Interviewee: Haseeb Qureshi

Compilation: Hu Tao, Chain Catcher

Recently, Cobie & Ledger, the host of the encrypted video podcast UpOnly, interviewed DragonflyCapital partner Haseeb Qureshi (hereinafter referred to as QH). A former professional poker player, QH learned to code and became a software engineer at Airbnb before moving into encryption.

Because he often found bugs in encryption projects, QH used to do security research full-time, worked in the stable currency startup company 21/Earn, and then entered the investment field. In this episode, Cobie&Ledger and QH discuss investment theories, development prospects of L1 and L2, emerging trends, etc. The following is Chain Catcher's compilation of this episode of the podcast, with deletions.

UpOnly：You used to be a poker player and also mentioned that a lot of people like you have gone on to become crypto traders, because both are kind of like risky gambling related to math. How do you think the phenomenon of switching from poker players to crypto circles came about?

QH (Haseeb Qureshi, hereinafter referred to as QH):I think both encryption and poker are related to a certain nature of people. Those who become professional poker players have a certain DNA that is willing to try strange things to make money, even if it is not understood by the public, and it does not achieve traditional prestige. These people are naturally attracted to crypto, even if they don't have the skills required to work in the crypto market in the first place.

Of course, the crypto market is also different from poker, and still requires strong professional knowledge. I know there are a lot of poker players trying to break into crypto, but most of them are losing money,But if you can devote almost all of your time to studying, and then get into these weird super freshman communities, then you really have a big advantage and get a foothold.

Of the people I know with a poker background, very few become VCs, and even among professional poker players, most of them end up as traders. VC is more of a team sport, traders are playing it alone, whereas playing poker is one-on-one and no one can give you an idea. It's like an all-vs-all war, and that's what it looks like in crypto.

UpOnly：I know that after 2011, poker games gradually started to be traded in cryptocurrencies, when the crypto market was very early.

QH：Yes, at that time poker players were unbanked, so people had to use bitcoin or some other mechanism to work around that and keep playing. But then, the poker economy has gone from bad to worse.

I think the game of poker is definitely a "zero-sum game". Some people win and some people lose money. Technically, it's a "negative-sum game" in which virtually everyone is slowly losing money.

I started playing poker in 2006, when online poker games were very popular and there were many amateurs. But poker has grown more and more specialized and marginalized.

This means that poker players who are not very good at playing are losing money faster and more. This leads to "overgrazing" in poker, where the game gets worse and worse, and the professionals can no longer make a living from it, so they have to switch.

UpOnly：In your description, people are just slowly losing money over time. The current situation may not be as easy as it was in 2013.

QH：I think every generation of young people has their own "scams" of their generation. If you enter an industry that your parents don't understand or even anger, then you can take advantage of this "marginal" opportunity to earn money. Money.

UpOnly：This point of view is interesting. I would describe it as each generation building its own Ponzi scheme and opting out of the previous generation's Ponzi scheme. The most obvious thing is gold, the new generation may feel that it is a rock, and Crypto punks are more valuable than gold to them. So the topic, "Exit the previous Ponzi scheme, create this new Ponzi scheme." Do you think this is history repeating itself, or is the cryptocurrency revolution different?

QH：I think it's unquestionable that new generations create new and valuable things over time. John Pfeffer once said a line that I really like:I can believe that with Crypto, we've found a way to create new things of value; but I don't believe we've found a way to make things valuable.

I basically agree with this point of view. Most of the time, when you can't articulate why something is valuable, it's probably because you don't understand it enough. But I think for most things in encryption, we can actually articulate why it has value. People are generally pretty bad at this, but that's what I'm after.

As a VC, I sometimes don't understand why anyone would want this thing. If you can't answer this question, it usually means you don't understand it and you probably shouldn't invest. Like the super valuable Crypto Punks, if you try to make some arguments,Even if there are 10,000 answers, obviously the most important reason is that there is a community that takes them seriously.Just like the value of Rolex can far exceed the value of its metal cost, it is because a group of people regard it as a treasure.

The value of Crypto Punks lies in those who are at the forefront of a new generation of crypto elites and wealth frontiers who value this approach. Like, if you want to show off your wealth status, you can go to Instagram and post a picture of you with Tesla, but that's vulgar.

Why don't we have a digitally native way to display our wealth and social status? It's a fundamental part of being human, showing off your wealth to your friends.Humans have a mentality of flaunting their wealth, but this mentality has not been well expressed on the Internet until the emergence of these digital artworks.

UpOnly：Yes, but are they a little ridiculously expensive? How do we distinguish, do they really have this value. In contrast, Rolex prices are relatively static.

QH：The reason I think is that Rolex can be produced all the time, and the quantity is not fixed. If there's a very old and out-of-print Rolex, it's only owned by a Saudi oil tycoon. Such a Rolex is similar to Crypto Punks.

Crypto kitties and Crypto Punks can reflect the real difference, Crypto kitties are more like Rolex, unlimited number. If you want to enter the NFT world, you can hold a Crypto kitties, and the price is not very high now. But if you want a Crypto Punks, you're competing with a Saudi oil tycoon.

UpOnly：Can you talk about some of your biggest mistakes as a crypto VC?

QH：As a long-term investor, we look for people who are really trying to build for the long term, not just trying to get rich quick. One of the things about big cycles in the crypto industry is that it attracts both those trying to get rich quick, and those who really see the fundamental issues, believe in the space, and want to participate long-term. A big part of our job as VCs is finding people who have real ambition and want to build for the long term.

There are many failure cases, some of which can even be said to be painful. Uniswap was one of the most painful things for us last year.At that time, we investigated some Uniswap data and saw that 8 of the top 10 pools had not been profitable since their establishment. We felt that they could not be sustainable, so we completely missed them. We also missed the previous seed rounds of Solana and Terra.

UpOnly：I did a poll on Twitter about "the reasons behind your biggest gains and losses", and the results showed that the biggest gains come from simple spot trading, while the reason for serious losses is more than 50% leveraged trading, etc.

I think people are very short-sighted when they first come in, thinking "I'm late, I have to catch up with them, a lot of people have made billions of dollars, so I have to borrow money and leverage, etc, can't miss it This opportunity" mentality, in fact, you only need to really make one shot, and you don't need to participate in everything.

QH：Not as investment advice, but one thing I have to say is,Diversifying your portfolio is really important, it's at the heart of diversification.If your returns are power-law distributed, then the optimal strategy is to maximize diversification. This is easy to do in a liquid market. Therefore, it is necessary to achieve fewer transactions and increase investment diversity.

I'm not saying that diversification reduces losses because everything is correlated in large market swings, but I do think that diversification can improve returns.Diversification of investments in the traditional market is actually to mitigate the risk. In the encrypted market, the risk can only be mitigated to a certain extent. The effect is not very large, but in fact it will amplify the return.

UpOnly：What do you think of the idea that "the future is multi-chain", and the long-term development potential of current projects and Ethereum.

QH：Now the common goal of various chains may be how to improve scalability. At present, it is roughly divided into EVM compatible chains and non-EVM compatible chains. Some investors believe from the very beginning that the development of performance and tools is very important, and ultimately applies to all programmers.

What needs to be improved most now is the blockchain programming language EVM.EVM was written by Gavin Wood in 2017. Obviously he has no understanding of programming language design or virtual machine design, because the yellow paper of Ethereum is a nightmare, and the EVM design is very bad. But that doesn't matter, it's been over five years and everyone is doing all kinds of important constructive work with it, learning to use it effectively.

So I think it's like we're using javascript or english now, the EVM is going to be the way smart contracts are written, it's always been there, and it's probably going to be iteratively better, and people will find ways to make it more efficient and safer , but it iterates slowly like javaScript. Both Solana and Avalanche are working on their own EVM-compatible networks.

I always think that Layer 1 will eventually win out from existing solutions, including those that bridge Ethereum.They are all trying to do the same things like scalability etc.But in a broad sense, especially in the early days, we don't have a clear understanding of the real needs, and many interoperable things, composability and other architectures may win in the short term.

UpOnly：What are the scalability implications?

QH：When we talk about blockchain, we talk about it as a network, which I don’t think is a good metaphor because it’s very reminiscent of Facebook or Google, etc. These networks are infinitely scalable, but blockchains are not.

Think of the blockchain as a city, and Ethereum is like the capital of the encryption industry, a huge financial center, and then this space will be crowded and expensive, and it can only accommodate rich people. For most people, where to go?

Layer1, Layer2, and interoperability solutions are all different answers to this question. For interoperability solutions, the different projects are different small cities, all with their own neighborhoods, banks, and connected to each other by highway bridges.

The different Layer1 is trying to build a big city outside the capital, which will be completely independent and have its own financial center, and everything will be recreated in an independent city. It is feasible to do this now, such as Polygon and Avalanche, have their own AMM, have their own DeFi, all these things are recreated and separated, the advantage is that it is cheaper and more scalable.

UpOnly：Are there any tracks that you think haven't exploded yet? What is your favorite crypto asset class?

QH：Synthetic assets are not well developed in my opinion, the current transaction volume is very small, and it is not really used. Like Mirror and UMA, none of them are really scaled. We know that the world has a huge demand for U.S. dollars, but many people do not have access to them, so stablecoins have exploded in the past few years.

In addition, I think that as long as there is an oracle machine, any asset can be synthesized, such as buying Tesla stocks, etc., or any financial asset that anyone in the world wants. It's definitely going to be a big blowout, but it's pretty small right now. Most people working in the crypto industry today are speculators. One day you can buy any asset you want with your mobile phone. For me, this is definitely something that will happen, but not yet.

UpOnly：It's going to be interesting to see how it evolves.

QH：Cryptocurrencies have been as global a narrative as Amazon is to retail. DeFi has done the same thing, II believe the fundamental story behind DeFi is to provide opportunities for those who do not have access to the same level of financial services.

UpOnly：How do you understand DeFi and NFT?

QH：NFT pays more attention to consumers than DeFi, and it is a good way for consumers to enter the encryption circle. DeFi is experiencing large scalability issues and hasn't really taken off in the last year.

I think the reason is that there are many people who want to earn income on crypto assets, but not so many people are skilled enough to use DeFi. So there needs to be another layer of front end, whether it's a wallet or a game or something.

Just like Coin98 led many people into the encryption circle, they are consumer-oriented and easier to connect with supervision, and their development speed is slower than that of the DeFi protocol itself. DeFi protocols can keep innovating even if not as many people are using it, so that's the ultimate advantage.

Most of what we see in DeFi was built between 2017 and 2019 when no one cared about it.But that's how innovation develops, people build a bunch of stuff and nobody cares for a while until there's a breakthrough, which then opens up a new layer of users.