
or maybe even like down round. So there's some like early indicators that now in private equity markets, things could go down. But at the same time, it's like, again, regardless of the price action, I think it's a great time to build in crypto for the next cycle. And these are really the times when founders sort of are able to step away from the markets and go kind of produce like the best products.
for the next time around.
slava (20:02.764)
So in the public equity markets, the high multiple stocks, we've seen quite a bit of compression, 50%, if not even more. In the private traditional venture markets, we've seen definitely some repricing. Some of our other guests have said somewhere 30% to 50% in general. In the public crypto markets, we're obviously seeing a lot of repricing in terms of retracement, as you said, to numbers significantly lower
jake_brukhman (20:20.704)
Mm.
slava (20:32.798)
highs, what are you seeing as the last bastion for me, which is the private crypto markets, which seem to have navigated somewhat unscathed till more recently, what are you seeing these days on? Are the prices coming in? Are they staying the same that they were a year ago? Is it cut by 10% 90% zero? Are they more expensive?
jake_brukhman (20:53.782)
Well, yeah, as I said.
jake_brukhman (20:59.218)
As I said, I think the private equity crypto markets have been kind of slower to adapt to the broader situation. But I do think we see early indicators that they might come in. I don't actually see them coming in right now, based on the deals that we are in the middle of and are kind of seeing in the market. But if this price action continues, I could see how people would get a lot more conservative on the investment side.
slava (21:28.948)
Is there any other advice you would give to the listener as to how to approach a public crypto investment versus a private crypto investment?
jake_brukhman (21:38.686)
I think with crypto as with any kind of nascent volatile developing space, your long term orientation and long term conviction space is probably your greatest ally. I'm not saying that you should just hodl everything and not do risk management. I'm not saying that at all. Long term hold. Yeah, long term hold, of course.
slava (21:59.82)
HODL meaning Hold On for Dear Life, since not everybody here knows all crypto terms.
jake_brukhman (22:08.59)
I think generally people who are long-term aligned in the space, who wait out this market, will enjoy the next cycle. Some of the best deals of the next cycle are present right now in this market at very low prices. And so the really disciplined market participant would have probably done a few things before.
today before being in this market right now. And one of those things is probably like gotten rid of debt that they might've had. Like a lot of people take out loans with crypto collateral on platforms like MakerDAO or other lending protocols, right? And when you have a big debt and everybody in the market is talking about a potential downturn, just that talk creates some risks for you.
And so if you're responsible, probably like three months ago, maybe even earlier than that, you would have started to lever down some of your debt positions and you would have started to, maybe even before that, like we had a great November, we had some other like up market times between then and now, you would have taken out a little bit of cash and put it on the side.
jake_brukhman (23:32.974)
prices are collapsing dramatically as they are today, you would have some cash to be able to deploy some, you know, into some cheap investments. So if you're disciplined, if you know how to manage risk, I think there's actually, you know, a lot of people say blood bath, but I say like opportunity bath.
slava (23:54.464)
You're a quote machine between innovation investor, volatility as a service. I love it. Opportunity bath. We all want an opportunity bath, that's for sure. What would you say is the things you have learned closing in on your seven year anniversary that you would wanna teach your previous founding CEO self?
jake_brukhman (24:05.283)
Hahaha.
slava (24:23.045)
What would you try to tell Jake seven years ago that you know now?
jake_brukhman (24:29.362)
Um, I think like a lot of investors coming into the crypto space as new participants or really like any space that is new, they generally have a choice, they have a tool set of like how to understand what's happening. And so for example, some investors use analogies, right? They, um, they say, well, you know, I've been through the.com era and I've seen how early spaces develop and I'm going to apply to some of the learnings.
from that to the new thing. And then the other tool set, one of the other tool sets is acting from first principles, meaning looking at an asset, a fully decentralized digital currency, and realizing it doesn't quite, it looks like a stock, has a stock chart, it moves around like a stock, but it's not a stock. It's fundamentally, structurally a very, very different thing.
And then being able to kind of like take first principles and understand how to evaluate this new thing or how it might be priced or what dynamics it might have or like, you know, a stock can go to zero. It could be delisted from an exchange, but a decentralized cryptocurrency might never go to zero because even if it's delisted from all the exchanges, it's still kind of like accessible in a decentralized open peer to peer way. Does that mean that people will?
even though it's still listed. We've seen some examples of that. And so I think like the problem with analogies is that analogies go so far and then they break. And if you don't realize that your analogy has broken, you're gonna come and reach like sort of the wrong conclusion. And then the problem with thinking from first principles is that it's incredibly hard. You know, a lot of people kind of train their hand on equities or whatever.
space of expertise they have. And then it's sort of hard to go back to a really foundational principle. The other thing is knowing your own biases. I think one of the core skill sets that I've developed in crypto over the years is just understanding biases and when you might fall under them. So for example, a lot of people will say, you don't really need whatever it is.
jake_brukhman (26:55.954)
NFTs are, you don't really need a computer to order a pizza because you have a phone and you don't really need a car to go somewhere because you have a horse, right? But that's a bias. It's a bias which doesn't see like that those types of things don't stop people from wanting to innovate to wanting to create new technologies. And a lot of times technologies aren't there because they're efficient, but just because they're generational.
And that's very, very much the case with, you know, things like DeFi and crypto broadly. And another like really important bias is, and folks in crypto talk about this a lot, you know, people like look at like the state of web three today and they say, this is really slow. Like, why would this ever replace web two? It's like fundamentally broken because it's slow. And the problem with that reasoning is like, it's slow today.
but you're not thinking about what it's actually going to develop into in the future. It's almost kind of like giving up on the internet at the point of the, you know, telephone modem because the internet is too slow. But as you can see today, I mean, we're on a video chat, which in the 90s was something that you only saw on Star Trek.
slava (28:13.936)
It reminds me of when people were able to finally watch NCAA tournament games online and get to pick whichever game they wanted to watch instead of having to wait to see it on TV when there was only one channel. And people would say, why would I do that? I could just wait till they show me the highlights on TV. And now, fast forward, you could watch any game at any time, fully recorded digitally. So it's just fascinating. It did take a long time, though, a solid 15, 20 years. So it is interesting how long it takes.
jake_brukhman (28:36.021)
Mm-hmm.
jake_brukhman (28:40.926)
And by the way, I actually have a thread on Twitter I posted the other day about maybe about like eight, eight biases or so that people tend to fall under, um, or fall into and happy to share that.
slava (28:53.672)
Yeah, please do. What is your bias? What are your biases?
jake_brukhman (29:00.898)
Well, my biases are kind of like pro crypto and anti-TradTech a little bit. So for example, I tend to prefer digital or decentralized network investments over traditional SaaS. But there are some investors who are exceptionally great in investing in SaaS companies and they just have that deep level of expertise and they know exactly how to evaluate them.
And exactly what these companies need to do to succeed and become huge, multi-billion dollar firms. I don't have that. I think it's, I think my, my expertise is much more like on the technological depths of blockchain technology and how it works. And so, um, you know, and many times those types of investments are less binary because we're dealing with publicly traded digital assets. So kind of my bias is toward the newer, you know, sort of more innovative technology while acknowledging that.
things like SAS are still very useful in our field.
slava (30:03.293)
What are the trends or the directions of the future that you're looking to invest into? Are there particular thesis that you have? Are you trying to lock in on those types of investments, i.e. predictions for the next three years?
jake_brukhman (30:17.362)
Yeah, I mean, absolutely. We're a trend and thesis driven firm. And so what we will do is we will develop kind of early views on where verticals might go, which verticals are gonna sort of inflect earlier, who is likely to go create like mainstream adoption sooner than other areas. And I'll tell you where, wow.
We have a lot of folks at CoinFund looking at many different things, but I'll tell you what I personally am seeing sort of early thesis kind of develop. So I spent a lot of time in layer one, layer two, you know, scalability and interoperability technologies. And in particular, interoperability has been super interesting lately, because we kind of went from this earlier
everyone build bridges between blockchains and we're trying to send tokens back and forth to this kind of more modern and more general way of interoperability which creates omni-chain assets. So these are more like what Layer Zero is doing, what Abacus Network is doing, where people can actually issue tokens on all the blockchains at once, or issues NFTs on all the blockchains, or read a state between one blockchain and another in the course of...
executing a smart contract or even call a method under a smart contract in a different blockchain. So this type of newer interoperability is super fascinating because I think what it does is it starts to obfuscate, you know, the back end from the mainstream user. Like, why should people care what blockchain they're on when they're buying NFTs? Like when you're driving your Tesla, are you thinking about the data center that is being used to train your AI model that's
driving your autopilot in your Tesla? Absolutely not. You just focus on driving and not crashing into something. And in the same way, early blockchain communities are very tribal about which blockchains they're like NFTs live on. But when we go to mainstream market, I think it's more about the NFTs, not about the backends that they live on. And so OmniChain technology and interoperability technology in general, I think will do a lot to refocus users on
jake_brukhman (32:41.654)
the business side of what they're doing and not the infrastructure side. And that will actually create much better conditions for mainstream adoption. So that's like one area where I spend a ton of time. Another area where we're super early is NFTs of course. Early investors in Dapper in 2018, preceders of Rarible in 2020, co-leads of Upshot.io, just creating NFT reference pricing technology through machine learning. Many other companies in that area.
And the view is like, well, what's next in NFTs? Well, just like we wrote about in 2020, what's next in NFTs is that NFTs are extending to like many, many other new vertical types. So it's not just art, not just in-game assets, not just collectibles anymore. It's now starting to look like music, starting to look like movies, starting to look like tokenizing things we've never tokenized before, like blog posts, check out what mirror.xyz is doing, you know, in that area.
Um, and, and so one part of the thesis is just like NFT proliferation across many different areas. And then the other part of the thesis is NFT financialization. Once everything is tokenized as NFTs, once the deed to your house or the title of your car, you know, is tokenized as an NFT. Well, of course you want to do finance on it. You want to, um, you want to have a service that prices your asset. You want to have a service that, um, allows you to deposit.
your NFT for that asset as collateral and allows you to withdraw a loan. So borrowing and lending, you know, maybe derivatives on uncertain things, maybe short selling, maybe indices of different NFTs in different areas that allow you to invest easily and get kind of broad spectrum exposure to different areas. So NFT financialization is super interesting because it's like the next leg of DeFi applied to non-fungible assets.
And frankly, those assets are much more numerous in the world than fungible assets. And the very, very last thing I'll say in NFTs and then I'll be quiet. I'm very excited about all of this. But is, you know, we saw NFTs really inflect with centralized marketplaces, things like OpenSea, you know, Rarible, and what is very clearly happening now. And again, something we wrote about in 2020.
jake_brukhman (35:08.446)
is that now NFT exchange is starting to go into the protocol layer. So even NFT has released something like a C port set of smart contracts where you can start to transact like permissionlessly in these NFT, you know, in NFT exchange, you have rareable protocol, you have Zora, you have Resora protocol, you have holograph, you have many, many folks going after that use case. And so what I envision is that just like in
Dexes came along and they kind of consolidated a lot of, you know, kind of the permissionless token trading volume. You know, this decentralized exchanges, just like that happened, I think these new protocols for NFT exchange are going to start to take a lot more of the volume of NFT trading over time and, you know, take it away from centralized marketplaces.
slava (35:48.248)
Sorry, DEXs being decentralized exchanger.
slava (36:04.78)
Got it, so instead of trading on OpenSea, we'll be trading on one of these DEXs of NFTs.
jake_brukhman (36:10.366)
Yeah. And what's absolutely clear is kind of this monolithic model that OpenSea has where every kind of NFT is, um, is referenceable there. You know, it's not very sustainable. Like, like if NFTs are going to be applied to, you know, art, but also like biomed investments, they can't possibly have the same user experience. That doesn't make sense. Or, or if you're doing like real estate with NFTs.
that's not the same user experience as searching through collectibles. And so what is very obvious is that there needs to be a segmentation of user experiences for the different kinds of NFTs that are coming up. And that's precisely why NFTs are protocolizing. It's because that's the natural architecture to start to create thousands and thousands of different specialized marketplaces. So that's really the trend with like white labels and
dedicated marketplaces over time.
slava (37:10.684)
And are those your two main thesis slash trends, which is one layer one to layer two interoperability and two NFTs, verticalization, user experience improvement and financialization?
jake_brukhman (37:22.774)
We spend a large amounts of time there. I would say one other like much earlier one, but an exciting one is the intersection of AI and crypto. So we're starting to see like a lot of advancements in neural network models like Dolly, like Mid Journey, like Google's Imogen, like GPT-3, right? And I think there's some interesting advantages that AI teams can get by formulating some of those companies as crypto networks or crypto companies.
We've actually made our first crypto AI investment in a company called Jensen.ai, which is a decentralized network for fitting AI models. And I, I expect that we're going to be doing a lot more work in that intersection in the coming years.
slava (38:07.224)
Why does AI need to sit on top of crypto?
jake_brukhman (38:10.87)
I don't think it does. But again, I think there are some interesting advantages that a founder could get from crypto that would allow them to compete. Let me just say, this is like totally hypothetical, but you know, GPT-3 is like a $15 million computation, you know, that's how much it costs to train the neural network for GPT-3. And then something like Dolly, which is very impressive. It's like you give it some text and it shows you a picture or a painting of whatever you said.
That's actually a much cheaper model of fit something like I was told it's been something like $300,000 and so what we're seeing is that One of the reasons that these AI is are getting so good now is because we've achieved scale we can create like really big Neural networks that cost a lot of money to train and so there must be some at least a little bit of a competitive advantage like if I can crowdfund enough money to fit like a
50 million dollar model or a hundred million dollar model. Right. And that's something that's, I think, very doable in crypto, um, in terms of the capital formation piece, because back in the traditional world, those types of things are only going to be done by like big tech companies like Google and Amazon and Facebook, right. And Apple. Um, but here's an interesting way where crypto can start to compete with big tech, um, by using some of its core advantages.
slava (39:38.716)
Awesome. I love the word crowdfund to come up every now and then given my Indiegogo background. Going back to your layer one, layer two, not everybody knows what layer two means. So layer one is like Ethereum or Solana, kind of one of the building blocks of how crypto is being built for the blockchain. What is a layer two exactly?
jake_brukhman (39:43.538)
Of course.
jake_brukhman (40:00.278)
A layer two is kind of an extension network on these foundational blockchains that essentially create a lot more efficiency for users in the form of higher throughput, cheaper transactions. At times in certain networks, you can get more privacy doing it that way and so on. So the idea is bringing products and means to market.
over the last five years has proven very difficult on layer ones because they're expensive. They price out a lot of customers because fees can be $50 a transaction or $100 a transaction at times. And layer two technologies aim to solve that problem.
slava (40:46.228)
And can you give an example of like how they would do that? So let's say for example, doing a transaction on Ethereum to be able to send some token or to buy some NFT cost $50, how will, you know, XYZ layer two change that?
jake_brukhman (41:01.846)
I mean, the principle behind it is like, when you transact on a layer one, you're going kind of like directly, you know, to the consensus to the really like big security machinery of the blockchain, you're paying a lot for that. And you're getting like a very strong guarantee that like, when your transaction is sort of finalized, it's going to be in the blockchain for a long time. And what layer two essentially does in principle is it says, we're going to give you a credible
going on chain or not actually going to go on chain until we need to, until there's something untoward or we need to prove that this transaction needs super high security or something went wrong and someone tried to abuse the system. And by kind of pushing off the settlement of those transactions into the future, what it allows us to do is just to have a much higher throughput, a much cheaper throughput because we don't have to get to that machinery just yet.
I hope that makes sense. But essentially, yeah, essentially they're networks that have their own set of validators and they'll publish some state to, you know, kind of like their settlement blockchain, but they won't put that information on chain until they really need to.
slava (42:02.396)
Yeah.
slava (42:17.492)
I know you don't like the analogies too much because they break, but it reminds me a little bit of when we were trying to expand the internet to speed up and go further. And it used to always be that the application would have to hit the internet all the way back to the origin of the information. And then out came organizations like Akamai and others that started to figure out how to cache some of that information more locally so that you didn't have to spend as much time and processing power to go back to the origin, as you say, Ethereum, back to the mothership. So it's similar but different.
see how we're kind of learning from the past.
jake_brukhman (42:50.486)
Well, the other thing to say is, these days, layer two, it's one proposed architecture for higher throughput in blockchains. But we're also seeing new L1 technologies come out that are also very fast. So different blockchains might solve scalability, even on a layer one level. Layer two is not an end-all, be-all. It's a proposal for scaling.
slava (43:21.024)
Is there a particular L1 you would want to highlight today, a particular layer one, L1, that people should look out for?
jake_brukhman (43:28.386)
Have you ever heard of Ethereum?
slava (43:33.037)
Is that where you want to end it?
jake_brukhman (43:33.046)
I mean, I would say, you know, I would say this about layer ones. I would say like, there's a bunch of layer ones out there. There's a bunch of incumbents. You know, we're definitely a firm that has invested across different layer one ecosystems, like we were early investors in Polkadot in 2017. We invested in flow actually helped us specify the flow blockchain invested in near we have.
of position, Solana and so on. So we really believe in a multi-base layer world. But I would also say it's like, like today, right now, it's hard to compete as a base layer. If you're a team starting a base layer, you have this problem ahead of you where you have to build an entire developer community, you know, an entire user community, an entire, um, minor or validator community. Right. And it is not easy to do that anymore.
There was a time when it was easy, it is much harder now. And so we see newer proposals for L1s as sort of more risky these days.
slava (44:38.584)
So going to your second thesis, the NFTs, so you mentioned it'll be expanding into other verticals and people talk about this romantic use case of, oh, NFTs are gonna be the way we attend sporting events and concerts, that's a pretty straightforward one. When is that gonna happen in reality? Not like when is the first most innovative person gonna do it, when is our friend that doesn't know a ton about blockchain gonna need to use their NFT to go to the U2 concert
you know, a Doja Cat concert or you name the concert.
jake_brukhman (45:13.43)
You know, it's so interesting. So I would say like kind of the turning point for me that I observed when NFTs started to go early mainstream was just about like February or March of 2021. And that's around the time when like NFTs were on Saturday Night Live in the US, right? And it was like a pretty good indicator that, hey, like we have some early kind of mainstream acceptance here. And...
I think at that moment, a lot of corporate R&D kicked off. And corporate R&D is on the cycle of years, right? It's for a corporation to get interested in technology and then to turn around a product. We're talking probably like a year and a half to two years. Of course, this bear market isn't helping right now, probably. But I expect that we're gonna see a lot more kind of corporate plays that are integrating NFTs. This year and...
and by the end of the year and going forward. But look, we already have a bunch of data points on this. We have Nike and Adidas participating. We have Instagram and Twitter integrating NFTs. And in fact, I think Instagram is integrating the Flow blockchain as well. Twitter has done the profile pick where you can like choose some NFTs from Ethereum and get them verified. Right, so this process is in flight, but we're still like,
pre-mainstream adoption, even of NFTs, even though we've gotten early acceptance of NFTs, most of the participants in NFTs are still enthusiasts. I wonder what the bottleneck is. I think it's probably still wallets and costs of blockchains onboarding, but it's getting better and better. You could really feel that a lot of new consumer tech products are coming to market.
like check out like, I don't know, Super Local, right? Super Local is a, if you remember, Foursquare from back in 2011. It's kind of like a Web3 crypto version of Foursquare. It's now on your phone. You don't really need anything to get started. You can earn tokens like right in the app. You know, so we're starting to see like more of this stuff become a lot more accessible. And last thing I'll say is, as the NFT space has grown over the last year and a half, it seems to be converting.
jake_brukhman (47:38.478)
mainstream people into crypto people faster than the NFT space is sort of like coming to mainstream market, if that makes sense, right? So sort of heading for mainstream market, but people are jumping on board and becoming like NFT native before that even happens.
slava (47:54.668)
So if I put you on the spot, which, you know, you don't need to be a Coldplay fan or anything, but when will Coldplay, as an example, be using NFTs for their attendees for concerts? When will you have to, not optional? And give me a quarter in a year.
jake_brukhman (48:01.823)
I'm out.
jake_brukhman (48:08.984)
Um...
jake_brukhman (48:12.342)
Listen, that particular example is very tough because what you're talking about is ticketing. And I think ticketing is like an extremely difficult area to break into for NFTs. I think it's an area that has a lot of pre-existing relationships and contracts with venues and a lot of really monopolistic incumbents. And just like in the music world where the labels
slava (48:18.869)
Yep.
slava (48:37.432)
Absolutely.
jake_brukhman (48:41.478)
traditional labels that kind of like own a lot of like the rights to music and they're not really about to let them go Very soon in the same way. I think ticketing is tough. So that particular use case that you're talking about I think is far off. I think it's like five to ten years off But are there other use cases where we're gonna see NFTs like in the popular mainstream? Absolutely I think record labels are looking at minting album art as NFTs I think
you know, people in real estate are looking to tokenize interests in, in real estate using NFTs, like look at what Proppy is doing. Um, you know, and others, like, I think we're going to see mainstream use cases like over the next two years as web three starts to kind of eat web two in social media, you know, maybe even like physical products a little bit, um, and things like that.
slava (49:36.976)
Awesome. So my last question about NFTs. So we've been seeing volatility right now on the public, you know, blue chip tokens, Ethereum, Bitcoin, et cetera. And at the same time, some of the major NFTs have seen their floors, you know, really start to go down considerably. So like using as, let's see, like board apes, you know, as an example, I think they touched like 70 or something earlier today from, you know, a high floor from.
you know, significantly higher than that, closer to double. What do you think of, you know, the latest news and the latest kind of run on, let's call it the banks, et cetera, and its impact on NFTs, whether it's pricing or adoption? So that's like a very big question, but take it wherever you'd like.
jake_brukhman (50:19.222)
Yeah, so a few things to say. Well, first of all, let's just take a look at 30-day volume. NFT volume has definitely come off, right? So in the last couple months, we've seen kind of 30-day volume be at around 3 billion. Right now, it's like 1.2 billion in the last 30 days. So we're definitely seeing a drop off there. I would say for folks who follow me on Twitter, you might be familiar with the fact that I'm...
I'm a huge antagonist of floor pricing. I think floor pricing is a terrible metric. Floor pricing isn't really pricing. It's sell-off or it's highly manipulable. It's a bad way of summarizing what might be happening in the sales of mid-range or expensive units of that series. So I've written a lot about this. But you're right. There is a drop-off in volume. There is a drop-off in floor pricing. And I've been through enough.
crypto cycles to know that it's just sort of part of the cycle and it will definitely come back. I don't see anything like existential, um, existentially threatening to NFTs that, you know, will kill them or anything like that. It's just people are reacting to market conditions. And by the way, some of our researchers at Metaversal, which is a company in the NFT space that we've incubated and accelerated, like they had an interesting metric the other week where it would, you know, they showed that like
Ether denominated volume was going down in NFT world, especially in Ethereum things, while the number of units sold was actually going up. And so what that would suggest is that people were piling into what they saw as cheap NFT assets to position for the next cycle, while overall market sentiment was going down.
slava (52:11.508)
Great, and closing in towards the end of the conversation, a lot of people are gonna be super impressed with this conversation. Some people will say, I'm not sure if I understood half of it. How do we keep up with what you know? What do you listen to? What do you read? What do you watch? How could we be more like you?
jake_brukhman (52:30.39)
I mean, it's a great question. So obviously follow me and CoinFund on Twitter. So I am at jbrukh, Jbrook, and CoinFund is at coinfund underscore IO. We have a blog, blog.coinfund.io. A lot of our analysts publish tweet threads and articles on mirror.xyz and other places where they talk about areas of the space.
If you're in New York, Boston or Miami, engage your team, or if you come to conferences, engage your team. We have a few sort of like telegram channels if we know you, where we post kind of market color and things like that.
slava (53:12.908)
But anything else that you could share personally that you like to watch, like you personally, that you like to read personally.
jake_brukhman (53:20.086)
Yeah, I appreciate some of the podcasting work that recently has been done by Carly Riley at Overpriced JPEGs. I thought we had a great episode last time around. I definitely have a reading list, but it's quite diverse. I don't know how to summarize it. Sure. Let's see.
slava (53:42.226)
Give us some examples.
jake_brukhman (53:48.298)
What have I been reading lately? I've been reading a lot on AI. So recently, really cool kind of like philosophical posts by Josh Stark called Adams Institutions Blockchains, I thought was really great. And one of our portfolio companies, Orca Protocol, the CEO, Julia Rosenberg, wrote an article called Scaling Trust in DAOs, Trustware versus Socialware.
which was, I thought, like a really awesome positioning for kind of how to think about DAO technology. And if you're interested in sort of like general tech, social media zeitgeist, I highly recommend this post called the Internet of Beefs by Venkatesh Rao, which kind of highlights some of the problems we have in social media and maybe gets us thinking about how we might start to
work past some of those problems using Krypton. That's right, Internet of Beasts.
slava (54:48.844)
beefs like the meat? Okay, great. Awesome, awesome. Well, thank you for sharing that. The last question is we like to put you on the spot, which is what investment would you suggest today for our listeners or yourself or in general that three years from now, when we have you back on the show, that we could talk about how smart of investment you made as an idea or how bad that was. So what would you bet on right now for three years out? And it could be anything in the alternative investment space.
jake_brukhman (55:12.886)
Well, if you...
If you look at the market cap of crypto, more than 90% of it, probably more than 90% of it is explained by base layers. It's Bitcoin, Ethereum, alternative base layers. So it seems to suggest that this is like a really foundational aspect of the space. And so if you were to go long for a long time, it would probably make sense to invest in some base layers. So I would recommend for people who are...
hands off and when I say recommend it's not investment advice, I would say, you know, those are probably things to hold long term.
slava (55:52.044)
So invest in layer ones. I love it. And how many would you put in that basket? Three, five, 20?
jake_brukhman (55:54.507)
I think so.
jake_brukhman (56:00.302)
Not too many. I think if you're going to invest in layer one, make sure it's the one where you have some, some kind of advantage. It's the one where you really understand the tech or you're active in the community or you saw it early or, um, you know, or, you know, the team or like, like great understanding of what you're investing into is going to translate into better longterm results.
slava (56:22.772)
I love it. Thank you so much. This has been an awesome conversation, Jake. We learned so much from you being an innovation investor, being early from 2013 into Bitcoin, volatility as a service. I guess that's what a lot of people want to do when they don't have, you know, casinos. They get to do crypto. And you said instead of a bloodbath, it's an opportunity bath, which is a great perspective. You gave us the three themes you like to look at, which is layer one to layer two, interoperability, NFTs as they continue to expand.
jake_brukhman (56:39.788)
Hahaha
slava (56:50.288)
and AI where it meets crypto and the benefits you can have from that. I love your quote. Have you heard of Ethereum? That was great. Have you heard of ETH? NFTs are challenged right now. The markets have gone from 3 billion in terms of 30 day trading to 1.2 billion, but you still believe in it in the longterm and your bet for the future is definitely a basket of layer ones. Thank you, Jake.
